I love the tree in this picture. When I first saw it, I named it the “politician tree” because it was so crooked. I hike by it often with my dog, Butkus.
Clearly the politician tree got messed up early in its life. As I researched it, I found two probable reasons it’s bent at the bottom. One theory is it could have been caused by an ice storm that twisted it. Or, it might have been done by Native Americans to mark the trail. Either way, it catches the eye of anybody passing by.
This tree strikes me as a good metaphor for how our financial life tends to get twisted until we learn some financial lessons. Most of us make a few mistakes before we learn how to manage our money. Hopefully we figure it out before it’s too late to save for retirement. Here are three of the most damaging blunders that may keep us from flourishing if not corrected.
First, let me use another lesson from my travel to North Carolina. I love visiting the Biltmore in Asheville. It’s worth putting on your bucket list. You can step back into the Gilded Age and enjoy breathtaking beauty. It is built on a 146,000-acre estate. The house has 250 rooms of showy opulence over its 180,000 square feet.
Many people miss the message of the Biltmore. They might think it was built to honor Cornelius Vanderbilt. He was at one time the richest man in the world because of his shipping and railroad empires. Nobody was even close to amassing his fortune which in today’s dollars would come to around $200 billion.
Before he died, Cornelius made an interesting statement to his son Billy, “Any fool can make a fortune, but it takes a man of brains to hold onto it after it is made.”
Cornelius may have suspected his own family’s folly. George Vanderbilt, grandson of Cornelius, constructed the Biltmore, but died at age 52 with less than $1 million. The maintenance on the estate almost bled him dry. The real lesson of the Biltmore is how out of control spending can bring down anyone.
The rest of the Vanderbilt family reportedly blew through their money with reckless spending too. Yachts, mansions, Rolls Royce’s and expensive artwork were all part of the liquidation of the great fortune. And they knew how to party. Some galas cost as much as $3 million in today’s dollars for one over the top evening.
Within 30 years of Cornelius’ death there weren’t any heirs who were among the richest people in America. By 1973 when the family members gathered for an event to honor Cornelius, there was not a single millionaire among them.
What are some lessons from the destruction of the world’s largest fortune? One is certainly that no amount of spending is capable of keeping us happy without a contentment that comes from within.
Cornelius’s son Billy revealed the emptiness of piling up riches when he said this about his neighbor, “He isn’t worth a hundredth part as much as I am, but he has more of the real pleasure of life than I have.”
In SMWP language, money is not capable of bringing purpose to life through self indulgence. The sooner a life gets focused on fulfilling a calling serving others, the quicker money finds it proper place in our life.
Second, many new investors make mistakes because they bring their emotions into their decision making. The best investors I’ve studied learn to be unemotional about their investments and follow a process that works.
A friend of mine let his emotions get the better of him last year. He panicked and sold out just as the stock market hit bottom from the Covid scare. He was emotionally unable to buy back in as the market started climbing. That was a mistake too as it has continued to go higher. He’s been miserable.
One cause of this poor investment behavior is watching too much TV or social media. Business channels gets ratings by carrying stories that stoke either fear or greed. Social media has created meme stocks like GameStop this year that have drawn in emotional investors who have a fear of missing out on the action. But investing based on the latest Redditt post has caused many to buy in at the top only to watch the bottom fall out.
Understanding that markets will go up in the long run and investing with a similar time horizon is rational thinking and a good plan. But it only works if we can avoid panic selling and clamp down on our emotions.
Instead of fixating on short-term gains and losses, the successful long-term investor will place emphasis on becoming shock resistant. And keys to becoming shock resistant include avoiding borrowing to buy stocks and setting aside enough cash for short term needs to let us sleep at night.
Long term, low cost, diversified stock market investing works, but only after we find a way to bridle our emotions.
Third, a big mistake new investors make is to assume the key to investment success is hard work. Granted, hard work is a key to success in just about every other area of life. But we need to rethink that rule when it comes to investing.
Unless we are Warren Buffett, which we’re not, you can spend all day reading annual reports and SEC filings trying to gain an edge in investing and still fail. I find the practice of humility to be rewarding in investing. I’m just not smart enough to beat the market. I always try to remember my limitations when I’m tempted to buy an individual stock. I’m never going to be smarter than those hedge fund managers on Wall Street.
It’s very counter intuitive, but to succeed with your money in the stock market, relax and don’t do any extra work other than figuring out which low-cost index fund fits your risk tolerance. Odds are you’ll be far more successful saving for retirement without trying to work so hard trying to find the next GameStop meme stock.
Live frugally so you can serve others, invest rationally without emotion and embrace humility in your investment plan. Do those three things and chances are you will do well. Even if you made a few bad moves early on, like the politician tree, you can still flourish.
Joe Kesler
#3 is spot on in my mind Joe. “Steady as she goes” is a nautical term that I have learned to apply to our investing also. I remember thinking I should be able to choose better stocks rather than relying on an index. Fortunately, most of my retirement savings were in my 401k for most of my investing days and I learned that indexing was and is a better way for me. Great picture of the tree. Looks like a great place to go and watch the river run through it!!
Good comment Brian. The limited choices of the 401k’s are indeed a blessing in disguise as they keep us away from our gunslinging instincts. I do love that tree! Thanks for the comments.
“Live frugally so you can serve others, invest rationally without emotion and embrace humility in your investment plan.” That might be one of the best one-sentence summaries of a lifelong money management plan I have ever read. Well said, Joe!
Thanks Steve. You’re very kind!
Sage advice. Buy value, invest dividends, watch what you spend. The Sherman Brothers, ypu remember the store, told my Father-in-Law, ” watch your pennies, the dollar take care of themselves”.
Sounds like he got some good advice!