I’m certainly not a finance person.  At least I don’t consider myself one.  I am just a country lawyer.  I have no magic formulas for anyone, unless common sense and my own experience can be considered a magic formula.  I have no magic wands, no hidden secrets, no rabbits to pull out of a top hat for you.  But I do have some modest experience in dealing with my own money and investments.  I’m also a practicing bankruptcy attorney–a job I’ve been doing for over 20 years–and have represented a very large number of individuals and businesses.  I’ve seen what things get people into trouble, and what things do not.  One begins to notice recurring patterns, and I have tried to distill these into cautionary principles.  The result is what follows.

Philosophers can be wise about money; there is no rule that wisdom must go hand-in-hand with poverty.  Schopenhauer was a very successful investor.  So was Descartes; he bought government bonds when they were undervalued and was able to live on their income for a good part of his life.  Voltaire was also very canny with his money, and built a considerable fortune for himself.  On the other hand, Erasmus lost most of his money due to his failure to pay strict attention to currency controls when he was leaving England.

It should go without saying that I’m not giving anyone any financial guidance for any specific situation.  I am not a financial planner or an investment specialist, so please do not ask me for financial advice about your situation.  I’m not recommending anything, or advising you to do this, that, or the other thing.  I’m only presenting my own general thoughts about my experiences.

1.  Never invest in anything you do not understand, or that you can’t explain cogently to someone else.

This should be a basic rule.  If you don’t know what you’re doing, and you can’t articulate what you are putting your money into, how do you expect to see the warning signs when they appear?  You need to know what the hell you’re doing.  If you are seeking to buy some complex financial derivative or instrument, you should know exactly what it is and how it works.  If you are wanting to buy a stock, bond, or other investment, you had better know exactly what you are buying.  In other words, you have to earn your keep.  You need to do your homework.  That clichéd story about Napoleon advising his commanders to be able to explain their plans to a lowly corporal?  That’s sound advice.

2.  It isn’t enough to buy things when prices are depressed. You need to see positive change coming.

It is a well-known axiom that money is made when people buy low, and sell high.  It sounds wonderful, of course.  But in practice, it is not always easy to implement this rule.  Why?  Because a lot of things are depressed.  A lot of prices are low.  And they may be low for a good reason.  So it isn’t enough just to buy cheap things.  You need a reason for believing that the prices are going to go up.  If you bought stock in the US steel industry in recent decades, you would have seen things hardly move at all.  Why?  Because no positive change came along.  Steel prices were low, and they stayed low, due to (among other things) intense competition from abroad.

Another way of saying this is that it’s not enough to be a contrarian.  Everyone thinks he is a contrarian.  You also have to be right.  You have to see improvement coming down the road, in order to make a profit.

3.  Never get greedy.

This is easier said than done.  You would be surprised how often this rule is violated.  And it will always be so.  Because human nature never changes.  People are never satisfied with a little success.  They want more, and more, and more.  So do not tempt Fate too much.  If you’ve made a little money in something, consider yourself lucky.  Be grateful to Fate, because things could just as easily have gone the other way.  It comes down to gratitude.  Those who are greedy get exactly what they deserve.  Every time.

4.  Get away from the herd.  Don’t follow the financial press.  If you do, see it as entertainment.

Herd mentality can be a terrible thing.  It makes you do things you don’t want to do.  It confines people into channels and valleys.  Why?  Because of fear.  Men are inherently driven by fear and greed.  They feel secure and affirmed when they see masses of other men doing what they are doing.  They feel safe.  The problem is that following the herd rarely results in your being successful.  If you want to be successful, you have to separate yourself—physically, if needed—from other people.  This takes a great deal of confidence that most people do not have.  But it ensures that your instincts and judgments will not be contaminated or suppressed by the bad judgment and fear of others.

The financial press exists for entertainment, and as a collection of advertisements for large institutions.  Little of value is presented to the average person.  Watch it if you must, but see it as entertainment only.  This rule also applies to the “money guys” on social media.  Remember that old saying about looking around the room, and trying to find the “mark”?  And that if you can’t find the mark, the mark is you?  That’s a good rule of thumb.  And it hasn’t changed since the days of the Mississippi riverboat gambling dens.

