Are you so hungry that you need USD 1,000 for a hotdog? This investing discipline can help grow your wealth! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Today, we’ll be continuing last week’s topic on the Investing Disciplines of the Giants.
We’re sharing these disciplines with you because we believe investing is an important activity that we must learn regardless of our careers… and to be successful in our investing strategies, we must know how to apply these qualities in our financial lives.
Let’s talk about another aspect of committing to maximize your investments.
Keep reading to know about the importance of saving and investing in building and growing your financial wealth.
The Independent Investor
In our previous “The Independent Investor” article, we talked about the first discipline applied by some of the world’s greatest investors in their personal investment strategies:
Commit to maximize your investment wealth.
There, we discussed how you can grow your money and build a financially stable future by investing in yourself and in your career, and by spending less money than what you make.
Today, we’ll focus on another important aspect of this investing discipline. It’s…
Shelby Davis, one of the world’s investing giants, is known for launching a multi-generation legacy of incredible investing in the Davis family.
He turned USD 50,000 into USD 900 million in 47 years! Until now, his family’s investment firm remains to be a premier investment house with the help of his son and grandson’s brilliant investing strategies.
Allow us to demonstrate how Davis takes investing seriously…
One day, his grandson asked for a dollar for a hotdog. Instead of immediately giving his grandson what he wants, he responded with a statement that encapsulated the importance of both frugality and stock ownership:
“Do you realize that if you invest that dollar wisely, it will double every 5 years? By the time you reach my age, in 50 years, your dollar will be worth USD 1,024. Are you so hungry that you need to eat a USD 1,000 hotdog?”
See? That’s how disciplined Davis was in handling and managing his and his family’s finances―he even thought twice about buying his grandson a hotdog!
Don’t take this as an offense. Davis never meant you should starve yourself so you could invest the money you would otherwise spend to buy food. What he simply meant was if you want to achieve true financial freedom, you must be frugal enough to know WHEN and HOW to save money.
… and once you’ve saved enough money, you must also invest it wisely.
Peter Lynch, manager of the Magellan Fund at Fidelity Investments from 1977 to 1990, also supports this financial mindset. He said,
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.”
Save and Invest… Where?
Saving money is a good start to building your financial future. However, that alone is not a path to wealth creation. You can’t maximize your wealth by simply stashing away your hard-earned cash.
What else do you have to do?
You have to become an owner of businesses a.k.a. an owner of equities.
One of the fastest and easiest ways to own equities or shares of businesses, even with small amounts of money, is through the stock market.
The beauty of this investment vehicle is that it allows individual and family investors to buy into the profits of businesses and become owners of these great businesses little by little.
As a stock owner, you are entitled to the same returns as the billionaire owners of those companies REGARDLESS of the size of your investment.
So, if owners receive 4% in dividends, so do you. If the value of their stocks goes up by 300%, so does yours.
Seeing that this is the case, you’ll realize that the stock market is one of the greatest equalizers of wealth creation that has ever existed in the world… and this is great news!
Every stock you buy increases your business ownership. In other words, you become an owner of capital that builds companies. This also means ownership in part of the future profits of a company in the long run!
This is what making money while you sleep looks like. As you work hard for your money, you also allow your money to work hard for you. According to Warren Buffett, Chairman and CEO of Berkshire Hathaway:
“If you don’t find a way to make money while you sleep, you will work until you die.”
The bottom line?
Practice the discipline of saving your money and investing it wisely through the stock market.
Not Compound Interest But Compound Returns
Professor Joel Litman, Chairman and CEO of Valens Research, frequently mentions in his webinars and other events that you shouldn’t put your money in savings accounts.
He says no savings account at any reputable bank could ever double your money in a handful of years. Only business ownership or equity ownership has the ability to compound and create wealth in that way.
Here’s the reason why Professor Litman considers savings accounts as “losing accounts”:
Savings account interest rates don’t build and compound fast enough to make a practical difference in wealth even in one’s entire lifetime.
According to him,
“Practically speaking, the idea of compound interest is useless. In reality, only compound returns from business ownership provide a path to wealth creation.”
It’s only compound returns, which comes from sharing in the profits of business ownership, that allow individuals and families to generate wealth as the giants of investing have done.
Professor Litman says the lessons from the first discipline of great and successful investing are also great lessons in life―focus on your career, enjoy and excel at it, and make as much money as your efforts allow.
Aside from that, you have to manage your spending and avoid expenses for anything that causes you to live beyond your means.
Think about this: In actuality, you only need little in necessities to stay alive, sheltered, and in the company of your loved ones. The rest of your spending is excess and sometimes unnecessary.
So, invest in the real security of knowing that every dollar you saved and used for the purchase of stocks causes you to be a larger owner of great businesses that help the world to function!
When the fruits of your labor exceed your minimum needs of spending, the difference will provide valuable capital, which will then fund your commitment to longer-term investing and ultimate financial freedom.
Take note of these tips as you commit to maximize your investment wealth!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
About The Dynamic Marketing Communiqué’s
“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
Every Wednesday, we’ll publish investing tips and insights in accordance with the practices of some of the world’s greatest investors.
We make certain that these articles help you identify and separate the best companies from the worst, and develop your investing prowess in the long run.
To help you get on that path towards the greatest value creation in investing.
Hope you’ve found this week’s insights interesting and helpful.
Stay tuned for next Wednesday’s “The Independent Investor!”
Head of Marketing
Valens Dynamic Marketing Capabilities
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