Everything That I Know About Investing (I Learned From Wine)

Vinted on September 23, 2014 binned in commentary, wine appreciation

[ Warning: This post has very little to do about wine. But, it might just help to make you a millionaire. Your mileage may vary. ]

Back in March, when I let the cat out of the bag on my personal financial situation, I got a lot of interesting reactions. Most of them were of the attah-boy! variety, but since that time there’s been no shortage of questions coming to me in private about it.

Most of those are some variation on the theme: “how the f*ck did you do that?!??”

I am here today to tell you everything that I know about investing. Interestingly, I learned the most important aspects of it from tasting wine, though I am not trying to fool anyone that one will lead to the other in any meaningful way.

The bottom line is that after spending some countless hours delving deep into the pits of wine and tasting knowledge, I emerged in nearly the same place where I began, which is to approach the topic humbly, simply, and with a plan that lets me tune out the “noise” of scores or similar attempts at taste-making / gate-keeping that purport to tell me what is “right” or “wrong” to drink. When it comes to personal satisfaction, 90% of what we see in terms of wine coverage is more or less “wine porn.”

And after spending the last two years delving deep into the pots of investing and finance knowledge, I’ve come to the conclusion that successful investing requires almost exactly the same approach: ignore the porn.

Ah, simplicity, thy name is investing!

Here’s the skinny on how (in my somewhat learned opinion) 90% of those reading this can find success and wealth through investing…

The first disclosure is that I am not a certified financial anything, so you follow any pseudo-advice on finance given here at your own risk. The second disclosure is that I do not work for any financial entities mentioned here. The third disclosure is that I am not going to talk about saving money, which is a prerequisite for investing money so that money makes more money for you; there are only about a quadrillion websites and books on the topic of personal finance and savings, go read one of them (today, we’re assuming you have money to invest).

Here is the formula for wealth, in the simplest steps in which I can break it down:

1. Pick a Vanguard Target Retirement Fund based on your age (or your projected retirement date).

2. Invest your money into that fund, every month, without fail, preferably in a tax-deferred option (401k, IRA, or similar).

3. Ignore all financial news. When the market is going gangbusters, invest in your fund. When the market tanks and people are wailing in The Street, invest in your fund. When the market sits there and does nothing, invest in your fund.

4. When it comes time to retire, open your account. Bring a spare pair of undies, because you will need them when you see how much money you’ve accumulated and you crap yourself (in a good way, I mean).

5. The end, live happily ever after.

That’s it.

Seriously. After reading every classic investing tome, every prominent financial website, and retiring early myself, the above step-by-step formula is almost mathematically guaranteed to put you ahead of anyone trying to “beat the market.”

There are various reasons for this, but the short version of them all is that scientific study on good data by Nobel Prize winning PhDs has verified the detail that went into the simple steps outlined above. You want to side with stock “pickers” like Mad Money Cramer, who still has to work and write books to make a living, or with Nobel-winners? I know where I’m betting my future.

Those same findings mean that you almost certainly do NOT need any of the following to amass wealth (in fact, these people will almost certainly drag down your returns due to their fees):

– a financial planner

– a financial advisor

– a stock broker

– stock picking / analysis software

– stock tips from your Uncle Eddie

– any investment vehicle other than a balanced index fund with the lowest expense ratio/fees possible (that’s were Vanguard comes in to the picture).

Really, that’s all, folks. Go home. When some stock broker cold calls you, hang up on him/her. When your checking account bank calls you about some investment or fund opportunity, hang up on them.

Ok, technically there’s a bit more to it, such as rebalancing from more volatile stocks into less volatile bonds as you get older (to help preserve capital), but Vanguard’s Target Retirement stuff will handle all of that for you. You literally need do nothing with it, other than put money into it without fail, designate a beneficiary in case you croak early, and spend the money on having a great time in retirement when you’re done.

So… to those emailing me about how I “did” it: there’s no secret required to doing this stuff successfully, just the intestinal fortitude to ignore the porn, and stick to your plan. Which ought to be a path already familiar to those of you who are exploring the wine world by reading sites like this one, right?

Cheers!

