I, like many others, have used the word “dollar cost averaging” countless number of times. We use it when asset prices are going up and when they are going down. We treat it as the holy grail for the rational investor. But never has anyone put it in proper perspective as I am going to put it for you in this article.
The concept of (dollar) cost averaging means if you have a lump sum, $1,000 to invest, instead of investing it at once, you spread it over let’s say 10 months and buy $100 in each month. That’s usually advised because you are not sure if the asset (ETF or Stock) is at its peak by the time you want to buy it or not. As such you should avoid buying the asset with the lump sum and do a cost averaging instead. That way, you even out the effect of buying at the top and benefit from different swings that may occur during your buying period.
What that implies is that if all you do is to take $100 out of your salary every month to invest, then that’s not cost averaging. That’s just doing what is only feasible and available.
Although now, we call everything cost averaging. That’s fine. Let’s bother about the substance here and leave forms alone.
That said, what advantage can cost averaging have? Or even taking an amount daily/monthly to invest in an asset?
The perspective
One of the biggest dilemmas that we all face whenever we want to invest is what if the asset (ETF, Stock, Bitcoin etc) is currently trading at its peak price. Meaning once you buy it the asset probably stops growing or starts to decline. That’s not something that anyone wants even if they are keeping a long term view as expected.
(Dollar) cost averaging is the buying strategy that will come to the rescue here.
Example 1 – Let’s assume the date is September 2018 and you have just been introduced to stock market investing. Having gathered enough understanding, you chose to invest in Amazon stock, being a good company with strong fundamentals. Unbeknownst to you, Amazon was trading at its peak price that day as shown in the image below. And for the next 200 days, the price didn’t recover back to that peak price.
If you employ the strategy of cost averaging, during this period, you could still have made a return of about 17% on your investment.
The assumption for this particular calculation is as follows.
Your first purchase was made at the highest price and you bought one unit of Amazon shares.
You bought one share every trading day of the week for 200 days until recovery. By implication, at the end of that 200 days, you own 200 shares of Amazon.
At the end of the period, you would have invested a total sum of $345k and the value of that investment would be $403k. Giving you about 17% ROI even though technically, there’s been no growth for the asset over that 200 days.
Example 2 – the same argument and process are involved here. Your first purchase was at an all-time high after which the price started to decline. Except that here what we are buying is an ETF. Despite no growth in asset value over the 150 days, you still made an ROI of 9%.
The explanation here is that buying on a scheduled interval pays off over the long term. I’ve assumed the worst scenario to say you bought at the peak then the price starts to decline. Yet, you can see how you can still make money in such a chaotic situation.
The alternative to that of course is to try and time the market. But if you have tried that before, you will agree with me that it is a skill that ranges from difficult to impossible to achieve. That’s accompanied by a lot of headaches.
That’s why this favourite article of mine is so relatable – Just Keep Buying
There’s a problem with that strategy though. It assumes that the asset price will recover and they don’t always do.
The only criteria for cost averaging to make sense
Now that you understand the perspective with a real-life scenario, I want to tell you the only criteria where the strategy makes sense.
As you’ve seen, I used an extreme example. A situation where your first purchase was at a peak and it continues to decline and didn’t fully recover until some 200 days later.
The only question you have to ask yourself then is, will this assert ever fully recover and return to growing? Once you are optimistic that it would, then you can proceed with your investment till forever.
That’s a big question though and it can be really difficult knowing which asset will recover. It’s the reason why I have a bias for board market ETFs. Because betting on them would be betting on the entire human ingenuity. And if history has taught us anything, it’s that human ingenuity will always prevail.
And in case you don’t know, not all individual stocks recover and while some may even do, they may take longer than what the human capacity can bear.
All assets don’t recover from a fall
Let me share a couple of examples of assets that never recovered or took way too long to recover.
Microsoft took 14 years
Walt Disney took 13 years
I could go on but you get the point already.
On the other hand, if you bet on a broad market ETF for example, you can almost always be sure that they will recover and it won’t take long.
These are the huge falls and recovery of VGT during 2020, 2018, and 2008. All recovered and as noted above, you would have made a 9% return during the 2018 fall.
Same goes for SPY and VTI check them out. Learn from history.
Now you understand cost averaging what’s stopping you from leveraging it. Will you allow greed, fear, hope and or ignorance the 4 horsemen apocalypse of the stock market to hold you back?
Join 300+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
I am a huge advocate of ETF investing vs stock picking. In how to start investing, I explained the reason for my preference. However, there are more than 1,000 ETFs listed in the US stock exchange and that may bring one back to the same dilemma they are trying to avoid, the choice paradox.
That should not happen and I will give you the criteria to narrow down on which one you should even consider at all.
The most important variable for passive ETFs
The underlying index or companies is the most important factor here. What are they tracking?
Passive ETFs are not managed, i.e. stocks are not being added or sold from them daily but on a given interval or when there is a trigger. Which means the most important factor in this type of ETF is the underlying companies. This is important because this group of companies could be part of the holdings for many years. And if they are not companies that will help you achieve your investment objectives, then you shouldn’t invest in the ETF.
SPY is an example of an ETF that has the top 500 companies listed in the US in its portfolio. By implication, buying it would mean you are buying the top 500 companies in the US notwithstanding their sector or growth stage.
VGT is another that has only the top 100 technology companies listed in the US in its portfolio.
The list goes on. Once you check the underlying stocks are in the ETF and you are comfortable with it to hold for over a long term, your work is largely done. Just use cost averaging to invest until forever.
