Because you’re all sexier than Farrah Fawcett in 1978, (the opposite of topical!) you’re all doing the things you’re supposed to. You’re putting aside a certain percentage of your income towards retirement, you’re not sticking ten large in some useless emergency fund, and you’re even hustling on the side to make a little extra cash to further stuff into your investment accounts. Go ahead and get yourself a blow job slugger, you deserve it.
This is all fine and good, but you’re gonna need to step things up to the next level, and that’s not just a euphemism for finally sexing up your lady after she won’t let you touch her for 4 months even though you bought her dinner every damn night but secretly she’s repulsed by you and she just wants free dinner. If you want to get yourself a serious nest egg then you’re going to have to outperform the market.
My portfolio has outperformed the market for years, thanks to appreciation from my rental properties and cash flow that would make today’s real estate investors a little hard in the pants. Index investors forget that there’s more than one way to skin the proverbial cat and outperform the market. I wouldn’t want you to skin a real cat. They’re cute and that’s gross. What are you gonna do with cat skin? Weirdo.
As we’ve discussed somewhat ad nauseam, there’s a fairly simple way to outperform the market. You buy small cap stocks that are trading at low price to book and price to earnings ratios. If you look hard enough, you’ll find companies that exhibit both qualities, which is the investing equivalent of finding a girl with a great rack, a terrific ass, and who will cook you dinner. You should latch onto that as fast as you can.
Take Emerson Radio as an example. I first wrote about the stock when it was trading in the $1.55 to $1.60 range. Sure, it’s an illiquid small cap, but you could have easily picked up a few thousand shares during one of the more liquid days. Today the company trades at $1.96, representing a solid 20% return over the last 9 months. It continues to sit on a mountain of cash and still trades under book value. A portfolio full of Emerson Radios has a better chance of beating the market than a portfolio full of Proctor and Gambles, due to the difficulty of growing such massive enterprises and because I’m right and NO, you’re a big stupid head.
I’m here trying to come up with ideas on how to grow your money. And penis jokes. We can’t forget about the penis jokes. Other people have the attitude that you should just stick your money in a few ETFs that track the overall market and leave it at that. And hey, that’s cool. You’ll do alright if you take that route. We’re going to challenge that and see if we can beat those returns, but I can certainly see the appeal, especially for those who don’t want to do any research.
There’s one piece of advice that rubs me the wrong way though, and that’s when people talk about how investing more will enhance your returns. Stop me if you’ve heard something like this from another blog.
“Want an easy way to enhance your returns? Just invest more. Putting away ‘$x’ more per month will give you ‘y’ more in retirement.”
No, person giving that advice, I will not listen. YOU GO DIE IN A FIRE NOW.
Like most personal finance advice, there’s nothing wrong with the above statement. You will end up with more at retirement if you invest more. That one is obvious, even to the ladies reading this blog (Get it? Because ladies are bad at math? I’ll show myself out).
But while there is nothing factually incorrect with it, there are all sorts of implications that could lead you down a dangerous path, probably filled with used heroin needles and mustard filled hard-boiled eggs, a food that would be classified as a chemical weapon assuming it existed.
What implications? There’s two mostly, and they are.
A) A high savings rate atones all sins.
B) Beating the market isn’t as important than having a high savings rate.
Most of you wouldn’t save 30% of your income if you could comfortably retire saving 15% of your income. You wouldn’t give away all of your potato chips (finally, a potato chip reference on Financial Uproar) if your friend wanted a couple. So why would you save more if you don’t have to?
Yes, having a cushion is always nice, and yes, I understand you want to leave an inheritance to leave to whatever screwy animal you decide to get. But beating the market makes it possible to achieve your goals while saving just a little less than your friend who has to put up with a average or even below average return.
I’ve touched on this before, when I ran the numbers on retiring early. In case your fingers are too fat to click back, the math indicated that you need both outsized returns and a ridiculously high savings rate to be able to make that a reality. (Or a spouse to work and pick up the slack while you stay at home. Either or. And yes, that was a shot.)
The bottom line? You should always focus on getting outsized returns. They can come from hand picking individual stocks, buying real estate, or even getting in on the bread business. Saving is the easy part of the battle. Getting returns that beat the market is the hard part. But once you do, financial freedom gets a whole lot closer.