How to Invest Your First $1,000 (Benjamin’s Story)

A few years ago, in a rural area in Mississippi, there was a hardworking young man named Benjamin. He and his younger sister lived with their mother, who worked two low-paying jobs just to put food on the table. Their small house was a sore sight. It had a roof that leaked, and mold on the walls. “What more could you wish for? ”, they commonly joked. Benjamin´s dad had been a fisherman until he disappeared in a storm 5 years ago. His father´s death increased the pressure on Benjamin to provide for the family. So ever since, to his mother´s great worry, and besides attending school, Benjamin took his rusty bike to the harbour for some extra work on the fishing boats. On his way down there, he always passed through a nice neighbourhood with crisp white houses, nice cars on the driveways, and worriless children playing on the tidy lawns. One day, he would help his sister and mother to move there. Benjamin´s mother wished for him and his sister to get an education, so they could have a better life than the one she had had. Benjamin was a bright kid, and he was soon to start community college. Before starting, he had been able to store away $1,000 from his spare-time job on the fishing boats. Benjamin was kinda proud of this achievement because he had read that he was already close to be in the top half in America! Having spoken to some of the adults in the rich neighbourhood on his way to the harbour, Benjamin had come to understand that one of the best ways to reliably make big money was through investing – and the earlier he started, the better apparently. Benjamin was determined to make his $1,000 grow to create a better life for his family. Although he stumbled along the way like any 19-year-old would, Benjamin's persistence and willingness to learn, ultimately led him to create the foundation of his future fortune – a fortune which helped bring more happiness and joy to his family. This is the story of how a small sum of money sparked a journey towards financial success. Year 1: At the beginning of the 1st schoolyear at the community college, Benjamin attended a fraternity party where he was “blessed” with some “no-brainer” investing tips from the older sophomore, Jack. “You know, I turned $100 into $5,000 in just 6 months in Skycoin. It was awesome” New to investing, Benjamin felt uncertain. But Jack´s pals reassured him; they told him about the new and digital currencies, ones that the state didn´t control – and it all sounded brilliant. As a punchline, Jack added that “it´s time for the next big leap in Skycoin anytime now, you really wanna stay on the side-lines? But remember the sayin´, ah, how was it. …ah, yes! “don´t put all your beer in the same case”! ” Benjamin of course couldn´t resist his strong fear of missing out on this. He ended up “investing” $500 out of his hard-earned money in Skycoin. He hadn’t listened to Warren Buffett’s view on crypto: I think that anytime you buy a nonproductive asset you are counting on somebody else later on to buy a nonproductive asset because they think they can sell it to somebody for more money. And it’s been tried with tulips and it’s been tried. various things over time. And it does come to a bad ending. Now, all Benjamin had to do was wait – according to Jack that was. Only a few weeks later, Benjamin had a strategy for his remaining $500; he had come across a prospering TikToker named: “Alan’s Rocket Stocks”. “Wow, this is a gold-mine” was Benjamin´s reaction when watching Alan’s 20-second clips of wisedom. These were clearly stocks that would make their way to the stratosphere once the market picked up on them. One company was apparently on the brink of coming up with a vaccine against cancer, another company was just about to unlock the full potential of nuclear fusion, and a third company had developed a technology for capturing carbon dioxide from the atmosphere that would definitely solve the climate crisis. There’s was just one little issue that Benjamin didn’t think about then. None of the companies earned a dime, and they kept telling their shareholders that the breakthrough was just “one new issue of shares away”. Benjamin did a quick calculation and realised that if only one of these three stocks reached its full potential, it would be enough to create him a small fortune. Oh boy, would his mom be proud…! And he figured that “with so many people following this TikToker, clearly, he must be good! ” So, Benjamin did the only thing sensible: he divided his remaining $500 equally among the three companies. Now, all he had to do was wait!

