The World’s Top 10 Value Investors – And How to Copy Them

The World’s Top 10 Value Investors – And How to Copy Them

When you learn to invest in the stock market, you can take a major shortcut.

You can copy other people’s investments.

That’s exactly what Warren Buffett did when he first started out. He copied his professor Benjamin Graham’s investments, and later on, his investing technique.

Who should you copy, and how do you follow them?

No worries – I’ll give you my top 10 list of my favorite value investors and tell you how you can see what they’re investing in.

But first a bit of background that’s necessary if you want to imitate them. 

There are two kinds of value investors: Quantitative and qualitative investors.

Quantitative investors invest in a lot of companies at the same time. They have hundreds or even thousands of companies in their portfolio. 

They follow some kind of automatic system, and a computer decides what to invest in according to some specific numbers.

Benjamin Graham used to invest like this. Joel Greenblatt invests like this today. He is a renowned value investor – but he currently has shares in 1,044 companies. 

We can’t expect someone with hundreds or thousands of investments to have looked at every company in detail – so we cannot use their investments as a proof of quality.

We have to look at the qualitative investors – those who look carefully at each investment and who go in big when they believe in the potential of a company. This is in line with the way I recommend you invest: follow a checklist and analyze the companies in detail. 

How do you know if an investor is qualitative or quantitative?

First of all, look at the amount of companies they invest in. Some of the best investors only have a handful of active investments. However, some of them have many “practice shares”. This is when they only invest a little in companies that they are considering – so the total number of companies isn’t always fair. 

It’s a better indication to look at their top five investments. If their top five stocks make up at least 50 percent of their portfolio, you are looking at one of our guys (sorry, there are no women on the list). 

Where do you look at their investments?

The fund managers have to report their trades to the SEC at the end of each quarter. You can use the SEC’s website, but it’s a little messy. It’s better to use databases like:

Let’s dive right into the top 10…

1. Warren Buffett 

Berkshire Hathaway (around 200 billion USD)

Say no more, right?

If you haven’t heard about him before, you are definitely new to the blog.

I write and talk about Warren Buffett until I’m blue in the face, because he’s the best investor out there.

This 90-year-old investor reinvented value investing. He took it from pure bargain shopping to bargain shopping with a brain.

He learned value investing from his professor Benjamin Graham, who was a quantitative investor. Buffett took it a step further and created the qualitative style where you look carefully at what you invest in to make sure that you get the real bargains – and not the so called cigar butts or falling knives (investments that are cheap because they face a bleak future).

Buffett invests through the public company Berkshire Hathaway, and if you’re really lazy, you can copy him by investing directly in Berkshire (BRK/B). But remember, in all stock investments, you have to make sure that you buy the stock when it’s cheap. It can be hard to figure out when BRK/B is cheap, as it’s a complicated construction with lots of companies inside.

A good yardstick is to look at when Warren Buffett decides that it’s time for share buybacks. You can rest assured that he did some intelligent calculations.

Berkshire’s top five investments make up 75 percent of his portfolio of publicly traded companies. His top investment is Apple, which alone makes up 44 percent of his portfolio at the time of writing. 

2. Charlie Munger   

Berkshire Hathaway (around 200 billion USD) and Daily Journal (around 1oo million USD)

Charlie Munger is Warren Buffett’s partner. Without Munger, Buffett would never have reached the level he’s at today. 

When you hear Warren Buffett say that he would rather invest in a wonderful company with a fair price than a fair company with a wonderful price, you can hear the echo of Charlie Munger’s influence.

Munger has lifted Buffett from being a doomsday-thinking, cigar butt investor to investing in so called Wonderful Companies (companies with a moat and a good management).

Apart from his influence on Berkshire Hathaway, where he’s vice chairman, Munger also makes some decisions about the portfolio of Daily Journal where he’s chair. 

Daily Journal only has four investments: Bank of America, Wells Fargo, US Bancorp and Posco. 

3. Bill Ackman  

Pershing Square Capital Management (7 billion USD)

Bill Ackman is a different kind of value investor. He calls himself an activist investor. He takes a stand and gets actively involved in giving the management a direction.

