Many of you that read the below will probably think how I invest is a little reckless. Maybe even a little crazy. But it works for me so I thought I would share my investing philosophy.
But a bit of history first.
As a younger man, I think I was about 23 years old, I tried many different types of investing. After all, aren’t we told to be safe, invest wisely and build a nice nest-egg? I did relatively well turning a $5000 initial investment into a handy $25,000 stock portfolio. I did all the research and trading myself before a little glint of greed twinkled in my eye. I decided to hand over my portfolio to a broker who recommended trying Contracts for Difference (CFDs) which went pretty well. Within 6 months, that $25,000 investment became a heavily margined $650,000 portfolio that most days was bringing in several thousand dollars in profit (my biggest day was $19,000). All profits were extracted weekly and routed into a stock portfolio that targeted a particular mining company that was “set to boom”. I still remember the words of my broker – “It’s ten cents now on it’s way to $1 per share. When it breaks $1, it will move steadily towards $10. You’ll be retired by 30”. Naïve and overly optimistic, I broke a fundamental rule of investing and put all my eggs in one basket. The basket burst when the Australian government signed some legislation that caused the 10 cent share price to plummet. Goodbye mining stocks. In parallel to this, I saw sudden market changes cause the value of my CFD portfolio to plummet too. Just like that, all my stop losses were enacted (very luckily I might add) and I was out. I left that trading scene with $38,000 so technically I still made a handy profit (and had 7 or 8 wonderful holidays that year) but the days of the ups and downs of the CFD market were over for me. I wasn’t sad about this.
I then moved onto what I called “Professional Sports Betting” – whatever the hell that means! I loved sports and had a great time researching and planning. A normal day for me usually netted between $1000 – $1500 profit which, for a young man, was plenty of money. This enterprise was surprisingly successful but of course, the inevitable greed crept it, I changed the carefully selected rules and began to lose. In the end, I walked away with my initial investment and a little bit extra but my “Professional Sports Betting” days were over too. I wasn’t sad about this either. When it is all said and done, I’m glad I tried these avenues. Whilst I have never been a “chasing the big money” kind of guy, and I am not sure why I did in these instances, it has certainly helped me develop my own investing strategy which has proven fruitful ever since.
The primary principles behind how I invest are:
How sustainable are the results I am looking for?
What is the true value of where I choose to invest?
What do the results I seek look like?
Let’s talk results first. What am I actually trying to achieve by investing? Now my interpretation of investing is likely to be different than others. I see investing as a definition of where I choose to allocate available cash flow and time. The allocation of these two things are directed to activities that create some form of growth whether it be capability, opportunity or income.
The results I am seeking are:
Increased personal capabilities
Continuous improvement of my personal capabilities (note: this does not only relate to professional capabilities or skills).
Increased capabilities within my immediate network
Continuous improvement of the capabilities of those in my immediate network. Many hands make light work.
An increased capability, both personally and within my network, should see increased opportunities in both professional and personal circles
Greater skills base and balanced approach to life should translate to opportunities for increased income.
The approach I have followed has, and continues to, achieve the above. And it compounds.
So, let’s look at how I invest my time and available cash flow to achieve the above.
Let’s start with time.
I have made a conscious choice to value time highly. I spend my time in two ways:
1. Doing things that make myself and others happy.
My true happiness is aligned with the service I provide my family, friends, and colleagues. I focus on creating happiness in the work that I do.
2. Only working on things that add value to my life and those around me.
I have also made a conscious choice to value my available cash flow and use it wisely. I consider my available cash flow as available funds after paying the essentials such as mortgage, food, utilities, insurances etc.
I maximise the amount of available cash flow by choosing not to waste money on unnecessary items. Said another way, I maximise the amount of available cash flow to route as much towards activities that seek to achieve the results listed above.
What does this look like? Well, maybe it is easier to think about what this doesn’t look like first…
I do not;
– Engage in negative conversations or entertain negative people.
– Drink alcohol, smoke cigarettes or spend my time sitting in bars or nightclubs.
– Feel the need to purchase designer clothes, cars or luxury items.
– Perform mundane tasks that add little or no value.
– Prioritise material goods above experiences and personal connections.
Sounds boring? It isn’t. This approach has led to the development of a fulfilled life that I find is quite exciting and entertaining.
Choosing to eliminate the unnecessary items above has allowed me to route a lot of my available cash flow to activities that are not only rewarding in the short term. They lay the foundation of a sustainable platform that ensures that life continues to get better.
At a tactical level, how do I invest to achieve the results above?
The philosophy is to invest in things I can actually control. Can I control the price of a CFD? Nope. Can I control the outcome of a sporting event? Nope. I can control what I understand and make an informed decision as possible but the reality is that the likelihood I would have the ability or the knowledge to control the outcome is very, very low.
I choose to invest in myself. And that involves making myself a better person and improving the capabilities of the network of people around me.
Investing in myself means;
Financially, I focus on the generation of new income that I can develop and control.
I’d rather invest $10K in establishing a new website than putting $10K in shares. For one, the financial returns are usually better but the enjoyment of the process and personal connections it creates is much more rewarding than daily reviews of a stock portfolio dashboard. Wherever possible, I buy more income through establishing new business ventures, acquiring websites that I can add to the portfolio or investing in other enterprises. This seems to have a compounding effect.
Learning new things regularly.
It involves investing both time and money in always striving to learn more. I read voraciously (whether it be free information online or through the books I purchase). I do my best to complete training courses online that I feel are valuable. I try to follow an expert-generalist approach as opposed to becoming a highly specialised expert in one area. This allows me to bring in learnings from other disciplines to develop a unique world view. As an example, I have used certain permaculture principles in the establishment of my company (sounds crazy right?).
Building a capable network of people around me.
This forms two functions:
1. Surrounding myself with people who have an attitude and approach to life that is positive and proactive.
2. Surrounding myself with highly capable people who can help progress their own and my interest areas.
The majority of my employees fit this category and in building a transparent working environment, we have been able to collectively flourish. I invest time and money in building this network.
Giving to others is what makes me happy.
Understanding this, I proactively invest in the wellbeing of others. I figure this is common sense as a happier world means an easier, happier and more productive world for me to live in.
To summarise, investing in yourself is as sure a bet as you can make. You can, as much as practical, control the outcomes through being clever, hard-working and considered. Investing on purchasing more income is a strategy that compounds over time and enables smart distribution of that income to provide more opportunities. Distributing that income to activities that increase your personal capability or the capability of those close to you is a great way to open doors. Distributing that income to make your immediate surroundings a little happier is a smart move – a happier world usually equates to a happier you.
Being the richest (financially) person in your street does not equate happiness. Let me know in the comments below how you invest to build your happiness.