I would like to repeat that investment should be as simple as possible. Don’t make things complicated for yourself.
The most important variable for active ETFs
The most important variable here is management. It’s not the companies they are invested in but the management, those managing the fund.
This is because you may wake tomorrow and realize that a company is no longer part of the holdings. But you want to be sure the people deciding what should be included or not are of great competence to make such decisions.
ARKK is a favourite of mine, and I will be using it as an example again. The fund manager is Cathie Wood, and she has pulled together a team of experts in different areas to be the manager of each destructive company that they have under management. They know something more than what I know about 3D printing or Genomics for instance. Some of them were former PhD researchers in the competence where they now happen to be investing. Some have done investing for long enough to notice patterns. Looking at management composition as this gives you the confidence to determine if it is right to jump the ship with the ETF.
Beyond that, ARKK also boasts of an investment strategy called thematic investment. Thematic investing is a strategy that seeks to align asset selection with certain social, economic or corporate themes prevalent in society. All these are things that you observe and use to access the capability of the managers.
As you can see, though, it’s more “complex” than the passive in terms the most important variable to know. That’s because now more risk is involved and as such more homework is required from you to access your readiness to invest long term with the funds. I said long term because you only have to do this research once, after that, you are good to go.
Well, it’s also the case that one of the reasons why you are going for the active ETFs is because of the promise to outperform the passive alternatives. So it’s not just about taking on more risks alone, you may also get rewarded for the risk.
The result that follows such a manager is usually a testament to their expertise as well. ARKK in this scenario has done a cumulative average return of 50% per year in the past 5 years.
Hello, I need to inform you that management assessment is not enough for determining which active ETF to invest in. Sorry, it’s just important that I tell you everything.
The second important factor is the theme of the ETF. Each ETF has a theme of focus, ARKK in our example invests in disruptive innovation companies, ARKW invests in what it calls “next-generation internet” companies. These themes are important to understand what kind of companies you can expect them to invest in later in the future and what you can’t expect.
Talking about what you can’t expect, you won’t find Coca-Cola company in the holdings of ARKK no matter how good the company may be performing. And it’s fine to have all expectations aligned.
With all these in perspective, we have narrowed down on how you can easily access the ETFs and determine what to invest in. The twist is that you cannot narrow down for a single company like this at all, the way it works for individual companies is that you address them singularly on their kind of metrics. That can be a lot of work sometimes and except you enjoy it, it’s needless.
Well, with this new understanding, please go on and make your investment of the decade and build wealth with time.
Join 300+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
Did you buy the dip? he asked. After waiting for 24 hours and an eventual rally, not a single soul came out to say they bought the dip (price drop). That is how the story always starts and ends.
Whenever an asset price rises, the quest to benefit from such a rally forces everyone to want to get on the train. Unfortunately, the rally gets so high that everyone is now waiting for a drop in price before they buy the asset to benefit from its rally back to the top again.
The fortunate thing is that every asset almost always has this dip that everyone is waiting for. Unfortunately, almost no one would have the mental fortitude at that time to buy what they’ve been waiting for. This phenomenon surprises me. So I pondered on it to come up with an explanation of why that is and a possible solution or way forward.
This is why no one ever buys the dip
Psychology – we are not wired to process such a scenario properly as humans. We like our money and accepting loss is not our forte. Buying a dip means the value of your asset may start declining immediately after your purchase. What we are psychologically wired for is to assume the dip is not dipped enough yet, hence we should wait till it’s deep enough before we buy. Unfortunately, knowing when we have reached the bottom of the dip is close to impossible and so we all miss buying the dip. Ordinarily, an asset price would then stabilize at the dip or start to rise again. The problem is we can’t time any of these events. And our inability to time it is the primary reason why we don’t usually buy the dip.
Volatility – we don’t know if it will rally again or not and if it does, we don’t know when. When a dip starts whether you buy the dip or not depends on your estimation of how deep the dip can go and how soon it will recover. For a very volatile asset like Bitcoin, it’s almost impossible to tell all those variables and that makes it even harder to buy the dip. The more volatile an asset is, the harder it is to buy the asset’s dip. For context, there’s nothing and I mean nothing stopping Bitcoin from losing 50% of its value in a very short time and there’s no promise as to when it will recover that back. This makes it difficult to buy any dip. How deep a dip can go relative to the time it would take for the dip to recover is a metric that would determine how easy it is to buy a dip.
It is possible to buy the dip
Buying the dip is easier and often possible if you have a long term investment horizon and you are investing an amount of money that would not materially affect your lifestyle if you do not have access to the money for a very long time.
I bought (all) the Bitcoin dips for example. Yes, I meant that. I bought all the dips but I also bought all the highs.
“Time in the market is more important than timing the market”
Every now and then, I transfer a given amount to my Luno wallet and automate a daily purchase of some Bitcoin. By implication, whether Bitcoin is high or down, dip or all-time high, my order will be executed. However, since I am not making a one-off purchase, the impact of any one purchase on any given day will not materially affect my returns.
If I bought at an all-time high, it would just be a one day purchase out of many other days that I’ve been buying and that won’t have any significant impact on my overall returns. The same goes for buying when there’s a dip. As long as my standing order is there, it doesn’t matter if it’s a dip or all-time high, the order gets executed.