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    Comments

  • pbilling13


    Always astonished at the number of people that just don't get this. It ain't rocket science. It is a very small amount of luck and a large amount of common sense and patience.

    • 1WineDude


      Pbilling13 – me, too, but then consider the facts that there are almost no education curriculum efforts around this stuff, and a significant vested interest with deep pockets who’d rather not see this change and impact their bottom lines.

  • Wee Ree San


    Dude knows whereof he speaks. I followed this approach exactly (had to mimic the funds portfolio as it did not yet exist), retired in 2003, age 51, net worth well over 1,000,000 and, although I could not contribute directly anymore, I continued to invest using this approach following retirement by reinvesting portfolio returns. But note bene: THE defining challenge of this approach is staying the course when all looks lost and those around you are fleeing in panic. I weathered (ignored) many crashes before retiring, but my defining investment moment was the crash of the late 2000's as I watched my net worth drop over 500,000 in 3 years. I took a deep (very deep) breath, ignored the bad news and continued to reinvest proceeds and rebalance annually to match my target portfolio. My net worth today is well over 2,000,000. Trust me, it was not easy staying the course for years while my friends were bailing out of the dropping market. Sadly, today some of them are cancelling country club memberships and selling their dream homes. So remember…this approach can work….but only if you STAY THE COURSE.

    • 1winedude


      Wee Ree – I think a lot of life is like that; simple, but not easy. These things aren't complicated, but as humans we seem to want to make them so!

  • Bob Henry


    Dude,

    And there is these implicit aspects of this investing approach which I will make explicit:

    Go to college.
    Major in a marketable profession.
    Manage your career leading to job promotions and/or employer changes that produce raising income
    Avoid losing your job during a recession.

    Now, in Part Two let me cite these news reports on the damage that the Great Recession has done to around 20% to 25% of our work force . . .

    ~~ Bob

    • 1WineDude


      Bob, those are implicit to being able to save, and therefore to have money to invest. More importantly, though, is controlling your expenditures.

  • Bob Henry


    Part Two . . .

    Excerpts from The Wall Street Journal “Main News” Section
    (June 18, 2014, Front Page):

    “Fed Rate Debate Focuses on [Long-Term] Jobless"

    Link: http://online.wsj.com/articles/the-feds-conundrum

    By Jon Hilsenrath and Victoria McGrane
    Staff Reporters

    [Preface: "Long-term unemployed" is anyone who has been out of work for six months or longer. — Bob]

    Four years ago, 6.8 million Americans were out of work for six months or longer. Half as many are now. That might sound like good news, but it isn't.

    Nearly four-fifths of those who became long-term unemployed during the worst period of the downturn have since migrated to the fringes of the job market, a recent study shows, rarely seeking work, taking part-time posts or bouncing between unsteady jobs. Only one in five, according to the study, has returned to lasting full-time work since 2008.

    The plight of these millions is now at the center of a contentious debate among top U.S. officials over how to spur jobs without stirring inflation.

    . . .

    In a Brookings Institution study, he [former Obama White House economic adviser Alan Krueger] and his coauthors found just 11% of people out of work for more than half a year had landed steady, full-time work within 15 months. Around a quarter had part-time jobs or had found and then lost full-time jobs. The rest, nearly two-thirds of the total, had given up seeking work or remained unemployed but still in the hunt.

    In follow-up work, Mr. Krueger looked at how people fared over a longer period, and the results weren't much better. Only 22% of people who entered long-term joblessness during the 2008 recession had gotten steady, full-time jobs by the first half of 2013, he found.

    . . .

    From the Los Angeles Times“ Business” Section
    (September 25, 2014, Page B2):

    "Layoffs Have Hit 1 in 5 Workers;
    Study also finds that 22% who lost jobs in last 5 years have not found another one."

    Link: http://www.latimes.com/business/la-fi-layoffs-une

    By Jim Puzzanghera
    Staff Reporter

    One in five U.S. workers was laid off in the past five years and about 22% of those who lost their jobs still haven't found another one, according to a new survey that showed the extent Americans have struggled in the sluggish labor market since the Great Recession ended.

    Those who did find work had a difficult time with their job search and the effects of unemployment, the survey by the John J. Heldrich Center for Workforce Development at Rutgers University found.

