Ce diaporama a bien été signalé.
Le téléchargement de votre SlideShare est en cours. ×

Investing 101 (KaPow!)

Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité

Consultez-les par la suite

1 sur 21 Publicité

Plus De Contenu Connexe

Similaire à Investing 101 (KaPow!) (20)

Publicité

Investing 101 (KaPow!)

  1. 1. ▪ THESE PLAYBOOKS ARE INTENDED FOR LEGENDS WHO DON’T HAVE MUCH TIME + ARE INTERESTED IN LEARNING ABOUT TOPICS THAT COULD HELP THEM ACHIEVE THEIR FULL POTENTIAL ▪ WHILE IT CONTAINS A CIRCUMSIZED FORM OF THE MATERIAL RELEVANT TO THE SPECIFIC TOPIC, THE AUTHOR ENCOURAGES YOU TO DIG DEEPER & DO YOUR OWN RESEARCH ▪ WHILE POSITIONS ARE TAKEN, THESE ARE NOT INTENDED TO BE EXHAUSTIVE, DIFINITIVE OR PORTRAYED AS EXPERT OPINION. AS WITH EVERYTHING IN LIFE CONSULT OTHER OPINIONS, CHALLENGE EVERYTHING & NOTE THAT BOCTAOE (BUT OF COURSE THERE ARE OBVIOUS EXCEPTIONS) ▪ IF YOU DON’T LOVE IT, NO NEED TO LET ME &/OR THE WORLD KNOW. AS THEY SAY, EITHER LEAD, FOLLOW OR GET OUT OF THE WAY Investing 101 KAPOW! – 10 “killer” slides in 10 minutes 5th May 2020 INTELLECTUAL COMFORT FOOD OFFICIAL 1 2 3 4 5 6 7 8 9 10 10 10
  2. 2. McKinsey & Company 2
  3. 3. 3 “In 1923, seven men who had made it to the top of the financial success pyramid met together at the Edgewater Hotel in Chicago. Collectively, they controlled more wealth than the entire United States Treasury, and for years the media had held them up as examples of success. Who were they? Charles M. Schwab, president of the world’s largest steel company; Arthur Cutten, the greatest wheat speculator of his day; Richard Whitney, president of the New York Stock Exchange; Albert Fall, a member of the President’s Cabinet; Jesse Livermore, the greatest bear on Wall Street; Leon Fraser, president of the International Bank of Settlement; and Ivar Kreuger, the head of the world’s largest monopoly. What happened to them? Schwab and Cutten both died broke; Whitney spent years of his life in Sing Sing penitentiary; Fall also spent years in prison, but was released so he could die at home; and the others? Livermore, Fraser, and Kreuger, committed suicide.” — Donald McCullogh, Waking From The American Dream Word of caution / disclaimer - Money might not solve the problems you want it to, it could even exacerbate them “It’s also true. Yes, money will solve all your money problems. But it doesn’t get you everywhere. The first thing you realize when you’ve made a bunch of money is that you’re still the same person. If you’re happy, you’re happy. If you’re unhappy, you’re unhappy. If you’re calm and fulfilled and peaceful, you’re still that same person. I know lots of very rich people who are extremely out of shape. I know lots of rich people who have really bad family lives. I know lots of rich people who are internally a mess. A calm mind, a fit body and a house full of love must be earned” - Naval, Angel Philosopher 1 2 3 4 5 6 7 8 9 10 10 10
  4. 4. 4 NOT EXHAUSTIVE Term Description • An asset that has been purchased with the aspiration that it will generate income or appreciate in value. Investments refer to any mechanism for generating future income e.g., real estate property, bonds, stocks. • An object that is generally recognized as a medium of exchange - accepted as payment for goods and services (as well as repayments of debts). • A percentage earned on a principle amount of money invested (or lent). Compound interest refers to earning (or paying) interest on your interest. Albert Einstein is reputed to have said: ‘Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it’. For example, if you invest $1000 at 10% compound interest, you will have $2000 in just 7 years. • The value of all the assets owned by a person or entity. By accumulating valuable assets one can increase their wealth. While income is a flow (measured over an interval of time), wealth is a stock (measured at one specific time). • A type of investment that equates to an ownership share in a company. When you buy stock (equity) you are buying a small part of a company (called a share). The S&P500 refers to a market weighted index of the 500 largest U.S. publicly traded companies. • A general increase in prices and the fall in the purchasing value of money. Inflation can been seen as the rate at which the value of a currency is falling. Inflation erodes the value of cash holdings. • The expected return from an investment with the amount of risk one must undertake to earn these returns. • A professionally actively managed portfolio of assets. Investors buy shares in mutual funds, representing part ownership. Mutual funds typically have high fees, which