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Top Quora Answers This Week – Part 1

This article will list some of my top Quora answers this week which were asked by readers.

If you want me to answer any questions in the future, don’t hesitate to contact me.

Is getting a university degree useless nowadays?

Source: Quora

I have lived in numerous countries. In at least half of them, I was asked to provide evidence of having a university education to be admitted.

I wasn’t asked to specify my grade though. A pass, 2:2, 2:1 or 1 (UK grading system) made no difference.

I just needed to show the certificate, alongside things like taking a medical test, to get in.

Even business owners that set up companies overseas are often required to show proof of a university education.

So it does open up doors, especially if you want to live and work overseas.

I am not saying you can’t emigrate if you don’t have a university education, but having a degree makes it much easier.

So I don’t think it is useless at all. However, as more and more people are going to university, the following things are becoming more important:

  1. What you study
  2. Where you study
  3. Your grade

If you get a 1 from Oxford in law, that isn’t the same thing as getting a pass from a lower-level university.

The most important things young people can do are:

  1. Self-Education alongside formal education. Learning things outside of the classroom are key
  2. Getting work experience alongside having a degree.
  3. Getting life experience alongside having a degree.
  4. See university as the start of the learning process, not the end
  5. Understand that “learning to learn” at university is more key than learning to play to the test. If you learn how to learn it can help you learns after.
  6. Take calculated risks. That might mean emigrating if the job situation is bad in your country, or it could mean picking a slightly different career path than you expected.
  7. Learn skills that will be transferable in many careers. For example, communication. Communication is key regardless of whether you want to go into marketing, sales, run your own business, be a teacher or translator.

One thing I am sure about is education in general (including most professional qualifications) isn’t very efficient.

So certainly don’t put all your eggs in the formula education basket.

Diversify your risk. The person who comes out of university at 23 speaking 4 languages, with 1–2 years work experience has a much better chance than somebody only relying on the results of their degree.

More times than not, don’t wealthy parents perpetuate wealthy offspring as do poor parents perpetuate poor offspring? How do we stop this cycle of wealth inequality?

Source: Quora

Theoretically, it should only be a huge advantage to have wealthy parents, and there shouldn’t be many disadvantages.

The reason is simple. An initial advantage should compound. This book spoke about it in detail:

main qimg 2fe1a89b7bbc62f0cfea3ff13e5bd6d2

One of the simplest examples the book gave was school starting ages.

If your kid is one of the older ones at age 4–5 when they start school they have a huge advantage over somebody born in May or June.

The reason is simple. At age 5, being 8 months older is close to 20% more life on earth!

Many teachers will assume these kids are working harder and focus on them more.

The kids who are younger might lose confidence and that initial advantage is compounded.

Even at 16 and 18, we can see kids that got that initial advantage are more likely to succeed in the school system.

So back to your question, kids of wealthy parents have access to advantages such as

  • Capital
  • Contacts
  • Experience
  • Habits that have made their parents successful

So theoretically, that initial advantage should keep compounding “forever”.

What we see instead, however, is that wealth seldom lasts three generations or more as this old Chinese saying goes:

main qimg e74d5f15993f1604b5e35c9f544122f7

Occasionally it lasts much longer than three generations, as we can see with royal families in Europe.

It is the exception and not the rule though, because a combination of complacency, arrogance, lack of hunger for more success and only knowing how to spend money and not manage it, often leads to grandkids of the rich losing the money.

Even families that lose money due to events like war, famine, hyperinflation (Zimbabwe and others recently) have only usually lost the money because of complacency.

They didn’t ask the right questions, such as, “what will happen if X and Y event takes place. How can we prepare now”.

So the cycle of wealth inequality doesn’t last forever. It goes in cycles.

Inequality was rising until WW1, then fell for decades. It started rising again after the end of the Cold War.

Long-term, the best thing the school system can do is teach kids from poorer backgrounds about money management.

Wealthy people are more likely to invest money, and not save it. That is one of the biggest reasons for more inequality over time.