He often invests in troubled companies and forces them to make some kind of big shift like like changing the management. 

This is a very different way of investing than Buffett and Munger, who have a hands-off approach to the companies they invest in. Buffett and Munger choose well-run companies with a management they believe in, and they let the management run the show without interfering.

Bill Ackman is also famous for his spectacular bets on companies that he believes will fail. This is called short selling or shorting.

He became headline news when he warned against Herbalife, who he called a pyramid scheme and shorted. Rival investor Carl Icahn took the opposite position and began buying stocks in Herbalife to support the company and the stock price. The two investors had a very public fight about the company that aired on major financial TV-channels. Bill Ackman might have been right about his accusations, but Carl Icahn held a hand under the stock, and after five long years, Bill Ackman had to pull out of the bet in 2019 with a major loss. 

He had a comeback early 2020 when he shorted the whole market, predicting the COVID dip of March 202o.

Shorting is not for the faint-hearted, and I warn private investors against shorting.

Bill Ackman makes it to the list anyway, as he has made some very sound long positions over time. 

His portfolio only consists of seven companies, and top five make up 83 percent.

4. David Einhorn 

Greenlight Capital (922 million USD) 

David Einhorn is a bit like Bill Ackman. He likes shorting, and from time to time, he makes some entertaining public accusations.

The minds of these two work a bit like investigative reporters who uncover scandals. 

David Einhorn shorted Lehman Brothers in 2007, and he pointed his finger at the exact problems that caused them their downfall a year later. 

He now shorts Tesla and uses Twitter to point out some dubious management practices. You can see his Twitter profile here.

He wrote the book Fooling Some of the People All of the Time about Allied Capital, one of the other cases he shorted.

He’s currently invested in 23 different companies. His top five make up 69 percent. 

5. Monish Pabrai   

Pabrai Investment Funds (148 million USD)

When Indian-American Monish Pabrai sold his it-business and announced that he wanted to be a fund manager, his friends frowned. They thought he should have a “real” job and stop counting the fluff in his pocket.

Shame on them. Today he is considered one of the best investors in the world, and some people call him the new Warren Buffett.

He focuses on classic value plays where he identifies companies that are like free lottery tickets where the potential upside is big and where there is little risk of losing any money. He wrote about his investment strategy in the book The Dhandho Investor. I described it in a blog post here

His fund currently has three investments that we know of: Micron, Seritage Growth Properties, and Fiat Chrysler. There is a little catch, though. We can only see the American companies that he owns more than 10 percent of, and he has a tendency to fly below the 10 percent threshold to avoid having to report it to the SEC.

6. Li Lu 

Himalaya Capital Management (1 billion USD)

Li Lu was one of the Chinese students who organized the protest in 1989 in Tiananmen Square. He had to flee China and received a scholarship to study at Columbia University – which happens to be the place where Warren Buffett learned value investing from Benjamin Graham.

Li Lu invested or traded his scholarship money and grew it to a million dollars, according to Charlie Munger.

Munger acts as his mentor and investor, and he’s not shy of boasting of Li Lu’s talent at Berkshire Hathaway’s annual meetings.

Some people speculate whether Li Lu will be one of the heirs to take over management of Berkshire Hathaway’s investment after Buffett and Munger.

Li Lu’s fund only has four investments: Micron Technology, Bank of America, Facebook, and Google (Alphabet).  

7. Bill Gates 

Bill and Melinda Gates Foundation Trust (17 billion USD)

Microsoft’s founder Bill Gates isn’t really a value investor, but I keep an eye out for his moves, as he’s a close friend of Warren Buffett.

Buffett has donated a large part of his stocks to the Bill and Melinda Gates Foundation Trust, and I imagine that Gates discusses any major investments with Warren Buffett – or at least runs them by him.  

The Trust has a more dotcom-focused approach, which is hardly surprising, as we are dealing with Bill Gates. He has, among others, invested in Google and Amazon.

There are 23 companies total. The five major ones make up 72 percent of the portfolio. The biggest alone – Berkshire Hathaway – makes up 49 percent of the Trust – but that’s because Warren Buffett donates shares to the Trust.  

