Lessons Learned as a Wealth Manager in Silicon Valley
Lessons Learned as a Wealth Manager in Silicon Valley
I manage money for Silicon Valley elites that often have income of $1M+ per year. When people find out what I do for work, their natural question seems to be:
What’s a hot stock pick?
They’re usually disappointed when I tell them that I don't have a hot stock pick. I’m always perplexed by that question because even if I had one, you wouldn’t be able to take advantage unless you have a large amount of cash sitting around.
I imagine what they really want to know is, “How can I become wealthy like your clients?” Or perhaps more accurately,“How can I become wealthy quickly, and with minimal effort?” The good news is that I believe everyone can grow to be wealthy. Bad news is that it likely won’t be quick and it will require a considerable amount of effort.
In any case, asking me, or anyone else for that matter, for a hot stock pick is the wrong question to ask for a couple of reasons.
"The Internet commoditized the distribution of facts. The "news" media responded by pivoting wholesale into opinions and entertainment." - Naval Ravikant
There is no hot stock tip, at least not anymore. Everyone is working off of the same information because we have something called the Internet. If I were to give you a stock recommendation, that would be something based not on fact, but off of my opinion about the future.
2. “The market can stay irrational longer than you can stay solvent.” -John Maynard Keynes
Investors often believe that a stock price is rooted in the company’s financial fundamentals, but that’s not how stocks work. The price of a stock reflects investors’ opinion about the future of the company and often makes no logical sense. So even if you knew for a fact that a company was fundamentally undervalued, it does no good if other investors do not share your perspective.
Investing in individual stocks is likely a losing game over time. A study by JP Morgan showed that 40% of all stocks fall 70% or more and never recover, and that on average, individual stocks underperform the index by about 50%1. I’m not saying it’s impossible to get rich off of a hot stock, but statistically it is unlikely.
What is the right question to ask if you want to become wealthy? A big driver of wealth is earning power, and you should be asking how you can increase your income. The wealthy simply earn more and are able to save more.
The wealthy understand that while investing in individual stocks is statistically a minefield that destroys almost half of all investors, the stock market as a whole can be a wealth generating machine. The Russell 3000 Index averaged 11.7% annually during the same time period as the JP Morgan study2. Money doubles every 6.3 years at that rate. A $1,000,000 investment would turn to $2,000,000 in 6.3 years, $4,000,000 in 12.6 years, and $8,000,000 in 19 years. The wealthy don’t try to mess with the machine, and instead, try to maximize the power of these returns by investing as much money as they can in a low cost index fund.
How do the wealthy make so much? They are extremely intentional with their time because they understand that time is your most important asset. You can always earn more money, but you will never get a second of your life back. If you’re still not convinced, consider this: If Warren Buffett offered you all of his wealth to trade places with you right now, would you take it? I would guess most would answer no.
Someone I admire always used to say, “time is the great equalizer.” Whether you have a $1 or $10M dollars to your name, you have the same 24 hours in a day. Invest your time as if you were a millionaire because your next hour is just as valuable as the millionaires’ next hour.
Be hyper vigilant about your time and invest your time on things that are likely to increase your earning potential. Get an education, read books, create content, travel, visit museums, and talk to mentors. The wealthy also spend time with family, friends, and volunteer to help the needy because these are things that only they can do. Then they outsource everything else.
You cannot outsource your own earning potential, but money already earned can easily be outsourced. Don’t focus on money already earned. There is little benefit to time spent there. If you don’t want to hire someone to manage your savings, automate it through technology. Then use the freed time to do things that increase earning potential.
Don’t ask the next wealth manager you meet for a hot stock tip, but instead, ask how their clients are spending their time.
If you would like to learn more about how I help my clients get to their good place, schedule time with me.
2 Morningstar
