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.
Originally posted 2013-05-31 07:49:39.