Buying the dip has only been made possible for me because of that practice. If I’d had to buy it myself, I can assure you just as you couldn’t, I wouldn’t have bought it as well. I am no special human and I have the same genetics of fear and greed as anyone else. It is how we manage it that differentiates us.
Also, I could successfully do that because I am holding a long term horizon for Bitcoin. The last I checked my account, for instance, I’ve made >130% from my boring daily standing order. But I had no urge to sell and I don’t mind if I lose all that huge percentage returns. I will only have more opportunity to buy the dip.
If you think you can do otherwise, i.e. buy the dip yourself, you overestimate yourself and know little about yourself. You can’t buy the dip except you have those two things well thought; your time in the market (how long you want to be invested) and the kind of money that you have in the market (if it won’t affect their livelihood).
But seriously, did you buy the dip? I’m curious.
Join 400+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
The question I get at almost every passing week on Twitter is “David, I’m new to this stock investing thing, could you please tell me where to start and what stock to buy”? I have tried to answer as many people as I can, but I believe it’s time I answer this question more extensively for everyone.
The world did not start knowing prosperity until the 1800s that marked the beginning of the industrial revolution. It was the age when we moved away from scientific invention to innovation. From then on till today, the growth never slowed down again. We basically accelerated.
The industrial revolution ended and the information age even did more to growth in the shortest period of time. Much faster than the rate at which the industrial revolution did. The industrial revolution used 150 years to move the average global GDP per capita from $2,000 to $10,000. While the information age that started in the 1950s has moved that $10,000 to about $40,000 for the most advanced countries where these were all pioneered.
The United States of America was the epicentre of this growth. The United States under titans like John Rockefeller, Andrew Carnegie and Elon Musk, Jeff Bezos, for our generation pioneered the finest businesses of this era. They built companies that grew in value and the American population participated in prosperity share via investment in the stock market. They made a fortune from this market just as the builders made. There is a popular story of Grace Grooner recounted by Morgan Housel. She died a millionaire despite being a secretary throughout her professional life.
It is absolutely understandable for us outside of the United States to desire to benefit from this opportunity.
However, up until now, this prosperity has only been enjoyed by Americans alone who invested their savings in the stock market and watched its value grow tremendously and even predictably. While other countries also have their stock market, not one of them has delivered the kind of prosperity that the US stock market has delivered since it was founded in 1792. Hence, we’ve been left out.
I am fond of saying my generation has an unequal advantage to build wealth that any generation before us did not have. I still stand by those words and this sentiment applies to all countries where once the ability to invest in the US stock market wasn’t available but now is.
With this knowledge, how can you invest to benefit from the massive opportunity?
Our basic instinct to the stock market
The basic instinct of anyone when first introduced to the stock market is to see it as a place where they can put a buck and quickly make some gains. After which I like to ask them what next? What if the company’s stock is still going up? Would you buy again to make another buck or will stay away from the company entirely.
Usually, I see that as an unnecessary mental dilemma.
Let me go straight to the point to say that you may stop reading this post of what you hope for is some strategy on how to do something like that. To buy and sell and find the next to buy which is basically trading. This article isn’t for you. It is rather for those who plan to utilize this opportunity to build long term wealth.
The first question every individual who is getting involved in the stock market has to answer is the question of why they are there. Why have you come to the stock market, to invest or to trade? No one is more honourable than the other by the way. However, if you do not decide ahead of time why you have come to the stock market, you’d be playing the fools game.
I like the words of Benjamin Graham on this point.
“There is intelligent speculation as there is intelligent investing. But there are many ways in which speculation may be unintelligent. Of these, the foremost are:
Speculating when you think you are investing.
Speculating seriously instead of as a pastime, when you lack proper knowledge and skill for it; and
Risking more money in speculation than you can afford to lose.”
So it is important to determine in advance Which table you are on. Else, you would be doing unintelligent investing in general.
I assume you are here to learn about investing and not speculation.
Two investment parts
There are two broad ways to participate in the stock market. Once you invest in a basket of stocks already selected using metric. And two, you pick the individual stock yourself.
Again, none is more honourable than the other once you know what you are doing.
However, over time, we have learned that the idea of picking stocks is not something everyone can do. The sheer amount of what it requires to know how to, plus the probability of any individual consistently outperforming the broad basket of stocks approach has proven that at best no one should go this route except they are willing to do the work that needs to be done.
I must mention at this point that this has nothing to do with your level of intelligence as much as it has to to do with how the market itself works. In 2007, Warren Buffet placed a bet together with a hedge fund manager (one of the most sophisticated types of investors) that over a period of 10 years, they wouldn’t outperform the S&P 500 net of fees. By the time the bet matured in 2019, it was so that they didn’t outperform the “basket of stocks”. So even the most knowledgeable could underperform what they were usually employed to outperform. So it’s not just about you when I say you may not outperform the “basket of stocks” option.
It is in light of this that my usual investment advice for anyone including me is to go for the “basket of stocks” option.
The basket of stocks is called an ETF for our sake. An ETF can either be passive or active.
Passive ETF
Passive ETFs track an index. For example, SPY is an ETF that tracks the S&P 500. S&P 500 represents the top 500 companies listed in the US. There is a standard requirement for companies to be added and removed from the index. That’s something you don’t need to bother about. Passive means no one is buying and selling stocks in the ETF every other day. The only time things change in the basket is when the condition to add or remove a company’s stock from the index is triggered. I’m glad we witnessed that lately with the addition of Tesla.
