Learn 12 Steps to Investment Success and cut through the complexity of investing. See how you can beat the professionals, with no experience, and spend less than 10 hours a year doing it.
Andrew has been working for more than 20 years in the global financial industry, with a particular focus on Asia. During that time, he has taught numerous classes to fellow professional financial industry experts. But, when it came time for Andrew to teach his five teenage nieces how to handle their financial future, he found it extremely challenging to boil down a lifetime of research and experience into something that could be a simple lifelong guide on the path to achieve financial independence. Because of this challenge, Andrew has compiled a fantastic set of materials that resulted in a book and a course, to help guide you and your loved ones to financial independence.
At the end of the course YOU will have a simple and easy method of managing your own money – for your lifetime. Andrew makes seminal academic research easy to understand and combines it with his industry experience to create an actionable plan that you can easily execute to gain the best returns over the long term.
Don’t waste your most valuable wealth creation years – you can start today to learn these core principles, even if you have no prior knowledge of investing.
We review the 12 steps to failure in building your wealth in the stock market. We then start on principle 1. Plan – Create a written plan and follow it. We learn that a main failure is that most people have no written financial plan. What is a written plan important? It allows you to predetermine future actions and helps you conquer the tricks our minds can play on us. It is amazing, but it's true that the majority of people do not have a written plan, now is your time to become one who does. What is so good about a financial plan? Well it allows you to beat behavioral biases by predetermining your future actions. Remember that a financial plan should be simple – with only about 6 parts. Finally, keep your plan positive and set up reminders to improve your chances of success.
2. Simple – Remember that simplicity beats complexity. Failure: The financial world is just too complicated, most don’t see any hope they could understand it. Remember that a complex investment strategy is rarely followed, that more data does not mean better decisions, in fact, more information tends to give a false feeling of confidence. It is important to understand the two major risks in the stock market, company and market risk and that you can reduce company risk by holding about 10 stocks, but the ajority of people defy this by owning 5 or less stocks.
3. Time – Start early, time really is money! Failure: People are too focused on short-term gains, meanwhile they nearly always start investing too late. Learn that compound interest is the only sure-fire way to get rich – it just takes 30 years. Also, know that investment periods are much longer than people think. Take the time to calculate your investing and retirement time horizons. Understand that compounding causes your money to grow exponentially in later years. Also, remember that higher rates of return increase final value exponentially, but you must reinvest your dividends.
4. Returns – Be realistic about stock market returns. Failure: People what to get rich in the stock market, unfortunately, like a casino, that’s not the common outcome. Remember that people love to talk about their winners, but what matters is the sum of winners and losers over time. My experience tells me that expectations of returns that people think they will make in the stock market are usually way to high. I suggest that over the long term, you should expect stocks to earn about 8%, half from dividends and half from rising prices. I have found that when investing for the long term it hardly matters if you buy when the market is high or low. Most people should not buy individual stocks, rather they should reduce risk by owning mutual funds. Majority of mutual funds are “actively managed”, meaning that they try to beat the market.
5. Do it yourself – Pro's don't always work for YOU. Failure: Most people put too much faith in financial professionals, and just turn their investments over to them. Bizarrely, in the world of finance, the more you pay, the less you often get. In fact, most actively managed funds do not beat the market. Your chance of finding a consistently winning active manager, before he has his winning streak, is very low. A passively managed mutual fund buys all stocks to just match the market.
6. Mistakes – Avoid big mistakes, especially early in life. Failure: Most people don’t realize that even small mistakes can be devastating to their long term wealth. Always keep in mind that 1,000 dollars lost when you are 25 is actually 10,000 lost at 60. Errors, whether driven by emotions, analysts, advisers, advertising or the news, can be very costly. Money lost when you are young can never grow exponentially for you. If you contribute equally for 30 years, the first 15 are about 3 times more valuable. A Nobel prize winner taught us that losses feel 2.5 times as painful as gains feel good. Most financial advisers do not beat the market and financial analysts cannot predict the future. Our minds are biologically unsuited to investing – emotional firestorm
Continued from prior
7. Savings – Start building wealth through savings. Failure: People underestimate how much they need to save, the result is they usually put off saving. Keep your spending deeply below your income to create wealth. You probably have to save much more than you realize. Take pride in spending much less than your monthly income. But remember that people rarely get rich by cutting costs. Reduce debt, build up cash, then you can set aside money for investment every month. Focus on “financial independence” not “getting rich”. Financial independence is when passive income pays expenses
8. Costs – Keep financial costs as low as possible. Failure: Most people pay way too much in fees, some may not even understand the fees they are being charged. One of the most reliable predictors of successful investment performance is low costs. Most people never even consider how much financial costs eat into their wealth. Nearly every person contacting you from the financial world makes their income from your money. Understand all fees you pay in the financial world, don’t be afraid to ask for a clear explanation. Keep the fees you pay as low as possible to increase your wealth. Depending on your situation, taxes can also be a big cost.
