A Stock Growth Miracle (Not Really)

Psst: Do you want to hear about a neat investing trick a family friend showed me? She started with $250. Through alchemical magic – well, a mixture of time, compound interest, and an important dash of negligence – she turned that $250 into an investment today worth $135,000. She still owns it, so results may vary in the future, but her gains are amazing.

I imagine you’d like to learn her trick. How ever did she do it? What financial wizardry did she employ? It was probably Bitcoin, right? Or some lesser known cryptocurrency? Or a hot commodity tip?

My friend requested I not identify her. I’m going to call her Ruth, although that’s not her real name. That’s her mom’s name.

The story starts in 1965. Ruth was newly married. As much as possible, I’ll let her tell it:

“I lived in the State of Washington, and my grandmother used to buy stocks, even though she was a middle-class person. She thought it was good to buy local, and Seattle was dominated by Boeing Co (BA).”

“At that time people thought you were supposed to buy 100 shares of everything. I didn’t have enough to buy that amount, so I bought less than that initially.

I invested around $250 at the time…It was probably 20 shares, no more than 40. I remember the broker criticized me for not buying 100 shares.”

compound_interestOk, that’s the beginning of Ruth story. Are you ready for the magical part? Then Ruth did nothing for 53 years. That’s it. That’s the whole magic.

Never sell.

In 2018, her initial $250 investment in “20 or 40” shares of her local company Boeing has turned into 400 shares through stock splits and the reinvestment of dividends. Her initial investment is worth, at the time of this writing, $134,800. Through Ruth’s benign neglect. The dividends alone on her shares pay around $2,700 per year, or more than 10 times her original investment.

At least three important lessons and clarifications of the lessons of Ruth’s story are necessary.

First, this is the story of a particular investment in Boeing that happened to be headquartered in Ruth home state, but you could substitute hundreds of successful companies from 1965 into that same story, with similar results. The point is not “I wish I’d bought Boeing in 1965,” but rather “I wish I’d bought a tiny amount of shares of any number of successful companies, and then done nothing further, for 53 years.”

Second, I was kidding earlier about magic, just to get your attention. This is actually the most normal thing in the world.  Turning $250 into $134,500 over 53 years is not magical at all, but rather a mathematical result of time and compound returns. To be precise, Ruth’s initial investment – through reinvestment of dividends, splits, and stock price gains, grew on average 12.6 percent per year for 53 years, from 1965 to 2018. And that’s a good return. It’s above average.

But it’s not ridiculous for a successful US multinational company from that period to today. The annualized return from the S&P500 since 1965, including reinvestment of dividends, was 9.87 percent. If it had been technically feasible to invest $250 in the S&P500 in 1965 (note: it wasn’t realistically possible then) and then let it compound for 53 years, the stake would be worth $36,689. That’s not as cool as Ruth’s $134,800, but it ain’t nothing either.

Third, Ruth is no genius investor. She’s pretty typical. The really funny thing is that while she told me her story, she continuously bemoaned her lack of investment savvy.

“I feel embarrassed talking about Boeing because I could tell you about a lot of mistakes, and even stocks that went to zero.” Which is charming, and no doubt true, but doesn’t negate her success. Remember: She turned $250 into $134,800. (Psst.If you are still in your twenties, so could you. Start with $250. Then do absolutely nothing for 50 years or so. That’s the hard part.)

Also, the part of the story I didn’t tell you yet is our whole conversation started because Ruth had initially described to me selling 500 shares of Boeing in the beginning of 2017. She’d bought those particular 500 shares at some point in the 2008 crisis. She saw a market price of $175 per share in February 2017 and thought to herself: “That can’t go any higher.” Nearly a year later the price has almost doubled. Ruth was kicking herself in the initial part of our conversation for that sale a year ago.

“I know I’m doing it wrong, when the price goes up and I’ve already sold, and I could have sold at a higher price. It’s not the first time it’s happened…It’s hard to know how to time a sale.”

She wanted to know when was the right time to sell. She felt like she blew it as an investor.

boeing_stockAlso, she’d been tempted to sell a lot earlier.

“Sometime a few decades ago my husband and I talked about selling our stake in Boeing, taking the money out and building a swimming pool. Our whole stake was worth $30,000 and we thought it couldn’t go any higher.”

“How do I know when to sell?” she asked me, probably four or five times in our conversation. “Never,” I answered each time, or some variation on “never.” But still Ruth wanted to figure out how to properly time the market. Which is impossible. Ruth feels like she gets a lot of things wrong with her investing.

It’s better to be lucky than good we always say on Wall Street, and of course Ruth got lucky buying a small amount of the world-class stock from her home town. But she was also good, in that she didn’t sell that stock for over 50 years.

Stock Disclosure: I own zero Boeing stock, and zero individual stocks for that matter, preferring to invest in equity index mutual funds. And so should you, for that matter.

 

Please see related posts:

 

Never Sell! as Churchill would say, if he were a stock investor

The magic of compound interest

Video: Compound Interest – A Deeper Dive

 

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Book Review: Stocks For The Long Run by Jeremy Siegel

Reading Jeremy Siegel’s classic on investing Stocks For The Long Run: A Guide To Selecting Markets For Long-Term Growth, I was reminded of three well-known investing aphorisms.

“Take the long view.” (Also related: “Successful people have long time horizons. Unsuccessful people have short time horizons.”)

“It almost certainly isn’t different this time”; and

“Read books, not magazines and newspapers (nevermind blogs or tweets) on investing.”

In taking the long view, Siegel presents the data and definitively settles the answer to the question of stocks v. bonds. He’s the guy that produced the 200+ years of data – going back to 1800 – that show the superior returns of stocks vs bonds or vs cash or vs (horrors!) gold.

Because it certainly isn’t different this time, Siegel himself draws upon work done in earlier eras that conclude, inevitably, the same way.[1] I had not previously heard of Edgar Lawrence Smith’s Common Stocks as Long Term Investments, which came out in 1924, but Siegel credits him with carefully and correctly building the earlier time series to show the overwhelming advantage of equities throughout modern times.[2] Siegel’s book – first published in 1994 – updates and extends the time horizon for considering the relative returns on different asset classes.

When I teach a night-school course for adults called “Get Rich Slow,” one of the visual lessons I employ is to show the relative returns of different assets according to different time horizons. The lesson of my visuals is the importance of taking the long view.

With a one-year timeframe, for example, stocks appear extremely volatile, especially compared to a ‘safe’ investment like bonds.

Widening the timeframe to a five-year horizon, however, you can see that in the majority of time periods stocks beat bonds, and typically quite handily.

stocks_for_the_long_run

Taking an even broader timeframe – such as ten years – the historic data shows that stocks are an overwhelming favorite over bonds. To prefer bonds over stocks through an investing decade is really to say that you believe a quite rare and unusual thing is likely to happen. You’re betting on the improbable. You’re betting, in fact, that you know “it’s different this time,” which is typically a losing bet.

The power of Siegel’s book derives from him taking the longest view – from 1800 to today – to show that equities are the only way to build wealth.

Readers of Nick Murray’s Simple Wealth Inevitable Wealth – or readers of my review of that book – will not find the overarching message of this book any different in Siegel’s Stocks For The Long Run.

What readers of both books will find different is that – while Murray assumes the voice of accumulated self-evident wisdom and a bit of disdain to ‘prove’ his points – Siegel actually has done the proving (in so far as a long-dated data series can ‘prove’ anything in finance.) I’m sure Murray was deeply influenced by Siegel’s book and considers it the final word on long-term stock versus long-term bond returns. And it is.

The big idea

Both authors conclude that – in the long run – only stocks provide an increase in purchasing power over an investor’s lifetime. Meaning, only stocks grow your wealth. Bonds (and similar fixed income instruments) preserve nominal dollar values but might not even keep pace with inflation, and certainly cannot build wealth.

