Investing isn’t easy. In fact, becoming a good investor is part art, part fundamental and technical analysis, part psychology and, let’s face it, part luck.
Last week, I gave a presentation to a very attentive audience at the Las Vegas MoneyShow that I titled, “How to Invest Like a Renaissance Man.” The goal of this presentation was to help people identify some of the key characteristics that I think are necessary when approaching money decisions (as well as life decisions).
I received a lot of great feedback from those in attendance, many of whom said the presentation helped them look at things from a different perspective. This was gratifying to me, as helping people look at things differently is one of the goals of my writing. And, if that goal also serves to help people become better investors, then it’s a one-two punch of positivity.
This week, I thought I’d share some of the key principles of my presentation with you. I hope you find them interesting, and I hope they help you look at things from a different perspective.
First, let’s define what I mean when I use the term “Renaissance man.”
To me, a Renaissance man is an outstandingly versatile, well-rounded person. He (or she) is someone who uses both the left and and right side of his brain when making decisions. He’s also someone who seeks to develop skills in all areas of knowledge, in physical development, in social accomplishments and in the arts.
The way I see it, there are several key traits that characterize a Renaissance man. Perhaps first and foremost, a Renaissance man is curious. He wants to know about things, he wants to understand and he’s constantly in search of information.
Next, a Renaissance man is a risk taker. Never content to just let the wave of life wash over him, a Renaissance man grapples with life’s joys and difficulties the way an anaconda grapples with its prey. He stalks it, waits for the right moment to strike, then squeezes the life out of it before consuming it whole.
A Renaissance man also must have perseverance and self-discipline. It’s not enough to just be curious and to simply take risks. A Renaissance man also must fight through the inevitable adversity that is existence, and the only way to do that is to persevere and employ a heavy dose of self-discipline.
A Renaissance man is creative. Not content to just do what the crowd does, he is one who makes mental connections and sees relationships and reality through the lens of new opportunities. This is particularly important when investing, as those who can see — and invest — in opportunities likely to ignite a wealth-creation explosion will often be handsomely rewarded. Just ask the people who invested in Amazon.com (AMZN) in the 1990s, or in Bitcoin just 18 months ago.
Perhaps most importantly, a Renaissance man is always learning. You see, no matter how much success you have, or how great your expertise in a particular field is, you must never stop learning in life. A true Renaissance man embraces the process of learning, and in the doing he finds meaning in existence qua existence.
Now, how do we apply these principles to investing?
Well, first, we must learn to know ourselves. A Renaissance man seeks self-knowledge, which means he needs to know what he’s good at and what he’s not so good at.
Some investors know themselves well enough to know they must be in tight control of their money. They need to do it themselves. While they’ll take advice from trusted sources and experts, they want to be the ultimate decision makers. I can identify with this group because I would place myself in this camp as well.
Now, other investors know themselves well enough to realize that when it comes to making decisions and/or following a plan, they aren’t generally too adept at such tasks. This mindset is more common than any other I’ve come across in my two decades in this business.
Here, too, I can relate, as I am not adept at making decisions on my own when it comes to subjects I’m not well versed in. For example, a recent home repair/remodel project was outside of my expertise, so I relied on my best judgment to hire the right professionals to do the job. Fortunately, my new bathrooms came out the better for it.
Finally, perhaps the most important lesson regarding how to invest like a Renaissance man comes down to the Shakespearean premise: “To thine own self be true.” What this means is that knowing yourself, your tendencies as a thinker, as a decision maker and as a risk taker can be your greatest asset.
Conversely, not knowing yourself, not being curious, not being willing to take risks, not seeing things creatively and not always striving to learn can become your biggest liabilities.
To really be successful, you must cultivate a Renaissance man mindset.
Will you encounter failure along the way? I guarantee you will. Will that failure teach you something about yourself? It will… if you let it.
ETF Talk: Seek Low Volatility with This Fund
The Fidelity Low Volatility Factor ETF (FDLO) seeks to provide investment returns that correspond to an index designed to reflect the performance of large- and mid-capitalization U.S. stocks with lower volatility than the broader market.
FDLO hunts from the 1,000 largest U.S. stocks for those with low volatility in returns and earnings. The fund uses a scoring system based on three metrics: low volatility of returns, low earnings volatility and low beta (a measure of volatility compared to the market). FDLO has $53.94 million in total assets in its holdings, which are rebalanced twice annually.
