My Partner Is Much Richer Than I Am – So Why Don’t I Invest Like He Does?

Bill Bonner (partner/mentor/friend) made a massive fortune by investing 80% of his time and money in a single business. He is a cautious investor. But he’s also – from my perspective – a very courageous and committed investor. He sticks to one thing.

I’ve made my fortune, less impressive than Bill’s, by hedging my bets. I invest 80% of my time but less than half of my investible income on my main business. The rest is in proven, income-producing assets that grow without much prodding from me.

I don’t regret investing the way I do. Had I followed Bill’s path, my net worth might have been only a fraction of what it is today.

It comes down to this: To my mind, the most important factor in investment success has to do with psychology. Not the market’s insane psychology, but my own. That’s what I was thinking while reading an interview with Aswath Damodaran, a finance professor at NYU’s Stern School of Business, in Forbes recently.

I liked this bit particularly:

I tell people that the person you have to understand best to be a good investor is yourself. It’s not enough to understand what Warren Buffett does and [what] Peter Lynch does. It might surprise people, [but] I spend very little time reading investment books…

We live in a Google Search world. People think that if they search long enough, they can [find] answers to their questions, when in fact what they need to do is to stop and think about the questions and think through their answers.

We need to own our own investment philosophies. We need to think through what we think about markets.

If you have a deep understanding of macroeconomics, the investment markets, and you are a courageous and committed investor, you should invest the way Bill does. But if you have only a superficial understanding of those worlds and limited confidence, you may be better taking my approach: Work your ass off, focus on income, favor investments that you understand, and employ the three cardinal rules of investment safety: diversification, position sizing, and stop-loss strategies.

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Bill Bonner’s Diary – Some things definitely evolve… but has the US economy or its culture improved in the last 70 years? In this essay, Bill Bonner converses with a ghost… LINK

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The Making of a Modern Debt Slave

Another great article from Bill Bonner over at Laissez Faire Club. If you have children…or grandchildren, you’ll want to read this.

Today, the U.S. lumbers into the future with total debt equal to about 350% of GDP. In Britain and Japan, the total is over 500%. Debt, remember, is the homage that the future pays to the past. It has to be carried, serviced… and paid. It has to be reckoned with… one way or another.

And the cost of carrying debt is going up! Over the last few weeks, interest rates have moved up by about 15% — an astounding increase for the sluggish debt market. How long will it be before long-term borrowing rates are back to “normal”?

At 5% interest, a debt that measures 3.5 times your revenue will cost about one-sixth of your income. Before taxes. After tax, you will have to work about one day a week to keep up with it (to say nothing of paying it off!).

That’s a heavy burden. It is especially disagreeable when someone else ran up the debt. Then you are a debt slave. That is the situation of young people today. They must face their parents’ debt. Even serfs in the Dark Ages had it better. They had to work only one day out of 10 for their lords and masters.

As it stands, young people in the U.S., Europe and Japan are expected to work their whole lives to pay for things their parents and grandparents consumed decades earlier.

But wait… it’s worse than that.

Click here to read the full essay.

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Achieve More With a Mentor

This essay was originally published on January 14th, 2006 for Early To Rise 

“It can be no dishonor to learn from others when they speak good sense.”

– Sophocles

A man looks back on his life and says, “I wish I knew then what I know now.”

It can take a decade or more to become the successful person you want to be, but you can shorten your learning curve – even drastically curtail it – by using a mentor.

With the advice, experience, and support of an experienced person in your field, you can avoid the most common mistakes you are likely to make. You overcome the stickiest problems and find shortcuts to success.

It doesn’t really matter where you are along your career path, getting yourself a good mentor will be enormously valuable for you.

A survey commissioned by the Elliot Leadership Institute at Johnson & Wales University confirms this. For this particular study, researchers surveyed senior executives and middle managers in the food service and hospitality industry about leadership competencies. What they discovered was that leaders who had been mentored felt the experience invaluable. They said their mentors helped them build all kinds of leadership skills, including decision-making, strategic thinking, planning, coaching, and effectively managing others.

