In our new book “The Wealth Secret” we set out a series of principles to achieving long term wealth creation.
One of the principles is having a high regard for avoiding trouble or making some simple mistakes.
There is a practice known as ‘modelling’ which spans many types of systems, processes or behaviours. Essentially this is creating a framework which represents the ‘thing’ being studied (or modelled).
This is useful to us in our quest to help people understand wealth creation because we can study people who have successfully created wealth and build models around the way they have done so.
This leads to a consistent set of actions and approaches which we see time and time again, as those people who successfully create and build wealth tend to be remarkably similar in what they do.
Logically, therefore, copy what they do and you will also create and build wealth.
The majority of our book and the principles it brings together are based on exactly this: modelling the activities, disciplines and approaches of the wealth creators.
However in doing so there is also an element of viewing what successful wealth creators don’t do. Sometimes it is worth turning something on its head and looking at it from the other way.
This article looks at what is not in the model.
First off, successful wealth creators are exceptionally diligent at avoiding fads. In the financial and investment world there are virtually no examples of new methods of investing or obtaining decent returns which are not ones that have been established over many decades – or longer.
But consistently you will see fancy ‘new’ schemes being touted, which promise to make you a fortune.
We point out in the Book that on the rare occasion someone finds a little gem or a secret mine of gold, it is almost inconceivable that they would share this with you and I. Why would they? If something is that ‘special’ then its value will almost certainly be lost by punting this out to thousands of ordinary investors.
Just read any book on the City or Wall Street, written by an insider, and you will understand that the best deals will always be retained by the firms or individuals within those firms. It is not in their interests to let anything outside this inner circle.
So when you hear about a good thing or the latest clever wheeze to make money, be cautious or, better still, bin it.
Second, always ask searching questions (even if these are just in your head) around the experts you are dealing with and remember that no-one has a crystal ball. In this respect avoid anyone who is putting a strategy to you to follow which is not based on classical principles and is about their skill at navigating through markets.
Remember even someone as clearly skilled as Warren Buffet uses a strategy based on the best classical foundations (and if in any doubt on this point, please read his views on experts!)
Thirdly, remember that you are not going to create wealth overnight, this is a long term quest. It requires discipline and patience. Avoid temptation or an urge to seek out short term gains.
There are short term gains to be had, but these will often come from taking an unacceptable risk. The subject matter of our Book is about creating and preserving wealth and this is achieved by finding ways to get steady long term returns. This, in turn, requires exceptional risk management. Short term gains – or the quest for them – will, normally, only be available if you abandon risk control.
You need to ‘stay the course’ if you are an investor building your wealth; not swayed by short term fluctuations, once in a lifetime opportunities, or the desire to get instant gratification. None of these are consistent with successful investing.
Fourthly and finally – don’t be fooled by luck. The Investment Markets are huge; with thousands of ‘players’, companies and firms all vying to sell you something. From stock brokers to fund managers, there are so many ‘experts’.
Imagine that every single one of these various players are completely useless at investing and have nothing to offer you of any intrinsic value.
If this was the case (and who is to say it isn’t?) – then, even allowing for the fact that not one of them knows what they are doing, many would look like experts or that they had the markets cracked, or some special way of investing which ‘beats the rest’ or ‘beats the market’.
This is because if you had a random set of ‘experts’ all as bad or as good as each other playing in the markets, simply because of chance, some would do well, some would do badly.
It’s rather like 100 people all betting on one roulette table, even after 20 spins, some would be winning simply down to mathematical principles around randomness. It is quite likely 10-12 players, even after many spins of the wheel, would be ‘up’ even in the random game of chance that is roulette, where the casino has the odds tipped towards them.
Be careful therefore that the players who look like they are the stars, the experts and the wonder kids, are not just – at that point – the lucky ones. Successful investors are not easily seduced by so-called star performers, knowing that in investment terms, what works are successful strategies played out over the longer term, that do not rely on any investment wizardry.
Click here to order a copy of our Book, The Wealth Secret.