4 Simple Steps to Investing

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When I turn on the business channel each morning, I am amazed at the notion of prediction and action in gambling. “Experts” proclaim what stocks or bonds to buy and what will be happening with interest rates or our economy.

I don’t believe any of them because they are wrong 99.99% of the time. They also don’t accept that if they are right 99.9% of the time, it’s because of plain luck.

So, to simplify and demystify the investing process, here are the 4 points I consistently focus on each day. Consider if adopting these could bring clarity to your own investing journey.

1. Empower yourself by understanding your true value. Disregard the price or others' opinions. What is the value of the real estate or investment for you? I recently assessed a property that, in my view, has a value of 50% of the current asking price. Neither the seller nor I are wrong. We simply have different perspectives.

2. Prioritize and manage your psychological profile. I concentrate on specific investment categories: Real Estate and Health Care. This is because I’ve dedicated 40 years to one and 30 years to the other. I also recognize the need to control my impulse for a thrill when making offers and purchasing properties. I adhere to 7th-generation investing, which allows me to disregard the emotional influence of the crowd. This strategy empowers me to make rational decisions based on long-term goals.

3. Constantly calculate the probability of failure and do the Inverse, as Charlie Munger would say. When buying an investment property, I quickly answer, “What could go wrong with this investment?” I spend most of my time unravelling and challenging optimistic projections for the future. Doing the inverse, looking for ways to destroy an investment idea, is very helpful.

4. Why? I’ve added a new question to my structure: What is the point of this investment? The answer has two parts: one for the immediate and the second for the long term. Will this investment add or subtract from the complexity of my life? (The goal is to make it very simple.) If successful, at what cost of time and energy, and why?

Following this structure of 4 different ways to evaluate an investment has helped me simplify my life. Please have a look and try it the next time you consider purchasing real estate or some other asset. Let me know what you think.

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