3052: [Part 2] Stocks - Part XIX: How to Think about Money by JL Collins

[00:00:00] ServiceNow unterstützt Ihre Business Transformation mit der KI-Plattform. Alle reden über KI, aber die KI ist nur so leistungsfähig wie die Plattform, auf der sie aufbaut. Lassen Sie die KI arbeiten – für alle. Beseitigen Sie Reibung und Frustration Ihrer Mitarbeiter und nutzen Sie das volle Potenzial Ihrer Entwickler. Mit intelligenten Tools für Ihren Service, um Kunden zu begeistern. All das auf einer einzigen Plattform. Deshalb funktioniert die Welt mit ServiceNow. Mehr auf servicenow.de.

[00:00:30] This is Optimal Finance Daily. Stocks – Part 19 – How to Think About Money – Part 2 by JL Collins of JLCollinsNH.com Level 3 – How to Think About Your Investments Warren Buffett is rather famously quoted as saying, Rule number 1 – Never Lose Money Rule number 2 – Never Forget Rule Number 1

[00:00:55] Unfortunately, too many people take this at face value and then leap to the conclusion that Mr. Buffett has found a magical way to dance in and out of the market, avoiding the drops. Not true. In an interview linked in this post, you can listen to exactly what he says about this. You can't successfully dance in and out of the market. My favorite line appears at around the 1 minute 34 second mark.

[00:01:20] Quote, The Dow started the last century at 66 and ended at 11,400. How could you lose money during a period like that? A lot of people did because they tried to dance in and out. End quote. The truth is during the crash of 2008-2009, Buffett lost about $25 billion, cutting his fortune from $62 billion to $37 billion.

[00:01:45] That leftover $37 billion being the reason I was wandering around at the time irritating my friends by saying, Gee, I only wish I could have lost $25 billion. What Buffett didn't do is panic and sell. In fact, he continued to invest as the sharp decline offered new opportunities. As the market recovered, as it always does, so did his fortune. So did the fortunes of all who stayed the course.

[00:02:12] Now, there are likely many reasons Mr. Buffett didn't panic as that $25 billion and all the potential it represented slipped away. Having $37 billion left surely helped, but another key is probably how he thinks about the money in his investments. Also rather famously, Mr. Buffett talks in terms of owning the businesses in which he invests, sometimes in part as shares and sometimes in their entirety.

[00:02:39] When the share price of one of his businesses drops, what he knows on a deep emotional level is that he still owns precisely the same amount of that company. As long as the company is sound, the fluctuations in its stock price are fairly inconsequential. They will rise and fall in the short term, but good companies earn money along the way, and in doing so, their value rises relentlessly over time. We can learn to think in this same way.

[00:03:07] Again, let's use VTSAX in exploring this idea. Suppose yesterday you said, Huh, this idea of owning VTSAX makes sense to me. I'm going to get me some. And having said that, you sent Vanguard a check for $10,000. At yesterday's close, the price of VTSAX was $41.16. Your 10K bought you 242.9543244 shares.

[00:03:33] If a week from now, VTSAX shares are trading at $43, you might say, Hmm, my 10K is now $10,447. Yippee! That JL Collins sure is smart. If a week from now, the shares are trading at $40, you might say, My 10K is now only $9,718. That JL Collins is a bum. That's the typical way average investors look at their holdings.

[00:04:02] As little slips of paper, or more accurately in this day and age, little bits of data that go up or down in value. If that's all they are, drops in the price other people will pay you for them on any given day can be very, very scary. But there's another better, more accurate, and more profitable way. Take a few moments to understand what you really own.

[00:04:25] At $43 per share, or at $40, you still own the same 242.9543244 shares of VTSAX. That in turn means you own a piece of virtually every publicly traded company in the U.S. $3,317 last time I checked. Once you truly understand this, you'll begin to realize that in owning VTSAX,

[00:04:51] you are tying your financial future to that of virtually every publicly traded company based in the most powerful, wealthiest, and most influential country on the planet. Companies filled with hardworking people focused every day on prospering in the changing world around them in dealing with all the uncertainties it can create. Some will fail, losing 100% of their value. Actually, they don't even have to fail and lose all of their value to fall off the index.

