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In this blog I will list some of my top Quora answers for the last few days. 

If you want me to answer any questions on Quora or Youtube, don’t hesitate to contact me.

Is it a good idea to keep holding stocks forever as an investor or is it good to sell them occasionally and make profits to reinvest?

Source: Quora

Buying and holding forever works if you have a long-term objective like retirement, for countless reasons.

Trying to time the top, and pick the bottom, doesn’t work long-term. You will pay more in taxes in some countries, accumulate more costs and get some of the “times” wrong.

What does work though is rebalancing. If you hold both stocks and bonds forever, it still makes sense to rebalance from one to the other.

This is especially the case if an extreme event happens, for example, in 2008–2009 or March 2020.

This isn’t trying to market time. It is merely to make sure your positions are aligned with your initial asset allocation.

Let’s give a simple example.

  1. In January 1, 2019, your account is worth $100,000. $80,000 in an index like the S&P500 and 20% in short-term bonds. The S&P500 did 30% last year and most bond indexes 1%-2%. So by January 1, 2020, your $80,000 would be worth about $104,000, with bonds worth about $20,400. So now you have $124,400, but only 16.39% ($20,400) is in bonds. So maintain the 80%-20% balance, you either need to add $4,480 in cash to bonds or sell some of the stocks ($4,480 worth). So now you have rebalanced. $99,520 is now in stocks and $24,880 in bonds.
  2. Then March comes along and stocks fall 50% from late February until the middle of March. So your stocks would be worth about $50,000. But short-term government bonds went up. So $24,880 would now be worth about $25,500. The bonds are now worth 33.22% of your portfolio at the height of the crisis. 80% of $74,880 = $59,840. So you need to add $9,840 in cash or sell $9,840 of bonds.
  3. You rebalance again. $59,904 is in stocks and $14,976 is in bonds. Stocks have subsequently risen by about 55% from the bottom. You now have about $93,000 in stocks and about $15,000 in bonds. You are higher than you were in January 1, 2020, and have taken advantage of a market fall without keeping money in cash.

With that being said, Vanguard did a study, and they found a 100% stock portfolio beats 80%-20%, and 80%-20% beats 60%-40%.

main qimg baaf815b6e440b5697eeefcc65925e90

So if you investment time horizon is long enough, being 90%-100% in stocks and waiting out any crisis is fine.

If you have a 5, or even 10–15 year time horizon due to age or any number of issues, being in both stocks and bonds makes sense.

Rebalancing reduces risks in this case and as you can see, 80%-20% doesn’t significantly reduce the returns.

The only thing which has changed since this time period (1926–2018) is bond returns.

Bonds used to pay as much as 6% (3.5% after inflation) vs 10% (6.5% real) for US Stock Markets over the ultra long-term.

They now pay much less of course, and the difference between stock and bond returns has widened.

So it could be expected that in the next 50 years, these results will change considerably.

Is technical analysis overrated?

Source: Quora

It is more mis-used perhaps than overrated. In general though, I think the technical aspects of finance can be overrated, and not just technical analysis.

There is a saying that 80% of life is just turning up, or 80% of success is just turning up. Investing is very much similar. 80% is just doing the right thing.

Often times, people who see themselves as too clever for their own good, actually underperform in investing, because they get involved in analysis paralysis.

Let me show you some incredible statistics to illustrate what I am speaking about:

  1. A noble prize winning economist in portfolio theory was challenged as to why he didn’t follow his own model portfolios as the book below stated. His response? He knows he is acting irrationally but he found he couldn’t deal emotional with market falls, even though rational he knows markets will come back. So he maintained a much more conservative asset allocation than he knows is rational.
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2. In my network, people who consider themselves professional finance “experts’ underperform those that just invest and forget. I will give you a perfect example. A few years ago, many of the people in my network who work at banks, hedge funds and other institutions put money into emerging markets and European ones like the UK Stock Market. The reason? On various measures, including p/e, those markets looked cheaper than the US Dow Jones, S&P500 and Nasdaq. The result? Fast forward to 2020 and they would have been better doing nothing! That doesn’t mean they will always be wrong with their technical analysis. Sometimes they will get it right. However, markets aren’t always efficient but they sure aren’t stupid either! So the fact that those markets looked cheap is for a reason.

3. People who never login to their investment accounts tend to outperform even experts in finance.

4. The dead, and those that forget about their investments, vastly outperform almost all living people because they buy and forget by definition! A few months ago I spoke to a long-term friend who works at a bank. He has about 5 different investment accounts. What was the best performing account? The one which was set up years ago, which was so small that he forget about it, and didn’t worry about!

5. Only about 20% of people beat the stock market by stock pricing over 5 years. About 2%-5% after 50 years adjusted for things like taxes and costs. As time is going on, beating the market is getting progressively more difficult.

6. Watching the average guest on CNBC and Bloomberg has been shown to be a losing strategy long-term by academics that have studied this subject and they do nothing else but analyse!

7. It is easy for people to speculate about what other speculators are speculating about, to quote Vanguard Founder Jack Bogle.