8. Allan Mecham  

Arlington Value Capital (688 million USD)

Allan Mecham was sued by a local broker for having falsified his statements after the financial crisis. The broker didn’t believe that Mecham could have made a positive return when the rest of the market fell around 50 percent.

But the fact of the matter was that Mecham indeed did defy financial gravity.

You’ve probably never heard about him before, and that’s because he’s a shy investor.

He never gives interviews, he hasn’t written any books (seems like any investor with respect for himself will at least write one book), and he’s all in all very quiet. He prefers flying under the radar; he doesn’t believe publicity will help him. He has previously said that he fears attracting the wrong kind of investor if he is too much in the public eye. 

There are online rumors circulating that he’s closing his fund due to health problems. The rumors first appeared in April 2020 when COVID-19 first began raging through the world. There’s been no public statement on the matter.

A look at his investments paints a picture of someone who might be closing down – or it could just be someone judging that the market is due for another drop. He has recently decreased most of his top positions from 1.5 billion USD to 688 million at the time of writing.

He’s the youngest of the top 10 investors – the only one under 50 – so, surely, he can’t be retiring.

There are 16 different companies in his portfolio, and the top five make up 38 percent. 

9. Prem Watsa     

Fairfax Financial Holdings (1.6 billion USD) 

Indian-Canadian Prem Watsa focuses on cheap, in the traditional value investor way (think Warren Buffett before he met Charlie Munger). 

One of his large positions is Blackberry, remember them? They used to be a popular calendar phone whose sales plummeted when the iPhone conquered the world.

It’s hard to see any traits of a wonderful company in Blackberry (what’s it’s competitive advantage?). This kind of investment can only be explained with a traditional value investor mindset. Prem Watsa must have identified some assets, maybe technology, that’s worth more than the company’s valuation on the stock market at the time of purchasing the stock.

He has 59 companies in his portfolio, and many of them are very small positions (they look like practice shares). The five biggest make up 81 percent of his portfolio. 

10. Seth Klarman   

Baupost Group (8 billion USD)

Seth Klarman is a truly legendary investor. A used version of his book, Margin of Safety, sells for more than 1,000 USD on Amazon.

Some people have speculated whether it’s on purpose that he doesn’t let won’t let his book be reprinted. Maybe it’s some kind of prestige having a book that has become a collectors item.

Seth Klarman understands a bit about selling and buying used stuff. His biggest holding is eBay, which makes up 21 percent of his portfolio. 

He’s currently invested in 30 companies. His top five make up 58 percent. 

Remember to run the investment ideas that you pick up from the top 10 through your own checklist, and remember to make sure you don’t buy the stocks too expensive. Even the most wonderful company can be a terrible investment if you buy the stock too expensive. You can learn how to invest like Warren Buffett and other top value investors right here

Five Ways to Make Investing More Fun

Five Ways to Make Investing More Fun

Some people find any dealings with their finances as tiring as flossing their teeth. It’s not exactly what they look forward to doing on a Friday night after the kids have fallen asleep.

Other people enjoy looking up stock symbols and researching companies, and they prefer to check their portfolio than watching the latest series on Netflix.

What’s the difference between these two kinds of people?

How do you become one of those who finds stock investing thrilling?

Here are five simple hacks to make stock investing more fun.

1. Trust That it Will Eventually Make You Rich

Many new investors feel that stocks are risky business, and they fear losing all their money. This creates resistance on a subconscious level, and it’ll make it difficult to enjoy researching companies.

When you’ve invested successfully for a while you begin to trust that investing will make you wealthy in the long run.

In order to find joy in investing, you’ve got to hack into that trust prematurely.

You have to convince yourself that investing works.

You do that by reading about successful investors and by meeting people who have succeeded.

You also get more confidence by accumulating more knowledge about investing. 

2. Set Ambitious Goals   

You need specific goals so you know where you are heading. But more than specific goals, you also need ambitious goals.

Small, mediocre goals leave you feeling deflated. Big goals lift you up and make you work on a higher energy level.  

Big goals can really change your life.

