Investing for Survival
12
things I learned from Morgan Housel: Part 8
8. “Most financial problems are caused by debt.”
“Most people’s biggest expense is interest, which comes
from living beyond your means, and buying things you think will impress others,
which comes from insecurity. Avoid these two, and you’ll grow richer than most
of your peers.”
Debt
causes many problems, the worst of which
is that the magic of compounding is working against you instead of for you.
Leverage can also create situations where underperformance takes you completely
out of the investing process. Since “staying invested” is a key to
financial success anything that takes you out of the process is a very bad
thing. As Charlie Munger has said: “I’ve
seen more people fail because of liquor and leverage – leverage being borrowed
money.” James Montier adds: “Leverage can’t ever turn a bad investment good,
but it can turn a good investment bad. When you are leveraged you can run
into volatility that impairs your ability to stay in an investment which can
result in “a permanent loss of capital.”
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