I’m more than a little pissed off tonight-for a bunch of reasons, not worth going into. So following dinner, I decided to hunker down and browse.
And when I went to Big Lychee-from my second favorite city on the planet-I discovered all the mistakes I have made that will keep me from being a millionaire. ( Where the hell is the Tequila in the pantry?) Parts that apply to me are in italics:
How to Be (or at least Have Become) a Millionaire Without Being an Entrepreneur and Without Really Trying
1. Don’t get married; don’t have kids. Bang goes millionaire status for most people. Some say marriage improves a woman’s ability to accumulate wealth, but it has wiped out many men I know: ex-wife got the house, and by then it was too late to build another nest egg from nothing. Even a successful marriage usually comes with those horrendous money-sinks known as kids; in the UK, each one eliminatesGBP200,000 of investable funds, and you can’t even hire them out at age six to clean chimneys. Why else can’t that Orthodontist save five years’ salary any faster? You want the glorious blessing, fulfillment and pleasure of children? Fine, but be prepared to sacrifice much hope of millionaire-hood. (Note, by the way, that this list is not titled ‘How to be Happy’.)
2. Make sure you bought somewhere to live in ages ago before prices became stupid, and you paid it all off soon after, even if it left you with zero at the time. That means somewhere pretty cheap. Remember the self-made American mentioned in the Economist: why waste money you can invest? You want a sea view and room for a Jacuzzi? Fine, but don’t complain when you’re not a millionaire.
3. Make sure you have a fairly well-paying job. It doesn’t have to be a stratospheric, investment-banker income, though it needs to be comfortably into middle-class territory. Just as important: your monthly salary should be at least double, preferably more, than your monthly outgoings. Which means…
4. DON’T WASTE MONEY. Make sure your monthly outgoings are no more than 50% (better still, 40% or 30%) of your monthly income. If you ‘like’ expensive clothing, luxury brand watches, every new electronic gizmo that plummets in price a year later, the trendiest nightspot/resort, the laziest/priciest transport, stop ‘liking’ them, or don’t come whining when you don’t end up a millionaire. Women in particular need to sort out their financially debilitating cosmetics/shoes disorders. It helps to have been brought up by parents who thought it was still 1943. If you need to spend to make other people think you are rich, see a therapist.
OK, now we’re halfway there, hopefully by age 35 or so: no encumbrances to feed, no landlord/mortgage sucking your blood, and significantly more cashflow coming in than going out. This brings us to the interesting bit where miracles happen.
5. Invest. According to a story, someone once asked Albert Einstein what was the most powerful force in the universe, and he replied “compound interest.” Compounding is why the orthodontist mentioned above would have had no problem saving US$1 million in a decade if he hadn’t blown so much on family and mortgage interest. It is why you need to have your home fully paid off fairly early in your working life: your mortgage payments are compounding someone else’s stash.
5. a) Invest in equities. Quick and cheap to trade, flexible, diversifiable, income-producing, low-maintenance investments that mostly grow. It takes some study and thought, but no more than following football or movie stars. If you need to be told to re-invest dividends, you aren’t getting it. (If you prefer real estate, and get a kick out of leverage, stamp duty, lawyers, repairs etc, you’re an entrepreneur, committing the unpardonable sin of putting effort into it.)
5. b) Invest at a time and in a place that in retrospect enjoyed major one-off boosts from historic shifts in global economic patterns. The 1990-2010 period in Hong Kong was pretty hard to beat, with globalization, new technology and the rise of China.
5. c) Follow the usual rules. Invest in a blend of boring and mildly adventurous equities. (On average, if you put $10,000 into each of five reasonably considered stocks, maybe one will be a dud, three will perform OK and one will boom. The dud can’t fall more than $10,000; the one that booms can go to $50,000, $70,000 or more. Maybe 70% of returns come from 30% of the portfolio.) Prefer good managements. Prefer companies in industries with high entry barriers. Most of all, let time do the work. And so on.
5. d) Understand timing and psychology. Example 1: Make the most of mayhem. Events like 9/11, SARS and the 2008 crash were singular buying opportunities when the herd was rushing to sell. Buy heavily at such times, and everything else just falls into place. A strong stomach and cold blood help. Example 2: Distinguish trends, fads and bubbles. Emerging markets might fade as flavour of the month, but the strategic long-term case is simple. A stupid investment can be a good one (for a while) if enough idiots are deluding themselves into thinking it’s a good one, as the recent gold price shows.
And there you have it. Your housing is paid for, there’s no screaming family to grab-grab-grab, the Hong Kong government is happy with its annual 15%, you earn decently, you save and you invest. Oh, and it’s the 1990s and 2000s. It could be $100,000, $1 million or $10 million, depending on your circumstances: the point is, if you haven’t accumulated at least 10 years’ salary from zero in (say) a decade and a half, you haven’t tried.
Looking back, it was almost impossible to fail. But how to do it from 2011 onwards, I have no idea.
All prices are in HKD. But even with the sarcasm aside-its still some pretty good advice. Follow it and you could be living at 61 Barker Road.