In Early to Rise, I’ve often talked about the mentors in my own business life. From Leo, my first post-college boss, I learned the importance of persistence and dogged determination. Leo once had me call Honda Motors more than 100 times to convince them to give us a new engine after the one we had died (from lack of oil). We hadn’t a single, sensible argument in our favor, but that didn’t stop Leo from pushing me. Finally, after I got all the way to the top, the Honda executive leadership decided they had wasted too much time on us and gave in. I didn’t feel good about getting something we didn’t deserve, but I never forgot that lesson in persistence.

From Joel, my second major mentor, I learned a great deal. The first lesson he taught me – by firing the lady who wanted to get me fired – was that a good leader needs to surround himself with the strongest people he can find. Another lesson I learned soon thereafter had to do with the fundamental nature of business.

“Until you make a sale,” Joel explained patiently, “nothing else happens.”

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Discovering Warren Buffet’s Secret

During my trip to South Africa and Australia last year, my business partner Bill Bonner and I had a conversation that should interest you. For those of you who don’t know, Bill and I worked together to found Agora publishing.

We were speaking about our company’s future. Right now, Agora is a $400-plus million publishing business with high profitability and good growth. By any conventional standards, it is a great business. But Bill is not satisfied. His goal is to make Agora a business that will last a hundred years. Very few businesses are able to do that.

To accomplish Bill’s goal, Agora will have to develop what Warren Buffet calls a “long-term, durable competitive advantage.”

Coca-Cola is a perfect example of what I’m talking about. Coca-Cola has been selling the same product since 1892. It spent money inventing its core product over one hundred years ago. Today, it spends very little money on research and development. It also has low manufacturing costs, since the machinery required to make Coke rarely needs updating.

These factors give Coca-Cola a big, long-term advantage. They can devote all the money they don’t spend on research, development, and manufacturing to marketing. That is how Coca-Cola stays way ahead of its competition.

This got me thinking about investing. Coca-Cola is one of the companies that Warren Buffet invested in many years ago. After losing money by investing in some speculative opportunities, Buffett realized he would be much better off investing in businesses that were more established and had distinct competitive advantages—businesses like Coca-Cola, Kraft Foods, and American Express. Berkshire Hathaway, his holding company, owns these kinds of companies. He buys them and holds them. If their share prices drop, he doesn’t sell them. He buys more shares. His goal is not year-by-year profits, but owning more and more shares of great companies.

This strategy is very different from what most professional investors use. Yet, it works. In fact, it works very well. Everyone acknowledges that Buffet is the most successful investor in history.

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The Nation’s Most Misunderstood Man

Alexander Green has written a fantastic essay on General Robert E. Lee, over at

I’ve included a passage here:

When the war broke out, Northern newspapers branded Lee – a distinguished officer who turned down Lincoln’s offer to lead the Union army – a traitorous lowlife, a Benedict Arnold who believed one man could own another as he might own a horse or a set of dishes.

Yet this perception is wrong. For starters, the Civil War was not just about slavery. Abraham Lincoln – who failed to carry a single Southern or border state – campaigned on a platform of not interfering with slavery anywhere it was legal, even pledging to maintain it if it would preserve the Union. Not all slave states joined the Confederacy. And almost ninety percent of whites in the South did not own slaves.

Yes, the Civil War was partly about slavery, but it was also about states rights and the limits of a still-young and newly ascendant federal government. In his conversations and letters, Lee – a committed Christian – consistently condemned slavery as unnatural, ungodly, impractical and morally abhorrent. Nor did he support the Southern states right to succeed, calling it “nothing less than a revolution.” 

So why did he turn down Lincoln’s offer to lead Union forces? After all, this was America’s highest field command, an opportunity to earn not just the President’s gratitude but unparalleled reward and national glory. 

The answer can be found in Lee’s deep Virginia roots. His father, “Light Horse Harry Lee,” was a Revolutionary War hero who fought beside George Washington and was later the state governor and a member of Congress. Yet when Harry defended a friend who published a newspaper opposing the War of 1812, he was attacked by a mob and nearly beaten to death. Disfigured and permanently disabled, he abandoned his wife and children for Barbados, leaving his son to raise his siblings and care for his invalid mother.

