Wise Money: Lucky Riches

Quote to Ponder

“In 1,000 parallel universes, you want to be wealthy in 999 of them. You don’t want to be wealthy in the 50 of them where you got lucky. So, we want to factor luck out of it.”

- Naval Ravikant

Recommended Links

• US Government Debt Since 1970
• ARK Has Destroyed A Lot of Wealth - Morningstar
• Are You Richer Than Your Peers? - Yahoo Finance
• Is Maximizing Credit Card Rewards Worth It? - Of Dollars and Data
• The One Big Thing You Can Do for Your Kids - Atlantic

Insight

The above insightful quote from Naval encapsulates a principle that every seasoned investor understands deeply: true wealth is not a result of mere chance but of consistent and sound investment strategies.

Recently, I had the pleasure of returning to my alma mater for my 20th college graduation anniversary. It was a trip down memory lane, filled with nostalgic reunions and reflections on the journey since our college days.

As a financial advisor, I find these events to be a bit of a mixed bag. Conversations often veer towards finances once people hear what I do for a living. Inevitably, some former classmates can’t resist bragging about their financial exploits. Others predicted with 100% certainty that the next 2008 was just around the corner. One friend claimed to have made money daydreaming from his smartphone while he was showering. Of course, the details of any failures were conspicuously absent from the narrative in each case.

My old roommate seems to have accumulated considerable wealth by putting most of his money in Apple stock. While I’m genuinely happy for his success, having studied what works in investing, these tales often elicit an internal eye-roll. It’s not because I doubt their stories, but because such anecdotes mislead many into believing that luck and timing are the cornerstones of successful investing.

The reality is starkly different. A few may indeed get lucky, but over time, relying on luck leads individual investors to significantly underperform compared to average market returns. The numbers don’t lie—most day traders lose money, and even those who make money in the short term often fail to sustain those gains over the long haul.

Good investing isn’t about catching lightning in a bottle. It’s about:

1. Holding Equities for the Long Term: Time in the market beats timing the market. The power of compounding works best when given time.

2. Diversifying Broadly via Indexes: Spreading investments across a wide range of sectors and geographies minimizes risk and captures the market’s overall growth.

3. Tilting Towards Additional Risk Factors: Emphasizing value stocks, small-cap stocks, and high-profitability companies can enhance returns, as these factors have historically outperformed the broader market.

4. Ignoring Forecasts and Financial Media: CNBC and similar outlets often focus on short-term market movements and sensational headlines. Successful investors focus instead on long-term goals and fundamental principles.

5. Living a Life of Generosity, Love, and Improvement: True wealth is not just measured by the size of your portfolio but by the quality of your life and relationships. Generosity, love, and continuous self-improvement are the real treasures.

Investing should be approached with the same mindset you’d use for planting a tree. You don’t dig it up every few days to check its roots; you water it, ensure it gets sunlight, and let time do the rest. In investing, patience, discipline, and a long-term perspective are your best friends. In the words of Warren Buffett, “The stock market is designed to transfer money from the Active to the Patient.”

So, the next time someone tells you about their bathroom-day-trading exploits or their all-in bet on a tech giant, smile and remember that true wealth is built steadily, not suddenly. Focus on what works: long-term, diversified, and disciplined investing. In doing so, you’ll find yourself wealthy not just in 50 out of 1,000 universes, but in nearly all of them.