A Stock Growth Miracle (Not Really)

Psst: Do you want to hear about a neat investing trick a family friend showed me? She started with $250. Through alchemical magic – well, a mixture of time, compound interest, and an important dash of negligence – she turned that $250 into an investment today worth $135,000. She still owns it, so results may vary in the future, but her gains are amazing.

I imagine you’d like to learn her trick. How ever did she do it? What financial wizardry did she employ? It was probably Bitcoin, right? Or some lesser known cryptocurrency? Or a hot commodity tip?

My friend requested I not identify her. I’m going to call her Ruth, although that’s not her real name. That’s her mom’s name.

The story starts in 1965. Ruth was newly married. As much as possible, I’ll let her tell it:

“I lived in the State of Washington, and my grandmother used to buy stocks, even though she was a middle-class person. She thought it was good to buy local, and Seattle was dominated by Boeing Co (BA).”

“At that time people thought you were supposed to buy 100 shares of everything. I didn’t have enough to buy that amount, so I bought less than that initially.

I invested around $250 at the time…It was probably 20 shares, no more than 40. I remember the broker criticized me for not buying 100 shares.”

compound_interestOk, that’s the beginning of Ruth story. Are you ready for the magical part? Then Ruth did nothing for 53 years. That’s it. That’s the whole magic.

Never sell.

In 2018, her initial $250 investment in “20 or 40” shares of her local company Boeing has turned into 400 shares through stock splits and the reinvestment of dividends. Her initial investment is worth, at the time of this writing, $134,800. Through Ruth’s benign neglect. The dividends alone on her shares pay around $2,700 per year, or more than 10 times her original investment.

At least three important lessons and clarifications of the lessons of Ruth’s story are necessary.

First, this is the story of a particular investment in Boeing that happened to be headquartered in Ruth home state, but you could substitute hundreds of successful companies from 1965 into that same story, with similar results. The point is not “I wish I’d bought Boeing in 1965,” but rather “I wish I’d bought a tiny amount of shares of any number of successful companies, and then done nothing further, for 53 years.”

Second, I was kidding earlier about magic, just to get your attention. This is actually the most normal thing in the world.  Turning $250 into $134,500 over 53 years is not magical at all, but rather a mathematical result of time and compound returns. To be precise, Ruth’s initial investment – through reinvestment of dividends, splits, and stock price gains, grew on average 12.6 percent per year for 53 years, from 1965 to 2018. And that’s a good return. It’s above average.

But it’s not ridiculous for a successful US multinational company from that period to today. The annualized return from the S&P500 since 1965, including reinvestment of dividends, was 9.87 percent. If it had been technically feasible to invest $250 in the S&P500 in 1965 (note: it wasn’t realistically possible then) and then let it compound for 53 years, the stake would be worth $36,689. That’s not as cool as Ruth’s $134,800, but it ain’t nothing either.

Third, Ruth is no genius investor. She’s pretty typical. The really funny thing is that while she told me her story, she continuously bemoaned her lack of investment savvy.

“I feel embarrassed talking about Boeing because I could tell you about a lot of mistakes, and even stocks that went to zero.” Which is charming, and no doubt true, but doesn’t negate her success. Remember: She turned $250 into $134,800. (Psst.If you are still in your twenties, so could you. Start with $250. Then do absolutely nothing for 50 years or so. That’s the hard part.)

Also, the part of the story I didn’t tell you yet is our whole conversation started because Ruth had initially described to me selling 500 shares of Boeing in the beginning of 2017. She’d bought those particular 500 shares at some point in the 2008 crisis. She saw a market price of $175 per share in February 2017 and thought to herself: “That can’t go any higher.” Nearly a year later the price has almost doubled. Ruth was kicking herself in the initial part of our conversation for that sale a year ago.

“I know I’m doing it wrong, when the price goes up and I’ve already sold, and I could have sold at a higher price. It’s not the first time it’s happened…It’s hard to know how to time a sale.”

She wanted to know when was the right time to sell. She felt like she blew it as an investor.

boeing_stockAlso, she’d been tempted to sell a lot earlier.

