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|Our Fairy-Tale World||7|
|$20 Million Patience||11|
|PART I YOU HAVE MORE THAN YOU THINK||21|
|You Have More Than You Think||23|
|And a Bunch of People Want What You Have||36|
|Surprise Them--Save It Instead||67|
|But Profit off the Savings||75|
|The Ten Most Common Financial Mistakes||92|
|PART II INTERLUDE||101|
|Make Your Dog a Trick Dog||103|
|PART III YOUR FIRST INVESTMENTS||113|
|The Dow Graph||115|
|When Not to Invest||121|
|A Stock Primer||127|
|The First Federal Bank of Coca-Cola||146|
|Obviously Great Investments||159|
|Opening an Account||183|
|PART IV YOUR NEXT INVESTMENTS||191|
|Investing onAutopilot: The Foolish Four Approach||193|
|Buy What You Are||203|
|Where Do I Fit?||211|
|Become a Partner||221|
|Getting Help Online||226|
|The Ten Most Common Investing Mistakes||231|
|PART V BEYOND||245|
|Your First Few Months Investing||247|
|The Fifteen Things You've Learned Here||254|
|Quality of Life||264|
|Appendix I: Scribes? Meet Printers!||270|
|Appendix II: Iomega Retrospective||272|
|Appendix III: Books You Should Like||280|
|Appendix IV: Open Letter to the White House||283|
From Chapter One: You Have More Than You Think
The revelation of thought takes men out of servitude into freedom.
We have no intention of insulting anyone by leading off this chapter with a section simply titled "Brain." Let's face it...we pretty much all know we have brains, and while we could always be smarter, few of us feel too cerebrally gypped.
That said, many people seem quite willing to dismiss the exercise of reason when confronted with situations that smack in any way of the financial. Take the huge popularity of credit card debt, for instance. Like horses wearing blinders, a whole generation of Americans has grown up focused only on meeting that "minimum monthly payment" line, failing to recognize the implications of paying annual interest rates in excess of 15 percent. Observations like that inspire us to lead off this crucial chapter by stating unapologetically that you have more than you think: You have a brain.
"All men by nature desire knowledge," wrote Aristotle, but many have disavowed their nature when it comes to finance because no one ever taught them anything about the stock market, or explained how a retirement plan works. Once we are freed from classrooms and textbooks, the subject becomes completely off-putting, as are many of the other subjects we didn't study in school, like quantum physics or Babylonian history. But finance isn't at all like quarks or ancient kings. You deal with it every day. Really now, how often do you handle money and spend it, and how many people spend how many hours dreaming about it? If we can understand our dreams, wfor dumb.
You have a brain. But most people think they don't when it comes to anything financial. Additional examples abound. Do you have friends with money in the stock market? Or in a mutual fund? Ask them to explain exactly what they're invested in. Chances are very good that they'll be able to tell you little more than the name of the company or the fund. This is the direct result of someone else having sold them investments that they know nothing about. Most people with savings have their money in mutual funds but don't really know what they are or how they work. Some Americans own stocks without recognizing that stocks simply represent their part ownership in a given company. And how many people own shares of oil-and-gas, gold-mining, or high-technology companies without really having the faintest idea how those businesses work or what the companies' products are? Come on, now you're better than this, and you have more than you may think.
In his delightful book One Up on Wall Street, Peter Lynch points out the irony that most of us Americans spend a great deal more time and care making consumer electronics purchases (like refrigerators) than we do on our investments. The irony couldn't be stronger: Consumer electronics cost hundreds of dollars and lose value over time, lose value the very minute you walk out of the store. For some reason, however, we'll roll up our sleeves, check prices, read and compare the long lists of features, do a bit of "test-driving," and haggle with the salesman.
By contrast, our investments often involve thousands of dollars and will appreciate in value over time! But we've made up our minds that investments are complicated or boring, or really just "gambling" at heart, so we just don't think much about them.
What do we do, then? We employ a financial services company to manage them for us, be that a brokerage firm, mutual fund, financial planner, whatever. Amazingly, once again we fail to ask our financial professional the simple and revealing question "How do you make money?" A follow-up, which should always be asked, is simply "How do you make more money than that?" If you walk away with nothing else from these Foolish pages, walk away with a simple understanding that
Brokers make money when they move you in and out of different investments -- even very good ones. They get an additional lick off your ice cream cone every time. Each of these moves also adds to your annual tax burden. Further, this frenetic activity tends conveniently to suggest to many customers that "Geez, only my bro ker can keep up with this stuff I just can't do this on my own." Au contraire!
Mutual funds spend additional monies (your money) advertising themselves so they can attract more money to manage. Plus, every additional customer they bring to their beachfront makes it that much less enjoyable for existing customers who have already laid out the towels and put on the tanning lotion. To put that in financial terms, the bigger the fund gets, the more dollars it has to spread around; the more dollars in play, the less nimble it becomes; the clumsier it is, the less likely it is to outperform the stock market.
Finally, financial newsletters end up having to show you pumped-up numbers to attract subscriptions. Some of them obtain such numbers through creative accounting, possessing more gadgets in their bag of tricks than you'd find in a Swiss toy maker's shop. A host of bestselling financial newsletters and books are marketed on the basis of illusory or impossible-to-achieve big-sounding returns.
The easiest way to understand things is to ask very simple questions about them. Unfortunately, many of us are afraid to ask basic questions because we think it may make us look stupid. Actually, you look stupid only when you hide your lack of understanding behind a presumed knowledge. To return to the theme: We have more than we think. We can bring the power of reason to bear on this subject. Reason's most basic tool is just asking questions. And asking questions is the very thing that many financial professionals today do not want you to do.
Don't cooperate. Wait for your answers.
Copyright © 1998 by The Motley Fool, Inc.