Tag Archives: Building Wealth

Long-term Investing Perspective

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Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”

One tried and true investment philosophy is investing with a long-term perspective. In essence, the time-arbitrage approach gives long-term investors an edge. Most investors are focused on the short term, basing trading decisions on factors that may have little to do with business fundamentals, such as quarterly earnings beat or miss or overall market volatility.

Long-term investors often adopt a long-term perspective while taking advantage of the shortsightedness and noise of the market. They tend to conduct extensive research and conduct a deep dive into the fundamentals of every company in which they are considering an investment.

Their extensive research allows them to develop an informed and thorough understanding of the longer-term secular advantages of these companies. Ultimately, they are more interested in the duration of a company’s growth opportunity rather than being overly focused on its timing.

They like to invest early before a company is on the market’s radar because they believe it’s impossible to pinpoint precisely when the market will notice and start trading the stock up to reflect its growth opportunity properly. This is a vital part of the engine that drives alpha for us.

Low turnover is an outgrowth of this investment process rather than a goal in and of itself. If they find and invest in the right companies, they believe that it makes little sense to replace these companies with new and relatively untested ones. Wsupported remain invested throughout the duration of the growth trajectory of our highest conviction companies. We also believe this is a more tax efficient approach to managing a portfolio and one that is often attractive to company management who are aware of our reputation as long-term holders of stock.

Your primary goal must be capital appreciation, and you should stay involved as companies grow and flourish as long as your investment thesis holds true.

The best risk management starts with knowing the companies in which you invest. By conducting extensive research prior to initiating a position in a company and continuing to conduct due diligence will keep you apprised of the company’s growth story.

The Real Value of Wealth

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Invest first before living like a King and Queen

Asset vs Liability

Son: Dad, may I speak with you?
Dad: Go ahead.
Son: Among all my classmates, I am the only one without a car. It is embarrassing.
Dad: What do you want me to do?
Son: I need a car. I don’t want to feel odd.
Dad: Do you have a particular car in mind?
Son: Yes dad (smiling)
Dad: How much?
Son: $15K
Dad: I will give you the money on one condition.
Son: What is the condition?
Dad: You will not use the money to buy a car but invest it. If you make enough profit from the investment, you can go ahead and buy the car.
Son: Deal.

Then, the father gave him a check of $15K. The son cashed the check and invested it in obedience to the verbal agreement that he had with his father.

Some months later, the father asked the son how he was faring. The son responded that his business was improving. The father left him.

After some months again, the father asked him about his business again and the son told him that he is making a lot of profit from the business.

When it was exactly a year after he gave him the money, the father asked him to show him how far the business has gone. The son readily agreed and the following discussion took place:

Dad: From this I can see that you have made a lot of money.
Son: Yes dad.
Dad: Do you still remember our agreement?
Son: Yes
Dad: What is it?
Son: We agreed that I should invest the money and buy the car from the profit.
Dad: Why have you not bought the car?
Son: I don’t need the car. I want to invest more.
Dad: Good. You have learned the lessons that I wanted to teach you.
– You didn’t really need the car, you just wanted to feel apart of the crowd. That would have placed extra financial obligations on you. It wasn’t an asset then; but a liability.
– Two, it is very important for you to invest in your future before living like a king.
Son: Thanks dad.

Then the father gave him the keys of the latest model of that car.

MORALS:
1. Always invest first before you start living the way you want.

2. What you see as a need now may become a want if you can take a little time to get over your feelings.

3. Try to be able to distinguish between an asset and a liability so that what you see as an asset today will not become a liability to you tomorrow.

You’re Responsible for Managing Your Money

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“Don’t be like a ship at sea without a rudder, powerless and directionless. Decide what you want, find out how to get it, and then take daily action toward achieving your goal. You will get exactly and only what you ask and work for. Make up your mind today what is it you want and start today to go after it! Do It Now!” ~ Napoleon Hill

When you understand that you alone are responsible for managing your money and building wealth, everything changes. It’s not up to the government or your neighbor—it’s all on you.

Take control and make it happen.

It is ultimately the choices and actions you take with your money that have the greatest impact on your financial well-being.

It is about developing disciplined spending and saving habits, being responsible with debt, making wise investment decisions, and exhibiting patience and long-term thinking when it comes to financial goals.

Start by thinking about your end financial goal. What is the number (amount needed for retirement) you are aiming for? Once you have that number in mind, consider what actions you need to take now to make it a reality. If you’re unable to invest a lot right now, think about what steps you can take to change that situation.

Break down your goals into smaller, more manageable tasks, and you’ll be surprised at how much progress you can make.

Even if you cannot afford to invest $1,000 monthly, do not allow that to discourage you from investing. Beginning with more modest amounts such as $25, $50, or $100 can be a great starting point. It is crucial to make investing a priority, no matter how little, and then gradually increase your investments as time goes by.

When striving to build wealth and for financial freedom, don’t forget the importance of maintaining good health. True wealth is not only the freedom to pursue personal goals, but also the presence of good health. Without good health, financial freedom holds little to no worth.

While a healthy person desires numerous things, a sick person longs for just one: good health.

Defining Wealth

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Frequently, when discussing wealth, the importance of good health is overlooked.

Being wealthy means more than just having money—it also means having good health. So, while you’re working hard to build wealth and be financially free, don’t discount the importance of good health.

