The Transformative Moment of My Investing Life

investkey

 

Today, I wanted to share with you a moment in my life that “changed everything” regarding how I view investing. For those of you who follow my writings about dividend stocks, it might make sense to give you some context on “where I’m coming from” with my articles.

The summer after I completed my freshman year of college at Washington & Lee, I went to stay with one of my friends for a couple days to hang out before I had to start working (that summer, I was a teaching assistant for a program that taught Reading and Math to students from the inner city of St. Louis, and because it was only a six-week program, I was able to enjoy a meaningful summer break and visit friends).

Anyway, my friend’s dad worked with his dad (my friend’s grandfather) to run a boutique investment firm. It was a nice little family operation. Some of the clients hung out at the little firm buried deep within a busy strip mall, even though they had no trades to place or apparent business to conduct. It looked like a scene out of Floyd’s barbershop in Mayberry from The Andy Griffith Show.

After I met my friend’s grandfather, he took me on a tour of the operation’s back room. There, he showed me some pages documenting the long-term investments of some of his clients after I asked him about his “best” investments. Since I was only nineteen years old, I was not yet at a point where I could tell you the stock prices and dividend payouts for most blue-chip companies by memory, but I was aware enough to realize that I was looking at something wonderful. I saw trade confirmations documenting the purchase of Coca-Cola at $13 per share, or Exxon Mobil at $20 per share, or Colgate-Palmolive at $40 per share. I do not remember if those were the exact numbers, but I did know enough to realize that there were significant differences between the low prices of the trade confirmation sheets and the prevailing prices of those stocks at the time. Yes, I was in long-term investing heaven.

And then, I saw a bunch of checks sitting on the grandpa’s desk. When I inquired, he explained that “Mr. Smith” did not trust electronic deposit, and chose to pick up his dividend checks himself. I am glad I got to experience that moment. While it is nice and convenient that everything is electronic these days, I do think it sometimes takes away from the “realness” of the fact that we are dealing with living, breathing businesses when we buy shares of stock in a company.

Nowadays, grandparents cannot even give their grandchildren a Series EE or Series I saving bond in paper form for Christmas. Instead, they have to register their grandchildren for an account at treasurydirect.gov, and they can print out an electronic receipt. Something gets lost when we take away the tangibility of things. These abstractions can ruin the lives of investors that are not good at dealing with things on the theoretical level (the good news is that not all hope is lost, and those types of investors can invest in easily tangible assets like real estate).

Anyway, I am really glad that the teenaged version of myself got to see “Mr. Smith’s” dividend checks sitting there. Although I am perhaps projecting what I know now onto that experience, I do believe that it taught me that stocks are not these tiny little blips on a screen that go up and down.

Stocks are real, live businesses that earn a profit. If I buy 100 shares of Coca-Cola for $4,200 dollars, my shares will be earning $190 in profit and sending me $120 of that profit in the form of cash dividends. The change in price does not necessarily mean the business is changing. Coke has gone down 4% in the past couple of days, yet the earnings are expected to grow 8% next year!  Those $120 checks will show up each year as long as people continue to drink Coke, Diet Coke, Sprite, and 493 other brands, and my ability to receive that dividend will continue regardless of whether Coca-Cola trades at $35 per share or $45 per share this time next year.

I love everything about the “culture” of being a long-term investor. Everything I witnessed at the family operation showcased something I wanted to incorporate into my own life. When most people hear the word “investing”, they might think of colorful stock prices flashing across a screen and a crowd of men yelling “Buy! Buy! Buy!” or “Sell! Sell! Sell!”.

It does not have to be that way. You can work with people you trust. You can buy high-quality assets, and like a patient farmer, watch them grow with time as you combine reinvested dividends with dividend increases from those high-quality assets. You can enjoy life while your money silently compounds in the background. You can swat falling stock prices like an irritating bee, and find an oasis in those dividend checks that show up every day. It’s not just about maximizing the total returns of every single investment you make. It’s also about the style of how you arrange your investing life so that it can facilitate happiness in your personal life. I am thankful I learned that lesson at an early age.

