Captain Patrick Gordon
It's Money, Honey
Congratulations to the Reddit message board, the Robinhood investing App and all their Merry Men. Finally, a chance for the “little guys” to get into the market and build a sound base of financial security. The past weeks have introduced a paradigm shift in investing. Robinhood has been around a lot longer than many of us have known about. They offer comprehensive basic training in investing with simple to follow procedures that enable everyone to learn how to invest in stocks, exchange traded funds, Bitcoin and other cryptocurrencies.
Sensible investing, for little guys like you and me, is achieved by each of us learning how to do the basic research involved in finding a company that has strong financials, forward thinking management and ideas that will generate profits that we can share in year, after year. I like to look for companies that have all of this and can pay a dividend. Unfortunately, they are getting rarer than chicken’s teeth. When you find them, it can be costly to buy into them. One normally has to buy a minimum of 100 or 200 shares which is a lot of cash for a beginning investor to have available. With the introduction of Robinhood it’s now possible to buy fractions of company shares. That concept has been a long time coming to the stock market. It’s been possible to buy fractional shares of executive jets and luxurious yachts for a couple of decades. What an investment door opener this development has proven to be for the millions of people who can’t afford either executive jets or yachts.
I was earning a salary in my chosen trade before I even thought about handling my finances with a view toward long-term saving and investing. Prior to that it took every dime I earned to accumulate the pilot licenses, ratings and flying time I need to get my first serious flying job. Becoming, and remaining a Professional Pilot is not just a career, it’s nearly an obsession.
I wasn’t taught personal financial planning in school, but both of my parents lived through “The Depression”. The lessons they learned in basic frugality and, to quote Kevin O’Leary, Mr. Wonderful on CNBC and Shark Tank, “Not buying crap” were passed on to me through every day living.
The majority of youngsters in school today aren’t taught anything about personal financial security either. In fact, it’s probable that they even get their university degrees in a wide variety of subjects and are just as financially naive as I was a half century ago.
Congratulations educational systems!
Retail buyers is a much nicer sounding name than “Little People”, so we’ll use that term. Recently, a mass of retail buyers got together somewhat like an investment Flash Mob and hammered the hell out of the professional hedge fund managers who had over-shorted one company’s stock by about 140%. That means that the “Shorts” were betting that 140% of the company’s outstanding shares would drop in price. The further down the hedge fund managers could drive the price of the stock the more money they could make. When the Flash Mob started driving up the price the professionals had to sell off enough of their portfolios to pay the resulting margin calls. Playing around with any shares that are in excess of 100% of the outstanding shares is a bit like playing financial musical chairs.
In my mind, this movement was a bit like a Ponzi scheme in that if the retail buyer, driving up the stock, got in early and sold out ahead of the crowd, they could make a great deal of money. However, behold the wailing and gnashing of teeth of those who got in late and tried to sell out too late. In my humble opinion, the way to build a strong financial base for yourself and your loved ones is NOT to go for the big financial kill in spite of it seeming to be the current modus operandi. The mindset should not be, “I want it all and I want it now”. That’s an explicit way to lose your donkey in a hurry.
A good friend of mine, and his wife, have been self-directing their investments for their entire 36 years of marriage. On their own, they have learned the basics of investing and the perils of trying to trade options, buying and selling Puts and Calls. His first attempt at buying options was many years ago with Delta Airlines Calls. This is how he explained his learning experience to me. “I have never worked for Delta but I’m a pilot and a manager, so I know aviation, right? Wrong! I hadn’t yet read the chapter about “Black Swans. I lost that little, hard-earned nest egg so quickly I didn’t have time for my head to spin”.
That episode drove him and his wife to the obvious conclusion that two heads are better than one. Perhaps their conclusion was also a carry-over from the then, nascent concept of CRM, Cockpit Resources Management. I believe, in aviation, it’s still abbreviated by CRM, but I think it now means Crew Resources Management where you try to utilize as much of the combined crew knowledge as possible toward the overall safety of the flight.
This couple began taking monthly turns at investing. One month he’d make the recommendation and “sell” his wife on his company of choice. The next month, or time they had some extra money to invest, it would be her turn to make and justify a recommendation to him. Their presentations to one another included not only when to buy, but when to sell. That plan drove them both to learn more and more about investing. It also ensured that they both knew where their finances stood if either of them had been hit by the proverbial truck. He once told me, on a flight, that when his Father had died, his Mother had no idea of her financial situation as a new widow. She’d gone through a very expensive learning experience. One he didn’t want his wife to go through.
Three decades ago, investing was tedious to near impossible for the retail investor. My friend and his wife had no access to information other than magazine and newspaper articles and their ability to determine where they thought a company was going. The purchase of shares involved calling their Financial Advisor at a major brokerage and discussing the purchase with them. If all three agreed the purchase was made. In fact, with all three of them involved, most of their purchases were positive. He told me that they’d had a few dogs but nothing financially devastating.
Nowadays the research capability available to the retail investor is, literally, mind boggling. We have more information at our fingertips than the professionals ever had previously. We are on the verge of information overload when you look at the programs available to us through companies like Robinhood, Charles Schwab and TD Ameritrade, both of which, are now one giant company. Their websites have all of the information you could ask for as well as special educational, on-line short courses that expand your knowledge at your convenience. In any of them, you can literally open an account with no money and gain access to a wealth of information.
That information is invaluable. Don’t waste that resource on chasing rainbows or running with the crowd. Take your time and learn how to enjoy researching all of the riches and possibilities that the stock market can provide. Yes, the market goes up and then it goes down again. Sometimes precipitously in either direction. But look at the market over the long term and by long term I mean decades. There are a few international companies that have survived two world wars even when they were on the losing side in both of them.
Companies may wind up being the financial saviors of life as we know it. Big government doesn’t seem to know how to do things efficiently other than spend money and tax the populace. Businesses are the only entities that exist for the purpose of providing a service or a product with the goal of making a profit. Get on board that band wagon and invest in your own personal future. If you have a 401K retirement program in which the company you work for matches your funds into the program good for you, stick with it. Consider starting your own private investment account that would be difficult for someone to take away. Pension programs have been stripped by greedy takeover artists. Corrupt management has left workers out in the cold. A diverse bag of shares, in a variety of companies that you personally own, would be much more advantageous to your financial long-term health.
The Internet has been a Godsend to the world. Social media such as Facebook and Twitter? Not so much. Use the capability you now have at your fingertips to improve your life by improving your financial knowledge. Nowhere is it more evident and gratifying than in the world of investing. Good hunting!