David Kretzmann is a living, breathing example of a curious teenager that started small and now has a successful career as a full-time compounder. David was born and raised in a meditation and yoga community in California. David started investing in stocks at the ripe old age of 12 years old. David graduated from Berea College with a degree in marketing and is a graduate of The Motley Fool's Analyst Development Program. Today he serves as an investment analyst and portfolio manager for the Fool’s Rule Breakers and Supernova services. He lives in Alexandria, Virginia, and is an avid runner, traveler, and loves playing and watching basketball.
How did you start investing?
When I was 12 years old, I started looking over my dad’s shoulder as he read copies of Stock Advisor and Hidden Gems -- stock recommendation newsletters from The Motley Fool. I kept asking him questions about what a stock is, how you can own a piece of a company, and what it means to invest. I was especially fascinated by the idea that I could own a piece of a business.
I had saved up $700 doing different odd jobs as a kid like mowing lawns and playing the Hammer Dulcimer at Christmas fairs, and was naturally a saver rather than a spender. Now that I was getting interested in stocks, my dad set up a custodial account for me so I could invest my own money. He gave me complete autonomy of the account; from the beginning I was investing my own money, deciding which companies to buy, and was the one to “pull the trigger” to buy or sell a stock.
What was the first company you invested in? Do you remember the reasoning behind that purchase?
I invested my $700 in a basket of roughly 10 stocks to start out, since my brokerage at the time (Sharebuilder) allowed users to buy partial shares of companies. I started by finding the recommendations in The Motley Fool’s newsletters that resonated with me and caught my interest. A couple of initial companies I remember investing in are 7-Eleven and Netflix, mainly because I was familiar with those names and brands. Thankfully I still own some of those Netflix shares today!
Why did you decide to continue to invest? What hooked you?
It was all so much fun. I loved the process of trying to uncover the businesses that will be future winners, and being able to actually buy shares and own a piece of those businesses was just the cherry on top. I found it incredibly fun -- and still do -- to learn about businesses and the world.
Did your investing style change from when you started to now? What influenced it?
When I started out, my savings were limited and I was somewhat limited in my ability to add new money to my investment account. The majority of money that I earned from my various jobs in junior high and high school went straight toward buying stocks. When I got excited about a new stock -- which happened a lot -- I would either have to wait to buy it once I earned more cash to add to my account or sell a current holding to raise enough cash.
Now that I have a regular paycheck and can add to my investment account on a regular basis, I don’t have the same pressure to pick and choose which current holdings to keep or sell. I can comfortably hold my current stocks and still have the cash to buy a new stock that I like.
My general investing style has stayed the same for the most part, in terms of thinking like a business owner and investing in companies that I want to hold for many years and decades.
In many ways, my investing style as a 12 or 13 year old was even better than what my investing style evolved into in my early adult years. When I was younger, I focused on simple businesses that I could understand and grasp and if there was a business I didn’t fully understand at first, I would do a lot of digging to understand the key drivers that would make the business successful (or not). I generally stuck with companies that were profitable and had what I felt was a reasonable chance to double in value over the next five years (which equates to about a 15% annualized return).
As an adult, I became less disciplined with the stocks I bought. I started to invest in more complex companies that were harder to understand and follow over time. This makes it harder to know what to do when a company hits hard times. Do you buy more? Do you hold? Do you sell? When it’s a company you don’t really understand to begin with, it will be impossible to intelligently answer those questions.
I’m trying to get back to thinking like I did as a 13 year old, because I believe sticking with companies you can understand -- and are committed to following -- is a far better way to invest. Adults can get overconfident and make questionable investing decisions, in a way that most 13 year olds are too smart and humble to get into in the first place. In my experience, adults make things more complicated than they need to be -- and their returns suffer as a result.
The best part about starting young is the companies you know are simple ones. When you try to go back and think like that it is much harder. Not only that, but when you grow older and become a more experienced investor some think it is best to invest in more complicated companies. But simpler is better, that is called the Humility Curve.
If you went back and had to tell yourself one thing as advice as a learning investor what would it be?
Be patient and hold your stocks -- especially your winners. In other words, commit to holding companies that you buy. Only invest in companies that you believe in and want to follow for the next five years and beyond. You won’t get multibagger returns by jumping in and out of stocks and jumping ship at the first sight of trouble. My costliest mistake as an investor has been selling future winners too early (Buffalo Wild Wings, Monster Beverage, Chipotle, Netflix, and many more).
