A guide to FIRE: Financial Independence, Retire Early šŸ–ļø

Investing and Markets šŸ“ˆ
21

Lol, this thread reminds me of the Stanford marshmallow test. Funny.

Matt

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22

Nice :smile:

For anyone thatā€™s not come across it before -

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The kids who can delay gratification, or even better, forego gratification, lead a much happier life. The ones who canā€™t, live paycheck to paycheck and end up becoming dependent on others when times turn bad.

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24

You have kids? Coz theory is a wonderful thing

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25

A really good well written post. I try to advise everyone to do this, even if its Ā£50 a month. A lot of people struggle to grasp the idea of compounding interest :grimacing:

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26

Great read. Highly recommend the MMM blog as a starting point for anyone interested in FIRE:

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27

If you want to retire early off the stock market, you needā€¦

  1. Good starting yield on a dividend stock, above 4% is good. Above 5% is better. Donā€™t chase high yield, as that usually means a dividend cut is likely. If a stock is yielding 10% +, either the market is completely wrong or sooner or later the dividend will either be cut or suspended.

  2. Look for good dividend growth, 7-10% a year is good. Depends on how fast a company can grow EPS and how much of earnings are needed to grow the business as opposed to paying shareholders.

  3. Look for dividend cover above 1. Very important, dividend cover below 1 is an indication the majority of earnings are going to shareholders. This means a recession (where EPS drops 20-25%) may result in a dividend cut or suspension.

  4. Look for a history of steady dividend payments, where each and every year the dividend is growing (other than recessions).

  5. Reinvest dividends and keep doing it.

Dividend Aristocrats is the name to google for companies like this.

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Yes there is :boom: Stocks to invest in - 6,000+ US, UK and European stocks to buy

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30

There is a S&P Dividend Aristocrats fund, though if you can stock pick the better companies based on those criteria, you will do even better. The problem with funds I find is you own a lot of companies, at prices you may not like and get average returns. The alpha is created by having a small portfolio, bought at good prices (margin of safety) and held for a long time.

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32

I am, but since I only woke up to investing very recently, my ā€œearlyā€ wonā€™t be that far off normal. But Iā€™ll take what I can get :wink:

I plan to buy a dream home - a home I can die happy in - and clear my backlog of computer games :smile:

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33

Nor can most people or investment pros reliably locate it, as weā€™ve discussed elsewhere :slight_smile:

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34

Yes, because most people donā€™t have degrees in finance. I only know half of those things from my masters in finance. Though you donā€™t really need to know those things. The two things you do you need to know is:

  1. How to value a business
  2. Margin of Safety

Basically it means buy quality businesses when they trade far below their fair price. The price provides the margin of safety, since we canā€™t predict earnings growth with certainty, what we can do is purchase at a price where Mr Market canā€™t punish us.

To select good businesses we need to be able to read financials, so looking at assets, debt, dividend policy. We also need to look for strong, able and honest management, too many accounting frauds have ruined the best of companies. We then sit and hold for a period of decades, reinvesting earnings as we go along.

You work within your circle of competence, buy businesses you understand at prices you like. That is the essence of investing.

I highly suggest you read Chapter 8 and Chapter 20 of The Intelligent Investor by Ben Graham, itā€™s online as a pdf for free.

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35

Awesome - thatā€™s the dream!

36

A useful book (but not a light read)! The edition I read also promoted the merits of ETFā€™s. I think a mix of ETFā€™s & individual stocks is a sensible approachā€¦

Great write up! I really like the financial independence part of FIRE, thatā€™ll be a lot sooner than early retirement :+1:t3:

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38

Iā€™d go further and say that, while it may be a nice theory, in practice it doesnā€™t matter how smart you are. And that actually the problem isnā€™t people believing - correctly - that they arenā€™t smart enough for it, but people believing that they are smart enough for it when theyā€™re not. Financial professionals with the masters in finance and what not are not able to create a consistent edge over the market over time.

If this was really a learn-able, applicable skill that gave you an edge, everyone in the market would have learnt and applied it: which means no one would have an edge anymore.

Thereā€™s an argument to be made that maybe the acolytes of Graham and Doddsville were able to get that edge in the past (doing things that it is impossible for normal retail investors to do).

But for every Buffet wannabe who applies the advice and gets (temporarily) lucky, thereā€™s one who applied it and got unlucky. So youā€™re better off sitting in the middle tracking the index that those people are trying (and most likely failing, after costs) to beat.

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39

But with freetrade the costs are basically gone, other than stamp duty and PTM levy for large trades. You can trade in a size of Ā£10,000 and only have 0.5% stamp duty and the spread to make up. Stocks swing 5-10% weekly, so itā€™s fair game to make a couple of hundred pound a week doing this.

Personally I do not swing trade, since I invest for dividends, but I could very easily sell my whole portfolio and start swing trading with Ā£78,000 (which will not move the market whatsoever). I see a lot of Ā£100,000+ trades on the LSE order book, must be the big banks doing this. But I and many others would be happy to collect a few percent off a Ā£100,000 every week for sure.

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40

I recommend also anything Howard Marks has to say.

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41

I really want to know why Freetrade didnā€™t focus on indexing. If their target audience is new investors, picking individual stocks is very dangerous. The only thing worse is options trading.

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42

But there are plenty of index ETFs, eg S&P500, FTSE100 etc to choose from. Itā€™s down to what the investors do with their money, put in index trackers or go for individual shares.

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43

I donā€™t disagree with the spirit of what you are saying.

I suspect itā€™s possible to learn how to calculate the liquidation value of a company. I suspect not many people will bother to learn and apply it. Even though as little number it may be they may become too many.

I think there is a set of questions one must ask her/himself. Not me. Not you. Not s/he. One. Which one? Every one.

Can I beat Michael Jordan or LeBron James at basketball?

Can I beat Ronnie Oā€™Sullivan or Stephen Hendry at snooker?

Can I beat Roger Federer or Serena Williams at tennis?

Imagine one buys a stock for Ā£10. One week after it trades at Ā£6. What to do now? How long will one be able to live with an unrealized loss?

And many other questions one should ask in order to self assess.

If one reaches the conclusion it canā€™t beat Jordan, Hendry or Williams in the fields where they are experts. And if one canā€™t sleep with price volatility (synonymous of risk and opportunity at the same time). And many other thingsā€¦ Then itā€™s ok. Thereā€™s no shame in it. Thankfully one can index. And by indexing one has been getting results aligned with the top 20% of professional money managers. Historically.

For most people indexing is a victory in itā€™s own right. A massive breakthrough.

Every once in a while the market misprices. Badly