The Only Invesment That Matters
Welcome to issue #22 of The Davem Dish. Every two weeks I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship and life in general because the same principles apply — keep it simple, stay consistent and focus on what matters.
Invest in What You Know
The phrase “invest in what you know” was made famous by the legendary investor Peter Lynch.
He didn’t mean just buy companies whose products you understand as a consumer. He meant using your familiarity as a starting point before performing diligent research on a company’s financials.
Just because you love shopping at Costco and it’s always packed doesn’t mean you should blindly buy the stock.
Simple advice but also incomplete.
I want to expand on what “investing in what you know” actually means, and why the typical interpretation misses the point.
The Bad Stockbroker
I was recently talking to an older guy, Troy, at my local gym. As we chatted, he started telling me about his professional life. Turns out he was a stockbroker until the 2008 financial crisis. He ended up selling all his stocks at the bottom but somehow managed to walk away with $2 million.
“I was never a very good stockbroker,” he admitted. “I hated selling products and I had a knack for buying high and selling low.”
I wondered how someone who was a bad stockbroker ended up with $2 million in his early forties. But anyway.
He then took that money and invested in distressed real estate. Ranch houses he could remodel on the cheap and rent, as he put it. The timing was perfect. The housing market had just collapsed and deals were plentiful. He ended up buying about a dozen rental properties.
I asked how he managed his property empire. Did he have a management company? A network of contractors and realtors?
“I manage all the properties myself,” he said. “Nobody has ownership like I do.”
He had contractors he used regularly, but if he didn’t like the prices quoted for repairs and remodels, he’d just do the work himself. I asked about tenant calls.
“Number one call by far is plumbing problems. I have a relationship with a local plumber. They send someone out and usually the bill is minimal. If I don’t like the quote, I call the owner. I’ve been working with him so long he usually cuts me a deal.”
Troy is now in his sixties with a nice nest egg. He doesn’t see any reason to invest in the stock market.
"Why would I take the risk? I was never very good with stocks. I've done much better in real estate."
The Long Running Debate
What’s the better investment — stocks or real estate?
This debate has been going on forever. Everyone has an opinion — usually depending on what they are trying to sell, with cherry picked information.
Let’s look at what the data actually says.
For stocks, the S&P 500 has returned approximately 10-11% annually over the past 50 years (with dividends reinvested). Adjusted for inflation, that’s roughly 7%.
For real estate, the numbers are harder to pin down because returns depend heavily on rental income, leverage, location, and property type. Studies on residential real estate with typical mortgage leverage show returns in the 10-12% range.
A comprehensive study that analyzed data from 16 advanced economies over 145 years found residential real estate and equities both returned approximately 7% annually when adjusted for inflation.
Essentially equivalent.
However, real estate had a better risk-adjusted return, meaning real estate delivered similar returns with far less turbulence.
So why doesn’t everyone just invest in real estate?
Because returns aren’t the whole story.
What Troy Actually Knew
Troy wasn’t a successful real estate investor because he was an overnight expert. When he started, he knew nothing about property management or negotiating with contractors. He learned over time and he enjoyed the process.
What Troy actually knew — even if he couldn’t articulate it — was himself.
He knew he had the classic investor psychology problems: buying high, selling low, making emotional decisions when the market moved against him. As a stockbroker, he watched portfolios and tracked the numbers every day. He felt the fear when prices dropped and the greed when prices rose. And he consistently made the wrong call.
Real estate was different. Not because the asset class was inherently better, but because its structure protected him from his worst impulses.
You can’t panic-sell a rental property at midnight because a talking head on CNBC scared you. There’s no ticker scrolling across the bottom of your screen telling you that your ranch just lost 3% of its value.
For Troy, the illiquidity that most people see as a disadvantage was actually an advantage. It was a behavioral circuit breaker.
And when problems did arise — a busted pipe, a difficult tenant, a roof that needed replacing — Troy could actually do something about it. He could drive over, assess the situation, negotiate with contractors, and fix the problem himself if needed. He had control.
Compare that to watching your portfolio crater and having no ability to influence the outcome except to sell at a loss or white-knuckle your way through it.
