Ensemble Capital gave me a wonderful chance to speak to a lot of young people about my book and my story. Here is a write up of some of the questions I was asked by Todd Wenning:
Todd Wenning: The title of your book is Early Bird: The Power of Investing Young. Why is there such power in investing when you’re young?
Maya Peterson: I am sixteen years old. As a young person, I do not pay rent and I cannot drive myself places yet, but I can invest. Investing is one of the first adult choices a young person can make. It is very powerful to make the choice to invest your money rather than spend it right away. Investing is a decision that will impact your future. Also because you’re young, you have a lot of time ahead of you which maximizes the concept of compounding. Compounding is the idea that if you have a small ball of snow at the top of the hill as it rolls down, it will continue to get bigger. In reality, time is the hill and snow is your investments, so an ideal situation is having good investments and a really long hill.
Tell us about some of your interests outside of investing.
I am a classic nerd. I love math and science. I am working on three projects currently with the Woods Hole Oceanographic Institution about a variety of topics. One project is studying how climate change affects two species of plankton. Another is a statistical analysis of oceanographic data. The third is studying seasonal changes to the mixed layer depth in the Ross Sea. I also love math mainly because there are many ways to approach a problem and still get to the right answer. I find that to be true in investing too. You can figure out similar things by looking at the story of the company and the numbers. For example, the reason a company has an increased debt might be because they just put a lot of money towards another product, new buildings, or bought another company. If you look at the numbers, you can make similar assumptions. I believe investing and mathematics have lots of parallels. I also really enjoy baking. I am working on perfecting my peanut butter cookie right now.
Young investors typically don’t have a lot of money to invest. Is this a reason not to invest?
No. Definitely not. Taking advantage of the power of compounding, a young person can start out with a very small snowball and as they add more money to it and as time goes on, that snowball will increase in size. I also believe that young people have a lot of money that they do not realize they have. I know many young people take day trips to the vending machine to get food throughout the day that they could have brought to school at no cost to their personal finances. For example, if you stop buying a three dollar bottle of Coca-Cola that you normally buy, after 10 days you have thirty dollars saved and ready to invest.
Investing also seems like you have to own the entire company. Only a small minority of people can do that. Many shares of companies cost less than one hundred dollars, and there are many places where you can buy fractional shares if need be. An investor is a part owner of a business.
Kids out there in the audience may think that they aren’t able to invest because they aren’t adults yet. How can a young person set up an investment account?
I am not a financial professional, so if you want more information definitely contact a broker. I talk a lot about this in my book, “Early Bird: The Power of Investing Young”. A quick answer would be, if you have some sort of taxable income (normally not babysitting, lawn mowing, etc.), you can open up a Roth IRA which is a way to save for retirement. Otherwise, you can invest under your parents, and when you’re eighteen they can transfer your holdings over to your account.
Adults tend to think of investing as a means for saving for retirement. Should young people also save with a retirement goal, or are there other reasons why a young person might start investing now?
Yes, there are many other goals a young person might have, but retirement is a pretty solid one. Young people have a long life ahead of them. When you invest, you are buying a part ownership in a business. Invest in the future you want to see. By investing and putting their money in the companies they would like to continue to thrive throughout their lives, they can have a say in their future. If you invest with social responsibility, a young investor can help support and get returns from companies that are making a positive change in the world. You can invest in companies that are environmentally friendly, have more diverse executives, or any other impacts or changes they want to see. There is a quote by Simon Sinek that goes, “When people are financially invested, they want a return. When people are emotionally invested, they want to contribute”. By investing with social responsibility, you have the chance to make great returns and contribute to your future by helping the company. Make your snowball impactful.
How did you get interested in investing?