When you set your big goal, you might want to think long term. How is your life going to look in ten years? Ten years is enough time to become financially free for most people. What will your goal be in ten years? How much do you need to become financially free? Have you calculated that number? If you need help, you can book a strategy call with me right here to set up your goals.

What about including your family in your goal? Working for a goal that is bigger than you will make more sense on a deeper level. What is your goal for your children? How about creating generational wealth? And if you have no children: what cause would you like to support? What will you contribute to? 

3. Invest in Something That You Like   

Invest in something that you understand – that is rule number one when finding investments. But you should also invest in something that you like.

Many people invest in something that they don’t know anything about, and some people even invest in something that they can’t fully support.

Investing outside your level of competence and outside your values will make investing feel like a chore, because you are working against yourself. 

4. Reward Yourself 

When you have smaller successes with your investing, you should reward yourself. 

I know of a woman who always buys designer bags with the dividend that she gets from her investments. It motivates her.

Now, I’m not sure how many bags a woman really needs, and I prefer to reinvest any dividends or gains to let the effect of compounding do its wonder. But I do applaud the idea that you should avoid spending money on luxury directly from your salary. Make your money work for you for a while in the investing machine before you spoil yourself. 

You don’t necessarily have to reward yourself with material things like designer bags. You can reward yourself with experiences like dining out at a nice restaurant. Your reward doesn’t even have to cost anything. It can be a trip to the summerhouse or day off work and chores.

How and when is up to you. The point is to celebrate when you have achieved some kind of success – and the definition of success is up to you too.

How to celebrate your success might be another blog post for another day. If you have a nice habit of celebrating your success then tell me about it either through mail or on social media, and you can inspire me for the next blog post. 

5. Build a Peer Group Around Your Investing Practice

If you can talk with like-minded people about your investment ideas, it’ll become more fun for you to find them.

If, on the other hand, you don’t know anyone who understands what you are trying to do, it’s going to feel a little lonely.

Fortunately, it’s very easy today to meet other people with the same interests through social media.

There are, for example, plenty of investing groups on Facebook. Try to find one that matches your style of investment and your temperament.

You are welcome to join my group Managing Money and Freedom here

Do you want to learn how to invest like the famous investor Warren Buffett? I teach you how to do that in my e-book Free Yourself. You can download it here.  

Eight Simple Investing Rules from Guy Spier

Eight Simple Investing Rules from Guy Spier

Before pilots take off, they have procedures, rules and check lists that they follow in order to make sure that the flight is safe and smooth.

Have you ever considered adopting rules and check lists for your investing practice?

I suggest you do, and you don’t have to build one from scratch.

You should have at least two lists:

A. A check list that you use to screen the companies you are interested in. This is the most important list. I have developed one that you are welcome to use. You can download it here.

B. Some rules for how to proceed with buying, selling and discussing stocks. I’ve not had one so far, but after reviewing Guy Spier’s work, I can see how important it is to set up boundaries for your investing practice. Luckily for me, I don’t have to develop one from zero. 

The value investor Guy Spier shared his list of rules in the book ‘The Education of a Value Investor’.

Here are his eight rules for investing:

1. Stop checking the stock price

When you open your laptop to check on your investments, you’ll receive a lot of sensory inputs that act as a call to action.

You’ll see stock prices move up and down, and your brain will be stimulated to react with the questions:  Should I sell? Should I buy more?

It’s hard for our brain to withstand the pressure when it gets an overload of information and questions.

Guy Spier explains that he can go weeks without checking the stock prices, and that it’s a wonderful liberating feeling to realize that your investments will do fine without you constantly checking them.

2. If someone tries to sell you something, don’t buy it

Our brain is bad at making good decisions when it’s confronted with sales arguments.

Guy Spier has a rule that he will never buy anything that anyone is trying to sell him, be it stocks, newspaper subscriptions or anything else.

He explains this straight out to sales people who try to convince him of buying something.

This also means that he avoids IPOs (initial public offerings) as there is a team of sales people behind a company that is about to go public.

He also avoids people who try to convince him of a stock idea at a cocktail party. They might not get commission or any other financial benefit, but they could get a psychological validation if he buys into the stock idea.

