I've been blessed with three amazing kids. As their father, I feel compelled to not only protect and provide for them during their childhood, but also to help them learn how to provide for themselves when they reach adulthood.
I've also been very fortunate to spend several years as an analyst at The Motley Fool, where I have had the pleasure of working beside and learning from some of the best investors in the world, including David and Tom Gardner.
Along the way I've learned some foundational principles that have guided my professional and personal investing strategy. They helped me achieve market-beating results in Tier 1, the real-money portfolio that I manage for the Fool, and even helped my family and I purchase our new home.
The following 10 core investment (and life) lessons comprise some of the most important aspects of my Foolish education and form the foundation of what I hope to pass on to my children in the years ahead.
1. Investing in stocks is one of the best ways to build lasting, long-term wealth.
Cases can be made for achieving wealth through real estate or the creation and ownership of private businesses, but few asset classes have a track record of wealth creation as solid as public stock ownership, especially on a real (inflation-adjusted) basis.
2. Stocks represent an ownership stake in a real business.
Stocks aren't just pieces of paper or flashing blips on a computer screen. They're a legal claim on the current and future cash flow of a business and should be treated as such. When viewed through this lens, the fundamental drivers of long-term investing success become more clear and easier to grasp.
3. As such, buy shares in the best businesses you can find.
This is the foundational principle of Tier 1, where I seek out and invest in the world's elite businesses. In fact, I usually begin my Tier 1 buy alerts with this quote from legendary investor Charlie Munger:
"And, by the way, the bulk of the billions in Berkshire Hathaway has come from the better businesses. ... And most of the other people who've made a lot of money have done so in high-quality businesses."
These include companies with the strongest competitive advantages, largest growth opportunities, and best management. They are the innovators, disruptors, and best of breed. These businesses are ... Tier 1. And they tend to create tremendous wealth for their shareholders as they lead the world forward.
4. Buy stocks with the intent of holding them for as long as you possibly can.
Warren Buffett has said his "favorite holding period is forever." Here at the Fool, Tom Gardner has implemented a minimum five-year holding period requirement in his Everlasting Portfolio, because he, too, is a big believer in the power of long-term stock ownership. While I don't impose that restriction on myself in Tier 1, I do strive to only purchase stock in businesses that I plan to hold for years -- and potentially even decades -- to come. I'm talking about outstanding businesses such as Amazon.com (NASDAQ:AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), and Disney (NYSE:DIS). These companies have dominant competitive advantages that provide a wide moat around their cash flow, yet they still have tremendous runways for growth. They are all core positions in Tier 1 today, and I wouldn't be surprised if they form the foundation of my children's portfolios decades from now.
5. Winners tend to keep on winning.
This is another core tenet in Tier 1, and another valuable lesson I learned from Tom and David Gardner. I like to invest in companies and management teams with proven track records of success. That's because I believe past success is one of the best indicators of future success. It certainly is not a guarantee, but I believe winning is a habit. The confidence and momentum achieved from past and current wins tends to pave the way for further risk-taking. Not blind risk predicated on arrogance, but prudent, calculated risks based on optimistic and opportunistic bets on a brighter future.
6. Strive to buy these great companies early in their growth cycles.
The earlier you invest in a great business, the more you can profit as other investors catch on to the company's success. This is where fortunes are made, where the 10- and even 100-baggers are found. I have achieved multibagger returns in CAPS with several stocks, including 1,000+% gains in Apple (NASDAQ:AAPL) and Baidu (NASDAQ:BIDU), and it's a major goal of mine to find more of them going forward in Tier 1 so that I can help more people achieve these types of market-crushing -- and potentially life-changing -- returns.
7. Make your portfolio your best expression of the world.
David Gardner once urged me to "Find out where the world is going, and get there as soon as possible." Your portfolio should reflect your passions, interests, field of study, and/or profession -- this is where your edge lies. But most of all, your portfolio should be positioned according to your vision of the future, and the more optimistic, the better.
8. Never stop learning.
To have an informed opinion of where the world is going, we should seek to expand our horizons and circle of competencies beyond investing and even business, to include a wide array of disciplines such as psychology and the sciences. For the market moves not solely on others' rational thinking, and is often swayed by the biases and other intricacies of human behavior. Each day, I strive to learn more about the world in which we live. I hope you'll do the same.
9. Never quit.
There will be times when you throw up your hands in frustration and question whether it's worth all the trouble. Seemingly irrational short-term volatility and vicious bear market declines tend to be brutal on high-quality yet often premium-priced businesses. These difficult market times can play havoc on your emotions. However, the only way to win is to stay the course through the inevitable downturns. Steel yourself with the knowledge that this, too, shall pass, and that your best-of-breed businesses will likely emerge from the rubble even stronger as they take share from weaker rivals. As such, learn to look at these sell-offs as opportunities to add to your positions at even better prices, and you will magnify your long-term gains.
10. Use for good the tremendous wealth these principles will help you create.
Along with investing in businesses that lead the world forward, strive to have a positive impact on the world around you. Help others. Donate what you can to worthy causes. And pass on what you have learned, as I have attempted to do here.
On that note, I'd like to ask all the Fools reading this article to list the lessons you would like to pass on in the comments section below.
And lastly, to my children, know that Daddy loves you -- now, and always.
The Motley Fool recommends Amazon.com, Apple, Baidu, Google (A shares), Google (C shares), and Walt Disney. The Motley Fool owns shares of Amazon.com, Apple, Baidu, Google (A shares), Google (C shares), and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.