erode profit. Index funds are a passive portfolio of stocks or bonds designed to mirror the composition & performance of a financial market index. They are often low-fee, and try to mirror rather than beat the market. • A country’s economic output per person (calculated as total GDP divided by the population #). GDP refers to the total value of goods produced and services provided in a country during one year. While an imperfect measure, it is a rough and ready way to understand economic performance. • A statistic that measures the dispersion of a set of data relative to it’s mean. It is calculated as the square root of the variance. The more spread out the data, the higher the standard deviation. Money Investment Wealth Interest (Compounding) Inflation Stocks (S&P500) Mutual (Index) Funds Return-to-risk ratio GDP per capita (GDP) Bonds Standard deviation 1 2 3 4 5 6 7 8 9 10 Just in case, a glossary might be in order • A type of investment involving lending money for interest payments. Bonds are offered by government or companies. They have a maturity date, at which point the bond issue needs to pay back the principal to investors. 10 10
  5. 5. 5 This material was spun up from a number of solid reads 1 2 3 4 5 6 7 8 9 10 10 10 Hugh’s Killer Idea’s (HKI) Book Rating Hugh’s Killer Ideas is an Amazon Associate. Book purchases resulting from Amazon links may earn an affiliate commission
  6. 6. 6 1 2 3 4 5 6 7 8 9 10 Yes, Groundhog Day! It’s that time again. Quiz time. • According to JP Morgan between 1998 – 2018, the average investor outperformed “the market” (the S&P500) by what percentage? ❑ A: 10% (a little more) ❑ B: -10% (a little less) ❑ C: -66% (a lot less) 1 • If you compounded $1,000 at 10% per year for 60 years, how much would it be worth in 60 years (not factoring in inflation)? ❑ A: ~$300,000 (x300) ❑ B: ~$30,000 (x30) ❑ C: $10,000 (x10) 2 • They say ‘there are no sure things’ or ‘free lunches’ in life. When investing your money, which of the following has the highest return-to- risk ratio? ❑ A: Real Estate ❑ B: A diversified portfolio like Ray Daleo’s All Weather Fund ❑ C: A S&P500 Index Fund 3 You can find the answers at the top of the next slide! 10 10
  7. 7. 7 The Angel Philosopher Naval Ravikant said: “Wealth is the thing you want. Wealth is assets that earn while you sleep”. He says wealth is something we want because it will buy us freedom and will solve our money problems. But for many of us, investing is confusing and complicated - it is hard to know even where to start, let alone prosper. Having personally concluded that “investing” was something I knew close to nothing about (to prove the point, there was one stage where 100% of my albeit tiny amount of savings was in BitCoin); I decided to do some digging. A good friend asked what I had learned. The below is a summary of that: • Lesson 1 - Play the long game, and don’t wait to get started. There are generally no get rich quick schemes. Often, they are others getting rich off you, such as the Powerball jackpot which has a 1/175 million chance of paying (you are actually more than 200x more likely to get struck by lightning). Despite these odds, the average US family spends $1000 a year on lotteries. Furthermore, one is unlikely to earn their way into wealth, so the key is moving from a consumer to an investor (essentially an owner). As Marx might have put it, from proletariat to bourgeois (owners of the mean of production). Thus, once you have begun investing you can benefit from the incredible power of compound interest ($1 compounded at 10% per year for 60 years equals over $300,000) – what Albert Einstein once called the most important invention of human history. The UPS employee – Theodore Johnson, is a great example of this – never earning more than $14,000 a year, he set aside 20% of his paycheck, and by age 90 he had a nest egg over $90 million. • Lesson 2 - Look to save (>20%) more of your income. In 2016 the median households savings in the USA was just ~$7,000; and the average savings rate was close to 7%. While the great Nassim Taleb says: “The three most harmful addictions are heroin, carbohydrates, and a monthly salary”; your salary will likely be key to generating investment capital. However, it is not just the money you have coming in but being thoughtful about the money going out, for as Naval says: “People who are living far below their means enjoy a freedom people busy upgrading their lifestyle cannot fathom”. • Lesson 3 - A Vanguard S&P 500 Index Fund is not a bad bet. Over the last 200 years, stocks have returned more than other asset classes on average (6.7% vs -1.4% for cash). However, research has shown that monkey’s can pick stocks better than the average stock broker. Furthermore, Mutual Funds often underperform the S&P 500 (97% of fund managers don’t beat the market) and with their high fees (often 30-100x that of a passive Index Fund), you can often lose around 50-70% of your next egg. And as Warren Buffett says: “The goal of a non-professional should not be to pick winners .. But should rather own a cross section of business that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal”. Vanguard is the largest index fund manager in the world and according to the founder Jack Bogle offers “maximum diversification, minimal cost, and maximum tax efficiency”. • Lesson 4 - Once you have momentum, look to diversify your investment portfolio to increase your return-to-risk ratio. They say diversification is the only free lunch in finance. And while you might have heard the saying: ‘the higher the risk, the higher the return’; asset allocation (where you put your investments capital and in what proportions) is critical to increasing your return-to-risk ration (the amount of money you can expect to generate at a level of risk). Put another way, you can take a small risk and return a lot; but you give up part of the upside for downside protection. And while death and taxes are the only sure thing in life, spreading your investment capital across a range of uncorrelated asset classes (from a commodities index, a short-term bond index, a long-term bond index and so on) can increase your chance of increasing your wealth and smooth out the ride as you build your nest egg. Godspeed!! Headline: save more, earn more, increase your return-to-risk ratio 1 2 3 4 5 6 7 8 9 10 10 10 Answers to Quiz! Q1. C: -66% (a lot less). Q2. A: ~$300,000 (x300). Q3. B: A diversified portfolio.
  8. 8. 1 2 3 4 5 6 7 8 9 10 10 10 Disclaimer: Past performance does not guarantee future performance “Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race ‘looking out for its best interest’ as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief … Consider the surprise of the Great War. After the Napoleonic conflicts, the world had experienced a period of peace that would lead any observer to believe in the disappearance of severely destructive conflicts. Yet, surprise! It turned out to be the deadliest conflict, up until then, in the history of mankind. Note that after the event you start predicting the possibility of other outliers happening locally, that is, in the process you were just surprised by, but not elsewhere. Mistaking a naïve observation of the past as something definitive or representative of the future is the one and only cause of our inability to understand the Black Swan … Those who believe in the unconditional benefits of past experience should consider this pearl of wisdom allegedly voiced by a famous ship’s captain: ‘But in all my experience, I have never been in any accident … of any sort worth speaking about. I have seen but one vessel in distress in all my years at sea. I never saw a wreck and never have been wrecked nor was I ever in any predicament that threatened to end in disaster of any sort’ – E.J. Smith, 1907, Captain, RMS Titanic. Captain Smith’s ship sank in 1912 in what became the most talked about shipwreck in history.” - Nassim Taleb, The Black Swan
  9. 9. To boil it down, there are four things to focus on Value drivers Current wealth Reduce expenses Investment portfolio Increase income D New investment capital Reduce working capital Avg. investment per asset # of assets in portfolio A Investment return C Fees & deductions Gross investment returns B Save 20% or more of your annual income – no if’s, no but’s do what you need to do to get to this # C First, invest in index funds – a Vanguard S&P500 Index (VOO) is probably one of your best bets D Then, look to diversify your investments – they say diversification is the only free lunch in finance, and is key to lowering your risk profile A Don’t wait – start today if you haven’t yet and play a long game B 1 2 3 4 5 6 7 8 9 10 10 10
  10. 10. 10 Felix Dennis’s (author of How to Get Rich) Wealth Measured by Total Assets Millions, USD While many of us reading this, won the lottery of life by being born in a developed country; we are probably far from rich GDP per person at PPP1 and share of global population, 2014 forecast Source: International Comparison Programme; IMF; The Economist 1. Purchasing-power parity 0 50 30 60 40 80 100 60 40 20 10 0 20 Germany Global population, % of total Pakistan GDP per person, $'000 Average Mexico Bangladesh India Nigeria Indonesia Ethiopia Egypt South Africa China Brazil Russia Japan United States The Truly Rich The Comfortably Wealthy The Comfortable Rich 30 The Comfortable Poor The Comfortably Off 11,198 The Lesser Rich The Rich The Seriously Rich The Filthy Rich The Super Rich 1,998 4 10 80 150 200 400 800 A 1 2 3 4 5 6 7 8 9 10 10 10 “My wealth has come from a combination of living in America, some lucky genes, and compound interest” – Warren Buffett