Robert was eleven at the time. He quickly learned how to handle responsibility, went on to graduate second in his class at West Point and distinguished himself during the Mexican War in 1847. The American general in chief, Winfield Scott, called Lee the finest soldier he had ever seen. 

Yet Lee said he would not raise a sword against his fellow Virginians. As the war approached, he resigned his commission in the U.S. Army to head the Virginia state militia, taking command of Confederate troops only after Virginia later voted to secede.

You can read the rest here.


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The American War Racket

Here is an excerpt from an article written by Bill Bonner earlier this week for the Daily Reckoning:
War is a racket. Always has been. Major Gen. Smedley D. Butler explains:

“[War] is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.”

A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small “inside” group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many.

When George Bush was making gleeful threats to get us into a war with Iraq I told my Jiu Jitsu buddies that it would end badly. My prediction did not please them. The martial arts tends to attract people interested in martial activities. They seem to have an inbuilt propensity for war.
America’s two war-general presidents warned us against war. George Washington cautioned against getting into “foreign entanglements” and President Eisenhower predicted that the “military-industrial complex” would see to it that we were never not in a war. They were both right but that doesn’t dim the enthusiasm average American citizens have for it, despite its terrible cost in dollars and lives.
Read the rest of Bill’s article here.
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What Happens When the World Economy “Goes Japan”

Here is a great essay by my colleague Bill Bonner that he wrote for the Daily Reckoning earlier this week:

The Dow sinking.

Gold sinking.

Oil sinking.

Copper sinking.

Yields sinking.

We struggled with this, Dear Reader. We meditated. We prayed. We drank heavily.

And finally…we overcame the rank desire to say: “We told you so!”

Click here to continue reading…

“What Happens When the World Economy “Goes Japan” 

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Must You Be Cutthroat to Succeed in Business?

“I come from a poor family. I want to start a business and make money to help them. But when I see successful businesspeople depicted on TV and in the movies, it seems like lying and cheating and screwing people is the way to go. I’m worried. Is that what I’m going to have to do?”

This question was posed just after I had given a presentation on entrepreneurship to a group of MBA candidates at Florida Atlantic University. I was momentarily startled by it. I was sure I hadn’t said anything that suggested success in business requires a cutthroat approach.

Still, the question was understandable. When Hollywood shows us business and businesspeople, it is more often than not in a negative light. And when Wall Street, the banking community, and the insurance industry screw their clients – as they’ve done so notoriously – how could any young person think differently?

So I told the young people in my audience what I’m about to tell you.

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How to Become a “Really” Good Writer

There is nothing good writers like to argue about more than what constitutes good writing.

In my 30+ years in the publishing business I have taken part in my share of arguments about good writing. Many of them were lively. But few, if any, were ever resolved.

Of course you can’t agree on what’s good about anything unless you begin with a definition of “good” that is both mutually agreeable and objective. Put differently, it’s impossible to have a useful discussion of good if by good you mean “It pleases me.”

Three people read Walt Whitman’s I Sing the Body Electric.

One person says it isn’t any good because the meter is awkward and because it does not rhyme. “I like only poetry that is regular and rhymes,” he says.

The second person says the poem is great because it evokes beautiful images. He quotes snippets: “The bodies of men and women engirth me” and “framers bare-armed framing a house.”

The third person says it’s “just okay.” What pleases him about poetry is what Ezra Pound called melopoeia – the emotional impact of the musicality of the language. “I got some of that from the poem,” he says, “but not enough.”

Such conversations are dead from the start because they don’t have an objective measure of “goodness” everyone can agree on.

But most discussions about good writing are worse than that because the participants don’t even articulate their underlying preferences. Indeed, they may not even be aware of them.

The ancient Greeks had similarly volatile discussions about what constitutes good drama. They, too, had lots of strongly held opinions but no objective criteria on which to posit their opinions. In 335 BC, Aristotle solved this problem with history’s greatest essay on literary theory: The Poetics. In that essay he attempted to articulate what made “great” Greek theater great.

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