BIO: Gil Baumgarten is a 36-year veteran of the investment industry. In 2010, Gil made a break from the brokerage world to start Segment, a fully fiduciary firm where the interests of the client and the firm could align.

STORY: Gil invested heavily in UBS shares, and when the 2008 financial crisis hit, the stock lost its value and knocked about 80% of the market value of his stocks.

LEARNING: Concentration is the key to getting wealthy. Diversification is the key to keeping your wealth. Don’t be too diversified or overly concentrated.

 

“Wealth is the sum total of all the money you’ve never spent.”Gil Baumgarten

 

Guest profile

Gil Baumgarten is a 36-year veteran of the investment industry. In 2010, Gil made a break from the brokerage world to start Segment, a fully fiduciary firm where the interests of the client and the firm could align. He has since attracted a billion dollars in supervised assets. He is a multi-year recipient of Barron’s Top 1,200 Financial Advisors in America distinction, wherein Gil was ranked in the Top 50 Financial Advisors in Texas.

Worst investment ever

Gil decided to accumulate some stock options and use that to retire in his 60s. His plan was to have a couple of million dollars worth of stock and stock options. Gil invested heavily in the UBS stock and was feeling confident about it.

Come around 2008/09, not only did the stock market fall apart, but his UBS shares dropped and knocked about 80% of the market value of his stock. He lost well into six figures in a relatively short time. The vast majority of his loss was occurring in his UBS shares.

Lessons learned

• Don’t get carried away. Be mindful of the risks that you cannot control.
• Concentration is the key to getting wealthy. Diversification is the key to keeping your wealth.
• Stop speculating, instead buy an index fund and let it sit if you’re interested in compounding wealth.

Andrew’s takeaways

• People get wealthy by first concentrating their energy on improving themselves through education and/or working with smart people. Second, they find the right way places to allocate their money.
• Don’t have too much diversification. You want to get exposure, particularly to the stock market, because you need that compounding. But you also don’t want to be overly concentrated.
• Figure out where you’re going to create the most wealth.

Actionable advice

Reduce speculative investments. Anything that you’re buying with the anticipation that you’re going to sell to someone else at a later date for more money is speculation, as opposed to buying shares in Coca-Cola or American Express, or any other well-established business.

No. 1 goal for the next 12 months

Gil’s number one goal for the next 12 months is to turn readers of his new book FOOLISH: How Investors Get Worked Up and Worked Over by the System into clients.

 

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