Basic Investment Rules

(which almost no-one follows)

Okay, let’s get back to where I was a couple of weeks ago. I was going to explain where I invest and why.

Let’s take this slowly. First, why on earth should anything I say be of any special value?

Good question, and the first question anyone should ask.

If I go to a company that advertises itself as providing good investment advice I have only their word for it that their advice is anything other than worthless. It usually is, but not always. So how do you tell?

The first thing you do is ask for proof they know something about investment. Question number one: How much did you make last year from your investments? If they made less than you then tell them to get lost.

That’s going to write off 90% (or probably more) of the so-called financial advisers.

So why listen to me?

I have been in this business for nearly sixty years. Excuse me but that is longer than anyone else, and I have been public since the seventies. I have so far never been proved wrong. I have successfully forecast English house prices since the mid sixties, and the Spanish property prices since the mid seventies. I repeat; I have yet to be proved wrong.

Okay, let’s move on. Before we go any further let’s remind ourselves of the basics of investing.

First and foremost we need to have a brief look at money.

Money is a wonderful servant and if you treat it right it will go out and make you more servants. Treat them right, and they will make you even more until you have so many servants working for you, at no cost, that you will within a few years be absurdly rich.

Most people simply dont understand that. They go out and consume, which costs money, i.e., servants. You dont get rid of servants unless you get something more valuable in return.

One of my relations bought a fancy motor home. I dont know what it cost, but I am advised we are talking about £50k plus. Most of that was bought on what one of my aunties loved to call the never-never. I once asked her to explain. I was only about nine at the time. She said it means, you never finish paying for it, and you never own it.

This motor home: I gather it is used maybe once a month to go off into the wilds for a long weekend to get away from it all.

Two points arise here. If you need to get away from “it”, then you have fouled up rather badly to start with.

Time for another definition.

What is the definition of being rich?

It’s a simple question, and the answer is equally simple. You are rich when you can get up in the morning and do what you want to do. If you cant do that, you are poor.

If you want to get away from “it all” then you are poor. Oh dear!

What does it cost to buy (on the never never) this motor home?

And this is where we get to the bad news. You need to do some maths. Most people either cant or wont, which is another reason why they screw up when it comes to money.

Remember: if you are no good at maths, you will remain poor, so either wise up, or stay poor.

So, do the maths. I’m not really going to do the calculation, what you need to understand is the principle.

Remember that apparently absurd saying “You will own nothing and be happy.” Maybe that isn’t as daft as it sounds. In fact I will come back to this point in a later blog.

How much is this guy paying for a motor home in order to own it by the time it is hopelessly outdated? And how much would it cost to hire one for the one weekend a month he uses it? Whichever is the cheaper option is the one you should go for. The older I get the more I pay for what I use rather than what I own. There is a reason for that and I will explain it later. Just remember to remind me.

I’m mainly into real estate (or I was when it was profitable). I gave an example a few weeks back showing how insane it was to buy a house with a mortgage. Selling price: £90,000. Cost spread over a couple of decades or more: nearly £400,000. Who is the idiot? The one who buys with a properly thought out mechanism, or the one who takes the mortgage? Rich people wouldn’t dream of paying £400,000 for something that only costs £90,000.

There is another interesting mathematic principle, and that is what Einstein once called the eighth wonder of the world. The aim should be to use that principle to increase your nest egg. How can you do that if you are using your funds to pay off something you bought years ago? You are doing things the wrong way round. Debt makes you poor.

Let’s move on to a few more basic principles. You all know that really important on: buy low, sell high. Who does that? Almost no-one.

Let’s do property first. I always buy low. I bought real estate in the early nineties and I buy for the expected life of a price rise. I advised my clients to stop buying in 2004 and hold. Prices have continued to rise from there, but you would not have been buying low, so ideally you wouldn’t continue to buy. Instead, you rent, and wait for a collapse, or for a better market to invest in.

What about stocks? If you want to buy low you wait for a crash, then you buy.

The most absurd thing to do is to invest in a fund that invests in the stock market. That way you are committed to buy something every month, whether it’s a good time to buy or not. And you are prevented from selling at a top. In short, why invest in something that denies you the ability to follow the basic rules of investing. Only idiots do that. No need to copy them.

90% of investors either sold their stocks in 2008/9, or were forced to keep investing. I bought in 2009. Rule number one: Buy low. I bought. I even sold some real estate because I like that basic rule, and after all, there is another linked mantra: put your money where it’s treated best.

There are other rules, which I develop in my book Being Rich is Easy, but let’s stick to the obvious situations in these short blogs.

This leads me on to the really important issues. Issues where investors need to have their wits about them.

The best investors are those who invest for the long term. That means you need to understand where things are going so you can get into an investment when it is low, but bound to go higher.

That, of course, is difficult for those who dont pay attention to changes and cycles. Let me deal with that next week.

Being Rich is Easy: Amazon link: https://www.amazon.com/dp/B0CLS37VX1

or for the UK: https://www.amazon.co.uk/dp/B0CLS37VX1