”My spelling is Wobbly. It’s good spelling but it Wobbles, and the letters get in the wrong places.”
― Winnie the Pooh
Welcome to claybaker.com, aka "Stay Invested", previously known as Mother's Little Helper. This is a project to see if the average investor can produce above average returns and do it on our own. We already know from our collective personal experiences that the average investor can do worse than the market with or without a plan from a professional helper. If that weren't true you wouldn't be reading this. The question is, can the average investor, with the right plan, consistently outperform the professional helpers and the overall market? You may be thinking that I have an ax to grind with professional money managers but actually I don't, I just want you to make more money. If you own a business and you see you're losing money the first thing you do is look at expenses and see if there is anything that can be cut. Likewise with investing I think it's important to remove fees and expenses every where we can. However we can't cut our way to profitability, we need investments that simply earn more while also not exposing us to unnecessary risk. The goal is simple, invest wisely to earn the money we need to take care of ourselves, our mom's, our dad's and our children so that everyone can live their lives with the resources they need. And if we have extra I hope that we all use it to make the world a more beautiful place by giving back however you choose.
I can sense your skepticism. Consider that this site is free, I have nothing to sell you and the portfolio is an experiment, you have nothing to lose. Just join in the conversation and be a part of the journey. If I'm right you win. If I'm wrong, well I'll survive the ridicule and try again and again until I get it right.
This is usually the place where the author tells you all the reasons why he or she is a financial or investment genius. Sorry to disappoint you but if you came here hoping to find that person there's no need to keep reading. Typically investment blogs and newsletters are written by people with a Harvard or Stanford MBA, service on boards of publicly traded companies, years of trading at big name Wall Street firms and the alphabet soup of acronyms that make you stutter when you read (CFP, MBA, CFA, ChFC, CLU, CPA, RIA, AIF, FINRA, EA, CEBC, RHU, CPCU, AAMS, CMFC, LIFA, CFS, CIC, CIMA, CMT, PFS). That ain't my story, I have no acronyms to offer you. To be fair, I'm not new to investing or uninitiated to the markets; I do come at this with some knowledge, experience and a perspective that I hope you'll find valuable. In short I'm highly passionate about investing in the stock market. I've made profits in the stock market and had some big losses too and from every investment I've learned a great deal. The most important lesson is the hardest; stay invested. Please join me on this journey as I create a portfolio, track it daily, respond to your feedback and blog about our progress for one year.
In the beginning
My father was a stock broker, specifically a branch manager for a major brokerage firm. He spent his entire professional life, working for one firm for over 45 years. Dad loved the brokerage business and loved to talk about it even more. You might say our whole house lived the brokerage business every day. During the late 60's and early 70's when I was in grade school I'd take the bus from school to my dads office and spend the waiting hours helping out; I was the office gopher. Dad was the boss so he didn't leave first. I'd make copies, run for coffee, throat lozenges and cigarettes. I'd run messages to the cage, whatever the brokers needed. This was in the days when all the brokers had a desk that faced the "Big Board", a massive electro-mechanical ticker that ran across the entire wall of the office. On every desk was a Quotron machine where brokers could instantly call up the price and data on any publicly traded stock. I found the entire place magical. In fairness I didn't fully understand what all they did, but it was so cool! Turns out a bunch of the best stock brokers in the country were all in my dads office, so I did what any curious kid would do, I asked questions. I constantly asked questions and the answers just made me ask more; I totally got why my dad loved the brokerage business. The sights, the sounds, the pulse of it all was intoxicating.
I came to learn that lunch with stock brokers was very different from lunch at the school cafeteria; and I liked it a lot. On those days when I'd get out of school early dad would take me along to have lunch with some of the other men in the office. I could almost order for them, "Three martini's, one Manhattan and a bourbon and branch", occasionally there was food too. When I'd order they would all have a big laugh because there was only one thing on the menu I wanted, a Monte Cristo Sandwich with raspberry jam on the side. This was the only place and the only time where I could feast on something so spectacular. While I ate my dad and the other brokers would talk about the markets, a company stock or a particular client. I loved hanging out with my dad and dorky as it was I loved hanging out with the men in his office. I didn't have to many friends at school, but these guys took me in and for whatever reason thought it was fun to explain it all to me. This was the beginning of my investing education and every once in a while I'd explain it all back at them! Every day I saw the brokers come into the office and go through the daily rituals; scan the papers, scan the Qutron, read the sell sheets, meeting with clients, make 100 phones calls, shoot the orders and confirmations back-and-forth through a vacuum tube system. All the while the ticker symbols and prices flopped into place on the big board like the sound of a million dominoes tipping each other over. Being in my dads office was like being at a football game, one day everyone is cheering over a win, the next all you can hear is the clicking chatter of the board as the somberness of loss prevailed. On good days I ran for donuts and candy, on bad days I ran for cigarettes, lots of them. I loved the way everything seemed out of control while there was complete order at the same time; it was controlled chaos.