3. Don’t talk to management   

Most top managers have excellent sales skills, and close contact or any conversation about the firm with the management can warp your judgement.

If an investor feels that he has to meet and talk to the management before buying a stock, it’s a sign that he has not made enough research. Remember this is Guy Spier’s rule.

Some succesful investors make a point of discussing company performance with the management. 

4. Gather investment research in the right order 

As Guy Spier explains: the first idea that enters the brain tends to be the one that sticks.

You have to keep your mind blank about the company and avoid other people’s opinions until you have done your research. 

This is Guy Spier’s preferred order: 

A. The annual report, the quarterly report and any other financial documents directly from the company

B. Conference calls and press releases

C. Books and articles about the company

D. Equity research

5. Only discuss investment ideas with people who have no axe to grind

Guy Spier refuses to talk with management, analysts and anyone from the world of sales.

So who can he speak too?

He will speak to peers on the buy side (read: other value investors), and he has set up certain rules for the conversation:

A. The conversation must be confidential

B. Neither can tell the other person what to do

C. There can be no business relationship

D. There should be mutual trust

6. Never buy or sell stocks when the market is open 

This comes back to the first point: the movement of the stock price is a call to action.

The danger of trading “live” is that you get caught up in the mood swings of the market.

As a private investor, you can enter your orders when the market is closed and let it do its work while you’re doing something else.

7. If a stock tumbles after you buy it, don’t sell it for two years 

Investing is an emotional activity.

When stocks go up, you feel joy.

When they fall, it’s emotional and fraught with negative emotions such as remorse and self-loathing that can short-circuit your ability to think clearly. 

Inserting this rule, that you cannot sell for two years after a stock falls in price after you have bought it, acts as a circuit breaker that helps you take rational decisions.

8. Don’t talk about your current investments  

Talking about your investments messes with your head.

Have you heard of commitment and consistency bias? It’s what makes you cave in when your kids say “but you promised.”

If you have said publicly that you would do something, it’s painful and embarrassing not to do it.

If you tell other people that you have invested in a particular company, it’ll become harder for you to revert your position.

Guy Spier only does a post-mortem on his portfolio stocks to his investors. He’ll happily give details on stocks he has already sold. But only then. 

I hope you’ve found this list of rules useful. I have implemented my own version into my investing methodology.

Remember that you don’t have to use all them all, and you may not feel some are right for you, but it’s invaluable to have access to this type of information from a succesful value investor, it’s an invaluable set of insights that we can use on our investing journey.

The Education of a Value Investor is an interesting book with much more to it than the investing rules. Next week I will write about some of the more general life and investing lessons that I got out of the book.

If you have any questions or comments, feel free to ask them in my free Facebook group Managing Money Freedom, here

If you want to learn more about investing, you are welcome to download my free e-book here

 

Five Investing Reads for a Stormy Summer Stock Market

Five Investing Reads for a Stormy Summer Stock Market

Summer is here and so are – hopefully – lazy days with relaxation and more time to read.

But is the stock market going on vacation, or will the current turbulence continue over the summer?

What can you read to gain more faith and learn more about the mechanisms at play in the market? 

I’ve picked five investing books that I think you should read this summer.

None of them are new. In fact, I’ve picked the ones that have had the greatest impact on my investing practice.

Here they are: 

1. The Snowball by Alice Schroeder 

Great men and women write their memoirs, don’t they?

Warren Buffett did not.

He chose to outsource the task to a journalist, so he could continue focusing on what was important to him: investing.

“You’ll do a better job than I would, Alice,” he told Alice Schroeder as she interviewed him for the book. 

It’s usually very hard to get an interview with Warren Buffett. So it’s exceptional that Warren Buffett collaborated with Alice Schroeder to help her write The Snowball. None of the other biographies have had that kind of access. 

The book is entertaining. It’s a coming-of-age story about an introverted boy raised by a cruel and controlling mother. The boy turns into an obnoxious teenager and gradually grows into the investing genius that we know now. 

The book illustrates that he wasn’t born this way.

