Investing
Who invests in stocks? The answer? Everyone.
Well, almost everyone. Fancy-pants corporate CEOs. Yoga teachers. School teachers. Teenagers who mowed the lawn for a summer and are already dreaming of owning a home some day.
The fancy-pants corporate CEOs can likely put more money into stocks, but for most normal people, even 100 shares in whatever.com that starts at 12 bucks and compounds at 10% for 20 years ends up being worth a meaningful sum.
So...you can buy stocks. It’s not hard. It won’t hurt. Much.
The logistics are simple. Save a grand or three. Go down to your local Schwab store or log in to fidelity.com or a host of others. Set up an account and then just click to buy, uh, whatever stocks you think you want to own. You’d then just check your progress, or lack thereof, by going to Google Finance, Yahoo Finance, Etrade.com, and whoever else provides legit stock price info for the masses.
That’s how most of America does it. And believe it or not, most of America actually owns stocks. From the whitest, white-shirted CEO to the bluest of blue collar workers.
For many union workers, stocks represent almost all of their net savings, whether they realize it or not, and their stock ownership has produced some really perverse outcomes.
Take ProfitCo. Vastly overstaffed. It had an awesome union negotiator who got the corporation’s weak CEO to hire twice as many workers as it needed.
That "overemployment" scenario was great for the fat and happy employees who would otherwise be out of work, but it was bad for the company that now has to find the financial resources to cut double the number of paychecks. As a result, the company earned 60 cents a share instead of the dollar they would have earned if they had "right-sized" the labor force. But the typical union worker in the factory had essentially all of her wealth tied up in this company. As part of her pension plan, she had been “forced” to buy the company’s stock…about 5 thousand dollars’ worth of stock...every year, for decades. While the company did well, she found herself with 100,000 shares in a company whose stock was trading at $5 a share, or 10 times earnings.
That’s half a million dollars of savings fully invested in one stock. Lots of risk. But in a stock that pretty much everyone thinks is undervalued and under-appreciated by Wall Street. So it trades at a very low multiple of earnings.
Why? Because the CEO was a pushover. The lunatics ran the asylum, and now they’re suffering under a very low stock price, since many need it for retirement, home-buying, and, uh...high stakes antiquing.
So along comes a new CEO, Toughy McTough, who wants to fire ⅔ of the workers and “right size” the company, deploying robots at the same time.
If Toughy has his way, the company will earn a dollar a share this year, and likely 2 dollars a share in 2 years, since he fixed the bad, low profit margin structure of the company. Wall Street, he knows, will love this...and they’ll bid up the stock.
So strangely, but logically, Peggy in accounting cheers when she’s fired by Toughy.
Why? All her wealth, the 100,000 shares, have now been bid up.
They go from trading at 10 times earnings of 50 cents to trading at 20 times earnings of 2 bucks, or 40 dollars a share.
Huge wealth swing. She went from looking at retiring Prius-style on half a million bucks...to shopping for a hot new 23-year-old pool boy named Bjorn, with her 4 million dollars in stock wealth.
And it can be the same story for Martha the tennis instructor. Or Barry the pastry chef. Or Samantha the bedpan-maker.
Their stories might not follow the same trajectory, but as long as you own shares of a stock, you have the potential to reap major rewards. So that you have a chance to retire at an early age from...bedpan-making.