“Do not say little in many words but a great deal in a few.” – Pythagoras

 

6 Cuss Words I’m Trying to Include in My Conversations 

I must be going through some sort of nostalgia phase. I’m watching old movies, rereading books I read when I was young, and studying history.

Recently, I came across a list of antiquated cuss words that made me wish I was living back when I could work them into my conversations. Maybe I still can!

Here are six (from Merriam-Webster) for your consideration:

 

  1. Thunderation 

Thunderation has gone through some evolution as a swear word. It’s a lighter, more appropriate version of “tarnation,” which is in turn a lightening of “damnation.” This term came to popularity in the 1850s and faded in the late 1950s. And it should come back. It can be used in the same way as “Hell!” or “Damn!” Example: “Thunderation, that’s a strong horse! You can barely control it!”

 

  1. Swounds 

Much in the same way as thunderation, swounds is a proper swear word. It’s a shortening of “God’s wounds,” a common oath used in the Middle Ages that refers to the wounds in Christ’s crucifixion. There are a number of similar terms, such as “strewth,” which means God’s strength. Example: “Swounds! What a horrible accident!”

 

  1. Bloody Nora 

Cockney slang is a very specific style of speech native to England. London, in particular. By creating rhyming phrases, speakers of Cockney slang had a unique vocabulary that almost operated as a secret code. “Bloody Nora” is an example of such slang – a stand-in for “flaming horror.” It can be used as a description, such as, “You look like a Bloody Nora!” Although this is best done with your worst/best Michael Caine impression to really sell it.

 

  1. Sard 

During the medieval period, “sard” was a popular alternative for, we’ll call it, “seducing a woman.” It phased out in the 1600s, and hasn’t been used since. But it flows off the tongue well and doesn’t sound as vulgar as some modern-day alternatives. Example: “I’m going to sard her and even stay for breakfast afterwards.”

 

  1. Quim 

Quim actually had a very short resurgence in 2012, when the first Avengers movie came out. Loki, the villain of the movie, calls Black Widow a “mewling quim” in order to shock and insult her into giving him information. It ultimately doesn’t work, but it brought “quim” to the public consciousness, where it hadn’t been for a long time. “Quim” refers to the female anatomy, and is one of the more insulting ways to refer to it. It’s not a term that should be used lightly, but as a more archaic insult, it has value.

 

  1. Fustilarian 

Fustilarian is a Shakespearean word, and is a beautiful way to insult someone (especially when they don’t know what it means). The word was first used by Shakespeare in Henry IV in a string of insults by Falstaff to a woman who is on the scene when he is arrested: “Away, you scullion, you rampallion, you fustilarian! I’ll tickle your catastrophe.”

Fustilarious is an adjective meaning low/common and foul smelling. When you call someone a fustilarian, you’re calling him a low fellow, and a stinky one to boot. The word is very rare, passing out of fashion almost as soon as it was coined… which means it’s prime for a comeback.

 

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Greed Is Bad; Gold Is Good 

David Forest, editor of “The Strategic Investor,” believes we are in the early stages of a “historic gold bull market.”

Main Reason: Fed Money Printing – “Since the market crash in March, the Federal Reserve has pumped out $3 trillion in new money supply. And there’s more coming.”

Eventually, there will be a crash, Forest says. And when that happens, people typically move to gold. But, he says, don’t expect gold to shoot up immediately.

“During [financial] crises, people sell everything. That includes physical gold. We saw that back in March, when the gold price dropped 12% in nine days – even as the gold supply dropped as mines halted production due to the coronavirus restrictions….

“In 2008, the Dow lost 53%. Gold bullion dropped from $1000 per ounce to $700.

But although it took the Dow four years to recoup its losses, gold quickly rebounded. By September 2009, it was back to $1000. It then soared to a record $1927.70 in 2011….

“Many people don’t realize, but the troubled 1930s were the same. Gold mining was one of the few industries that prospered.”