Risk, therefore, resides with bonds and the loss of purchasing power, not with stocks. Stocks – when held for the long run (and with diversification) – turn out to be not risky at all.

If you want the data and charts behind this idea that only stocks can build wealth, and are not risky, while bonds are the opposite, Siegel’s book brings the data.

Read books not articles

Siegel also comprehensively addresses major questions an intelligent investor might want to have answered, in a way that only a full book-length work can. Since you’re reading an article I’ll do my best to summarize each chapter in my own words, with a view to enticing you to read the whole thing.[3]

Chapter 1 – $1 invested in 1800 in US stocks becomes $260,000 in real terms (inflation-adjusted), while $1 in bonds becomes $563 by 1994. The value of that data point alone is worth the price of admission. Stocks in Britain, Japan, Germany – while responding to their own historical ups and downs – have a similar long-term upward trajectory.

Chapter 2 – Stocks, in contrast to bonds, have never offered investors a negative real return over 20 years. Bonds may offer a positive ‘nominal’ return, but after medium to high inflation your money invested in bonds may actually buy less than it did 20 years ago.

Chapter 3 – A broadly diversified portfolio – such as a market-representative index – offers lower risk than one or a few securities, assuming individual stocks are not perfectly correlated.

Chapter 4 – Stock prices respond to a combination of fundamental value (in the longest run) and investor sentiment (in the short and medium run), but neither approach provides certainty when it comes to investing. Dividends, it turns out, account for a tremendous amount of long-term returns to investors. Dividend Yield (dividends/price) offers an imperfect indicator of a good investment.

Chapter 5 – Small capitalization stocks might provide superior returns compared to large capitalization stocks in the longest run, but are certainly more volatile, and might underperform for significant amounts of time. Value stocks might provide superior returns compared to growth stocks in the longest run, but the evidence is still mixed. Ironically and contrarily, negative earnings and non-dividend paying stocks might also offer above-market returns, historically. Buying an IPO at the initial price usually is rewarded (if you sell right away) but buying at the first days’ closing price is usually punished.

Chapter 6 – While many investors would do well to pay attention to a stock’s price/earning ratio, sometimes buying a huge PE stock turns out well, while conversely a low PE stock can just as easily evolve into a complete loser.

Chapter 7 – The tax code, and in particular the tax on capital gains, heavily rewards long term holding of stocks compared to short-term stock holding, or compared to holding bonds.

Chapter 8 – For US investors, investing only in the US is akin to remaining undiversified in a single industry, with the US making up only a third of global equity market capitalization. The lesson: diversify by geography.

Chapter 9 &10 – Leaving the gold standard in the 20th Century appeared to auger the beginning of inflationary pressures, but stocks have served as an excellent long-term hedge against inflation, preserving and enhancing purchasing power over the long run, which bonds certainly to not do.

Chapter 11 – Timing the business cycle via stock investing would be theoretically super-profitable, but also appears nearly impossible.

Chapter 12 & 13 – Wars, political shifts, and economic data releases all affect stock prices in the short run, but rarely in predictable ways. Short-term news is only effective when compared to an aggregate of market expectations.

Chapter 14 &15[4] – The combination of futures trading and financial technology explains much of the short-term market fluctuations, including in some cases crashes such as observed in 1987.

Chapter 16 &17 – Some people subscribe to ‘technical’ techniques such as ‘charting,’ and Siegel even allows for the possibility of using factors such as “200-day moving averages” as a guide to buying and selling, but I’ll editorialize these chapters and say that’s crazy talk. Siegel also describes some long-standing efficient-market anomalies such as the “January effect” of small-stock outperformance in January, or a notable market underperformance on Mondays, but again I’ll editorialize and say pay no attention to that.