 

 

 

 

Loading Facebook Comments ...

9 thoughts on “The Transformative Moment of My Investing Life

  1. says:

    Hola Tim!! Muchas gracias por el excelente trabajo que realizas. Creo que no tienes idea hasta donde puede ayudar leer cada uno de tus articulos, ya eres un punto de referencia en mi proceso de invertir. Tus articulos mas que una guia son una escuela de inversion, por lo que te animo a continuar.

    Mi primer lenguaje es el espanol, por lo que utilizo el traductor de google para comprender correctamente el sentido de tus articulos, aunque puedo leerlos en ingles ya que usas un lenguaje bien claro y sencillo para exponer tus ideas. Me gusta tu estilo de inversion y lo sigo.

    Solo queria dejarte saber que tambien tienes lectores en otros idiomas, darte las gracias por cada articulo que publicas y desearte muchos exitos en tu vida como inversor.

    Saludos

    Gil

  2. Tim McAleenan says:

    Gilberto! Muchas gracias. Yo tome algunos clases en espanol cuando era en la universidad, y pude comprender lo que tu digas. No se si tienes esta exprecision en la lingua espanola, pero "tu hiciste mi dia con tus palabras simpaticas". Eso significa mucho para mi.

  3. Juan Salazar says:

    Hello Tim, you write well. I read your articles in Seeking Alpha. I look forward to following your blog. Is investing your full time job or a hobby>

  4. says:

    Tim, I’m so glad I had the time to do some “fun” reading tonight after a long day of reading up on a couple of energy companies. Like you, I am a history buff & have been all my life & in many ways that is how I approach evaluating a company. I want to know about the history of that company, from where it started to where it is today. Now I know how you got to where you are– penning all these informative articles that contribute to the basket of investing knowledge I’m attempting to fill. I love this because I learn something everyday. YOu are so far beyond your years. In fact, you are probably the same age as my son who has 2 years left of med school & then 9 years of residency (neurosurgery). While I manage his accounts/investments he is constantly studying/working & I teach him a little a long the way when I buy/sell stocks for him. I am amazed at the knowledge he has; at the same time I’m amazed at the knowledge that YOU have. I wish you could meet him but in many ways he is a “study hermit” much like me.

    In regards to the “charity” subject which you pondered in another section, I will tell you that in your own way you are very generously giving to many people who are trying to learn about stocks/the stock market/investing. There are many ways to “give,” & have no doubt, you are “giving” when you share your time & knowledge with all those who read what you write. Sometimes, there is a kind of charity & giving that will go much further than any dollar amount ever will, & it will last much, much longer for those to whom you are “giving.” You truly have a gift; thank you for sharing it with so many!

  5. Ben says:

    Hello Tim,

    You really do a great job explaining investing basics in a simple and effective way. I would like to get your perspective on the following situation?

    My employer 401k doesn't have the option to invest in individual stocks. In this case, would it be a good idea to invest 401k funds in an index etf ( international , emerging and bonds) so that we can invest in individual stocks using IRA and brokerage accounts.

    Thanks,

    Ben

  6. RobErskine says:

    Tim, greetings from Sydney, Australa. I just discovered your blog a few days ago and have been reading through the archives. I too had a “light bulb” moment when speaking with my accountant about investments. Having been accustomed to the share price focus of the press and industry I never really understood the power of share price growth + dividends, until I learned of clients of his that were on typical middle manager wages but had DCA’d into blue chips over 25-30 years and were now receiving $300-400k in dividend cheques per annum. I was blown away….as Australia has dividend imputation it’s a great place for income investors, the only problem is the market is essentially banks, resources and a couple of supermarkets!

  7. tejaswini_radiant says:

    I read your post about Corporate bonds being no longer safe as they were in Graham’s days. It was a light-bulb moment. Thanks for sharing your insights with us.

Leave a Reply