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Hard-won lessons about money and investing

mattcutts.com

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Re: Hard-won lessons about money and investing

#51

Post by prostoalex »

ballstothewalls wrote: post #27

Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will…

Instead of buying a bunch of lottery tickets he suggests getting a decent salary and a lottery ticket.

Re: Hard-won lessons about money and investing

#52

Post by Matt_Cutts »

burnstek wrote: post #30
ballstothewalls wrote: post #27

Lesson number 1 is unequivocally wrong and contradictory with the start of the article. He says you shouldn't invest your money in single stocks, but then advocates for you to invest your money (by way of forgoing salary in favor of equity) into a start up company with (by definition) no track record of success or guaranteed future. Not to mention that when the start-up tanks (which it will do statistically) you will…

The assumption is that you work for the startup and have a critical enough position to earn equity, and therefore have more influence over its performance than that of a public company.

That's right. In the same way that Buffett can select a company that he believes in and then drive it forward with a strategic investment, you're trying to do the same thing with the startup that you select and drive forward.

And "startup" doesn't have to be 3-4 people. I remember trying to recruit an engineer when Google was maybe 150 people. I tried to convince the engineer that Google was doing well and it wasn't as risky as it looked, but she decided to go work for Siebel instead.

In other words, don't waste money/time/effort on things where you can't make a big difference. Find an area where you can have a lot of leverage or expertise and put your chips there.

Re: Hard-won lessons about money and investing

#53

Post by Matt_Cutts »

mcfunley wrote: post #6

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

Great point. I'd recommend the book "Consider your Options" when you're accepting a job with stock options: http://www.amazon.com/Consider-Your-Options-Equity-Compensat...

It can be dense reading, but no one cares about your money more than you do, so it's your responsibility to make sure you understand what's going on. Doing that research saved me making more mistakes down the road.

Another common mistake with pre-IPO companies is to say "Wow, I get X thousand options!!" But you have to ask how many outstanding shares the company has. What really matters is what percentage of the company (your shares divided by total outstanding shares) is being offered to you.

Re: Hard-won lessons about money and investing

#54

Post by prostoalex »

mcfunley wrote: post #6

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

I had a friend of a friend quote me the value of his "options package" once (was high six figures), and only after drilling down I discovered this was the amount of ISOs multiplied by his strike price, i.e. a price that he would have to pay up to exercise it.

Re: Hard-won lessons about money and investing

#55

Post by prostoalex »

arkem wrote: post #10

I've been considering moving from holding Vanguard ETFs (one of their Total Retirement funds) over to Betterment or Wealthfront to take advantage of their automated tax loss harvesting. Does anyone have any thoughts about whether automated tax loss harvesting is worth the 0.15-0.25% fees that the robo-advisers charge?

Wait till the price drops to 0%

https://intelligent.schwab.com/

Re: Hard-won lessons about money and investing

#56

Post by Matt_Cutts »

steven2012 wrote: post #8
mcfunley wrote: post #6

> Think about working for equity vs. salary It's really common for people to drastically overestimate the value of startup equity, or to just not understand the basic mechanics of it at all. In my experience people look at the face value of their options and are pretty clueless about how taxes (or even their strike price!) affect what they might actually wind up with.

I agree. It's easy for Matt Cutts to say that you should take more equity, because he has only seen massive success. I've been in the Bay Area exactly as long as he has, and I've had 1 company out of 6 where my options actually made me money. The rest were all worthless.

You're completely right that I was very fortunate. All I'm saying is that if your goal is financial independence, it can be hard to get there on a straight salary, and that trying to get some sliver of equity can radically increase your odds of financial success.

With that specific piece of advice, I'm trying to catch folks in Nebraska or Cleveland who are thinking about accepting a 9-5 job, not folks who are already in the Bay Area and familiar with buying a ticket in the startup lottery.

Re: Hard-won lessons about money and investing

#57

Post by Matt_Cutts »

dave1619 wrote: post #22

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, invest…

Hey Dave, I approved your comment over on my blog--sorry about the delay. I also wrote a response which I'll paste below:

Dave L, I concede that someone who is willing to put in the time and effort, they may become good at selecting stocks. Then again, they may not: I have friends who have spent a lot of time and effort studying individual stocks without much to show for it. And don’t even get me started on the financial press that’s there to distract and mislead investors into bad choices–yikes!

In short, I believe that a passive index fund will outperform a majority of professional active money managers, and it’s the best choice for the vast majority of people.

Furthermore, who would most people name as the greatest investor of the last 50 years? Probably Warren Buffett. Well, guess how Warren Buffett wants his money left to his wife when he dies? Buffett wants the money in an index fund (!). Here’s the article: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/24/w... and I’ll just quote a bit:

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions, or individuals — who employ high-fee managers."

So you have to ask yourself: are you smarter than Warren Buffett? Because Buffett is counting on an index fund when he dies.

Re: Hard-won lessons about money and investing

#58

Post by [deleted] »

dave1619 wrote: post #22

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, invest…

[deleted]

Re: Hard-won lessons about money and investing

#59

Post by Matt_Cutts »

JoshTriplett wrote: post #38
dave1619 wrote: post #22

I added a comment on Matt's blog post but it's waiting moderation so I'll post it here to hear other folks' input. "Hi Matt, I usually enjoy your posts but I felt this one lacking in a major way. Investing is something that has huge potential (ie., 100 fold). This is something that I’m sure you’re aware of as an early Google employee (you were invested in the company via stock options, etc). On the other hand, invest…

Perhaps you're right; perhaps 1-2% of people (if that) could potentially beat the market in their investments. And the majority of people think they're in that 1-2%. Meanwhile, index funds have the lovely advantage that you can't do worse than the market. If you have extra energy to spend investigating investments, use it to diversify into a handful of minimal-overhead index funds rather than just one. And if you fan…

This is such a spot-on answer--thanks.

Re: Hard-won lessons about money and investing

#60

Post by Matt_Cutts »

steven2012 wrote: post #48
JoachimSchipper wrote: post #33

Earlier quoted context omitted.

So buy shorts.

I will when the time is right. Right now, I'm long.

I agree with your posts except for a couple things: - Most asset managers will try to rip you off, but Vanguard's culture and alignment with your interests makes them a different/better company than anyone else I know of. - I don't know if you were joking when talking about buying shorts, but it's really hard to time the stock market.
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