Most success guides are useless or fluff. I hope this post departs from that trend. You don’t need 35 rules to become successful. I boiled it down to two options:
1. Take risks
2. Become extremely competent
#1 Includes investing, such as stocks, Bitcoin, or real estate, but also entrepreneurship. I don’t like entrepreneurship, because it’s too similar to #2, and it’s also too risky relative to the returns.
#2 Includes being an expert at a specific field, trade, or other endeavor.
But the problem is, too many people focus on #2. The problem with this strategy is being in the top 1-5% isn’t good enough to attain great success (as in successful enough to make a living and get critical claim); one must be in the top two-tenths of one percent or so. This is not only a lot of work and time consuming, but cognitively out of reach for the vast majority of people, including even smart people.
However, this means opportunities in #1 are often untapped, because everyone is focused on #2. People are too busy trying to become competent, not realizing the odds are heavily stacked against them. But by investing, one can ‘ride’ off the competence of others. Google, Facebook, and Microsoft, in spite of left-wing politics, are companies run by high-IQ, competent people, and due to such competence make billions of dollars a quarter in profits. One doesn’t need to be that competent to effortlessly make thousands of dollars buying & holding ‘FANG’ stocks (Facebook, Amazon, Netflix, Google), the S&P 500 or Nasdaq 100, or Bitcoin. But then why don’t more people choose #1? Because there is less status (except for entrepreneurship), but also because most people are not good at investing. They buy real estate in low-IQ areas or buy low-IQ companies. Or they try to time the market, selling too soon and buying back at a higher price. But once one learns the rules, which anyone with at least an average IQ can do, it becomes much easier.
One way to gain status from investing is to intellectualize the process, such as creating complicated ‘R’ programs to backtest various asset allocation and trading strategies. Such posts do very well on social bookmarking sites (such as Hacker News and Reddit), hence bestowing a lot of status, but the evidence that such strategies are superior to buy & hold, is unclear. If Facebook stock is up 300% since 2013, is a timing strategy really going to beat that? Same for Bitcoin. Yes, you can try to code a Bitcoin bot to extract additional returns, but then you incur the risks of the bot malfunctioning, the exchange getting hacked and hence losing your Bitcoin, having a long streak of bad trades, etc.
Sometimes simpler is better. Many hedge funds are lagging and struggling, compared to the S&P 500′s 15%+ gains for 2017. There are plethora of biases that befall backtested results, that unless you are a statistician you will likely overlook one of them. Many backtested results show superior results versus the S&P 500 when the bear market of 2008-2009 is factored in, but otherwise perform as well or slightly worse than the S&p 500 for the other years. So the purported success of such strategies hinges on a single event that may never happen again, and if it happens again, will likely not unfold in the exact way it did in 2008.