What I Learned About Investing As a Paperboy

When I was 14 I started my first job: paperboy. I delivered the afternoon paper to my customers in one 7-story apartment complex so, once I rode my bike there in all kinds of weather, the actual delivery process was easy. Load a shopping cart up with papers, replace the ones in the rack, then go floor to floor kicking papers underneath doors. I actually made good money but would have made more if I hadn’t had such a collection problem. Back then, you subscribed to the paper and then your friendly delivery person would provide you with a bill. Would you believe some of these deadbeats would try and stiff a 14-year old boy and not pay?

First business lessons learned: 1) It’s hard work; 2) You can make money; 3) If someone doesn’t pay, your profits decrease.

With those lessons in mind, here is why I love investing: I benefit from someone who has taken a huge risk, works like crazy and then shares their profits with me. When I invest, I don’t have to either work hard or worry about collecting from customers in order to profit. It’s effortless, right?

Effortless, yes; risk-free, no. Consider these two stories:

1. Grace Gorner was born in 1909, orphaned at 12, never married and began her career as a secretary during the Great Depression. Grace lived in a small house, bought used clothes and never owned a car. When she died in 2010, it was discovered that she was worth $7 Million. Even more amazing, she bought $180 worth of stock in the 1930’s, never sold it, and let it compound into a fortune that she left to charity when she died. Effortless.
2. Now meet Richard Fuscone. He had degrees from Dartmouth and the University of Chicago and became Executive Chairman of the Americas at Merrill Lynch. He retired in 2000 to pursue “charitable interests.” Fuscone filed for bankruptcy in 2010, ironically the same year Grace Gorner died and her fortune was revealed, to prevent foreclosure on his 18,471 square foot, 11-bathroom, 2-pool, 2-elevator, 7-seven car garage New York mansion. His bankruptcy filing cited the 2008-09 recession and stock market decline as contributing to his downfall.

Now, in what other endeavor can an un-trained person outperform such a highly trained one? I could take golf lessons from now until the end of time and still not come close to competing with Tiger Woods. But, while untrained, Grace still managed to follow two important rules that Richard didn’t.

1. Live beneath your means and invest the rest. We don’t have to live like Grace Gorner. I won’t ever discount the value of a nice home, a functional car and a fun vacation – those things are important. But, savings provides us value too; the value of an accumulation of wealth over time that offers choices and opportunities.
2. Investing requires patience. The S&P 500 group of stocks had a 6.8% annual return  - after inflation – over the last 140 years. During that 140-year period, however, the market declined significantly many, many times. Grace Gorner somehow knew not to sell when it did. Richard Fuscone probably knew, but couldn’t help himself. He apparently sold at the worst possible time, during a severe stock market decline, and paid the price of bankruptcy.

We don’t tell clients how to spend their money. But many clients tell us the financial planning process that identifies how much they should save in order to reach their goals helps them prioritize their spending. The process helps them live beneath their means and invest the rest.

The planning process also places the focus on a long-term goal and helps our clients during the inevitable declines in the market. Picture the market as playing with a yo-yo on an escalator – the yo-yo goes up and down but eventually reaches the next level. So, when the market fell about 19% during the 4th quarter last year, we helped our clients ignore the yo-yo and concentrate on that next level. We help our clients with investing patience.

Steve Byars, CFP®