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

Sunday, May 12, 2019

 

Delray Beach, FL.- 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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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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Why Modern Economics Gets It Wrong

Here’s some great wisdom from Alaisdar Macleod of Gold Money, via Casey Research.

There are four horsemen of the global economic apocalypse, all interlinked: the overburdened economy; broken banks; expensive interventionist governments; and a developing welfare and pension crisis. As a politician aptly described to me when I interviewed him a few months ago in Brussels, trying to squeeze out economic growth under these conditions is like trying to fly a plane with concrete wings. This simile applies best to the European Union, but it is also true in the US, Japan, and the UK.

The economic establishment will never understand the true causes of our economic problems by focusing on econometrics. For example, reliance on gross domestic product (GDP) is a major error. Faith in this money-total of all transactions is so ingrained that the fact it can only measure quantity, not quality, is never considered. GDP treats wasteful government bureaucracy and genuine production that satisfies consumer demand as one and the same. For that reason, GDP is not an accurate measure of progress.

As a result, the quality of economic transactions has deteriorated, and few seem to care or even notice. More government spending bolsters GDP, particularly when credit and money are issued out of thin air, which is why the Europeans so cherish their concrete wings. But it does not make us better off.

Monetarists also persist in their belief that the velocity of money is a predictive tool, either for changes in economic activity or the rate of inflation. This can be traced all the way back to David Ricardo at the time of the Napoleonic wars, who tried to link increases in gold quantity to increases in prices. Now, it is true that there is a very rough correlation between the two, but at the very best it was a summation of price effects when gold circulated as money, which it does not today. Today’s fiat currencies are devoid of all intrinsic value and depend on confidence for their purchasing power, which changes independently from supply factors, though supply can be an influence.

Ricardo suffered under the common delusion that prices were determined by costs, while any economist who truly understands prices knows that they are determined by the subjective opinions and desires of the consumer. Prices are not determined by a simple mathematical relationship, but rather people’s preferences for what they will buy and how much they will pay.

Monetarists unquestioningly rely on mathematics, which is only a valid method of study for the physical sciences. This leads them to ignore reality—like the reality that we earn our income once, and out of that we pay for our needs, pleasures, and savings—all on our own terms. Nor do we hoard our money, as they seem to think happens when velocity slows. There is no mathematical relationship to predict or illustrate these human dynamics.

It is no wonder that the greatest economist of the last century, Ludwig von Mises, wrote that “in the long run we are all dead” was the only correct declaration of the neo-British Cambridge school. He also concluded that Keynes merely wrote an apology for the prevailing policies of governments, a tradition followed by Keynesians and monetarists to this day.

You can read the full article here.

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On Gold

Two interesting perspectives on the gold standard.

The first is an op-ed from Paul Krugman.

Krugman acknowledges gold as a worthy investment.

Gold has been a very good investment since the early 2000s, and it’s probably not all bubble. One way to think about this is that gold is like a very long-term bond that’s protected from inflation; and actual long-term inflation-protected bonds have also seen big price increases, reflecting a general perception that there aren’t enough alternative good investments.

But likens the idea of a return to a “gold standard” to the Euro currency crisis.

Meanwhile, the modern world’s closest equivalent to the classical gold standard is the euro, which puts European countries back under more or less the same constraints they faced when gold ruled. It’s true that the European Central Bank can print money if it chooses to, but individual countries, like nations on the gold standard, can’t. And who would hold up these countries’ recent experience as an example of something we’d like to emulate?

On the other side of the aisle we have an interview with Walter Block over at Casey Research. Mr. Block sees the gold standard as a way to limit the governments power to artificially control and devalue our currency.

Walter: Right. Now, there are three – and only three – ways the government can get money. The first is to tax the people. The problem with that from the point of view of our masters is that everyone knows who’s doing it. The politicians can’t blame greedy capitalists or any others for what the tax-man does, and that’s a problem for them. The second source of revenue for the government is borrowing. But again, there’s a limit on how much you can borrow, because everyone knows who’s doing it – and has a good idea of how indebted the government is. The third way is much, much better from their point of view, and that is to create money out of thin air. That may be done via fractional reserve banking, or printing fiat currency, or whatever. This is good from their perspective because not one in 1,000 people, or maybe not one in 10,000, knows who’s doing it and that it is causing inflation. It’s theft on a grand scale, understood by so few, so they can get away with it.

I think it was Lenin who said that the best way to destroy an enemy is to debauch that country’s currency. That’s what these guys are: currency debauchers. Ben “the paper hanger” Bernanke is going berserk with his quantitative easing. There’s no more quantitative easing one, two, or three, its quantitative easing forever. Every month, billions of new dollars are pumped into the economy.

So the last thing the government wants is this barbaric relic to limit their spending to what they can actually tax and borrow. And that, of course, is why people like you, me, Doug, and like-minded others, favor the gold standard; we want the government handcuffed, so it can’t go around spending money it doesn’t have on unnecessary wars and other destructive and counterproductive things governments like to do.

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