In this blog I will list some of my top Quora answers for the last few days.
These questions included readers asking me about global poverty, the best investing books and why (some) poor people blame “the rich” for their problems.
If you want me to answer any questions on Quora or YouTube, don’t hesitate to contact me.
How will the coronavirus pandemic impact global poverty?
It might affect global poverty a lot, especially if more countries become protectionist.
Most of the newly rich countries (South Korea, UAE etc) and mid-income countries (China, Thailand as two examples) only got out of poverty due to trading…..not aid.
We shouldn’t forget that the general trend has been excellent since 1945 as the graph below shows.
In 1945, about half the world’s population lived on less than $2 a day, adjusted for inflation.
So, it could go up a bit, only to fall again. In 2040, I don’t expect global absolute poverty to be higher than now. It will probably be lower but nobody knows for sure.
What might shock people is poverty in developed markets. In many developed countries, people have lost the saving habit.
Many people have taken advantage of very low interest rates and therefore became leveraged.
I was reading an article speaking about middle-class people in the UK using food banks.
The point the article made is that many of the people using food banks have never needed them before.
Some of the people surveyed were earning 60k-80k in household income, which is higher than the average household income in most parts of the UK.
The reason they needed help was simple. Those that have been put on the Furlough scheme have been put on 80% of their wages.
If you were previously earning 80k as a family, and budgeted for 80k with no room to breathe, then a 20% reduction can put you into poverty.
That is especially the case if you can’t change some of the fixed costs like a mortgage, car payments and general bills.
I think that is one of the reasons why the help packages in Europe have been so generous.
If the help wasn’t there, there would be loads of middle and even upper-middle income families, that would be in poverty.
Shows that people should budget for hard times as well as good times, regardless of income.
The point is that poverty isn’t an income problem alone. Income is a huge contributor, but it isn’t the whole story.
Why do poor people blame rich people for their problems?
It is a great question as it gets to the heart of a few things including values.
Firstly though, I don’t everybody who is poor or middle-class blames the “rich” for their problems.
There are plenty of people on all ends of the financial spectrum that have different values.
I have met countless people who are poor and don’t blame the rich for their problems and guess what…..they are more likely to improve their life conditions over time.
I was thinking about this a few months ago. When I look back at my university days, most of us were poor, at least relatively.
Yet those that were pro making money, and pro-capitalist and taking personal responsibility, were more likely to make money after 25 or 30.
Those that were very anti-capitalist and anti “the rich” were more likely to become poor or even unemployed.
The only ones doing relatively well went on to work in the public sector which is ironic.
The point is, your thoughts and actions have a huge affect on your life.
If you think that the “game is rigged” then you will probably not do as well as somebody who assumes that they can change their situation.
The reason is simple. People who think the game is rigged are less likely to:
- Even try hard. At most, they might try hard and become political campaigners rather than try hard on improving their own situation
- Give up after trying hard for a short-time
The last one is key as well. Very few successful people in any domain get success handed to them.
We all see the end result but this can be the journey:
I will give you a great example of this. At least 30% of the high-income or wealth people I know in their 30s or 40s took big risks in their 20s.
Many took commission-only job, emigrated or started their own businesses.
Now, they are very comfortable or even “rich”. People who get to meet them now don’t see the journey.
Many (wrongly) assume that they had it easy or inherited the money.
All the late nights, worrying about money, not knowing where the next sale in business is coming from or if the risk will pay off.
Most of them were earning far less art 22, 24 or 25 than the person who took the easy option after graduation.
Yet (some) people don’t want to hear that. It is far easier to blame other people for problems (richer people, immigrants and even our family) than facing up to our own choices.
Beyond that, I think that people are more likely to associate with people more like them.
That has always been the case. It is human nature to feel closer to people who are more like us.
Yet in the social media age, you can find an echo chamber. Therefore, if you want to spend 8 hours reading forums about conspiracy theories about “the rich’, you can do.
Yet other people can spend that time seeking to actually improve their lot in life.
As a final comment, I would say it depends on the country people live in.
A great example of this would be the fact that the vast majority of people I have met in Eastern Europe, Cambodia, China and other countries that have suffered in living memory from extreme egalitarian policies, realise that “regulating the rich” isn’t the answer.
If you , or your family, have actually lived during an extreme experiment like that, it makes you more sceptical about governments than private individuals.
I want to start getting into investing in stocks. What are some good book recommendations that will teach me how to invest more effectively?
It depends on:
- What you want to achieve
- Are you just looking for pure investing books or also those that are analysing financial planning and “behavioural finance”. In other words, why do people do stupid things with their money, even if they know it is silly?
