MONEY Food & Drink

Chipotle CEO Freely Admits He’s Unsure About the Company’s Future

A restaurant worker fills an order at a Chipotle restaurant in Miami, Florida.
Joe Raedle—Getty Images

And that's great news for investors.

When Chipotle Mexican Grill CHIPOTLE MEXICAN GRILL INC. CMG 2.4672% released third-quarter results in October, the numbers were awe-inspiring.

Revenue jumped 31.1% year over year to $1.08 billion, helped by an amazing 19.8% increase in comparable-restaurant sales. Meanwhile, restaurant level operating margin climbed by 200 basis points to 28.8%, cash generated from operating activities rose 41.4% to $549.8 million, and net income increased a whopping 56.9% to $130.8 million.

However, the market was much less enthusiastic about Chipotle’s guidance, driving shares down 7% after the burrito maker called for 2015 comparable-restaurant sales to increase in the low- to mid-single digit range. During the subsequent conference call, analysts unsurprisingly grilled Chipotle management on exactly how they reached that range. After all, it seemed especially conservative considering Chipotle’s Q3 performance had just capped a six-quarter streak of accelerating comps growth.

Chipotle doesn’t have a clue

Here’s how Chipotle Chairman and co-CEO Steve Ells responded:

We don’t spend a lot of time trying to predict how we are going to leap over that number. What we do is, we take our current sales trends and we literally just push them out over the next 14 months — for the rest of this year and then for all of 2015. … This is the way we have always predicted comps. … [W]e really don’t have a magic approach or a crystal ball to predict how you are going to exceed like a 19% comp, for example.

Translation? Chipotle is happily ignorant when it comes to determining precisely what future comps will be. The company simply extrapolate sales trends out, as it always has, to get a rough ballpark figure of what the coming year might look like.

Why this is a great thing

And to be honest, though that might seem unsettling, I think Chipotle investors should be perfectly happy with this approach for two reasons.

First, though it’s true comps give us an idea of how effectively Chipotle is drawing in new customers and keeping them coming back for more, it’s far from a perfect metric to gauge the long-term prospects of the business. Comps tend to naturally ebb and flow with irregular events like price increases, as well as difficult (or easy) year-over-year comparisons. In the end, I’m relatively unconcerned that Chipotle’s not-so-scientific approach at modeling comps predicts it may finally decelerate growth from 19.8% — which, by the way, was its best result since going public in 2006.

On the other hand, I suppose near-term disappointments with comparable-store sales do create buying windows for opportunistic investors.

Second, note Chipotle is focusing on what really matters instead. Ells elaborated:

We are constantly working on improving our customer experience, we are constantly working on improving our people culture, and we are constantly looking to upgrade the quality of our ingredients. … So we are constantly working on the things that will enhance the dining experience. And over the years it has paid off, so that when we do a good job, when we have great teams, and when they do a good job of providing a great dining experience, customers want to come back to Chipotle more often.

Notice nowhere in that comment were actual comps mentioned. Rather, Ells has a singular focus on improving the Chipotle experience for customers, from fostering its amiable culture all the way down to improving the quality of its already excellent food.

In short, he’s thinking about Chipotle Mexican Grill not just as a stock ticker or piece of paper, but rather as the living, thriving, growing business it truly is. From an investor’s standpoint, it’s hard to think of a better way to create shareholder value than that.

MONEY IRAs

The Best Way to Tap Your IRA In Retirement

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q: I am 72 years old and subject to mandatory IRA withdrawals. I don’t need all the money for my expenses. What should I do with the leftover money? Jay Kahn, Vienna, VA.

A: You’re in a fortunate position. While there is a real retirement savings crisis for many Americans, there are also people with individual retirement accounts (IRAs) like you who don’t need to tap their nest egg—at least not yet.

Nearly four out of every 10 U.S. households own an IRA, holding more than $5.7 trillion in these accounts, according to a study by the Investment Company Institute. At Vanguard, 20% of investors with an IRA who take a distribution after age 70 ½ put it into another taxable investment account with the company.

The government forces you to start withdrawing your IRA money when you turn 70½ because the IRS wants to collect the income taxes you’ve deferred on the contributions. You must take your first required minimum distribution (RMD) by April of the year after you turn 70½ and by December 31 for subsequent withdrawals.

But there’s no requirement to spend it, and many people like you want to continue to keep growing your money for the future. In that case you have several options, says Tom Mingone, founder and managing partner of Capital Management Group of New York.

First, look at your overall asset allocation and risk tolerance. Add the money to investments where you are underweight, Mingone advises. “You’ll get the most bang for your buck doing that with mutual funds or an exchange traded fund.“

For wealthier investors who are charitably inclined, Mingone recommends doing a direct rollover to a charity. The tax provision would allow you to avoid paying taxes on your RMD by moving it directly from your IRA to a charity. The tax provision expired last year but Congress has extended the rule through 2014 and President Obama is expected to sign it.

You can also gift the money. Putting it into a 529 plan for your grandchildren’s education allows it to grow tax free for many years. Another option is to establish an irrevocable life insurance trust and use the money to pay the premiums. With such a trust, the insurance proceeds won’t be considered part of your estate so your heirs don’t pay taxes on it. “It’s a tax-free, efficient way to leave more to your family,” Mingone says.

Stay away from immediate annuities though. “It’s not that I don’t believe in them, but when you’re already into your 70s, the risk you’ll outlive your capital is diminished,” says Mingone. You’ll be locking in a chunk of money at today’s low interest rates and there’s a shorter period of time to collect. “It’s not a good tradeoff for guaranteed income,” says Mingone.