  11. 11. The Good News: Compound interest matters .. a lot (and could change your family tree) $2,594 $6,727 $17,449 $45,259 $117,391 $304,482 Year 10 Year 20 Year 60 Year 30 Year 40 Year 50 +10% p.a. 2.6 xx Multiple on $1,000 6.7 17.4 45.3 117.4 304.5 $1000 compounded at 10% per year 429 428 5,356 Jamaica USA Singapore $3,007 $62,641 $64,582 +4% p.a. +5% p.a. +9% p.a. 2020 1960 If you put $1000 in an index fund that compounds at ~10% per year, after 60 years this would have grown by over 300x In 1960 Jamaica had the same GDP per capita as Singapore; and the USA was x7 larger. Just 60 years later Singapore has a higher GDP per capital than the USA GDP Per Capita, 1960-2020 A $1,864 $3,474 $6,476 $12,071 $22,500 $41,939 “All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest” - Naval Adjusted for inflation (assumes 3.25%) xx 1 2 3 4 5 6 7 8 9 10 10 10
  12. 12. 12 Ben Franklin, one of the Founding Fathers, understood the power of compound interest very well A 1 2 3 4 5 6 7 8 9 10 10 10 When Benjamin Franklin died in 1790, he left about $1,000 each to the cities of Boston and Philadelphia. His bequests came with some strings attached: specifically, the money was to be invested and could not be touched for 100 years. At that point, each city could withdraw up to $500,000 for designated public works projects. Any remaining money in the account could not be touched for another 100 years. Finally, 200 years after Franklin's death, a period of time that had seen stocks grow at an average compounded rate of 8%, each city would receive the balance – which in 1990 amounted to approximately $6.5 million. Imagine that $1,000 grows to $6.5 million, with no money added over all those years. How did it grow? Through the power of compounding! Yes, 200 years is a long, long time – but a 3,000% rate of return can be worth the wait.
  13. 13. 13 And while it is never too late to start … Starting early (or now) will have advantages A … starting early (and the amount you set aside to invest) can matter a great deal  Sir Winston Churchill was in his early 70’s when he rallied the British people during WW2  Nelson Mandela ended his stint as President of South Africa in his 80s  Michelangelo painted the ceiling of the Sistine Chapel in his 70s  Colonel Sanders never fried any chicken commercially until he was 65  Ray Kroc stumbled upon Dick and Mac McDonald when he was 50. By age 63, McDonald’s had opened 400 restaurants 1 2 3 4 5 6 7 8 9 10 188,724 1,034,799 2,586,997 Save 8% p.a. in cash Save 8% and invest at 10% p.a. Save 20% and invest at 10% +1,271% +448% Nest egg over a 30 year period by savings amount on a $78,635 annual salary Investing $1000 a year for 30 years vs. someone that starts 10 years later and invests $2500 a year for 20 years 30,000 50,000 166,080 160,006 Amy Mary +67% Total amount invested Total nest egg 10 10
  14. 14. 14 If you haven’t started saving and then investing for the future, now is the time “Mark Twain once described a man who died and met Saint Peter at the Pearly Gates. Knowledge that Saint Peter was very wise, the man asked a question that he had wondered about throughout his life. He said, “Saint Peter, I have been interested in military history for many years. Who was the greatest general of all time? Saint Peter quickly responded, “Oh that’s a simple question. It’s that man right over there.” “You must be mistaken,” responded the man, now very perplexed. “I knew that man on earth, and he was just a common laborer.” “That’s right my friend,” assured Saint Peter. “He would have been the greatest general of all time, if he had been a general.” The journey of a thousand miles begins with one step. And as we know, $1 compounded at 10% for 60 years grows to 300x A 1 2 3 4 5 6 7 8 9 10 10 10
  15. 15. 15 1 2 3 4 5 6 7 8 9 10 10 10 Even Warren Buffett, one of the world’s richest people, has experienced the benefits of compounding Warren Buffett Wealth by Age, USD, 1930 – today (90 years old, not out) 15 83 21 26 30 35 376M 44 1M 47 52 56 59 67M 66 72 6,000 20,000 140,000 7M 19M 90 1.4Bn 3.8Bn 58Bn 17Bn 36Bn 85Bn >99% of Buffett’s wealth has been earned in the last 40 years of his life. Yes, post his 50’s!