The characteristics of ETFs like this is that they are always low cost. That is, their expense ratio, which is the cost of managing the basket is always lower compared to the actively managed. They range from 0.01% to 0.1%.
Join 300+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
Active ETFs
Active ETFs on the other hand is being actively managed as the name implies. Okay, that’s like a tautology. What it simply means is that there’s usually a manager behind the wheel who on a daily basis decides whether to add stock in the basket or remove from it.
ARKK is an example of such an ETF. Usually, they always have a theme and the theme determines what kind of stock is added in the basket. The theme of ARKK is innovation, so stocks that are highly risky but innovative are what gets added in the basket. There might be another that tracks Cryptocurrency assets or Oil assets or Fintechs and so on.
As you would’ve guessed, the implication of active management is a higher expense ratio. It usually ranges from 0.3% – 2% if not more. ARRK here, for instance, has an expense ratio of 0.75%.
The most important thing about investing in an ETF is that it takes away from you the burden or task of having to research an individual stock. Which would also require that you often have to check if your assumption for buying them still holds especially in times of massive sell-offs. Of course, the cost of that is the expense ratio you will be charged which is fair.
You will notice that so far, all I’ve been doing is put you in the right frame of mind and arm you with the necessary knowledge. That’s the way it should be. Knowledge of the market you want to start getting involved in is critical. I won’t also be talking about stock picking as I don’t encourage it. And not even when you are new. Also, because what the majority of us can do and do successfully is this type of investment. Stock picking is another game.
What’s the next step?
ETFs You Can Buy and Sleep
What would constitute for you an acceptable average return per year? Often, it is said that 10% ROI on your investment per year for 10 or more years is a good deal. In fact, some may say that’s as good as it can ever get. I don’t contend with that and I would also rather have that than have anything less.
These ETFs have historically given that minimum returns or even more. Take a look at them and decide for yourself which one you want to invest in. Ordinarily, one or two is usually enough. Once you have decided, all you have to do going forward is to buy some amount monthly that you can afford to invest for the long term.
SPY – this ETF tracks S&P 500 an index that contains top 500 companies in the US. This is the index that is usually used as the benchmark for all returns. It is usually the case that if you can’t outperform this, you are better of putting all your money in it. As you can see, over the last 10 years, it has a cumulative average growth rate of 13.85%*. A massive one if you ask me. You will also notice it beats my 10% base rate. Check it out here – SPY for more detailed information.
Koyfin Charts by David Alade
VTI – is an ETF that invests in all the actively trading stock in the US. It’s a total market cap fund. All good and all bad companies are in it. However, because the goods tend to do better enough to cover for the bad, it also has a cumulative average growth rate of 13.93%* in the past 10 years. Anyone invested in it is definitely better off. Probably what you should note is that these returns are despite the quite obvious massive deep of 2008. More on VTI here.
Koyfin Charts by David Alade
VGT – tracks the top 100 technology companies listed in the US. Companies at the forefront of innovation. Its cumulative average growth rate over the last 10 years 20.31%. This is a matter of getting 20.31%* average return on your investment for doing practically no work. Why would anyone want to take on any additional risk if you can just do the simplest thing and make this much return? I guess it’s the urge in us to make quick money. More on VGT
QQQ – like VGT also invest in top 100 technology companies listed in the US. The only difference is who manages them. And as you can see, it has a similar cumulative average growth rate with VGT at 20.25%*. Click here for more.
ARKK – ARKK is unique on this list as it is the only actively managed fund. Its goal is to invest in disruptive innovative companies. If you do not have 5-10 years investment horizon, you may not want to invest in this ETF. However, over the last 5 years, this ETF has a cumulative average growth rate of 51.47%*. That’s an impressive result at best.
Check out etf.com for more ETFs that are trading on the market. And if you are using Bamboo or Trove, you can easily see listed ETFs on the “featured themes” on the homepage from Bamboo and under the ETFs category from “All Assets” in Trove.
Please use the comment section to drop all your questions. I promise to answer them all.
Let’s build this wealth together and benefit from a generational opportunity.
Join 300+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
Red Alert* – past performance does not in any way guarantee future performance. Also, this does not in any way constitute investment advice. All I’ve written so far are for educational purposes only.
There is a kind of psychological satisfaction that you get when you buy a company’s stock now and in the next hour, it has appreciated by 12.5%. You feel intelligent, you trust your judgement more and excited to make another judgement call.
Depending on your purpose for buying the stock, you can either sell it immediately and realize your gain or hold it for long, say greater than 5 years. For the person who bought the stock to sell upon some marginal gain, it makes a lot of sense for them to keep their eyes glued to the screen watching the up and down movement of the stock. On the other hand, it is a great folly for the person who does not intend to realize the gain to also keep their eyes glued to the screen.
I have been given to this folly, that is why I am writing about it. Calling your attention to it so you don’t have to also and if you have, just as I am working on stopping, you would work on stoping as well.
Sometimes, in September, I became fully invested, i.e., I have invested all the cash that earmarked to be invested in the US stock market. So I uninstalled the investment apps on my phone. I did that so that I wouldn’t find it easy to check how my portfolio is doing. So I won’t be given to the folly of always checking the daily movements. Sometimes we have to do that. Here are what I learnt:
It is an unnecessary burden and unproductive behaviour
After checking your portfolio or stock performance for every hour of the day and every day of the week, I wonder what good it did you if it was up 40% today and down 20% tomorrow? You have invested for the long term and these are great companies that won’t go bankrupt overnight so why the watch?
