I have been deeply inspired by investment guru Charlie Munger’s “How to Guarantee a Life of Misery” speech to the students at Harvard in 1986. So, in keeping with the spirit of “inverting”, here’s my list of the fastest ways to blow up a family fortune.
First on my list is to go ahead and make big bets on what are called “operator-driven stocks”. The conversation goes something like – “Someone told me about this stock. It’s a sure shot. He is always right. Just buy it”. This logic is very sound and works with a high degree of accuracy. These days such operators love bankrupt, near bankrupt or unknown EPC (engineering procurement and construction companies). I have come across some of these names. They are brilliant and have a high probability to deliver total failure. These companies typically have declining business, no profits, large debt and horrible return on capital ratios. All perfect for our goal to destroy a fortune.
Second are the stocks of SME (small and medium sized enterprises) companies. The argument that supports SMEs very strongly is that they do not have to undertake much compliance. Yes, they are legally allowed to go light on reporting. For “enterprising” entrepreneurs this is a jackpot. All we need to do is find them, and then our interests will be aligned. What makes this doubly exciting is that when the time comes to sell, these stocks are often extremely illiquid. So, there’s very little chance of exiting even with large losses. On the contrary, you could get lucky with a total loss. That’s perfect for our mission.
To the SME stocks, one could also look at illiquid small-cap stocks. This is another space that has a proven track record of hot companies that do not last more than one bull market. If you were looking for peak value destruction potential, it is here. It is here. It is here.
The opportunity to destroy an entire fortune quickly, our third idea, is to leverage your trade i.e. either you can borrow money from your broker (I am told this is a thing). Or you could simply participate in the futures and options (F&O) market. Leverage is guaranteed to speed up your fortune destruction goals. What’s even better is that everyone in this system is focussed on making trading easier and faster. So, you can achieve your goal in double quick time.
There’s nothing like having a tailwind to help you achieve you goal of total fortune destruction.
The fourth way to blow up your family fortune is to start blindly following unregistered, untested, unproven, and weird face making finfluencers. Now this is not as easy as it seems. All the above criteria need to be met. Such finfluencers are almost sure to direct you to the hottest parts of the market, and make you trade a lot. Either in IPOs (initial public offerings) or in stocks, F&O, or anything else that moves. You see, here too we have a tailwind. Some finfluencers make referral money every time you trade. So, you see, if you want to speed up the destruction of your fortune, find an incentivised finfluencer. He/She will ensure that you trade till you drop! This is exciting. It’s like people cheering you on as you achieve your goal of total wealth destruction!
Finally, and perhaps the surest way, to ensure total destruction of wealth is to not follow any rules of position sizing an asset allocation. You see the big problem with these is that when done right they almost guarantee that no one poor decision can make a significant impact on your family wealth. This is terrible and comes in the way of our goal of wealth destruction. Whatever you do, be sure to completely keep asset allocation and position sizing at bay. These should be sworn enemies of anyone who wants to destroy their own wealth, fast.
So, there you have it. The five fastest ways to blow up a family fortune.
I hope you will work hard to blow up your family fortune by following these time-tested ideas.
Rahul Goel is the former CEO of Equitymaster.