  16. 16. 16 Given the importance of owning vs. just earning, getting the percentage of your salary that you can invest north of 20% is ideal Amount 100% 14% 86% 8% 26% 14% 12% 10% 9% 6% Category Percentage  Increase revenue (get additional source of income e.g., another job; get a higher paying promotion; get another job that pays more)  Reduce taxes (look for tax opportunities including the reduction of state income tax by moving state)  Reduce expenses (limit discretionary items like eating out of home [~40% of total food expenses]; downsize housing to a smaller, lower cost option; look to reduce transportation costs by looking for lower cost means of transport (e.g,. using public transport; reducing car payments (e.g., buying reliable used car) Potential options 78,635 67,241 4,968 11,394 6,017 20,091 11,185 9,761 7,923 7,296 Avg. Annual Spending Savings Income after Taxes Other Goods & Services Healthcare Taxes Insurance & Pensions Transportation Housing Food B Avg. Annual Household Spending, USA 1 2 3 4 5 6 7 8 9 10 10 10 9% 14% 17% 19% 24% 5th Quintile (Lowest) 1st Quintile (Highest) 3rd Quintile 4th Quintile 2nd Quintile Median Saving Rate by Income Quintiles Savings rates grow with income “Only 10-15% of the money Americans spend on goods & services is necessary for survival … … people spend the other 85-90% of their money for upgrades in quality.” – Dr. Thomas Power
  17. 17. “Life is about early detection of the reversal point beyond which your own belongings (say, a house, a country house, car, or business) start owning you.” - Nassim Taleb “Two close boyhood friends grow up and go their separate ways. One becomes a humble monk, the other a rich and powerful minister to the king. Years later the meet. As they catch up, the portly minister (in his fine robes) takes pity on the thin and shabby monk. Seeking to help, he says: ‘You know, if you could learn to cater to the king, you wouldn’t have to live on rice and beans.’ To which the monk replies: ‘If you could learn to live on rice and beans, you wouldn’t have to cater to the king.’ Most all of us fall somewhere between the two. As for me, it is better to be closer to the monk.” - JL Collins 10 10 1 2 3 4 5 6 7 8 9 10 “The world as a whole has never been richer, and it has never been more heavily in debt, living off borrowed money. The record shows that, for society, the richer we become, the harder it gets to live within our means. Abundance is harder for us to handle than scarcity.” - Nassim Taleb
  18. 18. “My favorite Wikipedia entry begins: ‘Ronald James Read was an American philanthropist, investor, janitor, and gas station attendant.’ Ronald Read was born in rural Vermont. He was the first person in his family to graduate high school, made all the more impressive by the fact that he hitchhiked to campus each day. For those who knew Ronald Read, there wasn’t much else worth mentioning. His life was about as low key as they come. Read fixed cars at a gas station for 25 years and swept floors at JCPenney for 17 years. He bought a two-bedroom house for $ 12,000 at age 38 and lived there for the rest of his life. He was widowed at age 50 and never remarried. A friend recalled that his main hobby was chopping firewood. Read died in 2014, age 92. Which is when the humble rural janitor made international headlines. 2,813,503 Americans died in 2014. Fewer than 4,000 of them had a net worth of over $ 8 million when they passed away. Ronald Read was one of them. In his will the former janitor left $ 2 million to his step kids and more than $ 6 million to his local hospital and library. Those who knew Read were baffled. Where did he get all that money? It turned out there was no secret. There was no lottery win and no inheritance. Read saved what little he could and invested it in blue chip stocks. Then he waited, for decades on end, as tiny savings compounded into more than $ 8 million. That’s it. From janitor to philanthropist.” - Morgan Housel, The Psychology of Money Frugality could fall into what Sherlock Holmes put as: “the world is full of obvious things which nobody ever observes”
