Millennial Money

Millennial Money Plot Summary

Introduction

Time is the greatest wealth-building asset you possess right now. As a young investor, you have an extraordinary opportunity that no amount of money can buy later in life: decades of compounding returns ahead of you. This advantage is so powerful that even modest investments made now can grow into substantial wealth over time. Yet this opportunity is often squandered. Many millennials delay investing because they're intimidated by market volatility or believe they need more financial knowledge before starting. The truth is that youth offers you unprecedented financial leverage. A single dollar invested in your twenties can grow to fifteen dollars by retirement, while waiting just ten years cuts that potential growth in half. This book explores exactly how to harness your youth advantage and transform small, consistent investments into significant wealth. You'll discover why the traditional financial wisdom often fails young investors, how to build a global portfolio that outperforms the market, and most importantly, how to overcome the psychological barriers that prevent most people from achieving financial independence. The strategies and principles outlined here were once available only to financial elites but are now accessible to anyone willing to take action.

Chapter 1: Harness the Power of Youth and Time

Compounding returns represent the most powerful force in wealth creation, and youth gives you unprecedented access to this mathematical miracle. The essence of this advantage isn't complicated: investments generate returns, those returns generate their own returns, and this exponential growth accelerates dramatically over time. It's like a snowball rolling downhill, gathering more snow and momentum with each passing year. Consider the story of Liam and Grace, two fictional millennials with similar incomes who took very different approaches to investing. Liam, influenced by watching his parents lose their house during the financial crisis, avoided stocks entirely. He waited until age 40 to start saving seriously, keeping everything in "safe" bonds and savings accounts. Grace, meanwhile, began investing small amounts in the global stock market at age 22, continuing through market crashes and periods of uncertainty. By retirement at age 68, their financial situations diverged dramatically. Despite saving over $2 million, Liam's purchasing power had been severely eroded by inflation. The modest apartment he wanted to buy would have cost $300,000 in 2014 but now cost $1,750,000. Grace, having allowed compounding to work its magic for decades longer, had built a fortune that allowed her to split time between homes in New York, Montana and Tuscany. This dramatic difference stemmed from just two early-life decisions: when to start investing, and what to buy. The mathematics behind this are striking. If you start investing $10,000 annually at age 22 earning the market's historical 7% annual return, you'll have $4.7 million by age 65. Wait until 30, and that drops to $2.5 million. Wait until 40, and you'll accumulate just $1 million. Neither higher investment amounts nor superior returns can fully make up for lost time. If the 40-year-old investor managed to earn 10% annually (an exceptional performance), they'd still only reach $1.8 million - less than half of what starting at 22 would produce. The power of compounding becomes even more evident when examining longer timeframes. While the early years may show modest dollar gains, the later years deliver exponential growth. This is why Warren Buffett, who made his first stock purchase at age 11, didn't become a billionaire until age 60 despite his investing brilliance. Had he started at 40, he might never have reached that milestone. To capture this potential, commit to investing consistently through automatic contributions, starting with at least 10% of your income. Increase this percentage whenever possible. Remember: when it comes to building wealth, time is your most valuable and irreplaceable asset.