Well, he didn´t have to wait very long for the news to start coming in. The companies were burning through their cash reserves faster than they had projected, and the commercialization phases were constantly postponed, followed by additional issuance of stock. Although there were small nuggets of perceived “progress”, like an interview with a doctor stating that a company coming up with a cancer vaccine would soon be the biggest company in the world, these “news” were heavily outmatched by the negative ones. Within 9 months, the remaining value of his “diversified” $500 portfolio had shrunk to $25. Benjamin sold them off and bought a couple of beers with the proceeds. But luckily, Benjamin still had his Skycoins! “Good thing I diversified”, he thought to himself. For six months, Benjamin felt like a genius! Skycoin had tripled in value. The fraternity played Money, Money by Abba on repeat. Jack was treated like a god. Well, the party was short-lived. Soon they would sober up to a new reality; Skycoin suddenly declined some 97% in value, for no particular reason – but again, that was also the case with the rise; it was for no particular reason. Benjamin´s confidence as an investor was down to 0, and so was his portfolio. Jack´s halo had fallen off, and his reputation as a great investor was pulverised. At this point, Benjamin couldn´t say which mistakes he had made, but he promised himself he would never again lean on others for advice! Finding himself at the bottom of the Dunning-Kruger Curve, he felt ashamed of what he had done. Year 2: Having moved back home to his mother and sister during the summer, Benjamin was painfully reminded of why he had to find a way to make, and to grow, his money. Before his 2nd year in college, Benjamin worked on the fishing boats again, enabling him to save $1,000 again. This time, he would enter the investing world with proper preparation, meaning no more Jacks or TikTokers! Benjamin figured he needed to develop his knowledge, and he took some advice from one of his favorite TV-series characters: My brother has his sword and I have my mind. And a mind needs books like a sword needs a whetstone. That’s why I read so much Jon Snow. He went to the nearby bookstore and asked the clerk to be shown the section with personal finance and investment books. He did this for two reasons: one was because he actually didn´t know his way around the store, and the other was because she was quite cute. He hoped the displayed ambition would somehow impress her. She went to the section in the store dedicated to investing, with Benjamin on her tail, but to his great surprise, she didn´t stop there. She started pulling out books from the shelves, like she knew them by heart. “You need the right role-models; Buffett, Lynch, and Greenblatt are among my favourites. These books will catapult you in the right direction. Just remember to have patience” she said, and held up a book named “Snowball”, with a smart-looking old man on the front. Feeling smitten by the clerk’s intellect and charm, and reminded of his own stupid speculation in Skycoin and those “Rocket Stocks” last year, Benjamin only managed to stutter a quiet “thank you” before he left the store carrying 3 books worth $100 in his arms. He didn´t know it by then, but those books would be the best investment he ever made, as they formed his investment philosophy. A few months later, Benjamin had finished the books. And using the sound principles of his new role models, Benjamin invested his remaining $900 in a bunch of cash-generating companies where he believed he paid cents on the dollar. A few of his college friends were surprised that he didn’t chose index funds, most of them were really scared of investing on their own after the Skycoin incident. However, Benjamin reasoned that his new role models didn’t start out with index funds, they didn’t outsource the investment process, and neither was he going to. The time to learn was here and now. Unfortunately, Benjamin happened to buy his shares just before a large correction took place, and his portfolio went down some 40% along with the rest of the market. To soothe his nerves, Benjamin rewatched a video of Munger a few times. I think you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre results you’re going to get. He also remembered Buffett saying this on the same topic “the most important quality for an investor is temperament, not intellect”. Well, Benjamin very much planned to stay put; but it was getting harder

and harder the lower the market went. On a minus -6% day, he envisioned how he instead could have bought his little sister a new guitar, and on a -4% day, a full bag worth of groceries disappeared. His college friends had all sold out, and his friends joked around and asked him why he hated money so much. He thought about selling out too, and sending the remaining money back to his mother, giving up on investing altogether. His gut screamed at him: “sell you fool! You worked hard for this money, and you´re throwing them all away! ”. The newspapers ran headlines that predicted it was 1929 and a nationwide depression all over again. Finally, despite his better judgement, Benjamin sold out. Shortly thereafter, the market started to climb upwards again. Benjamin’s friends were now completely uninterested in investing, after having been burned twice, first in Skycoin and now by market volatility. If he mentioned the subject at a party, people would leave. Benjamin was unsure of how to proceed. He saw the market up by 3%, 2%, even 5% in a single day while staying on the sidelines. Just like after losing his first $1,000, he felt unsure about his capabilities. One day, when he mindlessly scrolled on Twitter, he encountered a thread by someone named “Simon”. The thread was a few weeks old, and it concluded how the stock market crash had created great opportunities in Simon´s favourite companies. Benjamin examined Simon´s profile and history, and