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The Intelligent Investor’s Road to $1,000,000

At the age of 43, Tom retired from his 9-5 at Ford Motor through a combined effort of savings and stock market investments, although, on the day when he graduated college, he didn't have a penny to his name.

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Tom graduated from the University of Michigan - Dearborn at the age of 23. Like his father, he majored in mechanical engineering. He had landed a job at General Motors before even graduating, which everyone in his family applauded him for. Still, secretly Tom asked himself, "What's the big deal?". Tom had always felt like he wanted something different than his peers expected from life.

During the first weeks at General Motors, if anything, this feeling was strengthened. Tom met up with his supervisor, James, who had been with the company long enough to earn himself a golden watch. James seemed proud of his watch, but Tom couldn't help but think, "wow, he's still in the same place, doing the same thing as he did when he was my age". It seemed James spent his days doing what he had to do, not what he wanted to do. Tom recognized this because, during lunch, all James was talking about was wild boar hunting not improvements to the assembly line at General Motors. Tom had seen a similar pattern in his father, who loved going on hikes yet could only do so once every month due to his busy working schedule. Ironically, making money seemed like it was costing them too much.

This post will show you three stages that Tom went through to reach financial independence. You will see those different things are important at different stages, but please note one thing right from the get-go. If Tom hadn't been investing, had he tried to reach his magic number of $1,000,000 by only relying on his engineering paycheck, he would have shared this tale at the age of 57 instead of 43. By investing, Tom earned 14 years of the most significant currency in his lifetime.

You will learn what Tom focused on as a stock market investor, what he focused on outside the world of investing, and, perhaps most importantly, what he didn't do.

This is the Healthy Mind - Think Big, bringing you the best tips and tools for reaching financial freedom through stock market investing.

Stage 1: How Tom went from $0 to $20,000

This is really the "Getting Started" stage. Many of you have perhaps already reached this stage and beyond, and in that case, well done! Sit tight though - we will soon be at your current stage!

During a day at the library – Tom had been asked to pick up "1984" for his mother who was stuck in quarantine - he stumbled over a copy of The Richest Man in Babylon. Yes, literally stumbled. While eyeing a cute redheaded clerk he didn't watch his step, and he scattered books all over the floor. The backside of The Richest Man in Babylon read: "… an assured road to happiness and prosperity." Huh, maybe this was just what he needed. Tom borrowed the book. The redheaded clerk was still giggling at his clumsiness. How embarrassing. She was even more adorable up this close. Tom hoped he would meet her again. "Pay yourself first". The book advocated that Tom should pay himself 10% of his salary each month before doing anything else with his money. Clearly, this was what his supervisor James was missing – he didn't pay himself first. He paid Sitka, Nightforce, and American Airlines first! The more Tom got to know James, he realized that James didn't pay himself at all. Not that there was anything wrong with that, it just didn't seem like a good recipe to become independent from one's paycheck.

"All we have to decide is what to do with the time that is given to us." Now, this is the exact right thing to do during the first stage - Pay yourself first. The stock market is an excellent vehicle for making a decent chunk of money into a massive chunk of money. However, it is not ideal for enlarging only a tiny piece of money. This early on your road to financial freedom, you should deal with the stock market as you would with a Swedish "Smorgasbord"; have some eggs, a few meatballs, and maybe some herring. You can't theorize your way to what a meatball tastes like; you need to eat one. It's similar to stock market investments. If someone suggests you should invest without real money, on some simulator or something, tell them uh-uh. Do your best to steer clear of the fermented fish though.

Tom learned this the hard way. After reading The Richest Man in Babylon he went on to Robert Kiyosaki's book Rich Dad Poor Dad. He was pretty disappointed that he didn't bump into the cute redhead at the library, but at least he learned that the stock market is an excellent place where "Savings" can be converted into "Assets". Without any former investing experience though, he soon found himself reading speculative tips on various biotech companies on Reddit. It started off very well, with high initial returns. $5,000 became $10,000 in just a week. But before long, he experienced what could be expected of this approach. The little capital he had rapidly declined by 60%. The fermented fish for Tom was unprofitable-nano-biotech-companies. He had just fallen off the "peak of mount stupid" into the "Valley of despair" on the Dunning-Kruger curve.