Chapter 2: Go Global: The World is Your Investment Playground

Global investing represents one of the most powerful yet underutilized strategies for building wealth. At its core, global investing means looking beyond your home country to build a portfolio that captures opportunities worldwide. Most investors suffer from "home country bias," keeping the vast majority of their investments in familiar domestic companies. American investors typically allocate 72% of their portfolios to US stocks despite the US representing only 43% of the global market. This provincialism severely limits both returns and diversification. The Japanese market illustrates the danger of home country concentration. In the late 1980s, Japan's Nikkei index was dominating global markets, rising 500% in a decade. Japanese corporations were buying landmark American properties, and many believed Japan would overtake the US economically. If a Japanese investment book had been written then, it would have encouraged readers to invest heavily in the seemingly unstoppable Japanese market. But in 1990, the Nikkei crashed and never recovered - it remains 44% below its 1989 peak even decades later. A Japanese investor who followed this domestic-focused advice would have lost nearly half their money over 24 years, while a globally diversified investor would have earned a 326% return. Similar catastrophic losses occurred in Germany between 1900-1948, when the stock market lost 92% of its value through two world wars and hyperinflation. During this same period, fourteen other major country markets delivered positive returns, and the average across all markets was a gain of 918%. History repeatedly demonstrates that countries, like companies, rise, flourish, and fade. No single nation maintains economic dominance forever. Beyond risk reduction, global investing provides several other advantages. Foreign investments offer protection against a weakening home currency. When you own international stocks, you gain both from the stock's performance and from changes in currency exchange rates. Since 1970, this currency effect added an additional 1,433% to returns for US investors in global stocks. Global investing also dramatically expands your opportunity set - in the MSCI All Country World Index, 75% of available stocks are located outside the United States. Fortunately, technology has eliminated the barriers that once made international investing difficult. You can now easily buy stocks from 45 different countries through US exchanges or through global index funds and ETFs. Look for products tracking the MSCI All Country World Index as a starting point for building your global portfolio. The millennial generation has grown up during a remarkable shift in global relationships. As barriers between nations have fallen, opportunities for global investment have expanded. Companies now operate globally regardless of where they're headquartered. In this integrated world economy, confining your investments to one country makes no more sense than limiting yourself to one industry. A truly global portfolio reduces risk, improves returns, and protects against currency devaluation - making it an essential strategy for building long-term wealth.

Chapter 3: Be Different: Why Standing Out Beats Following the Crowd

Being different from the crowd is the fundamental secret to outperforming the market. The dominant trend in modern investing is toward passive index strategies that simply match market returns. While this approach has merits, truly exceptional performance requires building portfolios that diverge significantly from popular indexes. The essence of this approach isn't merely being contrarian for its own sake, but rather adopting specific, proven strategies that the majority of investors overlook. When I began my career in money management in July 2007, just before one of history's worst market crashes, I quickly learned how difficult being different can be. Our firm's flagship strategy, which differed substantially from the overall market, fell 60% during the crisis - worse than the market's 50% decline. In one memorable meeting, a client called me a "limp dick little asshole" and refused to look me in the eye. Many clients fired us after this underperformance. Yet by maintaining our approach through this adversity, the strategy rebounded spectacularly, gaining 347% from the 2009 market bottom through 2013, far outpacing the market's 179% return. Bill Miller, a famous investor, experienced a similar pattern. After beating the market for 15 consecutive years from 1991-2005, his funds collapsed in 2008, falling 55-65%. Assets under management plummeted from $16.5 billion to $4 billion as clients fled. Yet his Opportunity Fund subsequently gained 223% - nearly double the market's 128% return. These experiences demonstrate that outperformance requires enduring periods of underperformance. The problem with traditional market indexes is their construction methodology. They weight companies based solely on size - the bigger the company, the more influence it has on the index's performance. This approach is fundamentally flawed because bigger doesn't mean better in investing. A fascinating experiment reveals this weakness: if you simply bought all large US stocks that start with the letter "C," you'd have outperformed the S&P 500 by 0.5% annually since 1962. This random selection works because it avoids overconcentrating in the largest stocks. Two illuminating strategies further demonstrate this principle: Sector Leaders versus Sector Bargains. The Sector Leaders strategy buys the largest stock in each economic sector - companies like Apple, Amazon, ExxonMobil, and Johnson & Johnson. Despite including these titans, this approach returned just 9.1% annually since 1962, underperforming the S&P 500 by 1% per year. In contrast, the Sector Bargains strategy, which buys the cheapest stock in each sector, returned 15.9% annually. This 6.8% annual difference compounds dramatically: $10,000 invested for 30 years would grow to $136,000 in Sector Leaders but $830,000 in Sector Bargains. Similar outperformance comes from strategies focusing on companies with shareholder-friendly practices (Sector Stewards), strong momentum (Sector Winners), high-quality earnings (Sector Stalwarts), and low volatility (Sector Steadies). Each has significantly outperformed both Sector Leaders and the overall market. Research confirms this advantage. Funds with the highest "active share" (meaning their holdings differ most from the index) outperform their benchmarks by 1.13% annually after fees, while the average fund underperforms. To capture this potential, seek out "smart index" strategies or concentrated portfolios built on factors like value, quality, momentum, and shareholder yield. Remember that being different will sometimes make you feel foolish during periods of underperformance, but the long-term rewards make this temporary discomfort worthwhile.

