You Must Buy Stocks Today, Tomorrow, And Next Year

I’m very skeptical of writing of writing about “social contracts” in the American employment landscape because there is a good argument to make that they never existed in the first place. Namely, large employers do not hire people for the joy of “creating jobs”, but rather, because they actually need a living, breathing human being to do something in order to make a profit (unless you own a cemetery, in which case you will also need non-living, non-breathing human beings to make a profit).

Johnson & Johnson does not hire an engineer to make Listerine more effective at fighting cavities simply because they desire to pay someone $180,000 per year, but rather, because successful innovations will make Listerine a more indispensable item in the bathroom cupboards of Americans nationwide, and will drive up sales and ultimately make more profits. More profits mean bonuses for executives making the calls, and nice little dividend checks in the mail for the owners of the company (and if you hold the stock long enough, it’ll turn into nice big dividend checks).

But despite this truism—there has also been a renewed ruthlessness in corporate life that manifests itself in the form of corporate layoff during prosperous economic times. The traditional social contract, as I understood it, is that companies only cut employees during times of business hardship to remain viable or to protect the existing profit model. But in the 1990s, Boeing, Lockheed Martin, and Dr. Pepper pioneered a new form of layoffs that involved firing employees as a means of achieving even higher record profits. Recently, this has caught on at Bank of America, Pepsi, Procter & Gamble, and I’m sure a bunch of companies in your hometown as well.

You know how airlines have cut services from the luxurious days of the 1970s when you had leg room and steak dinners to the modern-day “thou-art-cattle-and-thou-shalt-not-complain” business model—well, that’s a shorthand form of synecdoche that describes what has happened in America as well.

This new economic model, which also involves layoff off employees during years of record profits, should cause you to ask yourself the question: Cui Bono? Or, if you don’t have a thing for randomly switching to Church Latin: Who benefits?

And the answer is the shareholders of the companies.

I used to think there was something immoral about buying shares of a company that is cutting workers—it reeked of feeling like a scab in a 1950s union town that is crossing the picket lines to personally enrich himself.

But the more I thought about that, the more I realized such a moral distinction is misplaced—Bank of America management is going to lay off 30,000 workers whether I approve of the decision or not. I could own 100 shares, 1000 shares, or 1 million shares and the action would still happen. My decision not to buy the stock does not give those guys their job back, nor does my decision to buy the stock ensure that they will lose their job. It has no effect on their livelihoods, and it would be a form of smug arrogance to think of myself as a better man for avoiding companies laying off employees. If anything, I should feel the imperative to become ridiculously affluent enough to influence the Board of Directors that is worth  having earnings per share slide $0.05 in exchange for not gutting out the country’s employment infrastructure (to put it in more traditional economic terms—the utility of having a robust workforce that can continue to purchase the goods being sold is worth the temporary decision to decline profit maximization).

The lesson is simple: if you are an employee, you should never forget that it is the imperative of the owners to pay you as little as possible without losing you. After all, every dollar they pay you is a dollar that does not end up in their own pockets. And if you are not productive enough, you will be gone.

That is why you owe it to yourself to acquire cash-producing assets. You need to be the owner. Guess what—owners never get fired. No one is going to say, “Hey, I don’t like your attitude. I’m going to take those 1,000 shares of BP you accumulated over your life because you’re a jerkface.” Or no one is going to say, “Cindy, you sleep in late in the morning. You have a shoddy work ethic. You don’t deserve those 250 shares of Coca-Cola, so I’m going to take them from you.” Likewise, no one is going to say, “Nope, Carlton, everyone else is going to collect the Procter & Gamble dividend but you, because let’s be honest, you’re not that intelligent.”

They only people who can take away your stock ownership is a judge (as part of going bankrupt, getting divorced, or failing to pay Caesar or a third-party his due). Other than that, it can’t be taken away. It’s yours.

Get a dozen people in line that are gainfully employed, and statistically speaking, one of them won’t have that job next year. With ownership stakes, you are never forced to give them up. When you buy 500 shares of General Electric and click the reinvest button on your brokerage account, you are finding guaranteed cash flow in the form of dividends that you cannot get with a job. General Electric has a $200 billion backlog. It’s going to get filled, and shareholders are going to get their dividends. If you are screwing in lightbulbs at a GE factory, there is no guarantee that you will be doing that in 2018. In fact, the company is actively devising ways to ensure that you won’t be doing that in 2018, because machines don’t have to get paid, get sick, or demand worker’s comp.

That means you have an economic obligation to spend less money than you make. That means you have an obligation to acquire cash-producing assets with the difference. You must become an owner. When you own something, everyone else is your agent—your servant—trying to deliver profits to your bank account. When you are an employee, you are at the mercy of an employer that you hope will need you years from. Understand how those terms will shape the quality of life that you lead on this earth. When you think about it extensively, you will make the acquisition of ownership stakes in high-quality businesses a top priority in your life.

Originally posted 2013-11-06 08:00:23.

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