I often write answers on Quora, where I am the most viewed writer for investing, wealth and personal finance, with over 227 million views in the last few years.
On the answers below, taken from my online Quora answers, I focus on a range of topics including:
- Is it time to short the FANG stocks after the great run they have been on, and the headwinds coming, including new regulations and taxes? I explain why the growth prospects are still good, which makes shorting a losing game, but you shouldn’t put all your eggs in that basket.
- What kind of mindsets are typical amongst successful people?
- What makes Silicon Valley so special compared to some other places?
- What do most people expect from investing? I speak about three groups of people; the realists, the overly cautious and over optimistic. I explain why realism is the key.
- What is the stock market in simple terms and can a 16-year-old invest in it?
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Firstly, I would say people who are successful are more likely to know what they want.
They are less likely to be influenced by how society, friends and family defines success.
Ultimately, success for Person A might be different to for Person B, and you need to know what you want.
Once you know what you want, focus is key, provided it is focus for the long-term (persistence).
Knowing what you want, and going after it in a focused and persistent way is one of the keys to success.
The mindset behind that is never giving up and not caring too much about what other people think, and not allowing criticisms to hold you back.
Wasting time worrying about what random people think is pointless and a lot of the criticisms are emotional, as this quote says:
Beyond that some other commonalities are
- Successful people are less likely to blame other people for their situation and more likely to take personal responsibility.
- They are less likely to be envious. Many people criticise rich people but want to be rich themselves. Many people criticise the smartest kid in the class, but want to be more intelligent or able themselves.
- People who are successful are also more focused on their personal mental and physical health.
- People who become financially successful aren’t always 100% focused on the money on day one. They are more likely to focus on solving problems for others and monetising that.
- Successful people are more likely to focus on the long-term and delay gratification
- People who reach financial success are more likely to think “what can this money earn me” (long-term focus again), rather than “what can this money buy me”. Most people think “how would I spend a lottery win” and not “how could I invest this to produce regular cashflow”.
- A growth and abundance mindset. Successful know there is plenty of money and opportunities to go around in the world. That is very different to a fixed mindset.
- More successful people are just as motivated by gaining something as losing something. Most people play it safe for fear of losing. That can manifest itself in preferring to save rather than invest, because saving removes the worst case scenario. That can also manifest itself in not changing jobs, cities or making any worthwhile change. The best things happen when you get out of your comfort zone. That doesn’t mean taking silly risks, but calculated risk taking is key.
- Successful people are more likely to break norms and be mavericks. Abnormal actions are more likely to have abnormally good results.
- Successful people are more likely to be grateful but also increase their ambitions and never be 100% satisfied. You see this in sport. Some people go on a “celebration binge” after every victory. Others just move onto the new challenge.
This isn’t an extensive list of course.
Imagine it is the year 2003 or 2005. The founders of Instagram and Facebook came onto the Dragon’s Den (the equivalent of Shark Tank in the US) in the UK and especially a place like France or Italy.
What’s the idea, the “dragons” ask? Well, an online photo album, says the founders of InstaGram.
It is a place to add friends says Zuckerberg. So how will you make money, ask the dragons.
Well from advertisement revenue. Could you imagine how much laughter there would have been at the idea that these firms could become billionaire, or even trillion, dollar companies?
In the US, and especially Silicon Valley, there were people who were crazy enough to invest into these start ups before they became public companies.
There is no way Zuckerberg and the like would have been able to raise even half the money had they been in the UK.
In Italy, France and some mainland European countries they might not have raised 20% of what they did in the US.
Some Asian cities like Shenzhen in China are trying to learn from this risk taking culture.
Like anything though, there are negatives about this. Silicon Valley is full of venture capital money.
There are some people calling themselves private businesspeople who have never grown a company organically.
They are just focused on raising money with only a small percentage becoming successful.
The high taxes and regulations, moreover, could kill the golden goose, as we are seeing with the exodus from California.
Yet the basic point still holds.
This very much depends on the person and how realistic there are.
There are broadly a few categories of people.
- The ultra conservative
These people just want to preserve what they have by beating inflation.
Some of these people are too cautious and have a high allocation to government bonds over stocks.
A percentage of ultra conservative investors who are new to the market are actually surprised when they realise how much stocks have grown on average over time.
2. The ultra adventurous
On the other end of the extreme we have people who see the stock market as a get rich quick scheme.