So Forest recommends stocking up on physical gold and, if you like to speculate, taking a position in a gold mining stock, since gold mining stocks often accelerate exponentially when gold prices rise.

But whatever you do, don’t panic if in the initial few days or weeks of the crash, gold prices drop. If history repeats, they’ll come back again and stronger.

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The latest issue of AWAI’s Barefoot Writer

In this issue:

* What Writers Want Right Now to Get Through 2020 and Thrive Beyond

* Life-Size Ace in Your Back Pocket

* How to Stay Motivated in a World of Weirdness

* Caples’ Kickoff Strategy for Irresistible Copy

* How to Avoid Writing With a Question Mark Over Your Head

* I Wasn’t Built for This; I Am What I Am (or Yam)

Click here to read the October issue.

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A peek inside my palm tree garden…

Situated on 10 acres in West Delray Beach, Florida, Paradise Palms & Sculpture Gardens has one of the largest and best-curated private palmetums in the world, as well as a stock of African cycads and dozens of other exotic botanicals.

Click here to see a Butterfly Palm (a.k.a. Areca Palm, Bamboo Palm, or Cane Palm) located on the west border of the park in the Cuba section.

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“The essence of strategy is choosing what not to do.” – Michael Porter

 

How to Make More Money Than Wall Street Wants You to Make 

The investment “advisory” business in America is a huge, multibillion-dollar industry populated with smart, sophisticated, and ambitious people. It’s a world in itself, supported by computerized systems and algorithms equal to or better than NASA. But it’s at least partly based on one widely accepted and respected lie.

 

The lie is that you can grow wealthy safely and surely by investing in some sensible combination of stocks and bonds.

It’s not a big, black lie. Because it’s sort of true… can be true… has been true… at certain times, in certain circumstances, for certain people.

The truth is that limiting your wealth-building strategy to stocks and bonds is a mistake. In most cases, a big mistake.

When you limit your investing to stocks and bonds, the best you can hope for over the long term is to make an average return for stocks and bonds. That’s about 5.5% for non-taxable government bonds and 10% for taxable stocks. Most financial advisors recommend, depending on your age and net worth, a split between stocks and bonds of 60/40 to 40/60. That would give you an average return of about 7% to 8%.

The easiest and cheapest way to achieve a long-term return of 7% to 8% would be to buy one no-load stock fund (like the Vanguard 500 Index Fund) and one bond fund (like the Fidelity Total Bond Fund). Index stock funds and total bond funds are designed to track the markets – i.e., give you returns equal to the stock and bond markets. Limiting yourself to one reliable stock fund and one reliable bond fund is the simplest and easiest way to achieve that sort of 7% to 8% long-term result.

And that’s not bad. You can, indeed, become wealthy that way if…

* You start with a sizeable one-time investment of, say, $100,000, or…

* You contribute a sizeable amount of, say, $10,000+ each and every year, and…

* You have 30 or 40 years ahead of you before you retire.

Or you can try to beat the averages by doing your own research and/or getting advice from a broker and creating a portfolio of individual stocks/bonds of your choosing. If you are going to do that, be prepared to work hard and be very disciplined. Most individual investors that take this route end up achieving average returns that are actually much lower than stock and bond market averages. Instead of getting the 50+% returns they are hoping for, they actually earn, on average, less than half the 7% to 8% they could get by investing in index funds.

If you opt for putting all your investment dollars into conservative stock and bond funds, you have to be satisfied with the 7% to 8% returns you will probably achieve. But if you’d like to earn more than that safely, there are ways. I am going to tell you about one of them. One that I know very well… because I developed it myself.

 

A Different Approach to Building Wealth 

This is not some theoretical strategy I learned from reading books on investing or talking to financial advisors. It’s the result of making and losing money over the course of many years.

Like any strategy, it has don’ts and dos. The don’ts are those investment schemes that looked great when I first tried them, but failed me in practice. The dos are the few that worked for me consistently over time.

One of the reasons this strategy worked for me – and may not for you – is that it was calibrated to my own particular wealth-building mentality. (See Monday’s blog.)

For one thing, I am not much interested in the game of investing. I find it tedious, even boring. I don’t believe it actually is tedious and boring. The best investment analysts are not just smart but also immensely interested in the subject matter of investment. I’m not. So that’s something to keep in mind.

Second, I am deeply and purposefully lazy. I am always looking to get the best result from the least amount of work. I shouldn’t say the best result. I should say a satisfactory result. If I can score a 90 on a test by studying one hour and a 100 by studying 5 hours, I am satisfied with the 90.

Third, I am a fast but not a careful thinker. I like gathering what seem to be the important facts, and then coming to quick conclusions about them. I don’t like reviewing details. And I definitely don’t like reviewing my decisions, if I don’t have to.

And finally, although I am not, by nature, a patient person, I have learned to be patient about building wealth. That means my approach is appropriate for you if you have at least 10 years to let it do its magic.

These characteristics rule out my involvement in a few perfectly good investment strategies. Strategies that some of my more industrious, punctilious, and thoughtful colleagues in the investment advisory industry embrace. That’s fine with me. We have to work with who we are.

In short, you can think of what follows as…

 

A Quick and Lazy but Safe and Sure Way to Grow Rich 

 

  1. Stocks – I have three stock portfolios. One (which I call The Legacy Portfolio) contains about a dozen big and reliable Warren Buffett-type companies like Nestle and Coca-Cola. A second (Legacy Two) contains half a dozen companies like Amazon, Apple, and Alphabet. And a third (Junior Legacy) is a smaller portfolio of mid-cap stocks. Stocks currently represent about 15% of my net investible wealth. (My net worth minus my residence and possessions I would never sell.)

 

  1. Options – Although my cardinal rule is to not invest in something I don’t understand, I found a way to trade options that I actually do understand. Like real estate and insurance products, many options strategies are essentially leveraged speculations. So, I steer clear of them. But the way I do options – selling puts on high-quality stocks that I want to own – has so far worked well for me. Still, I’ve limited my activity to only about 3% to 4% of my net investible wealth.

 

  1. Direct Investments in Entrepreneurial Businesses – I’ve been an investor in private, start-up companies for more than 30 years. I learned early that when I put money into businesses about which I know nothing, I get back nothing. (As in: I lose all my money.) Today, all the money that I have in private businesses are in companies that sell information via direct marketing. A business I know very well. I have only two rules that I follow for private placement deals: (1) I have to know the business inside and out, and (2) I have to have a controlling interest in it, which means the ability to approve key decisions. My initial investments in private businesses were almost all shockingly small, but they now represent about 32% of my net investible wealth.

 

  1. Pre-IPO Deals – This is where I violate my rule about not investing in things I don’t understand. A friend of mine has made a successful career out of investing in private businesses that are on the verge of going public. He is very good at this sort of thing. He is smart. He is careful. And he does his homework. (He is actually an advisor to one of the celebrity investors on “Shark Tank.”) So when he started his own recommendation service, I joined it. But although I have great faith in his abilities and expertise in making the individual buy and sell decisions, I consider this activity to be a form of gambling and I’ve limited my exposure to less than 1% of my net investible wealth. To be clear, I’m not recommending this as a safe way to build wealth. If you like this game, consider it like you would backing an expert player in a game of poker. It’s not as risky as roulette, but it’s better than playing yourself.

 

  1. Fixed-Income Bonds – At one time, bonds (AAA-rated municipal bonds) represented as much as 40% of my net investible worth. Today, they are less than 4%. My strategy was always to buy them in “ladders” and hold them until maturity. But I haven’t bought them since the rates dropped below 4%. When rates hit 6% again, I’ll probably start buying again.

 

  1. Private Debt – I’ve been lending money privately for about 30 years. About half of these loans are mortgages, secured by the property. The other half are business and personal loans. I made some bad investments doing this early on – some to friends and family members, which was awkward and embarrassing. Nowadays, I make only collateralized loans and I demand interest payments to start immediately. My private debt investments are about 5% of my net investible wealth.

 

  1. Rental Real Estate – Next to direct investments in start-up companies, investments in income-producing real estate have been the largest contributor to the growth of my wealth. I follow a strict rule about how much I will pay for a property that is based on the income the property is currently producing. I expect immediate cash flow of 6% to 8%, plus long-term appreciation of 4%. Whenever possible, I buy properties whose value can be increased by making inexpensive improvements. The formula is simple: Fix them up. Raise the rents. And then leverage my position with bank financing. (Because rental real estate is local and simple, leveraging properties with bank financing is usually a very safe proposition.) Rental real estate represents about 25% of my net investible wealth.

 

  1. Land Banking – Although my preference is to invest in current income rather than future appreciation, I have bought about a dozen parcels of land over the years in the US, Canada, Central America, and Europe. Since my bet here is that these assets will appreciate in the future, I consider them to be speculations, not investments. Land banking represents about 5% of my net investible wealth.

 

  1. Gold and Silver – I bought a bunch of gold coins some years back, when gold was selling for about $400 an ounce. I also bought some silver and platinum coins. These have appreciated more than four times, as you know. But I didn’t buy them to increase my wealth. I bought them as insurance against the remote chance that there will one day be a collapse of the dollar and a subsequent deep, inflationary depression. If that happens, these coins will be very valuable. In the meantime, they make me feel like I have the threat of financial Armageddon covered. Gold and silver coins represent about 4% of my net investible wealth.

 

  1. Crypto Currencies – About a year ago, I bought a small basket of five crypto currencies – bitcoin and Ethereum and three of the other usual suspects. I bought them not because I believe they will replace the dollar, but because I wanted to be able to say I did if they eventually do. Like the money I put into pre-IPO deals, I consider this activity to be a form of gambling. And since I think of gambling as spending, not investing, I limit my total exposure to an amount I wouldn’t mind losing. Thus, my investment in cryptos is less than 1% of my net investible wealth.

 

  1. Collectibles – I’m a big fan of investment-grade collectibles because they are tangible, portable, non-reportable, and provide the pleasure of looking at them while they appreciate. My preferred collectible is investment-grade art. But I also have modest collections of first-edition books, vintage cigarette lighters, watches, and rare coins. Since I have experience and some expertise in the markets I deal in, I consider these to be smart speculations. Altogether, my collectibles represent about 10% of my net investible wealth.

 

  1. Cash – The amount of cash that I have at any time depends on the state of the economy (precarious now), the stock market (overvalued but with room to rise), the bond market (rates are unattractive), and any opportunities in business and real estate that present themselves. Right now, my cash holdings represent about 5% of my net investible wealth.

 

As I said above, my strategy isn’t the ideal strategy for everyone. I don’t think it’s the best possible example of diversification for people that are younger or older than I am, richer or poorer, or have different emotional and intellectual inclinations. But the overall approach has done well over the years, and its diversity and balance are just right for me.

Most importantly, it reflects my strongest belief about building wealth: To get the best result, you have to go beyond stocks and bonds.

 

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punctilious (adjective) 

Someone who is punctilious (pungk-TIL-ee-us) is extremely detail-oriented. As I used it today: “These characteristics rule out my involvement in a few perfectly good investment strategies. Strategies that some of my more industrious, punctilious, and thoughtful colleagues in the investment advisory industry embrace.”

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A peek inside my palm tree garden…

Situated on 10 acres in West Delray Beach, Florida, Paradise Palms & Sculpture Gardens has one of the largest and best-curated private palmetums in the world, as well as a stock of African cycads and dozens of other exotic botanicals.

Click here to see Frank Varga’s marble sculpture, “Adam & Eve,” surrounded by dozens of fruit trees, including star fruit, avocado, lychee, jack fruit, lime, and orange.

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I enjoyed watching this. It proves the if you are a dog and your owner puts you on the right diet and exercise program, you can lose a lot of weight and regain an active life. Of course, if you aren’t a dog and don’t have a master it’s going to be a tougher challenge.

 

 

 

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“People who lie to themselves about investing are the same as overweight people who blame their genes for their obesity.” – Robert Kiyosaki

 

Lessons From “Losing a Million Dollars”

Growing up in a family of teachers and artists, I came into my adulthood knowing next to nothing about money. Curiously, that didn’t stop me from making a good deal of it. After a two-year stint teaching English Literature at the University of Chad for $50 a week, I began my “real” career in publishing. And during the next 10 years, I brought my income up from $35,000 a year to a whole lot more than that.

Figuring out how to make money happened pretty fast. After consciously deciding to “get rich” in 1983, I was in the top 1% of earners by 1985 or 1986.

But here’s the thing: I wasn’t getting richer. I think I may have even gotten poorer during those first several years. I went from having a net worth of maybe $30,000 to having a net worth of less than zero!

What happened is easy to explain: As my income went up, so too did my spending. Some of it was on depreciating assets – things like luxury cars and furniture and watches and jewelry. Some of it was on luxurious experiences – like first-class travel and expensive restaurants.

But most of it was on what I thought were “investments.”

Those quotes are to highlight a point. My ignorance of investing at that time was profound. Looking back at it now, I’d describe my idea of investing as “putting money into something that might make me richer somehow, some way, and some day.”

During those early years of investing that way, I had one or two memorable triumphs and dozens of disappointments. Which I promptly forgot. That was how I was able to get poorer while my income was soaring.

When you think of investing as something as nebulous as putting money into opportunities that might make you richer one day, you forgo the chance to understand the primary difference between investing and building wealth. So, let’s start with that – the difference between building wealth and investing.

Defining Our Terms 

Building wealth is a good and sensible objective. Investing, on the other hand, is not an objective at all. It’s an activity. Something you do with your money. Just like exercising is something you do with your body.

If you want to build strength, there are many forms of exercise you can do to achieve that goal. Some work very well. Some are less effective. And some can actually weaken you. If your goal is to increase your wealth, you should likewise recognize that there are many activities you can engage in towards that objective. Some work very well. Some are less effective. And some can likely make you poorer.

In What I Learned Losing a Million Dollars, Jim Paul makes some very useful distinctions between 5 money-related activities that are sometimes lumped into the sobriquet of investing. This particular statement caught my eye:

“Most people who think they are investing are speculating. And most people who think they are speculating are gambling.”

That sounded like wisdom to me. I took notes. Here are Paul’s definitions:

  1. Investing – parting with capital with the expectation of a return on it over a longish time horizon, with those returns coming from interest/income and capital appreciation.
  2. Trading – making a market on (buying and selling) a particular asset over a specified amount of time. The time frame is usually short. The trader tries to make money from the spread between the price he pays to buy the asset and the price he gets for selling it (a long position) or vice versa (a short position).
  3. Speculating – buying an asset with the expectation that its price will go up sometime in the future. Speculating is about foresight, about believing you know that something will happen in the future that will affect the price of a certain asset.
  4. Gambling – A derivative of speculating, gambling usually involves a game, but it can also involve an asset class. Almost anything. The gambler’s primary motivation is entertainment. He gambles because he likes to gamble. He also likes to make money with his gambling, but that is not his core desire because he will continue to gamble even if he consistently loses money.
  5. Betting – Betting is also about risking money on the outcome of a certain event. It also involves chance. But the bettor’s primary motivation is being right, not entertainment.

Paul’s definitions are helpful because they identify not just the strategic and technical differences between these activities but also their different psychological motivations.

That is very important.  Our mental/emotional approach to making money almost always drives our decisions. If we are unaware of our inner objectives and motivations, it’s easy to make bad decisions and then to keep repeating them.

Our investment psychology is complex. It includes our risk tolerance, our capacity for deferred gratification, our mathematical IQ, our willingness to learn, our attention to detail, and also such things as attention span, compulsiveness, and even our ego attachment to our decisions.

