Getting Rich (2). Investment advice you can blindly follow - investment masters teaching you how to choose a good investment target

Author: Xiaolai Li, Serial editor: Mr. Y

Introduction

In our previous article, we reached an inspiring conclusion: for the average person in this era, investing is the most reliable way to break through class barriers.

However, a huge gap lies between the ideal and reality. Everyone knows investing has risks, but the harsh truth is this: most people in this world have never made enough money through investing to change their lives.

Many even end up in heavy debt because of wrong investment. Why is this? Because investing is indeed difficult. Its difficulty is concentrated on the most critical which is also the very first step in investing: choosing the right asset to invest in.

This is what makes investing significantly different from other human activities. In most cases, the first step isn't a matter of life and death; later efforts can often make up for initial flaws, such as education, research, etc. But in the world of investing, if your starting point is wrong, all your subsequent struggles, analysis, and actions will only accelerate your journey toward a predetermined failure.

Sounds like a complete horror movie, doesn't it?

And here is an even harsher reality: when 99.9% of ordinary people came to their first major investment, the amount of correct investment knowledge was pitifully little in their minds, which were actually filled with misconceptions.

As a result, most people ultimately gave up. They cling tightly to the meager salary they earned with their time and lives and cut themselves off forever from financial investments. In doing so, they missed out on the immense possibility of making money with money, and under the erosion of inflation, they fell into a vicious cycle of working harder only becoming poorer.

This creates a terrifying paradox:

• If you invest, you might lose everything and even go into debt.

• If you don't invest, you are almost guaranteed to be trapped by money for your entire life.

These two equally dreadful futures once haunted me like a nightmare as well. About eight years ago, when my entire life savings amounted to around $20,000, I too wandered aimlessly, searching for a secret recipe to "getting rich."

The turning point came by chance when I heard the name "Li Xiaolai" from a friend. I started to search for and read his articles on the internet. The fog that had long shrouded my mind, a chaotic mess of conflicting messages and concepts, miraculously began to lift. I finally saw the light of hope for prosperity.

Therefore, I dare draw this conclusion: Li Xiaolai is the best wealth coach an ordinary person can find, bar none.

What sets Li Xiaolai apart is his ability to use the precise but simple words to accurately analyze the root of a problem and provide clear, effective solutions. He didn’t teach obscure theories but provided an executable operating manual.

After reading his book "The Path to Financial Freedom" (in Chinese), my mind, then a complete beginner's, felt a sense of pristine clarity, as if the world had suddenly become clear.

Ultimately, the power of a method or knowledge is proven by its results. In 2019, following the principles from his book, I invested in a publicly traded company in my own industry. Six years later, as of today, that investment has yielded a nearly 20-fold return.

The three core principles that directly benefited me are:

• Long-Termism: The money you use for investing must be funds you are prepared not to touch for a very long time. Mentally, consider it "gone" from the start.

  
  

• Circle of Competence: Look for investment opportunities in the brands you use and love in your daily life. This is the most reliable starting point.

  
  

• Industry Belief: Have unwavering faith in the profession you work in and believe in its potential to generate significant wealth for you.

Of course, any investment success requires some luck. But luck is random, while the investment methodology Li Xiaolai revealed in his books is something anyone can learn and replicate.

Today, I want to share this "bright lamp" called Li Xiaolai, who once illuminated my path, with you who are also searching for direction in the vast world. May his light also illuminate your path to financial freedom and may we all have a life of abundance and brilliance.

Now, let's return to the title of this article: How do you choose a "good" investment target? In this article, Li Xiaolai revealed a simple, almost crude, yet extremely effective secret.

First, please remember this sentence: In the investment, what is correct is not necessarily good, but what is good is always correct. What we are looking for is something that is indisputably "good."

So, what is the secret? It is that completely abandon your own judgment and blindly follow the real winners. In other words, find the masters who have been continuously successful in investing for twenty years or even more longer time. Then, buy what they buy, and hold it for as long as they hold it. Put your money in the same basket as the masters.