8. Almost all the sustainably wealthy people in my network have either gotten wealthy through business, or they have just purchased assets for decades whilst doing close to zero analysis, apart from the fact that being long-term and diversified (stocks and bonds) is the most profitable strategy.

So, it isn’t that technical analysis doesn’t have its place, for a very small number of professional investors.

It is more that markets have gone up long-term. They started 1900 at 60 in the case of the Dow, hit 2,000 in 1990 and 29,000 this year.

So, the major reason people lose money in the markets is emotions. Panic selling and getting too excited by the good times.

People are far better off just investing every month and forgetting about it.

What percentage of today’s millionaires would still be a millionaire if social media didn’t exist?

Source: Quora

I don’t know the exact figures, but I imagine you would see two trends:

  1. The younger the millionaire = the more likely they have gotten wealthy by social media. That list includes influencers and people who use it for business. Being good on social media now, is a bit like being good at calling people in the 1950s. There are some older people who have gotten rich from social media as well of course. Ultimately, the vast majority of people who are wealthy in their 20s or even early 30s either are paid on results (they own their own business, do affiliate marketing or something similar online, are paid on commission etc), have inherited money, married into wealth or have gone into high flying corporate careers like law, consulting and so forth.
  2. The numbers are increasing every year. 15 years ago, the number of millionaires who attribute their success to social media must have been 1% or less. These days it wouldn’t surprise me if the number is 10x. By 2030, that number will surely increase. Having said that, social media and the internet aren’t always the same thing. The number of people who got rich off SEO and being on the first page of Google when it wasn’t competitive in the 2000s was incredible. That was when Google looked more like this and more people used Yahoo…..
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We do have to make a distinction between wealth and income though.

Even if somebody is 100% dependent on social media for their income, being banned would affect their future income more than wealth.

After YouTube banned some of their biggest stars for controversy, that simply affected earnings for some time, before they found other platforms.

They didn’t have the power to claw back past earnings of course, which may have been used to buy assets (wealth).

As some of the other contributors have said, the majority of millionaires have focused on investing steadily through their lives.

Many are middle-aged and middle-income, and they have gotten rich slowly by investing.

Getting rich slowly is something almost anybody in a developed country can do, provided the process of wealth accumulation starts at a young age.

A more aggressive strategy sometimes requires a more risky approach.

So, for those that want to get richer at a younger age, being paid on results is one of the riskier, but tried and tested ways, to give yourself a better chance.

That is where social media has came in. It has given businesses the chances to scale more easily, and individuals the chance to accumulate income and wealth more quickly.

It is just much more competitive than it was 10–15 years ago, and will continue to get more competitive.

That does mean that most people will give up too soon though, once they don’t see the results.

The absolute bottom line is you can’t scale time. We only have 24 hours in a day, a maximum of 20 hours after sleeping.

You can scale by adding more people (the old fashioned way of doing business), or by using social media and technology beyond social media.

That is why so many people are interested in it, and technology-focused firms big and small can grow more quickly.

What are some frugal tips to help you live a richer life?

Source: Quora

Anything which saves you money, whilst simultaneously improving your quality of life.

Examples include

  1. Cycling and walking more, especially if you enjoy it, and taking the car out less often.
  2. Moving to another city in your home country, or emigrating, if you can find lower costs for the same quality. Or for that matter, the same costs but lower tax bills
  3. Following on from point 2, in some countries tax-efficiency can help you as well. In many cases this means reducing your taxable income, and using tax-deductible spending as much as possible.
  4. Never trying to impress anybody with your spending. As the saying goes, “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like”. This quotes sums it up too:
main qimg c4bb86054ed498f3e660ddac9864fc16

5. Use own brand names more rather than brand names. Many people can’t tell the difference in a taste test.

6. Spend more on experiences and less on things. Memories last longer, whereas things get old quickly. This is especially the case with new experiences, regardless of how much (or little) you spend on them.

7. Reading and other cultural activities can be cheap and free, as can museums and natural scenery in many countries.

8. Quitting smoking and some other unhealthy habits is a win-win for health and money.

9. Get rid of toxic “friends” and be more selective. Often this can reduce spending without even knowing.

10. Use cash more than card. Doing this can reduce spending by up to 5% without even needing to budget. It is all just subconscious.

Having a balance is good, but lockdown made many people realise what they really miss and what they don’t.

Many things are bought either out of habit, or due to peer pressure.

That is especially the case for younger people.

What do investors underestimate often?

Source: Quora

Below is a graph of the South African Rand against the USD:

main qimg 1b56e576a3cf8aa73ee80c894e5c55c8

I could have picked many other currencies, including the British Pound.

Below is the average real interest rates in the UK:

main qimg a56fdcf7d335ec802608dcba78d4e55c

What you can see is historically interest rates were higher than inflation, even in the 2000s.

Cash might not have paid a lot in most years, but it did pay over the rate of inflation.

The only exceptions were periods like the big oil price spike, which only lasted a few years.

