Why Do Only a Few Investors Succeed?

Investing – in stocks, mutual funds, ETF’s, etc. – is much like anything else.  Out of the many who try it, only a few end up really doing well with it.  But why?  Shouldn’t anybody who bought Apple or Amazon or Starbucks or MasterCard or PayPal or [insert name of ginormous, highly successful company] stock back in the day (or even the past five years) have done well with it?

The funny thing with stock investing in particular is that those who experience the greatest success are defined not by what they do, but more by one certain thing that they DO NOT do.  Let me attempt to frame this in a riddle:

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Stock Investing Strategies for 40-somethings

The very second post that I ever wrote for this blog just over four years ago was entitled Tips for the Investor Who Started Too Late.  Looking back on it, however, I realize that the tips I gave actually apply to a person of any age starting out in stock investing.

So I’m re-visiting this idea with two goals in mind:  first, targeting a more specific age group and second, walking you through how I’m thinking and making decisions as a late 40-something myself with not a whole lot of time left to my advantage.

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A High Stock Price Doesn't Matter – Really?!?!

Recently, I decided to calculate the average buy-price of all the stocks that I currently own.  The average is $167.20 US.  The least I’ve ever paid for one share of stock (again, of my current holdings) is $25.85 and the most is $848.00.

I’ll be completely honest:  when I was a novice stock investor, if somebody had told me that they paid more than a few dollars for any one stock, I would have thought that they were absolutely stupid.  Why?  Because I assumed that they had no chance of having any of their stocks investments multiply in value, let alone double.  I assumed that most of the stock’s growth was behind it and that gains after no longer being a “penny” or small-cap stock would be marginal at best.

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Building an Investing Cushion

People who are invested in the stock market are enjoying one of the longest periods of sustained growth in its history.  Following the recession of the late 2008-09, the U.S. markets in particular have moved steadily upward, having only short periods of minor setback and few at that.  It’s really quite an amazing run when compared to the overall history of the market.

Even if an investor has started buying stocks of quality companies only within the last five years and held onto them, they will typically have already experienced some of them at least tripling in value even if they only own a dozen companies.  This is the most obvious benefit of long-term, buy-and-hold investing, but another big benefit is not as obvious:  the longer you hold onto a successful stock, the larger the ‘cushion’ that develops between the stock’s current price and the price you bought it at.

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Death By Subscription

The great financial plague that is wiping out households across North America in particular is none other than personal or “consumer” debt.  I’m describing it like it’s something to be feared because there’s still enough old-school financial thinking left in me to realize just how nefarious it is.  Once out of hand, it not only destroys one’s financial situation, but it has also destroyed countless marriages and relationships.  People have killed others and even themselves because of it.

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