5.  Seek singles, doubles, and triples. Not home runs.

What I mean by this is:  stop trying to make one big score.  It is not likely to happen.  Success in building wealth comes over many years of steady progress.  A little success here, and a little success there.  It all adds up.  Saving, budgeting, and making prudent choices.  Stop chasing the flim-flam.  Stop chasing the easy buck.  Because it does not exist.  Slow and steady progress count for far more than sudden success.  There are no special clubs to join.  There are no smoked-filled places where you’re going to commiserate with secret handshakes and formulas.  There are no secrets.  There are no champagne rooms.  If someone has a secret about making money, he sure as hell isn’t going to share it with you.

6.  Do your own homework. When you do, you’ll find out you know more than anyone else.

No one wants to do any research.  Or at least not many.  If you are thinking about investing in a certain industry—say, for example, agriculture—how much do you really know about it?  Have you read trade journals?  Have you spoken to farmers or agribusiness companies?  Have you walked the land?  Have you visited places where farming is actually done?  This applies to every business and every trade.  Don’t put money into things you have not studied.

7.  Avoid collectibles and art. They are speculative and volatile.

Again, this is just my personal opinion.  I’m sure you can find many people who think differently, and who have made fortunes in classic cars, coins, stamps, comic books, or whatever.  I’m not one of them.  My experience has been that it is difficult to sell a collectible for much more than what you paid for it.  By all means, collect things.  But do it out of love.  Don’t expect to make a fortune doing it, unless you’re very lucky.

8.  Avoid tech stocks and complicated derivatives.

This ties into the first point I made, about not investing in things you don’t understand.  Technology companies deal with cutting-edge technologies that require a lot of experience and industry knowledge to understand.  You are not going to be the guy “in the know.”  Not only this, but my view is that many of these companies have inflated values, with share prices that do not reflect fundamentals.  And as for complex financial derivatives, this is one thing I want to say:  the financial world is rife with conflicts of interest, insider dealings, and every type of skullduggery and legerdemain you can imagine.  Frankly, I don’t trust the most of them.  The system is designed to enrich the big guy, and to stack the deck against the little guy.  So you need to be cautious and suspicious.

9.  Pay cash for real estate.

This sounds like heresy to some.  This flies right in the face of conventional wisdom, and many are going to roll their eyes when they read this.  They will say that in real estate investing, fortunes are made on leverage and using loans.  Of course, they are right.  I will not deny that.  But remember I am giving you my own opinions, not what everyone else thinks.  In my view, if you want to buy a rental property, pay cash for it.  Save up and pay cash.  You will have no mortgage hovering over your head.  If tenants screw you and trash the place, you are at much less risk.  Real estate is no fool’s game.  You need a cash reserve, because things can and will go south.  Property taxes go up.  Tenants don’t pay the rent.  Tenants destroy the building.  Evictions cost money.  And do you really need 3, 4, or 5 properties?  Why not just have one or two properties that you own free and clear?  It all comes down to peace of mind, and being able to sleep at night.  And not getting greedy.  Remember that leverage works both ways:  there is a big downside, as well as a big upside.

10.  Most people are better off doing nothing, than doing something. Money sitting in cash in the bank is not a bad thing.

As I see it, if you are uncertain about something, you are better off doing nothing.  That’s right.  The simple truth is that most people are simply not cut out to be active investors.  Most people are better off sticking their money in a low-cost index mutual fund, and then going to the beach.  It really is that simple.  People have this impression that they need to be tossing their money this way and that.  This results in a lot of wasted broker’s commissions.  Or, even worse, it results in losing a lot of money.  So if you are not certain you know what you’re doing, do nothing.  There is no shame in this.  I suspect that if we were to survey a number of investors, the ones who did the best were the ones who just dollar-cost averaged into an index fund for 30 years.

11.  Have some decorum, tact, and kindness. If you have money, don’t rub it in people’s faces.

I was raised with the belief that talking too much about money was rude and crass.  Nobody likes an asshole who can’t stop bleating about how much money he has.  It is a dead giveaway for someone who is deeply insecure, and trying to compensate for some deficiency.  Don’t do this.  All it does is generate resentment.  Even worse, it antagonizes the gods.  Remember that the gods love to punish the haughty, the arrogant, the proud.  They will seek you out, and hammer you.  Remember all those old myths about the Olympian gods crushing men who showed hubris?  They are all true.  And when I say true, I mean literally true.

So be humble.  Be grateful and show your gratitude.  If you get some money in your pocket, give something back to the community.  Be a generous man, as this will placate the gods to some extent, and not arouse their hostility too much.  Investing money is something everyone should do, but remember why you are doing it.  You do it to enrich your life, and to enhance your security.  If it becomes an unhealthy obsession that detracts from these purposes, then it is time to rebalance your priorities.

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