Beyond investing the extra cash, consider just spending it. Some retirees are reluctant to spend the money they’ve saved for retirement out of fear of running out later on. With retirements that can last 30 years or more, it’s a legitimate worry. “Believe it or not, some people have a hard time spending it down,” says Mingone. But failure to enjoy your hard-earned savings, especially while you are still young enough and in good health to use it, can be a sad outcome too.

If you’ve met all your other financial goals, have some fun. “There’s something to be said for knocking things off the bucket list and enjoying spending your money,” says Mingone.

Update: This story was changed to reflect the Senate passing a bill to extend the IRS rule allowing the direct rollover of an IRA’s required minimum distribution to a charity through 2014.

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com

Read next: How Your Earnings Record Affects Your Social Security

MONEY Stock trading

High School Student Rumored to Have Made $72 Million Trading Stocks

Stuyvesant High School at 345 Chamers Street, Manhattan, N.Y.
17-year-old (alleged) millionaire Mohammed Islam is a senior at Stuyvesant High School in New York City. Craig Warga—NY Daily News via Getty Images

Published claims that a NYC high school student made a fortune trading securities turn out to be exaggerated.

[Editor’s note: See story update below.]

Well, here’s a creative way to make your college application stand out: Mohammed Islam, a senior at New York City’s Stuyvesant High School, has become a local celebrity with the publication of a profile in New York magazine that claims he’s made $72 million by trading stocks and other securities in between classes, homework, and extracurricular activities.

Islam, who also appeared on Business Insider‘s 20 under 20 list last year, says he has been trading stocks since he was 9, having been taught by an older cousin who now works at Goldman Sachs. Though he started off trading penny stocks, Islam says he’s made millions since then by betting on gold and crude oil futures, as well as small- and mid-cap stocks.

Depending on your perspective, this story could be read as an inspiring tale about the child of Bengali immigrants beating the odds. Or as a worrisome example of how Wolf of Wall Street-worship — along with a taste for bottle service, models, and BMWs — is corrupting our youth.

If the story is actually true — Islam told New York that his net worth is in the “high eight figures,” but it’s not clear where the $72 million figure came from and no documentation of his profits has yet appeared — it would be interesting to know a little something about his trading strategy. We’ll update if and when we hear from him; so far, Islam has not yet responded to our messages sent via Facebook.

Update: On December 15, Islam told CNBC’s Scott Wapner that he didn’t actually make $72 million trading; that he doesn’t know where the figure came from; that he in fact has made “a few million dollars” trading; and that he is uncomfortable with the way he was portrayed in New York. “The attention is not what we expected,” he told Wapner. “We never wanted the hype.” Later in the day, Islam admitted to New York Observer editor (and former MONEY columnist) Ken Kurson that he pretty much made up the whole story. In this December 16 article, I explain why nobody should have believed the story in the first place.

MONEY investing strategy

122 Ideas, Quotes, and Stats That Will Make You a Better Investor in 2015

Traders work on the floor of the New York Stock Exchange on November 21, 2014 in New York City.
Spencer Platt—Getty Images

Start the new year off right with this investing wisdom.

A year ago I started writing what I hoped would be a book called 500 Things you Need to know About Investing. I wanted to outline my favorite quotes, stats, and lessons about investing.

I failed. I quickly realized the idea was long on ambition, short on planning.

But I made it to 122, and figured it would be better in article form. Here it is.

1. Saying “I’ll be greedy when others are fearful” is easier than actually doing it.

2. When most people say they want to be a millionaire, what they really mean is “I want to spend $1 million,” which is literally the opposite of being a millionaire.

3. “Some stuff happened” should replace 99% of references to “it’s a perfect storm.”

4. Daniel Kahneman’s book Thinking Fast and Slow begins, “The premise of this book is that it is easier to recognize other people’s mistakes than your own.” This should be every market commentator’s motto.

5. Blogger Jesse Livermore writes, “My main life lesson from investing: self-interest is the most powerful force on earth, and can get people to embrace and defend almost anything.”

6. As Erik Falkenstein says: “In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”

7. There is a difference between, “He predicted the crash of 2008,” and “He predicted crashes, one of which happened to occur in 2008.” It’s important to know the difference when praising investors.

8. Investor Dean Williams once wrote, “Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same.”

9. Wealth is relative. As comedian Chris Rock said, “If Bill Gates woke up with Oprah’s money he’d jump out the window.”

10. Only 7% of Americans know stocks rose 32% last year, according to Gallup. One-third believe the market either fell or stayed the same. Everyone is aware when markets fall; bull markets can go unnoticed.

11. Dean Williams once noted that “Expertise is great, but it has a bad side effect: It tends to create the inability to accept new ideas.” Some of the world’s best investors have no formal backgrounds in finance — which helps them tremendously.

12. The Financial Times wrote, “In 2008 the three most admired personalities in sport were probably Tiger Woods, Lance Armstrong and Oscar Pistorius.” The same falls from grace happen in investing. Chose your role models carefully.

13. Investor Ralph Wagoner once explained how markets work, recalled by Bill Bernstein: “He likens the market to an excitable dog on a very long leash in New York City, darting randomly in every direction. The dog’s owner is walking from Columbus Circle, through Central Park, to the Metropolitan Museum. At any one moment, there is no predicting which way the pooch will lurch. But in the long run, you know he’s heading northeast at an average speed of three miles per hour. What is astonishing is that almost all of the market players, big and small, seem to have their eye on the dog, and not the owner.”

14. Investor Nick Murray once said, “Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage.” Remember this the next time you’re compelled to cash out.

15. Bill Seidman once said, “You never know what the American public is going to do, but you know that they will do it all at once.” Change is as rapid as it is unpredictable.