It was the central thesis of this famous book by the French academic Pikketty:

main qimg 5bab8566e96336a1ed30b9c52e5db8f7

Essentially wages have historically increased by inflation +2% over the long-term but some assets, like the stock market, have done inflation +5% or even inflation +6.5% in the case of US stock market.

So long-term assets do better than wage growth. Over 50 years this makes a huge difference due to compounding.

Yet most people are bought up assuming that you need to learn loads of skills to get a good job.

In fact, owning capital either as a business owner or as a salaried worker (having investments on the side) is one of the key ways to break the cycle of poverty in a family.

If people are therefore taught fairly basic concepts early in school in a fun way, such as how much easier it is to build up a 1m-2m nest egg if you start investing earlier, that will help a lot.

Too many people think investing, or running your own business, is for elites.

In other words, you need to have a high income before you start investing, which isn’t true.

In fact, those that start early enough can get wealthy without ever having earned that much in their lives.

The key is compounding. All decisions we make, whether to do with investing, business or career, compound over time.

So habits are key. In the same way it is possible to lose a lot of weight by making small changes every day, the same thing is true of wealth and breaking inequality.

Habits are best learned early at schools.

What Warren Buffett advice do you follow?

Source: Quora

Most of his advice is pretty good for ordinary investors and people.

Many people who have gotten super rich assume that everybody else can learn from their habits.

Buffett says something which is hard for most people to take but so true.

Namely, most people don’t have the skills to do things like pick the best stocks long-term.

So whilst he has gotten rich (partly) by picking winning businesses and stocks, most people don’t have the skills needed to do that.

At least most people don’t have the skills to do it consistently, over decades.

So for the lions share of people, they would be better off buying the indexes, or having 90% in the indexes and picking stocks with 10% of their portfolio.

Apart from that his best advice is:

  1. Invest in yourself. Learn accounting, communication , marketing or any skills that will affect how much money you earn
  2. Invest at the start of the month and not at the end of each month as per his quote here:
main qimg 5c167c5ecb7c012e8227d17d5dd7e103

3. Never depend on a single source of income. At least have a second source of income. Even if you have had a very successful business for 25 years selling only one service, diversify.

4. Don’t buy things you don’t need, otherwise you will soon sell things that you need.

5. Never try to time the stock markets

6. Control your emotions, especially when stocks are crashing like now, 2008 or 1987. That is even more important than technical knowledge

7. Focus is the number one attribute for success in business, investing and life.

8. Don’t put all your eggs in one basket

Some of the best advice is actually simple and common sense, rather than complex.

His business partner Charlie Munger said something similar. Basically that trying to be too clever can be a mistake:

main qimg 96564126c3e8d634b63a56bec8de5101

How hard do people have to work to become self-made millionaires?

Source: Quora

Depends if you mean wealth or income. Of course, to become a millionaire usually means “a person whose assets are worth one million dollars or more” to give the dictionary definition.

Sounds obvious, but many people assume wealth and income are the same.

If you want to earn big bucks, you do often need to work very hard.

Most people earning $1m+ a year are at top legal, consulting or banking firms at senior positions, executives or business owners.

To get to that level, you often need to take calculated risks, work hard and smart. Not in all cases, but usually that’s the case.

To get to $1m or even $3m-$5m in assets though is a different story.

You don’t need to work hard or even have a high-income.

All you need to do is:

  • Start investing early or consistently if you missed investing early
  • Invest productively. So not putting the money in the bank.
  • Reasonable spending habits.

The media focuses on a few stories. For example this millionaire teacher:

main qimg 35f2f891b6a1452115b3f4907bdf770e

Or this millionaire secretary:

main qimg 8eca06c3e978f942888e8e922065c180

This 96-Year-Old Secretary Quietly Became a Millionaire (and You Can, Too)

Think this is abnormal? It isn’t. An estimated 14% of the world’s millionaires are teachers, with around 50% being in middle or slightly above average income jobs (accounting, managers etc).

All these people have done is hold assets for decade after decade.

You don’t need much to get rich slowly if you follow this formula as this graph shows:

main qimg d44d157c3b249e35f7d12258f9278790

If I put all my money into one stock, can I get rich fast?