    Nearly 40% said it took more than seven months to find employment and about one in five of laid-off workers said all they could find was a temporary position.

    Almost half — 46% — of the estimated 30 million layoff victims who found new jobs said they paid less then their old ones, according to the survey of 1,153 U.S adults done over the summer.

    "While job growth has been consistent, it has been insufficient to produce enough full-time jobs for everyone," the study said.

    Despite a declining overall unemployment rate, the study says, long-term joblessness has remained a major problem as the U.S. economy has slowly recovered from the deep recession, which technically ended in June 2009.

    The study notes that 3 million Americans in August had been unemployed for more than six months. Although that figure has been declining, it still is high.

    The effects of long-term unemployment can be traumatic, the survey found.

    "While a majority of Americans were affected by the Great Recession, those who had long-term periods of unemployment experienced severe, negative changes in their standard of living," the study concluded.

    About one-third of those who were unable to find work for more than six months reported "a major and permanent change in their lifestyle," according to the study.

    Asked to compare their salary and savings now to five years ago, 42% said they had less. That figure included 25% of respondents who said they had "a lot less."

    Excerpt from the Los Angeles Times “Op-Ed” Section
    (March 23, 2013, Page A19):

    “[To Spur Job Creation] Bring on Supply-Side Economics”

    Link: http://www.latimes.com/opinion/commentary/la-oe-s

    By Brad Schiller

    [emeritus professor of economics at American University and the author of "The Economy Today”]

    The Congressional Budget Office says unemployment won't drop to 5.5% — the benchmark for "full employment" — until 2024. That implies a 15-year recovery from the Great Recession (which officially ended in June 2009, when the economy started growing again).

    . . .

    It took four years to restore full employment in the wake of the 1973-75 recession, 5½ years after the 1981-82 recession and only 2½ years after the short 1990-91 recession. The CBO says it will take a staggering 15 years to achieve in the current recovery.

    . . .

    • 1WineDude


      Bob, according to those studies, I’d be one of the long term unemployed.

      • Bob Henry


        The key distinction: the "long-term unemployed" are actively looking for employment . . . not willingly retired.

        • 1WineDude


          Well, that depends on how you define those terms… ;-)

          • Bob Henry


            I'll let the Bureau of Labor Statistics (BLS) define and elaborate on "long-term unemployed":

            http://www.bls.gov/opub/btn/volume-2/long-term-un

            • 1WineDude


              I think I would technically be considered LTU, based on that page.

              • Bob Henry


                Are you actively looking for re-employment in a profession?

                Otherwise, the self-declared "retired" are no longer part of the workforce, and don't fall under the classification "long-term unemployed."

              • 1WineDude


                Bob, I would've up until recently, so I was part of that number.

  • Bob Henry


    And let's throw in a Part Three, on a news story that even The Wall Street Journal buried in the proverbial "back pages" . . .

    Excerpt from The Wall Street Journal “Main News” Section
    (August 26, 2014, Page Unknown):

    “Bernanke: 2008 Meltdown Was Worse Than Great Depression"

    Link: http://blogs.wsj.com/economics/2014/08/26/2008-me

    By Pedro Nicolaci da Costa
    Staff Reporter

    Former Federal Reserve Chairman Ben Bernanke, a prominent student of the Great Depression, contends that the 2008 financial crisis was actually worse than its 1930s counterpart.

    Mr. Bernanke is quoted making the statement in a document filed on Aug. 22 with the U.S. Court of Federal Claims as part of a lawsuit linked to the 2008 government bailout of insurance giant American International Group Inc.

    “September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke is quoted as saying in the document filed with the court. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

    Former Treasury Secretary Timothy Geithner is quoted in the document offering a similarly apocalyptic assessment. From Sept. 6 through Sept. 22, the economy was essentially “in free fall,” he said.

    . . .

    • 1WineDude


      Bob, that comment probably has some political motivation. I.e., the administration can then say that they pulled the country out of its worst economic issue ever, caused by the policies of a previous administration, etc.

  • Bob Henry


    Geez, after all that dour news, I need a drink!

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