My daughters each have their own investment accounts, funded with a little bit of money they receive from allowances and gifts. And regardless of how disinterested they appear or seem to appear, I talk to them about the world and the goings in the markets at every chance I get. I am the boringest dad of all, just like the rest of you.
And I do it because this is the only chance I have while they are still under my roof. I want them to understand how our economic system works. I want to empower them with the tools needed to help them make good life decisions. I want them to know about credit cards and credit scores. I want them to know about stocks and bonds and that they get to own tiny pieces of some of the world’s best businesses at the click of a button. I want them to know how the business world works and that nothing happens in the quick.
But greed and the sight of easy money are such strong emotions that it is hard for anyone to not succumb to them, let alone kids who have yet to know how to separate the wheat from the chaff. Mix in envy and now we have a potent combination that can lay waste to the best of plans.
Nothing so undermines your financial judgement as the sight of your neighbor getting rich.
J.P. Morgan
I want my daughters to succumb to those emotions. I want them to make mistakes, lots of them. In fact, I want them to completely ignore what I have to say and do something really dumb, like buy penny stocks. I want them to follow some rando on the internet and act on it.
And I hope they lose all their money in that process. Because it is so much better to make mistakes and they are mistakes and learn from them with a small amount of money than to lose it all after a lifetime of diligent savings.
Because it happens. I have seen it happen. Folks, literally about to retire, having to start all over again. It does not take much in this trigger-happy world.
But I know my kids would do fine. With all that brainwashing I have done to them, they ought to do fine.
Stock price changes over the short run is all noise. Stocks represent business ownership. Nothing much changes for a business in a day, a month, or a year. It takes many years for decisions made today to show up on a business’s bottom-line.
Jeff Bezos, in one of Amazon’s earnings calls, said this upon being congratulated for reporting great numbers.
When somebody…congratulates Amazon on a good quarter…I say thank you. But what I’m thinking to myself is…those quarterly results were actually pretty much fully baked about 3 years ago. Today I’m working on a quarter that is going to happen in 2020. Not next quarter. Next quarter for all practical purposes is done already and it has probably been done for a couple of years.
Jeff Bezos, May 8, 2017
So, reacting to market events that are short-term in nature is of course dumb. And the many brokerage apps with video-gamesque features enticing you to “play” don’t help either.
In fact, if I were running a well-meaning investment business (I am), I’d charge a toll every time you’d try to log into your accounts. We have turned what should be a well thought-out, long-term process of business ownership into a game.
It is not a game. When you buy stocks, you buy pieces of real businesses – with employees and buildings and factories and machines, all working in tandem to make life better for all of us. There are exceptions but the market corrects for them with time.
Real money is not made in exchanging pieces of paper with your neighbor or with those traders at Goldman Sachs. Because that is what you are doing when you buy and sell and then buy again and sell again while your money bleeds to taxes and fees.
The real money in investment will have to be made – as most of it has been in the past – not out of buying and selling but of owning and holding securities, receiving interest and dividends and increases in value.
Benjamin Graham, The Intelligent Investor
Real money is in the holding. Real money is in building the conviction to double down when opportunities present themselves.
Investing should be boring, as boring as watching paint dry. The more exciting you make it and the longer you play at it, the more you’ll lose. That is like going to Vegas but without the Vegas fun.
I’ll leave you with this conversation between Bezos, Buffett and Brian Chesky, the founder of AirBnB that took place sometimes in 2013.
Chesky to Bezos: “Jeff, what’s the best advice Warren Buffett ever gave you?”
Bezos: “[I asked Warren,] your investment thesis is so simple…you’re the second richest guy in the world, and it’s so simple. Why doesn’t everyone just copy you?”
Buffett: “Because nobody wants to get rich slow.”
Nobody wants to wait from years one to ten to see the wealth snowball start to roll up the hill from years eleven to twenty, accumulating more powder on an ever-larger surface area as it rolls along, getting bigger and bigger, with no help from you.
That is too bad. Nobody wants to get rich slow and that is why many never get rich.
Thank you for your time.
Cover image credit – Jeswin Thomas, Pexel