Think for Yourself
Choosing long-term savings is a big issue that requires some thought work. Therefore, our first piece of advice is simply that you make your own decisions, just like us. Of course, we prefer that you invest in some good funds. And just like most others, we think it is wise to save regularly, for example, with monthly savings. As active managers, only invest in companies where you genuinely believe.
Find the investment philosophy that suits you. The most important thing is not to lose money; therefore, the price of the company’s intrinsic value is crucial. There are many companies, but not all are good companies, and even fewer are attractively valued. As I said, listen to experts and feel free to take advantage of tips from people like us, but in the end, let your common sense make the decision.
How to Multiply Investment
The pyramids of Egypt and the hanging gardens of Babylon are some of the seven wonders that most people have heard of. But according to Albert Einstein, there is one more thing: interest on the interest rate effect, the eighth miracle.
A classic example of interest in the interest rate effect is the legend of the “rice grains on the chessboard.” According to this, an Indian ruler was so impressed with chess that he wanted to buy the game from its inventor, who must have been a cunning mathematician. The inventor wanted to pay in rice, more specifically, a grain of rice on one of the board’s squares, then double up on each other.
The ruler thought it sounded cheap and struck but soon realized it had ruined him. If you double the number of rice grains on all sixty-four chessboards, it will eventually be eighteen trillion rice grains to a weight of 461 billion tons.
This is how interest rates work on the interest rate effect, which long-term investors use. Every year, you get a return on your savings, the value increases, and if you get a return the following year, you also get a return on the previous year’s return.
So, it can continue, year in and year out, and over time, it can do wonders for your finances.
Short-Term or Long-Term Investment?
There is always something to worry about—war and unrest, proud politicians and recession, climate change, and terrorist attacks. Just look at all the misery that has occurred since 1988.
Of course, it would be desirable to predict stock market declines, but it is often hopeless. And when will you reinvest if you still have a chance to sell?
Short-term price movements are irrelevant when long-term values are to be built. Instead of timing the market perfectly, there is a significant risk that you will miss a continued upswing. If you are selective and only invest in companies you believe in, you can improve the odds further.
Always Invest in Good Companies
We cannot stress enough the importance of investing long-term and avoiding the temptation of trying to time the market. Invest in good companies and let them do the work. Be long-term, preferably in companies with an excellent direct return. As someone said, dividends are facts, and the stock price is just opinions.
Good companies are experts at making money, and you are entitled to your share of the profits as a shareholder. So, instead of staring at a computer screen and being tempted to make unnecessary and devastating relocations, you might as well take a walk. You get fresh air and stretch, strengthening the heart and stimulating thought activity.
You can play with the magic number 72 if you still want to consider investments. If you divide seventy-two by your expected annual return, you will determine how many years it will take to double the capital. Or vice versa: You want to double the money in x number of years and wonder what return is needed. Then, take 72 / x, and you will get the return in percent.
Speculator or Investor
The difference between investors and speculators is the view of strong price movements. The speculator tries to profit by predicting the price development, while the investor focuses on buying and owning “suitable securities at suitable prices.”
Or, as we usually say, good company at a reasonable price. Behind each investment is a thorough business model analysis, finances, sustainability issues, and management. Then we are happy to be long-term. Even good companies have their adversities, but they usually emerge stronger from crises in a way that strengthens our belief in them.
If you want to save long-term, you must prepare for short-term setbacks. Just because the earth takes a year to circulate the sun, it is not certain that a calendar year is suitable for evaluating an investment. Or are you a speculator?
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