David Merkel is the CFA & Principal of Aleph Investments, LLC and Aleph Blog. With a strong background in investment and financial expertise, David and Aleph Investments, LLC is known for "Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control."
David took the time to chat with us and share about investing, financial advice for young people and being debt-free.
What is your most basic advice on investing?
It comes down to three ideas:
1. Manage your cash right. Have an emergency fund of three to six months' expenses, but also use it to negotiate/gain discounts for upfront payment.
2. Avoid debt. Pay off your credit card bill in full every month. If you can't do that, cut up your credit cards.
3. Take moderate risk in investing. One of the dirty secrets of investing is that there is a sweet spot where risk and return are balanced. Beyond that point, taking more risk does not improve return on average. Average people are not designed to take high amounts of risk, so take moderate risk, stick with it, and you will do the best an average investor can do over time.
What can you tell young people to help them stay financially secure in their futures?
- Those who do best in life do not "follow their bliss." Instead, they facilitate the bliss of others. Look for how you can make most people happy, and there'll be a surprise at the end of the trail: not only will you be happy, but you will be well off.
- Work hard and give your employer your best. If there are any personal habits of yours that are keeping you from being a good worker, eliminate them now.
- Be a lifelong learner. Don't stop improving your skills.
- Try to think about the broader picture of what you are doing for the business. Try to understand the economics of the business that you work for; if you can marry technical knowledge to an economic understanding of the business, you will be vastly more valuable to your employer - and his competitors.
- Another way to phrase it is: Learn to think like an owner. There is a reason why a greater proportion of the economic benefits of life go to those who structure production and service - that is the hardest part of all economic activity.
- Defer gratification. Focus on making your future secure before focusing on fun.
- Analyze any career for how likely it is to be technology by software or outsourcing to a foreign country facilitated by technology. Don't spend a lot of money training yourself for a career that is likely to go away.
How can a potential investor go about finding the best investment professional to work with for his or her individual needs?
Talk to a variety of people 15 years older than you who are successful and that you would like to emulate. See what they are doing, and ask for referrals to those they use to structure their finances.
Alternatively, become an associate member of your local CFA [chartered financial analyst] or CFP [certified financial planner] society for a year - it's not expensive. Go to a few of their lunch presentations. Talk with a few of them to get a view of who they think, aside from themselves, would be good for filling your need. Do not let them pitch you on themselves or the firm they work for; you want to work with someone who is well respected by their peers.
Please explain how being a good investor and a good businessman go hand in hand.
Buffett said, "I am a better investor because I am a businessman, and a better businessman because I am an investor." The two skills go hand in hand. A good businessman estimates what a given business or project can return on the investment, and then runs the company to achieve that. A good investor does the same thing, except he typically buys fractions of businesses and not the whole company, and does not run the company. Because he does not run the company, he can gain the advantage of diversification and invest in multiple companies, at a loss of focus.
My mother taught me the rudiments of investing when I was little. She would tell me bits of what she was doing, and we would watch Wall Street Week together. My dad indirectly taught me the rudiments of business. I watched him as he did the work of billing and estimating for the projects that he did for others. I talked with those who employ him when they would call our house on the phone. Finally, I worked with him for two summers.
All of this stood me in good stead when I began my business three and a half years ago, because it is not easy running your own business.
What is your favorite part of your job?
Making good money for clients; when I don't make good money for clients, I am not happy.
You clearly do a lot of reading, as seen from your book reviews. What other genres of books do you enjoy?
As you note, I've written a lot of book reviews in the areas of economics, finance and investing. Understanding those areas well requires a lot of understanding of many fields of study. I like reading almost everything, and on the web I read a great deal.
As for books and other areas, I will read books on history, mathematics, science, political science, theology and much more. At present, the non-business book I am reading is A Body of Divinity, by Thomas Watson.
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