Dear Mr. Berko: I’m a 42-year-old single man. I sell commercial printing and make over $160,000 a year. I have a self-directed 401(k), and I’m disgusted with its poor performance. I’m down 6.7 percent year over year, and I just can’t seem to buy the right stocks, or I sell them too soon or pay too much or watch as they reduce the dividends or find that their revenues don’t meet projections. Is there one good book of rules you could recommend to improve my skills at managing my $214,000 401(k)?
— D.L., Joliet, Ill.
Dear D.L.: Unfortunately, there isn’t. However, I can give you the first and second rules of 401(k) investing: Always be a long-term investor. The third rule of 401(k) investing is: Always buy dividend stocks and reinvest the dividends.
As I said, there’s no single book that will give you the necessary answers. But there are some useful books, and there are four learning steps I recommend you take to improve your success in the stock market. I can’t guarantee success, but if you follow my advice, you’ll be light-years ahead of 96.3 percent of those who’ve left the starting line to build a retirement portfolio. Most books on stock market success are just as meaningful as books on how to be an Olympic swimmer, how to play championship golf or how to become a star quarterback. To do those things, first you must have talent in your blood. (Without talent, your chances of success will be poor.) Then you must practice taking your bumps and falls and getting sprains and bruises until you find your balance and comfort level in the pool, on the golf course or on the gridiron. Learning to invest is no different. You must have talent in your blood and grit in your gut. But you’ll still make mistakes because you lack experience. The following recommendations will shorten your learning curve so that when you make mistakes, they’ll be small and you’ll know why you made them.
• Carefully read “The Prince,” written by Niccolo Machiavelli in 1513. Machiavelli, a prodigious writer, was an Italian Renaissance historian, diplomat, politician, humanist and philosopher. “The Prince” is a short treatise that candidly explains the essential and odious relationship between governments and money. It’s a must-read.
