For many newbie investors and millennials like me, the real risk of the recent stock-market turbulence isn’t losing money on paper. It’s that the scar tissue of the market lurching around like a drunk uncle, compounded on the years of saving and paying down bills in the aftermath of the Great Recession, will sour us on investing altogether.
But there is a real way for investing to become a serene and powerful addition to living a truly wealthy life — one of happiness and financial freedom — that puts my money to work for me so I can stay focused on what I actually want to be doing. Which is, after all, the entire point of money. The shocking bit, to me, was that I found the journey and practice of learning investing itself joyful in ways I never expected.
I am deeply wary of what I call the financial-industrial complex — an entrenched behemoth so opaque that it seems like the military-industrial complex — that claims all the credit when the stock market DJIA, +0.47% is rising and then disclaims any responsibility when it drops. It wants to keep us scared and stupid so we’ll pay it fees to abdicate all responsibility, without even knowing what companies our hard-earned and precious money is supporting.
Billionaire investor Warren Buffett abhors most high-fee diversified fund managers so much that he tells people that if they’re not going to invest properly, they should simply bet on the U.S. market as a whole by buying a low-cost market index.
But I was done with Band-Aids. I wanted to invest properly, with a trustworthy strategy, and I wanted to make sure my money was voting for honorable companies, not the polluters and employee-abusers and animal-torturers of the world. In an index fund, my money would have been voting for all of them.
Instead, faced with those dispiriting choices, I unearthed a third way: handle it myself, billionaire-style. Buffett invests in individual companies for the long term, and I discovered that I could do the same thing by turning investing into a regular practice of studying companies that has become second nature.
I had an ace up my sleeve: My dad, Phil Town, is a successful author and value investor, and he guided me through learning how to make lemons out of the lemonade of the stock market using the time-tested strategy of Warren Buffett and his investing partner, Charlie Munger.
Read: Why you should think of investment managers as personal trainers
There are five things that turned investing from a chore into my favorite pastime:
Stop speculating. Warren Buffett says investing, when done right, isn’t about risk, it’s about certainty. All that anxiety that I associated with “investing” actually comes from “speculating.” Speculating is like going to a casino: hoping that you’ll get more than you put in because you timed it right and got lucky. Investing, when done properly, is about knowledge and certainty that I found a great company that I understand and bought at a great price below its true value.
Never pay full price. It’s like finding an original, tags-on Chanel handbag at a garage sale for 50 bucks. There’s no question I can sell that Chanel for a lot more than I paid because I know its real value. That’s exactly what I want to find in a company — by zooming in on its underlying cash value when a short-term, rectifiable downturn has put it on sale for cheap. Panicking about paper losses only happens if I don’t know how to tell the difference between the price and value of what I bought. If I know its underlying value, then I know whether the value is lower or higher than its price. Voilà, no more panic.
Start right where I am. I discovered that simply by living in the world, I am actually an expert on some companies, right now, without having done any formal research at all. I have strong opinions on toilet paper, organic food, electric cars, social networks and online shopping, to name just a few, and my journey learning more about those companies made my knowledge and understanding of their and my position in the world much deeper. I started seeing potential value all around me. Carpet companies! Tractor companies! Nut-free energy bar companies!
Choose mission. My money is a vote and if I vote blindly, I’ve just abdicated one of my most powerful ways to effect change. Some companies are doing really good things in the world; a lot aren’t. I want to vote for the good ones, and the only way I can do that is to know what I’m buying instead of handing off responsibility to a computer or high-priced fund.
The secret to great investing is to wait. Says none other than, yes, Mr. Buffett. So, relax. We’ve got time to study, to learn and to practice. There is no rush. The incredible raw materials to find wonderful companies on sale are at our fingertips: the internet, intelligence and education from the value investors I call my Investing Gurus. All I have to do is make a Wish List of companies I love and wait for them to go on sale. The good news is that we millennials have a lot of years to rectify any investing mistakes.
Unfortunately, this isn’t how most people invest, in part because it all feels so daunting. But what I learned is that it’s also very doable. Now, I’m enjoying myself, as carefree as a baby panda in a bamboo thicket, looking to buy wonderful companies when they’re on sale.
Investing, when done properly, isn’t too hard or too much risk at all. Confidence does that to you. Investing, for me, has become a practice of self-mastery akin to yoga or meditation. All I have to do is buy that Chanel handbag on sale.
Danielle Town is a startup attorney and co-hosts the podcast InvestED: The Rule #1 Podcast, with her father Phil Town. Her book, “Invested: How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions, and My Money (with a Little Help from My Dad)” comes out March 27.