Good morning, happy Monday, and happy Halloween!
“October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.”
– Mark Twain
I found that quote at the end of last October and I’ve been storing it for a year … glad I can finally share it with you. 😉
Speculate … I fear that far too many people believe that’s what we do as investors. I will passionately contend that is wildly inaccurate.
What is speculation? According to Cambridge dictionary the definition is “the act of buying something hoping that its value will increase and then selling at this higher price in order to make a profit.” (emphasis mine)
Is that what we are doing as investors? Heck no!
As savers, we are taking the financial resources we have today, and instead of spending them for our current enjoyment, we instead set them aside for use at a future point.
As investors, we say, “Let’s take these available dollars that we have saved and maximize the amount of profit we can derive from those funds.” How do we do that?
There are plenty of ways we could deploy those funds that involve speculation. Examples in this category are antiques, cars, art, gold, stamps, or other collectibles.
As a kid I loved baseball. I would spend my summer days playing baseball in the back yard and watching as much baseball on TV as my parents would let me. From ages 10-12 or so the vast majority of my allowance and any money I could earn or receive as a gift I would purchase baseball cards with. I was thoroughly convinced that my baseball card collection would be how I would fund my college education. (Yes, I was thinking about college funding before I hit puberty 😉). Well, needless to say, my baseball card collection is still in boxes in my closet and I’m fairly certain the value of my entire collection is hovering right around zero.
I was speculating. I would purchase an item (baseball cards in this example) and my hope was that someone in the future would be willing to pay me more for that item than what I paid for it. In my mind who wouldn’t pay hundreds of dollars for a Ken Griffey, Jr. rookie card? What was my basis for this belief as a child? Pure speculation. Obviously in my case this was a poor use of my extremely limited funds as a kid, at least from an “investment” standpoint … but I did spend countless hours categorizing, trading, organizing, and displaying the cards so it was not a total waste. Telling this story is probably the most profitable thing those baseball cards ever produced. 😉
But as investors we don’t speculate. We don’t try to guess what someone might be willing to pay for an item in the future. We understand that no one really knows, and it is a game that involves far more risk than we are willing to take.
Instead, we as investors take our hard-earned financial resources and purchase ownership shares in profitable companies. At Intentional Wealth we utilize ETFs (Exchange Traded Funds) and mutual funds to accomplish this objective. These ETFs and mutual funds will purchase ownership shares in dozens to hundreds of companies each. Since you own 20-30 ETFs or mutual funds through your investment allocation, you are a partial owner of hundreds of companies … large, medium, and small; domestic and international; growth and value.
Why do companies exist? The primary objective always has been and always will be to make money for their owners. This was true thousands of years ago, is true today, and it will be true long into the future.
If I owned a potato farm in the 1700s the primary reason I would operate that farm would be to make money. I might hire laborers to plow the fields, I would build relationships with other businesses to purchase my potatoes, and I would connect with people who would provide services I need to run my operation (supplies, equipment, etc.) … but everything I would do would be seeking one primary goal … to make money. Some years business might be great, other years it might be tough, but business owners understand that and realize that long-term profitability is only available through ownership and the ups and downs involved in owning a business is a worthwhile price to pay.
I’m coaching you here to think like a business owner, because as an equity investor that is what you are!
Today we live in such an incredible time because we can purchase businesses through stock ownership. When the business is thriving, I as the owner profit from that. When more challenging times come along, I realize it’s all just part of owning a business. But every day that business operates with the objective of making money for their owners … through stock ownership I can be one of those owners! How cool is that?
As any business owner will tell you the sun does not always shine, so it’s important to be prepared for leaner times, but those who can stomach the ups and downs of business ownership (equity investing) I don’t know a more profitable way to allocate capital.
That my friends is investing … and it is a beautiful thing!
We don’t speculate, we invest! We don’t stress out about short term volatility, that’s all just part of the journey. We don’t even get overly worried about election results because we know businesses will maneuver in whatever economic environment they find themselves in to maximize profits for their owners.
We profit from our ownership stake in amazing businesses, that’s nothing even close to speculation. 😊
As a side note, if anyone is interested in a large collection of baseball cards from the 1990s, please let me know. 😉 I’m obviously kidding … there’s lots more dust for them to collect!
Thank you for the incredible privilege of partnering with you on your financial journey. Please never hesitate to let us know any way we can support you further.
Make it a great week ahead.