Assume you earn $100,000 per year, which is a respectable wage.
Let's ignore concepts like inflation, interest rates, and opportunity cost and simply calculate how many years it would take you to earn a billion dollars using the numbers we have today.
If you started working on July 4, 1776, the day the United States declared independence. Assume you were so frugal that you saved every penny and somehow managed to live without spending a single dime.
Photo by Damir Spanic on UnsplashYou lived with your parents and ate only what your mother prepared at home.
You'll have 24.5 million dollars in your bank account by 2021.
Almost 250 years of hard work would not even come close to putting you on the list of billionaires. Let alone competing with the world's wealthiest individuals.
Let's be a little more generous and extend the timeline to the year 2021.
What would you be worth if you worked hard for the entirety of modern history?
Unfortunately, I must disappoint you by informing you that you would only save $202.1 million. That's less than 1% of Jeff Bezos's fortune, the world's richest man.
Let's put Jeff Bezos aside for a moment and consider how long you'd have to work to even make the Forbes Billionaire's list.
To make your first billion dollars, you must work for ten thousand years and save every penny.
Yes, ten thousand years.
For the record, human civilization is over a thousand years old.
This example should demonstrate the disparity between Bezos and someone earning $100,000 per year.
Even if you earn a million dollars a year, you would still be considered poor in comparison to Jeff Bezos' wealth over the last 30 years.
Photo by Austin Distel on UnsplashThis example perfectly illustrates how, even if you have all the time in the world, if you do not follow the rules of money, you will not be able to build wealth.
We've already made several videos about the rules of money, which you can watch again, but many of you may be wondering if you really need to build a $2 trillion company to amass that much wealth.
No, that is not the case.
Consider the case of Warren Buffett.
He didn't start a tech company, and he wasn't even involved in the development of any groundbreaking technology.
He only did one thing: he looked for the right companies to invest in. However, not all investors are successful.
When it comes to investing in the stock market and, more recently, cryptocurrencies, the vast majority of people lose money, so what separates a successful investor from the rest?
What exactly is value investing, and why do all millionaires adhere to this rule?
All of these questions, as well as many others, will be addressed.
When Google was a small company in the late 1990s.
Sergey Brin and Larry Page were frantically attempting to sell Google to a major corporation. Google wasn't the multibillion-dollar corporation it is today. Google's founders were happy to sell Google to Yahoo for $1 million, but Yahoo declined their offer, claiming that Google had no value because Yahoo was the internet at the time.
Yahoo was the forerunner to Google, but a Stanford professor named David Cheriton saw the value in the company's algorithm and invested $100,000 in it.
His investment has now grown to more than $6 billion. Instead of buying stocks at random, he tried to figure out what the company was worth and bet on the long run, turning $100K into $6 billion. This is what value investing is all about. The same pattern can be found in any company that Warren Buffett, Charlie Munger, or Peter Lynch have invested in.
Buffett seeks out companies whose stock is so valuable that he can buy it and forget about it for the next ten years. Consider companies like Coca-Cola, Gillette, and even Apple.
He has no plans to sell any of his holdings.
Some doubt his investing abilities, but the fact that he amassed a $100 billion fortune by picking the right companies to invest in demonstrates the power of value investing.
Picking stocks with a much higher value than what they are trading for in the market is known as value investing.
Warren Buffett recognised in 2016 that Apple is such a powerful brand that it can sell anything for a much higher profit margin than any other tech company.
Apple's value has tripled in the last five years.
The majority of ordinary investors choose a stock based on how popular it is or who is promoting it, rather than understanding the underlying technology.
People may have dozens of stocks in their portfolios, but when asked what they really know about the companies in which they have invested, they have very little.
On the internet, for example, there are a lot of passionate Tesla investors who are calling people like Warren Buffett fools for not investing in Tesla.
They listened to Cathie Woods' short statements, in which she claims that Tesla's stock is worth at least $3,000.
Tesla will produce a Roadster 2 that will be faster than a Bugatti and will cost only $250,000.
The Tesla Semi Track is coming soon. Tesla is planning to launch a competitor to Uber's app. Tesla plans to build 100 GIGA factories that will produce enough cars to replace all of the world's automobiles.
Is there a problem with that?
Despite the fact that I admire Elon Musk for everything he does, particularly with SpaceX, he has created so much hype around Tesla that people treat it as if it has already accomplished everything when, in fact, the Tesla roadster has been delayed until 2023, the semi-truck was introduced in 2017 and is still on the market, and its Giga factories in China and Germany are facing regulatory issues.
I'm not even talking about the Tesla app, which will compete with Uber, or Level 5 autonomy, which Musk has been promoting for, oh, years.
Rather than finishing any of these projects, Tesla announced the Tesla Robot and how it will revolutionise the world and eventually replace humans.
The entire world has gone insane.
Immature investors rush to buy Tesla stock after learning that the robot was actually a human dressed up as a robot who did a creepy dance, while Cathie Woods, the woman who claimed Tesla stock was worth at least $3K, quietly sells 110 million dollars worth of Tesla stock.
Let me ask you a question: suppose you have a $740 television that you are 100 percent confident will cost $3000 in a year or two.
Would you be willing to sell it right now?
No, why sell it now when you can sell it for four times the price a year later? Or it's possible that you don't really believe what you're saying.
Value investing is the polar opposite of growth investing. It's not about following in the footsteps of what's cool or popular. You're probably late to the party if it's already trending. You can save a lot of money when you buy something on sale if you know its true value.
Most people would agree that whether you buy a new TV on sale or at full price, you'll get the same screen size and picture quality.
Stocks, like televisions, go through cycles of higher and lower demand, resulting in price fluctuations - but that doesn't change what you get for your money. If a stock is worth $100 and you buy it for $58, you will profit $42 by simply waiting for the stock's price to rise to its true value of $100.
Furthermore, the company may expand and become more valuable, giving you the opportunity to earn even more money. If the stock rises to $130, you will have made $72 since you purchased it on sale.
You would only make a $30 profit if you had paid the full price of $100. Of course, some fundamentals must be examined before purchasing a stock, such as the balance sheet, cash flow, and income statement.
Do a ratio analysis to see how it stacks up against its competitors and how efficiently they use their resources.
However, this isn't enough to determine the company's true worth.
Beyond the numbers, value investors consider the people who run the company, as well as the company's values and principles.
What, at the end of the day, is a business?
It's a group of people who came together to create a product or a service, and the company's success will be determined by how creative, disciplined, and organised these people are.
As a result, before investing in a company, Buffett usually meets with its management to find out who is really in charge.
If you can't do all of that, stock investing is probably not for you.
Blindfolded monkeys throwing darts at a newspaper's financial pages selected a better performing portfolio than mutual fund experts in an experiment conducted by Princeton Professor Burton Malkiel.
Yes, monkeys with no prior knowledge of the stock market outperformed experts with fancy MBA degrees and years of experience, implying that our ability to pick individual stocks is limited.
As a result, Warren Buffett believes that most people would be better off investing in an index fund such as the SP 500.
That isn't to say you shouldn't put money into individual businesses.
You can if you understand how the company works, are familiar with the products, and have a thorough understanding of the company's philosophy.