16. Napoleon’s definition of a military genius was, “the man who can do the average thing when all those around him are going crazy.” Same goes in investing.

17. Blogger Jesse Livermore writes,”Most people, whether bull or bear, when they are right, are right for the wrong reason, in my opinion.”

18. Investors anchor to the idea that a fair price for a stock must be more than they paid for it. It’s one of the most common, and dangerous, biases that exists. “People do not get what they want or what they expect from the markets; they get what they deserve,” writes Bill Bonner.

19. Jason Zweig writes, “The advice that sounds the best in the short run is always the most dangerous in the long run.”

20. Billionaire investor Ray Dalio once said, “The more you think you know, the more closed-minded you’ll be.” Repeat this line to yourself the next time you’re certain of something.

21. During recessions, elections, and Federal Reserve policy meetings, people become unshakably certain about things they know very little about.

22. “Buy and hold only works if you do both when markets crash. It’s much easier to both buy and hold when markets are rising,” says Ben Carlson.

23. Several studies have shown that people prefer a pundit who is confident to one who is accurate. Pundits are happy to oblige.

24. According to J.P. Morgan, 40% of stocks have suffered “catastrophic losses” since 1980, meaning they fell at least 70% and never recovered.

25. John Reed once wrote, “When you first start to study a field, it seems like you have to memorize a zillion things. You don’t. What you need is to identify the core principles — generally three to twelve of them — that govern the field. The million things you thought you had to memorize are simply various combinations of the core principles.” Keep that in mind when getting frustrated over complicated financial formulas.

26. James Grant says, “Successful investing is about having people agree with you … later.”

27. Scott Adams writes, “A person with a flexible schedule and average resources will be happier than a rich person who has everything except a flexible schedule. Step one in your search for happiness is to continually work toward having control of your schedule.”

28. According to Vanguard, 72% of mutual funds benchmarked to the S&P 500 underperformed the index over a 20-year period ending in 2010. The phrase “professional investor” is a loose one.

29. “If your investment horizon is long enough and your position sizing is appropriate, you simply don’t argue with idiocy, you bet against it,” writes Bruce Chadwick.

30. The phrase “double-dip recession” was mentioned 10.8 million times in 2010 and 2011, according to Google. It never came. There were virtually no mentions of “financial collapse” in 2006 and 2007. It did come. A similar story can be told virtually every year.

31. According to Bloomberg, the 50 stocks in the S&P 500 that Wall Street rated the lowest at the end of 2011 outperformed the overall index by 7 percentage points over the following year.

32. “The big money is not in the buying or the selling, but in the sitting,” said Jesse Livermore.

33. Investors want to believe in someone. Forecasters want to earn a living. One of those groups is going to be disappointed. I think you know which.

34. In a poll of 1,000 American adults, asked, “How many millions are in a trillion?” 79% gave an incorrect answer or didn’t know. Keep this in mind when debating large financial problems.

35. As last year’s Berkshire Hathaway shareholder meeting, Warren Buffett said he has owned 400 to 500 stocks during his career, and made most of his money on 10 of them. This is common: a large portion of investing success often comes from a tiny proportion of investments.

36. Wall Street consistently expects earnings to beat expectations. It also loves oxymorons.

37. The S&P 500 gained 27% in 2009 — a phenomenal year. Yet 66% of investors thought it fell that year, according to a survey by Franklin Templeton. Perception and reality can be miles apart.

38. As Nate Silver writes, “When a possibility is unfamiliar to us, we do not even think about it.” The biggest risk is always something that no one is talking about, thinking about, or preparing for. That’s what makes it risky.

39. The next recession is never like the last one.

40. Since 1871, the market has spent 40% of all years either rising or falling more than 20%. Roaring booms and crushing busts are perfectly normal.

41. As the saying goes, “Save a little bit of money each month, and at the end of the year you’ll be surprised at how little you still have.”

42. John Maynard Keynes once wrote, “It is safer to be a speculator than an investor in the sense that a speculator is one who runs risks of which he is aware and an investor is one who runs risks of which he is unaware.”

43. “History doesn’t crawl; it leaps,” writes Nassim Taleb. Events that change the world — presidential assassinations, terrorist attacks, medical breakthroughs, bankruptcies — can happen overnight.

44. Our memories of financial history seem to extend about a decade back. “Time heals all wounds,” the saying goes. It also erases many important lessons.

45. You are under no obligation to read or watch financial news. If you do, you are under no obligation to take any of it seriously.

46. The most boring companies — toothpaste, food, bolts — can make some of the best long-term investments. The most innovative, some of the worst.

47. In a 2011 Gallup poll, 34% of Americans said gold was the best long-term investment, while 17% said stocks. Since then, stocks are up 87%, gold is down 35%.

48. According to economist Burton Malkiel, 57 equity mutual funds underperformed the S&P 500 from 1970 to 2012. The shocking part of that statistic is that 57 funds could stay in business for four decades while posting poor returns. Hope often triumphs over reality.

49. Most economic news that we think is important doesn’t matter in the long run. Derek Thompson of The Atlantic once wrote, “I’ve written hundreds of articles about the economy in the last two years. But I think I can reduce those thousands of words to one sentence. Things got better, slowly.”

50. A broad index of U.S. stocks increased 2,000-fold between 1928 and 2013, but lost at least 20% of its value 20 times during that period. People would be less scared of volatility if they knew how common it was.

51. The “evidence is unequivocal,” Daniel Kahneman writes, “there’s a great deal more luck than skill in people getting very rich.”

52. There is a strong correlation between knowledge and humility. The best investors realize how little they know.

53. Not a single person in the world knows what the market will do in the short run.

54. Most people would be better off if they stopped obsessing about Congress, the Federal Reserve, and the president, and focused on their own financial mismanagement.