Do you think investing shaped you as a person? In what way(s)?
Investing has helped me look at the world as an owner and a stakeholder, rather than going through life as a passive consumer. Investing has also reinforced the importance of being patient and calm even when a lot of other people are panicking or worrying about the latest headlines. It’s helped me stay levelheaded and focused on the long term -- not just with stocks, but life in general.
It is true investing nudges you to learn about a lot of things, money, math, but most importantly, the world. What happens in the world affects the stock’s performance. If you notice a new consumer trend or a president makes a decision or signs a bill that might help a company.
How did you learn to use the Motley Fool to learn and grow as an investor?
As soon as I started investing, each day I would log on to the Fool’s website and spend hours reading articles and browsing the discussion boards. After a few months of this, I asked my dad if I could use his account to begin posting on the discussion boards. Being the sport that he was, he quickly replied, “Sure, I’m not using it!”
I hopped onto the discussion boards and starting analyzing companies and answering questions people had about stocks and investing. People seemed to like what I was posting, so the volume and length of my posts kept going up. I didn’t think it was important to disclose I was 13 (minor details).
Someone from the Fool reached out to me to see if I would be interested in becoming a contractor, at which point I finally had to disclose my age. To the credit of the Fool and its community, people were supportive and encouraging when they found out I was just a youngster who loved stocks and investing. The Fool even wrote an article about me that was posted on the homepage of AOL for a time (when AOL was still semi-relevant). When I was 14, my dad and I flew to Fool HQ in Alexandria, Virginia, and met with Fool cofounders David and Tom Gardner and a team of analysts. Stocks and investing were the centerpieces of my world as a teen.
What do you think is the fear with investing? What prevents people from getting started investing at younger ages?
To quote Fool cofounder David Gardner, “People make fearful that which they don’t understand.” A lot of factors can go into why some people are afraid or skeptical about investing in stocks. Some people grew up through periods where they might see the stock market crash and and subsequently decide to stick with very conservative investment alternatives like bonds or CDs for the rest of their lives. Other people try schemes like buying “pump-and-dump” penny stocks and soon can’t tell the difference between the stock market and a casino.
Since most kids still don’t learn much about investing in school, they are out of luck if their parents or other family members don’t introduce them to the world of stocks. In my case, it was thanks to my dad that I was introduced to investing and encouraged each step of the way. Without his influence and guidance, there is no way I would have started investing as early as I did. Most kids are in a similar boat, where they just need a family member or teacher to help get them started on the path to investing -- but that’s still not very common, unfortunately.
How do you think parents, schools, and clubs can help support kids to get started?
I think an effective “hook” to pique the interest of kids is introducing the concept of being able to own a piece of the companies behind their favorite brands or products. The idea that they can be not only a consumer, but also an owner and participate in the success of companies and brands that they know and love like Netflix, Starbucks, Apple, Disney, and many others.
It’s still a code that needs to be cracked. Schools and clubs can help kids follow businesses over the course of a semester or year. It should be kept simple and approachable, which is why I prefer helping kids make the connection between brands/products and businesses. Once you have that concept down the stock market becomes less intimidating and a lot more fun.
What do you believe is the target age to get kids/teens investing?
The basic mechanics and value of money can be introduced at an early age, and kids can start investing at least by the time they’re in middle school. A parent or teacher might need to be more hands-on depending on the kid, but there is no need to for investing to be any more complicated than what a middle schooler can grasp. The earlier they get started the better!
Teens, but anyone actually, can get bored with this topic. Do you believe it will always be like this or will more people learn to be passionate about investing?
Not everyone will necessarily treat investing like a hobby, but there is a lot we can do to help teens -- and people of all ages -- get more comfortable with the stock market and how to invest. Even if someone doesn’t find investing in stocks to be as fun or exciting as we do, they should still save and invest. I don’t mind if someone doesn’t want to devote a lot of time to investing, so long as they still invest. At the very least, people should be excited about investing as a means toward ends like becoming financially independent, having money to give to causes they believe in, and building a secure financial future.
David brings up another great point about saving versus spending. You have to save before you spend, that is difficult for some but for others it comes naturally. Learning the power of saving money is very important and one of the best ways to do it is through investing!
Thank you David for sharing your story with investing and tips! The best way to get kids to invest (and almost anything) is to show them the potential of that hobby, career, and effort. David is a very good example of what can happen if you start out young. You have the time to learn from your mistakes, compound, and build a career (if you want).