Chapter 4: Master the Art of Patience and Long-Term Thinking

The ability to adopt a long-term perspective represents perhaps the most critical skill for investment success. In our modern world, where instant gratification is the norm and attention spans are measured in seconds, developing patience has become increasingly rare and valuable. The essence of long-term thinking in investing isn't merely waiting longer - it's fundamentally reframing how you view time, risk, and opportunity. Jeff Bezos, Amazon's founder and one of history's most successful entrepreneurs, demonstrated his commitment to long-term thinking by investing millions in the "Clock of the Long Now" - a mechanical timepiece designed to run for 10,000 years inside a West Texas mountain. This clock ticks once per year, with the minute hand advancing once per century and the cuckoo appearing only at each millennium. As Bezos explained, "As I see it, humans are now technologically advanced enough that we can create not only extraordinary wonders but also civilization-scale problems." This perspective stands in stark contrast to most investors' focus on days, weeks, or months rather than decades. The famous "marshmallow experiment" conducted by Walter Mischel in the 1970s illustrates the power of delayed gratification. Children ages 3-5 were offered one cookie immediately or two cookies if they could wait 15 minutes. The children who successfully waited for the second cookie later demonstrated higher SAT scores, were more likely to complete college, maintained better physical health, and earned higher incomes. Similar behavior patterns emerge in investing. Most people irrationally prefer immediate rewards over larger future ones, requiring approximately $60 in one year to forgo $15 today - an implied 300% annual return that never happens in markets. Brain scans reveal why this occurs: immediate rewards activate our emotional limbic system (our "monkey brain"), while delayed rewards engage our prefrontal cortex (our rational, uniquely human brain region). This explains why the American Association of Individual Investors survey showed perfect mistiming: investor allocation to stocks reached its highest point (77%) in January 2000 at the peak of the internet bubble, and its lowest point (41%) in March 2009 at the exact market bottom. This short-term focus leads to dangerous misunderstandings about risk. Many investors define risk as short-term volatility, leading them to favor cash and bonds over stocks during market declines. This approach is precisely backward. While stocks are indeed riskier than bonds over one-year periods (experiencing negative returns 31% of the time versus 36% for bonds), this relationship reverses completely over longer timeframes. Stocks have never had a negative return over any 20-year period, while bonds lose money in nearly half of all 20-year periods. Even investors who purchased stocks at the worst possible time - immediately before the Great Depression - made money after 20 years. The Millennial Money strategy displays the same pattern: potentially losing to the market by 5% in some months, but outperforming by at least 6.5% annually over every 20-year period. This explains why professional investors often underperform despite their sophisticated training - they face intense career pressure based on short-term results, forcing them to prioritize avoiding immediate underperformance over maximizing long-term returns. This creates an advantage for individual investors who can withstand temporary periods of poor performance. To cultivate long-term thinking, limit how often you check your portfolio (once yearly is sufficient), ignore financial news, and remember that markets inevitably recover from downturns. When making decisions, ask yourself: "Looking back on this decision in ten years, will I believe I made it for my long-term financial wellbeing, or in response to short-term market circumstances?" As Abraham Lincoln wisely noted, "And this too, shall pass away" - a reminder that both market panics and exuberance are temporary, while the compounding of returns over decades is permanent.

