Following is the first chapter of a book I’m working on that will be published in Japan and possibly in the US. I will be pre-publishing the rest, one chapter at a time, over the coming weeks. As always with my “works in progress,” I welcome your input. You can share your comments and suggestions with me here.
Chapter One: Is It Actually Possible to Make Money with Stocks?
One man told me the market would take it back. The other had found a way to take it from the market.
I’m thinking this took place towards the end of 1984, though it might have been the spring of 1985.
The information product I had invented a few years earlier had been a big success. In its first two years, it had brought our fledgling publishing company additional revenues of more than $20 million – a small but not insignificant slice of which found its way into my bank account.
On top of that, one of the two products I had more recently invented and marketed had come out of the gates strongly and was looking like my second big success.
Sometime after I started working there, JSN, my boss and future partner, brought me into his office and told me that he was impressed with my work ethic and other presumably admirable qualities that didn’t stick in my memory. (Probably because they were impossible to believe.)
I do remember that I had redesigned one of our newsletters and even put a new headline on the ad that was selling it. He said that if I had other ideas about how to improve our product line or increase response rates on our advertising, he would be happy to implement them.
This led to a few more little achievements on my part, for which he bumped up my salary a bit. And eventually it led to him offering me an actual piece of equity if I could create something new for the business – something that was not only new in concept but had the potential to bring in higher revenues than the products we were currently selling. He said that so long as I did 90% of the work on it, he would give me 10% of the profits.
At that point in my life, I knew nothing about the value of money. His offer seemed a tad stingy to me – but looking back on it now, it was the most generous offer I have ever taken advantage of.
So at age 34 – or 35, I’ve never been able to pin it down – I was making more money every month than I had made in a year at my last job.
I got rid of a good chunk of it almost immediately. I bought my first house, a starter place about a mile from the office that had – are you ready for this? – a garage door that could be opened and closed automatically with a little plastic device. Plus, a Honda Civic. Not just any Honda Civic. A new one!
I’m mentioning this to give you an indication of something that will elucidate the rest of this story. I grew up poor – as did, I guess, everybody that ever told this sort of story – never expecting to actually get rich just by deciding to get rich.
But I did. Sorta.
What do I want to say?
I did not have at that time the temperament one might expect based on my early accomplishment. I was not a Horatio Alger. I was lazy and averse to risk. On top of that, I had what they now call Attention Deficit Disorder, which was compounded by having an above-average intelligence with a below-average interest in getting ahead in the world.
And yet, I did.
There I was – a young man already in the top 10% of US income earners, with no plan on where to go from there, but plenty of ideas about how I could get into trouble with the money I was making.
I had the new house. I had the new car. And I was the author of two new products that were kicking butt.
Which meant that, despite my “high-tech” house and trophy ride, I was still earning a great deal more than I was spending. Which meant that I had an opportunity I’d never had before: the chance to turn that little pile of money into a bigger one by doing something called investing.
And here’s what, in memory, is a curious coincidence. The two men that were destined to be my first two mentors on the subject of building wealth sat about 20 feet apart.
Sid, Who Had Watched Men Lose Everything
Once I started making real money, JSN sent me down the hall to get some advice from his father-in-law on what to do with it.
Sid had been an accountant his whole working life. He was reserved in the way certain men of his generation were reserved – not cold, but unwilling to waste words. He had watched money come and go, and he had reached conclusions about it that he was not interested in relitigating with a 34-year-old.
“I’ve saved some extra money that I want to put into some kind of investment,” I told him. “What do you think?”
He sat back and gave me a smile of approval.
“First,” I said, “and this is something I’ve been thinking about since I was a kid – I’m thinking about investing in art.”
He gripped the arms of his chair and leaned towards me.
“Art?” he said. “You want to invest money in art?”
I opened my mouth to explain that the kind of art I had in mind was the kind bought and sold in auction houses. The kind the great industrialists had collected. The kind of art that, after they died, was left in beautiful buildings for ordinary people to enjoy. Ordinary people like my mother, who worked two jobs and ran a household of ten, and who, on a rare free day, would go into the city with her 12-year-old son and spend a few hours in the vast and beautiful quiet of it.
“You want to invest money in art?” Sid said again.
Then, lowering his voice a little, he said, “I’ll tell you what art is. It’s pictures on walls. That’s all. Just pictures on walls.”
“Oh,” I said.
So I tried my second idea, another asset class I knew almost nothing about, but one I assumed he would approve of.
“What about stocks?” I said.
Sid seemed relieved that I seemed to have dropped the idea of buying art, but the idea of buying stocks didn’t put that smile of approval back on his face. He looked down and shook his head gently, the way a kind teacher does when a child has tried and failed for the second time to answer a simple question.
“Stocks,” he said, almost mournfully. Then he raised his head.
“Mark. I have to tell you something.”
“What is it, Sid?”
“I understand where you get that. You get it from your boss. My son-in-law.”
“Well, I suppose…”
“I’ve got two words for you about stocks.”
