Most of us naturally focus on money. It's great to have the comfortable and luxurious lifestyle money can buy. And money is the scorecard business owners use for measuring business success. But many of us fail to recognize that it's difficult to be genuinely passionate about money. In order to be genuinely happy and fulfilled, to be truly successful, you need a purpose, a sense that your contribution matters, that you are making a positive difference in the lives of your family and business associates. What you do every day needs to be an expression of passion. If you haven't found it, keep looking. Don't settle for anything less. Without this focus you'll wander forever like Alice in Wonderland who in her conversation with the Cheshire Cat asked: "Would you tell me please, which way I ought to go from here? That depends a good deal on where you want to get to," said the Cat. "I don't much care where" --, said Alice. "Then it doesn't matter which way you go," said the Cat.
So What's Important?
Why do brokers on the floor of the New York Stock Exchange always cheer at the sound of the closing bell -- no matter what the market did that day? Because, whenever you trade, they make money -- whether you did or not! And, why do your investment advisers encourage you to allow them to manage your funds? Because they make money whether you do or not! Can you identify market opportunities? Over the long term stocks do well or poorly because of the business models and the intelligence, integrity and industry of the management associated with the business. Purchasing stock is like becoming a part owner in the business. It's not like taking your money down to the Casino floor. You need to know and understand the dynamics of the business you are investing in, otherwise you simply are speculating.
Inflation and Taxes
Inflation has returned. During Covid, the Federal Reserve's goal was to purposely prop up asset values. With the consumer price index rising 7% in December (year over year) the Fed is now expected to begin raising rates. But inflation allows Uncle Sam to pay off debts with dollars that have been cheapened. And despite the pandemic federal tax receipts are booming (revenues jumped 18 percent in the last fiscal year, the biggest one-year increase since 1977). Is gold an inflation hedge? Gold receives no income on invested capital and instead incurs storage expenses. If you depend on your portfolio for income, you must seek to minimize your exposure to the impact of inflation and taxes.
Market History and the Future
Ultimately, demographics drive growth. Without knowledge of the future many of us simply use the past and project current market conditions forward, not recognizing there will be market corrections. We are not prescient enough to call the turns. High returns are not a divine right. Why should the future be the same as the past? If the market is overpriced now, how can future returns be better? The only thing you can be confident of when forecasting returns is that you will probably turn out to be wrong!
Your investment style is determined to a large degree by your age, personal situation, experience and risk profile. Much of this is based on your investment horizon and what your financial situation allows. A defensive investor practices asset allocation by buying when the market falls and selling when the market rises. This advice is difficult to follow. It goes against human nature. An alternative solution? "Dollar cost average." Buy in small steady amounts whether the market is going up, or going down. And perhaps most important, in volatile or falling markets, emotional discipline is important.
Without a bear market to take stock prices down anyone waiting to "buy low' will be left behind. The longer a bull market exists, the more you will be afflicted with 'amnesia'. The solution is to know what you are purchasing. Fortunes from common stocks have been made by people who selected investments they knew supremely well and held long term.
Con artists thrive by talking you into trusting them and by talking you out of investigating them. Ronald Reagan said, "Trust, then verify." What makes a company grow, and where do (and will) profits come from? A company's executives should say what they do, and then do what they say. Accounting and reporting practices should be investigated. Are they designed to make operating results transparent? Good businesses generate more cash than they consume.
"Margin of Safety"
Do your homework. Check the neighborhood. Purchase companies that are run by people who think like owners. A "margin of safety" is the difference that will absorb unsatisfactory developments. Always maintain some protection. Remember, once you lose you have you' will have to gamble just to get back to where you were.
Benjamin Franklin is said to have carried his coins around in an asbestos purse so that his money wouldn't burn a hole in his pocket. In making decisions under conditions of uncertainty, consequences should dominate probabilities. We'll never know the future. Protect yourself against the consequences of being wrong. Risk is not so much in your portfolio, as in yourself.
Successful investing is about managing risk, not avoiding it. You will be much more in control if you realize how much you are not in control. Acknowledge your biological tendency to buy high and sell low. Keep your investment strategies from becoming gambling. Study successful investors like Benjamin Graham and his pupil Warren Buffett. Do your homework!
Being proactive is the best way. Some say the future cannot be predicted. Others say the only way to predict the future is to create it!
About Our Law Firm
We provide peace of mind by creating and managing structures that allow you to grow and protect your business, legacy, and personal wealth. "Where you'll be tomorrow, depends on what you do today."
Lechner Law Office, P.C.
Law and Professional Center
Orland Hills, Illinois 60487-4623
Paul Lechner Esq., CPA
The Lechner Group, Ltd.
Business Advisory Services
The Lechner Group, Ltd. is a public accounting and business consulting firm focused on business counsel, transactional diligence, and tax advisory services. We add value to your business strategies by providing a combination of financial, audit, and tax expertise. Combined with legal services (which are provided separately by the Lechner Law Office, P.C.) we offer privately held business owners an attractive package of comprehensive services.
Find out more by calling Paul Lechner at 708.460.6686.