55. In hindsight, everyone saw the financial crisis coming. In reality, it was a fringe view before mid-2007. The next crisis will be the same (they all work like that).

56. There were 272 automobile companies in 1909. Through consolidation and failure, three emerged on top, two of which went bankrupt. Spotting a promising trend and a winning investment are two different things.

57. The more someone is on TV, the less likely his or her predictions are to come true. (University of California, Berkeley psychologist Phil Tetlock has data on this).

58. Maggie Mahar once wrote that “men resist randomness, markets resist prophecy.” Those six words explain most people’s bad experiences in the stock market.

59. “We’re all just guessing, but some of us have fancier math,” writes Josh Brown.

60. When you think you have a great idea, go out of your way to talk with someone who disagrees with it. At worst, you continue to disagree with them. More often, you’ll gain valuable perspective. Fight confirmation bias like the plague.

61. In 1923, nine of the most successful U.S. businessmen met in Chicago. Josh Brown writes:

Within 25 years, all of these great men had met a horrific end to their careers or their lives:

The president of the largest steel company, Charles Schwab, died a bankrupt man; the president of the largest utility company, Samuel Insull, died penniless; the president of the largest gas company, Howard Hobson, suffered a mental breakdown, ending up in an insane asylum; the president of the New York Stock Exchange, Richard Whitney, had just been released from prison; the bank president, Leon Fraser, had taken his own life; the wheat speculator, Arthur Cutten, died penniless; the head of the world’s greatest monopoly, Ivar Krueger the ‘match king’ also had taken his life; and the member of President Harding’s cabinet, Albert Fall, had just been given a pardon from prison so that he could die at home.

62. Try to learn as many investing mistakes as possible vicariously through others. Other people have made every mistake in the book. You can learn more from studying the investing failures than the investing greats.

63. Bill Bonner says there are two ways to think about what money buys. There’s the standard of living, which can be measured in dollars, and there’s the quality of your life, which can’t be measured at all.

64. If you’re going to try to predict the future — whether it’s where the market is heading, or what the economy is going to do, or whether you’ll be promoted — think in terms of probabilities, not certainties. Death and taxes, as they say, are the only exceptions to this rule.

65. Focus on not getting beat by the market before you think about trying to beat it.

66. Polls show Americans for the last 25 years have said the economy is in a state of decline. Pessimism in the face of advancement is the norm.

67. Finance would be better if it was taught by the psychology and history departments at universities.

68. According to economist Tim Duy, “As long as people have babies, capital depreciates, technology evolves, and tastes and preferences change, there is a powerful underlying impetus for growth that is almost certain to reveal itself in any reasonably well-managed economy.”

69. Study successful investors, and you’ll notice a common denominator: they are masters of psychology. They can’t control the market, but they have complete control over the gray matter between their ears.

70. In finance textbooks, “risk” is defined as short-term volatility. In the real world, risk is earning low returns, which is often caused by trying to avoid short-term volatility.

71. Remember what Nassim Taleb says about randomness in markets: “If you roll dice, you know that the odds are one in six that the dice will come up on a particular side. So you can calculate the risk. But, in the stock market, such computations are bull — you don’t even know how many sides the dice have!”

72. The S&P 500 gained 27% in 1998. But just five stocks — Dell, Lucent, Microsoft, Pfizer, and Wal-Mart — accounted for more than half the gain. There can be huge concentration even in a diverse portfolio.

73. The odds that at least one well-known company is insolvent and hiding behind fraudulent accounting are pretty high.

74. The book Where Are the Customers’ Yachts? was written in 1940, and most people still haven’t figured out that brokers don’t have their best interest at heart.

75. Cognitive psychologists have a theory called “backfiring.” When presented with information that goes against your viewpoints, you not only reject challengers, but double down on your view. Voters often view the candidate they support more favorably after the candidate is attacked by the other party. In investing, shareholders of companies facing heavy criticism often become die-hard supporters for reasons totally unrelated to the company’s performance.

76. “In the financial world, good ideas become bad ideas through a competitive process of ‘can you top this?'” Jim Grant once said. A smart investment leveraged up with debt becomes a bad investment very quickly.

77. Remember what Wharton professor Jeremy Siegel says: “You have never lost money in stocks over any 20-year period, but you have wiped out half your portfolio in bonds [after inflation]. So which is the riskier asset?”

78. Warren Buffett’s best returns were achieved when markets were much less competitive. It’s doubtful anyone will ever match his 50-year record.

79. Twenty-five hedge fund managers took home $21.2 billion in 2013 for delivering an average performance of 9.1%, versus the 32.4% you could have made in an index fund. It’s a great business to work in — not so much to invest in.

80. The United States is the only major economy in which the working-age population is growing at a reasonable rate. This might be the most important economic variable of the next half-century.

81. Most investors have no idea how they actually perform. Markus Glaser and Martin Weber of the University of Mannheim asked investors how they thought they did in the market, and then looked at their brokerage statements. “The correlation between self ratings and actual performance is not distinguishable from zero,” they concluded.

82. Harvard professor and former Treasury Secretary Larry Summers says that “virtually everything I taught” in economics was called into question by the financial crisis.

83. Asked about the economy’s performance after the financial crisis, Charlie Munger said, “If you’re not confused, I don’t think you understand.”

84. There is virtually no correlation between what the economy is doing and stock market returns. According to Vanguard, rainfall is actually a better predictor of future stock returns than GDP growth. (Both explain slightly more than nothing.)

85. You can control your portfolio allocation, your own education, who you listen to, what you read, what evidence you pay attention to, and how you respond to certain events. You cannot control what the Fed does, laws Congress sets, the next jobs report, or whether a company will beat earnings estimates. Focus on the former; try to ignore the latter.

