Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Many Stock Market Investors Get Rich Out By Sheer Luck

InvestorEducation / Investing 2018 Jan 18, 2018 - 02:10 AM GMT

By: John_Mauldin

InvestorEducation

BY JARED DILLIAN : This is a story I have never told before and will never tell again.

I actually got my start in investing in a stock-picking competition in middle school. I picked Wang Laboratories…

Because…

WANG

Thirteen-year-old humor. Anyway, Wang was a flop, and I lost money on it. Talk about dating yourself—the old-timers will recall that Wang was actually an AMEX stock, the old curb exchange. I do miss the AMEX.


I entered another stock-picking contest my senior year of high school, in my economics class. This one was a bit more involved—my team was competing against teams throughout the state, and every week we would get a printout of the results taped to the wall in the classroom.

The economics class was full of jocks, including most of the guys I was on the wrestling team with, along with lots of the popular girls. My team was the jocks and popular girls and me. I was under a lot of pressure to come up with an idea.

Someone had actually given me a tip earlier in the year. Novell, a software company, from Provo, Utah. I think the idea was that you were supposed to build a diversified portfolio of stocks, but I just put it all in Novell.

It worked. We were one of the top teams in the state.

I actually got invited to a Board of Directors meeting at my school to talk about how we did it. I made up some nonsense that must have sounded absolutely ridiculous. I had no idea what I was talking about.

Upon reflection, all of this took place in late 1991/early 1992, and the stock market wasn’t doing so hot. About 90% of the teams in this stock market contest lost money. Even being long Novell, we made only about 15% in a few months. That’s pretty crappy on an absolute basis, but great for the middle of a bear market.

Anyway, I had inadvertently stumbled across the number one way to get rich in America: put it all in one tech stock and hang on. That was a lesson I did not internalize. I was smart enough to understand that we won based on sheer luck. Then again, a lot of people in this country get rich on sheer luck.

But Is It Luck?

Take Jeff Bezos, or Mark Zuckerberg. Two of the richest people in the world. How did they get rich? They had one tech stock (in both cases, millions of shares) and never sold. Zuckerberg is selling now, which is smart—you have to turn it into food at some point. But basically these guys invested in themselves and compounded at a ridiculous rate. They put all their eggs in one basket.

If Zuckerberg had taken Peter Thiel’s $500,000 in 2004 and put it in the S&P 500, he would have a lot less than he has today. It still would have been a great investment—I think a lot of people would be happy holding the S&P 500 from 2004 to 2018. But if you are going to be one of the richest people in the world, you have to compound a lot faster than that.

I think about compounding a lot. There aren’t many businesses that compound at 100% a year. A food truck is not going to compound at 100%. A homebuilder is not going to compound at 100%. A car dealership is not going to compound at 100%.

Pretty much the only thing that does is tech. One of the reasons Facebook paid so much for WhatsApp was its explosive user growth. It ended up not being worth $19 billion, but it looked like it would be.

Thing is, not all of us can work in tech. The type of growth rates that pushed Bezos to $100 billion are an anomaly, and probably won’t exist again for a generation or two. Even Buffett, who has beaten the S&P handily since inception, has had a tough time doing it the last few years.

The One Piece of Advice

Back to Bezos and Zuckerberg and compounding at 100%. This is why I love entrepreneurship—I would never tell you to take $100,000 and put it in SPY instead of investing in yourself. (If you invest in ETFs, I suggest you download my free exclusive report, 5 ETF Strategies Every Investor Should Know)

I don’t know if you’ve ever seen The Founder, about Ray Kroc, but the movie portrays his first wife as a bit of a suckapotamus, always throwing cold water on his ideas. Sure, starting a business is risky. It is also fun!

If you have an idea, you need to think big, and execute on it. If you have and idea, you need to think big and execute on it. There are people who think big but can’t execute. There are people who think small but can execute.

Few can do both.

Here’s the remarkable thing about both Bezos and Zuckerberg—they retained so much ownership in their companies through the fundraising process, through the IPO, and into maturity. People who think big, execute, and see it all the way through to the end are exceptionally rare.

Remember: diversification is for people who don’t know what they are doing. Which is most people. But if you have an edge, or you’re betting on yourself, put all your eggs in one basket in the stock-picking contest of life. For everyone else, there are target retirement date funds.

Grab Jared Dillian’s Exclusive Special Report, Investing in the Age of the Everything Bubble

As a Wall Street veteran and former Lehman Brothers head of ETF trading, Jared Dillian has traded through two bear markets.

Now, he’s staking his reputation on a call that a downturn is coming. And soon.

In this special report, you will learn how to properly position your portfolio for the coming bloodbath. Claim your FREE copy now.

John Mauldin Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules