Just keep buying, or a review of the financial bestseller
Is investing simple? Certainly simpler than many think. I got reassured of this by Nick Maggiulli and his "Just Keep Buying" In fact, it is worth buying. The book itself, as well as the shares.
I have been saying for ages that the best book on finance is "The Psychology of Money" by Morgan Housel, who was also on the cover of "Just Keep Buying." What does he say there?
There are many good data scientists and many good storytellers. But only a few can understand data and tell a compelling story as well as Nick. This is a "must-read." Since it's a must-read, I read it.
The book has a great, guidebook-like structure. You don't have to (probably even shouldn't) read it from cover to cover. Have a problem/question? You just hit the right chapter, usually with the same title as your question. And then you get the answer in a condensed, accessible version, graphically well illustrated. Short and to the point. What kind of questions are these? Simple:
When to start saving? How much to save? How to save more? Should you go into debt? To rent or buy? When to retire? Why invest and when to start? What to invest in? Why not buy individual stocks (our favorite chapter in Finax, the diversification evangelist)? Why not wait for the lows?
The author also doesn't run away from controversial questions (Why does investing depend on luck? And why isn't it worth worrying about?) and such contrary to the title of the book itself (When to sell, or something about our favorite rebalancing, among other things).
The whole thing boils down to the simple recipe that the best strategy is regular stock purchases, and that "just keep buying" is simply a more marketable version of the dollar-cost averaging strategy. In dollar terms, because - and this is perhaps my only objection to Maggiulli - the author is a big fan of the US stock market. Probably from the point of view of Americans, this is understandable. We, however, are a long way from the US, and the story of the last few decades (Wall Street > the rest of the world) may not last forever at all.
If you have read the list of questions that the book answers, you know that it is divided into two parts - saving and investing. An important division that even well-known economists forget, using the two terms interchangeably. For Maggiulli - although he is a markon man - more important, in the context of building wealth, is saving. Total agreement, as Klaudia of Finax recently wrote about, supported by such a simple table:
As you can see, the savings rate is much more important to wealth than the return on investment. The author became convinced of this in his family home, watching his grandfather. This one, despite having a fairly sizable pension, died with zero in his account (although one may ask whether this is surely such a bad thing 😉 ). If at least half of his pension had not been spent on gambling, but invested on Wall Street (again), he would have died a millionaire. This would have happened even though during the 26 years of his grandfather's retirement, the US market went through a very tough decade (2000-2009). Because it doesn't matter when you buy stocks. Just. Keep. Buying.
Start investing today
Let's stay with gambling for a while longer. Nick is not the first to write about gambling, somewhat likening it to speculation. On the other pole while putting boring long-term passive investing. He concludes the book with an "eye-opener," the 21 rules of "Just Keep Buying." I won't quote all of them so as not to spoil your fun and the author's income, but I particularly liked these:
- If your expected savings are greater than your expected investment income, focus on saving. If the opposite is true, focus on investing.
- It's okay to go a little crazy with spending, but keep that craziness below 50 percent of your future raise if you don't want to deviate from your financial course.
- Buying shares of specific companies and expecting them to beat the market is like flipping a coin.
- Financial crashes are (usually) good buying opportunities.
- No matter how rich you are, there will always be someone richer. And that's ok.
- Time is the most valuable asset - you can always earn more, but nothing will buy you more time.