[00:05:19] Just dropping below a certain size or what's called market cap will be enough. Those will fall away and be replaced by other newer and more vital firms. Some will succeed in a spectacular fashion, growing 200, 300, 1,000, 10,000% or more. There is no upside limit. As some stars fade, new ones are always on the rise. This is what makes the index and by extension VTSAX self-cleansing.

[00:05:50] If I were to seek absolute security, a very different thing than the smooth ride most mistake for safety, I'd hold 100% in VTSAX and spend only the 2% dividend it throws out. Or maybe a variation like the last portfolio option I described in part 6. Nothing is sure, but I can't think of a surer bet than this.

[00:06:13] In closing, we live in a complex world and the most useful and powerful tool for navigating it is money. It is essential to learn to use it. And that starts with learning how to think about it. It's never too late. Oh, and somebody please send Mr. Tyson a link to this site. It's not too late for him either. You just listened to part 2 of the post-titled Stocks, part 19,

[00:06:42] How to Think About Money by J.L. Collins of jlcollinsnh.com. And now a word from our sponsors at Betterment. When investing your money starts to feel like a second job, Betterment steps in with a little work-life balance. They're an automated investing and savings app, which means they do the work. While they build and manage your portfolio, you build and manage your weekend plans.

[00:07:07] While they make it easy to invest for what matters, you just get to enjoy what matters. Their automated tools simplify the complex and put your money to work, optimizing day after day and again and again. So go ahead, take your time to rest and recharge. Because while your money doesn't need a work-life balance, you do. Make your money hustle with Betterment. Get started at Betterment.com.

[00:07:36] That's B-E-T-T-E-R-M-E-N-T dot com. Investing involves risk. Performance not guaranteed. You sign up for something. Forget about it after the trial period ends. Then you're charged. Month after month after month. The subscriptions are there, but you're not using them. In fact, I learned that 85% of people have at least one paid subscription going unused each month.

[00:08:04] Thanks to Rocket Money, you can see all your subscriptions in one place and cancel the ones you're not using anymore, saving more money. Rocket Money is a personal finance app that helps find and cancel your unwanted subscriptions, monitors your spending, and helps lower your bills so you can grow your savings. See all of your subscriptions in one place and know exactly where your money's going.

[00:08:28] Rocket Money has over 5 million users and has saved a total of $500 million in canceled subscriptions, saving members up to $740 a year when using all of the app's premium features. Cancel your unwanted subscriptions and reach your financial goals faster with Rocket Money. Go to rocketmoney.com slash OFD today. That's rocketmoney.com slash OFD. Rocket Money.com slash OFD.

[00:08:57] And I hope you enjoyed finishing up this post with JL Collins as much as I did. I'm reminded here how often people will say that they lost XYZ amount of money in the fluctuating stock market. They are watching volatility and interpreting it to mean that they are winning or losing based on what the market is doing. But I think it's important to remember here that if the market is down, you haven't lost any money unless you sell those investments.

[00:09:25] Let's say that louder for the people in the back. You only lose money if you sell. So what's the solution here? Buy and hold, my friends. Buy and hold. You still own the same amount of shares as JL so beautifully demonstrated in this post. So when the market inevitably rises again, you'll be there for the ride.

[00:09:46] And in a similar fashion, let's say that your portfolio is down from an all-time high that you had at some point in your accumulation phase at the time that you plan to tap into it. Rather than looking at how much you're down from a peak, look at how much you're up over the lifetime of your investments. Where would you be if you never invested that money and just held it in a savings account? Most likely, you'd be far worse off. And that's a wrap for another Monday show.

[00:10:15] Have a great rest of your day and I'll be back tomorrow where your optimal life awaits.