So far, 2018 has been a year of high volatility. As a result, low volatility ETFs are among the most popular “smart beta,” or factor-based, funds on the market. One of the cornerstones of factor investing is the low-volatility factor.
Factor investing is a strategy in which securities are chosen to achieve heightened returns. Two main types of factors, macroeconomic and style, can spur returns of stocks and bonds. Macroeconomic factors, such as credit, inflation and liquidity, are aimed at capturing broad risks across asset classes, while style factors, such as value and momentum, explain returns and risks within asset classes.
According to Zacks Research, the conventional wisdom of “higher risk, higher returns” does not always hold true in all cases. Low-volatility funds are designed to take advantage of this phenomenon and deliver higher risk-adjusted returns. Investors should not use low-volatility funds to hedge against sudden market breaks.
Over the last year, FDLO returned 15%. Year to date, FDLO has returned 2.18%. FDLO has an expense ratio of 0.29% and a distribution yield of 1.64%.
FDLO’s top five holdings are Apple (AAPL), 4.44%; Microsoft (MSFT), 3.59%; Alphabet (GOOGL), 3.07%; Berkshire Hathaway (BRK.B), 2.10%; and Johnson & Johnson (JNJ). In addition, FDLO is 25% invested in information technology, 15% in financials, 13% in health care, 12% in consumer discretionary and 10% in industrials.
For investors seeking a fund with low volatility, the Fidelity Low Volatility Factor ETF (FDLO) could be a good choice.
How a Pre-Socratic Philosopher Got Rich Buying Options
When you think of the world’s greatest investors, you probably don’t think all the way back 2,500 years ago to Ancient Greece.
But you should — and the name that you should think about is Thales of Miletus.
Thales was a brilliant man, and one of the first real Western philosophers and scientists (although “scientist” wasn’t a term used at the time). He is best known for his thesis that “all things are water,” which we know now to be erroneous. However, it was a groundbreaking thought given the scientific infancy of the 6th-century B.C.. Moreover, Thales was among the first thinkers to make hypotheses that weree testable and falsifiable, bedrock principles of scientific inquiry today, but absent among his fellow thinkers at the time.
According to the Internet Encyclopedia of Philosophy, none other than the great Aristotle identified Thales as the first person to investigate basic principles and the first to question the origins of substances and matter. Therefore, Thales is the founder of the school of natural philosophy.
Among his accomplishments was the successful prediction of an eclipse of the sun that occurred on May 28, 585 B.C.. Although it’s not known exactly how Thales was able to predict this event, the most likely explanation is his study of the solar and lunar cycles.
Yet what can we learn, as investors, from Thales?
To answer that, we have to realize that Thales was a philosopher, and a man not particularly concerned with the accumulation of monetary wealth. Because of his lack of wealth, he often was criticized in Athenian society by the elites of the day. So just to prove the elites wrong, and to demonstrate the power of reason and natural philosophy, Thales did something that should put him in the trading history books.
Based on his study, assessment and knowledge of the Greek climate, Thales reasoned that there would be a particularly good harvest one year for olives. Rather than sit on this information, Thales took the next step and put deposits during the preceding winter on all the olive presses in Miletus.
Thales had basically cornered the market on olive presses for a small investment. Stated in modern trading terms, Thales bought call options on olive presses, and paid a small amount for the right to control those presses (i.e. he paid a small premium for the option).
When his prediction of a bountiful olive harvest did indeed come to pass, Thales’ bet paid off handsomely. The boom harvest created heavy demand for the olive presses, and because Thales held a virtual monopoly on the presses, he was able to rent them out at a huge profit.
In my opinion, this was perhaps one of the most important events not only in market history, but in the whole of human history.
The reason why is because Thales demonstrated that “science” and the accumulation of wealth really are connected. As the old saying goes, knowledge truly is power. He also demonstrated that if you know what your competition doesn’t, then you will have a tremendous advantage over them.
It is for this life lesson, as well as the accompanying investing lesson, that we should be thankful for the man from Miletus.
If you want to find out how to profit from life lessons such as those taught to us by Thales, then I invite you to check out my Successful Investing, Intelligence Report and Fast Money Alert advisory services.
On Worthless People
“Worthless people live only to eat and drink; people of worth eat and drink only to live.”
The wisdom of Socrates reminds us that accumulating wealth is not an end in itself. Rather, wealth accumulation should be looked upon as a means to an end, and that end is living a full, interesting and glorious life. In fact, it is just the kind of life that a true Renaissance man aspires to lead.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.