Becoming a great investor was a journey with many barriers and many lessons, from a selling stocks as a teenager to betting, and losing, it all on a horse race, then later trying to make profits from the so called ‘cigar butts’ that had no puff left in them. You’ll see what I mean when you read it. 

2. Irrational Exuberance by Robert Shiller 

This book turned me into a value investor during the dotcom bubble.

Humans are subject to vacillating between extreme fear and extreme greed. When humans – as a group of investors – are very fearful or very greedy, the prices of stocks fall below the real – intrinsic value – and rise to exuberant levels.

This is what the book describes, and I recall thinking that this book was the most truthful thing I had read in business school. It resonated with me and it determined how I invested from then on. 

It’s a sobering and thrilling read at the same time.

I sometimes return to the book for a quick re-read when I feel I need to be reminded why I don’t follow the Efficient Market Hypothesis that would have me investing in index funds.

3. The Dhando Investor by Monish Pabrai 

The theme of this book is finding a free lottery ticket, a bet with a very low risk and a huge upside.

Like Monish Pabrai puts it: ‘Heads, I win; tails, I don’t lose much.’

The book describes cases of investors – from Indian motel owners to Richard Branson – who have made such bets, and Pabrai explains in detail why the particular business in question was a good bet.

It’s a case in point for betting huge when you find a free lottery ticket. 

It’s also a case in point for waiting patiently for the right deal to materialize. Like he writes: ‘Few Bets, Big Bets, Infrequent Bets.’

You could say that it’s a case against the popular idea of always having your money in the market and lowering your risk through diversification (investing broadly).

4. The Education of a Value Investor by Guy Spier 

Guy Spier – who happens to be friends with Monish Pabrai – has written a lovely autobiography about life and investing.

He shifts seamlessly from talking about living a good life to talking investing, like they are two halves of the same coin. His main point seems to be that in order to invest well, you have to live well and vice versa.

At some point, Guy Spier shares his 8 investing rules. You can either read the book or wait for my next blog post to see them. You can sign up here to get the post in your inbox.

5. The Intelligent Investor By Benjamin Graham 

Before Benjamin Graham there were no value investing. He invented it.

Without Benjamin Graham, there would have been no investing geniuses like Warren Buffett, Monish Pabrai or Guy Spier.

I wouldn’t be writing this blog post without him. 

The Intelligent Investor (and his other book Security Analysis) is the most comprehensive text on the subject, becoming essential reading for investors. That’s why some of us call this book ‘The Bible’. 

Chapter eight is the most important chapter. It introduces Mr. Market, a very hyperactive and moody character. Stock prices are determined by his erratic mood, fluctuating up and down as he dips in and out of exuberance and depression.  They are not based on the real – intrinsic – value of the business in the market.

This chapter goes well hand-in-hand with Robert Shiller’s Irrational Exuberance.

So, if you find yourself with some time on your hands, pick up one or  all of these five investing books, you will be glad you did.

If you haven’t got time, sign up for my email list here, and I will deliver you the most useful gems of inspiration from some of these investing classics, starting with Guy Spier’s autobiography. You can sign up here.

Do you want to learn how to evaluate and calculate the value of a company? I teach you how to do that in my e-book Free Yourself. You can download it here.  

How to Overcome the Fear of Stock Investing

How to Overcome the Fear of Stock Investing

Being careful is important… but never getting started is a tragedy.

If you are letting fear of losing money keep you from investing at all, you need to read this blog post.

You should know that investing can trigger many strong emotional responses like fear, greed, hope, disappointment, among others. It’s perfectly normal to have emotions about investing, but it shouldn’t control your actions or become a barrier.

Sometimes we are overcome by fear (or a feeling of being overwhelmed), because it’s very new to us.

But seasoned investors can get overwhelmed by fear too. I’ve met quite a few private investors who stopped investing after the financial crisis, because they lost money. The painful feeling of the financial crisis has, with time, dominated their view of the stock market. 

Did you know that fear of something going wrong often wins over hope that things can change for the better? That is the reason that so many people get stuck in lives that are not fulfilling.

What can you do if you are overcome by fear?

I’ll give you five simple steps to follow.

1. Learn and study 

Fear can be a sign that you don’t know enough about investing.

