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    Investing Profitably: My Course For You
    Investing Profitably: My Course For You
    Investing Profitably: My Course For You
    Ebook182 pages2 hours

    Investing Profitably: My Course For You

    By John David Campbell

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    About this ebook

    Fear of losing money is a costly emotion. Learn the principles of investing to fear less and invest more profitably.


    In his comprehensive course on investing, Campbell will teach you a proven, straightforward strategy that will help you tak

    LanguageEnglish
    PublisherJohn David Campbell
    Release dateNov 16, 2021
    ISBN9780578317403
    Investing Profitably: My Course For You
    Author

    John David Campbell

    John D. Campbell became the Director of Private Client Investment at Goldman, Sachs & Co. in 1995. He began his 33-year career at the Firm as a research analyst, eventually becoming a Vice President in the Investment Research Department, a member of the Stock Selection Committee, the Director of Private Client Investment, a Managing Director, and a Partner (Participating Managing Director) in the Investment Management Division. Campbell feels fortunate to be especially qualified to write this book due to his training, professional career, and experience of investing through Vanguard subsequent to retiring fifteen years ago. As a research analyst he studied companies spanning diverse industries and resisted prods to become an industry specialist. Instead, he learned about new industries, businesses, and managements.

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      Book preview

      Investing Profitably - John David Campbell

      JC-Ebook-cover-2021.jpg

      Investing Profitably

      My Course For You

      John D. Campbell

      Former Director of Private Client Investment

      Goldman, Sachs & Co.

      Copyright © 2021 by John David Campbell.

      All Rights Reserved. No part of this publication may be reproduced, distributed, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without prior permission of the author, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, contact the author.

      Limit of Liability/Disclaimer of Warranty: While the author has used his best efforts in preparing this book, he makes no representations or warranties with respect to the accuracy or completeness of the contents of this book. He specifically disclaims any implied warranties of merchantability or fitness for a particular purpose. The advice, strategies and recommended portfolios contained herein may not be suitable for your situation. The author will not be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. No warranties or guarantees exist regarding any particular result from applying the contents of this book.

      All investments are subject to risk, including the possible loss of money you invest. Past performance is not a guarantee of future returns.

      Investing Profitably presents three Recommended Portfolios for Vanguard and Fidelity Investments’ investors. These Portfolios are recommended only for investors who have read this book, and understand and accept its lifelong investment philosophy and the risks and volatility inherent to investing. You will see these Porfolios in Table 14 (p.115) and Table 15 (p.124).

      Investing Profitably: My Course For You contains many ideas, opinions, and concepts that the author has learned elsewhere as well as his own. Much of the material no longer has an identifiable origin. Over time, the author’s ideas and opinions as articulated in this book may change and he is not responsible for notifying anyone.

      Jacket and interior design by Joshua Kwassman / Squareast (Brooklyn, NY)

      More information available at the author’s website: www.johncampbell.finance

      First Edition, printed in the United States of America.

      ISBN 9780578300061

      I wrote this book as a gift to our grandchildren

      Brooks, Coleman, Charlie, Alex, and Campbell Grace.

      1 / Why I Wrote This Book

      Dear Brooks, Coleman, Charlie, Alex, and Campbell Grace,

      I started writing this book as a letter to you, my grandchildren. However, as I went along, I realized the ideas and recommended portfolios were meant to be a book to teach the fundamentals of lifelong investing to many other people as well. For young people, it can liberate them from the lure of working in the investment business and open another intensely interesting, purposeful career. For anyone who fears losing money it will teach how to diminish anxiety and invest successfully. For those who are baffled by the mysterious, seemingly complex process, it will guide them in a straightforward way. For most investors, who underperform the market after taxes, fees, and expenses, it will teach them how to earn the market’s total rate of return. Few individuals know the answer or how to correct this costly yet easily rectified deficiency.

      Fear of losing money is the greatest obstacle to investing successfully. Thus, it is a terribly costly emotion. The unnerving tug between wanting to make money and the fear of losing it can easily lead to unwise emotional decisions. Our emotions encourage us to buy when we’re euphoric. This typically occurs after the market has risen and we expect a continued increase. In turn, the emotional pressure to sell is greatest when we’re fearful and scared. This happens after the market has declined and we project continued erosion. Millions of investors were terrified by the bear markets of March 2000–October 2002 when the S&P 500 declined 49.1%, and October 2007–March 2009 after it plummeted 50.9%. These events created indelible memories and vows to never invest again. Consequently, these individuals did not benefit from the S&P 500’s 609% total rate of return (including reinvested dividends) from March 2009 to December 31, 2020, or the price advance of 455%.

