Six months ago I posted my all time favorite story about Aunt Ginny. I ended that post with one question I would like to revisit, why do I invest? This question took me awhile to answer. I came up with a few main reasons that I invest and why others should.
1. The Investing Lifestyle
The main reason I invest is that of the lifestyle. I’m not talking about fancy caviar or a nice house in the Caribbean. The stereotype of an investor is usually summed up to that. I like to think quite the opposite. With all the amazing investors I have met over the years, they are all three things, humble, frugal and nerdy. They would much rather buy more shares of Starbucks than flaunt their money. Investing changes your mindset and impression of money. The investors that I know are analytical and have a good sense of humor. Mistakes will be made, so it’s good to have a sense of humor and to learn from the mistakes.
For those of you who are reading my blog and have yet to start investing for whatever reason. I encourage you to seek an investor out, the world becomes a candy shop of investments, through their eyes. Everything is something to analyze and look into. Around every corner, there is a new company to discover, like a treasure hunt.
While walking into town with my father we had to decide which restaurant we wanted to go to. There was Chipotle or a local restaurant. Before we decided which one to eat at we had to decide which had the competitive advantage over the other, what moat was there for each company and which will last longer. We concluded, they couldn’t be compared to each other in that way. One is a local company, meaning everyone in my area would know what it is and probably prefer it over Chipotle. But if others were driving by they would most likely go to Chipotle. They both have lasted a long time across the street from each other and neither have any sign of leaving.
My point is that investing becomes a mindset.
2. Simplicity
Once you have put the time and effort into finding a good company, then you can sit back and watch it grow.
Here’s an example; four years ago I bought Johnson and Johnson (JNJ). My original investment was $300, that has now grown to $460. I earned the $300 from babysitting, so it was profit as is, but I decided to make it work for me. Now it has increased by 65% and I have made a total of $160. Thinking about it, I could have worked at an ice cream stand and made more money right? Probably true, so far.
Let’s say I work for a local ice cream shop and get paid $7 an hour. If I worked 20 hours a week for 10 weeks over the summer. I would have made $5,600.
The reason I choose investing is that Johnson and Johnson's shares keep growing. It is not limited to that $160 of profit. Whereas once I earn my paycheck at the ice cream shop there is no way for me to earn more money without working more shifts. Working is about the past, investing is about the future. Depending on how long I hold the stock, my money could double or triple. Of course, you can do both, invest and work.
Putting it simply, once you do a little work for your money, you can make your money work for you.
3. Learn More Than Scooping Ice Cream
No hate on ice cream, I swear, it’s just a classic example. With investing, you can learn more than just how to make a customer happy. You can learn how businesses run, learn which ones succeed and find the ones that don’t. Learning more about how businesses run can help you in the investing world, but it helps with tricks of the trade if you want to start your own business.
When you invest, you learn how to make your money work for you. You can learn patience which is the key to investing. Looking back at Johnson and Johnson I only made $160 over four years, which boils down to $40 each year, but that money can go from that original investment of $300 and grow up to numbers much higher.
4. Stories and Numbers
Investing ties two of my two favorite things together, stories and numbers. I described this in one of my recent posts, I Was Wrong. What makes investors successful is being able to connect the dots between the stories and numbers of a company.
This, personally, is the most fun part. If a company’s debt is increasing, as the investor it is your job to know why. Maybe they're building a new building, they’re changing headquarters, or maybe it’s because they are buying another company.
Connecting the dots between the numbers and the story is what makes investors comfortable and confident in their holdings. So when they see that debt go up or the P/E go up, they know the reason. It makes for less risky, more understandable investments.
This, personally, is the most fun part. If a company’s debt is increasing, as the investor it is your job to know why. Maybe they're building a new building, they’re changing headquarters, or maybe it’s because they are buying another company.
Connecting the dots between the numbers and the story is what makes investors comfortable and confident in their holdings. So when they see that debt go up or the P/E go up, they know the reason. It makes for less risky, more understandable investments.
Investing has changed me as a person and consumer, of course, only in the best ways. It’s not for everyone, but I’m proud being the nerd I am. There are so many reasons to start and continue investing, there is only one person who can say it better than me. So, as Aunt Ginny says, “It’s much better than slaving in a hamburger place.”
What is your story? Why do you invest?
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