How to Be Richer, Thinner and Happier… In Five Easy Steps, Part 2

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

Part 1

A Note From the Editorial Director: We continue Alex’s four-part essay on losing weight and gaining wealth. Today, he offers five reasons most dieters fail. For seasoned investors, the list may look familiar. As Alex illustrates, “the parallels between successful investing and successful weight loss are uncanny.”

- Andrew Snyder


For most of my post-20s adult life, I was 6’3” and weighed about 220 pounds. I imagined I was about 10 pounds overweight. I was mistaken. According to a body mass index (BMI) calculation, I should weigh no more than 195 pounds. In other words, I was 25 pounds overweight.

To put this in perspective, a gallon of milk weighs 8 1/2 pounds. That meant I was essentially carrying around three big milk jugs each day, a considerable strain on my heart.

Incidentally, here is an easy way to calculate your ideal weight, according to Dr. Roberta Anding, a registered dietician and Director of Sports Nutrition at Baylor College of Medicine.

If you are a man, take 105 pounds and add 6 pounds for every inch you are over 5 feet tall. (Depressing, I know.) If you are a woman, take 100 pounds and add 5 pounds for every inch you are over 5 feet tall. Now you have a number to shoot for.

Know the Principles

You might be wondering what the heck this has to do with investing. My answer is everything. As I noted yesterday, in my experience the same principles that create wealth can be used to create a leaner body. Investors and dieters who fail fall prey to the same five problems:

  1. They have a knowledge deficit.
  2. They have unrealistic expectations.
  3. They embrace all-or-nothing thinking.
  4. They fail to control their environment.
  5. They don’t stick to proven principles.

When I was trying to lose weight, my first mistake was thinking I already understood everything I needed to know about weight loss, despite the fact that I hadn’t lost any. After all, every day you either take in more calories than you burn or you burn more calories than you take in. So I just needed to exercise more, right?

Didn’t work. I was (and am) an avid singles tennis player. Three or four times a week, I would play for two hours or more and leave the court feeling like a wet rag. Yet I managed to eat enough to match (or exceed) the calories I was burning.

So I figured I just needed to make a few changes to my diet. I switched coke for diet coke, ordered the salad instead of the fries with my cheeseburger, and had frozen yogurt instead of ice cream for dessert. Yet my weight loss was somewhere between glacial and nonexistent.

Turnaround

Then, about a year and a half ago, my wife Karen invited me to join Weight Watchers with her. I was skeptical, but in looking into the company, I learned something interesting.

Two years ago, U.S. News & World Report published its first-ever Best Diets rankings. A panel of 22 leading, independent science experts ranked 20 different diet programs based on seven key factors: short-term weight loss, long-term weight loss, ease of compliance, nutritional completeness, health risks, and ability to prevent or manage diabetes and heart disease.

Weight Watchers finished at the top of the heap.

(Full disclosure: I’m not an expert on diet and nutrition, and I’m not endorsing Weight Watchers over competing weight-loss systems. I’m only relating my personal experience here.)

What I liked about Weight Watchers is that it offers a complete weight-loss system. I won’t go into all the details here, but Weight Watchers doesn’t tell you what you can or can’t eat.

Instead, it makes you accountable for everything you put in your mouth by requiring you to record what you eat and drink each day. This puts an immediate end to mindless eating. (And you can eat and drink more if you exercise more.) I had expected this to be boring at best, but I found it challenging instead - an enjoyable contest… with myself.

Within 90 days, I had reached my ideal weight and canceled my membership. And I’ve maintained this weight for well over a year.

The parallels between successful investing and successful weight loss are uncanny. I finally succeeded in losing weight because I corrected my knowledge deficit, aligned my expectations with reality, and stuck closely to a system that’s proven to work. Which is exactly how, years earlier, I had turned around my financial fortunes.

Tomorrow, we’ll discuss how you can avoid the five mistakes and start applying proven principles to your own goals - whether you’re trying to build a fortune, lose weight… or both.

Until then, good investing,

Alex

Part 3

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This Company Just Got Lighter and Faster

Sometimes companies need to shed some extra fat, too.

And that’s exactly what one of our favorite healthcare companies recently did.

Last month, Covidien (NYSE: COV) announced it had completed the spinoff of its pharmaceutical division, Mallinckrodt (NYSE: MNK).

This move allows the company to streamline its focus solely on its high-margin Medical Devices and Medical Supplies businesses.

And as Editorial Director Andrew Snyder recently reported to Oxford Club Members, this is great news for shareholders:

“Although the now-divested business (Mallinckrodt) was responsible for some 17% of Covidien’s sales in fiscal 2012, management expects strong results going forward. In fact, in the wake of the deal, Covidien’s leaders reiterated their goal of mid-single-digit sales growth and double-digit bottom-line growth.

“Better yet, they confirmed their intent to return up to 50% of the company’s free cash flow to shareholders. That’s good news for income seekers. The stock currently pays a 1.7% dividend.

“The opportunity with Covidien reminds me of something Alex told conference attendees early Monday morning. We can’t fall into the politics trap. If we try to play the next Obamacare move or try to anticipate some new twist in the plot from Washington, we’ll ultimately fail. Politics and investing don’t mix.

“Instead, take what the Club calls the ‘high road’ to success. Forget the day-to-day musings of the market and invest in businesses with solid, proven business models and, even more important, growing earnings streams.

“We know Covidien is in a high-growth market. We know management is committed to a dividend. And we know the company will remain strong no matter what Washington has planned for the healthcare/insurance market.

“That’s the kind of company that will treat its shareholders well.

“As the American population ages, vast amounts of money will pour into the healthcare sector. There are many ways to invest in the trend, but the makers of medical products offer a low-risk opportunity that will continue to reward investors with hefty earnings growth.

“Covidien is strong, and its recent moves to focus on its most profitable businesses make the company even stronger.”

- Justin Dove with Andrew Snyder

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