Because stocks like Tesla have done 700% in recent years, they think it will always be easy to make such money.
These people tend to come in, and out, of the market. They come in during times like the 1990s and now, especially when it comes to Tech stocks:
They get out during 2000–2010, and especially 2008–2009, and early 2020 during the early stages of Covid.
3. The realistic
These people know that stock markets have performed excellently over time.
The S&P500 has done 11% since 1945, if dividends were reinvested, which is about 7.5% after inflation.
This does result in a strong possibility of getting wealthy, or even very wealthy, slowly from investing, as the compounded returns are incredible.
This group of people also tend to “know the score”, and understand that some years and decades will give much better than average returns, with other periods giving sub par returns.
Yet timing the market is fruitless.
The last group of people tend to outperform the first two groups long-term.
I wouldn’t short the FAANG stocks for the following reasons:
- Shorting is high-risk full stop for any asset class, and especially for ammeter investors. Yes, you can make a lot of money short-term, but it isn’t easy to do it long-term
- There is a huge growth story when it comes to technology. Yes there are headwinds. The stocks are already highly valued and there could be heavy regulation coming, anti-monopoly laws and anti-competition rules. Yet there are also very strong indicators as well. We are fast moving into a fully digital world. There are still billions of people globally who aren’t on the internet or shopping online, the global population is increasing and getting richer over time. Coronavirus has stalled the later point, but it won’t forever. Now we have 7.8 billion people. We will probably see 9billion-11billion before the global population peaks. A higher percentage of them will have more money than now as well, with almost everybody (one day) doing more things online.
- We don’t know, for certain, how long lockdowns and especially restrictions will last in many countries. We also don’t know how consumer behaviour will change after the restrictions are fully lifted. There are too many unknown variables to short these firms that are making so much during the pandemic.
- Almost everybody I know who has became wealthy from investing has done it without shorting.
That doesn’t mean that everybody should put all their eggs in the FAANG stocks or even something like the Nasdaq.
One day there will be newer, leaner firms, that will take over from these big boys.
The past is filled with examples of firms that seemed ever so powerful, who went out of business or needed government bailouts.
GE is one example. Even Apple themselves almost went bust after getting quite big in the 1980s.
Lehman Brothers would be another example, even though they never got close to GE’s size of course.
All of this means that having an allocation to tech makes sense, but not putting all your eggs in that basket.
I certainly wouldn’t short it though, even though there is a chance it could be profitable.
The likely risk:reward ratio isn’t good.
The stock market is where people come together to buy and sell shares in the largest publicly owned companies in the world.
Most companies are privately owned. If you start your own business, you can’t put it on the stock market overnight of course.
In privately owned companies the owner usually owns 100% of the shares, or 50% if he or she has a partner, or sometimes less.
In comparison, a publicly owned company’s shares are sold to the public.
If you buy Amazon’s shares, you are owning a small fraction of the company.
If you buy the S&P500 index, which measures the stock performance of 500 of the largest companies listed on stock exchanges in the United States, you are buying a small percentage of those 500 firms.
In most countries, you can’t invest at 16, but you can indirectly, if your parents open up an account for you.
It is better to wait until you are 18, and start by reading in the next two years.
I would recommend some of these books:
- 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
2. Burton Malkiel and Charles Ellis. The Elements of Investing
3. Larry Swedroe. The Only Guide to an Investment Strategy You’ll Ever Need
Larry Swedroe. The Quest For Alpha: The Holy Grail of Investing
4. John Bogle, The Little Book of Common Sense Investing : Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)
5. William Bernstein. The four pillars of investing.
6. John Bogle’s “The Clash of the Cultures”
7.Lawrence Cunningham. The Essays of Warren Buffett: Lessons for Corporate America, Second Edition
8. “Security Analysis” by Benjamin Graham
9. Benjamin Graham’s “Intelligent Investor.”
10. Carl Richards, The Behavior Gap, Simple Ways to Stop Doing Dumb Things with Your Money.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 227 million answers views on Quora.com and a widely sold book on Amazon.
In the article below, taken from my online Quora answers, I answered reader questions on the following topics:
- Does Jeff Bezos “deserve” to be a trillionaire one day or is that the wrong question?
- Can somebody become a billionaire from investing in the stock market?
- Are opportunities to become rich and wealthy increasing or decreasing?
- Could the US Stock Market eventually collapse like Syria’s and some other countries?
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