When you engage in a new activity, you need to study and learn.

No one just drives a car. We take driving lessons, and we have to pass a test.

I don’t know about you, but I’ve always taken classes in any new activity I embark upon, be it yoga, tennis, sailing or tango. It’s simply too time consuming to try to learn everything on your own, and much more fun to take classes in it. 

It’s same thing with investing.

It’s stressful trying to figure it out on your own. Spend some time learning about it first.

You can learn through books, e-books, podcasts, blogs, YouTube and courses. I have a free e-book for you right here.

A structured investing course will be the fast track to learning. You can waste a lot of time navigating the internet searching for free information. 

A course will cost something, but you must ask yourself what you risk losing if you make a bad investment. 

2. Choose a Strategy 

How do you want to go forward with it?

Do you want to buy stocks in individual companies?

Or do you want to buy funds?

There are many different kinds of investing strategies. I’m not going to list them all here, because it will confuse you more than it will help you. Instead, I’ll make a short cut to the two strategies that I recommend:

A. Value investing

If you want to invest in individual stocks, value investing is the best road to take in my opinion. Value investing means looking at a company in depth and figuring out if it’s a wonderful company with strong competitive advantages. It also means that you have to have an idea about what the company is worth and when you are paying a good price for it. You can learn to do that in my e-book here.

B. Dollar cost averaging

If you want to invest in funds, I suggest you choose a low cost ETF (Exchange Traded Fund) that tracks a stock index. Dollar cost averaging means investing the same amount each month into the same fund.

3. Set a Specific Goal 

Sometimes we don’t get anywhere because we are vague about where we want to go. 

Let me use running as an example.

If getting into shape is your goal, you are probably not going to be motivated enough to put on your new running shoes and train every morning.

You need a training plan detailing which days to run and for how long.

You also need a specific run to train for and a goal for how fast you want to run it. 

The run doesn’t have to be the Boston marathon. A local 5K run is fine. The point is to visualize yourself running it and looking forward to it. It will motivate you every morning when you put on those running shoes. 

How does this translate into investing?

You need to have a plan. How much are you going to set aside for investing? What is your goal for an average annual return? 

You also need a money goal at least 10 years into the future.

How much money will you have in 10 years and what do you want to achieve with that money? What is your specific goal? It has to feel important to you.

For some people a motivating goal will be financial independence – not having to work a day job.

For other people it will be motivating buying a house. Or securing their children with wealth.

You’ll know when you have found your goal because it will excite you.   

4. Buy Test Shares 

Buying the first share is the hardest. You don’t have to make your first stock investment a big one.

In fact, I recommend that you ease into a new company by buying test shares. Just buy a little bit. 

How much is a little?

It really depends on how much money you have. A nice rule of thumb is that test shares should never be more than one percent of your investible capital.

So if you have a $100,000, your first test investment should not be greater than $1,000.

5. Network 

We join running clubs, sailing clubs, churches and gyms.

We join because running, sailing, praying and exercising with others inspires us and keeps us motivated.

You shouldn’t be investing all on your own. Doing it alone triggers more fear.

You can get to know others through an investing course.

You can also join groups on Facebook and other social media.

Some of the investing groups on Facebook are big and noisy, so it’s worthwhile looking a bit around for one that fits your need. 

I run a Facebook group called Managing Money Freedom on Facebook that you are welcome to join here.

If you want to learn more about investing, my free e-book Free Yourself is a good place to begin. You can download it here.  

Which Level of Stock Mastery Are You at?

Which Level of Stock Mastery Are You at?

Not so long ago, I went to have dinner with some of my friends.

One of them asked me how I was doing, and for a while the topic fell on stock investing – because that’s what I do.

The way my friends reacted reminds me of the four levels of mastery.

To master something you go through four levels, from completely ignorant to a highly competent master. 

Let me tell you about this dinner talk we had and let me show you through my friends what the four levels are: 

1. Unconscious Incompetence 

Christina gazes out of the window the moment she hears me use the word “stock market”. She is polite about it, but I can almost hear her thinking ‘oh no, here she goes again’.