As I mentioned before, if your goal is to take profit and move on, you are justified to keep checking movements, that won’t be folly on your path. But if the goal is to hold for 5 years or let’s even say 1 year, tell me, what is the difference between 10% up today 30% down tomorrow and 40% up another day on and on like that when at the of your holding period what you find in your balance is $1,000 appreciating to $1,350?
At best, you have only burned yourself unnecessarily throughout the periods. When you could just have unlooked and open at the end without any mental anguish. You will smile for having made such gain and move on. That’s what I want and wish for you.
It’s self-inflicted emotional torture
We don’t process loss well as human. Our design is optimized for winning, a linear path and not zigzag. That’s why we would do anything to avoid failure even if it means not attempting a thing. Embracing failure is antithetical to our wiring. So whenever we see a 10% rise in an hour and by the next we see a 12% decline, we suffer emotionally. Which is very unnecessary.
That’s what I don’t want you to go through. Why should you suffer that? Why should you torture yourself that much? It is enough for you to deal with all the ups and downs in your daily life. The stock market shouldn’t add to it. You shouldn’t deliberately add to it either.
As humans, we are not as wired to embrace failure. We detest it. I said from the beginning that a form of psychological satisfaction happens when you make some 10% gains within the hour. But what would happen if by close of trading day that 10% have turned to negative 5%. You can’t tell me you will remain the same. Your psychological framework will have to assume a new feeling for that. That feeling is emotional torture that you don’t deserve.
The nature of the market is zigzag, not a straight line up. However, for any good asset, what happens to them is that they make higher lows. That is, even though they decline, they are declining to lower prices that are higher than the previous lowest price that they declined to. Higher lows are good and it’s a sign of a growing asset. What I want you to avoid is having to witness the zigzags as you are not wired to handle such zigzag properly.
I did this in the past and I paid for it painfully. Reminiscing on the past helped me to put this into perspective.
Join 300+ people who are subscribed to my newsletter via this link to get notified of future posts like this and more.
I have largely stayed away from commenting or holding any opinion on the ongoing shenanigans of the US political landscape for two reasons. First, I do not understand it enough to hold an opinion. Secondly, I am not willing to have my time invested in its understanding (yet). However, the event that led up to the mobs taking over the Capitol is something I will like to take a few lessons from.
It is easy to think a divide of the human race is more well behaved, ethically sound and self-controlled than the other simply because their country is more beautiful, organized and rich. The #EndSars protest in Nigeria comes to mind here. Hoodlums hijacked the protest to do all forms of atrocities, breaking into the Oba Palace and carrying his symbol of authority away is relevant here. I imagined hearing some people saying in their mind, “this can only be in Nigeria”.
Well, the event of the Capitol Hill would have us believe otherwise. In fact, the history of human evolution from either from hunter-gatherer or Adam will not agree.
Human is fundamentally the same. We are all driven by the same desire, emotion and passion. What is even most interesting is that if you pay attention enough, everywhere you turn to, you will see the pattern.
In a recent interview appearance by Ram Parameswaran on Invest Like The Best podcast, Ram a legendary investor said this: “human nature is the same, whether you live in America, Western Europe, India, or China, you’re the same person, you want to eat food, you want to buy your groceries, you want to get stuff from a shop, it is the same thing”. It has always been the same thing, you just may not know. And your location, or position in that location doesn’t change that.
René Girard developed the idea of mimetics. He said, “human beings are creatures of mimicry. We are evolutionarily supercharged to do one thing better than anyone else: learn by watching and copying others. And the most important thing we learn is how to want.” René Girard is calling our attention to another common denominator behaviour of human. We are creatures of mimicry, he said. We want things because others want them. And when that behaviour continues, it creates scarcity while other things follow.
The point here is simple. Every corner that you look at, every mountain top that you gaze at and every valley that you step into, there are fundamental human behaviours that will always surface. Greed, love, insatiable desire, hope, sex, mimetic, hunger and many more. East, west, south and north, humans remain the same. Don’t ever think environmental conditions of wealth, development, poverty and so on will make this change. After centuries, humans are still asking if they are supposed to be their brother keeper and we are still eating the fruit from the forbidden tree. It has always been and it will continue to be.
Where does this knowledge leave us?
It does help us in a lot of things.
1. Picking more from the insight that Ram shared, it means as an international investor (he is one) when you get to a new market, you start your learning about the market with these universal common denominators. You know we all want to eat, have sex and make money. Is your company helping us achieve any of these fundamental desires and on what scale? What part of the fundamental nature of human is your business catering for and how urgently do we want to accomplish those desires? Upwork and Fiverr have seen a good upsurge globally simply because of this. We all want to make money and that is exactly what these platforms offer us. You bet they will succeed and you will bet right.
2. When you are negotiating this knowledge also comes in handy. Just as you want to win, the other party wants to win as well. There is no doubt about that. Otherwise, the party would have agreed to your terms immediately or even neglect your bid. The next task for you is to find out what their definition of winning is and what you are ready to sacrifice to ensure a win-win scenario. We are all the same.
3. It helps when designing incentives either as a company or as an individual or a country. People will only respond to an incentive that appeals to them.
These are just 3 few ideas of the innumerable implication of that fact that came to my mind. The principle is what you should keep to mind and never be caught by surprise again.
“New billionaires are created every 10 years in Nigeria primarily because the government changes…,” Asemota said. “And there are true entrepreneurs who take advantage of this change as they see it coming then adapt.”