86. Companies that focus on their stock price will eventually lose their customers. Companies that focus on their customers will eventually boost their stock price. This is simple, but forgotten by countless managers.

87. Investment bank Dresdner Kleinwort looked at analysts’ predictions of interest rates, and compared that with what interest rates actually did in hindsight. It found an almost perfect lag. “Analysts are terribly good at telling us what has just happened but of little use in telling us what is going to happen in the future,” the bank wrote. It’s common to confuse the rearview mirror for the windshield.

88. Success is a lousy teacher,” Bill Gates once said. “It seduces smart people into thinking they can’t lose.”

89. Investor Seth Klarman says, “Macro worries are like sports talk radio. Everyone has a good opinion which probably means that none of them are good.”

90. Several academic studies have shown that those who trade the most earn the lowest returns. Remember Pascal’s wisdom: “All man’s miseries derive from not being able to sit in a quiet room alone.”

91. The best company in the world run by the smartest management can be a terrible investment if purchased at the wrong price.

92. There will be seven to 10 recessions over the next 50 years. Don’t act surprised when they come.

93. No investment points are awarded for difficulty or complexity. Simple strategies can lead to outstanding returns.

94. The president has much less influence over the economy than people think.

95. However much money you think you’ll need for retirement, double it. Now you’re closer to reality.

96. For many, a house is a large liability masquerading as a safe asset.

97. The single best three-year period to own stocks was during the Great Depression. Not far behind was the three-year period starting in 2009, when the economy struggled in utter ruin. The biggest returns begin when most people think the biggest losses are inevitable.

98. Remember what Buffett says about progress: “First come the innovators, then come the imitators, then come the idiots.”

99. And what Mark Twain says about truth: “A lie can travel halfway around the world while truth is putting on its shoes.”

100. And what Marty Whitman says about information: “Rarely do more than three or four variables really count. Everything else is noise.”

101. Among Americans aged 18 to 64, the average number of doctor visits decreased from 4.8 in 2001 to 3.9 in 2010. This is partly because of the weak economy, and partly because of the growing cost of medicine, but it has an important takeaway: You can never extrapolate behavior — even for something as vital as seeing a doctor — indefinitely. Behaviors change.

102. Since last July, elderly Chinese can sue their children who don’t visit often enough, according to Bloomberg. Dealing with an aging population calls for drastic measures.

103. Someone once asked Warren Buffett how to become a better investor. He pointed to a stack of annual reports. “Read 500 pages like this every day,” he said. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

104. If Americans had as many babies from 2007 to 2014 as they did from 2000 to 2007, there would be 2.3 million more kids today. That will affect the economy for decades to come.

105. The Congressional Budget Office’s 2003 prediction of federal debt in the year 2013 was off by $10 trillion. Forecasting is hard. But we still line up for it.

106. According to The Wall Street Journal, in 2010, “for every 1% decrease in shareholder return, the average CEO was paid 0.02% more.”

107. Since 1994, stock market returns are flat if the three days before the Federal Reserve announces interest rate policy are removed, according to a study by the Federal Reserve.

108. In 1989, the CEOs of the seven largest U.S. banks earned an average of 100 times what a typical household made. By 2007, more than 500 times. By 2008, several of those banks no longer existed.

109. Two things make an economy grow: population growth and productivity growth. Everything else is a function of one of those two drivers.

110. The single most important investment question you need to ask yourself is, “How long am I investing for?” How you answer it can change your perspective on everything.

111. “Do nothing” are the two most powerful — and underused — words in investing. The urge to act has transferred an inconceivable amount of wealth from investors to brokers.

112. Apple increased more than 6,000% from 2002 to 2012, but declined on 48% of all trading days. It is never a straight path up.

113. It’s easy to mistake luck for success. J. Paul Getty said, the key to success is: 1) rise early, 2) work hard, 3) strike oil.

114. Dan Gardner writes, “No one can foresee the consequences of trivia and accident, and for that reason alone, the future will forever be filled with surprises.”

115. I once asked Daniel Kahneman about a key to making better decisions. “You should talk to people who disagree with you and you should talk to people who are not in the same emotional situation you are,” he said. Try this before making your next investment decision.

116. No one on the Forbes 400 list of richest Americans can be described as a “perma-bear.” A natural sense of optimism not only healthy, but vital.

117. Economist Alfred Cowles dug through forecasts a popular analyst who “had gained a reputation for successful forecasting” made in The Wall Street Journal in the early 1900s. Among 90 predictions made over a 30-year period, exactly 45 were right and 45 were wrong. This is more common than you think.

118. Since 1900, the S&P 500 has returned about 6.5% per year, but the average difference between any year’s highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

119. How long you stay invested for will likely be the single most important factor determining how well you do at investing.

120. A money manager’s amount of experience doesn’t tell you much. You can underperform the market for an entire career. Many have.

121. A hedge fund once described its edge by stating, “We don’t own one Apple share. Every hedge fund owns Apple.” This type of simple, contrarian thinking is worth its weight in gold in investing.

122. Take two investors. One is an MIT rocket scientist who aced his SATs and can recite pi out to 50 decimal places. He trades several times a week, tapping his intellect in an attempt to outsmart the market by jumping in and out when he’s determined it’s right. The other is a country bumpkin who didn’t attend college. He saves and invests every month in a low-cost index fund come hell or high water. He doesn’t care about beating the market. He just wants it to be his faithful companion. Who’s going to do better in the long run? I’d bet on the latter all day long. “Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ,” Warren Buffett says. Successful investors know their limitations, keep cool, and act with discipline. You can’t measure that.

