7 Investment Mistakes that Celebrities Make

We have all seen it. The rich and famous who boast luxury cars, and lavish homes, then, in what seems like the next day, they are M.C. Hammer broke.

How does one go through so much money, so quickly?

Tom Sirois of Berkshire Hills Financial will analyze their spending habits so you don’t make the same mistakes they did when you live the lifestyle of the rich and famous.

  1. Overestimating the market values of real estate.
    The housing market is often not what it seems, and when the next big artist purchases 3 or more homes, overextending their credit or bank account, the market can fluctuate, further hurting the finances of the owner.
  2. Buying depreciating assets.
    Boats, planes, cars. All of these items decrease in value every year, and even faster with use. You may as well be throwing nominal amounts of money down the toilet.
  3. Blindly investing in new technology.
    Wanting to be the next Chris Sacca, artists and actors alike are guilty of blindly investing in quick-to-fizzle-out technology trends. When is the first or last time that you have used Google Glass?
  4. Taking investment advice from friends.
    It’s kind of like taking dating advice from friends. Don’t do it.
  5. Investing in restaurants.
    According to the National Restaurant Association, it’s one of the most risky investments. The United States sees around 60,000 new restaurants each year, with 50,000 closures. That’s around an 83 percent failure rate if you are keeping up.
  6. Selling stocks too quickly when they drop.
    Just wait it out, markets fluctuate and next year you more often that not would see an exponential increase on your investment.
  7. Overestimating future earnings.
    You have a prime of your life for a reason. Put some money back to rely on it after your fame and fortune fizzles out like a distant supernova.

Keeping Things Simple When Looking at a Stock

I have spoken with countless people (professionals and non-professionals) regarding stock they are invested in. Though many may “sound” intelligent describing the minutia as to why a particular company is a good investment. For long term investing, I think Warren Buffett has a great way to describe what HE looks for.

Here are four items he utilizes BEFORE he invests in a company by buying their stock:

  1.  Any Good Investment Idea Can be Put in One Paragraph: most great companies are simple and easy to understand (think Coke or McDonalds)
  2.  Circle of Competence and NO Called Strikes: know what you are good at, and do not pick a company at a bad price. Make your BEST decision always.
  3. Invest in great businesses that have a terrific person running it: Peter Lynch once said: “buy a business that is so good that any idiot can run it because sooner or later one will”.
  4. These businesses are hard to find, so do not sell them: Buy at the right price, and you will not need to sell these stocks.

A great video that wraps this all up is found here: Warren Buffett on Investment Analysis

A case for owning Stocks (and renting?)

Since “the Great Recession”, many American households have not recovered their former net worth.

Households in the upper 7 percent (households with a net worth above $836,033) saw their net worth INCREASE by 28%. The remaining households in the lower 93% net worth dropped by 4 percent (to roughly $134,000).

Stated simply, affluent households typically own stocks and other financial holding that increased in value (since 2009) and less wealthy tend to have more of their assets in their homes which have not rebounded.

To read more go to: Pew Social Trends.

 

Tom Sirois

Great Barrington, MA