Victor Asemota is an entrepreneur with vast experiences across markets and industries. From his Twitter profile, he wants the last person leaving Nigeria to “please switch off the generator.” But really he is our uncle on Twitter who doesn’t hold back to share his experiences so we can avoid his mistakes, build on his insight and thrive beyond our imagination.
Among other topics that he shares a lot about is the topic of wealth. I took time to narrow out some points that I believe we shouldn’t forget and that will help us build sustainable wealth as individuals.
After stating that new billionaires are created every 10 years in Nigeria in one of his interview appearances, there was a follow-up question from a participant. “What can we young people do to position ourselves for the advantages of the next decade?” the participant asked. Asemota replied with a simple phrase “go and work.”
According to him not a lot of people can leapfrog the working for others stage and still succeed as an entrepreneur. And if it is the entrepreneurs who will capitalize on opportunities to become billionaires, then the first lesson I want us to learn is the importance of actual work experience before venturing into the entrepreneurship ocean. Well, that’s for those who desire to become billionaires. Not everyone desires that and not all that desire it will have it. So what can we all apply to lives as we seek to accumulate wealth?
1. Wealth is a mentality and not a destination
Asemota: Wealth is not a destination, it is a lifetime journey to keep living below your means and growing your income exponentially. Wealth is a habit and not just an outcome. Wealth is not the fear of scarcity but the fear of not having enough abundance. It is a drive that is more often than not powered by human ego or belief in a mission much bigger than themselves. Wealth is about optimization amid inefficiency.
We were all born wealthy until we started thinking poor. Asking is not about Jedi mind tricks. Asking is the greatest power man has but we ask for the wrong things. Solomon got wealth because he asked for wisdom. Wisdom is the greatest wealth as it makes you realize that you already have a right to EVERYTHING. No wonder Solomon was the greatest baller that ever lived. Built a magnificent temple and made many women happy.
Commentary: Some think if they are given some million dollars they could overnight become wealthy. The history of lottery winners will have us believe otherwise. And that’s why this first lesson is super fundamental. Wealth is a mindset and except you have it well defined, you can’t have it. It requires constant living below your means no matter how much you have. It requires you to keep growing your income no matter how much it is now. That’s the mindset. It’s not a destination with an arrival.
2. Wealth is created from place and time
Asemota: One of the best things I have ever learned was told to me by our father Professor Gabriel Osuide. He said the two things God gives us are time and place, we do the rest. Time and place are the greatest gifts from providence, most people never fully grasp why “place” is an advantage. Why are we where we are at any point in time? Place is always an opportunity. Either an opportunity to improve or an opportunity to seek improvement. You are not tied to any place, migration is as old as mankind. Man has always sought favourable places but each place has lessons.
Commentary: time and place is an advantage but everyone realizes it. It’s also the fundamental advantage that we all have. It takes having the wealth mentality to realize this though.
3. It takes a village to create a billionaires
Asemota: Wealth does not come as it does from golden eggs and genies granting wishes in fairy tales. It comes from understanding that those in the place where you start must also want prosperity as badly as you want it and are willing to work together to build it. It ALWAYS takes a village. It takes a village of like-minded people to create a billionaire. They must all have a certain desire for an outcome or mission that creates wealth. Some of those people in the village believe in the mission more than others but it remains the force that holds the clan together.
Commentary: it’s fine to think of yourself alone but if you desire to become wealthy, you need to irrationally think of others and how you may help them as well. You become wealthy only by giving to others what they want and they can’t get so they can give you what you want (money, respect, reputation etc).
Also, that is important because, for every billionaire you have, many more millionaires have been made in the process. Extrapolating from Asemota’s point, it will almost be impossible for you to make the billions if those that surround you have no desire to become millionaires (wealthy) themselves. But gather together a team of aspiring millionaires and you are almost sure to become a billionaire yourself.
4. Those who are given to self-pity can’t create wealth
Asemota: I have never seen a clan of complaining people creating wealth from self-pity. That is the lesson I have learned from Thiel’s talks about China’s “Determinate Pessimism.” Things were bad, they also knew that things could be much worse if they did nothing but hope and pray.
Commentary: Asemota picked a lesson from China’s history on how they moved obscured poverty to the powerhouse that they are now. Instructive for us is the idea that wealth doesn’t come from self-pity nor does poverty end on the whims of it. The opposite of self-pity which self-responsibility must then become our watchword if we desire wealth.
Self-pity will condition you to think you are a victim and that the power to rise from your misery does not lie in your hand because of current condition (time and place). But we learnt at least one thing at all from the earlier point, it is that time and place (our condition) are our greatest gift. It gives us either an opportunity to improve or an opportunity to seek improvement. And that’s that we need to build wealth; improvement daily.
5. Loss teaches more lessons about wealth than anything else
Asemota: I started a business at 22 but didn’t intend to be rich with it. Became rich quickly and lost it all. Trying to get it back again is another exercise in learning about self-discipline. Creating wealth is ultimately about self-discipline and structure. You can’t be disorganized and become or remain rich. An epiphany.
Commentary: Asemota takes us back to the psychology of wealth. It’s a mental state and not a destination with a conclusive arrival. He was sharing something about Naval when he mentioned the quote above. So I’d like to quote Naval here as well.
“A lot of people think making money is about luck. It’s not. It’s about becoming the kind of person that makes money. I like to think that if I lost all my money and if you drop me on a random street in any English-speaking country, within 5, 10 years I’d be wealthy again. Because it’s a skill set that I’ve developed and I think anyone can develop.”