For more:

Check back every Tuesday and Friday for Morgan Housel’s columns.

More from The Motley Fool: Our retirement experts explain a straightforward way to increase retirement income.

TIME Investing

This New App Makes It Way Cheaper to Trade Stocks

Robinhood
Robinhood Robinhood

Robinhood wants to convince Millennials to dip a toe into the stock market

Next up for disruption by the Silicon Valley set: Wall Street.

A new startup is aiming to convince Millennials to dip a toe into the stock market by making it cheaper and easier to buy securities. Robinhood, a new mobile-first brokerage that launched its iOS app today, lets users buy U.S.-listed stocks without paying a commission, a cost that typically runs individual investors $7 to $10 per trade.

The app’s slick interface lets users buy securities, track stock performance and keep tabs on their overall portfolio. Users don’t even have to maintain a minimum account balance, a common requirement of similar stock-swapping services.

“People in our age group were not being exposed to what we consider a pretty useful tool for building your wealth,” says Robinhood co-founder Vlad Tenev. He and co-founder Baiju Bhatt launched Robinhood in beta for a few thousand users earlier this year. Already half a million people have signed up to request the app, indicating a heavy appetite for cheaper trades. These users will begin being on-boarded to the app today, and newcomers can download the app to join the waitlist and view different stocks.

The company, which has netted $16 million in venture funding from backers like Andreessen Horowitz and Google Ventures, plans to make money by letting investors trade on margin (basically issuing loans to let customers buy additional stock).

Whether or not young investors really need a service that lets them buy stocks “as quickly as you can call an Uber,” as Bhatt puts it, is an open question. Most active stock pickers fail to outperform the overall stock market. During the first 9 months of 2014, only 9.3% of actively managed mutual funds outperformed the S&P 500, according to the Wall Street Journal — and those funds are managed by people whose job is to be good at picking stocks.

Tenev argues that stock-picking is a good way for young people to learn about investing. “It makes a lot of sense for a first-time investor who is an early adopter of technology and discovers companies through using their products and services,” he says.

That advice flies in the face of a lot of collective wisdom about investing, including from famed businessman Warren Buffet. But for those that are still confident they can beat the market and would like to attempt it more affordably, Robinhood will also be available on Android and on desktop soon.

MONEY Tech

Why Amazon.com CEO Jeff Bezos Embraces Failure

Experimenting is essential as long as you don’t bet the company.

For many companies, suffering a nine-figure inventory charge related to a failed product would be a catastrophic event. But for Amazon.com AMAZON.COM INC. AMZN 1.2947% CEO Jeff Bezos, it’s just another day at office.

The folks at Amazon barely blinked last quarter when the company took a $170 million writedown related to its much-maligned Fire Phone. In fact, that charge wasn’t even mentioned in Amazon’s earnings press release, but rather contained in its subsequent Form 10-Q filing with the SEC. And, no, it’s not as though Amazon was simply hoping investors wouldn’t notice. It’s that in the broad scheme of things, Bezos thinks it’s relatively insignificant.

In a recent interview with Business Insider, Amazon CEO Jeff Bezos practically guaranteed that more Fire Phones are on the way, insisting that it’s “going to take many iterations” to determine whether the project is truly a failure.

Failure is always an option

To better understand Bezos’ perspective, consider his comments surrounding that claim.

Immediately beforehand, Bezos offered several examples to shed light on how Amazon has always done business. That notably includes Amazon Auctions, which he laments “didn’t work out very well.” But out of Auctions morphed zShops, which also failed. Then finally, out of zShops came Amazon Marketplace, which became its third-party seller business and now accounts for over 40% of the total units sold on Amazon.com. What at first looked like a massive failure is now an enormous success.

More comparable along the hardware lines, Bezos went on to note that the Kindle is now on its seventh generation and reminded investors that the company has had trouble keeping up with early demand for products such as Fire TV, the Fire TV stick, and Amazon Echo. To be fair, unlike the crowded smartphone industry, those are all innovative creations operating in relatively young markets, so it may not be entirely appropriate to place the Fire Phone in the same bucket.

But does that mean investors can look forward to more big writedowns? Probably not. As Bezos stated, Amazon has generally erred on the side of caution by not producing enough of its hit hardware products. So the next time(s) around, you can be sure Amazon will be much more careful about managing Fire Phone inventories and learning from its previous failure.

One thing Bezos will never do

That also doesn’t mean Amazon is done making — and potentially failing at — other big bets. Bezos elaborated on the relative insignificance of last quarter’s $170 million charge with one caveat:

I’ve made billions of dollars of failures at Amazon.com. […] None of those things are fun, but they also don’t matter. Companies that don’t continue to experiment and don’t embrace failure, they eventually get in the desperate position where the only thing they can do is make a Hail Mary bet at the end of their corporate existence. Whereas companies that are making bets all along, even big bets — but not “bet the company” bets, I don’t believe in “bet the company” bets. That’s when you’re desperate. That’s the last thing you can do. [emphasis mine]

That last point is arguably the most significant: However bold or costly Amazon’s investment decisions might seem, Bezos will never allow them to occur should they threaten the company as a whole. So keeping in mind that Amazon is likely to be much more careful with the Fire Phone going forward, you can be sure it won’t be allowed to run Amazon into the ground.

The funny thing is, this thought process isn’t even remotely new for Amazon. Back in his first letter to shareholders in 1997, Bezos wrote: “We will make bold rather than timid investment decisions where we see a sufficient probability of gaining market leadership advantages. Some of these investments will pay off, others will not, and we will have learned another valuable lesson in either case.”

