You Don’t Get Rich by Taking Profits
You get rich by owning valuable things
“Never sell.” That’s the motto Carter Thomas wishes he had adopted 20 years ago.
In 2003, Carter took all the money he’d ever made from his summer jobs as a lifeguard — a respectable $18,000 — and bought Apple stock. That was a smart decision.
It was not a smart decision to sell all of it two months later for “beer money.” After stock splits and price increases, Carter’s stock would be worth more than $10 million today.
Looking back on the experience, Carter has learned a simple but profound lesson most people — like him — initially gloss over as they try to build wealth:
“All the reasons why the huge, f-you money hasn’t come in is just because I’ve sold stuff. It’s never because I didn’t buy the right stuff. I’ve always bought the right stuff at the right time — I’ve just never held it long enough.”
While not at such scale, I’ve made the same mistake many times, and so, if only to myself, I’d like to issue a reminder:
You don’t get rich by taking profits. You get rich by owning valuable things.
Disclaimer: I’m not a financial advisor. This is not financial advice.Here’s the simplest two-step wealth template I know:
- You need to buy assets that appreciate in value.
- You need to not sell them.
Everyone thinks picking the right assets is the hard part, but actually, it is the psychological pressure of constantly fighting instant gratification that limits our financial potential.
Historically, almost all markets go up. Go back 10, 20, 30 years ago, and look at some prices. Stocks? Up. Real estate? Up. Commodities? Up. The more you zoom out, the higher the chance that prices went up. Cryptocurrency? Up. Venture capital? Up. Even Pokémon cards are up.
Everything always goes up because money is an artificial system, made by humans, controlled by humans — and humans are fallible creatures. Every single one of us struggles with self-control, and so do humans at large. Money is one giant marshmallow experiment for humanity. The “Print more” button is a big red buzzer, and if you give such a buzzer to a species with little self-control, how long can you really expect them to last before they hit it?
Prices are nothing more than numbers we write next to things’ names, and then we say “if prices go up 2%/year, that’s good” — because economics were also invented by humans. We print more money, and of course, all the numbers go up. Where else are they supposed to go?
In this exceptional year alone, the United States Federal Reserve has printed nearly $5 trillion dollars. For every four dollars in circulation at the beginning of 2020, there is now another dollar in circulation. Do you understand what this means? It means the numbers must go up.
If the printing of money transformed prices uniformly, the price of all things measured in dollars would have gone up 25% this year. Since it doesn’t, some prices — where the newly printed money flows first — go up more. A lot. Those usually include stocks and bonds as well as mortgages and loans. Eventually, however, the money always finds its way into newer, more niche and less regulated markets, like crowdfunding, crypto, and, well, Pokémon cards.
The point is that whether you look at a 100-year stock market chart, a 50-year real estate chart, or a 30-year gold market chart, the numbers always go up. A monkey pulling tickers from a hat would have done well on any multi-decade timeline.
Meanwhile, despite being only 1% different from monkeys, we routinely manage to screw up this lottery in which everyone wins, mainly for one reason: We sell our tickets too early.
An investor makes money by letting time pass. Doing nothing is the most valuable thing he can do — and it’s the right thing to do most of the time.
Why is it so hard to sit on our hands instead of using them? Why can’t we let the market take care of it? Two reasons: Greed and fear.
Investor’s greed is when you buy something you believe in but then sell it too early because you think you’re smarter than the market or get eclipsed by short-sighted thinking.
In 2017, I bought Chainlink for $0.09. I understood what they were doing, I thought it’d be good, and I wanted to hold. A few weeks later, I caved and did what everyone told me to do: I took profit. $0.55 per LINK. I was exhilarated. 6x in a matter of months! How much better can it get? Today, Chainlink’s mission is coming to fruition. One LINK is worth $15, and its price has peaked at $20. That’s a relaxed $100,000 I missed. Eclipsed by short-sighted thinking.
Investor’s fear is when you buy something you don’t believe in because you’re afraid you’ll miss out on the gains other people make. You are now a time bomb sitting on a time bomb, and the question is: Which one will go off first?
When I was 18, I bought three stocks recommended in a magazine. 400 €. I only had a vague idea of what the companies were doing, and I never vetted the information. My stocks lost 25%. To an 18-year-old, 100 € is a lot of money. After months of waiting in anguish, I finally sold everything for a 50 € loss — but the mental cost was much higher. Not only did I lose money, I lost energy and peace, sitting on a bad investment, hoping it would recover.
Greed and fear turn you from an investor into a trader, which is probably something you have no business of being, and definitely something you can’t be successfully with greed and fear at the wheel.
But they make it look so easy, don’t they?
Everyone wants to be a trader. Trading is cool. Trading is sexy. It makes you feel alive. It’s also a quick way to ruin your productivity, your mental health, and throw in your portfolio returns for good measure.
If people understood that “being a trader” is a job like any other, a job that only works if you consistently make profit, maybe they wouldn’t pretend they could master it while sitting on the toilet after lunch.
When you’re a trader, you earn your salary by buying low and selling high. Do you understand? If you don’t make winning trade, you can’t eat. Those are the stakes for a real, full-time trader. You’re lucky if you don’t have to be one.
Chances are, right now, you don’t earn your salary by buying low and selling high — so why are you looking for a second job? Especially one you’ll be bad at. Just buy and hold forever. Use your money to own more valuable things.
When you buy an asset you really, really believe in, there is no question of “When should I sell?” By default, the answer is “Never,” and unless the story of why you believe in it fundamentally changes, neither should your answer.
Let’s say you like Amazon. When you buy Amazon stock, Jeff Bezos works for you. Not figuratively. Literally. If Jeff Bezos succeeds at his job, so will your portfolio. For 20 years, the man has proven he knows what he’s doing. Why would you ever kick that horse from your roster? Would you fire Jeff Bezos? No, but you would sell your Amazon stock — even though they’re the same.
A scarcity mindset makes us behave like a trader when we don’t have the skills to succeed as one. We shift our positions around in some deluded attempt to “manage our opportunity cost.” We fret about how to invest the next $500.
Instead, we need to just buy what we believe in and then go right back to making more money. We need more firepower. That’s our real and only problem: We need more money to buy more assets we can hold forever.
If you have conviction in your investments at the time you make them, there is no need to get flaky — there is only a need to buy more, and the best way to service that need is to earn more money in the job you’re already good at rather than your part-time, poorly executed tradership.
Don’t be a trader. Be an investor — and then kick ass at work so you can invest a big pile.
Being wealthy is about sleeping like a baby. It’s about owning things that carry you through life — for the rest of your life — and the only way to do that is to own appreciating assets forever.
Civilization has made this task easier than we think, because historically, in the long run, the numbers always go up. The system is rigged for us, not against us, and so we fail to invest only because we stand in our own way.
Human psychology, not ability, kneecaps our financial success. We struggle with self-discipline, with greed, fear, and a warped sense of our earning potential. Even if we understand that inaction is an investor’s biggest contribution, we still find it near-impossible to practice it.
Carter too had to learn this lesson the hard way, but he did — and now, he heeds the advice of the people who made it:
“I talk to a lot of people above the age of 50, 60, 70, and they all say the same thing: The most important thing is owning assets. If you want to have wealth, you just need to own more stuff. That’s it. That’s the only thing that matters.”
You don’t get rich by taking profits. You get rich by owning valuable things. Don’t buy into the next “shortcut.” Buy what you want to hold forever, and then manage your mind to actually do it.