Replica of Asemota’s experience. He lost it all but because he has developed the skill, he could earn it back. Some of us think it’s about the money but these two brilliant and wealthy individuals will have us believe that it’s a skill, a state of the mind and habits.
6. Time and money should be invested in compounding opportunities
Asemota: Someone came to me recently with his life savings of some tens of thousands of dollars and asked for investment advice. I told him to save that money where it will compound and think of something he is passionate about and invest his time and not just his money.
If you have been able to save $30k then you must be doing something right. It is better to find how to expand and grow on that knowledge. Sometimes, we don’t realize what we already have and look towards what others are doing. I told him not to get carried away with public hype. I love training, I started my career and business with training and will retire as a teacher. Teaching has brought me more money than any other endeavour.
We see the things we think others make money from but don’t see their secrets. Nobody really advertises their source of advantage. Never get carried away with publicity. Know what people are doing when they display wealth, it is a means to an end.
Commentary: Oh my my, I like this point. And the entire narrative is loaded. The investment that will give you the highest returns is one where your time and money are invested. If you know me well, you will know that I favour passive investment in the stock market. Thinking about this now I realized it is because I do not expect my greatest return to come from there. The greatest return should come from that thing that keeps me up at night from sleeping, that takes from me my necessary food and that I enjoy doing. For some it could still be the stock market, that’s why we have Mark Cuban, Ray Dalio and Warren Buffett. Do not expect the highest returns from any investment that only cost you money without demanding your time.
7. Where you live is more likely to make you rich than how hard you think you are working
Asemota: Many times, what people think is hard work is just overcoming obstacles to exist. The hardest work is deep thinking and creation. It is not jumping on buses and trains. You need comfort and lack of distraction to do your best work. Each time I am in Palo Alto seeing the simple homes without fences, I remember Lagos homes in supposedly affluent areas.
I took some time off once in San Francisco to go to Napa to get an article written. It was the best work I ever did. Suffering to be productive because of the hardship and limitations in your environment is not a virtue.
Commentary: The hardest work is deep thinking and creation and this is best done if you don’t have to overcome obstacles to exist. By obstacle to exist, Asemota meant among others one, the long hours’ traffic of Lagos, two, the battling with electricity and generator noise and three, expensive basic amenities. If you will have wealth, the scale at which you will have may correlate with how less you have to overcome obstacles of existence.
There is a story I enjoy telling everyone who cares to listen. It’s about my experience when I first invested in the stock market. Don’t worry I won’t tell you about it here. But if you wish to read it, please check it out here.
I chose to bring the memory of that story to life again because it’s relevant for this article, to show you that everyone has a beginning and the days of baby steps. Wealth is an eternally relevant topic to me. People used to say “I’ve been on both ends of the spectrum and I know which one to go with.” Unfortunately, I’ve only tasted one end of the spectrum in full, poverty, and I know it is not meant for anyone. So I am currently journeying to the end of the other spectrum, wealth.
As I journey, I want to keep on writing about my experiences and tools that are helping me. So today, I bring you the door to wealth. They are doors not key. Key would imply your action. You aren’t going to get wealthy by knowing alone, you get wealthy by acting on your knowledge.
What do the 3 names above have in common?
The 3 platforms allow you to invest in US-based assets all from Nigeria. Let me tell you the implication of that. It means you have the opportunity to participate in global prosperity and invest in assets that have birthed a lot of millionaires over centuries. That’s not just all, there is virtually no financially wealthy individual that I know of that is not invested in the stock market.
The US stock market is significant because it’s home of innovation and the most prosperous companies are located there. It means you can also invest in each of these massively successful companies and share in the global wealth.
Take is three companies for example:
Netflix:
Amazon:
Apple:
The 3 platforms (Rise, Trove and Bamboo) offer you unfiltered access to invest in these companies. The minimum amount to also begin your investment journey with is so very low. Just $10 or less.
How are they different then?
Risevest – is unique among the 3 in that it helps you select what specific asset to invest in. I showed 3 companies above that have performed so well but I must you there are numerous who have performed woefully as well. Knowing which one to invest in and which to not invest in is not a task for the uninitiated and even for the initiated, it can be time-consuming. In light of this, Risevest takes your money from you and invests it in a basket of stocks that are expected to bring positive returns yearly.
Beyond the companies listed on the stock market, Risevest also allows you to invest in Real Estate business in the US and Fixed Income assets. The opportunities are endless. So you could just take your 100 dollars and put some of it in the stock market, some in real estate and the remaining in fixed income and watch your money grow just as others of the centuries have.
Trove and Bamboo – unlike Risevest, both platforms allow you to invest directly in a company of your choice. That where they differ. You think Tesla will do great in the coming years or you Microsoft will be a good investment, then open your account and make an immediate purchase of these companies. Of course, it is expected that you would have done your research before you do this, else you may get your hands burnt and record loss. Thread carefully.
Personally, I believe my generation which is yours as well is extremely blessed to have been privy to this opportunity. I remember when I was young during the 2007 – 08 stock market boom before the eventual crash. I was walking down the street with my mama and she was telling me she wished she had the money to invest in stocks then so that 10 years or more later when I am grown I would have something to my name. Unfortunately, she couldn’t buy it because she does not have the money and because the barrier to buy was high. Now, with just 4 taps on your mobile phone, you can not only buy Nigeria stocks, but you can also buy the stocks of the best companies in the world. If that’s not extremely blessed, you tell me what it is.
