Article by Investment U
It’s hard to feel sorry for Warren Sapp… Yet bankruptcy documents show Sapp had a propensity to make poor investments. Don't make the same mistakes!
It’s hard to feel sorry for Warren Sapp…
As a defensive tackle at the University of Miami, he was a consensus All-American who won multiple awards. He was an NFL first-round draft pick in 1995. And during his professional career, he earned seven trips to the Pro Bowl and a Super Bowl ring in 2002.
These accomplishments brought financial rewards, as well. Sapp reportedly grossed $60 million playing football. And today he earns nearly $116,000 a month as a sports broadcaster for the NFL network. That’s why some were taken aback at his recent bankruptcy filing.
Yet bankruptcy documents show Sapp had a propensity to make poor investments – including an 18,000-square-foot Florida mansion – and spend liberally, including more than 240 pairs of athletic shoes (still in the boxes).
His situation is hardly unique, of course. Baltimore Colts quarterback Johnny Unitas filed for bankruptcy protection in 1991. In more recent years, so did NFL veteran quarterback Mark Brunell and New Orleans Saints running back Deuce McAllister.
Football players are hardly alone. Other celebrity bankruptcies include Willie Nelson, Mike Tyson, MC Hammer, Toni Braxton, Cyndi Lauper, Tom Petty, Kim Basinger, and Ed McMahon.
How could all these famous people – with all those millions – find themselves financially upside down, owing more than they own? The two culprits are almost always the same: overspending and poor investments. They can strike anyone, regardless of net worth… unless you take these basic precautions.
Let’s cover overspending first. Most people imagine that if they just had more money they could save a lot. But expenses have a strong propensity to rise to meet the income available. Today you’re probably earning much more than you did 10 or 20 years ago. But your expenses have probably risen faster than inflation and perhaps faster than your income.
Thomas Stanley, author of The Millionaire Next Door, has studied this phenomenon intensively. He found that the overwhelming majority of successful, high-net-worth individuals follow the same basic formula. They maximize their income, minimize their outgo, and religiously save and invest the difference.
No matter how high your income, it’s still possible – as Warren Sapp and others discovered – to overspend. If you can avoid their overconfidence or lack of self-control, you have won the primary battle.
Still, one major hurdle remains: managing your investments sensibly. This is a topic we discuss five days a week here at Investment U. But I can boil the fundamentals down to just three basic rules:
- Diversify – Not just to reduce your risk but to maximize your chance of holding big winners.
- Stick to quality – Buy high-quality stocks and bonds and forget about penny stocks, options and futures.
- Gird yourself to take the long-term view – To avoid abandoning your strategy when the market gets bumpy, as it always does from time to time.
Can it really be this simple? Yes and no. You’ll notice that successful dieting is equally straightforward. Every day of your life, you either take in more calories than you burn or burn more calories than you take in. (Glance in the direction of your belt buckle to see your running total.)
Investing and dieting are not rocket science. But sticking to core principles – at the dinner table or in the market – is not always easy.
However, the rewards are great if you do. Because no one wants to be a “Sapp.”
Good Investing,
Alexander Green
Article by Investment U