Chapter 5: Overcome Fear and Greed: The Emotional Battleground

The battle between fear and greed represents the most treacherous terrain on the path to investment success. These primal emotions, hardwired into our brains through millennia of evolution, create powerful biases that lead even sophisticated investors astray. Understanding the neurological basis of these tendencies is the first step toward conquering them. During a walking safari in Botswana's Okavango Delta, I experienced firsthand how heightened vigilance becomes when faced with potential danger from lions, elephants, and hippos. This instinctive caution, which anthropologist Jared Diamond calls "constructive paranoia," served our ancestors well. Traditional peoples like the !Kung of the Kalahari prioritize avoiding relatively rare dangers, like falling trees or poisonous snakes, because in the wild, a single mistake can be fatal. Modern neuroscience confirms we process negative information faster and more deeply than positive information - we're approximately twice as sensitive to financial losses as to equivalent gains. This loss aversion has devastating consequences for investors. In a remarkable study led by Stanford researcher Baba Shiv, participants with damage to their brain's emotional centers (specifically the amygdala and insula) significantly outperformed those with normal brains in an investment game. The "normal" participants invested just 58% of the time and earned $22.80 on average, while those with emotional brain damage invested 84% of the time and earned $25.70 - outperforming by 14.5%. After experiencing a loss, normal participants invested just 41% of the time despite the positive expected value of doing so, while the brain-damaged group maintained their rational strategy, investing 85% of the time after losses. This explains why investors poured money into bonds and fled stocks after the 2008-2009 financial crisis. Between March 2009 and September 2013, they purchased nearly $1 trillion of "safe" bond funds while selling $200 billion of "risky" stock funds. During this period, stocks gained 130% while bonds grew just 16%. Investors weren't responding to rational analysis but to the psychological discomfort of uncertainty - studies show people will accept guaranteed pain over uncertain pain, even if the guaranteed option is objectively worse. While fear is the stronger emotion, greed creates equally dangerous distortions. Brain scans reveal that anticipating financial gains activates the same neural pathways as cocaine use and sexual activity. Dopamine, the brain's reward chemical, peaks not when we receive rewards but when we anticipate them - and uncertainty magnifies this effect. This explains why market bubbles form repeatedly throughout history despite their predictably disastrous conclusions. The South Sea Bubble of 1720 saw stocks rise 640% in six months before collapsing. During our lifetimes, we've witnessed at least five similar manias: the Japanese Nikkei (1980s), technology stocks (late 1990s), real estate (mid-2000s), gold (2011), and Bitcoin (which rose 11-fold in just 120 days before crashing). Each featured a compelling narrative, exponential price increases, and eventual collapse that devastated investors who succumbed to the fear of missing out. Individual stocks with extremely high valuations (P/E ratios above 100) demonstrate the same pattern. Despite requiring impossibly sustained growth rates to justify their prices, these stocks attract investors seduced by their exciting stories. Since 1963, such high-P/E stocks have returned just 5.1% annually - half the market's return. The solution isn't attempting to eliminate these emotions but recognizing and circumventing them. As investment legend John Templeton observed, "Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." When you feel powerful emotional pulls toward action, remember the Zen advice: "Don't just do something, sit there." By sticking to automatic, regular contributions and your disciplined investment strategy, you'll naturally buy more shares when prices are low and fewer when they're high - achieving success through the middle path between fear and greed.