      When the topic of investing arises, people repeatedly tell me they fear losing money. They don’t know whom to trust or believe. They wonder what securities to buy and when to purchase them. They fear the market is too high and approaching another peak. Or they simply find it confusing and scary. As a result, they frequently do nothing. If you’re like most individuals, you’ll know exactly what I’m talking about. On July 11, 2015, The New York Times published an article by Sendhil Mullainathan, Professor of Computation and Behavioral Science at the University of Chicago (and formerly an economics professor at Harvard), entitled Investing in the Dark, Even an Economist is Confounded by the Complex World of Mutual Funds. He said, When new acquaintances learn what I do for a living, they routinely ask, ‘So how should I invest my money?’ I wish I knew. Simply stated, someone you trust must teach you how to invest. That is what I, the former Director of Private Client Investment at Goldman, Sachs & Co., hope to do.

      I encourage you to take responsibility for achieving your financial goals and maintaining your money’s real purchasing power. Recognize these two points: first, no one will have more interest in your financial well-being or grasp your personal considerations better than you. Second, the process is straightforward, and you can readily implement it by investing through Vanguard, Fidelity Investments, BlackRock, or some other firms. The greater the effort you dedicate to taking control of your investments, the more you will understand and find the process not only profitable but also stimulating. In turn, I hope this knowledge will free you to pursue whatever career or profession you may desire.

      My objective is to teach you to develop a Personal Investment Plan, setting forth an appropriate percentage distribution of your assets among stocks, bonds, and cash (asset allocation), as well as specific investments within each category (a diversified portfolio). The portfolio will be structured to generate a tax- and cost-efficient total rate of return equaling the market. To be clear, the total rate of return is the percentage of your investment you earn over a specified time. Earning this rate is readily achievable and will most likely improve your lifetime total return.

      The following 22 elements underpin a successful investment program. Please don’t be overwhelmed by them as each is discussed throughout the book. As you read along, you’ll see they are readily understandable. Don’t shrug them off for fear of investing. If you do not invest, the only way to attain modest financial goals will likely be to live below your means and save painstakingly.

      Essential Elements Are:

      Learn to diminish your fear of investing and losing money.

      Learn why the stock market eventually reaches new highs.

      Save consistently to invest over the long-term.

      Develop a Personal Investment Plan.

      Learn why stocks will quite probably generate a meaningfully higher long-term total rate of return than bonds or cash, but will inject considerably greater volatility.

      Expect realistic total rates of return for stocks, bonds, and cash (money market funds and Treasury Bills).

      Evaluate realistically your tolerance for risk and volatility. As you will learn, investors’ interpretations of risk and volatility can differ.

      Regard investing as a lifetime commitment rather than a series of one, three, and five-year efforts to outperform the market. Be patient and disciplined, and exercise fortitude.

      Insulate yourself from the media’s detrimental forecasts. Commentators can create fear and uncertainty. Stock market forecasts are the least valuable thing to heed.

      Focus on the four of five elements you control that will determine how much you could make.

      Recognize that your asset allocation, which is the percentage distribution of assets among stocks, bonds, and cash, will determine your lifelong total rate of return and your portfolio’s volatility.

      Diversify among stocks, bonds, and cash, and within each category.

      Make time your ally. Hold stocks for the long-term to increase the probability of earning a positive return and benefitting from tax-deferred compounding. It will help achieve your financial goals and prevent fear from disrupting a long-term investment plan.

      Recognize that tax-deferred compounding is the most crucial construct for a taxpaying individual. Tax-deferred compounding earns a return on money that otherwise would have been paid as taxes.

      Invest primarily in well-diversified equity index funds to benefit from tax-deferred compounding and paying miniscule expenses. It is imperative to keep taxes, fees, and expenses as low as possible.

      Reinvest dividends. Subsequent increases and compounding will maximize your total return.

      Rebalance your portfolio when appropriate, but especially when the equity market has declined significantly. Rebalancing is restoring your asset allocation to the predetermined percentages.

      Avoid market timing and trading. These maneuvers are inherently speculative and will diminish your long-term return.

      Dollar-cost average often by investing equal amounts at specified intervals.

      Maximize contributions to tax-deferred retirement accounts such as Roth, employer 401(k) and 403(b), and IRA, educational 529 College Savings Plans, and for medical expenses.

      Assess carefully when to sell.

      Learn about the inextricable link between corporate profits, interest rates, expectations for inflation, valuation, and the financial markets.

      I’ve tried to keep my writing straightforward and neither overly academic nor too simplistic. My criterion for inclusion in this book is what you need to know to invest successfully. I, for example, only took introductory Economics 101 and 102 during my freshman year and never studied other courses in economics, business, or investing. So, my goal in writing this book is to pass along to you what I have learned over several decades.

      On a personal note, Peter S. Kraus, former Co-Head of Goldman Sachs Investment Management Division, once asked why I spent so much time with clients instead of only researching companies. I told him my goal was to teach. Likewise, my goal here is to teach you how to take responsibility for your investments. This is my course for you about how to invest.

      I feel fortunate to be especially qualified to write this book due to my training, professional career, and experience of investing through Vanguard subsequent to retiring fifteen years ago as a Partner in the Investment Management Division. My 33 years at Goldman Sachs began as a research analyst in the Investment Research Department, becoming a Vice President, a member of the Stock Selection Committee, the Director of Private Client Investment, a Managing Director, and Partner. As a research analyst I studied companies

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