Since apparently the pictures of sexy ladies are more extinct than Bernie Sanders’s presidential aspirations (TOPICAL) at this here blog, apparently what all we’re about is learning to invest. I research something, regurgitate the information in a slightly amusing way, and hopefully we all go to bed a little smarter than we woke up.
I’ve spent thousands of hours over the last decade on this skill. I’ve analyzed countless stocks. I’ve taken a look at dozens of different real estate opportunities, and it’s a sector I’ve been actively avoiding for years now. I’ve taken a look at owning a chunk of a few local businesses as well. And I continue to be active in the private mortgage space, saying yes to deals that make sense even after assuming houses are 20% overvalued.
Like any good investor, I say no to the vast majority of deals that end up across my desk. In doing so, I’ve missed out on some great deals over the years, but I’ve also avoided a lot of crap.
And yet, even in my infinite wisdom, I make mistakes. I’ve invested in stocks that have gone down. I’ve invested in mortgages that went sideways. And so on. It isn’t all rainbows and blowjobs.
Overall, I’ve done pretty well on my investments. I haven’t kept track that closely, but I’m willing to bet I’ve exceeded my goal of increasing my wealth 10% per year. Because I’ve done well, I’ve been able to move from being an employee to self-employed, knowing I have enough in savings to only be inconvenienced if I lose a major customer.
So I’d say my focus on investments has worked out pretty well for me. But what if I’m looking at it all wrong? What if learning to invest was a giant waste of time?
For the sake of argument, let’s say I spent 500 hours per year over the last decade learning to invest. I’ve probably spent way more time on the topic than 500 hours a year, but much of that is implementing what I’ve learned. Once you learn how to read financial statements, you then have to spend a lot of time actually looking at financial statements in order to get good at it.
So let’s say I’ve dedicated 5,000 hours to learning my craft over the last decade and 5,000 hours practicing it, for a grand total of 10,000 hours. Remember, that’s the amount of time Malcolm Gladwell claims it takes to become an expert at something. WHICH AUTOMATICALLY MAKES ME AN EXPERT NO MATTER WHAT YOU SAY.
Now let’s look at it a little differently. The average person works approximately 2,000 hours per year, assuming an eight hour day for fifty weeks a year.
It takes four years of work and education for a plumber to go from being a moron who barely knows what a toilet is to be adept in all things to do with water and waste and bad jokes about poo. That’s 8,000 hours of work, give or take.
According to quick searches on the interwebs, a plumber can be expected to make $25 to $30 per hour working for someone else, while charging out their time at $75-$100 per hour while working for themselves. We’ll assume you’d be worth $30 per hour after getting your journeyman’s ticket.
At $30 per hour assuming no overtime, a plumber working 40 hours a week would be making $60,000 per year. Let’s go with that, even if it is a bit artificially low. Plumbers thrive on charging $200 per hour to fix your problems at 7:30 at night.
In order for my investing training to pay off as well as hypothetical plumbing training, I’d have to be earning $60,000 per year on my investments. Which means that I’d have to have a net worth of $600,000 — assuming a 10% return annually — for my investing education to be a smart endeavor.
And remember, I’d be able to get returns relatively close to 10% by just putting my money in passive investments. So if I outperform the market by 1%, I’d need $6 million in capital before I’d make an extra $60,000 per year from investing alone. That’s a hell of a lot of money.
Plumbing might not even be the best example. Alberta is filled with electricians who (at least used to) earn between $30 and $50 per hour on average with all the overtime imaginable. At an average of $35 per hour for 50 hours per week, that works out to nearly $90,000 per year.
It could be even worse if I would have leveraged my learning time into something scalable. Say I spend my 10,000 hours becoming an expert in sales, copywriting, or something else that becomes infinitely more valuable the better you get at it. My earnings potential could have easily been six figures plus.
When you look at it that way, it’s easy to assume learning to invest wasn’t a smart use of my time.
Why I’m not sweating it
As depressing as those last few paragraphs sound, I’m not questioning my investing education for a second.
Firstly, I’ve leveraged that knowledge into a paying gig. I get paid to do a combination of teaching people to invest as well as selling them on a website’s paid services. So I’ve learned some skills in there that translate over to other jobs, as well as getting paid for my skills. It’s what every employee in the history of the world has done.
Besides, having investing knowledge is a long-term game. It doesn’t make sense when you’re younger with only a few thousand dollars to learn the ins and outs of investing. If you have $10,000 and you beat the market by 1% per year, congratulations you have $100 extra. Even spending 10 hours to make $100 extra probably isn’t a great use of your time.
But when you have $10 million, beating the market by 1% a year is worth an extra $100,000. And that compounds, leading to somebody becoming quite wealthy over time. At that point all the knowledge starts to really pay off.
Like Warren Buffett, I think I lucked out by being able to leverage what I love to do into a living. This made the hundreds of hours I studied finance not much of a chore at all. All it cost me was time, something I had in pretty high supply. It wasn’t a big deal for me.
I’m okay with my decision. Learning to invest has worked out pretty well for me. But at the same time, it’s easy to argue I would be better off if I had leveraged those hours into something else.