Chapter 18 – Picking successful stock mutual fund managers who consistently outperform the market has proven extremely difficult. Getting warmer…

Chapter 19 – Siegel saves the best for last. For holding periods above ten years, stocks have overwhelming advantages over bonds. The risk of holding stocks (measured by the standard deviation of real returns) actually shrinks to below bonds after ten years. For investors with a long horizon, rational behavior would call for holding 100% (or even more!)[5] of one’s investment portfolio in stocks.

Given the typical underperformance of managed stock mutual funds, most investors would do better with an index fund, an idea with which I am familiar.

The best personal finance books of all time

If you’re looking for the classics of personal investing and want to read the fewest number of books with the greatest impact, I think my short list goes something like this, in some order or another.

A Random Walk Down Wall Street, by Burton Malkiel,

Simple Wealth, Inevitable Wealth, by Nick Murray,

The Intelligent Investor by Benjamin Graham, and

Stocks For The Long Run by Jeremy Siegel.

None of these are controversial picks and only Simple Wealth Inevitable Wealth is not a perennial in this type of list. If you’re looking for classics on the importance of saving money and controlling spending as a path to wealth, the two that stand out are The Millionaire Next Door by Thomas Stanley, and George Clason’s The Richest Man In Babylon.

Please see related posts:

How to Invest

Stocks vs. Bonds – The Probabilistic Answer

Book Review: A Random Walk Down Wall Street, by Burton Malkiel

Book Review: Simple Wealth, Inevitable Wealth, by Nick Murray

Book Review: The Intelligent Investor by Benjamin Graham

Book Review: The Richest Man in Babylon by George Clason

Book Review: The Millionaire Next Door by Thomas Stanley

 

[1] Even if history does not repeat itself, it probably rhymes.

[2] Smith’s work was roundly attacked and discredited following the market crash in 1929, and the scars of that era prevented people from seeing that he was, in fact, correct. Siegel draws on his work and extends it.

[3] Note: I read the 1994 edition (since that’s what my library had) and I know Siegel has updated it five times since then with probably a lot of good new stuff. On the other hand, taking the long view, the messages can’t be all that different.

[4] This is probably the most dated portion of the 1994 edition I read, and I’m guessing the most updated in the 2014 Fifth Edition, since financial technology has evolved quite a bit in 20 years.

[5] For a person comfortable with risk and a 30-year investment horizon, Siegel says a 134% allocation to stocks is theoretical optimal. How does one do that? Leverage, of course. Ok, let’s just stop right there, put the leverage down, and nobody gets hurt.

 

 

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Are Stocks Like A Casino? No. But YES!

poker_losses
I hate money

I hate money. Apparently the feeling is mutual.

I know this because I am writing this from a hotel room near the Golden Nugget in downtown Las Vegas, following a typical encounter between a poker table and me.

Here’s how this usually goes, and also how it went again today:

I sit down, feeling relaxed and ready to have a fine time with my close personal friend, money. A few minutes or hours later my money – that ungrateful Judas – goes home with someone else.

Gambling is evil

I should stop at this point to state the obvious. Gambling is terrible for you. It’s terrible for society.

When I am finally appointed Lord of all Catan and get to set the rules for everything everywhere, gambling will be outlawed in this country except in tiny pockets of sin like Las Vegas and Atlantic City. Like many, I see a big difference between what’s “fair for me” – I personally like to play poker – and what’s “fair for society” – most people should never gamble.

In the same spirit, I deliver the following Public Service Announcements: Kids, don’t do drugs! Also, definitely avoid intimate contact until marriage!

Anyway, like I said, gambling is terrible. (Also, its super fun!)

All joking aside, I have an important message today – a non-hypocritical Public Service Announcement – inspired by my visit to the Golden Nugget.

Market as Casino?

When I taught a course for adults recently called “Get Rich Slow” one of my students asked whether the stock market ‘just represented one big casino.’

stock_market_not_a_gamble
Appears like gambling, but if done right, it isn’t

A retired widow herself, she commented that young people see investing in stocks as a ‘a rigged game, only benefitting the wealthy.’ Is it true, she asked?