- What your current level is
Anyway here are some books:
- Your money and your brain (below)
- Paul Farrell – The Lazy Person’s Guide to Investing: A Book for Procrastinators, the Financially Challenged, and Everyone Who Worries About Dealing With Their Money
- Burton Malkiel and Charles Ellis. The Elements of Investing
- The millionaire next door, Thomas Stanley
- Stop Acting Rich. Thomas Stanley
- Larry Swedroe. The Only Guide to an Investment Strategy You’ll Ever Need
- Larry Swedroe. The Quest For Alpha: The Holy Grail of Investing
- John Bogle, The Little Book of Common Sense Investing : Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)
- William Bernstein. The four pillars of investing
- John Bogle’s “The Clash of the Cultures”
- .Lawrence Cunningham. The Essays of Warren Buffett: Lessons for Corporate America, Second Edition
- “Security Analysis” by Benjamin Graham
- . Benjamin Graham’s “Intelligent Investor.”
14 Carl Richards, The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Your Money.
I would also look at MoringStar’s “mind the gap report” and Vanguard’s reports on advisors alpha – https://www.vanguard.co.uk/documents/adv/literature/adviser-alpha-brief.pdf
They really show why many do it yourself (DIY) investors fail…..even some with a decent amount of knowledge.
There are plenty of good blogs and podcasts as well, but you need to see the woods from the trees.
What kind of job should I start as a 27-year-old with no experience?
It depends on your skills, experiences and personality traits. However, I won’t sit on the fence completely.
There is something that few people consider. Namely, few consider the importance of being paid on results (and not time) when you are young enough not to have kids or a family.
When I look at the people in my network that are in their late 20s and 30s, most of the high-income people are either:
- People who got into top legal, financial and consulting firms in their 20s and worked their way up. So, the traditional graduate scheme route whereby 1 person in 500 will be accepted for Goldman Sachs and then 1/3 of those will be promoted sufficiently by their late 20s. It is hard, but not impossible, to get into these firms when you are 27–28 and don’t have much experience.
- This group of people could be called the risk takers. Those that took the risk to be paid on performance. This could mean starting their own business, being paid on commission or mainly on commission and bonuses or having a side business alongside a full-time job. Often times, these people struggled for many years, until succeeding, often needing to try 2–3 jobs before 1 worked. This group of people includes recruiters, real estate agents and other performance-related jobs. I would also put into this group people who had the balls to emigrate when they were young.
The point is, you have a unique opportunity now, assuming you don’t have kids or a family.
You can probably still live on a relatively small amount of money if you put your mind to it.
If it takes you three or four years to succeed, or you fail, it won’t matter that much at 40.
So, I would be willing to play the long game. Find something you are good at, which isn’t based on selling your time for money.
Be willing to struggle for a few years, and see if you can succeed.
If you make the hard choices when you are young enough to take calculated risks, you will often have an easier life long-term.
Most people play it safe even when they don’t have much to lose.
How can I turn 100 dollars to 12,000 dollars in the stock market?
Consider two things for a moment:
- What has been the average return of the stock market?
- What has been the average return of the world’s best investors?
For number 1, it depends on what stock markets you are looking at.
US Stock Markets have performed best, average 10% per year (6.5% after inflation) or 11%-12% in the case of the Nasdaq.
That is assuming that dividends have been reinvested and that you keep investing for decades, rather than giving up after a bad period for the markets.
For question two, even some of the best investors have “only” averaged 20%-25% per year.
Until about 10 years ago, Berkshire Hathaway was one of the few stocks that regularly beat the market as the graph below shows:
We will see if Netflix, Amazon et al will match that kind of long-term over-performance for decades to come.
The point is, that making incredible returns in the stock market every year isn’t easy.
90%-99% of people don’t beat the market. The Berkshire Hathaway’s of this world are few and far between, and it often isn’t obvious in advance.
So, you have a number of choices to turn $100 into $12,000. You can either:
- Invest it into the indexes for an incredibly long time. If you start at 18 and retire at 70, then you will be amazed how compounding will work, even adjusted to inflation.
- Invest for an incredibly long-term and also add some amounts every month or year
- Take a huge risk “betting” on one company, or speculating on another asset, in the hope that it outperforms.
The first two options are real investing. The last option is speculation which may or may not pay off.
The biggest mistake would be to assume that it is easy to turn 100 until $12,000 in 1–2 years.
If it was that easy, then everybody would do it.
What could the new lockdowns in Europe and impressive US GDP numbers mean for your money, markets and the economy?
I discuss that further in the video below.