Although Tom knew nothing about Warren Buffett yet, he had learned Buffett's most important rule: To never lose money. Actually, he had been so lucky that he learned Buffett's 2nd most important rule too: To never forget rule #1.

Even though the losses were staggering, percentage-wise, they were tolerable in terms of dollars. Tom replaced his losses within two months thanks to his salary. Unlike a colleague at work, who had gone all-in on a recently created crypto (and in that, had an entire can of fermented fish), at least Tom wasn't out of the game. But he realized that the stakes would rise as his savings accumulated and that mistakes would become increasingly expensive. Therefore, Tom decided to become a learning machine. Each time he had a meal at home, he would put up his favorite financial YouTubers on the screen. Each time he went for a walk, he would put on his favourite podcasts. Slowly but surely, Tom was moving out of the depths of the valley of despair.

Tom managed to go from $0 - $20,000 in almost exactly two years by: - Saving $1,000 from his paycheck each month, working as a junior engineer at General Motors - Losing something like $2,000 by investing in unprofitable-nano-biotech-companies; and - Losing $1,000 in brokerage commissions – yes– Tom was trading a lot, in the beginning, Tom can't be accused of having been a great stock-picker this early on, so it was really the savings that carried him the whole way. This time.

Stage 2: How Tom went from $20,000 to $100,000

When Tom began his third year at General Motors, his father wanted to have "The Talk" with him. No, not that talk! "Tom, your mother and I are impressed by your saving efforts. Do you want us to chip in an additional $10,000, and perhaps you could buy your own place?" A luxury and an opportunity, you might think, but you'd be wrong. This is a trap. Tom didn't know anything about Charlie Munger yet, but Munger would say: "The first rule of compounding is to never interrupt it unnecessarily."

Luckily, Tom did know about Robert Kiyosaki, who had written the book Rich Dad Poor Dad. And Kiyosaki said: "A house is a liability. You want to acquire assets." So, Tom politely declined the offer and kept his money in the stock market. What characterizes the second stage is that the stock market is no longer negligible. A good chunk of the $100,000 should originate from stock market returns – else you are doing more heavy lifting than necessary.

You might feel empowered by the fact that you are now a person with some means, as did Tom. But don't let this carry you away from your goal. So even though you can now afford a decent car and other more expensive materialistic stuff like maybe the down payment on a house, don't celebrate too much just yet. You don't want to hinder the effects of compounding now that it is just starting to catch some speed. By the time Tom was 27, he was highly interested and engaged in stock market company analysis. He very well remembered the results from his unprofitable nano-biotech speculation period a few years earlier and now only invested in what he understood and could perform a back-of-the-envelope DCF on. He did not try to make any brilliant or advanced investments, but instead followed Buffett's mantra; I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

Tom's phone rang. It was Steven, the top of the class from Tom's high school, who had moved on to graduate with a major in finance from The University of Pennsylvania. Tom, I've just bumped into an amazing investment opportunity. You see, it's this startup. They're like the Walmart of the metaverse! Interesting, where's their P/E at? Tom, are you joking with me? P/E? This is a startup! Well, when do you expect that they will start to make money? I don't know, does it matter? We will make a lot of money once they go public! I'm putting in fifty grand, how much do you want to chip in?

Tom trusted Steven and even looked up to him when it came to financing. But this seemed out of line with what people who had proven long-term success in the market advocated. Would Peter Lynch have jumped on this investment? "Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it." Hmm, it didn't seem like any idiot could run the Walmart of the metaverse. Alright, I'll chip in something smaller. Can I join with $500? Ha! $500? Wuss! During this time, Tom tried to "Not be stupid", as Charlie Munger would have said. Tom just did a few things that others didn't seem too interested in. He knew it wasn't "smart enough" for someone like Steven, but he picked up Google's stock when the company had a low P/E compared toits peers, some Microsoft on the same notion, and yep, some Walmart too. Price, price, price. He recognized that making mistakes would now be costlier and could set him back many months or even years on his road to financial freedom.

