During his articles at an accounting firm he met a wealthy businessman and they started a property development company with a market cap of R11,5 billion Rand as I write this.
Why do I share this flashback with you? Because when he won the money, every single one of his friends (aged 10) could only think of the pocket knife he promised to buy every one of us. The way we think about life determines how we participate in it.
There are 4 main ways to participate in the income generating part of life and they are:
- Go work for somebody else (employee)
- Start your own business (employer)
- Buy an established business (owner)
- Buy a share in a business (investor)
Without making things to complex I want to put forward that the last one is the best one. The following reasons can be given:
- I do not have to work according to the rules of my boss.
- I do not have to worry about getting fired.
- I do not have to worry about the problems of my employees.
- I do not have to be at work 24/7 to ensure that nobody destroys my business.
- All my money is not tied up in one venture.
- I make money as I sleep.
- I can do my work from anywhere in the world.
- I do not have to worry about the politics of the country my business is in.
- I do not have to go through a lengthy process of selling my business or looking for another job.
The list goes on and on and on........
The beauty of buying a share in a business (buying a share on the stock market), is that you make friends with two very powerful forces:
- Passive income (dividends)
- Power of compounding growth
On top of that you can choose the best managers in the world in businesses that have proven themselves over decades!
I bought my first share when I was about 16 years old. It was a stock tip from a friend and it was a Gold Mining company called Jules. I made what seemed like a mountain of money on that share but for some reason the investment bug didn't bite. It was only when my love affair with working 12 hour days for somebody else faded that I "discovered" investing again.
What I am getting at is that anybody can start investing. You do not need to make it your job but it will provide you with the ability to generate the best returns with the money that you do generate from doing whatever you love doing and at the end of the day it can start taking care of you.
There are two very important things to remember when it comes to investing:
- The younger you start the better. The biggest secret to investing is to understand what you are investing in. It takes a long time to understand a company. To know what a good price is to buy it at and when it should be sold. You have to read all the news and listen to all the comments about it. You have to watch it for a long time before you commit to it.
- Only buy a share in a company if it is a company that you would like to be a part owner of for a long time. Sometimes it takes a long time for value to unlock. Speculating is fun but nothing else.
When I was growing up the mantra was "get educated so you can at least fall back on something, even if you don't like it". Unfortunately this is the truth, and for the majority of people the way it will be. The lucky ones are the ones that have a passion for something and can make a living from doing it.
I say that if you can develop an interest in investing, you will never have to worry about living too long. Your passive income and the knowledge of investing in the right shares will provide you with financial independence or at least provide a healthy supplement to your normal income.
Beware!!!! Once you leave home and start buying those nice lifestyle assets, you might just never get out of the debt trap and having spare cash to invest becomes impossible! You have to get going with your pocket money while you still live at home! Like Warren Buffett said, very early on he realized that for every Dollar he spent, he could have made ten if he invested it!
TIP: get your children to read his books or read it to them. It is easy and very entertaining.
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4 comments:
Really awesome post! We often think that one can only receive "passive income: through property - can also be said that one can make money while you sleep with shares. Mr JoeSoap, what do you think about investing 5-10% of your capital in buying a few mid cap shares now and wait 20/30 years for them to develop into bigger companies? Hopefully by then they would be Big, well oiled machines that we could sell for a nice profit. I am thinking Torre Industrial Holdings, Sephaku, AdVtech, and AdaptIt.
Thanks for feedback! I assume you refer to allocating 5-10% of the money you want to invest in shares to the mid cap sector and the balance to larger cap shares. Smaller cap shares are almost always more risky than larger cap shares and you will see that in the volatility in their share price. Investing for a 20-30 year period you do not need to take on that much risk but because it is only 5-10% of your funds you can take that chance.Just make sure that the balance is invested in proven established companies in a sector where they are the leaders and where you are pretty sure the sector is gaining momentum.
Resources seem to be in the doldrums but they are the solid foundation do you still maintain it as a 'hold' inspite of global prices?
I would rather focus on valuations of the individual shares than the sector. There are some very attractive valuations on companies that play in the resources sector and there are a few of our best fund managers that are investing in them. I believe that investing in the underlying rather than the company is a saver way of getting exposure because many companies have operational problems. The fortunes of our resources depend a lot on growth in China and currently they are slowing down. But the short answer will be that there are some shares that offer value in this sector.
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