Which financial moves have I made that have defied conventional wisdom and paid off?

In this blog I will list some of my top Quora answers for the last few days, which focused on many interesting subjects.

In the answers shared today I focused on:

  1. Which financial moves have I made that have defied conventional wisdom and paid off? Do we need to make a distinction between investing and business, which are two different domains after all?
  2. Which industries will never be the same again due to the global pandemic? Perhaps every industry or will some be impacted more than others?
  3. Should lottery winners invest their winnings straight away or seek advice or knowledge first?
  4. Many people know the expression that “you shouldn’t put all your eggs in one basket”. Yet are there occasions when diversification can increase risk, rather than lower them?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me or use the WhatsApp function below.

What financial move have you made that defies conventional wisdom but really works for you?

I would make a distinction between business and investing here, even though both are related to financial moves.

In business, and most income-related endeavours, you are directly and indirectly competing with others.

That doesn’t mean that all activities are zero-sum games of course, because global income rises over time, yet competing is a fact of life.

Also, unlike public-traded stocks, not all the information is available at a click of a bottom in one place.

All this means that unconventional techniques can work. Conventional techniques are used by more people.

That leads to normal results. Unconventional techniques aren’t being monetized by as many people.

Some simple examples

  1. When I started doing things remotely, people still thought that high-trust financial services was best done face-to-face. It paid off for me as I could grow globally, at a quicker rate and more cheaply than before. If I was starting off today and tried to pivot online, in late 2020, it would be harder as it is more crowded because it has become a bit more conventional.
  2. Some of the people I know that monetized LinkedIn in a big way made the most money when it was a CV board. These days, loads of people are using it to generate business. It has become conventional, so there is less advantage for new players.
  3. A few decades ago, people assumed that business was all about being flash and wearing IBM-style white shirts. Even as recently as the early 2000s, most people assumed that was the best way in most high-trust industries, just because a percentage of people still like that. Those that bucked that trend and were more authentic got rewards.
  4. Even this website, Quora, couldn’t have existed in the early days of the internet. Well, it could have existed, but not to the same degree, as people trusted their friends and local community more than a wider range of people internationally. Same with Amazon and eBay. These days, people care more about a wide range of reviews. than just one or two people they know.

The point being, there is money in business in catching waves early.

In other words, getting in there when techniques are unconventional, and before they become mainstream and conventional.

In investing, in comparison, information is available to the public. If X and Y stock is clearly undervalued, with zero extra risk compared to other comparable stocks, then why wouldn’t Soros, Buffett and all the legions of institutional investors buy it?

If a China ETF is clearly undervalued, or a UK one is, then again why wouldn’t everybody buy it?

In addition to that, in investing it isn’t a zero-sum game at all. If I buy the S&P500 ETF for 40 years, and you do the same, we will get the same percentage return.

I do, therefore, think there is a lot of money in conventional investing techniques like buying and holding for the ultra long-term.

Few can do it though, which shows a conventional idea and actually implementing it isn’t always the same thing.

Everybody claims to know that you shouldn’t time the market, but that doesn’t mean those people always follow through.

What industries will never be the same because of COVID-19?

Almost every industry. There is a simple reason for this. We were seeing the following trends during before Covid:

  • More people doing business remotely
  • Business going online
  • People being more sceptical about corporates and giving start-ups a chance

The world has just pressed the fast-forward button. Put it this way, what would you have preferred in 2019 or 2018….the old-fashioned way of banking and going to a branch :

Or setting up an account in minutes on one of the neobanks like Revolut:

I know which I prefer. I have also never met the main recruiter I have used for my business, and have been working and running businesses remotely for years.

The pandemic just forced more old-fashioned people to do the same. The existing trends that were happening from 2005 and especially 2010, have just accelerated.

If you think about how the internet has evolved, it has gone through various stages:

1999 – It was used for curiosity and most people didn’t shop online

2003–2005 – Apart from geeks, most people were just dipping their toes in with small purchases on websites like Ebay. High-trust services were largely unaffected and people still preferred in-person meetings.

2005–2010 – insurance and banking got disrupted.

2010–2020 – An increasing number of people started to do everything online. Hiring (In-demand talent on demand.™ Upwork is how.™ as an example), banking, law, wealth management etc.

I, myself, adapted. I would never have hired somebody online as recently as 2013. Now I do all recruitment online.

The 2020s was always going to just lead to an acceleration of these existing trends.

I remember I made a video in December 2019/January 2020, when I said a big trend in the 2020s would be a dramatic reduction in human interaction.

I predicted that by the end of the decade (2029), the number of people doing almost everything online would skyrocket. I think the date will now be brought forward and it will happen sooner.

