His "wholly unrealistic view" of investing made him very wealthy in his 20's. Can you say your approach has done the same for you?Well, first, he wants to actively invest for hours a day, and then get only a 3% return on his stock portfolio. That's not a ringing endorsement of his skills. Second, he thinks private equity will outperform the stock market to the degree that it will more than double the returns, despite extensive empirical evidence to the contrary and to say nothing of the differences in risk. Third, holy survivorship bias, batman! Buying nothing but apple stock in 2001 and selling it in June 2012 would make you rich beyond your wildest dreams too. That doesn't make it a good idea.
Lastly, yes, I will be very wealthy in my twenties. By the time I'm thirty, I will have all of the money I will ever need. I'm trying a paradigm called , which seems to be a big hit around this site for some reason.
Edit: Like I said, though, I see where he's coming from. I have incredible respect for him as a person, too -- any consciously-thinking, lifestyle-designing gourmand private equity executive is on the right track in a lot of ways and shares many of my values, and he's obviously reasonably articulate as well. This isn't me trying to denigrate Kennon as a professional or a human being. I just think he's got a very strange worldview and some odd ideas floating around in his head.
This is Joshua Kennon, the author in question. I've had several people contact me today about this thread so I took a few minutes to see why on earth I, of all people, warrant discussion.
I'm curious as it if you have actually ever read any of my writings. Your philosophy, "work hard, don't spend money on stupid shit, and buy index funds" is literally
(without the profanity) the prescription I give to the 40,000,000+ people who read my sites annually (including my much smaller personal blog).
The figures you have dishonestly - though I believe unintentionally so - referenced were taken from a mail submission question response about the cash income that could be possibly generated at current market prices by a hypothetical portfolio, and the 3% yield for stocks was referring to the fact that I would prefer a higher dividend yield (roughly 3%) to the current market's yield of 2.7% given that I like holding high quality, conservatively capitalized, cash generating stocks with very little turnover in my portfolio. The 8% yield for private equity and master limited partnerships referred to the median yield available right now on MLP's, which are a special type of security that have major tax benefits, a famous example being a firm like Buckeye Partners, LP (ticker symbol BPL), which is not a stock but a publicly traded limited partnership that is required to distribute nearly all income as dividends to avoid taxation at the entity-level. On an after-tax basis, though the cash yields of the two instruments (stocks and master limited partnerships) are very different, the underlying earnings yields are not by virtue of the fact the former retain most of their earnings for expansion and future growth.
Likewise, your assertion that I would spend "several hours a day" actively managing money is further proof you didn't look beyond the surface. Though my turnover is extraordinarily low - a few percentage points a year - and my rates of return far above average (fueled by my private business holdings, the only one of which I have discussed in public is the most successful national Internet retailer of varsity jackets in the United States, which I started from my college apartment with a few thousand dollars) - the reason I said, in this hypothetical, I would sit in an office and read annual reports all day is because I love economics and studying businesses. I feel about business like some people do about art or skateboarding. You, incorrectly, assume that this means my portfolio turnover would be high. This was clear, if you did more than a quick scan of the page or bothered to read any of my publications before forming an opinion about them.
The constant message I convey to people is:
- Live frugally relative to your income and assets,
- Avoid debt,
- Don't invest in something you don't understand
- If you choose to hold publicly traded stocks, which beat nearly all other asset classes over long periods of time, pick a low-cost index fund and dollar cost average into it for life
- Financial independence is reached at the moment your household can support the lifestyle you desire without having to sell your time for a paycheck; that threshold is different for everyone.
- Do this in the most moral way possible, which is defined as not exerting control over other people or harming anyone else.
I realize we live in a world of sound bites and ten-second attention spans, but calling me, of all people, someone who believes in active management, or hyper trading, would be like walking into a vegan conference and demanding they stop slaughtering cows because you passed the table and saw tofu burgers being served. First conclusion bias does not always lead to clear thinking.
I'm heading back over to my site and won't be back to check this in the future. I normally don't bother responding to these sorts of things at all given the demands on my time but to ascribe to me investment views that are the polar opposite of what I've spent my career advocating for people is dishonest or ignorant. Without knowing your intentions, I cannot be sure of which.