My excitement has been compounding since I was first talking about this opportunity, and I hope your interest has been as well. My name is Maya Peterson. I am high school sophomore with a passion for business, math, behavioral finance, and science. I published a book last year about the power and importance of investing early. It is called Early Bird: The Power of Investing Young. I have a blog called Compounding Snowballs that is three years old now, and many other activities outside of school that keep me busy. I want to talk about the ideas of experience and knowledge, two words that are related, but often misused.
Investing deals with both experience and knowledge. There are countless ways for aspiring investors to gain knowledge whether it is through books or online sources. Making your brain sweat is great, but nothing can ever replace experience. Reading about workout routines and TRX system is really not the same thing as going to to the gym. It is the same with investing, there is no way to really understand investing until you just do it. I have been investing for seven years now, and it has taught me many things I continue to carry with me.
Investing deals with both experience and knowledge. There are countless ways for aspiring investors to gain knowledge whether it is through books or online sources. Making your brain sweat is great, but nothing can ever replace experience. Reading about workout routines and TRX system is really not the same thing as going to to the gym. It is the same with investing, there is no way to really understand investing until you just do it. I have been investing for seven years now, and it has taught me many things I continue to carry with me.
The first being the importance of experience. There is a common saying: “Buy low. Sell high.” That makes sense, right? But to buy low means that it is only when the market drops, your palms get sweaty, you feel unsure, you look at your stock quote, and it is in that bright red color, do you understand that saying. It is one thing to read “buy low, sell high” in a book. Of course it makes logical sense when you read it, but it is quite another thing to actually do it.
I am not an emotional investor. I research all the stocks I buy; I do not go off of other people’s opinions. I do my own research to find companies that meet my criteria. Although I am not an emotional investor, I am still a human and when I look at my quarterly reports and know that only small fraction of my holdings went up, I do get a certain feeling. But as long as I am still confident in the business, then I do not feel as if I should sell.
Investing is about making sure my money is working for me. When I take the money I have saved from jobs, and choose to invest it, I am becoming a part owner of a business. A tiny, little slice, regardless of how much I own, I am still a “part owner of the business”, so I have to make sure I understand what that business does, who runs it, and how they stand up to the competition. If I understand that, then the investment should work out fine over the long haul.
My experiences have helped to reinforce the importance of a disciplined approach in investing. After seven years learning from the mistakes I have made, I work harder to try to answer the questions about the business. Of course, it is not foolproof, and I have made mistakes along the way. My first holding was my worst mistake and my best experience. When I was nine years old, I sold my American Girl dolls. I used that money to buy my first shares of a company, Mattel, which makes American Girl Dolls, as well as Barbie, Hot Wheels, and more.
I knew a bunch about their products, but as it happened my experience was far from my knowledge. I focused on the products of Mattel because I loved playing with them. Because I am a math nerd, I checked my work by running the numbers of Mattel. I knew that they had a satisfactory dividend, an acceptable Return on Equity, impressive profit margins, low debt, and a reasonable Price/Earnings ratio. I was feeling confident in my choice. Since this was my first investment, I assumed that all the checked boxes next to each of the metrics on my index card plus all my firsthand knowledge of dolls and toys meant that I was all good to become a Mattel shareholder. However, my experience was quite different, over the next couple years, Mattel’s shares went down and down, 30% down, 40% down, down into red numbers.
So what happened? Investing is not just products and numbers, you are a part owner of a business, and businesses only exist in marketplaces, and marketplaces are always changing. Plus competitors come at you from places you do not expect. In the case of Mattel seven years ago, the iPhone was still new, Amazon was big, but not as big as it is now, iPads were barely getting started, and last but not least, the movie Frozen had not been released yet. Some things you just have to let go and learn from events. What did my products and numbers analysis miss? I was unaware of how stores like Toys R Us impacted Mattel’s earnings, when the sustainability of ToysRUs business started to wane from the negative impact of iPhones and other devices on the demand for children’s toys, Mattel was soon in a world of hurt. I knew their products and their numbers which, for a nine-year-old, was not bad at all, but I did not figure on the iPhone. Why do I call an investment where I am down about 35% on paper one of my best? Simple, the experience I gained from my Mattel investment is to try to know that the story of the company and the market it operates in was just as important as the product and numbers.
The second thing I learned from my Mattel experience is humility. My shares of Mattel fell below their price during the Recession. I was wrong, but I have continued to invest in other companies, working not to repeat my mistakes, and become a part owner in many businesses, because as Edmund Burke says, “Nobody made a greater mistake than he who did nothing because he could do only a little”. Becoming a shareholder of Mattel was the worst best thing that ever happened to me because that experience helped me connect many dots I would have otherwise struggled to draw a line between.