it turned out he was everything the TikToker and Jack weren’t. Simon was humble, transparent and had a proven track record. It seemed like he was living and breathing the philosophies that Benjamin had read about in The Snowball, One up on Wall Street & The Little Book that Beats the Market. Moreover, Simon was comparing price and value in a way that seemed really reasonable. The TikToker and Jack had only been focusing on future prospects and hype. Never once had they mentioned a P/E or EV/EBIT multiple. Even though Benjamin had promised to not lean on others for advice again, he couldn´t help but admit that Simon seemed great and had come a long way in developing his investing skills. Desperate as he was, Benjamin wrote Simon a message, where he told the story about his background and his earlier failed attempts. To Benjamin´s great shock, Simon wrote him back! “Benjamin, don´t give up now. You are just getting started. Be glad you lost a bit of money now, while you have so little, instead of later when it would have been much more costly to make those same mistakes. I feel for you though, most people make the mistake of getting out of the market too early at least once in their career. When you are new to this, you really need someone in your corner who yells “don’t jump, don’t jump”! ” While being a little bit annoyed about the “be glad you lost a bit of money now, while you have so little”, Benjamin realised that he had found another great resource for accelerating his learning curve. Year 3: Having spent the summer back home with his sister and mother, Benjamin's determination to succeed was reignited under the leaking roof and inside the walls with mold. That summer, he spent more time on the fishing boats than ever before, enabling him to save $2,000. He also spent more time strolling through the nice neighborhood, envisioning his family's comfortable future there. In addition to Simon, Benjamin had identified a few other prominent investors from whom he had much to learn. He also added Warren Buffett to the list of people he would follow. But he wouldn´t copy any of the oracle´s particular transactions, because... well, Buffet said it best himself… I think, working with a very small sum, that there is an opportunity to earn very high returns. But that advantage disappears very rapidly as the money compounds. Because there are little — you find very small things that you are almost certain to make high returns on. But you don’t find very big things in that category today. Buffett had become too big a fish to overperform the market by much. Heck, he pretty much is the market nowadays. Anyways, having found these “idols”, along with Buffett, Benjamin felt as if he had been strolling around in a pitch-black forest when suddenly somebody had lighted the trail ahead. In fact, even Charlie Munger & Warren Buffett themselves gave thumbs up to this approach at the 2009 Berkshire Hathaway AGM. Yeah, generally, I think it’s quite smart to do what you’re talking about — is to identify some investors you regard as very skilled, and carefully examine everything they’re buying, and copy what you please. I think you have a very good idea. WARREN BUFFETT: Yeah, I used — when I was 21 years old, I used to get the semi-annual reports of Graham-Newman Corp before I went to work there.

And I would look at every security that was listed there. And I got some of my ideas that way. So it’s a — there’s nothing wrong with that. The books were great in forming Benjamin's investment philosophy. Still, they needed more practical and up-to-date advice on real companies. Benjamin now used these prominent investors that he had identified in two ways. First – he always checked if anyone of them had said anything about a stock he came across from another source. For instance, Benjamin was doing some screening by using the Magic Formula that Joel Greenblatt had suggested in The Little Book that Beats the Market, and he always cross-checked ideas from there with the people he followed. Second, he straight up stole some ideas from his idols' portfolios. But, as Simon said – do your own research. People lose money when they invest trusting the person instead of knowing what the flip they are doing. At first glance, someone could have mistaken his new strategy of learning and copying with the old method of following the TikToker. In reality, they were miles apart because this time Benjamin had done his due diligence. In one corner of the ring were seasoned investors with integrity. In the other, a speculator who couldn't even distinguish between price and value. Benjamin knew which fighters he would bet on… Now, with a set strategy for developing his stock-picking skills, Benjamin recalled Simon´s “be glad you lost a bit of money now” and realised how right Simon had been. Having lost most of his $1,000 twice, it was like having his sandcastle washed away by the waves after just a few shovels of sand. It would have been much more devastating for Benjamin´s future fortune if he discovered he had been constructing the sandcastle too close to the sea after many hours in the making. Instead, Benjamin was now able to learn from his mistakes early on, and thus moved the construction site of his sandcastle a few meters away from the shoreline – increasing the chance of him building something grand and lasting. The price tag for making mistakes such as these can vary, a lot! Having started early on, already with his first $1,000, is what allowed Benjamin to learn from these mistakes for such a low tuition fee. A year later, Benjamin got his first full-time job and began to add to his portfolio monthly. Many of his friends who had gotten out of the market never returned, they hadn’t created a good habit like Benjamin had. He played around with a compounding calculator and realized that, with a future freed from newbie mistakes, the nice neighbourhood with the crisp white houses was closer than he thought.