WALL STREET
In a prior life, I navigated a desk at what was once Dean Witter. I absolutely loved my experience with the firm. The people and the company were wonderful. I must say that I have been extraordinarily lucky with regards to career choices. Don’t get me wrong, I am not rich monetarily, but I do believe I am rich in experiences and friendships generated from my days at that desk.
I have always been fascinated by Wall Street and somehow left an Alaskan career to get married and join the training program of Dean Witter Reynolds Inc in 1992. For 13 years I was paid to read the news, meet people and provide access to firm resources for my clients. What a great learning experience. Some of my immediate takeaways from the experience are as follows.
Compound interest and dividend compounding are incredibly powerful over long spans of time and are difficult to earn if you are not a saver. Warren Buffet comes to mind as first and foremost, a saver and investor second. If you are not willing to commit to a long term investment plan, you will not be rewarded. To the contrary, you will most likely be penalized.
Average investors tend to sell low and buy high. I used to tell clients, instead of watering your weeds and cutting your flowers, do the opposite, sell the losers and buy more of the winners, which is counterintuitive.
In 1992 the S&P 500 was around 450, not counting dividends it has more than doubled to around 1150 today. This brings up a very important point about the mystique of Wall Street. The S&P 500 is a dynamic basket of companies that changes with the economic cycle. Bear Sterns and Lehman used to be components in the composite and conversley, little Pixar entertainment was not,. but now as part of Disney, is.
That said , the only constants are change and inflation, the latter being the great destroyer of purchasing power and savings worldwide. My economics professor defined it as “too many dollars chasing too few goods.” Well I disagree. Remember the old pre World War II story about the person having to use a wheel barrow to carry the currency to purchase a single loaf of bread in Germany? Well what historians forget to discuss is the fact that when the individual came out of the bakery with that loaf of bread, his wheel barrow was gone! It was worth more than the money it carried. Well today the dollar buys about one half of what it purchased when I started at Dean Witter which ties nicely with the S&P return. This means that if I had parked $$ in the S&P 500 instead of in my matress, my purchasing power would not have been eroded at all!
That said, my mentor once said, “Andy, any road will get you there if you don’t know where you are going.” How true. Make the wrong turn and you may be lost in the sea. Make the right turn and your $$ doesn’t erode. Take this concept to the market and you can see that, adjusted for inflation, the S&P 500 really hasn’t been phenominal since 1992, but has been the benchmark to beat. When navigating invest,ent waters consider the following:”perceived IQ’s tend to rise and fall with stock prices”. In 2000, holders of CSCO,INTC IOM etc etc, were self proclaimed geniuses. However in 2002, these same holders, were questioning themselves, and had serious doubts about their investment abilities.