If you are a fan of detective stories like me, then you probably know Father Brown by GK Chesterton. I did not know this quote at the time I invested in Mattel, but it is a good way to think about it:
“The real trouble with this world of ours is not that it is an unreasonable world, nor even that it is a reasonable one. The commonest kind of trouble is that it is nearly reasonable, but not quite... It looks just a little more mathematical and regular than it is; its exactitude is obvious, but it’s inexactitude is hidden; its wildness lies in wait.”
Humility really matters in investing, investing is about the future, and the future is unpredictable. Staying humble means understanding that no matter how hard you crunch the numbers, this isn’t calculus class, and the answer you derive is never perfect. One day, it is kids playing with dolls, and the next day some California guy in a black turtleneck puts a piece of metal in everyone’s hands, and a 60 year old toymaker goes poof. Not even math can protect you then. Numbers can sometimes tell you if you are wrong, but by themselves, numbers are not enough to be right. In the end it is all about moats.
Investing has also taught me to work hard on analysis. I like to call it nerdiness. Making mistakes is part of the process, it happens to everyone. But not everyone learns from their mistakes. Wouldn’t you rather learn how I lost money on Mattel and know not to make that same mistake yourself. So, nerdiness allows you to keep your mind open to new information and have an ongoing desire to learn from others.
Investing has also taught me to work hard on analysis. I like to call it nerdiness. Making mistakes is part of the process, it happens to everyone. But not everyone learns from their mistakes. Wouldn’t you rather learn how I lost money on Mattel and know not to make that same mistake yourself. So, nerdiness allows you to keep your mind open to new information and have an ongoing desire to learn from others.
Every year since I was nine, I attended Markel’s annual shareholders’ meeting in Omaha, Nebraska. Since I was already in Omaha, I also like to stop in at Berkshire Hathaway’s annual meeting too. Both events are packed with investors from all over the world coming to learn what they can learn from Warren Buffett and Tom Gayner over one weekend in May. Knowledge is not only formed from reading “Intelligent Investor” by Benjamin Graham, but from learning directly from others.
About two years ago, I met an 89-year-old woman who had a passion for numbers. Her name is Ginny. Our meeting to discuss her story and her holdings started with the tough decision of deciding what type of tea we wanted. The conversation quickly transitioned to scones and then to investing. Ginny’s house is in a tiny town in northern Minnesota, not far from Canada, and nowhere near Manhattan. She was not wearing a three-piece suit barking demands at her assistant. She was sitting around her kitchen table looking out at the lake. Ginny wore a smart blue sweater and sat at her table with the spreadsheets, annual reports, and countless newspapers covering the companies she was a part owner in. Ginny’s first stock was given to her as a wedding gift in the 1940s from her father in law. His gift inspired a lifelong passion of investing for Ginny.
Her investing style is simple: She looks at the numbers and watches the people. How she invests has been a major influence on how I invest.
After meeting Ginny, it was very clear to me how little flash there was in investing, and I learned the importance of having a frugal mindset. Since I was young, I have never enjoyed spending my money. I enjoy making money and then investing it, but it pains me to take a dollar out of my wallet and spend it on something I want. About 90% of the money I make from my book, “Early Bird”, is invested, and a good chunk of it was invested in shares of Markel. If I made a list of all the things I would rather do than spend my money, first on the list would be invest it.
Bankrate data says that, currently, less than 57% of Americans have $1,000 in savings. That is scary, but what is worse is that I know my teenage friends have significantly less than that and spend almost all of their money on daily trips to the vending machine. I will admit that I can relate to the appeal of Pepsi. I own a few shares. Vending machine products are designed to be cheap. What will a bag of $1 chips do to your future? You’re right in thinking nothing. $1 will do nothing to your future unless you choose to save it. If I were to spend $2.25 on a bag of M&Ms and a bag of Skittles everyday for 165 days, which is approximately a whole school year, my midday snacks would total to $371.25. To me, that’s a lot. You could buy 26 and a half copies of Early Bird with that money. If my trips to the vending machine continued every school day for four years of high school, I would have spent $1,485 on candy by the last day on my senior year.
What if I decided to invest the money that I otherwise would’ve spent on candy with a 10% annual interest rate? If I invested it from the first day in freshman year high school to my last day in college, my money would have doubled. If I kept investing $1485 until I retired, about 45 years after high school, I would have an one hundred bagger. The day I did that math my vending machine budget began to resemble a donut.