Since 2008, interest rates have been below inflation in most developed countries.

When you factor in currency depreciation + inflation risks, you are dealing with a lot of risk.

I have ran out of the number of expat Brits, South Africans and others who have worked out that they have lost over 50% of their real-terms cash value to these factors, over a 12–13 year period.

It creeps up on people as well. People don’t notice it most years.

If you put 100,000 in the bank and it is worth 100,100 next year, and inflation is running at 2%, you might not even notice it.

Over 10–15 years, you will. So the risk is always there, but creeps up on people gradually.

So inflation and currency depreciation is the silent killer of wealth, because it takes its time to gradually eat into wealth.

Other things investors tend to underestimate are:

  1. How well markets have performed, long-term, compared to other assets
  2. How short most bear markets have been historically
  3. How little you need to invest to become a millionaire investing in the markets
  4. How many risks investments like gold, silver and certain types of real estate have, if they aren’t managed well.
  5. How more volatile assets can be more stable and safe long-term, and why some non volatile assets can fail. That is partly linked to the point on cash, but it also applies to some risky fixed return investments.

In terms of overestimate, most newbie investors overestimate how risky markets are.

Due to the media, few make a distinction between short and long term, owning individual stocks and the whole market (index funds and ETFs).

So owning just one individual stock, or even an index fund for just 2 years, is risky.

Owning the whole market (bond and stock market) for decades isn’t very risky at all.

It is actually a very cautious strategy.

Is Nikola stock a scam?

Source: Quora

The word scam is overused these days. Originally it was meant to mean a fraudulent thing.

These days, it seems to mean something which isn’t a good deal, or doesn’t match up to its potential.

A stock can’t be a fraud in the literal sense of the word, unless it is doing something like Enron did, and is cooking the books:

main qimg 644aa836e91c4e3cbf211a20282823ff

That is because all of the data is available to the public, assuming those 1/10,000 cases like Enron, where they were cooking the books.

Based on that data, it is up to you whether you invest or not. So, it is highly improbable that the stock is literally a scam.

I am going to assume you are speaking about a scam in the non-literal sense of the word.

In that case, I can’t say for sure whether Nikola is a good buy. I haven’t analysed the stock.

What I can say is that most DIY investors, over 95% in fact, won’t beat the S&P500 over a career by stock picking.

So, I would stock pick with maximum 10% of your portfolio. That way, it won’t really matter if Nikola or another stock is a winner, or loser.

It will satisfy the gambling bug which is inside most of us, without being destructive to your portfolio.

Ideally as well, if you really want to buy individual stocks and not the market, the focus should be on cashflow.

Potential, and future values, are a speculation. In comparison, what a company is making now and for the last 3 years, is a matter of fact.

What does it take to reach a net worth of $10M+? Is it possible for a skilled professional earning $200-500k to reach this level through a modest lifestyle and wise investments, but no significant liquidation events (e.g. selling company, IPO)?

Source: Quora

It depends on the following things:

  1. How quickly you start investing + how long you invest for
  2. What you invest in
  3. How the markets perform on average during that period, or the investment you are in
  4. Your after tax earnings + where you live. Where you live will affect your surplus after spending and tax rates. In some parts of the world you can live a good life on 500k and invest 450k. In some other countries, taxes take 50% and cost of living 50% of the remaining 50%, leaving you with 25%!

Let’s deal with some obvious things first. If the money is only in cash it is very hard to get to $10m.

$100,000 invested for 30 years getting 1% interest = $3.5m. Assuming inflation is 2%-3%, it would be even lower.

So you can’t get to $10m being in cash, even in nominal terms, unless you can afford to “invest” $200,000+ for a period of over 35 years.

That is unlikely as most high earners, like celebrities, businesspeople and executives, have a shelve life. Few maintain high earners forever.

Assuming you invest in a mixed portfolio of stocks and bonds, it depends what kind of asset allocation you are looking for.

Historically markets have done 4%-7% after inflation, depending on the market, and 7%-10% in nominal terms. Bonds now do less.

So let’s say you have a mixed portfolio and get a conservative 6% per year average, which is 4% below the historical return of the three main US Stock Markets.

In that situation it would take 33 years, based on investing 100k a year and 25 years based on 170k.

Of course, if you don’t give a damn about volatility, and you can be more aggressive, you might get there sooner.

If you had invested $200,000 in US stocks markets every year from 2009 until covid, you would already be half way there.

Of course though, you can’t control markets, and nobody knows which years will be better than others.

The thing is, compounding doesn’t work in a simple manner, unlike those compound interest tables at school.

The Nasdaq has easily been the best performing stock market since the 1990s, and even 1999.

However, if you would have bought the Nasdaq in 1999, it would have taken 14–15 years for you to recover your money, assuming you didn’t add fresh money:

main qimg 0757211ecbb918531a6b280d845f04d4

Therefore, the safest thing is to invest every month or quarter for a period of decades, and never panic during market downturns.

So, the answer to your question is yes, but the easiest way is not to worry about things you can’t control like how markets perform.

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