It’s Business Time

FA review tag


The Intelligent Investor is not our usual fare here at Fiction Advocate, but a combination of factors compel me to write about it. Specifically: that I read this book, and that my name is on the masthead. I’m hoping the market will bear it.

That said, another set of factors compels me as well. You’re probably familiar with them in some form or another: the 2008 financial crisis; rising CEO pay; declining wages for workers; hedge funds; Occupy Wall Street; record corporate profits; record student loan debt; unlimited and undisclosed corporate contributions to the politics that shape our government, and so on and so on. Chances are you’re not real happy about most of these. You’d probably even like to do something. If you could.

One perfectly natural reaction is to get mad and try to get away. Steer clear of malls; support small businesses; buy local and organic and so on and so on. All of these are great, and I support each of them — but none of these alternatives offers any kind of real solution. You’re bringing a knife to a gun fight, with Skynet. And by avoiding publicly traded companies, you’re also denying yourself access to a whole host of awesome things like Apple computers, Google searches, Starbucks coffee, pretty much all pharmaceuticals and communications technology. There’s really no way you’re reading this post without using some product by some company whose shares are making some dickhead rich on Wall Street right now*.

But even beyond the fact that avoiding Wall Street is pretty much impossible, the popular disdain for it may actually be harmful. Think about it like politics: People are disgusted with politics, so they don’t vote, and the government only gets worse. People are disgusted with big corporations and greedy capitalists, so they don’t exercise their (admittedly, limited) power to engage, and the economy only gets worse. This is why The Intelligent Investor is a book that more people should read. Especially, I assume, if you are part of our target audience here at FA, i.e. people like me who have spent most of their lives with no real interest or understanding of investing in stocks. If most of your knowledge of the stock market comes from “Trading Places,” then this book is for you.


So what is The Intelligent Investor? That was my question when I received it as a gift from a wise in-law who wanted to encourage my nascent interest in the market, and make sure I set off on the right path, or at least avoided the many, many, many wrong paths available in securities trading. TII is billed as “The Definitive Book on Value Investing” on its cover, and heralded by Warren Buffett (the Michael-Jordan-combined-with-Babe-Ruth of investing) as “By far the best book on investing ever written.” Both of these are encouraging, as is the fact that there is no photo of a crossed-arm, beaming author on the cover, no promises of fast riches, no theories on finding the next big thing, no predictions of the future value of the Dow, no use of the words “win” or “beat” or anything like that. This is serious business.

It’s also well-written business, light on the jargon and corporate-speak (very few sightings of words like “leverage” or “impactful”), and generally accessible to most readers willing to take a little time, look up a few words and concepts, and skip over a few things to figure out later on the second or third pass through the book. At times, TII is even humorous and literate. The author, Benjamin Graham refers to fables and allegorizes poetry. He uses the word “heteroclite” on page 450. Jason Zweig (the good kind of columnist for The Wall Street Journal) provides updated commentary for each chapter, and quotes everything from Ecclesiastes to Yogi Berra to Montaigne to Agent Mulder from the X-Files.

Perhaps what’s most important about TII — its “key differentiator,” as they say — is that it is humble and simple. Graham doesn’t overpromise. The message at its core boils down to: “find good companies; buy them at an attractive price; hold them for a long time; repeat.” Also known as, “buy low, sell high.” Easy. Or at least, it sounds easy. But the stock market is a stupid place – or at least a place where stupid impulses have extraordinary opportunities to thrive. If you see a particular company’s stock start to surge, you want to buy in. Then the price starts to tumble, and you want to sell. Both of those are normal reactions and terrible ideas. You don’t rush to Banana Republic because they just doubled the price of their summer shorts. And you wouldn’t rush back to return them if you could only get back half the price you paid. And yet, people do this on the stock market every day. I’ve done it myself.

I know it was the wrong thing to do because I read this book, and I’ve learned to identify and (mostly) resist those impulses. And in that way, TII is more than just a book with insights about business and the stock market. You can learn how to grow your savings with good investments – but if you’re paying attention, you might also learn something about human nature and history.

Which brings me back to the idea that more people should be engaged with the markets. According to the most recent numbers from an annual Gallup Economy and Finance survey, about 52% of Americans have some kind of investments in the market right now. That total is, understandably, lower than it was before the 2007-08 downturn. But it’s also the lowest number Gallup has registered since it began the survey in 1998. I found the number in a New York Times story about how the recent astronomical rise of the stock markets isn’t actually benefitting that many people. If only half of the American people are invested in the stock market, it’s no wonder the stock market doesn’t seem to care that much about the American people.

You can try to vote with your wallet sure (see above), but companies are far more responsive to shareholders. Putting a few thousand bucks — or even a few hundred thousand — on the market  is not going to create a glitch in the Matrix, but if some significant portion of the other 48% of America decided to get involved by getting invested, we might at least have a little more influence than we currently do.

Only try to realize that there is no collatoralized debt obligation.

Try to realize that there is no collateralized debt obligation.

Being on the market gives you a chance to invest in companies you believe in. Tesla (TSLA) makes electric cars that are good for the environment. If you want to help them do it, buy some stocks and give them some capital to fuel their growth. Maybe you like Costco (COST) because they pay their workers a decent wage. Maybe you really love Nintendo (NTDOY) and, well, I’m not sure I could reasonably advise investing there. But who knows? One of my most favorite recent examples was Starbucks (SBUX) CEO Howard Schultz responding to a shareholder who opposes gay marriage and who claimed, at a recent meeting, that the company lost money because of its pro-marriage equality stance. Schultz said:

“Not every decision is an economic decision. Despite the fact that you recite statistics that are narrow in time, we did provide a 38% shareholder return over the last year. I don’t know how many things you invest in, but I would suspect not many things, companies, products, investments have returned 38% over the last 12 months. Having said that, it is not an economic decision to me. The lens in which we are making that decision is through the lens of our people. We employ over 200,000 people in this company, and we want to embrace diversity. Of all kinds.”

At that point the audience interrupted in cheers and applause. Then Schultz concluded, “If you feel, respectfully, that you can get a higher return than the 38% you got last year, it’s a free country. You can sell your shares in Starbucks and buy shares in another company. Thank you very much.”

Then again, one of my least favorite examples is Exxon-Mobil (XOM) consistently refusing to update its equality policies, despite pressure from shareholders and outside groups. I’m not naive enough to think that good people jumping into the stock market is going to transform capitalism into a social justice campaign — nor should it. But if you really want to occupy Wall Street, then it would be wise to take up more space than the lawn at Zuccotti Park. At the very least, it can’t hurt to better understand the mechanisms that play such an overwhelming role in our economy and the well-being of millions of people. For that, The Intelligent Investor is one of the best places to start.

* To be clear, it’s not all dickheads making money from stock market growth. It’s also — for better or worse — pension funds and university endowments and the retirement accounts of people you know and care about. We may celebrate when a bad guy goes bust, but a healthy, growing, functioning stock market is an infinitely better thing for the world than a collapsing one.

– Michael Moats

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