“Sometime a few decades ago my husband and I talked about selling our stake in Boeing, taking the money out and building a swimming pool. Our whole stake was worth $30,000 and we thought it couldn’t go any higher.”

“How do I know when to sell?” she asked me, probably four or five times in our conversation. “Never,” I answered each time, or some variation on “never.” But still Ruth wanted to figure out how to properly time the market. Which is impossible. Ruth feels like she gets a lot of things wrong with her investing.

It’s better to be lucky than good we always say on Wall Street, and of course Ruth got lucky buying a small amount of the world-class stock from her home town. But she was also good, in that she didn’t sell that stock for over 50 years.

Stock Disclosure: I own zero Boeing stock, and zero individual stocks for that matter, preferring to invest in equity index mutual funds. And so should you, for that matter.


Please see related posts:


Never Sell! as Churchill would say, if he were a stock investor

The magic of compound interest

Video: Compound Interest – A Deeper Dive


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Not Cheering A Record-Setting Stock Market

New_highs_in_stock_marketIt’s silly season in stock market news again. By that I mean the regular “stock market reaches new highs, hooray!” headlines and commentary.

I’ll start by unpacking some reasons why this is silly news, and how you can be a much more sophisticated reader of financial news. I admit upfront that you’ll risk being a bore at cocktail parties if you repeat my commentary when people want to discuss how “the market” is doing. Sorry. (Not sorry.) But still, I want you to know these things and feel quietly smug.

I conclude with an argument for why a rising stock market overall probably isn’t even good financial news for me, or many of you, if you’re not yet retired.

But first, there’s our bad habit of noting point changes and absolute levels in stock market index values, as if the market index matters much.

In my first year in bond sales in the late 1990s, I used to call each morning upon a junior trader – a Venezuelan named Luisa who worked at the smallest customer of my desk – to give market commentary. I remember the morning I breathlessly mentioned a dramatic move in the Dow, like a 100-point drop. Luisa dryly noted that she didn’t pay much attention to point movements, but rather percent changes in the market.

Ugh, my ears burned with shame. They still do.

Mathematically, she was right. A 100 point drop means a lot if the index value is 2,000 – a 5 percent move! – but very little if the index is 10,000 – a 1 percent move. Meh.

We should all be like Luisa and only pay attention to percent changes, not point moves.

Similarly, noting that numerically pleasing round numbers like Dow 10,000 or Dow 18,000 have been breached for the first time is the financial equivalent of noting that Mercury is in retrograde while Neptune’s tilt should lead us to tread cautiously with emotional matters this week. People do pay attention to these things, but they really shouldn’t. It’s utterly meaningless.

Next, there’s the problem of talking about moves in “the market” when we’re describing just a small sliver of companies.

“The market” as typically described in financial media is the Dow Jones Industrial Average – a 120 year-old marketing tool of the company that used to own the Wall Street Journal – comprised of just thirty large companies in a variety of industries. These are important companies, but a very skewed snapshot of stock market performance.

Even the more-representative S&P 500 Index – another widely used proxy for ‘the market’ – still only describes what the five hundred of the biggest companies in the United States have done, excluding another five thousand or so reasonably big companies in this country, not to mention the thousands more located in other countries.

Next, we have the topic of dividends, which account for a significant portion of stock market gains for long-term investors. The dividend yield for S&P500 stocks – aka how much cash you get paid to just hold the stuff year in and year out – is about 1.9 percent in 2016, and has ranged from 1 to 4 percent in recent decades. Which means that much of the long-term return from investing in stocks happens regardless of whether the prices for stocks even go up or down.

With a 1.9 percent dividend yield, the stock market indexes could flatline for many years and you’d still make more current income than you would invested in US Treasury bonds. By this point I just mean to emphasize that the index going up is not the key to making money in stocks in the long run. Which sort of brings me to my final point.

grinch wonderful awful ideaI don’t mean to be a complete Grinch. (Yes I do.) It seems like it should be better for existing stock investors if the market indices reach new highs rather than new lows, right?

But when I think about it, that’s not quite right either.