Tom also continued his learning regime. One day he was heading to the library again to pick up a copy of The Most Important Thing by Howard Marks. This time, he didn't just fall once, but twice. First – on the girl. Second – for the girl. It was the redheaded clerk again, and he tripped on her when he rounded a corner while she was sorting books on the lower bookshelves. You're quite the cat! Always landing on your … knees? she teased. Only seven lives to go! Did she remember him? Tom didn't know if that was good or bad, but he was reminded of how cute she was up close. From that day onward, he decided that reading is done best when done at the library. Peace and quiet, and, and …! Eventually, he dared to ask the girl, Sarah, for a date. They hit it off immediately. Sharing his interest in books and frugality, they would sometimes take turns reading aloud to each other. They called these dates "reading and chill", so one can imagine that they didn't just read about budgeting. However, that's where we stop imagining Sarah and Tom together because this is a PG-friendly channel about personal finance. Speaking about budgeting. Sarah was an orderly person, while Tom wasn't really. She was orderly about her expenses too, and it became their expenses when they moved in together. Tom was lucky in this regard, and this change helped him increase his savings rate. Sharing the rent on a home with someone was cost-efficient, too, even though they had to move to a slightly larger apartment.

Simultaneously, his responsibilities at General Motors grew - he was no longer considered a junior. Tom managed to increase his savings from $1,000 to $1,500 per month during this period. Also, he made quite average stock market returns of 10% per year, and together, this turned him into an owner of $100,000 on his 29th birthday. Charlie Munger says: Тhe first $100,000 is a bitch, but you gotta do it. I don't care what you have to do – if it means walking everywhere and not eating anything that wasn't purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.

Tom had a fire in his gut because he saw that the snowball was catching some speed of its own. What he didn't know was that he was going to lose almost 40% of his wealth just 2 years later. 

Stage 3: How Tom zig-zagged from $100,000 to $1,000,000

Do you hear that Tom?! It was Steven calling. No, I don't. What is … Exactly! It's the sound of me driving my brand-new Tesla. It's so quiet, right? Wow, yea, it's really quiet! Did you get a promotion Steven? No. No. It's the startup – you know - WallMeta! They're going public! Alright, that's not how Tom became a millionaire, but it is how his friend Steven became one. "WallMeta" made a 2400% return going public, and Steven was now the lucky owner of $1.25 million. Tom, who had invested $500, made "only" $12,000. Even though $12,000 was just a little less than what Tom could save from his salary in a year, it stung a bit that he hadn't been more aggressive. Ha! $500? Wuss! He tried to repeat a Warren Buffett mantra to himself: "Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game." Because how could Steven have known? He had never shown any particular interest in neither technology nor anything "meta" before. Tom really questioned if Steven would survive and if would he keep playing that game in the future. Another call with Steven would take place many years later, a call with a different outcome which you will hear in a minute.

Tom was now in his early 30s, and when it came to materialistic stuff, it wasn't just Steven who did it differently than him and Sarah. Pretty much everyone at work seemed to be one-upping each other with their cars, their clothes, and their dinner reservations. Basically, showing no signs of frugality whatsoever. I'm not saying that an expensive lifestyle is wrong, but make sure you understand the opportunity cost of your decisions. Once you open the gate of your stock market account and let a chunk of money out of it, will you be able to close it again? Do not underestimate the power of habits. One part of Tom, perhaps his prefrontal cortex, ignored these rather extravagant lifestyles of his peers and wanted him to stay true to his own goal. "Tom, remember James, you don't want to be dependent on this in your 60s." But another part of him, perhaps his amygdala, wanted to show his male colleagues that he too was a man of means, that he too was successful. Because, after all, he couldn't exactly show them the numbers in his portfolio every day, that would just be awkward … wouldn't it? Not subtle enough … He tried to remember something he had heard in a YouTube video. Something about that wealth is what you don't see. When you see someone who drives around in their Lamborghini, recognize that you are also witnessing someone who is a Lamborghini poorer. So … is it worth it? Tom liked the video for the YouTube algorithm. A true role model for us all. An unexpected event was going to help Tom in an unexpected way.

