Want to know how to play this trade war?
Well, you’re in luck. In a Saturday article, The Wall Street Journal laid it all out:
‘The Trump trade war briefly reached the realisation phase on Tuesday, but markets are still waking up to the idea that trade battles are more than a sideshow.
‘Investors who think China won’t back down still have plenty of opportunity to get out. They also have a problem: get out of what, exactly?’
The Journal suggests you sell anything with exposure to China, Korea or emerging markets. You should prefer small to large companies. Maybe it’s even worth buying the US dollar and US bonds as a safe bet.
The Journal calls the above ‘the simple rules of thumb’. But I’ll make things even easier for you.
Mum’s opportunity to make a quick 1,600%
My mum got a brochure the other day. It was a company telling her they could turn a $2,000 investment into something like $34,000 in two years. They didn’t promise this 1,600% return, as no one could.
But based on their computer model, their strategy could rapidly grow your cash.
This got us talking at the table last week.
I’m usually of the opinion that it takes time to grow your wealth. Not necessarily decades. But you don’t just become a millionaire overnight.
But what my father said next was extremely surprising. Surely the only way you can make money is through day trading. After unloading why I thought he was completely wrong, I decided to ask him why he thought money was only in high frequency trading.
He came to that conclusion simply because some traders receive enormous salaries. ‘If they make that much money, surely they’d be making investors that much more.’
Oh how I wish that was true.
The sad fact is most money managers that promise exorbitant returns usually end up losing it all, shutting down and setting up shop somewhere else to do it all over again.
‘If they lose money, why do investors give them money?’ my father asked. I decided to let him in on a little secret, which I’ll share with you now. The vast majority of people do not make rational decisions with their money.
They’re caught up in marketing hype. They pile money into risky investments and fantasise immediately about returns. For some reason, money encourages a lot of people to make stupid decisions, where they otherwise wouldn’t.
No one wants to get rich slowly
Everyone wants to be Brian Chesky.
Brian is one of the Airbnb co-founders. Not only did he and his partners execute on an incredible idea, they became extremely wealthy very quickly, too.
But this can’t happen to everyone. We all can’t come up with extremely valuable ideas and execute them to raise billions of dollars.
It’s just not how the world works.
For most people, the path to riches is far slower. And this was a key take away from a lunch Brian had with Warren Buffett and Jeff Bezos.
Retelling the story in an interview, Brian said he asked Jeff, ‘what’s the best advice Warren Buffett ever gave you?’
‘Well’, Jeff said, ‘one day I called Warren up and asked him why, when his investment thesis is so simple, don’t more people copy it?’
To which Warren said, ‘no one wants to get rich slow’.
And it’s so obvious when you think about it.
It’s why newspapers, like The Wall Street Journal, have an answer or suggestion for every market situation. It’s why people like my father believe you can give your money to traders and make millions overnight. It’s also why people bet far more than they should on risky investments for the promise of returns.
No one wants to get rich slow, which is why they so easily believe in a shortcut to fortune.
Your path to riches
So rather than trying to ‘play this trade war’ or creating the next Airbnb, I’ve got something far simpler for you.
Become rich by buying companies you understand for far less than their worth. Then, let a few years go by and you’ll have far more than you started with.
Before your eyes glaze over, I want to point out I’m not telling you to buy the Big Four banks and hold them for decades or anything of the sort.
Instead, try to find companies with huge growth potential and a fairly certain future. The latter is the hardest to come by, which means your search could take some time.
This also doesn’t mean you can’t take a speculative punt from time to time either.
But a majority of your wealth should be in stocks with certain, or as close to, futures. Then with a spare few thousand you can try to find those tiny gems that can turn $5,000 into $255,000.
Editor, Money Morning
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