Utilize these opportunities as I am also doing and let’s journey together to the wealth spectrum away from poverty.
The second law of thermodynamics says that entropy always increases with time. And what is entropy? It means a gradual decline into disorder.
Whenever NASA travels into space, beyond the shores of the green planet in search for whatever they might be after per time, one of the things they look out for is a state of decreasing entropy (increasing orderliness) to determine the presence of a living system. For NASA, the second law of thermodynamics applies everywhere. Disorderliness increases with time. So if they find orderliness where disorderliness should be it’s assumed to be a sign of life.
Here’s the thing, living systems increase their organization despite the second law of thermodynamics. They optimize for orderliness. Life equals decreasing entropy. Here’s the implication of that.
Being alive is defying the law and in the end, we all will have to obey the law because we will die. Yes, our life and existence is energy against the observed natural order. It is constantly fighting that order to live one more.
When you leave your house for a few months and return, even though no one has touched anything, it would have been worse off than you left it. Do that for a couple of years and the whole thing will be nothing to write home about. But you could live in that house for 1000s of years and it will be standing.
My interest in writing this is not to teach you physics but to call your attention to a fundamental way of looking at all things in life and the forces and energy that permeate it.
Thomas Hobbes said life in a state of nature is brutish, nasty and short. He simply stated the sociological definition of entropy. Left to human and with no attempt to make a form out of nature, we’d all be dead.
We exist to reinforce and optimize for negative or decreasing entropy. Every action we didn’t take, every attempt we didn’t make we are simply promoting the state of nature. A state where things go from disorderliness to more disorderliness.
Every time as a leader in that organization that you didn’t provide leadership, you are reinforcing the state of nature.
Things go from good to bad because it is the natural state of the world. It doesn’t matter what that thing is either it was created by nature or created by men, they all follow this order of things. Living systems are required to exert energy for this not be.
Never should you wonder again why things went from good to bad on your watch. More often than not it could be two reasons. One, you don’t have a proper definition of good and bad or two, which is more likely, you didn’t act to optimize for a decreasing entropy.
When I started developing interest in books, I could barely finish a book. If I do, it would probably take a longer time than it should. Well, despite all that, as I recounted here, I kept on with the rhetoric of I love reading even though it was being a difficult adventure.
Things have changed over the period. I used to believe that it is wrong to carry a new book to read when I’m not done reading one. So I could go for 3 months carrying just one book around. I won’t complete it on time and I made no allowance for myself to read a new book.
Also, I will pick up some books that in reality are so boring (to me) or too much for me to comprehend at the moment. Yet, I won’t allow myself to read another one until I “finish” reading it.
I guess a lot of us do that. We do that because we want to make statistics out of the number of books read and it doesn’t make sense to count a book you didn’t finish. We are truthful and so we endure what I refer to as the cruellest intellectual torture; the reading of a book just so it could add to some statistics. It’s time to put a stop to that.
Why we read
I didn’t know why we read myself until I started reading. And when I say read, I mean all forms of reading – educational and fun, assigned by others and self-assigned, compelled or willful reading.
After a lot of reading I concluded on one ultimate reason why I (we) read; to know more. The ultimate reason for reading I believe is for the sake of knowledge. Either it’s fiction or nonfiction, when you pick a book to read, there is one thing that is sure to be accomplished in you when you are done, more knowledge.
Knowing more than you once knew means you can do what you couldn’t do before. It means you can enter rooms you couldn’t enter before. It means you can lay claim to a certificate you couldn’t have before. It means you can teach what you couldn’t teach before. It means you can make the kind of money you couldn’t make before. Knowledge is the key that opens many doors that we all covet.
What then is the essence of a reading that doesn’t amount to knowledge but just a mere statistics of book red?
Reading more than one book at a time
Since the essence of reading is knowledge, I started seeing books that way as well. No more as a statistics of book red but as a means to learn, to acquire knowledge. More importantly, I started seeing books as a conversation with the finest of the minds that ever lived or still living.
What do I mean? When you were in school (you may still be), you could have 4 lectures on different subjects in a day. You will attend them, take notes, think about what you learnt and probably even research to learn more. It never occurred to you to assume one lecturer must teach all contents of his subject before another can teach theirs.
Also, while you are out of lecture halls, you probably attend a church where you learn something new again from your pastor. In addition to that, you may also have a conversation on a topic (politics) entirely different from all you’ve done so far. 6 different “conversations” in just one day already.
All these are different knowledge sources and they do not conflict with each other. However, when we pick books to read, we have this sense of urgency or obligation to finish the conversation we started with this brilliant soul before we can move on to another conversation. I had to stop that practice and you should as well. If the purpose of reading is knowledge, then it should be treated as such and allowed to be acquired over time just as any other knowledge.
Here’s what you should know, just as you don’t go back to all conversations to complete them, you don’t have to finish all books as well. I say this because you need to also free yourself from the mental condition you’ve developed that forces you to finish a book.
There are different reasons why you may not finish a book at a time. One, you don’t understand it at that time. Two, it’s currently irrelevant. Three, it’s a poorly written book. The list could go in but those are my top 3.
Seeing books as a conversation with the finest mind liberated me from the idea of having to read just one book at a time. I could have a conversation with a brilliant professor, entrepreneur, spiritual leader, and an unsung person all at the same time. One knowledge won’t stop the other.
