Background on author
Andrew is an English teacher from Cananda currently teaching in Singapore. Andrew is also a middle class person. He started learning investing when he was 19. He learned from a mechanic who was also a millionaire. His investing strategy is very simple and buys stocks only when stock market drops. In his book he explains a lot of misconceptions on investing and how average investors can beat wall street.
Investing strategies
Savings is important.
Before investing you need to be financially responsible. For example, if you have credit card debt (which charge 17% interest) you should pay down your debt before you go into investing.
Responsible Spending.
Determine what’s need and what’s want. 87% of first generation millionaire only spend 31K on buy a car, which means majority of rich people don’t buy luxury cars. Another example is Warren Buffet, he drove his 30 years old Lincoln Town Car until 2006. The Millionaire Next Door(another book)also documents the fact that most millionaires drive older or used automobiles.
Stop timing the market.
We often hear people say the key to be successfull in stock market is to buy low and sell high. However, this book argues otherwise. For example let’s say Dow Jones was trading about 400 and drop below 100, which is about 70%. However Dow is trading at 800 in 1980, 2400 in 1990, 10220 in 2000 and 20000 in 2017(this doesn’t include dividends).
Over the long run and if you use dollar cost average you will your share of return.
Index Fund vs Mutual Fund
The book argues to buy index fund over mutual fund that are managed by people. The reason is because lower cost, transaction fee, and tax. (I’ll explain more in the other blog post). Basically market return is the maximum return for all investor. It’s simple math.
Thoughts
This book opens my mind on investing. Currently, I only invest S&P500 index fund, but I plan on moving a bond index into my portfolio soon. I started investing in S&P500 when it was around 1900 back in 2015. I remember it was the highest at the time. Now S&P is trading at 2400 (2017). So what Andrew says make sense, long term investing in equties market is a winner’s game.