She waits a moment to judge if I am passing on to more entertaining subjects and after half a minute, she gives up and takes out her phone to look at Instagram pictures.

She’s a social worker who works with troubled teens. She makes her monthly salary, and it covers the basic cost for her small family and a yearly trip to a camping site in Italy.

Christina has no idea who Warren Buffett is, and no idea about the power of compounding.

She thinks she has a retirement savings account somewhere, but honestly, she isn’t sure. 

She doesn’t care that she doesn’t know. 

It’s not important to her because she has no idea what it is.

And the other way around: she doesn’t know much, because it’s not important to her. 

She will probably never break out of that.

I can easily write about her, because there is no chance that she will find her way to this blog post. 

2. Conscious Incompetent

Lena leans forward and listens with interest when the topic falls on stock investing.

“It’s really great that you guys have such a good return. Well done,” she says.

Lena studied business and finance at business school, so she is comfortable with numbers. 

She knows who invests her retirement account, but she does not know what it’s invested in.

She also knows who Warren Buffett is, and she aware of the power of compounding. She knows that it’s important to invest and that saving is not enough. 

Yet, she has never bought a single stock in her life, simply because she hasn’t come around to doing it. 

It’s just one of those things on the to-do list with ‘take tennis lessons’ and ‘learn Japanese’.   

3. Consciously Competent 

“Yeah, I bought some Apple in 2018 too, but I sold it last week. A 130 pct. return,” says Bernadette.

She has been a stock investor for many years. She mainly invests in index funds with the method called dollar cost averaging which means she invests the same mount in the same fund every month.

She also invests in a few individual companies, and she is generally knowledgeable about the stock market.

She knows exactly what her retirement savings are invested in because she’s investing it herself. She also manages her children’s savings account as well has her mother-in-law’s savings.

She is consciously competent. This means she knows what she’s doing and that she follows the rules of the game.

With consistency the consciously competent can become very good. Maybe she can even reach the next level… 

4. Unconsciously Competent

“Have you seen that you can pay with PYPL here,” asks Naomi. 

“PYPL?” we ask in unison.

“Yes, Paypal,” she says. “I saw two other shops this weeks that accept Paypal.”

She forgets all about her food and wine and takes out her iPad to search for the company’s annual report.

“They’ve had a growth rate of 17 percent the last three years,” she says. “Pretty impressive if they can keep that up.”

She starts asking us if we have used Paypal this year. I used if for buying an online course and later for used toys for my kids.

She unfolds the napkin and begins making some notes and calculations. 

The waiter takes the plates away.

“Just leave it,” I tell him when he tries to take Naomi’s plate.

She has pushed it aside to make room for her napkin calculations, but she has barely touched her food, and she doesn’t notice the waiter. 

We get the menu and order desserts. I’m having a Tiramisu. The sugary crust is crunchy in this restaurant.

“Around 80 percent to 26,” she says. She looks really pleased.

“What?” someone asks.

“When the stock has fallen about 80 percent to around 26 dollars a share, then I will buy it,” she says.

She shovels down some food, folds up the napkin and uses it to dry her mouth. She is not going to need it because she never forgets a number. She can even remember my childhood phone number. I can’t even remember what the phone looked like. 

“So, what’s for dessert?” Naomi asks. 

She is unconsciously competent. She can’t stop using her skill. It’s become a natural part of who she is in the world, and she looks for investment opportunities whereever she is.

She’s in a state of flow when in her zone of genius.

These people are the world’s Buffetts, Messis and Ronaldos. 

How to Reach Mastery

We all want to be as competent as a Buffett, a Messi and a Ronaldo.

But how do we get there?

Well, how do you think Ronaldo and Messi became so good? By playing a lot of soccer.

And Buffett?

In soccer and sports, practice is key. In investing, knowledge is key.

When you invest like a value investor, you move in slow motion like a sloth. It’s not about the action – but about getting knowledge and practicing – and being able to do perfect action when the timing is right. 

You get to the next level of mastery by getting more knowledge. By reading more books, taking more courses and reading more news.

If you want to know more about investing, my free e-book Free Yourself is a good place to begin. You can download it here.