I personally should not celebrate high stock prices. It kind of makes the most sense depending on your age and where you are in your investing life.

Celebrating high stock market prices only makes sense if I’m a seller of stocks, not a buyer. I bought my first stock at age 24. I figure I’ll want to still accumulate more through maybe age 64. Right now, at age 44, I’m right at the hump of my investing life, my mid-point. If I have a chance to accumulate stocks over the next 20 years, shouldn’t I prefer prices to stay low rather than high?

Taking this thought process to the extreme, shouldn’t I prefer a completely flat-lined stock market for the first 39 years of my 40 year investing life, then some kind of rocket-ship price jump, in which the market zooms up by 6188 percent in the final year, when I’m getting ready to sell in retirement? (FYI 6188 percent is the cumulative returns of the S&P500, including dividends reinvested, over the previous 40 years, from July 1976 to July 2016. Or 10.9 percent annual return, if you prefer.) I recommend verifying this for yourself with an online S&P calculator for any time period.

Meanwhile, the upward climb in prices we celebrate in financial news really isn’t helpful for me, as I accumulate at higher and higher prices.

This rising stock market index news is both misleading and not something to particularly celebrate, for most of us.

A version of this post appeared in the San Antonio Express News.


Dow Hits New Highs Part I

Dow Hits New Highs Part II

Dow Hits New Highs Part III



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VIDEO: 100 Percent Stocks For Retirement

Greg Jefferson and I chat about my recent post, urging everyone to put 100% retirement money into risky assets (like stocks) rather than the traditional 60/40 split that every investment advisor says you should do.

In this conversation I admit to my cynical view of the investment advisory business. Additionally I engage in a rant you might have heard before (if you’ve ever read my stuff) about the Financial Infotainment Industrial Complex.

Please see related post:

What If Financial News Was Real?

Stocks vs. Bonds, the Probabilistic Answer

Book Review: Stocks for the Long Run, by Jeremy Siegel

Book Review: Simple Wealth, Inevitable Wealth, by Nick Murray



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100 Percent Risky Even In Retirement

99_percentI’m only writing this for the 99 percent of people who are not yet wealthy.

If you are already wealthy, you can choose to ignore this advice, or follow it or whatever, but I realize you have other choices. If you are not already wealthy, however, ignore the following advice at a high risk to your wealth prospects.

Before I tell you my advice, however, I should mention that it stems from this First Principle: The only way to (legally) achieve wealth in your lifetime is to own (a) profitable business(es).

For people who already own a business – whether startup entrepreneurs, partners in a law firm, or inheritors of Daddy’s machine shop – you’ve already got your business ownership. You own your ticket to wealth already. My advice applies less well to you.

For the rest of us not yet wealthy types, we need to buy pieces of other people’s businesses to get there. The easiest place – not the only place, but the easiest – to buy these little pieces is in the stock market.

100% Stocks?

Ok, from that first principal, I can now get around to the point of this post, which is to answer the frequently pondered question: “What percentage of my retirement funds should I dedicate to stocks, instead of bonds?”

My answer: 100 percent.

stocks_vs_bondsYou may now be tempted to ask me if I say 100 percent stocks because I ‘like the market here.’ Or, aren’t I worried about current market levels and the coming correction? No. I don’t mean that at all. This has nothing to do with any current views of stocks. I have zero opinion about all that. That’s all irrelevant daily noise generated by the Financial Infotainment Industrial Complex.

Play the odds

My argument in favor of 100% equities rests on one foundation:

Probability theory.

Stocks (I mean diversified, not individual, stocks) go up most of the time, and they go up more than bonds, most of the time. The more time you have to leave your money to grow – such as with retirement money, which is by definition “for the rest of your life” and possibly beyond – the more the laws of probability work in your favor.

Stocks beat bonds 60 percent of the time in any given year, 70 percent of any 5 years, 90 percent of the time in any 10 years, 95 percent of the time in 15 years, and nearly 100 percent of the time in any 20-year period. And the ‘beating’ is huge.

