Military Finance Report: August 2014

Saturday, August 23, 2014

Why I'm Not a Billionaire Yet...

To date, I’ve been unsuccessful at “beating the market” and becoming a self-made millionaire/billionaire through investing. In some years, I’ve beaten the market and professional investors; however, over 12 years of investing myself, I’ve managed to barely get a decent return compared to inflation. If I had put all my money into an Exchange Traded Funded (ETF) and have done no research or any active managing, I would have a significant higher rate of return. Here are some lessons and some recommendations I’ve learned which I’m hoping could help other self-managing investors.
·         Investing takes time. To be successful at investing, you must do a significant amount of research, all the time. You have to read books, stay current on events and research all types of market patterns, ranging from coffee prices, labor disputes, droughts in Russia to major political changes. The more you know about an investment’s “circle of influence” the better you’ll be at making a decision on when to buy. Personally, I do not spend the appropriate amount of time it takes to be extremely successful. Those who are successful make it a priority in their lives.

o   Recommendation: I recommend going to SeekingAlpha.com, Fool.com and Morningstar.com and Marketwatch.com to keep you updated.

·         Investing takes patience. One of the causes of losses in my portfolio has been a lack of patience. I jump into investments without sufficient data because I was impatient and was hoping to “get rich quick.” Or conversely, I’ve sold out of stocks because I was impatient with the slow rate of return. You have to be able to shut down your emotions while making investment choices. My obsession with becoming a millionaire has stopped me from being able to shut down my emotions. I recently joined some young people doing quick options and penny stocks and my emotions got the best of me and I jumped in without controlling my emotions. I’ve lost quite a bit of money doing the same thing with other investments.

o   Recommendation: Don’t jump into any investment unless you are fully prepared. Know where your entry and exit points are. Know how much you expect to profit from each investment.

·         Investing takes persistence. Gone are the days when individual investors can invest and forget. If you are going to manage your own investments then you must be active. This doesn’t mean day trading but it does mean spending a lot of time each day evaluating your investment objectives. I don’t have persistence and if I do, it’s inconsistent. If I pick some good investments, I start to become complacent. If I lose too much money, I’ll become disheartened and turn away from investing. My lack of persistence has left me on the sidelines during bull market runs and left me holding on while all my stocks dropped during bear markets.

o   Recommendation: I recommend checking your news sources daily and then focus on your strategy’s results on the weekends. Utilize trackers to measure your performance and compare to the market or similar investments. You may have earned a profit but was it less than a passively-managed strategy? This persistent evaluation will keep you on track with your goals and help make minor corrections at the correct time.

·         The power of dividends. For almost a decade, I had ignored the power of dividends. I spent most of my time trying to find the next Apple (AAPL). Many investors who focus primarily on dividends may never see their portfolio totals skyrocket in a couple of days or months, but over time they will consistently match or exceed the market because the dividends are reinvested during bear markets and then the stock rebounds giving you more capital gains and more dividend income. Many “boring” companies also increase their dividends throughout the years. So your $1,000 investment earning a 4% dividend 10 years ago but would now be getting an 8% dividend because the company kept increasing its dividend yield.

o   Recommendation: When using stock filters always consider dividend yield and dividend growth. If you are investing in mutual funds, consider high-yield or income based funds.
 If you are looking at becoming a self-made millionaire/billionaire in the stock market, then I hope this has helped you. But even for those just starting out, I hope this information has helped.