Monday, November 4, 2013

Irish Spaghetti and Your Investment Portfolio

How would you learn to cook spaghetti? If you were really serious about becoming a great chef you might enroll in the Culinary Institute of America located in Hyde Park, NY. If you wanted to do a little upscale cooking for your family and friends as a hobby, you might take a course or two at a local community college. If you were a hungry single man without a lot of money, you might buy a couple of jars of commercial spaghetti sauce, a pound of ground beef, and a box of spaghetti noodles. Then eat the results of your experiment over the course of the next few days. If you were cooking for your girlfriend, you might want to add a loaf of garlic bread from the frozen food section and a bottle of cheap red wine to the menu.

Irish spaghetti is something I can cook. It is always popular at potluck suppers, so I know it isn’t just me who likes the stuff. It is really pretty good. Take two jars of any commercial spaghetti sauce that is on sale at your grocery store. Add one pound of browned ground beef. Add one pound of cooked Italian sausage slices. Add a palm full of salt. Add maybe 8 ounces (uncooked) sautéed sliced mushrooms. Chop a large Vidalia onion into very small pieces, dump it into the pot with everything else, and let it simmer for several hours, until the onion bits essentially disappear into the sauce. You can sauté the onion bits before dumping them in the pot or throw just throw them in raw and cook them longer. If you want to get really fancy, chop up some garlic, sauté it for a few minutes, then throw it in the pot. I have never put too much garlic into my spaghetti sauce, but I really like garlic.

The real key to learning how to cook spaghetti sauce is (you guessed it) cooking spaghetti sauce; then tasting the results. Really, there isn’t too much risk if you start with decent ingredients in reasonable proportions.

Learning to be an investor isn’t all that different. Start with a couple of jars of low cost index funds (both stocks and bonds). Add a pound or two of conservative dividend paying stocks chopped up into a number of different small holdings. Then add small amounts of something spicy, like technology stocks, small cap pharmaceuticals, foreign stocks from developing nations, or precious metals. Then cook the mixture for a really long time. The only difference is that you dump everything into the spaghetti pot at one time. You continuously add small amounts of ingredients to the investment pot over a very long period of time.

The real key to learning how to invest is (you guessed it) putting money into investments; then watching the results. The biggest risk is never taking the first step. If you want to become a world class investor get a Master’s degree at the Wharton School of Business then go to work for Goldman Sachs. If you want to be better than the average investor, read the classics like The Intelligent Investor by Benjamin Graham. If you want to learn how to do a little better than 0.1% in an insured money market fund just go ahead. Get it started. A lit bit here added to a little bit there cooked over a long period of time makes for a pretty tasty sauce.

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