Source: Quora

The key word here is “can”. Is it theoretically possible? Yes. Have some people done it? Yes.

Are you statistically likely to win with this method? No. Remember these statistics:

  • About 20% of people beat the S&P500 over a 5 year period
  • 2%-5% do it over a 40–50 year period. In other words a career in investing.

And that is including all investors, such as institutional ones, people with PHDs in finance etc.

So very few DIY investors beat the market, let alone “get rich fast” from picking just one stock, in the long-term.

In addition to that, there is another issue that few people speak about.

Namely, that tiny minority of DIY investors that get rich from picking one stock, often end up losing in the end.

The reason? They let the success get to their heads. They become complacent and arrogant.

It is human nature to assume that the past will repeat itself. So if they picked Facebook or Netflix, they often sell and try to pick “the next Facebook or Netflix”.

Beginners luck runs out and they often end up losing. I can remember I watched an episode of Dragons Den, which is the UK version of shark tank.

main qimg 3d76baad31dcea4abe7b99397584caa3

One person came onto the show and he had made a lot of money buying Facebook stock.

So why did he need to get the “dragons” to invest in his business idea, if he had bought Facebook stock?

The answer is simple. He gambled again after selling his winning Facebook position.

He lost most of his gains from Facebook, so needed to get funding for his new business venture.

Once a gambler, always a gambler. Most people, however, assume they aren’t gambling.

One of the best books written on behaviour finance is this one:

main qimg aba47dc4c75336d3ce118c8f090961ad

What did the book find? People have selective memory. That doesn’t mean lying, it means they generally kid themselves about past performance.

I will give you a simple example. When the researchers asked people how much money they had made, and indeed whether they think they had beaten the market, most people overestimated how well they had done.

Most people also assumed that the good pick was all because of their “research”, and luck/chance played no part.

These participants weren’t lying, as they knew the researchers would fact check if they really had beaten the market.They merely were engaging in wishful thinking.

The bigger question to ask is is it worth taking the risk of having a one stock portfolio?

Let’s put this another way. 100% of people who have indexed their portfolios have gotten rich slowly if they have stayed the course for decades.

In other words, there has been a 100% correlation historically between people investing every month for decades into the indexes, assuming they invest at least a few hundred a month and don’t panic sell during crashes.

The Dow was at 66 in 1900, 2,000 in 1990 and 29,000 this year and you have dividends as well.

I am not saying that just because markets have performed well over 200 years, they will always do in the future.

The past isn’t always a guide for the future. However, considering there is a low-risk way to get rich slowly over time investing, trying to get rich quickly in the hope that you are one of 0.1% of people who achieves that doesn’t make sense.

If you are really curious, index 90% of your portfolio and stock pick with 10% of it.

We all have the gamblers bone in our body and just “playing” with 5%-10% of your portfolio can satisfy that irrational urge that we all have inside of us, without destroying our portfolios.

If you want to try to get rich more quickly, private business is easier than investing.

It is still difficult but not as difficult as investing. The reason is simple.

In investing, all the information is available to the public. So you, or I, can’t “out-research the market” .

We can’t get any secret information on Facebook’s stock, or Amazon’s.

There are billions of people looking at the same information. Hoping that we are the only ones to spot opportunities is like hoping that if we leave our wallets on the floor in London, nobody will see it.

It is statistically unlikely to say the least. If we have special and hidden information, that is insider trading and illegal.

In private business, it is different. Not all information is publicly available.

So if you learn to see the value in information, and move around that information, you have a better chance of making use of it compared to researching public listed stocks.

Is it smart to keep money in a savings account with a rate of .80 instead of investing it on the stock market?

Source: Quora

It is important to make a distinction between two things:

  1. Money you might need in an emergency or even within a few years
  2. Money which you want to invest for the long-term.

It makes sense to save a very small amount for emergencies or if you are saving up for something in 1–2 years.

Using cash in this way isn’t investing. It is merely there in case of cashflow needs.

Cash has always lost long-term to investing, and is now losing to inflation in many countries, but it is less volatile.

