Succeed in Stocks Even if you Don't Know Where to Start

I recently interviewed one of the three most famous value investors in the world.  The first two are Warren Buffett and Charlie Munger. 

Mohnish Pabrai draws wisdom from both.  He describes a librarian who died with an estate of $4 million.  The librarian donated it to the University of New Hampshire (UNH) in 2015 according to CNBC. 

Mohnish explains that any normal eighteen-year-old with very few skills who can only get a minimum wage job can make it.

The young McDonald’s worker earns minimum wage of $15,000 for 2,000 hours of work per year. He can save ten percent because he is living at home and contributing 90% to the household budget.

 The young man sets aside ten percent of $15,000 before taxes each year. The 18-year-old saves $1,500 each year into a Roth (after taxes) or employer sponsored IRA (before taxes).

This is a conservative example. The young man (for ease of example) does not get a boost from employer matching if he saves in an employer sponsored 401(k). This would allow him to save much more. 

He earns 9% on a simple investment choice.  His income rises modestly with inflation.  For instance, if inflation is 2% this year he will save $1,530 in the next. 

When he retires 50 years from now at the age of 68 he will have saved $75,000 over the years from his salary.

At 9%, the account doubles every 8 years as per the rule of 72.  The approximate time to double an account is the number 72 divided by the rate of return on the investment. 

How Much Does $75,000 of Drip Savings Grow at 9% in 50 Years? Answer: $1,332,662

Bankrate website has a calculator that shows that this scenario will produce a retirement account for the unskilled, minimum wage 18-year-old of $1,332,662.

Is this reasonable?

The most respected textbook on investments is “Essentials of Investments” by professors Bodie, Kane and Marcus.  The chapter on portfolio theory reports that a portfolio of small U.S. stocks returned 11.80%, large U.S. stocks returned 9.62%, and world stocks 9.21%. 

These are the geometric mean returns that investors enjoyed from 1920 to 2010 in the stock market.

A simple exchange traded fund such as the Diamond — SPDR Dow Jones Industrial Average (DIA) would have allowed this unskilled 18-year-old to capture a large stock return of 9.62% over that period. 

The financial success of this 18-year-old comes from the power of compounding over a long time.  The Pabrai fund has generated average returns of about 15%. 

This higher return would generate a $12,450,561 portfolio for the eighteen-year-old.  A difference of just over 5% produces a fortune nearly ten times greater! 

-Doc Brown 

P.S. Enroll in this essential community on stock investing now. 

--- **Course Review Summary** **Global Rating:** 4.20 **Pros:** - **Expert Instruction:** Dr. Brown is commended for his clear and concise explanation of subject matter, indicating a deep care for the students' best interests. - **Comprehensive Content:** The course provides a vast amount of information that is condensed into lessons, ensuring a rich learning experience with content that can be revisited as needed. - **Real-world Application:** The interview with Dr. Scott Brown and Daniel Hall adds a personal touch to the material, making it more relatable and showing positive effects in real life. - **Diverse Learning Approach:** The course includes various teaching methods, which cater to different learning styles and preferences, making it adaptable for most beginners. - **Engaging Activities:** The "Student Activity Challenge" using the "Dogs of the Dow" is a practical activity that encourages active participation and real-world application. - **Positive Results:** One reviewer reported growing wealthy in the market by following Dr. Brown's teachings, indicating the course's effectiveness. **Cons:** - **Irrelevant Content for Beginners:** Some beginners found the initial information to be irrelevant or too basic, suggesting that the course might start at a level that is not entry-level. - **Lengthy Quizzes:** The quizzes were considered excessively long by one reviewer, which could be seen as an unnecessary challenge for those looking for a more streamlined learning experience. - **Basic Content:** A couple of reviewers felt the course was a bit basic and did not provide the in-depth analysis they were expecting, particularly regarding analyzing charts, the market, candles, pips, types of stocks, mutual funds, etc. - **Personal Style Preference:** One reviewer's personal preference for a military style of learning affected their experience, indicating that the course's calm approach may not appeal to everyone but is suitable for beginners. **Additional Notes:** - The course seems to be well-rounded and effective for those who are looking for a comprehensive introduction to stock investing. It appears particularly beneficial for beginners who need to start their journey from the foundational level provided by Dr. Brown. - The course content is likely to be valuable for those who prefer a more systematic, less aggressive approach to learning about stock investment. - Despite some individual preferences not being met, the overall feedback suggests that the course delivers valuable information and could be a solid choice for someone new to investing or looking to refresh their knowledge. **Rating Adjustment:** After considering all reviews, the original rating of 4.20 is affirmed. The course stands as a well-regarded resource in the field of stock investment education, with the majority of reviewers finding it helpful and informative. Minor criticisms regarding relevance for beginners and the length of quizzes are noted but do not significantly detract from the overall positive reception of the course.