The article directly named two masters whose "playbook" you can safely copy:

• The investing “god”, Warren Buffett.

• The Wall Street wizard, Joel Greenblatt (and his "Magic Formula").

Beyond these two, we can also choose to follow Li Xiaolai himself. The answer he has given with his own action was “cryptocurrency”. Later articles in “Getting Rich” series will also introduce his investment strategy using cryptocurrency as an example.

And in separate blog posts, the series editor (Mr. Y) will also explain for you why blockchain (i.e., cryptocurrency) is a wealth opportunity that ordinary people in this era cannot afford to miss out, and just how immense the "cost of missing out" on blockchain will be.

Warning

While the financial trading markets are no doubt the best place to make money through critical thinking and the application of knowledge, there is also no other place where people are more severely punished for a lack of critical thinking.

Investing is risky, so make your decisions carefully!

As Howard Stanley Marks, who was listed as the 374^th wealthiest person in the United States in 2017, once said:

“There are old investors, and there are bold investors, but there are no old bold investors.”

Don’t be so naïve as to believe that you can turn into a superman just because you learned something new yesterday. Translating knowledge into meaningful action takes much more time than you’ve ever imagined. Relax, take it easy, and don’t rush. You can lift a very heavy weight, but without proper training you can hurt yourself.

Investing Advice That You Can Blindly Follow

by Xiaolai Li, rewritten in English by John Gordon & Xiaolai Li ©2019

The hardest question for those just entering the market is this:

Which one should I pick?

How can someone who doesn't even know what their criteria should be make a choice? How can someone who can only see the superficial and not the true nature of something make a correct choice about what to hold over the long term without wavering? There is a simple, direct, brutal and effective strategy that is also free:

Blindly follow the advice of truly successful investors who have shown excellent returns over the long term.

"Blindly follow" sounds extremely terrifying, but we actually can blindly follow the advice of truly successful investors who have shown excellent returns over the long term (please notice the key term: "long term"), because in the investment world there is an amazing phenomenon:

   The more long-term successful experience investors have, the more open they are.

Warren Buffett started writing public letters to investors a long time ago, and later on he continued to share his investing ideas and decision-making process on television and through other media. Starting in 1964, Buffett has written a public letter to investors each year. As of 2019, he has been writing them for 54 years! Ever since 1973, he and Charlie Munger have held freewheeling Q&A sessions at yearly shareholder meetings. In 2019, the 46^th year, a record 16,200 people attended, not including people watching online around the world.

Berkshire Hathaway's shareholder letters from 1977 to 2018 are available here:

http://www.berkshirehathaway.com/letters/letters.html CNBC's website has a special section called the "Warren Buffet Archive": https://buffett.cnbc.com/warren-buffett-archive/

Warren Buffett's mentor, Benjamin Graham, was also someone who shared without reservation. In addition to teaching investing classes, he wrote several books, most notably Security Analysis (1934) and The Intelligent Investor (1949). Warren Buffett read The Intelligent Investor when he was 19, and he became a fan of Benjamin Graham. One Saturday in 1951, while in the library of Columbia Business School, Buffett learned that Benjamin Graham was Chairman of GEICO, and he immediately decided to pay a visit to the company's office. Many years later, in an interview with Forbes, Buffett recalled that the investment he made in GEICO at the age of 20 was one of the investments he was most proud of.

Joel Greenblatt's investing returns are perhaps even more impressive than Warren Buffet's -from 1985 to 2006, his annual compounded returns exceeded 40%! Having been successful over the long term, Joel Greenblatt is also quite willing to openly share. He has published three books, namely You Can Be a Stock Market Genius (1999), The Little Book That Still Beats the Markets (2010), and The Big Secret for the Small Investor (2011). He is so down-to-earth that his standard for writing the books was that his teenage children could understand them.