Therefore, if you invest money short-term there is always a chance you will lose relative to cash as the graph below shows:

main qimg e6de79d6cfc4ece3b758ae9a67b78a69

In comparison, if you have 10 and especially 20 years+ left before retirement, it makes no sense to fear market volatility.

Look at this year. If you would have invested in January you would have seen a rollercoaster before your eyes.

Markets recovered just as they did in 2008, and always have historically, even if occasionally it takes 5, 10+ years.

If you have a mixed portfolio of stocks and bonds, you are even less likely to lose money:

main qimg 89d95e2f75fb84dde90ad10aa7d136da

So it depends on your timeframe. Those that are afraid of investing for 6 months are being rational.

Those that are afraid to invest for 20 years aren’t being rational at all, and often believe false things like the markets and even a mixed portfolio is risky.

If you look long-term, the numbers speak for themselves:

main qimg 3acd02338c55d7c02a2e88e8b054f221

Is it a good time to buy shares with the prices dropping because of coronavirus?

Source: Quora

This question was written during the worst of the stock market rout in March.

main qimg e6fb463bb7b0f37a4027e6cdaebf2840

It is hard to remember how afraid people were back then. Now some people have gone to the opposite end of the extreme to fear (greed).

Now the S&P500 and Nasdaq have hit record highs, with the Dow Jones not far behind.

Globally most markets have recovered all, or most of their declines, with the UK and a few other markets being the exception.

This represents a 50%-60% gain since the worst of the stock market rout, when you first asked this question.

I would make a few points though:

  1. When this question was first asked, nobody could have known that markets would hit record highs barely a few months later.
  2. However, history shows that markets always recover. It can take months like it did this time and during late 2018-early 2019 when stocks fell 20%-25%, for markets to recover, a few years or 10+ years occasionally. But long-term, markets always come back.
  3. So based on number 2, the rational thing to do during the worst of the crisis was to just buy, hold, rebalance and buy more. AND buy more every month regardless of whether markets would have gone up or down until now. I made that point consistently in my answers in March and April, and indeed during late 2018. My followers who see the majority of my answers must laugh that I am answering the same questions every time there is a panic, and no doubt will again sometime in the future!
  4. History also shows that despite the fact that markets have always recovered and nobody can predict them short-term, every single time people utter these words:
main qimg 1830e0671755b101a19980e1203ba448

5. Here is the bottom line. Now is ALWAYS the right time to invest if you are long-term. There are two simple reasons for this. Markets rise long-term, and even if they don’t, you can benefit from cheaper prices.

Simple example. Let’s say somebody got an inheritance in February. They put $100,000 into the markets. Not only they, they put it 100% in the S&P500, rather than 30% in bonds and 70% in stock.

Their portfolio would have fallen to about $60,000 during the worst of it. If they would have panic sold, that would have been a problem. But today that $100,000 would be worth slightly above $100,000. Even better imagine that investor had have added $2,000 a month from March until now.

The gains would have been much higher as prices were so low for 1–2 months in particular. So if markets are ever stagnant for a period of 5–10 years+, that is an opportunity not a threat!

Imagine how well your account would have performed if the rout of March would have continued for 5 years and markets would have hit record highs in 2025!? That is 5 years where you can buy cheaper units!

6. If you have bonds, you can rebalance from stocks to bonds. Bonds don’t pay much but they do well during moments like March, and indeed 2008–2009. So if you are afraid of market volatility, which you shouldn’t be, have bonds in your portfolio.

So based on the above, if markets skyrocket or fall 50% in the next six months, it shouldn’t matter at all.

Just have a long-term buy, hold and rebalance plan. Invest monthly for decades. Reinvest the dividends. If you do that, you will have some bad years, but the overall trend will be fine.

As a final point, one thing that never ceases to amaze me is how people who should know better panic.

I can understand why newbie investors panic sell. I find it harder to understand why people who have read Jack Bogle’s books, and sometimes have Masters in portfolio theory, still panic sell during moments like this.

Look at how many people kept cash on the sidelines in 2016 due to Brexit and the fear of Trump getting elected!

It will happen again in a few months – “I am not investing in case Trump gets re-elected or Biden wins”!


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