She is dead wrong.

Also, she is righter than she knows. I feel very strongly about this, both ways. I’ll explain.

Dead wrong

Investing in stocks is not gambling at a casino.

Investing in stocks for the long run, in fact, is the exact opposite.

Stocks (in particular diversified stocks) held over the long run (at least 5 years, but 20 years is better) will make you money.

Gambling at a casino, in the long run, guarantees the gambler will lose money. In the long run, the more you gamble, the more likely you are to see your money go home with someone else.

I’ve played blackjack, craps, and roulette. I’ve played poker and sat down in front of slot machines. I’m not proud of any of this.

Roulette Board

The casinos understand the odds, and they set all of these up as unwinnable games, over the long run. Casinos simply don’t offer games that lose money for them in the long run.

We can summarize this idea as “the house always wins.’

I’m not saying I haven’t walked away from a roulette table richer than I started, because I have. On any given day, of course an individual gambler can come out ahead. It happened in the Dominican Republic to me once, involved witchcraft, and it’s a long story I won’t recall here. But that just represents the improbable and occasional victory of witchcraft over math.

Just remember, the more you gamble at a casino, the more the mathematics work against you. There’s just no way around it.

Righter than she knows

The widow from my class is right in a difference sense, however, that investing in stocks is a rigged game. Here’s my strongest statement on the topic, addressed specifically to the young person wondering about the stock market:

In our capitalist system, the stock market is a ‘rigged game,’ in the sense that over the long run, stocks always win.

hot_stock_to_buy
Always ignore garbage like this

Let me clarify what I mean by stock market investing for the long run. By “stock market investing for the long run” I don’t mean that particular form of gambling shilled by the Financial Infotainment Industrial Complex that you can watch on MSNBC, CNBC or Fox News after the closing bell. I don’t mean what’s referred to by the nonsense headlines “Hot stocks to buy now!” or “Best Fund Managers 2015!” being sold by Hot Money Magazine or whatever glossy garbage rots on newsstands this week. I really, really, don’t mean the ‘investing tips’ of day-trading e-news updates filling up your browsers on a moment-by-moment basis.

I specifically mean purchasing a broadly diversified, low-cost (probably indexed) mutual fund, and never selling. I mean a holding period of at least 5 years, but preferably for 20 years or more. I mean purchasing diversified stocks with no end date, no sale date, in mind.

pocket_aces

Stock markets go up, stock markets go down. Businesses grow and businesses die. People buy and people sell. It doesn’t matter if you’re the long-term owner of stocks, because you will make your impressive percentage return on your money in the long run, no matter what.

Please understand: If you are a long-term investor in the stock market, you are not the gambler, you are the house, and the house always wins.

 

Please see my post on my visit to downtown Las Vegas and the “Downtown Project.”

Tourists, and the Antidote – Exploring Las Vegas’ Downtown Experience

The downtown monoculture problem – Las Vegas and San Antonio

The limited role of government in curing a downtown monoculture

and an upcoming post, The role of the visionary billionaire in curing a downtown monoculture

Please see other related posts:

Book Review: Simple Wealth, Inevitable Wealth, by Nick Murray

Book Review: All The Math You Need To Get Rich, by Robert L Hershey

Sin Investing

Interview With Mint.com – I Give ALL The Answers

A version of this post on casinos and stocks appeared in the San Antonio Express-News

 

 

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Volatility in Stocks – That’s a Good Thing

A version of this post ran in the San Antonio Express News today.

bastrop_fire_as_stock_market_analogy
Bastrop Fire aftermath, 2011

The U.S. stock market got quite volatile last week, and I couldn’t be happier.
Let me explain why, by way of the analogy of the 2011 fire at Lost Pines State Park.

Scorched earth and equity markets

Two weeks ago, I drove with my family near Lost Pines Forest, the ground zero of a devastating forest fire in 2011 that Wikipedia tells me was the most destructive wildfire in Texas history.

