Back when I was an undergraduate at Washington & Lee University, I made the argument to one of my history professors that low-fee DRIP plans provided an example of where Marxist principles actually overlapped with capitalist principles (I know what you’re thinking right now, and the answer is yes, I was always this sexy). My logic was this: I pointed out to the stock ownership plans that Ford, General Motors, Bethlehem Steel, RJ Reynolds, and Philip Morris offered their working-class employees to demonstrate how these plans satisfied the Marxist appeal to allow the workers to become part-owners of the company if they so desired while also appealing to the traditionally American capitalistic notion that if you work hard, spend less than you earn, and do something intelligent with that spread, you have the freedom to put together a nice life for yourself.
As I’m guessing most readers are aware, this past week marked the 50th Anniversary of Martin Luther King’s “I Have A Dream” speech. In a lot of ways, it feels odd to watch videos about the days of overt discrimination because I grew up in a world where Tiger Woods was the premier golfer, Eminem was the top-billing rapper, and Oprah was the top television personality. Whatever old-school traditions existed about race, I wasn’t there to experience them.
But when I spent some time this week reflecting on The Civil Rights Movement, I thought about how great it is that I get to spend my time writing about investing. Equality is a loaded word with a lot of different branches, but one of the most important forms of equality is this: the uninhibited freedom to build wealth. That’s part of what makes the stock market so egalitarian—it’s the greatest meritocracy in the world. If you own 1,000 shares of IBM stock, you get that $0.95 quarterly dividend. You can’t get denied that dividend because of your skin color or gender. It’s yours because every owner is entitled to the same proportional benefit. I love that fact about stock ownership.
The purchase of publicly traded stocks is free from the BS that permeates the rest of life. If you think BP is worth $70 per share and you want to buy it for $40 per share, nothing can stop you from buying that stock. There’s no third party there to say, “No, this stock is not for you” or “I’m sorry, I don’t want you to be a part owner.” It’s open to everyone over the age of 18 (and, in some cases, younger than that with guardian approval or oversight).
If you compound your money at 11.0% over the next twenty years while I compound my money at 8.5%, you were better at creating wealth than me over that measured time period. It’s entirely straightforward in that regard. The rest of life is murkier—Did she get that promotion because she’s the best looking person in the office? Did he get that job because his dad is a big businessmen on corporate boards all throughout Dallas? Did he get rejected from that country club because he made a $5,000 political donation to the Bernie Sanders campaign? None of that junk exists when we talk about stocks. The market is open to everyone, and it’s all about finding the right intersection between prices and the growth of cash flows.
If you’re a man, you are allowed to buy $10,000 worth of Coca-Cola stock. If you are a woman, you are allowed to buy $10,000 worth of Coca-Cola stock. If you are white or black, you are allowed to buy $10,000 worth of Coca-Cola stock. This equality is awesome—investing is free from all the –isms that dominate the rest of life. The fact that the rewards of stock ownership are based entirely on the proportional ownership principle and allow no grounds for personal judgment/discrimination is what makes it so equal and great.
The free ability to build wealth is a critical component of equality. The fact that anyone living in the United States today can go to Scottrade, Charles Schwab, or Computershare, and open up an account and start depositing funds into their account is one of the most important components of equality realized by the vision Martin Luther King articulated half a century ago.
Originally posted 2013-09-01 17:40:04.
Tim,
I have not been able to unsubscribe from this blog. Can you please remove my email address from the list. I enjoy reading your articles but I do not want a daily subscription.
Thanks so much, Cec Wheeler
The e-mail should contain an "unsubscribe" link at the bottom.
"The free ability to build wealth is a critical component of equality."
Good article but your youthful optimism is showing through your financial maturity.
On a positive note, here is a story I think you will find interesting …
In a book by Harold Evensky, CFP (I can't remember the title) there is a chapter on John W. Rogers, Jr., head of Ariel Investments. It shows the value of an early education in stock investment. At the age of 12, John's father gave him stock as a present instead of the toys he wanted. According the the book, his father let him spend the dividends. If you look at the web site for Ariel, John attributes his "passion for investing" to this start. The president of Ariel is a black woman, Mellody Hobson. I don't know anything about her background but she is very involved in financial literacy programs. What I find interesting is that Rogers' early financial education not only changed his life but also the people to whom he gave opportunity by employing them.
I am a retired CPA but in the late 1960s I was working as a clerk in Washington, DC. In April 1968 during the riots following King's death, I walked from my workplace to my apartment heading towards huge black smoke as the city burned. I escaped the city that day to the safety of a relative's home in Alexandria but many people could not escape that day or in the decades of financial disadvantage that their skin color dictated. It may be a new day at the top in Washington but do not let the success of a few blind you to the financial reality of the many in Washington and elsewhere.
As an accountant for a non-profit years ago, I knew a black single mother of two supporting her family on a secretary's salary. The non-profit offered a cafeteria plan for employee benefits. The cafeteria plan allowed the employees to choose the benefits that the funds would be applied to. This single mother put her funds towards health insurance for herself and her daughters with nothing left for retirement savings. I wonder if she was able to retire? The reality is that there are opportunities to create a secure financial future but only if there is something left over after one takes care of present obligations. Even today, many people, black and white, do not have that "luxury."
You are trying to help people who have the funds to provide for a more secure future and I very much admire that. I guess what I am trying to say is that we must not forget that there are responsible people who have neither the financial literacy nor the available funds to build wealth and financial freedom.
By the way, Mellody Hobson married George Lucas in 2013.
Tim,
I've been following along with your wisdom over at SA and here, as well. I anxiously await each article as they are always filled with "common sense" nuggets of wisdom. You may not realize it, but these articles have had a profound effect on my way of looking at businesses, as well as many others, I'm sure. Your efforts are bettering so many people.
One quick question for you:
You've mentioned a few times about the best blue chips offering anywhere from 3-4% starting yield, with 7-12% raises each year. When doing future calculations, would you feel it is appropriate to take into account ~3.2% starting yield, with 9% raises each year. For example, if you were calculating how much you might receive in dividends in X number of years, after investing Y number of dollars per month, using an average of 3.2% starting yield, and 9% raises in dividends annually.
Bottom line: Just curious if you think 9% raises are probably an appropriate guestimate or if you think they may be overly optimistic. Clearly, everyone's mileage may vary depending which stocks are chosen, just curious which number between 7% and 12% you would use in such a calculation.
Thanks!
Tim, I look forward to your articles religiously !! I am beyond impressed that you have such wisdom and are so articulate at such a young age. I am very impressed. I wish I started investing smarter and reading your articles when I was younger. But it's never to late to start, and I have. By the way, I have a quick question. I love the stocks you list on your 'master list'. I also really like the norwegian oil company, Stat Oil. But I was wondering if it was like 'Total' (french oil company) and the complicated ADR tax status. If I invest in Statoil, I think I read somewhere that the tax treaty is only 15% Can you let me the detail of the tax treatment of dividends as an american investor in Stat Oil. It's a very under-rated and great oil company. Thanks, Matt