My daughters each have their own investment accounts, fed with a little bit of money they receive from allowances and gifts here and there. And that tendency I have regardless of how disinterested they appear or seem to appear, I talk about the world and the goings in the markets at every chance I get. I am the boringest dad, just like the rest of y’all.
And I do it because I want them to take an active role in studying a business, how it makes money, what its future looks like and whether they should deploy their savings into buying a stake in it.
And I want them to make mistakes. In fact, I want them to completely ignore what I have to say and do something stupid, like buy a penny stock. I want them to follow some random advice they hear or read and act on it.
And I secretly hope they lose everything. 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 daughters 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 mostly noise. Stocks represent business ownership. Nothing much changes for a business in any given 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 call, said this upon being congratulated for the business reporting good profits.
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 transitory in nature is of course dumb. And of course, I hate those stock trading apps with video-gamesque interfaces, enticing you to “play”.
In fact, if I were running a well-meaning investment company (I am), I’d charge a toll every time you’d try to log into your accounts. We have turned what should be a dull and dry 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’s what you’ll be doing when you buy and sell. And then buy again. And sell again.
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. And having the conviction to double down when those rare opportunities arise.
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. Like Vegas but without the Vegas fun.
I’ll leave you with this snippet from an interaction that occurred sometimes in 2013 between Bezos, Buffett and Brian Chesky, the founder of AirBnB.
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.”
Yes, because nobody wants to wait from years one to ten to see that wealth snowball start to roll up the hill, accumulating more powder on an ever larger surface area as it rolls along, getting bigger and bigger, with no help from you.
Too bad.
Nobody wants to get rich slow and that is why they never get rich.
Thank you for your time.
Cover image credit – Jeswin Thomas, Pexel