How to Own the World

If you like the book and want to read more, consider buying it to support the author.👍

🎯 The Book in 3 Sentences

💡 Key Takeaways

Embrace compound interest: It’s a powerful wealth-builder.
Diversify your investments: Own assets worldwide for growth.
Keep it simple: Stick to a clear, long-term plan.
Automate investing: Avoid emotional decisions.
Prioritise budgeting: Make and follow detailed budgets.
Be mindful of inflation: Consider gold for protection.

✏ Top Quotes

The definition of a truly wealthy person is that they are able to live on the money they make from their money, rather than the money they make from working.

One of the key things that differentiates the very smartest and most successful investors in the world from everyone else is their understanding and use of all the main asset classes.

You need to own the world in order to make superior returns on your money.

📝 Summary + Notes

Part 1: The big picture: why should you care?

1. Why you can and should invest your money

Inflation will destroy you. The real inflation is not what the government tells you.
Pension systems all over the world are essentially bankrupt. Countries are totally incapable of funding the pension and medical needs of the hundreds of millions of people set to retire in the next few decades.
The only way governments can repay what they owe is by creating money out of thin air, which causes inflation.

2. Why you will do better than many professionals

There is a risk that financial advisers might recommend products that pay them the highest commissions rather than those best suited to your needs.
Professionals have charges, fees, and costs.
Because they manage big funds, they don’t have the liquidity advantage. They can cause the price of their investments to move.
They are too specialised and miss the big picture/diversification.

3. Two amazing facts about finance

Fact 1: Compound interest is ‘the eighth wonder of the world. If you can achieve a half-decent return on your money, even a relatively small amount can become a very large amount in time.
Fact 2: You have access to financial products and information sources that are better than ever before.

4. Two crucial investment themes

The world economy keeps on growing. Between 2000 and 2010 it increased by 132%.
There is significant real inflation in the world.

Part 2: Down to basics: what do you need to know?

5. Creating financial surplus

Everyone can save 10% of their income.
Properties:
- Property generates a great deal more work than nearly all other investments. It is also illiquid.
- Consider inflation’s impact on property investments to understand true long-term value.
- Analyse rental yield, capital growth, and borrowing costs to compare property's real returns with other investments.
- House prices to salaries ratio is crucial for affordability & mean reversion, aiding smart decisions in property market.
- Low interest rates and cheap money have driven property prices up significantly.
- Property market crashes can be triggered by economic downturns and declining demand.
- Renting can be a financially good choice if property prices are historically high.
Pay off debts before investing, prioritise freeing up cash for savings; take action now to achieve financial goals, even small changes can make a difference.

6. Types of account and the importance of an ISA

State pensions face challenges, consider private pensions for security.
Final salary pensions are rare, don’t touch them, explore transfers.
Prioritise maxing out employer-matched pension contributions, but consider ISAs (for the UK) for greater flexibility.

7. The types of investment vehicle you will need

Cash: Secure. Low return and they lose value due to inflation.
Property (or real estate): Then only asset where you can borrow money to buy.
Bonds: A loan divided into lots of little pieces. The governments can invent money to pay their own bonds.
Shares (otherwise known as stocks or equities)
- P/E ratio: price / (profit/number of shares)
- Earnings yield: 1 / P/E ratio
- Book value: the value of all the assets a business owns
- Dividend yield: what a company is paying to shareholders
Commodities: There is a significant increase in the demand for commodities.
Funds: A fund enables you to own a large basket of several of the other financial products. An index is an example.
Insurance products
Foreign exchange (often called forex or FX): The global market in different currencies. By far the biggest market in the world.
Derivatives (futures and options): Warren Buffett described them as ‘financial weapons of mass destruction’.
Crypto assets/blockchain

Part 3: How to put your knowledge to good use

8. Where do we go from here?

Keep it simple if you have less than $50,000. Then, keep it simple with 80% of your funds.

9. Mapping your route

Make a sufficiently detailed budget and stick to it. Make another budget for your dream life.

10. Keeping it simple: ‘owning the world’

Invest whatever you can each month taking advantage of averaging.
In the long run you will want to have cash, shares, bonds, commodities and property.
You should aim to own assets from all over the world, not just one geographical area.
To own inflation, buy gold. Have 10-20% of your funds there.
Rebalance yearly to stick to your asset allocation.

11. Taking things further

Ignore the news and human emotions. Automate investing. Don’t try to time the market.
Stick to your plan and invest for the long term.
As you get older you should be thinking more about the return of your money than the return on your money.
A possible allocation:
- 40% in long-term investments in Index funds
- 25% in precious metals and other commodities
- 10% in bonds
- 10% in real estate
- 15% to “wing around”, trading more risky assets
Valuation tools for a company:
- P/E, PEG, dividend yield, price-to-book ratio.
- Analyse by sector.
- Do historical analysis.
- Do a valuation of the sector and the stock market as a whole.