My substantial investment in Tesla has about doubled. Looking back, I have gained nearly half a million in net-worth these last few years.
Yet I do not feel rich. I have not cashed out one share or transferred a cent to my bank account.
I never intend to, at least when it comes to Tesla. Elon should be left alone to do his great work, and who else can do a better job at growing my money?
Elon has the same problem. He has been cash-poor for much of his life, despite building multiple billionaire dollar companies. What he does is keep pouring what he earns back into himself. That is growth investing.
Why the Sense of Wealth from dividend investing is an illusion
The experience is somewhat different for dividend investors. Their profits are paid out to them at regular intervals. It pops out in their accounts in a predictable and consistent way.
The trouble with dividend investing is that I think the sense of security tricks people. Quite often the dividend is consistent, but the share price drops. Fundamentally, its because dividends are an inefficient way to treat capital, and shows that the company cannot think of anywhere else to invest.
Worse, many dividend investors treat the added income as a permanent salary increase, and adjust their lifestyle up. Such small amounts are also difficult to reinvest, and are more likely to be spent.
The benefits of growth investing are much less obvious. There will be no consistency in gains. There will be times where it declines heavily and you wonder why you didn’t just throw it all in CPF. Other times it seems to reach unbelievable heights and the investor quickly sells, to “lock in a profit”.
The chief challenge of growth investing is never selling. Its never taking out your gains to celebrate. Doing so ultimately destroys value and time. It stops the compounding effect.
And letting good people compound your money is the fastest way to wealth. Given $1, I would quickly turn it to $0. But give it to Elon, and he will transform that to $10,000 eventually. The only thing I have to do is not sell. I literally have to do nothing.
This has come more easily to me only recently. I’ve matured in that I don’t spend more even though my “income” has increased. My lifestyle doesn’t change even if I add $50k to my net-worth overnight. The reason for this is that I realise that spending more money doesn’t necessarily make me more happy. After a certain point of comfort, more money doesn’t contribute one iota to health or happiness.
I like the sense of security and success money brings me, but I don’t have the need to show or prove it to others. Many people buy condos or cars, and it makes them feel their status is elevated. Other people look at them with envy and view them as successes. But much of it is an illusion and built on heavy debt. Many people go broke trying to look rich.
Similarly, investing is counter-intuitive.
To get rich in growth investing, you have to feel poor most of the time.