My spewing out numbers about what your life could look like if you made different choices sounds similar to getting rich quick; however, investing could not be more long term. A lot of it is little things, and discipline, held over a long time frame. Here is a simple example, let’s say you are not going to retire for about 20-30 years. You can look at a purchase you are considering, and multiply it by 15. If you are young enough or not going to retire for 20-30 years, then a dollar could easily be worth 15 times more with that long time to compound. So, then when you see that new $300 golf club or whatever else might interest you in that second, think of it not as a $300 purchase, but rather losing out on $4,500 in retirement. Now, if you able to invest that money in a successful company such as Markel, then you might do even better. The simple lesson here is to multiply optional purchases by 15, or less if you are older or want to be more conservative, and try to get another year or two out of those old golf clubs.
My spewing out numbers about what your life could look like if you made different choices sounds similar to getting rich quick; however, investing could not be more long term. A lot of it is little things, and discipline, held over a long time frame. Here is a simple example, let’s say you are not going to retire for about 20-30 years. You can look at a purchase you are considering, and multiply it by 15. If you are young enough or not going to retire for 20-30 years, then a dollar could easily be worth 15 times more with that long time to compound. So, then when you see that new $300 golf club or whatever else might interest you in that second, think of it not as a $300 purchase, but rather losing out on $4,500 in retirement. Now, if you able to invest that money in a successful company such as Markel, then you might do even better. The simple lesson here is to multiply optional purchases by 15, or less if you are older or want to be more conservative, and try to get another year or two out of those old golf clubs.
Not buying your $300 golf clubs the day you want them takes discipline. The discipline in saving is just as important in investing. It is quite easy to urge people to buy low and sell high, but when the time comes, it becomes harder no matter how many times you’ve repeated this precept to friends, family, bosses, coworkers, everyone. Investing teaches you a collection of things. Investing has allowed me to see the world differently.
As an investor, I feel like a greater, more influential force in the world. I am only sixteen which means I do not even get to drive myself around yet, but I can invest. Investing is the first adult choice I got to make, and it is a really powerful decision to save your money and choose to buy into certain companies. Little things that I otherwise would not pay attention to, such as if my friends still buy Tiffany & Co. jewelry or wear Nike shoes, become critically important to me because investing in the soda your brother is drinking, could allow you to have financial independence early on in your life.
As a business owner, I like to own companies that make money. One area I like to invest in is consumer staples. I don’t look out for the next cryptocurrency hot stock or how marijuana is doing. Instead, I monitor shampoo and paper towels. I find that significantly more interesting because when you own companies that make things that people buy at Walmart every day, it makes it easy to monitor how the companies are doing and if they are growing or not. If someone consistently uses Dove soap, Crest toothpaste, or any other day to day product, it is a pretty safe bet that the consumer’s habits will not change over very long timeframes.
The world of business owners is filled with interesting stories like Rose Blumkin, who was known as Mrs. B. She founded Nebraska Furniture Mart in 1937. Berkshire Hathaway acquired the company in 1983, making Mrs. B the first female manager at Berkshire.
Before Nebraska Furniture Mart, Mrs. B was a Russian immigrant with a mind made for business. She learned the ways of business from her mother, and at age thirteen Mrs. B walked 18 miles to another city in Russia to find a well-paying job out of town to support her family. She was persistent and stubborn even as a child.
When the war started, she had no other option but to flee Russia. She said, “I had no passport. At the China-Russia frontier, a soldier was standing guard with a rifle. I said to him, ‘I am on the way to buy leather for the Army. When I come back I'll bring you a big bottle of vodka.’ I suppose he’s still waiting there for his vodka.”
Isadore Blumkin, her husband, opened a small second-hand clothing store that made around $10 per week. He sold his clothing at the same price he bought them for, making no profit. This was far from ideal during the depression. Mrs. B was quick to correct him, “You buy a pair of shoes for $3, sell them for $3.30.” Mrs. B had built a large business for her boss back in Russia, and she knew she could do the same here in America. Isadore’s income was not enough, so she started her own business that year in the basement of her husband’s pawn shop with $500 her brother loaned to her. She learned the best way to have returning customers is to make a small profit of 10% and do anything for them. She didn't believe that success and power were made because of cheating someone out of their dollar or scaring them into a purchase.
Customers loved her prices, but certain suppliers felt differently. Mrs. B said, “The merchants were very rotten to me. When I walked in Merchandise Mart to buy furniture, to buy anything, they used to kick me out and say, ‘Don’t bother us. We’re not going to sell you nothing.’ I used to almost start to cry. My face would get red and I’d say, ‘Someday you’ll come to my store to try to sell to me, and I’ll kick you out the same way that you did to me.’"
