(ARTICLE) Don’t Get Rich Quick, Get Rich For Sure

The secret to building long-term wealth

People have tried just about everything you can imagine to get rich.

The most popular ideas are the ones that don’t require any work or time. That is why, despite everyone knowing that lotteries are a bad “investment”, they are immensely popular.

Human nature seems to be that people would rather throw money away gambling on a tiny chance of a big win than spend the time and effort to learn how to invest and generate real riches.

However, the reality is that it is through the steady accumulation of wealth by investment and business skill that produces real riches, not moonshots and lottery tickets.

Trying to get rich quickly more often than not results in getting poor or poorER

What Most People Get Wrong

To me, the main thing that so many people get wrong is that they invest with emotion rather than logic.

They see something growing in price, like Tesla or Bitcoin, and they fear they are “missing out”.

They don’t want to look foolish by doing something different than everyone else, so they throw their money in at prices that are already very high, leading to significant downside risk.

Note that professional money managers are not immune from this.

They know that their customers want to be involved in the latest hot stocks, so they start to put money there, even though they know that the outcome is more likely to be a loss than a gain.

So despite the evidence showing that consistently buying stocks at low prices builds more wealth over time, people continue to jump on “hot stocks” selling at high prices.

When Bitcoin was at £10 nobody wanted to buy it (apart from the people who REALLY understood what they were doing) now that Bitcoin is at £30K, EVERYONE wants to buy Bitcoin and 95% of them don’t know or even understand what Bitcoin was truly made for.

That is because most people gamble rather than invest — they pay a huge premium for expected growth that they hope will materialise, ignoring the fact that other investors have already included this growth in the price of the stock.

So even if the growth is realized, the profit is small, but if the growth is lower than expected, the loss will be real.

This means very little upside but a huge downside. That is not a reliable way to build wealth.

“Rule number one is never lose money. Rule number two is never forget rule number one.”

- Warren Buffet

What We Can Do Instead

Instead of looking for popular stocks or other high-priced assets like Bitcoin or expensive real estate, investors should be looking for assets selling for reasonable or even bargain prices.

To be successful in building wealth, you have to focus on steady, reliable methods that have worked for generations.

That can be

-Buying investment real estate you can ADD VALUE to and selling or renting at a profit,

-Buying underpriced stocks,

-or building a successful business.

- getting a high income skill or career

If you look at how people have built wealth, it is through careful analysis to ensure the odds are in their favour before investing.

When you look at a potential investment property, you will run the numbers and confirm that the cash flow will pay the expenses. You don’t make money by paying too much for real estate and having negative cash flow.

When you evaluate a company, you need to ensure that their history shows stable, sustained earnings and that their business model allows for money to be invested at higher rates of return than their cost if capital.

You don’t build wealth reliably by investing in stocks that are already popular and high-priced.

When you build a business, you need to ensure that you are serving a market need and can make a profit while doing so.

You don’t get rich by selling products that no one wants or that you can’t produce at a good cost.

All of these things take knowledge and hard work, but there is no other reliable way to build wealth.

If you struggle to take emotion out of your investment decisions — you find yourself buying stocks or BTC as it is shooting up in value — then you are better off just investing in low-cost index funds. (S&P 500)

You won’t beat the market, but you won’t gamble away your money, which is critical to building wealth.

Summary

It is possible to get rich from Bitcoin, Tesla, or GameStop if you time it right, but the odds are against you.

Wealthy people like Elon Musk can afford to gamble a small portion of their fortune on Bitcoin — if it goes to £0, he will still be ok.

But when small investors get caught up in the hype and start taking out loans or selling their possessions to go “all in,” like, at the casino, their chances of success are small.

If you can control your emotions and invest in assets that, by careful analysis, have a good chance of preserving your money and providing a good return, then you will be well-placed to build wealth.

The true path to financial success is paved with knowledge and hard work — it takes time and energy to implement and bring to fruition.

Gambling a large portion of your wealth on expensive and popular assets is not likely to end well.

So think through your investment decisions and ask yourself if you are buying based on emotion (gut feeling, news story, excitement at high prices) or are you buying based on careful analysis of the current and future prospects of the business/asset.

This one step can help you preserve your money and help you build wealth more reliably and effectively over time.

Till next time