My love for investing grew because of my love for business. I started a camp called Camp Kids with a friend of mine at age 9. We sent out flyers to everyone in our neighbor and told them to send their kids. I had so much fun pulling everything together and in the end, I had a 90% profit margin. This meant if I made one hundred dollars, I got to keep ninety of them. I continued Camp Kids for five years after. It was such a success I had to find somewhere to put my money. My parents gave me a book about investing, it was called “Growing Money” by Gail Karlitz, about a year prior to the launch of Camp Kids. It walked you through the basics on investing and the stock market. I remember sitting on my couch calling my grandparents to ask them how much a movie ticket cost when they were ten. When they said it cost twenty-five cents, I was sure they were joking. How could it cost twenty-five cents then and twenty-five dollars now? It was because of inflation! It was not until Camp Kids was up and running that I understood fully what investing was and why it is important. I would say the business side of investing is what hooked me.
How old were you when you got interested in investing?
I was ten years old when I first started investing. I sold my American Girl dolls and used the money to buy Mattel (MAT) and Hasbro (HAS). The funny part about that story is that Mattel makes American Girl dolls, Polly Pockets, Hot Wheels, and much more. Hasbro is also a toy company that sells board games like Monopoly and Risk, Nerf guns, among many other things. Investing is about patience, before I bought Mattel I had played with American Girl dolls for almost a decade. So I really understood their products.
You own a few stocks now. When you get new money to invest, how do you decide where to invest next?
I have certain requirements that I talk about in my book for the company’s metrics, such as not too high Price to Earnings ratio and not too much debt. These requirements are actually taped to my mirror so I will never forget them. I am not a risky investor so when I am able to invest, I tend to invest in consumer staples, products like candy, dishwasher detergent, or tissue paper that consumers interact with on a day to day basis. I talk a lot about this in my book too.
You, me, and your dad have spent some early mornings outside the Berkshire Hathaway annual meetings in Omaha, waiting to be let in to hear Warren Buffett and Charlie Munger talk for six hours. What is it about Buffett and Munger that draws you to Omaha each year?
Buffett and Munger are very down to earth and humble. Investors come from all over to wake up at 3:30 in the morning and wait in line just so they can see Buffett and Munger talk for six hours. That is an amazing thing. This is shown throughout that weekend during the meetings and get togethers are held throughout that time. I was trying to mail a signed copy of my book to an investor called Pim van Vliet in the Netherlands. After I learned that it cost $70 to mail, I told the investor that he would have to fly to the United States to get it because it just cost too much. I attended a get together and met a man that lived in the Netherlands. I asked him where, and I learned that he worked very close to the investor I was trying to send a copy of my book to. I asked him if we would bring a copy of my book with him on his flight back, and he was happy to! All I gave him in return was a copy of my book that he could keep. Value investing attracts some great people.
Besides Buffett and Munger, are there any other investors do you admire? What do you like about them?
I have been very lucky to meet many wonderful investors over my lifetime. The first investor I met was at the Berkshire Hathaway annual shareholders’ meeting. Since I was little, I always heard about Lauren Templeton. I learned that when she was a young investor of Walmart, she walked into one of their bathrooms and was not happy with how dirty it was. Lauren sent a letter to Walmart CEO, Sam Walton, and informed him of this. He quickly apologized in a personalized letter to her. After hearing so much about her, I thought that I had to meet her. When I made it to her book signing, I was greeted by her husband, Scott Phillips, who quickly said that she would have loved to meet me and was sorry she was not here. Then, he handed me her business card. It was sparkly, gold, and had an owl on it. I loved it, and I told her so throughout the first two paragraphs of my email to her. She responded very quickly and asked if I wanted some readings. Of course, I said yes. Within five days, she sent me three books, a very nice letter, and articles she read when she was younger that was marked up by her, her father, and her grandfather.
I have had many other memorable experiences with other investors that make equal impressions on my life. Lauren Templeton was the first investor I met. Because she was so kind, welcoming, and wanting to help, the investment world felt that much more accessible. One investor can make a big change for a young person.
In your book, you have a great line that goes, “All of the amazing investors I have met over the years share three traits: humility, frugality and nerdiness.” Why do you think those are key characteristics of successful investors?
Investors have to be able to laugh when they lose a dollar and know that the world is not ending. At the same time, they are frugal so they do not want to lose another dollar. They figure out why they lost the first dollar and make sure not to make the same mistake more than once.