There was no competition with her business’s low prices, and even at age 100, she worked 12-14 hours a day, 7 days a week. To be a successful investor, I feel as if a little part of Mrs. B has to exist in you. She was focused on her customers, and took every challenge she faced head on knowing that in the long term her customers’ loyalty would make a profitable business. Mrs. B was rich with experience and an entrepreneurial spirit that could never be outshined.
Customers loved her prices, but certain suppliers felt differently. Mrs. B said, “The merchants were very rotten to me. When I walked in Merchandise Mart to buy furniture, to buy anything, they used to kick me out and say, ‘Don’t bother us. We’re not going to sell you nothing.’ I used to almost start to cry. My face would get red and I’d say, ‘Someday you’ll come to my store to try to sell to me, and I’ll kick you out the same way that you did to me.’"
There was no competition with her business’s low prices, and even at age 100, she worked 12-14 hours a day, 7 days a week. To be a successful investor, I feel as if a little part of Mrs. B has to exist in you. She was focused on her customers, and took every challenge she faced head on knowing that in the long term her customers’ loyalty would make a profitable business. Mrs. B was rich with experience and an entrepreneurial spirit that could never be outshined.
Last year I talked with two motivating and eye-opening people named Barbara and Bob, who want to try and inspire their grandchildren towards the long term focused investing path. When my book Early Bird came out, they purchased a book for each of their nine grandchildren, with ages ranging from 12 to 20 years old. On Christmas, all the grandchildren opened their presents to see a copy of Early Bird and a contract from their grandparents. The contract stated that the grandchildren had to read Early Bird, and use the ideas in there to pick a stock to invest in. As long as they followed up and ran the analysis on the stocks, the grandparents would give them money every year for five years for investing purposes only. The deal was sealed when the grandchild sends a signed contract back confirming their investment choice, proof of perusal of Early Bird, and commitment to the challenge their grandparents call “The Investment Challenge”.
I’m proud to say my book was a gift to many people over this winter, but this is by far the best plan I have seen to add more incentive for early birds to invest and get started. It is a great feeling to think of the thousands of people who have bought the book, how many new investors and investing accounts have been created out of the book. Investing is a learning process, and I enjoy thinking about the conversations people have had and what they learn on their own investing journey. Just in Barbara and Bob’s family alone, there are nine new accounts compounding away for the grandkids. The family recently wrote and reported they completed their second year of funding accounts for their Early Bird challenge after achieving roughly 8% gains in 2018.
These lucky grandchildren used my book to invest, and so did I! About 90% of the money I made from the book, I invested. I invested in my ever growing love of consumer staples. I was interviewed for a newspaper when my book was originally published, and the article was all fine and good, but one quotation about why I invested in Pepsi will forever haunt me. According to the reporter, I said, “I picked Pepsi because I love Sun Chips. Cheddar Sun Chips are my favorite — that’s how I pick most of my stocks.”
The reporter left out a major part of the process. First, I watch what new things my friends bring into school, make careful observations about products used in the world, and find products I like, like Sun Chips. After that, I look if the company has a stable moat that I predict will work out for the long term. Next, I try to learn as much as I can about the company. I make sure the numbers back up the story and then wait for the company to get to my desired price. Buying a stock is just the start, because businesses are always changing, and so once I buy I monitor how my companies are doing in the marketplace.
I would buy a many bags of Sun Chips because I like the product, but I would not buy even one share of a company just because I like their product. Investing should be as simple as possible, but buying a stock takes more work than just eating Sun Chips.
Over these past seven years, I have developed an investing mindset of patience, frugality, nerdiness, humility, and discipline. To put in the work to build your knowledge of the business and then to monitor progress so you can learn from real experience. The best way to learn to invest is to just invest. Investing is simple to understand: You put in your work, try to understand the business, and do your best to pick stocks; however, the world is unpredictable and things do not always go as planned. Through investing I have learned to look at the world differently. The world of business becomes much clearer when you are a business focused investor.
The simple act of understanding business has the ability to benefit anyone just by building your knowledge. When you have the experience of being an engaged part owner, it adds another tool in your toolbox. Because as a business owner, you need to continually review the strength of your competitive moat against the marketplace. It is an ongoing process of checking and rechecking your work. I hope my stories have helped inspire someone to start investing because all it takes “is wet snow and a really long hill”. Thank you.
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