  19. 19. 19 Tax can make a big difference (and there are options to reduce tax) Top state marginal individual income tax rates, 2018 Source: SmartAsset.com; Tax Foundation; state tax statutes, forms and instructions; Bloomberg BNA RI 5.99% CT 6.99% NJ 8.97% MD 5.75% DC 8.95% DE 6.60% AZ 4.54% CO 4.63% NM 4.90% OK 5.00% KS 5.70% NE 6.84% SD UT 5.00% WY OR 9.90% NV CA 13.30% WA ID 7.40% MT 6.90% ND 2.90% MN 9.85% AR 6.90% MO 5.90% IA 8.98% ME 7.15% PA1 3.07% NY 8.82% MI1 4.25% WI 7.65% IL 4.95% IN1 3.23% OH 4.99% WV 6.50% VA 5.75% KY 6.00% TN2 3.00% NC 5.50% SC 7.00% TX LA 6.00% GA 6.00% AL 5.00% MS 5.00% FL AK HI 11.00% VT 8.95% NH2 5.00% MA1 5.10% Top state marginal individual income tax rate Lower Higher Once you add in Local and State income tax, where to live can have a large impact on your annual savings By moving state, annual investment savings could be increased by 50% (resulting in a massive difference of 249x vs 166x of savings invested over a 30 year period at 10% CAGR) New York Florida 30% 21% -29% 166 249 +83 New York Florida B 1 2 3 4 5 6 7 8 9 10 10 10 “Tax efficiency is one of the most direct pathways to shorten the time it takes to get from where you are now to where you want to be financially” – Tony Robbins NOTE: In the book “The Outsiders” about the 8 best CEOs (outperformed Jack Welch), all had a strong focus of tax efficiency
  20. 20. 20 Gold Average Investor 7.7% S&P 500 2.2% inflation Bonds Residential Property 5.6% 4.0% 3.4% 1.9% Compound Annual Growth Rates by Different Asset Classes, 1998-2018 Source: JP Morgan, "Back in the spring of 1720, Sir Isaac Newton owned shares in the South Sea Company, the hottest stock in England. Sensing that the market was getting out of hand, the great physicist muttered that he 'could calculate the motions of the heavenly bodies, but not the madness of the people.' Newton dumped his South Sea shares, pocketing a 100% profit totaling £7,000. But just months later, swept up in the wild enthusiasm of the market, Newton jumped back in at a much higher price — and lost £20,000 (or more than $3 million in [2002-2003's] money. For the rest of his life, he forbade anyone to speak the words 'South Sea' in his presence." Moreover, some argue that monkey’s are better at stock picking then experts Stock picking is often not a successful approach (and not even Isaac Newton could master the markets) “It started in 1973 when Princeton University professor Burton Malkiel claimed in his bestselling book, A Random Walk Down Wall Street, that “A blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by experts.” “Malkiel was wrong,” stated Rob Arnott, CEO of Research Affiliates, while speaking at the IMN Global Indexing and ETFs conference earlier this month. “The monkeys have done a much better job than both the experts and the stock market.” Furthermore, it appears that the average investor performs worse than other investment options (including inflation) C 10 10 “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative” – Benjamin Graham, The Intelligent Investor 1 2 3 4 5 6 7 8 9 10
  21. 21. Please click → https://www.hughskillerideas.com/kapows To Read the rest & hang out with these legends (I wish), please visit Hugh’s Killer Ideas. Peace.

×