In the end, the first-gen Fire Phone’s failure is a horrifying example of the “others will not” category. But astute long-term investors know all too well that the propensity to both embrace and learn from that failure is exactly what made Amazon the thriving business we know today.

MONEY Investing

6 Ways Newbie Landlords Can Protect Against Bad Tenants

Hoarder apartment
Alamy

Skip the hassle of dealing with deadbeat renters by adding these steps to your screening process.

One of the main components of being a successful real estate investor is finding good, qualified renters for your properties. There are few things more frustrating and cash flow draining than a renter who is always late on paying their bills or worse, a renter who never makes their payments.

Here are six easy tips for you to follow to protect yourself against deadbeat renters.

1. Before you rent your property, come up with a “perfect renter” profile.

To do this, first list the main selling points of your house from a renter’s point of view. What does the perfect renter do for a living? Do they have children? What would be the renter’s interests? Once you have your avatar built, then you can actively start marketing your property to the perfect client.

For example, if the main selling point of your house its school district, then you might want to let the local PTA group of the grade school, middle school, and high school know that your house is on the rental market. You might also want to put up flyers of your house on the school’s community board.

2. Perform background checks.

This might seem like a very logical thing to do, but you would be surprised at how many landlords never ask the prospective tenant for a background check. The one I use is Tenant Background Search. This service provides me with an eviction report, FICA score, and nationwide criminal background report — and the best part is that it costs around $25 per report.

3. Have a real estate attorney provide you with all legal documents.

Don’t be cheap and buy your rental agreements off the internet at one of these do it yourself websites. Many of these agreements have loopholes that allow the renter too much wiggle room. As my father always told me, “Prepare for the worst, and hope for the best.”

Related: 6 Reasons Landlords Should Thank Their Tenants This Holiday Season

To prepare for the worse, you should go into the agreement with the understanding that you might have to take legal action against the renter — so wouldn’t you feel more at ease knowing that your attorney provided the legal agreement?

4. Be upfront and honest with the renters before they rent.

I have one rental property here in Orlando that has joust windows. Now, these windows give the house a lot of character, and it does give the house a lot of appeal; however, these windows are not air tight, and the electricity bill can be quite expensive, especially in the summer months. I have always been very upfront with all the renters, and I even put this warning in the contractual agreement.

What is interesting is that I have had only one person who decided not to rent the house because of this language, and not one renter in the past 8 years has tried to get out of the rental agreement early due to the high monthly upkeep. On the flip side, the house next door has the same joust windows, and that house always seems to have a “for rent” sign in the yard. As a landlord it is always the best practice to be fair and upfront when dealing with your tenants.

5. Include routine maintenance in the monthly rental amount.

I had to learn this the hard way by having to re-sod the front yard to one of my houses because the tenants never cut the grass, and the yard was overrun with weeds. There is nothing that will hurt the value of a house more than poor curb appeal.

Related: Rent Payment Plans Can Benefit Both Tenant & Landlord: Here’s Why

To protect your investment, include the upkeep of the yard, spraying of weeds, trash removal service, etc. in the monthly amount. This way, you can pay to have someone other than the renter provide these services, and you can make sure they are done properly.

6. Make sure the renters provide their own insurance.

It is always a good idea to put in the agreement that the renters must provide their own renter’s insurance. This way, if something unfortunate happens, it does not back up on you. I also think it is a good idea to have the rental property or properties set up in an LLC; this way, your personal assets are protected should something happen unexpectedly at your rental property. If your accountant tells you an LLC is not advantageous for you, then I would get a million or two million dollar umbrella policy for extra protection.

Being a landlord is really not that hard — just be careful and treat people fairly. Word of mouth is the best marketing, and people want to rent from good landlords.

Read more from The Bigger Pockets Blog:
-7 Smart Tips for Getting the Most Out of a Property Inspection
-Offering Rent Specials to Tenants Can Be a Costly Mistake: Here’s Why
-11 Things Landlords Should Be Doing Every Year…But Probably Aren’t

MONEY Warren Buffett

The One Stock Warren Buffett Is Most Likely to Sell in 2015

Warren Buffett
Bill Pugliano—Getty Images

Is Buffett ready to move on from his biggest "mistake" stock?

Berkshire Hathaway CEO Warren Buffett has established himself as one of the greatest investors and capitalists of our time. His every move and every word is noted and analyzed, and for good reason: People can learn a lot about successful long-term investing through him.

However, even the Oracle of Omaha has made his share of mistakes, and we can learn from those, too. According to the company’s most recent 13-F filing, which discloses its positions in public companies at the end of each quarter, Buffett sold more shares of a company that he’s been gradually selling out of since 2009. Let’s take a closer look at this Berkshire holding. Chances are there’s something we can all learn from the story.

Buffett’s big “mistake of commission”

Back in 2008, Buffett invested billions of dollars into major oil company ConocoPhillips CONOCOPHILLIPS COP 5.8842% . At the time, oil was at all-time high prices, and the world was at the doorstep of a major economic crisis. Here’s how Buffett himself described his decision in his 2008 letter to shareholders:

Last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie [Munger] or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.

Here’s what ConocoPhillips’ stock has done since the quarter Buffett made the big buy:

5dcf081a12eff80d7213374518851f96

We are talking about five and a half years to recover, and at this stage, Berkshire’s holding in ConocoPhillips has fallen to only 472,000 shares from nearly 85 million at the peak in 2008. In all, Buffett invested more than $7 billion in the company, and he had sold almost half of that stake at a major loss by 2010.

Today’s ConocoPhillips is a different company

Berkshire did get some additional value from Buffett’s investment. In 2012, ConocoPhillips spun Phillips 66 PHILLIPS 66 PSX 1.969% out in a tax-free spinoff, and Berkshire ended up with more than 27 million shares of the midstream and petrochemicals giant.