Wealth is not about having the most expensive possessions, but rather having the freedom to do what you want, feeling joy and contentment in life, and being healthy. This is the best definition and meaning of wealth.

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Billionaire hedge fund manager Paul Tudor Jones II, Tudor Group’s Founder and Chief Investment Officer, is one of the pioneers of the modern-day hedge fund industry.  He is known for his macro trades, particularly his bets on interest rates and currencies.

In 1980, he founded Tudor Investment Corporation, which now manages $13 billion in assets.

Between 1989 to 2014, he generated compounded annual returns of nearly 20% without a single down year.

Tudor considers himself one of the most conservative investors in the world.  He would describe himself as the “single most conservative investor on earth”, and he “absolutely hates losing money.” Once he commented that his grandfather told him at a very early age that “you are only worth what you can write a check for tomorrow.”

Thus, his investment philosophy is that he does not take a lot of risks, instead, he looks “for opportunities with tremendously skewed reward-risk opportunities.” Others describe his strategy as: ‘Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead”

Source:  https://www.tudor.com/

 

Building Wealth ‘One Brick at a Time’

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“Rome wasn’t built in a day, but they were laying bricks every hour.” – James Clear

Laying bricks systematically to build a city works similarly well for building wealth. Building wealth is a slow systematic process of investing over the long term and compounding returns over time for most savers and investors. Successfully building wealth is not an overnight success.

“Goals are good for setting a direction, but systems [habits] are best for making progress.” ~ James Clear

Small Cap Stocks Performance

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Historically, small-cap stocks have been shown to outperform the rest of the market over the long term.  And, small-caps tend to underperform during bear markets but outperform in bull markets.

Some of the best stocks to buy in the past 25 years started as small-cap stocks. Amazon was a $7 stock in 1998, and Tesla had a market valuation of just over $1 billion in 2010. Of course, not every small-cap company becomes a giant. Investing in small companies can be rewarding, but it also comes with risks that investors need to understand.

Over the long-term, small caps tend to outperform because of greater growth opportunities. A massive company is limited by its existing size. It’d be exceptionally difficult for, say, Apple Inc. to triple its revenues and free cash flow anytime soon.

However, a $1 billion company can much more easily grow to be multiples of its current size. Many small caps stay small because they have structural problems, management lacks the capability to grow the business, or their niche simply isn’t large enough to support a bigger enterprise. That said, many small caps can graduate to greater things, earning shareholders tremendous returns along the way.

Small-cap stocks tend to experience more price volatility and to suffer more stock price destruction than their larger cap peers during bear markets and when equities are broadly struggling due to inflationary and recessionary fears.

Small cap stocks typically underperform entering recessions and periods of economic weakness but outperforms coming out of them. In the long run, small caps tend to be winning investments. Yale professor Roger Ibbotson and financial consultancy Duff & Phelps analyzed nearly a century of data to find that small caps have outperformed large companies by 1.6% on average every year through 2020.

Fearful investors who throw in the towel during market downturns risk missing out on the rewards when the market possibly reverses course in 2023.

“This is one of the best times to invest in small company stocks that we’ve seen in a very long period of time,” says Gregg Fisher, founder of global small cap hedge fund Quent Capital, which manages $1 billion in assets. “The odds historically of a huge rally off this massive decline are high.”

The small-cap benchmark Russell 2000 Index (RUT) generated a total return (price appreciation plus dividends) of -20.4% for the year-to-date through Dec. 16. That trailed the S&P 500’s (SPX) total return of -17.9%.

No surprises there. Risker and “growthier” equities such as small-cap stocks tend to underperform when markets are volatile and headed south (bearish).

By the same token, however, small-cap stocks also tend to outperform the broader market when equities are catching a bid. No one can know for certain if we’ve already seen the bottom of our current bear market. Once the equity malaise lifts, however, the best small-cap stocks to buy should theoretically be among the market’s top outperformers.

To find the best performing small cap that have continued to grow through the bear market, Search for companies with a market value between $300 million and $2 billion that also had positive sales growth over the past 12 months and a share price of at least $5. Financial institutions, REITs, utilities, royalty trusts and limited partnerships were excluded, as were companies that have been public for less than one year.

Over time, small-cap stock prices tend to be more volatile than those of larger companies, and stock values fluctuate more dramatically. But, in general, the longer the evaluation period, the greater the likelihood that small-cap stocks outperform the large-caps.

in recent months small-cap stocks have fallen sharply amid a broader pullback on fears of a Federal Reserve Board rate hike, especially in high-priced growth stocks. Since small-cap stocks are more likely to be in their growth phase and are often unprofitable or minimally profitable, they get hit harder during “risk-off” moments like the one that started 2022. In other words, small-caps tend to underperform during bear markets but outperform in bull markets.

References:

  1. https://www.fidelity.com/insights/investing-ideas/small-caps-2023
  2. https://www.forbes.com/lists/best-small-cap-companies
  3. https://money.usnews.com/investing/slideshows/9-of-the-best-small-cap-stocks-to-buy-for-2023
  4. https://www.fool.com/investing/stock-market/types-of-stocks/small-cap-stocks/
  5. https://www.fool.com/investing/stock-market/types-of-stocks/small-cap-stocks/how-to-find-small-cap-stocks/