Greenblatt didn't just share his ideas in his books, he also made a website, Magic Formula Investing, that allows investors to use his ideas to build their own portfolios. All you have to do is enter a few parameters and the site will give you a ready-to-go portfolio based on the "Magic Formula".

Ray Dalio, the founder of Bridgewater, is yet another investor who has been successful over the long term and is willing to share his ideas. Long before his book, Principles, was officially published in 2017, he released a version for free online. In 2019, he even released an app called Principles in Action, which helps readers put the principles in his book into practice.

In the investing sphere, one must use money, time and action to create real results, and everyone is either a 0 or a 1. Investors who can successfully produce returns over the long term are 1s, and the rest are 0s, including those so-called experts who spend all of their time yelling through the television or other media but have no skin in the game. Investors like Warren Buffett, Joel Greenblatt and Ray Dalio don't need to spend all day screaming through the television, because their ideas have already been clearly expressed through their books, writings and speeches.

Perhaps the most simple, direct, brutal and effective strategy that novice investors can use is to just buy whatever Warren Buffett buys. They don't need to dream about "beating Warren Buffet", they can just “keep up with Warren Buffett" by buying shares in his companies. The easiest way to do this, of course, is to just buy Berkshire Hathaway shares. If novice investors feel that Berkshire Hathaway's share price is too expensive (it was over $310,000 in October of 2019), then they can look at its individual holdings and choose the stocks they want!

CNBC has a page listing all of Berkshire's stock holdings:

https://www.cnbc.com/berkshire-hathaway-portfolio/

Of course, if a novice investor actually did this, their success would be dependent on whether they were able to hold the stocks for as long as Warren Buffett does. For the vast majority of people, holding for the long term is a much bigger challenge than making the initial choice of what to buy.

Alternatively, they could go to Joel Greenblatt's Magic Formula Investing site, enter a few parameters, and buy the suggested collection of stocks. It's important to note, however, that Greenblatt's Magic Formula is not suitable for regular investing, since his method is to choose a new batch of stocks each year. See? Regular investing isn't the only effective strategy, it's just the easiest for most people to put into practice.

So why can we blindly follow these truly successful investors who have shown excellent returns over the long term? It's because they have used their own strategies over the long term, and their strategies have passed the test of time. They are also skilled at thinking with a long-term perspective, or else they wouldn't have been able to carry out their strategies over the long term. In their eyes, the long-term effectiveness of a strategy is not related to how complicated it is. To the contrary, only simple strategies can actually be carried out over the long term. Furthermore, the long-term effectiveness of a strategy is not correlated with the intellect of its user. The core prerequisite for the long-term effectiveness of an investment strategy is whether or not it is faithfully carried out over the long term.

In fact, there is no secret to success. Even if there were, it would be an "open secret". All paths to success are open, as are all of the necessary tools and knowledge. It's just that few people are able to patiently follow a path, picking up knowledge and understanding bit-by-bit, and persistently execute along the way. How few? They're actually quite hard to find.

These people are the rare ones who have achieved a unity of knowledge and action. Actually, the suggestions of anyone in any field throughout history who has achieved a unit of knowledge and action are worth accepting and putting into practice. If we understand it right away, that's great, just do it. If at first we don't understand, we can blindly follow.

The key point is that investing ideas from the most successful investors are free! You don't even need to worry that these ideas will be adopted by everyone and lose their effectiveness, because history has shown that the vast majority of people won't use these ideas. Maybe it's because most people are afraid of simplicity. They think that success is difficult, so they must discover a complicated secret or they won't be able to succeed. There's also another important and common fear involved that keeps people from following this priceless advice: it's terrifying to use our own money to carry out the ideas of others that we still don't understand!

Of course, there's yet another reason:

   People like to use their own smarts and efforts to get a reward.

"Even if I make money by buying whatever Warren Buffet buys, it doesn't feel like success." This might be the actual feeling that many people are hiding.

Copyright & Licensing Notice

The main texts of the "Getting Rich" serial are licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives (CC-BY-NC-ND) licence.

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