“What are they?”
“Stocks! Shmocks!”
I sat back. He leaned forward again, looked over his shoulder as though checking to make sure nobody was listening, and dropped his voice almost to a whisper.
“Listen to me, kid. I know you’ve seen what my son-in-law has done with stocks, but he has an advantage you don’t have. He really knows how to play that game. Yes, he’s made a lot of money in the market. but it’s not for you. Why take the risk? You can grow your nest egg safely by doing what I do.”
“Which is?”
“Put your money into triple-A-rated municipal bonds. The interest is guaranteed. And they’re tax free.”
I was surprised. And Sid wasn’t surprised that I was surprised. He knew perfectly well that most investors preferred stocks over bonds because, as a group, they offered higher returns. In theory, much higher.
But Sid had lived through the Great Depression, and he had spent his career watching what happened to people who thought they understood the investments they owned. Millions of dollars of hard-earned money disappearing, sometimes gradually and sometimes in a week.
So his approach was conservative to the point of immovability – and it made a kind of sense to me. Something I felt in my gut, rather than my head.
On top of that, I realized that, unlike JSN, he had the settled, unbothered air of a man who had never once in his life woken at three in the morning to check a stock price.
And there was something I didn’t know at the time that I want you to hold on to, because it changes everything about the advice Sid was giving me.
He was a rich man.
Sid had spent his working life inside other people’s books, watching how money actually gets made, and he had drawn his own conclusions and acted on them quietly. What he believed – and what it took me a very long time to hear properly – was that you invest in current reality rather than future possibility. In the facts of today rather than the promises of tomorrow.
JSN, Who Had a Telephone
Twenty feet down the hall sat a man with entirely different ideas.
JSN was the smartest man I have ever worked with, and I have worked with more clever men in my industry than I can count. Shrewd as well as clever, a rare combination, and quick in a way that was almost unfair. He could spend an hour with a fellow who sold aprons and come away understanding the apron business better than its owner did.
Sid was right when he said that JSN knew how to “play” the stock market. He had spent the better part of a decade as a stock trader long before I ever met him. (While still a very young man, he had bought a seat on the New York Stock Exchange.) He knew people. Floor brokers, specialists, men who had been clerks when he was a clerk. What he had learned about stocks in those days came out of their mouths rather than off a page. And that’s not counting everything he’d learned since then.
JSN had contacts – and he believed that a fellow who had an advantage ought to use it.
I once walked into his office with some advertising copy that needed approving and stood there while he finished a call. He hung up, looked past me for a second, and said: “That was Danny. Somebody’s taking every share of that thing that comes loose, and it isn’t the company buying it back.”
Nothing in that sentence made any sense to me at the time. It wasn’t in any textbook I was studying. It wasn’t about anybody inventing a brilliant product or designing a breakthrough marketing campaign. It wasn’t about the company at all. It was about who was standing on the other side of the trade – a fact that never appears in an annual report and never will.
What I Actually Did About It
I have thought about that a lot. The man with the telephone and the edge, who believed that a fellow who had an advantage ought to use it, had sent me down the hall to an accountant who bought bonds.
There I was, 30-something, earning more than I could spend for the first time in my life, trying to make sense of what appeared to be two flatly opposite opinions on the wisdom of investing my money in the stock market.
Sid said stay out, because the market would take back the dollars I had earned. JSN had found a corner of that same market where he could reliably increase his wealth – and had done it fairly spectacularly, as far as I could see.
I assumed that I was being handed two sides of an argument and that my job was to choose one.
So what did I do?
By the end of that year, I was buying triple-A municipal bonds. But underneath that decision was a plan of sorts: “I’ll listen to Sid with the money I’m making now – and maybe one day, when I have a lot more money, I’ll move into stocks.”
I made that move. But I never left the bonds.
Conventional wisdom says that a man of 34 should reach for risk, having the years to recover from it. I was reaching the other way – and it would be 40 years before I understood why that was right for me.
What I could not see then – and would not see for a very long time – is that Sid and JSN were never arguing with each other at all.
Coming Next…
Chapter Two: Nigel Patiently Explains to Me How the “Efficient Market Hypothesis” Works
Worth Considering
Three Quick Bites
Chicago Opened FREE Supermarkets… 24 Hours Later, They Were Looted
Chicago is already proving the point I made in the August 13 issue. This guy explains the details.
Foreign Wars: The Ultimate Divider at Home
“Those who oppose foreign wars find themselves at an impasse with those who support them,” writes John Leake in a recent essay in Focal Points. Read more here.
Worth Watching: Masterminds
I have no idea how I came across this free movie on YouTube. I clicked on the link, and I couldn’t stop watching it. It’s based on a true story – one of the biggest armored car robberies in US history. Planned and executed by a few not-very-smart dudes… but they got away with it.
Worth Considering
Postscript: Remember Allie Sherlock?
It’s been a while since I shared a performance by my favorite busker. Here she is covering Jason Mraz’s sweet and clever “I’m Yours.”
