The investment battle, and knowing your "enemies"
Chapter 1 of "Getting a Better Class of Enemy", my investment book
I'm writing an investment book called "Getting a Better Class of Enemy - Money, Markets and Manias". As I write the chapters, they will be made available to paid subscribers to OfWealth. Previous chapters, along with the Preface and Chapter Plan, can be found by clicking on this link.
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Chapter 1:
The investment battle, and knowing your "enemies"
In all things, I prefer realism to blind optimism. This is especially true when it comes to the world of money.
Having money, assets and belongings won't make you happy. That statement is somewhat of a cliché, but it's also true. In fact, in some situations money can make people unhappy, such as family feuds over wealth or contested inheritances,.
But, even so, wealth does always bring certain major advantages in terms of increased independence and freedom of action, and a reduced chance of ending your days in abject poverty. Which is why it's worth having a reasonable amount of wealth.
As you'll see from the dedication at the front of this book, the book's title is derived from a quote from Spike Milligan, who was an Irish-English comedian, television star and author.
"Money can't buy you friends, but you do get a better class of enemy."
On the face of it, this is just a witty quip. But, if you think about it in terms of wealth and investment, it's actually extremely profound. I'll explain why in a minute.
Accumulating wealth in the first place isn't easy. Keeping hold of it isn't straightforward either. A few people are lucky enough to inherit great fortunes, and even fewer win the lottery. But even those lucky souls usually end up frittering their wealth away.
Losing great fortunes is not a new phenomenon. The old adage of "shirt sleeves to shirt sleeves in three generations" has been witnessed for centuries, or at least as long as it was possible to make and lose a fortune in the first place. The first generation starts in poverty but makes the money, the second generation enjoys spending it, while the third generation loses anything that's left, and returns to poverty.
In fact, many people achieve the same result within their own, single lifetimes. How many times have you heard about famous rockstars, actors, or sports people who made huge fortunes but died with virtually nothing? I know that I've heard of many.
George Best was perhaps a case in point. He was a highly-talented football player from Northern Ireland who played for Manchester United in the 1960s and 1970s. He once said: "I spent a lot of money on booze, birds, and fast cars. The rest I just squandered."
(In case you were wondering, "birds" is an old-fashioned British slang word for women. It's not that he kept a large aviary.)
Building up wealth from scratch, and keeping it, involves living within your means. Salaried employees - whether they earn a lot or relatively little - can only accumulate meaningful savings if they spend less than their take-home pay. Entrepreneurs that eventually build valuable businesses usually start out living a frugal existence, as all their spare funds are invested in the expansion of their company. Even those with substantial capital to their names will only stay that way if they don't spend more than the net profits from their investments.
Whatever the original source of someone's wealth, once they have it they have to decide what to do with it. Assuming that they want to keep it and increase it, then they will need to invest it wisely, and over a long time horizon.
In the confusing world of finance and investment, that can seem like quite a battle to fight. But I believe strongly that anyone can prevail, if they have the right approach.
To achieve any victory, it's essential to understand the forces that are ranged against you. So I'll outline the different types of investment "enemy" in a minute.
But first, we need to be extremely clear about precisely what is required to truly win the investment battle. Simply "making a profit" isn't enough.