9. Risk – Diversify to reduce risk of loss. Failure: Seduced by the idea of getting rich in stocks, most people crazily make big bets on a few stocks. If you insist on buying individual stocks, own about 10. Avoid permanent loss of your money by protecting yourself against the main risks. Reduce unnecessary company specific risk by owning a portfolio of stocks. Reduce shortfall risk by holding mainly stocks in your youth and keeping fees low. Reduce the risk of buying stocks too high by buying a little bit each month. Buy a fund that holds stocks outside your country to prevent a disaster if your home market crashes.
10. Balance – A mix of stocks and bonds is vital. Failure: Most people don’t have a clue about the risk-reduction benefits bonds add to a stock portfolio. Make bonds part of your long-term investment strategy. In the first half of your life, own mainly stocks – in the second half, mainly bonds. Only adjust allocation between stocks and bonds at a threshold you predetermine. Blending bonds with stocks cuts risk dramatically. Make bonds a small part of a long-term portfolio. For each decade of your life, stocks should be about 110 minus your age, 90% in your 20s. If equity rises dramatically, sell a portion and move it to bonds and vice versa.
11. Action – Be patient. Trading brings costs and mistakes. Failure: People see the active trader, the guy always buying and selling, as the one who makes the most money. Action always leads to costs and usually mistakes – reduce action. Bad market timing can lead to a loss of as much as half of long-term wealth. In the financial world, every action costs money. Every action also brings risk of mistakes, reduce action. Average investors lose up to half of market returns from bad timing.
12. Stay invested – Cool heads win in the end. Failure: People want to take action during market booms or crashes, unfortunately they usually sell low and buy high. Individual stocks don’t always bounce back, but the market does. If you let panic take you out of the market, you can suffer dearly. The average active individual investor earns half that of buy-and-hold investors. Avoid aggressive market timing or you risk missing the best days. Missing the stock market's 10 best days in the last decade could cut 50% from final wealth.
Dr. Andrew Stotz, CFA
Andrew Stotz, PhD, CFA is the CEO of A. Stotz Investment Research, a company that provides institutional and high net worth investors with ready-to-invest stock portfolios that aim to beat the benchmark through superior stock selection.
While previously as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers’ Poll for two years in a row. He was also voted No. 1 Analyst in Thailand in the Institutional Investor magazine All-Asia Research Team Report.
Andrew has been a lecturer in finance for 25 years at various universities in Thailand and is currently a research faculty and a member of the international advisory board at Thammasat Business School and an adjunct professor at the University of Science and Technology of China. He is the current, second-term president of the CFA Society of Thailand.
Teaching three main topics
*Quality management through his book, "Transform Your Business with Dr. Deming's 14 Points"
*Finance for beginners using his book, "You Won't Get Rich in the Stock Market...Until You Change the Way You Think About it"
*How to give great presentations through his course, "Become a Great Presenter and Increase Your Influence"
Teaching his real work business experience
A. Stotz Investment Research (ASIR) provides institutional investors with ready-to-invest stock portfolios that aim to beat the benchmark through superior selection. The company is headquartered in Hong Kong with an office in Bangkok, Thailand. The investment process follows ASIR’s proprietary FVMR framework, a framework that marries quantitative and fundamental research, evaluating an asset’s attractiveness on Fundamentals, Valuation, Momentum, and Risk. ASIR’s portfolios are concentrated but diversified to manage risk but still have a high probability of outperformance.
In addition to stock selection, the company developed licenses the ValueModel, a standardized valuation model used to value any company in the world.
Andrew teaches seminars in eight different areas of focus: How to Value any Company in the World, Quantamental Investing Across the World, How to Make Your Company Financially World Class, Become a Great Presenter and Increase Your Influence, Plan Your Work, Work Your Plan, How to Start Building Your Wealth Investing in the Stock Market, Transform Your Business with Dr. Deming’s 14 Points, and 10 Ways Ethics adds Value to You.