Here are Nine Lessons on Wealth and Investing I learned from reading his diary. 👇
1) History doesn’t repeat, but it RHYMES
In 1929 right before the big crash and the Great Depression stocks were selling at ridiculously high prices. All sense of caution was lost. Stocks were bought blindly. Conservative returns were sneered at. No one paid attention to the warning signs.
Sound familiar?
“In times of rising market the average American becomes over-optimistic: he invests his whole capital in common stocks of the most speculative variety; often extends himself on margin. Then when a slump comes he finds himself over-extended; no cash reserve to fall back upon; he becomes unduly pessimistic and sells at a loss.”
2) CASH is king during a depression
A certain amount of cash, bonds or other liquid securities should always be set aside for protection or to seize unexpected opportunities.
“A very conservative young married man with a large family to support tells me that during the past 10 years he succeeded in paying off the mortgage on his house. A few weeks ago, he placed a new mortgage on it for $5,000 and invested the proceeds in good stocks for long-term investment. I think in two or three years he will show a handsome profit. It is generally believed that good stocks and bonds can now be bought at very attractive prices. The difficulty is that nobody has cash to buy.”
“This depression has indelibly impressed on my mind one thing – and that is the value of having on hand sufficient capital to cover emergencies. In the investment field it means the difference between success or failure to have enough capital to buy bargains when they are available or to hold on to investments thru thick and thin and not be forced to sell at a loss.”
“Every investor should at all times have a reasonable portion of his holdings in liquid securities that can’t shrink much.”
3) SAVE your money during the good times
“The problem was no one had any money to pounce on these golden opportunities.”
“In normal times the average professional man makes just a living and lives up to the limit of his income because he must dress well etc. In times of depression he not only fails to make a living but has no surplus capital to buy bargains in stock and real estate. I see now how very important it is for the professional man to build up a surplus in normal times.”
“Opportunity is a stern goddess who passes up those who are unprepared with liquid capital.”
4) Successful Investing requires Three Ingredients:
1) Patience – to wait for the right time
2) Courage – to buy or sell when that time arrives
3) Liquid Capital – to be cashed up to pounce
“Their secret lies in having liquid cash available and the courage to invest when things look the blackest.”
“If the patience and care used in a real estate investment were used in making a stock investment, there would be much greater chance of success.”
5) Three Rules to Obtain Wealth:
“This seems to be the sound rule for obtaining wealth but it requires patience which few possess.”
1) Live on less than you earn – save at least 10%
2) Invest, don’t speculate so that none of the principal is lost. Re-invest
the earnings.
3) Never sell a good stock unless the price is above its intrinsic value (as
in 1929).
6) How to Build Wealth in Three Steps:
“Most people learn the first rule and succeed in saving various amounts out of their earnings but very few learn the second rule – how to invest it so it earns a profit and yet not lose the principal. It follows then that it is most important to learn how to invest money and make it work for you.”
1) First learn to save or accumulate money
2) Learn how to hold these savings by avoiding speculation
3) Learn how to make this money work for you thru conservative
investments
“It is said about the wealthy banker George F. Bake of New York:
1) He always bought sound stocks and bonds when they were offered
below intrinsic value.
2) He always had liquid cash for such a purpose.
3) After he bought such stocks and bonds he held on “until the cows came home.” He never made a practice of speculative buying and selling and never tried to catch the market swings. He simply bought when
bargains were offered. He never sold unless the stock market was
going bad or the price offered was too good to refuse.”
7) Focus on the LONG-GAME when Investing
The wise investor will disregard the day-by-day fluctuations of the stock market or real estate market and base his buying and selling on these long periods of rise and fall.
8) Depression is the time of greatest PROFIT
It’s a mistake to expand your business during a boom, the best time is at the end of the panic when the cycle is heading back up again.
“I just finished reading a book called Mellon’s Millions. In all their business ventures they conservative built up huge cash surpluses during times of prosperity. When a panic came they were able to absorb competitors for a song. During prosperous days their corporations advanced steadily but during depression they advanced by leaps and bounds.”
“Again and again I am forced to the conclusion that in prosperous times a man must be cautious and preserve his capital and be careful not to over-expand his business or to go too deeply in debt relying on a continuation of good business to pay the debt. In time of depression a man can be brave and if the depression is nearing an end he can invest his money or expand his business or open a new business with confidence he is facing 5 or 10 years of prosperity. He can feel sure that the road ahead will be up – not down. Many great prosperous businesses were founded on the ruins of the depression.”
9) LEVERAGE is powerful, but it can ruin you.
Real Estate is ILLIQUID and cannot be easily sold during a depression.
“O.P.M. (Other People’s Money – or credit) are the three most powerful letters in business but must be wisely and moderately used.”
“I talked to a very prominent real estate man today who developed one of the best residential plots in Youngstown but went broke with the coming of the depression because everything he had was heavily mortgaged and people stopped paying on the property they had bought.”
“Not very much down-town property has been foreclosed or has changed hands so far. This is due to the fact that these properties are in strong hands. Most of these properties are subject only to moderate mortgages. The wisdom of this is now apparent.”
“One owner told me that his taxes are $250 per month and his rental income is $75 per month – when he gets it. Formerly the same property bought in $800 per month.”
