Nick Maggiulli On Why You Should ‘Just Keep Buying’
Even in a bear market, Nick Maggiulli thinks you should Just Keep Buying.
That’s the title of his recently released book, based in part on his popular blog, Of Dollars and Data.
“I started writing one blog post a week in early 2017 as a New Year’s resolution,” says Maggiulli, who graduated from Stanford University with an Economics degree. “It’s the only one I’ve ever kept. I just kept writing, and now I’m on week 293.”
His blog landed him a position as the Chief Operating Officer and Data Scientist for Ritholtz Wealth Management. He joined a firm full of other notable financial bloggers like Barry Ritholtz, Josh Brown, Michael Batnick and Ben Carlson.
Just Keep Buying is “a data-driven guide to personal finance, but it’s very accessible.”
Maggiulli’s aim is to use data to prove financial arguments. “There’s a lot of economic arguments out there based on conjecture and belief. I see this on Twitter all the time. But now I have data to make these arguments.”
THE BIGGEST LIE IN PERSONAL FINANCE
Maggiulli calls out the financial media for browbeating people and shaming them for spending money.
“I think financial media beats up on people. There’s a lot of guilt out there, whether that’s ‘you have to work 24/7’ or ‘you need to cut your spending drastically.'”
He believes “the biggest lie in personal finance is that you can cut your spending to build wealth.
“Cutting spending is a short-term solution. The data is evident: the most reliable path to building wealth is to grow your income.
“Don’t get me wrong; some frivolous people should not be spending the way they are. They probably need a little guilt.
“Cutting your way to wealth just doesn’t work. If it did, we would see the savings rate increase to 10% or 15% consistently, regardless of income level, but it’s not true. Savings rates clearly go up as income level goes up.”
DON’T BLAME THE KNIFE
I asked Maggiulli what he would say to first-time investors who lost money during the meme stock craze and are now out of the market.
“If I gave you a fine Japanese knife and you cut your finger because you weren’t using it correctly, the knife is not the issue,” he said. “It’s a weird analogy, but you just weren’t investing correctly. You weren’t following prudent investment management.”
Maggiulli stresses that investing should be boring. “Do you want to be bored and get rich? Or do you want to have fun and lose $10,000? The reason why it’s so difficult is that you have to wait a long time [to build wealth.].”
DOLLAR-COST AVERAGING VS. ‘BUY THE DIP’
There’s a chapter in the book subtitled ‘Even God Couldn’t Beat Dollar-Cost Averaging.’ I asked Maggiulli to explain why a dollar-cost averaging strategy outperforms ‘buying the dip.’
“Imagine I told you, ‘you’ll know the exact [market] bottom, so you’ll be able to buy the dip. You’ll hold cash, and once you find the lowest point, you buy.’
“Even if you follow that ‘buy the dip over time’ strategy, you’re going to underperform someone who’s buying every month, most of the time. The reason is that usually, that dip happens at a far higher price.
“Here’s a quick example: in early 2017, people were saying the market was overvalued. So let’s say you waited until March 23, 2020, the day of the bottom, and you bought. You still would have bought at prices 7% higher than in early 2017.
“I’m giving you these ridiculous assumptions: you perfectly timed it and bought at the bottom. It’s an extreme example that shows everything has to go right for buying the dip to work. If you’re off by one or two months, the probability of you outperforming is 2 or 3%. It goes from 20% to 2%.
“Your chance of outperforming with perfect information is 20%. Your chance of outperforming with imperfect information is 2 or 3%. I tried to rig the game so much in buy the dip’s favor, and it still can’t outperform dollar-cost averaging.”
DON’T LOSE THE GAME
Maggiulii thinks that not losing money is more important than how you invest.
“There are a handful of prudent investing methods. The exact mix of your assets doesn’t matter as much, whether it’s real estate, stock index funds, or individual stocks.
“There are a few ways that are guaranteed losers: if you’re doing high-cost anything with high fees, spending too much in your personal life, or using a lot of leverage. There are only a few ways to go broke but many ways to get rich.
“I tried to focus on how not to lose. There’s a great Buffett quote, ‘a long string of impressive numbers multiplied by a single zero always equals zero.’ So you have to avoid the zeros.”
BEST FINANCIAL ADVICE
When I asked for his best investment advice, Maggiulli stressed the importance of growing income.
“Most people do well financially because of their income. You can be a great investor without having a high income, but that’s rare.
“If you have a high income and you’re a decent investor, you can do well. Focus on your income because that’s the only lever you can pull early on in life. Your investment returns don’t matter much when you have no assets.
“Just Keep Buying is really about asset accumulation. There are many ways to build wealth over time. You can own broad baskets of U.S. and international stocks. You can own REITs or invest in private farmland. There are all sorts of ways to own income-producing assets.”
Grow your income to add more assets. Use the income from those assets to buy more income-producing assets.
Just keep buying.