“How do I make money in the market? What stocks should I pick? What makes a great investor?” I am asked variations of these questions as soon as someone finds out that I work in the investment industry. To the dismay of those inquirers, my answer never includes a special stock pick nor trading strategy that will lead to untold wealth and treasures. The real secret to investment success isn’t a secret at all: relentless consistency and discipline over time. While not flashy (or fame-inducing), the tools and techniques necessary to reap the benefits of market performance are there for the taking, as long as you have the temperament to stick with it.
Founders Note: This paragraph sums up why I work with Frank. He provides advice specific to your situation and doesn’t give you the answer you want to hear. Consistency beats motivation and emotion EVERY day because motivation can falter and emotions are variable. I go to the gym 3 days a week because of the habit I’ve created, not because I enjoy being in the Florida humidity while lifting weights that are too heavy for me.
Until recently, the tools needed to build a globally diversified, low fee, easy to manage investment portfolio were:
- Hard to find/access for retail investors
- Only available to high-net-worth investors paying fees to advisors to find the tools/products needed
The internet and, more specifically, the discount brokerage revolution (think Schwab, Fidelity, TD Ameritrade, E-Trade) democratized access to the tools/funds/technology for investors to do-it-themselves. This competition brought about the advent of commission free trading* and (most importantly) availability of extremely low expense ratio mutual funds and ETFs on all/most platforms, allowing investors to access market returns at unbelievably low costs.
It has been extraordinary watching John Bogle’s vision of providing ALL investors with the low-cost tools necessary to build a portfolio become reality industry-wide. This recent book discusses just how large of an impact John Bogle had on our industry – for the better: The Bogle Effect: How John Bogle and Vanguard Turned Wall Street Inside Out and Saved Investors Trillions
Founders Note: Just 5 years ago this was different. I want to add that brokerages like Robinhood have also made it more accessible for those with limited funds to get invested in the market. I personally use Robinhood for monitoring my calls and puts since it is in real time, but I use Vanguard for my self-managed brokerage and IRAs. The service with Vanguard is excellent and for the most part the UI is friendly for a long term investor.
This section really should be titled “Technique” because there is really only one technique that has worked consistently for investors over time: buy low-cost funds/ETFs, diversify globally, and stick to your plan when market turbulence arises.
If you prefer reading a book vs. this one sentence summary, here is a good one published earlier this year that does a better job than I ever could of explaining this topic: Just Keep Buying: Proven ways to save money and build your wealth
Founders Note: Approximately 55% of my stock portfolio is invested in ETFs through Vanguard (VYM, VOO, VPU, and VNQ). The remaining 40% is in individual dividend stocks like ABBV, REITs like O, and the last 5% is in individual stocks I play my calls and puts with (LCID, OPEN, ASTS). There are a lot of ways to do this but at the end of the day you just match up how much time can I spend on this and what do I want the result to be?
All the tools and techniques in the world can’t make up for our ability as humans to be our own worst enemy. The real secret to investment success over time isn’t based on numbers, but rather your behavior, patience, and discipline. If you simply stay in the game, you can have extraordinary results. The following two books do an incredible job of talking through the psychology of investing and why this is an uphill battle, for novice and seasoned investors alike:
- The Laws of Wealth: Psychology and the Secret to Investing Success
- The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness
Founders Note: Two excellent books. In my book, I spoke about how I lost over $12,000 in the stock market because I let my emotions get the best of me. We are emotional creatures and you’ve got to have a good way of combating that if you’re planning on not seeing a loss (and even then you’re going to lose money sometimes).
So how do I answer those three questions we started this post with?
- How do you make money in the market? By sticking to a disciplined, low cost, well-diversified investment strategy.
- What stocks should I pick? All of them.
- What makes a great investor? A combination of discipline, patience, and temperament during good times and bad.
The real question one needs to ask, that is difficult to answer, is “Do I have the temperament to do this on my own?” While I lean yes and believe most investors don’t give themselves enough credit for what they are capable of doing, I also understand my own shortcomings… and as such, have a few advisors myself that I call when my emotions get the best of me.