Retirement money, even for a retired person at aged 65, probably needs to last for 20 more years, so I still think 100 percent stocks are still the best bet, even in retirement.

Not a bond hater

And by the way, I don’t hate bonds.

I’m a former bond guy. I love bonds for what they do decently well, which is to preserve nominal wealth. So, if you already have enough wealth – as I mentioned at the beginning – go ahead and buy those bonds.

Also, to clarify – some bonds are in name only. I used to traffic in emerging market bonds and distressed mortgage bonds. These are “bonds” in name and structure only, but are really like stocks in their risk, volatility, and potential returns. So when I say 99 percent of us can’t afford to own bonds in retirement accounts, I really mean bonds of the plain-vanilla riskless variety. Also, when I say bonds, I really mean to include bond-equivalents, like cash, money markets, CDs and annuities. Ok, that’s all the clarifying I’ll do for now.

Arguments Against Me

Almost all investment advisors disagree with my 100 percent recommendation, and the smart ones have powerful voices on their side.

Hedge fund “quant” Cliff Asness published an influential paper in 1996 in which he argued that a blend of 60 percent stocks and 40 percent bonds (which pretty much all investments advisors endorse) will perform better than a portfolio of 100 percent stocks, because you get more return for every unit of risk in the portfolio. To most efficiently get a return from your units of risk and achieve an even higher return than would be available with 100 percent stocks, Asness further argued, you could theoretically use borrowed money to purchase more stocks – using ‘leverage’ in finance parlance.

stocks_bonds_since_1801Josh Brown, a writer and investment advisor I admire, made the case earlier this year for diversification with bonds, on the strength of the idea that few people can stomach the wild ride of 100 percent stocks.

He joked that the only people who should have 100 percent stocks are people “in a coma of indeterminate length,” or people who are “going to be living on a desert island for two decades without access to TVs, radios, the internet or Barron’s.”

Math and Psychology

Combining Asness and Brown’s views, we can see the arguments against 100 percent stocks in retirement are both mathematical and psychological. Mathematically, Asness says, a “units of risk” analysis suggests diversification through bonds to invest at the efficient frontier of risk and return.

To which argument I would reply that non-hedge fund people don’t buy beer in retirement with “units of risk,” but rather with actual money. And your money will grow faster, over twenty years, in 100 percent stocks.

Also, Asness’ recommendation about using leverage (borrowed money) in order to maximize your return as well as to efficiently maximize ‘units of risk’ isn’t so relevant for non hedge-fund investors either, for whom leverage may be either unavailable, or downright dangerous.

Psychologically, Brown argues, hardly anybody can stomach the ups and downs of the inevitable market booms and busts, and our inability to ‘do nothing’ in the face of the roller-coaster will undo our portfolio gains. I agree with Brown that many can’t handle the volatility. I’m unconstrained by that psychological component, however, when giving advice here.

What I mean by that is that I’m not your investment advisor. I don’t worry about losing you as a client, and therefore some of my own income. I can tell you the ‘right thing’ for long-term wealth and not worry about whether we’ll have a difficult fight half-way through our relationship when the crash happens and you want to bail out of stocks, and fire me as your advisor. (FWIW: Don’t bail! Never sell!)

You want to know what I really think about 60/40? My cynical view of the investment advisory business – if you catch me in a grumpy mood – is that the 60/40 split that everyone advocates is about client retention rather than maximizing client wealth.

Since you’re not paying me, ironically enough I’m freed up to say what you should really do. I’ve got nothing at stake if you take my advice or not. If you want the most money in the end, you have to be psychologically steeled for the roller-coaster ride in your investment portfolio. It may feel horrible. But that may be what is required to get wealthy over your lifetime.


A version of this ran in the San Antonio Express News


Please see related posts:
Ask an ex-Banker: Should I also own 100% stocks?

The case for stocks over bonds


A video discussion of this post here:


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Never Sell! A Disney and Churchill Mashup

In November I took my five-year-old’s life savings (mostly tooth-fairy money and birthday gifts) and bought her 4 shares in Disney stock via a custodial (UTMA) account.