Managing your personal finances is a second job for most people, and it is your money so you want to be careful with it. Investors have to be nerdy because you have to keep up with your holdings and what to invest in next.
You have built up this great investment knowledge early on in your life – way beyond what I knew at 17, which was nothing at all. Why did you want to write the book?
My blog, Compounding Snowballs, was around for about eight months at that time. I was getting great feedback from people about it. Summer came quickly, and I had no plans. I am not one to sit around and watch Netflix all day either, so I decided to spend my summer writing a book.
You have a great section in your book that lists everyday companies: companies in your pocket was one and companies in your medicine cabinet was another. Why should young investors start out looking at these types of companies?
Young people, just like anyone, understands why light bulbs are important or why we use up a box of tissues. Consumer staples are easy to understand. They are things found in your kitchen cabinet, your garage, your basement, your desk, etc. Before you invest in a company, you should know why you are investing in them, what they are doing and be able to describe that to another young person with little knowledge of that company, and know why they will stick around for awhile. Almost everyone can answer those questions about any consumer staple company in a heartbeat.
Besides time, what advantages do you think young investors might have over older investors?
They have the ability to know what will last and what will not last throughout their lifetime. Warren Buffett said newspapers were the best business ever. Newspapers were a good investment fifty years ago. Now there are so many sources to get news and most of them are online, the only person who reads a print newspaper is my dad. Very few people get print newspapers.
In your book, you talk about “economic moats”, which we at Ensemble absolutely loved because we also invest in companies with economic moats. What does an economic moat mean to you and why do you like them so much?
An economic moat is one company proving to the consumers that they are better at what they do then another company, or a competitive advantage they have. In order for one company to succeed, another has to fail. An example might be that Amazon has cheaper prices for books compared to Barnes & Noble. As a result, consumers gravitate toward Amazon. There are other ways to appeal to a consumer besides pricing power like higher quality products, organic or environmentally friendly products, etc.
When would you consider selling a stock?
I would consider selling a stock if they changed their story. That might be that the soup market is no longer doing well, so Maya’s Kale Soup & Healthy Stuff Inc. decides to become Maya’s FatBurger Pizza & Paunchy Toppings Inc. If I do not like the company moving to a new less desirable market or what the company has become, then I would no longer want to be a shareholder. If the company goes against their original values and are no longer socially responsible, I would consider selling. I truly believe that I am investing in my future, so I want to make positive impacts.
One of the great things you did in your book was reach out to investors for interviews. First, I’ll say it was an honor to be included in your group and I’ve found that most experienced investors are more than willing to reach back and help the next generation of investors. Young people should feel able to contact us anytime with questions. How did you go about contacting the experienced investors in your book?
I sent out a simple email. That was all it was. Investors are more than willing to help out the younger generations because they know how important time is. Looking back, most investors wish that they had started when they were younger, so if they are able to make an impact on someone who would potentially start now they will give help them out as much as they can. Many professionals will not say no, rather they will say no, but… or I can put you in contact with someone who can help you.
The investment industry is rather unfortunately dominated by men. The Chartered Financial Analyst Institute found that only 18% of charterholders are women – and that number has been stagnant for two decades. I have a one-year old daughter and would love to get her as interested in investing as you are. What can we as an industry – and I as a parent – do to help young girls specifically get interested early on and make their mark in investing?
It is really important as a parent to stay involved. By doing simple things like talking about what companies you are looking at during dinner, pointing out the companies you own when you’re driving or in the grocery store, the idea of investing is broken down. Giving young women resources and places to learn and grow, it allows us to understand investing so when terms are being thrown around in conversations, it is not intimidating.
Investors should also try to reach out and help. Personally, I have been able to have so many opportunities because I have had many amazing mentors that have always said yes or pointed me in the right direction. The reason I have been able to have such amazing experiences is because my mentors have taken me seriously. It seems like a small thing, but when someone takes you seriously, doors open much faster.
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