IS THAT YOUR YACHT?
A little wonderful advice, free of charge, that will make a person fabulously wealthy
(if they could only follow it).
Some time ago I chatted with a friendly real estate professional who had never invested
in the stock market preferring as he put it, “investments I can see” and reported
spectacular success with his real estate investments. He shared with me precise
dates that interest rates were going to rise and was confident he knew how much
property values would inevitable fall with a calm assurance and confidence I envied.
Having spent 10 years in financial services, the older I get, the more cautious
I get with regards to predicting the intermediate term – never mind the short-term!
Our clients and others interviewing us to be their adviser will often loudly affirm
that predicting the markets is a loser’s game- but their questions bely that they
would like us to provide the “INSIDE SCOOP” on just such things:
“Is the market overvalued?”
“Is this just the Fed “printing money?”
“When will interest rates go up?”
Of course it’s always been thus, and always thus will be. The team here at Timepiece
is a prodigious reader of books, and every year or so at least, I curl up with the
Where are the Customers’ Yachts? A Good Hard Look at Wall Street, by Fred Schwed Jr.
Mr. Schwed was a stockbroker during the Great Depression and his ruminations on
Wall Street antics, well-intentioned but hapless regulators, and investors themselves
are as apt and complete now as they were over 70 years ago.
Although our clients and most of our friends and acquaintances are too polite to
actually ask, we suspect many would like to know what the real secret to investing
is. What is it, that someone brilliant could impart, that would make them fabulously
The good news is that there IS just a system and I’ll provide it free of charge.
Don’t lose faith when I disclose that it’s in Mr. Schwed’s 70 year old book.
Excerpt: A Little Wonderful Advice
For no fee at all I am prepared to offer to any wealthy person an investment program
which will last a lifetime and will not only preserve the estate but greatly increase
it. Like other great ideas, this one is simple:
When there is a stock-market boom, and everyone is scrambling for common stocks,
take all your common stocks and sell them. Take the proceeds and buy conservative
bonds. No doubt the stocks you sold will go higher. Pay no attention to this- just
wait for the depression-or panic-becomes a national catastrophe, sell out the bonds
(perhaps at a loss)and buy back the stocks. No doubt the stocks will go still lower.
Again pay noattention. Wait for the next boom. Continue to repeat this operation
as long as you live and you’ll have the pleasure of dying rich.
A glance at financial history will show that there never was a generation for whom
this advice would not have worked splendidly. But it distresses me to report that
I have never enjoyed the social acquaintance of anyone who managed to do it. It
looks as easy as rolling off a log, but it isn’t. The chief difficulties, of course,
are psychological. It requires buying bonds when bonds are generally unpopular,
and buying stocks when stocks are universally detested. I suspect that there are
actually a few people who do something like this, even though I have never had
the pleasure of meeting them.
We had our own window to market mayhem in the 2008 market crisis. John and I can
testify that we can’t verify a single person who followed this sage advice.
Ironic too, because the “Oracle of Omaha”, Warren Buffet– one of the best investors
of all-time, reminded everyone of this specific unbeatable strategy at just the
opportune time. On October 16th, 2008 Buffett op-ed an article in the New York Times
titled: “Buy American. I Am.” (Google it) In it, he shared what he was doing with
his own personal account! “If prices keep looking attractive, my non-Berkshire net
worth will soon be 100% in U.S. equities.” The market bottomed out in March of 2009
and you know the rest of that story.
Nobody asked us what we thought of Buffets op-ed, but we were forwarded numerous
other articles from people that all had good reasons that it was all over….forever.
We don’t share the opinion that most investors don’t get the returns they are entitled
due to lack of good information.
If it was good enough for Warren Buffett; it should have
been good enough for the rest of us.
The problem, as Schwed so wonderfully points out, is in human nature which will
Again, from “Where are the Customers’ Yachts”
Like all of life’s rich emotional experiences, the full flavor of losing important
money cannot be conveyed by literature. Art cannot convey to an inexperienced girl
what it is truly like to be a wife and mother. There are certain things that cannot
be adequately explained to a virgin either by words or pictures. Nor can any description
that I might offer here even approximate what if feels like to lose a real chunk
of money that you used to own.
We don’t advocate actually attempting Mr. Schwed’s and Buffet’s advice. You know
us for implementing low-cost index fund portfolios that match your goals and situation
and NEVER messing around with it.
But if Fred’s ageless teachings lead you to suspect or wonder if you’re not getting
the investment returns you deserve, we humbly suggest coming in for a visit.
PS– Don’t take it as a personal short-coming that you are not one of the privileged
people able to implement Fred Schwed’s advice. After all, he wasn’t able to do it
himself! In the 1955 edition of his book he had this to say in the introduction
about his own experience:
“I happened to be the beneficial holder of shares in a good investment trust. These
shares, being a “closed-end” company, had not been sold to me by a salesperson.
I had purchased them, on my own judgment or whim, on the New York Stock Exchange.
A few years later, observing that they had all but doubled in value, I judged this
to be ridiculous, and sold them, via the New York Stock Exchange, to some faceless
stranger, who was a fool for luck. I also did this on my own judgment. My crafty
plan was to repurchase them after they had gone down to some more sensible level.
As it happened I never repurchased them because they never went down. Where they
have gone up to I don’t feel in the mood to discuss just now. For my only comment
on my second transaction I must go beyond the confines of the ordinarily rich English