Fellow readers of If You Give a Pig a Pancake will already be familiar with the idea that certain actions lead inevitably to reactions. You see, if you give a pig a pancake, next thing you know she’s going to want syrup. And if you give her syrup, she’s going to get all sticky and ask for a bath.
And if you buy Disney shares with your five year-old’s tooth-fairy money, next thing you know you’re going to walk into her room to say good night, and…


“Yes, Sweety?”


“I want to sell my Disney shares.”

“Um, what? No. No! NO! Stop!”

“But I don’t like that all my money is gone from my bank.”


You see, right there, that’s the problem with five-year-olds and their stock portfolios. They buy the thing and then they want to sell it.

Actually, no, that’s not the problem of five year-olds.

That, right there, is the problem with all people and their stock investments. They want to sell them. They don’t like that the money leaves their bank account. And the value can go down. I’m here to say: Don’t sell. No matter what.

The whole darn thing won’t work if you sell.

Magical Fairy Dust

You see, stocks produce magical pixie dust if you treat them right. Buy them in diversified bundles (like a mutual fund!) Then treat them with benign neglect over the next, say, thirty years, and you will be rewarded with a pot of gold at the end of the thirty-year rainbow. Tinkerbell herself couldn’t produce anything more magical than your diversified – hopefully low cost! – mutual fund.


Ok, let me stop here for moment. Maybe pigs, pancakes, pixies and pink castles are not getting the message of NEVER SELLING across strongly enough.

Let me change the channel so abruptly you will be left breathless. For our next analogy, let’s go to the darkest moment in Western Civilization over the past century.

Never Give In

I’ve been reading a lot about Winston Churchill’s life lately. I can’t recommend William Manchester’s three-part biography series The Last Lion highly enough. Summarizing 3,000 pages of Manchester’s biography into a three-word motto for Churchill’s life would go like this: “Never Give In.”

In 1940, when the Nazis controlled all of Europe between Norway and Greece, with America isolationist and Russia in a cynical alliance with the Nazis, and only the British, alone, standing against Hitler, Churchill never gave in. As he said in 1941, before the US entered the war:

Never give in, never give in, never never never – in nothing, great or small, large or petty – never give in except to convictions of honour and good sense.”

The Nazis embodied the darkest, mostly beastly version of humanity. They built the greatest military force Europe had ever seen, fueled by sadism, racist ideology, and terror. First Czechoslovakia, then Poland, then Norway, Holland, Belgium and finally France succumbed in mere weeks to brutal blitzkrieg invasions. Imagine today’s ISIS, only they had already conquered all of Europe, with the largest and best-trained army in the world, led by a charismatic psychopath fulfilling his long-promised destiny of racial genocide.

England, with Churchill at the head, stood alone. Prominent members of the British government in 1940 called for making the best peace compromise possible with Hitler. Hitler himself assumed Britain would ask for a peace settlement, so he could focus on conquering his next goal, Russia.

Churchill never wavered.

On June 4th, 1940, having lost ally France in a matter of weeks, and having barely escaped with the tattered remains of the British Expeditionary Force from Dunkirk, Churchill never considered capitulation to the Nazis. He relayed the defeat to the House of Commons, but said:

“We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall never surrender.

Never Sell
Bucked up by that example of Churchill’s spirit, let me re-summarize my approach to stocks: “Never Sell.”

“Never, never, never, sell.”


Can I be any clearer?

But, but, but

But interest rates are going up!

But the Democrats (or Republicans, or Trumpians or whomever) might win and everything’s going to collapse!

But oil prices!


Stop being a five-year-old. Be Churchill.

Incidentally, at times, she unveils her stubborn Churchillian resolve to never give in, like when I ask her to put on her shoes when we’re already late to get somewhere.

Can you picture me, scaring the living daylights out of my five year-old with this Churchillian bedtime story about never never never never selling? Don’t worry, I didn’t do that. (As far as you know.)

I can assure you of this: She will not be selling her Disney stock.


Please see related posts:

Tiny person owns tiny piece of a big company

Daughter’s first stock investments

Mutual funds v ETFs

How Much Do Costs Matter?




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