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The more work you put into an investment, the better the return

by Finploris
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“I personally don’t know anyone who has become rich with stocks,” many say to themselves. Especially here in Germany. A country with only a small number of shareholders.

By and large, I agree with that … I know very few people who have made a lot of money with shares.

So how can you make money investing?

Let’s start… What about real estate? I guess you can think of several people who have earned money with real estate investments.

Or what about owning your own businesses? You likely know even more people who have earned money by investing in their own businesses.

So… now what’s the point?

The more work and time you put into an investment, the better the return.

Stocks can be purchased with a simple mouse click on your computer or via smartphone. The amount of time and effort it takes to buy a stock is really very small.

With real estate, it takes at least several months. You have plenty of time to make sure you make a good decision and plenty of opportunities to get out of the deal.

Managing a business is the most labor intensive and requires blood, sweat and tears – as any business owner can attest. Yet the rewards are much more calculable and predictable.

So we see that stocks (which require the least effort) and owning your own business (which requires the most effort) will yield corresponding returns.

So the equation is…

Low effort = low (or negative) return.

Large effort = large return.

This idea is so plausible and clear. But surprisingly, very few follow it.

The Intelligent Investor

In the book “The Intelligent Investor”, which Warren Buffet describes as “by far the best book on investing ever written,” Graham articulates this idea.

The rate of return sought should be dependent, rather, on the amount of intelligent effort the investor is willing and able to bring to bear on his task.

He goes on to explain to us the difference between the two types of investors – the ones I mentioned above.

The minimum return goes to our passive investor, who wants both safety and freedom from concern.
The common investor

The maximum return would be realized by the alert and enterprising investor who exercises maximum intelligence and skill.
The business owner

All of this is a concept you don’t need to understand….

But as long as not every investor has internalized this rule, money will continue to be invested in low-quality investments.

In this sense, then, we can make a simple assumption.

If you are unwilling to do extensive due diligence, you are better off doing nothing. In the same way, if you act without doing thorough due diligence first, you will be worse off than you were before.

Finally, it is crucial to point out that the amount of reward you get does not necessarily correlate with the amount of risk you take. A simple and incorrect assumption is that you will achieve lower returns with a “safer” investment and higher returns with a “riskier” investment.

If assumptions are too undifferentiated, it can cost you returns.

For instance, some governments, like the German government, have issued bonds with negative interest rates since the financial crisis in 2009. Not only does this “investment” get you less money back than when you started, it can also be kind of risky. Depending on the creditworthiness of countries….

At the other end of the spectrum, there are many rock-solid companies. Such as Berkshire Hathaway. While growth stocks have been extremely popular in recent years, Warren Buffet’s strategy has once again been portrayed as outdated. Until technology stocks plummeted and recently Berkshire Hathaway shares hit new highs.

Berkshire Hathaway and ARK Innovation ETF

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