Investing In The Right Metric - The Bottom Line

Last week, CNBC's Jim Cramer advised investors to dump their stocks in companies that aren't profitable:

"Cramer advises investors to sell stocks in companies that don't make money."

It seems like common sense and a tenet every investor should live by when investing, but it's advice that is ignored too often.

When we were kids and set up our summer lemonade stands on the street corner, the expectation was to make money and not just roast in the sun, right? And if nobody drove by, we'd fold up shop and go to the pool. It's the basic tenet for starting a business - to be profitable. So why do we invest in companies that aren't profitable? Why do so many investors throw out common sense when they invest?  

Popular motivational speaker and successful entrepreneur, the late Jim Rohn once said:

Shortly after I met my mentor, Earl Shoaff, he asked me, 'Mr. Rohn, how much money have you saved and invested over the last six years?' And I said, 'None.' He then asked, "Who sold you on that plan?" I remember saying to my mentor, "If I had more money, I would have a better plan." He quickly responded, "I would suggest that if you had a better plan, you would have more money. You see, it's not the amount that counts; it's the plan that counts."

The Dow has shed more than 2,100 points in the last month, and Bitcoin has shed more than 27%. Flush with stimulus cash, newbie investors have flooded the markets in the past two years - snapping anything and everything generating buzz - from meme stocks of unprofitable companies to crypto and NFTs.  

Now with stimulus money running dry and inflation and rising unemployment coming to the forefront, the markets are suddenly spooked, and many investors are watching their portfolios vanish. One has to wonder who sold them on their investment plan? Did they have an investment plan at all?

The reality is, many of these investors didn't have a plan and for those who did, it wasn't a matter of who sold them on their investment plan, but what. Like everyone else, they were letting memes, Reddit, social media, and talking heads on cable financial news dictate their investments.

What about you? Consider your current investments. Do you have investments? If you do, who or what informs your investment decisions and your investment philosophy? The crowds? The internet? Social media? What kind of plan is that, and who sold you on it?  

If you're going with the crowds, that plan isn't exactly working out for most investors right now. And with looming inflation and the Fed's indication of rising interest rates to battle it, it looks like there's more pain on the horizon for investors without a plan or who have the default plan of just following the herd.

Jim Rohn's mentor, Earl Shoaff, instilled in him early to plan to make money and not wait around for it to fall in his lap. Earl Shoaff's words should still resonate with every investor today:

". . . if you had a better plan, you would have more money."

What is the better plan?

I would suggest that a better plan is the plan that will help you achieve your goals. I imagine that most people want to be in a position not to worry about money. They don't want ever to have to worry about losing their jobs. I would think many want to spend more time with their loved ones and be in a position to contribute time and resources to causes dear to their hearts. Many want to leave a legacy - a financial one as well as one of knowledge and wisdom - to their children, their grandchildren, and on and on down the line.  

What kind of plan will help you achieve the types of goals I discussed above? An investment plan that's susceptible to the winds of hype and popular sentiment? That plan has never worked. If you're looking to replace your income, shouldn't your investment plan include a way to generate passive income?

As Warren Buffett frankly put it:

"If you don't find a way to make money while you sleep, you will work until you die."

Are you investing for income? The answer to that question should clarify many other matters concerning your finances.

Consider Your Career Path. 

Are you working on climbing the ladder to titles and raises in hopes of retiring one day at the standard retirement age? Or do you view promotions and raises as a means to an end?

If you view promotions and raises as a means to mobilize resources to invest in passive income-generating investments, you're likely on the right track. For many with a plan, if climbing the career ladder will accelerate their goal of achieving financial freedom, then they'll do what's necessary.

Consider Your Spending.

Are you going into debt to keep up with the Joneses? Are you acquiring assets that will gather dust? Or are you gathering productive assets that will give you returns?  

Consider Your Retirement Plan.

Are you planning to rely solely on social security or your 401K to cover your retirement expenses? The latest statistics say social security and the average 401K won't be enough for most retirees. In other words, you should have an alternative plan.

I've posted many questions about your financial plan in hopes of stimulating thought about your financial future.

With that, I will leave you with one last question: Why not aim higher and break away from the norm and come up with a plan now to retire - not when you're in your 60's - but one that will be 10, 20 years ahead of schedule?