Improving Investor Behavior: My formula for building wealth – The Denver Post
Warren Buffett turned 92 on Aug. 30. Given his investment prowess and lifelong dedication to finance, it’s incredible that most of his wealth (96%) was acquired after he turned 50. He attributes his success to a simple and salient truth: It takes time to grow wealthy, and most people don’t have the patience for it.
Buffett’s business and investment strategy are simple: invest in quality companies managed by quality people, give them the resources to run the business well, receive the dividends from the profits, and reinvest in other quality companies. Value investing is key. The formula is on every shampoo bottle: rinse and repeat.
There is no shortage of formulas for how to build wealth. Some are overly complex, requiring advanced algorithms and people smart enough to make sense of the data computers spit out. Others are overly simplified, like telling millennials to stop going to coffee shops. The majority are quantitative, or some sort of spreadsheet with assumptions, modeling what someone thinks will happen in the future. The probability of those models matching the future with accuracy for actual amounts is, well … remote. The best formulas are not quantitative, numbers or math. They are qualitative and behavioral. Like Buffet’s formula, simplicity is a necessity. I’m a believer in this formula:
Desired Outcome = Goal + Plan + Money + Time + Discipline (Coaching)
To paraphrase the dialogue from “Alice in Wonderland,” any road will get you there if you don’t know where you’re going. Before attempting to plan any sort of wealth-building approach, it’s necessary to ask yourself about your goals. Why do you want to build wealth? What is important to you? How much wealth is enough wealth? These are all questions that will dictate the rest of the formula. Someone who desires to leave a lasting legacy with a large family will likely have a very different set of goals than a family who wishes not to have children and instead leave their mark on the charities and causes important to them. Like figuring out an algebraic equation, beginning with the solution allows us to solve for the variables.
Having a documented, well-defined income and a time-based plan is critical. These are the steps we need to take to work toward the goal. What has to happen for you to reach your desired outcome? And in what order will it need to happen? Are there assumptions we must make, caveats for which we must plan, or cushions we must build? Like a blueprint, the plan is designed to show you where things fit, how they work together, and the materials necessary for construction.
Money seems rather apparent here, …….