Right before he was about to turn 31, the stock market crashed. The S&P 500 fell by more than 50% over the course of the year. Technically, this meant that Tom was back at stage 2 again as he was now below $100,000. But Tom didn't fret. He had been mentally prepared for this moment. Just keep swimming, just keep swimming, just keep swimming swimming swimming Tom didn't subscribe to The Swedish Investor on YouTube, but if he had, he would have known that "the bear case is the best case". Luckily, he did know about Benjamin Graham, who obviously had better analogies up his sleeve: "If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume." And at that very moment, there were discounts on every single item in the stores. Tom knew that now was not the time to be splurging, now was the time to be picking up exceptional companies that pessimists couldn't get rid of quick enough. While he usually made something north of 8% per year in the markets, he made 30% and 45%, respectively, in the two years following the crash.

Then, when Tom turned 33, many things happened at once. His portfolio was now contributing more towards his savings each year than his salary was, still with quite average stock market returns of around 10%. His daughter had recently turned 2, and both Tom and Sarah felt like kids should grow up in a house (both of them had), so they decided to purchase one. The down payment was at $60,000, which he and Sarah split, as they were now married. $30,000 was a setback for Tom's compounding machine. Still, he remembered that even Warren Buffett spent 10% of his net worth on a house back in 1958. And frankly, at this point, Tom felt like he had pushed the decision as far as he could.

When Tom turned 35, he switched from General Motors to Ford Motor as he was offered a 20% higher salary for the same hours of work. Even with this higher salary, his portfolio returns vastly exceeded his pay during some months during this period. In other months, he could be down by $20,000, making him feel discouraged. This is the period where your patience and perseverance as an intelligent investor will be tested the most. The additional deposits you make will not immediately have a significant impact on the value of your portfolio. Making the wrong investment decisions can feel like a catastrophe, and making the right ones can be life-changing. Stay true to your process, though, and be careful with projecting those monthly returns into the future.

Tom did decide to stay true to his process, and he made another contrarian decision as well. While many of his colleagues at Ford increased their working hours, he dedicated those hours to beating the stock market instead. And it paid off. Tom was slowly but surely becoming an investor who beat the market by some margin each year. An overperformance of 4% per year suddenly meant something like $25,000 more in his pocket than the average investor with the same amount of capital would have been able to get. The "hourly wage" from studying stock market companies was now really lucrative, and it just kept improving. Towards the end of this phase, Tom also started thinking about his half-forgotten passion for photography. This was a hobby he had always planned to pick up - when able to allocate time to it, that is. He created a small-scale wedding photography firm. Some small extra income would probably make it even easier to quit his job once the day came.

Stage 4: Tom's Financial Freedom

Tom reached $1,000,000 and quit his 9-5 to live off his investments before his 44th birthday. More than half of that money came from returns in the stock market, and his investments helped him reach this number 14 years earlier than his salary alone would have done. With this type of money, Tom was confident that his stock market returns could cover his yearly expenses. Tom is now spending more time doing what truly makes him happy: investing in the stock market, going on hikes, trying to improve his photo skills, and especially – spending more time with his family and friends and being an even better dad! He even decided to become his daughter's tennis coach. ‘Cause, a man who doesn't spend time with his family can never be a real man. All-in-all, Tom is now owning his own time, earning plenty of money, while doing more of the things he loves. And then he decided to call Steven, whom he hadn't heard much from in a few years, to tell him about the good news. Hey Steven, do you hear that? Hey Tom, long time. No, what is … Exactly! That's the sound of us, not working, on a Monday morning! Am I right? For some reason, the joke didn't land well with Steven. Hey man, what's up? Tom, you know how WallMeta was a huge success? Yes? Well, I retired with that money. I know that Steven. Well, then I took that money and I put it in a company called Starverse. Oh, horrible name. Yea, I know, but they said that they were going to be the Starbucks of the metaverse. And you know, I trusted those guys, but they completely messed up. My boss really wasn't happy when I said I wanted to return, but he let me back in. Anyways, my retirement is nowhere in sight. Unless I can find a "Beyond Meta", of course.

What's extraordinary about this story? Well, maybe nothing, and that's also the point! Many of you can probably earn more than Tom if you really try to. Many of you can probably get better returns from the stock market if you really try to. If the normal guy Tom can reach financial independence by age 43, so can you and me.

A story that is a little less ordinary is the one about Warren Buffett and how he made his first $1,000,000 by the age of 31. Check it out! Cheers guys!

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