When you break it down like that, you can see why it is the principal factor in our ability to build wealth.

This was certainly true for Jim Paul. As he explains in the book, his early approach to making money on Wall Street wavered between gambling and betting. He thought of himself as an investor – even a brilliant investor, when the dice were rolling his way. But after losing a million dollars and nearly ruining his life, he figured out that what he was doing was anything but investing. What I Learned Losing a Million Dollars is a blueprint for how he reinvented his financial life.

Paul’s definitions are perfect for people who, like him, have an affinity for risk taking. The definitions below are my attempt to interpret them for people that have a relatively low tolerance for risk and for anyone that, like me, has little interest in investing but a great interest in building wealth.

Betting and Gambling 

Paul makes an interesting distinction between the gambler and the bettor. The gambler, he says, is looking for entertainment, whereas the bettor is interested in proving himself right. If you are addicted to either gambling or betting, these distinctions are crucial. What is motivating you? Is it the fun of playing? Or is it the ego gratification of being right?

From a wealth-building perspective, however, gambling and betting are synonymous: foolish and habitual activities virtually designed to make you poorer. As a wealth builder, you should do neither of them. Ever.

Trading 

Paul’s definition of trading is straightforward: making a market on (buying and selling) a particular asset over a specified amount of time.

The trader’s goal is to build his wealth one trade at a time by making a profit from the gap between bid and ask. His time frame is usually short, the risks are usually significant, and the trades themselves are sometimes complicated.

To succeed, the trader must be willing to spend a good deal of time on his trading. It’s not something one should do casually or impulsively. I see trading as an occupation like entrepreneurship, where you must work hours every day and keep up to date on your business. But it’s also a complex and sophisticated business, one that requires knowledge, intelligence, and discipline.

I’d like to think that I could be a successful trader. But on a deeper level, I know I don’t have the mentality to do it right. I don’t have the patience. I don’t have the discipline. And I’m not willing to put in the hours to learn what I’d have to know. Trading would definitely be a wealth-depleting activity for me.

My advice to anyone that wants to try his hand at trading: Be humble. Assess your mental and emotional qualifications. Move slowly. Never make a trade that you don’t fully understand. And don’t put money at risk that you are not prepared to lose.

Speculating 

The speculator wants to build wealth by buying assets that he believes are either currently undervalued or will become more valuable. He makes his buy and sell decisions based on expectations of the future.

By that definition, most individual investors are speculators and most of what they do, which they think of as investing, is speculating. When you buy or sell stocks based on stories you hear about the economy, sectors of the economy, individual industries, and even individual companies, you are speculating.

There is nothing inherently wrong with speculating. Like trading, it is a perfectly legitimate way to build wealth. But there are smart ways to speculate and there are dumb ways to speculate. Wealth builders speculate smartly by doing what smart traders do. They learn as much as they can about what they are doing. They move carefully. And they limit their risks through a combination of diversification, position sizing, and stop-loss mechanisms.

Investing 

Paul defines investing as parting with capital with the expectation of getting a return on it over a longish time horizon, with those returns coming from interest/income and capital appreciation.

The long-term time frame is key. It provides a level of safety that you cannot get with any of the other financial activities named above. To be a successful investor, you have to have or develop an aversion to risk and an ability to wait. But those are good qualities to have. They are, to me, the essential characteristics of a wealth-building mindset.

Paul’s definition of investing also mentions income and appreciation (or growth). These are worth parsing.

* Growth InvestingGrowth investing is putting your money into an asset or business whose value you expect to increase over the long term. In other words, you hope to profit from some circumstances that will make the business or asset more valuable in the future.

* Income Investing – Income investing is putting your money into an asset or business for the purposes of generating income (or interest) from that activity. Lending money to someone or some business is a form of income investing. So is buying municipal or corporate bonds.