Real estate worked for Troy because it matched his psychology. The same asset class that works for him might be a disaster for someone else.
Why I Invest in Stocks
I don’t have any interest in spending a Saturday remodeling a bathroom. I don’t want to field tenant calls about plumbing problems and I don’t want to build a contractor network from scratch.
But I do enjoy spending my time researching companies and running valuation models. I like watching patterns in price movements. I’m fascinated by human psychology and how it shows up in market behavior.
More importantly, I’ve built systems that protect me from myself.
I’ve written previously about the psychological forces that destroy individual investors — loss aversion, the disposition effect, the endowment effect. I know these biases are hardwired into my brain. I can’t eliminate them through willpower. So instead, I’ve built processes that remove ego, emotion, and bias from my decisions.
A systematic selling process. Clear criteria for what qualifies as a quality company. Entry points based on valuation and support levels, not hunches or hot tips.
I don’t have to rely on anyone else and I have complete control.
With free access to financial data, online brokerages and zero commissions I don’t even have to call anyone (or pay) to buy or sell a stock. It’s all at my fingertips. I can monitor my watchlist in minutes a day and execute trades in seconds.
This works for me because it matches how I think and how I’m wired. The same approach might not work for someone with a different temperament.
The Gym Investment Club
Apparently I get all my investment wisdom from the silver sneaker crowd at the gym.
You may remember the Speedo Guy. The chatty fellow nearing retirement age who’s still grinding paycheck to paycheck just to survive. When I asked how much longer he wanted to keep working, he said “till the day I die, can’t afford not to.”
Troy is the opposite story. Same demographic and modest upbringing but completely different outcome.
The difference wasn’t intelligence or luck. It was that Troy actually invested in something. He found a vehicle that matched his psychology, developed real skills around it, and let compounding do its work.
Speedo Guy spent his working years hoping his pension and employer would take care of him. They didn’t.
The specific vehicle matters less than people think. Stocks, real estate, a business, vintage watches, whatever. You can build wealth through almost any asset class if you develop genuine expertise and stay consistent.
What doesn’t work is just showing up to a 9-5, collecting a paycheck, and hoping everything works out. That’s just a fantasy.
The Only Investment That Matters
What I know after nearly two decades of investing, working a 9-5 and building businesses:
The only investment that truly matters is investing in yourself.
Whatever vehicle you choose — stocks, real estate, a business, your corporate career — the returns will be determined by the skills and mindset you bring to it.
You can make money in almost any pursuit. But the only way it’s going to be sustainable is if you’re willing to do the work. You have to enjoy the process and can stay consistent through the inevitable setbacks.
Troy’s $2 million, hypothetically compounded at 7% annually over the past 15 years, would be worth roughly $5.5 million today. If he’d “retired” and left it in a money market account — the safe choice — he’d have roughly $2.3 million today. Sounds like modest growth until you realize inflation ate more than that. In real purchasing power, he’d actually be poorer than when he started.
That $3.2 million difference came from pursuing an interest, developing real skills, applying them consistently and taking advantage of opportunistic timing.
The math works the same for stocks but only if you can actually execute without sabotaging yourself.
So instead of asking “stocks or real estate?” ask a different series of questions:
What am I actually willing to learn? What process can I follow consistently? What vehicle matches my skills, strengths and psychology?
Then invest in yourself first. Develop the knowledge and build the systems. Find a mentor or community. Continuously learn and iterate.
The vehicle matters less than most people think. What matters is whether you’ll actually drive it.
Cheers,
Andrew
Not sure which vehicle fits you — or how to stop sabotaging your own returns?
I offer a 90-minute strategy session called The Davem Investor Audit. We’ll dig into your current approach, identify what’s actually holding you back, and build a plan that matches how you’re wired.
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The content provided are personal opinions and presented for educational purposes only, as of the date published or indicated. Davem Advisors LLC is not a bank, licensed securities dealer, broker or investment advisor. Displayed returns are unaudited. Nothing stated constitutes a recommendation or advice as to whether any investment is suitable for a particular investor. You alone are solely responsible for determining whether any investment, strategy or service is appropriate for your objectives. Past performance is no guarantee of future results. Inherent in any investment is the risk of loss.