The Easiest Way To Get Rich With Stocks
I have been investing in the stock market since I was a teenager. I’ve tried every strategy in the book. I’ve made enough mistakes to write several volumes.
In this article, I detail the two stock-picking conclusions I have come to. If I had settled on these two styles of investing 32 years ago, I’d probably be a millionaire several times over today.
One of the beautiful things about the Making of a Millionaire publication, thoughtfully conceived and crafted by Ben Le Fort, is that we tend not to prescribe fixes to personal finance problems.
You won’t see many authors on this platform preaching. Telling you, there’s only one way to do something. You definitely won’t find specific stock recommendations.
Making of a Millionaire (in my humblest opinion) has become the best source of personal finance and investing information — on and offline — for this reason. The same goes for large swaths of Medium. Diverse groups of people with myriad backgrounds and experiences sharing their stories. This — not dogmatic prescriptions — makes an impact on people’s relationships with money. It’s not advice; it’s more like friends sharing.
Within this context, I’m not going to recommend individual stocks. Instead, I present the super straightforward and flexible frameworks I use to build my stock portfolio.
I have written several Medium articles on dividend-paying stocks:
3 Reasons to Consider Dividend Growth Investing
Match your investing style with your personality
Many of us have the goal to create streams of enduring (not passive) income. While it takes work, there’s no better way to do it than via dividend growth investing. It’s not passive income because you have to do the work. It’s income you work for that endures. At some point, if you choose or need to, you can live off of this income, all or in part.
So this is framework number one: A decidedly dividend growth investing strategy. You can read about the basics and the ins and outs in my articles and all over the internet.
Some stocks you select as a dividend growth investor will also fit into framework number two. It‘s an enhanced version of famous fund manager Peter Lynch’s buy what you know the strategy:
Ask yourself: Can I analyze the company? Everybody has a good idea of what McDonald’s does. But it’s hard to analyze biotechnology companies or computer software companies. So ask yourself: Do you know something about the company? What can you add to the math? Do you have an edge?
You could be an interventional cardiologist and you put in a heart pump. You say, wow, this really is an incredible breakthrough, preventing shock, providing hemodynamic support. You’re actually in the operating room, seeing this breakthrough way ahead of most people. That’s an edge. You need an edge on something.
Buy what you know had its moment in the personal finance and investing literature. I’d say it peaked about ten years ago. I always had a problem with how most writing in this area simplifies buy what you know.
It was like, you go to Starbucks, you like it, it’s always busy, so buy the stock. This would have turned out great for you. But a decision such as this requires informed analysis. Had you done the same with Sears, you’d be screwed today.
Here’s an on the ground example from my life to illustrate what I mean.
I live in Los Angeles. I used to live in San Francisco. I also like to think I know a thing or two about cities, housing, and modern urban migration patterns and tendencies.
When the pandemic hit, the stocks of companies that own and rent luxury apartments in places such as Los Angeles and San Francisco (real estate investment trusts) took a hit. I’m willing to stake the claim that cities will be back and high-end apartments will perform better than ever.
Apropos to the matter at hand — I have lived in big California cities for 21 years. I have an undergraduate degree in urban studies. I almost got a Ph.D. in urban planning. I keep up with urban housing news and trends. I live in a gentrifying neighborhood. I love living in big cities. I feel like I have a solid handle on how they function, ebb, and flow.
I don’t live in an apartment owned and operated by the companies I invest in. If I did and loved it but had no further formal and experiential knowledge of cities, I probably wouldn’t consider myself qualified to buy apartment stocks on the basis of buy what you know.
To this end, if you work in cybersecurity or something, you might feel like you have informed knowledge — real life and maybe school-based education — of the space. You can look at the sector and develop a better understanding of potential winners and losers than I or some other relatively average person. It’s not the same as knowing how to download anti-virus (of the computer variety) software.
Dividend stocks. Buy what you can realistically say you really know.
If you do these two things within a thoughtful, personal finance (budget, spend, save) and investing (mainly stock picking or index investing) strategy, it’s also realistic to say you’ll find yourself “rich” one day.
Define “rich” however, you like. Save yourself the stress of setting a $1,000,000 benchmark for this designation. Go for the practical application of rich. As in, you pay all your bills, have a month-end cash surplus, fill your pots of money, and — without blinking an eye — can invest the rest.
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.