* Growth & Income Investing – This is my favorite type of wealth-building activity: putting money into a business or financial asset that will give me both current income and future appreciation. The best of both worlds.

Rental real estate is a perfect example. If I invest $100,000 or $1 million in a small apartment complex, I am usually looking for an annual return, cash on cash, of about 6% ($6000 or $60,000). Before buying the property, my partners and I do a lot of work to make sure that our net ROI will be 6%.

But I’m also counting on the growth of my equity – i.e., on property appreciation.

The historic ROI for real property is about 4%, which would bring my total ROI on that $1million to about $100,000 or 10%, cash on cash. This is just the beginning. The wonderful thing about the real estate market is that it’s both local and easy to understand.

Because I know my local real estate market, I know the value dynamics of the neighborhood in which I’m investing. In one part of town, I can bet I’d be lucky to get an annual appreciation of 3% or 4%. But in an up-an-coming area, I might expect to get 8% to 10%. And because real estate is relatively easy to understand, I can safely finance a portion of my investment and thus dramatically improve my long-term ROI.

You can get both current income and equity appreciation by investing in dividend-yielding stocks, too. Some of the best companies in the world are of this type.

The point is this: If you are interested in building wealth, you must understand that many of the financial activities that promote themselves as investing are actually forms of gambling and betting. You should also understand that to succeed as a trader, you must treat what you’re doing as a complex and risky business. And, finally, you should understand the differences between speculating and investing and the three types of investing.

Understand the activity. And understand your motivation.

You can tell yourself, for example, that when you buy crypto currencies you are investing. But if you analyze the strategy by using the definitions above, you will see that buying crypto currencies is a form of speculation.

Bitcoins are not businesses. Nor do they produce income. They are currencies whose values rise or fall depending on myriad future possibilities, not current facts. Buying bitcoin right now might be a smart speculation. It might even be a way to make a good deal of money. But because it is based on future possibilities rather than current facts, it is nevertheless a speculation.

Buying a bunch of gold bullion coins because you believe the world is on the verge of a debt-fueled economic crisis is not investing. It’s speculating. It is speculating because the decision is based primarily on the belief that the value of gold will go up in the future because of a variety of factors that are not possible to predict with any certainty. This does not mean that buying gold coins is a bad idea. In fact, it may very well be a good idea. But it is not investing according to the definition established above. It is speculation.

Putting your money in a tech stock that has huge revenues but no earnings may be a brilliant move. But it is not, according to the above definition, investing.

Again, I’m not saying that speculating is wrong. On the contrary, it’s a perfectly good way to build your wealth… if you do it right. But that means accepting the fact that you are making your decision based on future expectations, not current facts.

Alas, What Most People Do 

Most “individual investors” buy and sell stocks and bonds based on information they have been told or read about, hoping that information will make them richer. The same is true for most people that buy gold and other precious metals. Their motivation is to profit from some imagined future event.

Most people that trade options do so because they have read about some systematic way to profit from options, without ever really understanding what they are doing. I myself traded options for a year or two – selling puts – and did about as well as I would have done putting my money in an index fund. At the end of the experiment, I had increased my wealth, so it met the test of being a wealth-building activity. But I don’t think the 10% return I got on my money would be enough to satisfy most people that trade options.

Today, almost everyone I know, young/old and rich/poor, is trading stocks. The new digital platforms have been designed to make trading incredibly simple and easy. What these people know about trading – or even the stocks they are trading – is next to nothing. But they think they know. What they are doing is not any form of wealth building. It is not investing. It’s not speculating. And although they call it trading, they are doing it with limited experience and even less knowledge. They are the equivalent of novice poker players playing with pros.

It might be argued that the above are arbitrary definitions. I cede that point. But I do think they are helpful in forcing us to pay attention to what we are actually doing when we put our money at risk. We need to understand the game we are playing – the costs, the benefits, the risks, and the potential rewards. We must also understand what sort of mentality we are bringing to these games.

We must take the time to ask ourselves: “What, exactly, am I doing?”

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