Hannah loved visiting her grandparent's cabin in the mountains of Colorado. She especially enjoyed sitting on the river's edge listening to her Nana's stories.
"Nana," Hannah said, "Tell me the story where you beat up the stock market."
"Little Bird, I didn't beat up the market; I beat the market."
"What's the difference?"
"Well, for one, you can't beat up something you can't see, and beating the market means our investments performed well over time, generating favorable returns."
"I see. I guess. How did you know what to buy?"
"When your Tata and I got married, we had little money, but we were good savers. We started buying a few shares of companies we liked. We called it investing with our eyeballs and our checkbooks."
"Cool. What's a checkbook?"
"Ha, ha, Little Bird, you're too funny. In the old days, before credit cards, PayPal, and Venmo, we wrote checks for things we bought."
"I get it. I think. I've never heard anybody invest with their eyeballs before. What do you mean?"
"Well, for example, when we went to McDonald's to buy your mom's dinner, we noticed that the lines were long, and the lobbies were crowded. When we shopped at Sears, the aisles were full of shoppers."
"You probably won't believe this, but at one time, Sears was larger than Amazon. The Sears catalog was huge, and you could purchase anything from a house to a muffin pan."
"No way. I've never heard of them. Where are they now?"
"They're a former shell of themselves. Amazon evaporated its business model."
"What other companies did you own that are no longer around?"
"When we started investing in the 1970s, we owned some of the largest companies in the world like Eastman Kodak, Xerox, and Revlon. These companies are barely alive today. We also rented videos from Blockbuster."
"You actually had to go to a store to rent a video to watch a movie?"
"Yes, it's not like today where you can watch a movie on Netflix. Netflix destroyed Blockbuster. There's only one store left, and it's in Bend, a small ski town in Oregon."
"Wow. So you didn't make money on every stock?"
"No. We lost money on several companies over the past fifty years, but our winners outpaced our losers by a wide margin. Our investments in McDonald's, Home Depot, Apple, Amazon, and Tractor Supply have done very well."
"I love Tractor Supply!"
"I know you do!"
"If you've done well, how come you don't have big homes and fancy cars? My friend's parents seem to buy new cars all the time."
"Your Tata and I decided it was better to live modestly and invest our money in stocks and experiences. Our simple strategy allowed us to buy this cabin to spend more time with you and your cousins. Besides, who wants to clean a big house?"
"My friend's parents are in a hurry to get rich, and they always talk about money. How come you and Tata don't seem to be in a hurry to get rich?"
"Well, Little Bird, do you see the river?"
"The river is in no hurry to get where it's going. Sometimes it goes fast, sometimes slow, but it's never in a hurry. It also knows where it's going, twisting and turning through the countryside, enjoying the journey. We're like the river. We know where we're going, but we're in no hurry to get there. We, too, are enjoying our journey."
"I see. I guess."
"When you hurry, you make mistakes or miss opportunities. Our motto is 'never hurry, never worry.'"
Hannah pondered her next question and asked, "Do you own Bitcoin?"
"We don't understand Bitcoin. Your Tata and I decided to only invest in things we know and understand. We have also avoided fads over the years."
"Well, in the late 1990s, people were trying to get rich buying dot com stocks - companies with no earnings, no profits, no future. When the stock market crashed in 2000, several of our friends lost a lot of money, and a few got wiped out. I don't know if Bitcoin is a fad or not; too early to tell. We also avoided pet rocks and beanie babies."
"Rocks and beanie babies, what the heck?"
"We can talk about those some other time."
"Okay, when will you know if a fad is a real thing?"
"Probably in ten or twenty years."
"That's a long time, Nana."
"It is, but your Tata and I are patient, and we can always buy it later. We invest in good companies, and most of our stocks pay a dividend."
"What's a dividend."
"A dividend is a payment we receive from the companies we own. For example, McDonald's sends us a quarterly check for more than $5,000. The annual dividend we receive is larger than our original investment!"
"Wow! Do I need a lot of money to buy stocks and collect dividends?"
"Of course not. We started small, buying five shares here and ten shares there, and over time, it added up."
"So I can invest some of my money, and it will grow yours did?"
"Do you see the tall aspen trees?"
"Yes, they look like they have eyes."
"Do you think they started big or small?"
"Small. Nothing starts off big, except elephants and whales."
"Yes, silly goose, you're right."
"These big aspen trees were seedlings, and then they grew towards the sky. Tata and I started with small investments, and we let them grow over time."
"Nana, you're the best storyteller ever. Can we have a snack and then ride the horses?"
"We sure can. Let's get some chocolate chip cookies and grab the horses. I'll ride Salty Sailor, and you can ride Sage."
"Let's do it!"
Moral: Invest in what you know and think long-term.
April 19, 2021
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
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