My Investment Thoughts

This is not really related to running a small business, but a big part of starting my own business is the possibility of becoming financially independent at a reasonably young age, which involves investing the proceeds from the business in a non-terrible way. So I am writing down my thoughts on this step here, mainly so I might look back at it in the future with the benefit of hindsight and possibly laugh at my naivety.

I have two Axioms (ground-truths) which guide my investing:

• Companies are money-making machines: Companies create value and make money by creating goods and/or providing services that the rest of society is willing to pay for. So, in the long run, it is my belief that it is better owning (parts of) companies than sitting on cash or buying other hard assets like gold, since, on average, companies will provide a dividend, while hard assets will not.
• Companies regularly get wrecked: Capitalism is a cruel mistress. There are a thousand reasons that a company might lose their competitive edge and stop making money. They might get outcompeted and be unable to transition into a new market. The basis for their product might literally disappear. Management might mismanage the company into the ground, or run with all the money. The demise of a company might be fast, or it might be slow, and then fast. Even the biggest companies in the world eventually go into decline. Just look at most valuable company lists through the decades. Not a lot of overlap from decade to decade. Even Amazon will die eventually. Even Apple.

These axioms point towards broad index investing, which is what I do. I invest (almost) all my money in ACWI (All Country World Index) funds, such as IUSQ, while trying to keep expenses as low as possible. I generally invest income as soon as I can, while keeping buffers at various places for my day-to-day needs.

This is not passive investing. It is passive equity investing. For me to be a truly passive investor, I would need to be in all asset classes, like bonds, gold, crypto, real estate, you name it. But I believe, in the very long run, the stock market is the place to be.

There are plenty of reasons to be pessimistic about the stock market returns in the coming century. Climate change is coming and will possibly be quite value destructive (not to mention cause incredible human misery). The world population is plateauing in every continent (except Africa, where population is projected to increase well into 2050). The stock market has never been in a world where the population is not increasing. Unbounded growth is obviously impossible.

I, however, am cautiously optimistic about the stock market returns in the next century (beyond that it doesn’t really matter to me what happens). AI and other technical advancements will continue to increase productivity. Solving climate change will make some companies a lot of money. The world population may be plateauing, but the rest of the world will still want to get to the quality of life level that we enjoy in the west, and vast markets with untapped economic potential still exist, like Africa and parts of Asia. Even if we get to a version of humanity where everyone has mostly what they need and don’t desire much more (I’ll believe it when I see it), companies will still be needed to provide their services, although the stock market growth we see would probably decrease to about inflation levels. It seems silly to mention this far in the future scenario, but my point is just that in almost every conceivable scenario, the stock market will still be a good place to be.

It is worth mentioning that my axioms would not exclude investing in real estate. I am not, though, because buying and renting out apartments would include a level of administration and risk that I would rather be without. I wouldn’t be opposed to investing in something like REITs (Real Estate Investment Trust), which is like a form of distributed real estate investing, but I would rather just keep things simple and invest in equities. I have bought an apartment though, which represents about half of my current net worth, so you might say that I am “invested” in real estate in that way, although I don’t view it as an investment, more a cost saving exercise.