I had passed through Bastrop just weeks after that fire on our way to College Station, and I remember how utterly desolate the roadside forest appeared. Just a terrible vista of charred chimneys, missing their houses. Blackened trunks perched on scarred ground.
Now, however, the ecosystem is roaring back.

Fire leads to new growth

A friend of mine who teaches biology at Trinity University in San Antonio — she studies grassland ecosystems in particular — confirms what you can observe now at Lost Pines. The incredible rate of regrowth of the Lost Pines Forest happens because of the devastating fire.
In many areas, grass and forest ecosystems depend on periodic fires to remain healthy. The fire spurs growth. No fire in the past leads to less healthy growth in the future.

bastrop_regrowth
Regrowth of scorched earch

The forest fire stock market analogy

Just like periodic forest fires keep ecosystems healthy for grasses, plants and trees, periodic market crashes keep stock markets healthy for you and me, as long-term investors.
I credit Morgan Housel at the finance website Motley Fool for introducing me to this idea first — that stock markets must crash periodically in order to provide a decent return for the rest of us.

We typically complain, or fret, about stock market volatility. But you know what? That’s the wrong approach. The crashes help repel other people’s money from the market, which allows us long-term investors to earn a positive return.

To be perfectly clear about what I mean with my analogy: We need markets to crash periodically in order for them to “do their job” for us, which is to provide a decent positive return on our long-term surplus capital.

This positive view of market crashes — the financial equivalent of devastating wildfires — is so counterintuitive to our way of thinking and talking about the stock market that it just may alter the way you view the peripatetic ups and downs of equity markets. I hope so. That’s the point of this post.

Now, how exactly does it work that crashes and volatility are the keys to a decent positive long-term return for you, the long-term investor?
Think for a moment what the investment world would be like if stock markets always stayed stable. Zero volatility. Zero crashes. And let’s say in that stable world that stocks initially returned an average of 6 percent per year.

The only rational thing to do, with a market that provided that kind of positive return and perfect stability, would be for everyone to empty their bank accounts and pour money into the stock market. If people felt safe, they would put all their money into the stock market.
That decision by everybody would raise the price of stocks so much that future returns on stocks would decline, to something much less attractive. Given perfect stability, the market would attract as much money as it could take until future returns would approach the returns of other stable, store-of-value vehicles, like bank accounts.

volatility_ahead

Which is to say, if stocks were completely stable, we would all buy them until they offered a roughly 0 percent future return, just like bank accounts.
But the fact that you can get burned in stocks is exactly why not everybody empties out their banks accounts to bid up the prices of stocks. This relative scarcity of stock market capital leaves space for growth, like a forest that’s been cleared by a fire.
Stocks, thankfully, are not stable. People don’t feel safe. And that’s a good thing.

Do you need your money back before five years? Don’t bother with stocks. You may get burned.

The fact that people who need their money back within five years shouldn’t go anywhere near stocks — due to volatility — is part of the reason why stocks provide longer-term investors with a return above 0 percent.

Without crashes, the stock market would attract too much money. The periodic crash is therefore not a failure of markets or a glitch in the system. On the contrary, the periodic crash — like the forest fire — is a key to the whole system working correctly.

Here’s the topsy-turvy — but nevertheless true — logic of the relationship between volatility and stock market returns: Total stability would lead to “pricing for perfection,” which in turn could be destabilizing when underlying companies and the economy failed to achieve perfection. A volatile market, by contrast, stays just unattractive enough for short-term and speculative investors to allow for predictable, positive, long-term returns for long-term investors.

Long live the forest fire! Long live the volatility!

 

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Book Review: Simple Wealth, Inevitable Wealth by Nick Murray

Nick Murray’s Simple Wealth, Inevitable Wealth, [1] deserves to be the exception to my rule of never reviewing “How to Invest” books.

