I’ve read a handful of investment books over the years and always appreciated how well the principles relate to everyday life. Apparently, the characteristics required to be a successful investor lend themselves fantastically to a successful life. Who would of guessed…
Here’s a list of 7 principles I’ve accumulated that have helped me in investing as well as daily life.
ROI measures gains or losses generated relative to the amount of money invested.
Apply this principle to time to be mindful of your greatest returns. The gain or loss can be measured by whatever you deem a valuable result of your time – how much was learned, the connections made, experiences gained, etc.
The best way to apply this principle is by asking yourself am I making the best use of my time right now? Check in a few times a day with this question and reflect on where you invest your time.
The importance of this far outweighs investing money because unlike money, time is always being spent or invested. There is no bank account to save time and nothing invested can produce more time so it's critical to make sure you invest it wisely.
In investment terms, this means only buy investments in which you’re confident the valuation of what you receive matches what you pay. Shares of a company may be grossly inflated for a variety of reasons (expected potential, popular brand, etc.) but Buffet only believes in buying something in which he (not the market) deems the value worth or greater than the price. He does this through his own formula for evaluating a company.
In daily life, the monetary ($) price of something is easy to see but it’s important to have a personal formula for discovering what the value you expect to receive from the product or service is. This drastically changes your spending habits for the better. For example:
If you’re paying for fitness classes, the service you receive might be an hour of fitness per week but having a healthy body might be a value you realize for years to come and across many areas of your life.
A product is a little more complex, if you pay a price of $120 for a pair of shoes, what (beyond the price) is the value of those shoes? Of course, its subjective but its' reached by asking questions like - How many times am I going to wear these? Am I paying this price based on the brand alone or the quality behind the brand? Could another more affordable pair, do the same job? What does it mean to me to have this pair of shoes?
You do not have to enter deep philosophical thought about a pair of shoes to reach an outcome but it benefits you just by asking the questions.They'll have you considering value and price in a different way, perhaps revealing that things you previously thought worth a big price, aren't worth it.
The principle has pushed myself into questioning paying high prices for premium brand names. I definitely see the value in a large brand trusted for it's quality and service but at what point does the price become ridiculous for the product or service offered? And does the quality match the status of brand. Today more than ever, premium brands regularly take shortcuts to maximize profits at the cost of quality.
Next time your purchasing something just ask yourself is the value I’m receiving here worth the price?
When receiving new information, it can be easy to accept things as truth but this is lazy and will regularly backfire. It's always worth the time to question information and it's source.
A mentor of mine, and property investor, has a cardinal rule to always look “behind the curtain” when viewing new properties. Often the seller will hide negative things about a property in order to appeal to buyers and sell quickly. This is common in the investing world so his rule is to never accept the word of the seller and always require documents to support any claims about potential opportunities.
This principle is relevant everywhere. Never just follow a trend because the majority agrees. Question everything.
Always look to see what's behind the curtain.
This usually refers to stocks, shares, and investments that are not performing well. Investor advise to not allow emotions to convince you they’re anything but bad performers. In life, this applies to your network. It sounds cold but it's necessary.
“Show me your friends and I’ll show you your future.” Mark Ambrose
The cost of maintaining a relationship with someone that drags you down is tremendous. It’s never worth beginning a relationship like this and for those you already hold, it’s a lie to convince yourself you’re doing anything righteous or good by sticking around. In fact, cutting them out may be the only thing the triggers they’re change.
Guard the relationships that are valuable to you and quickly remove ones that hurt you.
When the world is going crazy, perhaps during a pandemic… it can be easy to get caught up in the mania but this leads to irrational and emotional behavior.
Appeal to your logic, repeat principle #3 and make calm, thoughtful decisions.
Lack of knowledge and understanding is where all the risk, danger and fear come from. Forrest Galante is a nature documentarian, known as the current day Steve Erwin.
On a recent radio interview, he was asked how he overcame everybody else’s rational fear of snakes and other predatory creatures and this was his response:
“I’m not any less fearful, I still have fear now and as a child I was constantly scared of these animals but overtime I exposed myself slowly to them and now I just understand the dangers enough that I can mentally handle it.”
Overcoming fear and managing risks is done by building an understanding of the perceived risk or fear. Avoiding it completely usually feeds the risk and danger associated with it.
This one is especially relevant today, we should always have expectations for the best outcome but to have the surest chance we reach the best outcome we have to prepare as if the worst will come true.
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