Chapter 6: Build Your Million-Dollar Strategy

Building genuine wealth requires both effective strategy and consistent execution. Like many ambitious projects, the formula for success combines superior methodology with unwavering persistence. The two elements are inseparable - even the most brilliant investment approach fails without disciplined implementation, while dogged persistence using flawed methods leads nowhere. My personal journey with habit formation illustrates this principle. After college, I gained 35 pounds from my sedentary office lifestyle. For years, I'd start fitness regimens in January only to abandon them months later. Frustrated by this cycle of failure, I created a public "one-year pledge" website, recruiting friends and family to join me in committing to specific daily habits: avoiding certain foods without exception, exercising three times weekly, abstaining from alcohol for set periods, trying new experiences monthly, and regular charitable giving. When the year ended, I discovered these practices had become so ingrained that I couldn't revert to my old ways - the consistency had transformed my identity. Jerry Seinfeld followed a similar approach to comedy writing. Rather than relying on sporadic inspiration, he developed a simple system: mark a red X on the calendar for each day he worked on his routine, creating a visual chain he refused to break. This consistent daily practice, not just raw talent, produced his extraordinary success. Investment strategies similarly require consistency to succeed. Even proven approaches experience periods of underperformance that tempt investors to abandon them. Studies reveal professionals struggle with consistency - 53% of mutual fund managers changed styles within just five years. Researchers examining judgments by radiologists, auditors, and psychologists found they contradict their previous assessments approximately 20% of the time when evaluating identical cases. As psychologist Daniel Kahneman explains, "Unreliable judgments cannot be valid predictors of anything." Checklists offer a powerful solution for maintaining consistency. Surgeon Atul Gawande describes how a five-item checklist for central-line insertions (wash hands, sterilize skin, use sterile drapes, wear protective gear, sterilize insertion point) reduced infection rates from 11% to zero in a single hospital, preventing eight deaths and saving $2 million. Similar discipline transforms investment results. Benjamin Graham, Warren Buffett's mentor and value investing's founder, created one of investing's most famous checklists in his 1949 book The Intelligent Investor. His criteria for "defensive" stocks included P/E ratios below 15, price-to-book ratios below 1.5, short-term assets exceeding debts, manageable long-term debt, and growing profits. Testing shows stocks meeting these criteria have outperformed the market by 4.7% annually - turning $10,000 into $716,000 over 30 years versus $136,000 for the market. Building on Graham's foundation and modern research, the Millennial Money strategy combines five key factors into a comprehensive checklist: 1. Shareholder-friendly practices: Companies returning cash to investors through dividends, share repurchases, and debt reduction outperform "empire builders" who aggressively expand or make questionable acquisitions. These "stakeholder stewards" have delivered 15.4% annual returns versus just 5.4% for companies rapidly growing capital expenditures. 2. Return on invested capital: Businesses earning high returns on their investments (above 30%) demonstrate superior management and competitive advantages. The top 10% of companies by this measure have outperformed the market by 2,350% over 30-year periods. 3. Earnings quality: Companies whose reported profits match or are exceeded by their cash flows avoid accounting manipulation. Research shows 78% of financial executives admit to sacrificing shareholder value to meet quarterly earnings expectations, often by cutting research, advertising, or maintenance. Focusing on companies with strong cash flow relative to earnings identifies genuine profitability. 4. Attractive valuation: Price remains the most crucial factor - even excellent companies become poor investments when overpriced. Enterprise-value-to-free-cash-flow ratios below 10 identify companies trading at reasonable valuations relative to their real economic productivity. 5. Positive momentum: Stocks with strong recent performance (top 75% of the market over the previous six months) tend to continue outperforming. This "second mouse gets the cheese" approach identifies value stocks the market is beginning to recognize. Companies meeting all five criteria have grown at 19.95% annually since 1973 - nearly double the market's return. This translates to $10,000 growing to $2.35 million over 30 years, twelve times what a market index fund would produce. While implementing this strategy requires some effort using screening tools from services like AAII, Portfolio123, or Bloodhound Systems, the exceptional returns justify the investment. The most important element remains consistency - rebalancing annually while resisting the temptation to abandon the approach during inevitable periods of underperformance. By combining disciplined execution with proven selection criteria, you can achieve results far beyond what conventional wisdom suggests is possible.

Summary

The financial landscape facing millennials presents both unprecedented challenges and extraordinary opportunities. While previous generations could rely on defined benefit pensions and generous Social Security benefits, today's young investors must largely create their own financial security. Yet this generation possesses advantages no previous one enjoyed: easy access to global markets, powerful screening tools for identifying superior investments, and decades of compounding returns ahead. As Warren Buffett wisely observed, "Someone's sitting in the shade today because someone planted a tree a long time ago." This perfectly captures the essence of millennial investing - small actions taken now create exponentially larger results in the future. Your greatest asset isn't money or knowledge but time itself. Even modest investments made consistently throughout your twenties and thirties will outperform much larger contributions started a decade later. The path to financial independence isn't complicated, but it does require overcoming both external obstacles and internal barriers. By going global with your investments, constructing portfolios that differ meaningfully from popular indexes, and developing the emotional discipline to maintain your strategy through market turbulence, you can build wealth beyond what conventional advice suggests is possible. Remember that "in the stock market, time and patience are the most powerful warriors." Your investing journey begins with a single step - opening an account, setting up automatic contributions, and implementing a strategy you can maintain for decades. The future millionaire looking back at your decision to start today will thank you.

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Patrick O'Shaughnessy

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