How to Be Richer, Thinner and Happier... In Five Easy Steps, Part 3

Alexander Green
by Alexander Green, Chief Investment Strategist, The Oxford Club

Part 2

A Note From the Editorial Director: Alex continues his series on the common principles between achieving success in fitness and finance. Today, he details three of them. They should come as no surprise to Oxford Club Members, who’ve been successfully deploying these common-sense precepts for years now.

- Andrew Snyder


We’ve spent the last two days discussing how you can achieve success in both investing and weight loss by sticking to the same set of basic principles. I promised to continue today by describing exactly how to apply those principles to your own goals. So here’s a crash course in how to become both richer and thinner... using the same essential formula.

Cure Your Knowledge Deficit

Investors do not succeed because of luck... and the stock market is not a casino, although it often acts like it from one day to the next. If you want to reach financial independence, you need to save as much as you can, compound it as long as you can, diversify your portfolio to control risk and increase returns, and minimize your investment costs and taxes.

The Oxford Club offers numerous white papers with detailed information on each of these topics. They are complimentary to Members.

Dieters... please don’t make the mistake I made, assuming that healthy eating is all common sense.

It is not common knowledge that a Caesar salad has more calories than a turkey sandwich, or that apples are good for you while apple juice isn’t, or that fruits and vegetables are full of micronutrients and phytochemicals that ward off disease and increase longevity.

Before you can lose weight, you need to lose the half-truths and misconceptions.

Hold Realistic Expectations

One of the biggest mistakes investors make is thinking that high returns of the past will continue indefinitely into the future. Recall investors in technology stocks during the Internet bubble 13 years ago. Or condo flippers six years ago. Or gold speculators one year ago.

Trends begin and end without warning, so if you’re counting on stocks to deliver consistent bull market returns or risky option trades to continue paying off, you are in for an expensive education. Higher returns are the result of managing risk and taking occasional volatility in stride.

Dieters make the same basic mistake. How many friends and family members have you heard say they are going to give up carbs, quit drinking and go to the gym five days a week? Ten days later they’ve already thrown in the towel. Why? Because they held unrealistic expectations.

A successful, long-term weight-loss plan is about dropping the pounds in a steady, healthy, sustainable manner. Crash diets lead to rapid rebounds. And no one sticks to a diet where they walk around hungry much of the time.

Don’t Embrace All-or-Nothing Thinking

When I worked as a professional money manager, I dealt with a lot of clients who had a common mindset: They should be either fully invested in stocks or completely out of the market. After all, they reasoned, if the market is going up, you want to be fully invested. And if it’s going down, you want to be safely on the sidelines. Sounds great... until you realize that no one knows what the market will do next.

Investors who switch in and out of the market often miss the rallies and experience the corrections. That’s why I say there are two types of market timers: Those who don’t know what they’re doing and those who don’t know they don’t know what they’re doing.

All-or-nothing thinking sinks dieters, too. One week a few years ago, I used extraordinary discipline and ate fastidiously for six consecutive days, losing four pounds. But on the seventh day I showed up famished at a nephew’s birthday party where the only things served were pizza and soda and ice cream and cake.

When I stepped on the scale the next morning, I could practically hear the springs popping out. In a single day I had gained back everything I’d lost all week - and threw in the towel on my diet. Big mistake. No matter how bad your tumble off the wagon, the only thing to do is pick yourself up, climb back on and vow to continue the journey.

Our little journey concludes tomorrow, when I’ll share the final two principles for succeeding in both weight loss and finance.

Until then, good investing,

Alex

Part 4

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