This is a philosophical post, not for myself, but for you. This question was inspired by something I read on a blog where the author stated they hoped to get rich through investing. This quip isn't an isolated case, I've heard this from others as well, they invest to get rich, that's their goal.
If you want to get rich I have one piece of advice. Sell all your stocks, walk away from the market and go start a business. With the exception of Warren Buffett there are very few rich people who became rich through investing in publicly traded companies. But what about all those famous investors? Look closely and you'll find they're all rich from starting a business, an asset management businesses.
It's not unusual to hear of entrepreneurs growing companies at 20-50-200% a year or more. There is a startup blog I follow where they claim anyone not growing at 10% a month is failing. Madoff's investors thought they had found the holy grail of investing at 12% a year. It's not uncommon to hear of people starting successful service businesses from a few thousand dollars in initial capital and growing them into companies that generate hundreds of thousands of dollars a year. Whereas it's unusual to hear of someone who starts with a $5,000 brokerage account and turns it unto something throwing off $150,000 a year in dividends within three to five years.
I believe investors with a purpose outperform investors without a purpose. It's like getting in a car to go drive somewhere without knowing the destination. I imagine drivers (investors) who want to get rich are trying to drive to "someplace better" without knowing where that is. Drivers who have a destination in mind can be focused on it, and their focus helps them from driving aimlessly.
My own goal is twofold. I'm first investing a portion of our savings for purchases far in the future. It sounds strange to say that the money we save now is for purchases in the future, but it is. I would rather spend the money I invest at some point rather than hand my kids a pile of cash I never touched. If I spend it, or my kids spend it, or the government spends it, it will eventually be spent by someone at some time.
The second goal of my investing is to maximize the returns possible by taking the least amount of risk. I do that by buying assets and earnings at discounts that are only available in public equities. It seems like a paradox, but private markets for companies are much more efficient than the public market. Outside of extremely unusual situations it would be rare for a private company to sell for less than their property and plant, or less than NCAV, or even for a few times earnings. Yet these conditions are occur with regularity in the public markets.
Staying focused on your purpose helps to ignore investments that don't "fit". An investing purpose could be confused with Buffett's circle of competence. I think they're different, I hear people throw ideas out because it's out of their circle of competence. To me the circle of competence is a phrase meaning that someone intimately understands the topic at hand. There are many ideas that I understand well, but they don't fit my investing purpose. The worst abuse of the phrase is when investors use it as an excuse to not investigate an investment. "Oh banks, that's outside my circle, I'm happy with a tiny circle so I'd rather not learn something new.."
The benefit of having a purpose is that it helps an investor keep focus. I know the types of stocks I do well investing in. There are plenty of other styles of investing that work well for other investors, but they don't work for me. When someone pitches something that doesn't fit in my purpose I can listen and appreciate the idea, but it's not something I need to act on. Having an investing purpose also keeps me from speculating too. I'm focused on long term results, and want to stay aware of risk, by keeping my purpose in mind I don't buy stocks hoping they'll pop on an earnings surprise, or trade short term on rumors.
There are probably very successful investors who had no purpose, maybe it's not even necessary. I know for myself having a purpose to my investments has helped tremendously. I'm not thrown to and fro by the market's waves, I can react quickly when I see an opportunity, and it helps me recognize investments that are good, but not a good fit for myself.