I would just add one caveat to that. Next year, once restrictions are lifted, I do believe there will be a brief period where people will be obsessed with networking, face-to-face events etc, after not being able to do them for so long.

We could see record attendances at the chamber of commerce meetings, and reductions in Zoom and WhatsApp calls.

I don’t expect it to change the general trend though. By 2025 and especially 2030, the rise and rise of online will only continue.

Should you invest immediately if you win the lottery?

It is a really good question because an estimated 30%-60% of lottery winners go bust, and the bigger lottery wins of recent years hasn’t seemed to changed that fact.

Just a few months ago I was reading an article which showed how a lottery winner was down to the last 50% of his winnings, despite getting a record lottery win.

Yet despite this, I don’t think somebody should invest a lottery win within one or two days, because the vast majority of lottery winners will be overly excited, with most unaware about investing.

It makes sense to do some reading first on investing, and/or seek advice. I know in the UK and beyond, lottery winners are offered advice – tax, legal and financial advice.

The reason for this is simple; a lot of lottery winners go bust. We have all heard stories like these below:

Ultimately, 10 million Pounds, Euros or USD sounds like a lot of money, but it isn’t if it gets spent unwisely.

Investing can generate cashflow if somebody wants to quit work after winning the lottery, or for that matter having a big inheritance.

This can make a huge difference. If somebody invests the whole 100%, they can buy the things they want without eating into the principle.

In other words, if the investment pot is generating a million a year, that money can be spent.

In comparison, if millions is given to family members and spent in the early months, the principle itself will be much smaller.

That is just one reason why many lottery winners go bust eventually.

The keys of making money last are usually proper planning, and somebody needs knowledge or advice to make that work.

Why is diversification a high risk?

Most forms of diversification are the opposite of high-risk; they lower risk.

The idea is to spread risk around, so that if one sector underperforms the other will do well.

However, what is correct is that some forms of diversification can increase risk.

It isn’t the case that just buying loads of different things lowers risk.

Let’s say an investor keeps loads of cash. Instead of keeping it all in USD, Euros or Yen, he or she buys 20 frontier market currencies, including some that have had a recent history of problems, like the Zimbabwean dollar.

That is clearly riskier. Likewise, what is riskier – holding the S&P500 for 40 years or holding 4 frontier market indexes?

I would argue holding the S&P500 is much less risky. That is because the index is:

  • Diversified with 500 companies, many of which less internationally. So, it is indirectly almost as international as something like MSCI World.
  • It is diversified across sectors

Yet all this diversification can be accessed within one position. Likewise, some of the life strategies have bonds and stock equities in one position.

Take the Vanguard Life Strategies. One position gives broad based diversification to bonds and stocks:

It isn’t always less risk to buy loads of sectors either. Buying commodities, as an example, often doesn’t add much to a portfolio, even though they occasionally outperform.

So, in effect, diversification reduces risk if it is done correctly, and long-term.

Moreover, if somebody doesn’t want to diversify when they young, that isn’t a big deal.

Being 90%-100% in stocks when you are young makes a lot of sense, if somebody buys more bonds as they age and stay calm during the worst of stock market crashes.

As per the pie charts below, again from Vanguard, adding bonds does lower your return:

That doesn’t mean you should not own bonds, merely that owning stocks isn’t risky at all if you play the long game and invest in every month.

Investing in monthly reduces risk as somebody is buying in at different price points.

We see the benefits of long-term thinking and diversification in terms of the Japanese market.

Many people know it hasn’t performed well compared to almost all markets long-term.

Yet an investor that did 30% in the Japanese Nikkei, 40% in international stock markets and 30% in bonds 30 years ago has done pretty well, especially if dividends were reinvested and they rebalanced their portfolio.

As a final comment, a lot of people have heard about Ray Dalio’s “All Weather Portfolio”. 

It has become famous because it has seldom had a down year, but long-term, it has lost out to other strategies. 

In other words, it has given good returns and been easier on the nerves than some other strategies, but it hasn’t beaten the S&P500 or even some stock:bond allocations.

The chart below tells it’s own story:

So, don’t put all your eggs in one basket, but remember there is no such thing as a free lunch either.

Even excellent diversification strategies can lower your returns long-term, in return for lower volatility.

Further Reading

In the article below I focused on:

  1. What are the main reasons millionaires go bankrupt? Are all of these reasons obvious? 

2. Is the average person in Dubai rich, high-income and/or wealthy? This answer might surprise many of you. 

3. What steps can people take in their early 20s to ensure a comfortable retirement later on, apart from the obvious things like investing at a young enough age to take advantage of compounding?

4. Is it true that we can “think ourselves rich” as a famous book once said?. Or is mindset only one component of future results?

To read more, click the article below:

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