Just last year, Buffett was able to work some more of his magic with those shares, trading around $1.4 billion worth of them back to Phillips 66 in exchange for Phillips Specialty Products, which Berkshire could then pair with its own chemical business, Lubrizol. The beauty of this transaction? Because it was an asset swap, it was tax-free for Berkshire, which would have paid hefty capital gains had it sold those Phillips 66 shares on the open market.

As for ConocoPhillips, Buffett invested in a fully integrated major oil company, while the spinoff turned it into an exploration and production company. Frankly, this major transition of the business is likely one of the major reasons behind Buffett’s years-long process of reducing Berkshire’s holdings in the company. It’s no longer the company he bought.

The bigger picture

Probably the most important lesson here? Even though the ConocoPhillips investment turned out to be a disaster for Berkshire, and I think Buffett will fully exit the investment in 2015, it’s just a drop in the bucket that is the Berkshire portfolio. As of the most recent 13F, the company held more than $107 billion in stocks, and the largest holdings are diversified across the financial, consumer goods, and tech sectors.

The company’s largest exposure to an oil company is ExxonMobil EXXONMOBIL CORP. XOM 3.0205% , the largest of the integrated majors and, by most accounts, the best-run and most conservative with its capital. ExxonMobil makes up about 3.5% of the Berkshire stock portfolio.

The point? Billion-dollar mistakes sound big, but it’s all about the percentages. Berkshire’s portfolio is fairly concentrated, with about 83% invested in the 10 largest holdings, but it’s also a portfolio that gets new money on a regular basis.

Lessons learned

The first lesson is that no investor is infallible — we all make mistakes. There are two things that separate the best investors from the average:

  1. Do you learn from your mistakes and those of others?
  2. Do you focus on a workable investing process or get caught up in the short-term results?

Buffett didn’t let a billion-dollar mistake cause him to change a process that has proved effective for decades of market-crushing returns. If you’re going to follow Buffett, don’t mimic his moves. Develop a long-term process that’s focused on finding great companies. You’ll buy your share of flubs like ConocoPhillips in 2008, but getting a 10-bagger, like American Express AMERICAN EXPRESS CO. AXP 2.4932% has been for Berkshire, will cover up plenty of mistakes.

Jason Hall owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends American Express and Berkshire Hathaway and owns shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Read next: 7 Things You Can Learn From the Greatest Businessman of All Time

MONEY behavioral finance

A Financial Planner’s Most Important Job Isn’t What You Think It Is

holding hnads in comfort
PeopleImages.com—Getty Images

Helping people who are panicking about money is more important than a particular plan or a piece of investing advice.

In the past few years, many of us in the financial planning profession have been coming to terms with a difficult truth: Our clients’ long-term financial success is based less on the structure of their portfolios than it is on their ability to adapt their behaviors to changing economic times.

An increasing number of financial planners are awakening to the fact that our primary business is not producing financial plans or giving investment advice, but rather caring for and transforming the financial and emotional well-being of our clients. And at the very foundation of financial and emotional well-being lies one’s behavior.

I’ve come to understand this over my own three decades as a financial planner, so I was pleased to see the topic of investor behavior featured at a national gathering of the National Association of Personal Financial Advisors in Salt Lake City last May. One of the speakers was Nick Murray, a personal financial adviser, columnist, and author.

“The dominant determinants of long-term, real-life, investment returns are not market behavior, but investment behavior,” Murray told us. “Put all your charts and graphs away and come out into the real world of behavior.”

This made me recall similar advice from a 2009 Financial Planning Association retreat, when Dr. Somnath Basu said, “Start shaking the dust off your psychology books from your college days. This is where [the financial planning profession] is going next.”

Most advisers will agree that, while meticulously constructed investment portfolios have a high probability of withstanding almost any economic storm, none of them can withstand the fatal blow of an owner who panics and sells out.

This is where financial advisers’ behavioral skills can often pay for themselves. Murray, who calls financial planners “behavior modifiers,” reminded us that we are “the antidote to panic.”

Murray said most advisers will try everything they can do to keep a client from turning a temporary decline into a permanent loss of capital. He wasn’t optimistic, however, that the natural tendency of investors to sell low and buy high will stop anytime soon.

His final advice was blunt. “Think of your clients who had beautifully designed and executed investment portfolios that would have carried them through three decades of retirement, who started calling you in 2008 wanting to junk it and go to cash. How many of these people have called you since then and tried to do it again?”

I myself could think of several.

“How many times have they gone out on the ledge and tried to jump, and how many times have you pulled them back in?” Murray asked.

By now I could see heads all over the room nodding.

Then he delivered a memorable line: “I am telling you as a friend, stop wasting your time on these people.” The heads stopped nodding. “Save your goodness and your talents for those who will accept help from you.”

I have certainly learned, often the hard way, that helping people who aren’t ready to change is futile. Yet I disagree to some extent with this part of Murray’s advice. If clients have gone out on the ledge more than once, but have called me and accepted my help in pulling them back in, then together we have succeeded in modifying their behavior.

This is a far different scenario from that of a panicked client who refuses help by ignoring a planner’s advice. If planners see our role as “antidotes to panic,” we need to realize that, for some clients, the antidote may have to be administered more than once.

———-

Rick Kahler, ChFC, is president of Kahler Financial Group, a fee-only financial planning firm. His work and research regarding the integration of financial planning and psychology has been featured or cited in scores of broadcast media, periodicals and books. He is a co-author of four books on financial planning and therapy. He is a faculty member at Golden Gate University and the president of the Financial Therapy Association.

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