A simple way to invest over the long term (for people who want to know general information about how to invest)

A simple way to invest over the long term (for people who want to know general information about how to invest)

On the last page I said that it does not require a lot of time to safeguard your wealth, but to be honest, I spend an inordinate amount of time looking at financial data, so perhaps I do know what I’m talking about with respect to the amount of effort required.

But I will say that the best investment opportunities are in most cases not hidden away in an exotic corner of the market, but are visible for all to see.

Do not confuse visibility with media coverage.

What I mean by this is that, for example, when there is general pessimism over stocks and the headlines are talking about how stocks are doomed, then that is your cue to consider investing into stocks in general. Check whether stocks are cheap or not at the time – this might be difficult without some training, but if you see two or more editorials in the Financial Times claiming that stocks are cheap following a serious decline in price with high trading volumes (high volumes are traded when weak investors panicked into selling their shares), then split up your capital into 10 portions and invest each of them into the general index (i.e. a tracker fund or an index ETF) on the same day of the week for the next 10 weeks.

There is no way you will catch the bottom doing this, but there is also a very high chance that you will have bought some attractively priced assets without much effort.

In another example, if you read in the paper that the widget-making industry is undergoing terrible restructuring, that widget companies are going bankrupt, and that the price of widgets is now so low that very few companies can turn a profit, then what does that tell you? It tells you that the time to buy widget making stocks is imminent. Unless the widget is going out of fashion, such as a horse muzzle or a buggy whip, then it is likely that prices will normalize and companies will go back to making profits at similar levels as they did in the past. From that point, you will have to be able to identify which widget maker is likely to survive. If you are able to read a balance sheet, income statement, and cash flow statement, then you will be able to quickly narrow down the candidates and allocate a portion of your funds into each of them. Although it might seem scary doing this, a company will not go bankrupt if it has enough cash (or financing from a bank) to pay its dues. In general, you can trust the financial statements of US and European companies with respect to things such as cash on the balance sheet.

A simple but effective mindset for making investments is to do whatever the market is asking you to do. For example, if high prices are offered for shares but bonds have high yields, then the market wants you to sell your shares and it is giving you a great deal on the bonds. Similarly, if IT shares are offered at low valuations because there is a hangover from an investment bubble, then the market is inviting you to purchase those shares.

I do not offer any financial advice, and before I get sued, I need to tell you that this is certainly not advice. But I also think that the types of advice proffered by financial advisers can be worse than useless for many reasons, starting with poorly-aligned interests (they might get paid more commission to sell you a stink-bomb deal) ranging through to peddling the conventional wisdom of the day (e.g. selling you gold when the gold is high, tech stocks when tech stocks a high, housing investments where they are expensive, etc.) The best steward of your finances is yourself. It is possible to grow your assets by 10-15% per year or more by buying things which are not in fashion. The most powerful weapon you have is standing above the fray and only coming in when it suits you. Now get your ass out there and put on your indifferent face!

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