Stylistically, Murray’s prose is the Yin to Nassim Taleb’s Yang.[2]  Murray is gentle, meditative, and modest in affect, part financial advisor and part Zen master, contemplating the beauty of compounding investment returns[3] and inter-generational wealth-building.

Yet for all his gentle style, he’s no less sure of himself or passionate when it comes to what he sees as simple, but overlooked principles for building wealth over time.

Since I’ve come to adopt his views as my own, it’s worth highlighting the best of them here.

  • Murray questions the common journalistic narrative[4] as it mostly misleads rather than informs.  Even worse, the journalistic narrative rarely asks the key questions for wealth building such as “What is Risk?”, “What does wealth mean to me?” and “Who am I?” (I’ve hyper-linked to my earlier consideration of the latter two questions.)
  •  Timing the market is a fool’s game[5], whereas time in the market will be your greatest natural advantage.
  • The highest value of an investment advisor is often to tell you to not do anything.  This sounds a lot like advice from Benjamin Graham.
  • Only equities provide the possibility of growing wealth in perpetuity.  I would add – but Murray does not – some other risky assets in addition to equities for certain people and institutions.  Murray has a particular fondness for stock mutual funds, and, for the vast majority of people, I concur that that’s all you need to grow wealth.  My own definition of ‘equities’ would include ownership in not only stock mutual funds, but also allow for a broader variety of risky vehicles such as real estate, traditional business ownership, commodity investments, or other volatile assets.
  • For the individual investor, bonds are an “anxiety-management tool” but not a wealth-building tool.  Unfortunately – given current interest rates – this is truer now than it was when Murray first published his book in 1999.  At this time, fiduciaries who depend on managing money in perpetuity cannot afford to be in bonds, a big, under-recognized problem – in my opinion.

His strongest points, which he spends the bulk of the book proving to my satisfaction are the following:

First, owning a diversified portfolio of equities over the long-term does not carry significant risk of capital loss.  The diversified portfolio of equities is subject to volatility, but volatility passes away under long-term time horizons[6] and should not be conflated with risk.

Second, building wealth through the steady accumulation of equity mutual funds is simple,[7] and the result of this behavior, over a lifetime, is inevitable wealth.

Third, in contrast, bonds or riskless assets will not build wealth, but rather condemn the investor to a long-run loss of purchasing power.  If your goal is to build wealth – rather than provide current income – you cannot afford to be invested in bonds.

Murray’s main message – as restated above – may be manipulated, distorted, exaggerated or parodied, but cannot be proved wrong.

Professionally I’m a “fixed-income/bond guy” through and through,[8] so I believe in the uses and opportunities of bonds and safe cash-flows.  Despite my experience and biases, I believe Murray on his own terms, is absolutely, capital “R” Right.

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

 


[1] Full title of the book: “Simple Wealth, Inevitable Wealth – How You And Your Financial Advisor Can Grow Your Fortune In Stock Mutual Funds”

[2] I greatly admire and recommend Taleb, but as I’ve written on Fooled by Randomness and Black Swan, his prose style can be abrasive.

[4] Also known as the “Financial Infotainment Industrial Complex”

[5] On timing, Murray writes: “Time in the market, as opposed to timing the market, is not a way of capturing the long-term returns of equities; it is the only practicable way.  You have to stay in it to win it.”  This makes a lot of sense if you understand the magical power of compound interest.

[6] He defines long-term as, at minimum, 5 years.

[7] Murray explains that, while the process is simple, simple is not the same as easy.  It’s incredibly hard, in fact, to have enough left over, after paying your bills, to constantly invest in equities month after month, year after year, for your entire life.  But if you can do that, wealth is inevitable.  Hence, the title of the book.

[8] I’ve been a bond salesman, and fixed-income hedge fund manager.  I have no professional experience with the stock market.  Mostly I find conversations about stocks and the stock market incredibly uninteresting.  But I still believe you have to have your money exposed to them, or other forms of risky equity, to build wealth.

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