Buy Low. Sell High.

For 30 years now I’ve heard this financial adage in fine offices and now online. From individuals managing $5B dollar portfolios to individuals who don’t have $500 in an IRA.

I used to just nod my head and act like the phrase is actually wisdom but I don’t anymore. Now whenever I someone says it I asked a simple question: “What’s Low?”

You would be amazed how quickly the smug and over confident begin to look like Golden Retrievers who are completely lost where their ball went.

The fact is too often people become lazy in financial matters (and other matters of life.) Instead of actually figuring out a plan just hide behind some statement that people just accept for fact.

For example, in marriage people say “Happy Wife. Happy Life.” In regards to our careers, “Dress for the job you want.” Etc. But, rarely do people actually think about these in real world terms or define how they will act.

If your wife is happy and you are miserable is that a “happy life?” What if the job you want is in the ER. Should you go to an interview in scrubs before you enter medical school? Does a suit really impress a person who doesn’t own a suit? These are flippant and sarcastic but you get the point.

If I pick two stocks that are both trading at $100 dollars how can you identify which stock the price is currently “low” or “high?” One could be low and the other high. Or both low. Or both high.

What metric do you use? Have you even thought about it?

If I pick two stocks that are both trading at a P/E of 15 how can you identify which is “low” or “high?”

If a stock is trading at $8 today but was $10 last week is it “low” today or is that actually still too “high?”

Answer the questions “What’s low” and “What’s high” are really the only thing that matters.

The second most annoying thing I hear is “I want to be rich.” What’s rich? Define what rich is for yourself. Most people can’t.

When I started out as a market participant what I wanted was to be able to replace my income because I had gone through a series of layoffs at my first post-college job. To me “rich” is knowing no matter happens I can pay my bills and live at the same lifestyle regardless of the decisions of others.

Now every person’s life is different. For some people the cost of mere existence is higher than the income they can earn. I support two parents for example. Friends of mine support special needs and disabled children. “Rich” defined as owning a private jet may be completely unattainable. So you have to think about what “rich” is before you begin and then you will likely have to reappraise as you age.

There are plenty of people who have million dollar mortgages and million dollar retirement accounts who can’t say they have replaced their income. There are plenty of people with a lot of money who are enslaved by their accounts too.

When you look at Jeff Bezos and Warren Buffett notice that Bezos is spending his time traveling the world and Buffett will likely die in his office hovering over a spreadsheet in much the same position he has been in for 80 years now.

Would you say both of these men are rich? I wouldn’t.

Even more are enslaved to their life styles or to credit. Be aware that the average family loses generational wealth in three generations. It takes 20-50 people to spend what one person spend a lifetime.

Quite often when we look at other people we do so from a lens we carry and not the lens they have lived their lives. If you were Warren Buffett you would buy a Ferrari and go skiing for weeks. But, if Warren Buffett had been the type of person to buy a Ferrari and go skiing for weeks he wouldn’t have ever made enough money for you to objectify him.

Make sure that you define “rich” i.e. what your financial goal is in terms of your life and not in terms of material things or in terms of someone else’s life. Ignore the rest of the world.

Be honest. “Rich” might be unattainable if you define incorrectly.

Once you have defined “rich” sit down and draw it out. Once you have a plan goals are achievable. Without a plan you will just spin your wheels.

So let’s say you’ve defined what “low” and “high” is for a set of stocks and you know what "rich” is can you get there? If not then you need to find better stocks.

Even better if you take someone else’s framework, Buffett, Dalio, whoever, and apply it to your account does it get you to your “rich?” If someone averaged 19%/year and you are starting with $1000 where does that get you?

Next time someone says “I’ve been follow so-and-so and I’ve made x returns in the last 25 years” ask them this question:

“Have you replaced your income or are you still working a 9-to-5?”

People get very chippy and defensive when you ask this question so be warned in advance. You aren’t going to make friends doing this.