My dad started paying me for the work I was doing, mainly because the brokers thought it was criminal that I worked so hard and wasn't getting paid. "Bobby, what are you teaching the kid if he works hard and doesn't get paid"? One payday I asked dad if he could pay me in the morning instead of at the end of the day. Dad looked at me kind of surprised and asked why. "I want to invest my pay in the stock market so I need the money before the market closes". Of course I didn't know anything about opening accounts and being of legal age and all that, but dad decided this would be a good thing to do. So we got to the office and he paid me for the week and I turned to leave his office. "Hey, wait a minute, I thought you wanted to invest your money in the stock market?" "I do, but I need to go see my broker first". My dad was shocked, but in true form he went with the flow. "Whose your broker?" I knew I didn't have much money and I knew that one of the kings of penny stocks was just down the hall, Mr. Sol Lasher, and I also knew that my dad didn't know anything about penny stock investing; mainly because I had heard Mr. Lasher say so on a number of occasions. I also went to Mr. Lazzar, a broker in the office that my dad respected a lot. I talked to Mr. Lazzar at length about investing and asked him for a recommendation. He declined to help me himself but recommended Mr. Lasher. After explaining my decision to dad I went to my brokers office and asked him if he would help me invest. He agreed, said he would work out the details with my dad and said, "come back in an hour, I'll have some ideas for you". Mr. Lasher laid out the sheets for three companies. He explained what each one did and that all three were good investments, all I had to do was pick one. I thought hard and chose Sea Containers. Mr. Lasher said, "Good choice, best of the bunch,but tell me, why Sea Containers?" I told him that I had seen those big containers on ships, trains and trucks and that seemed like a really cool way to move stuff around the world; I guess I know what those are, I really don't understand what these other two companies do. I would be in my 30's before I truly appreciated the wisdom of that decision. Sea Containers appreciated quickly and before I knew it I had enough money to buy a new pair of ski's, boots, poles and a parka; I loved the stock market, I was hooked for life. I had just made more money in a few days than I would make all month schlepping coffee. The stock market was undoubtedly the greatest place on earth to make money.
The next stage
Fast forward a few decades, I've graduated college, worked for a couple of software company's, an internet browser company, pitched a few companies of my own to Silicon Valley venture capitalists and started a design firm. I'll skip all the big ups and big downs in life to keep the story short. By now I've had several experiences working with stock brokers, bankers, private wealth managers and discount brokers. Looking back they all had one consistent characteristic, they had something to sell me. My dad once told me, "If you go to Ford the salesman is not going to try to sell you a Chevy. He's going to sell you what he has and it doesn't matter to him if it's the best car for you or not. The same is true in the brokerage business." That was pretty sobering. My dad basically told me that stock brokers weren't there to make me wealthy, no matter how much money I gave them they were there to sell me something to make fees for the company and themselves; my needs came last. About 75 years ago Fred Schwed Jr. wrote a seminal book called "Where are the customers yachts?" This was a quote taken from a man who was admiring the yachts of bankers and stock brokers. It's a great read I highly recommend. Okay, now I know the rules of the game, or at least one of the rules. My belief in the stock markets ability to generate wealth was still unshaken.
A Few Years Ago
My dad passed away unexpectedly in 2007 and shortly thereafter my mom was faced with figuring out how to make her money last. Like many families my mom and dad had their own financial ups and downs, some major medical expenses and career changes that all took their toll on their savings. The more I do research for this blog and talk to other folks the more common this dialog has become. Heck Prudential uses it as the central theme in their TV ads. Statistically we are living longer, making less and still retiring at the traditional ages; all this leaves more years that need to be funded by some means other than a job. Mom had a couple of rounds of not so successful experiences with professional money managers and unfortunately this is another common theme that keeps appearing in my research.
"Beware the 'Helpers' who'll take your money" - Warren Buffet
A New Beginning
Mom asked me to help her with her investments, probably figuring that I couldn't do any worse and my guarantee that I would cover any losses probably felt good too. With this in mind I was able to focus on creating a portfolio that would accomplish the following goals:
Remain highly liquid, equivalent to cash, any investment can be easily sold.
Reduce volatility while taking advantage of the markets long term growth.
Grow the overall portfolio value carefully.
Keep cash on hand to be a buyer during market corrections.
I wrote these goals down and shared them in a detailed investment plan with my mom and my siblings. I find committing something to paper and sharing it with a wide audience tends to improve my own commitment. I'm not showing her portfolio here, she wouldn't want me to, but we've accomplished all of these goals with a group of low cost ETF index funds that provide diversification and growth combined with a group of highly liquid stocks that also provide diversification, growth and dividends. The portfolio has removed the volatile up and down swings that in the past would make her want to sell off and get out of the market. When the market is up she gains a little, and when the market is down she's never down as much; a chart of her portfolio is a pretty smooth line.
One day while watching my moms portfolio I had one of those revelations, you know the ones that make you say, "Duhhhh". If my mom had this portfolio in place 10, 20, 30 years ago she wouldn't have any of the financial concerns that she has today. The appreciation alone, when I do the math and project it out conservatively is really astounding. Of course half the companies in her portfolio didn't exist 30 years ago, but that's besides the point. The principals of selecting the right stocks and index funds are all the same.
So that's how I got to this point, to this blog and wanting to take this to the next level. When I was little, being Mothers Little Helper was a cute euphemism for being a pain in the ass, that relentless little bug that won't stop buzzing in your ear. Today I'm hoping to continue being just as relentless but with a different objective. I'm hoping that through this project and interacting with all of you who read it that we'll find an even better way to prepare our parents, ourselves and our children for a better financial future. That brings me to the next rule.
"Take care of yourself, nobody else will care about you as much." - Clay Baker
Make no mistake, the work that's gone into developing this portfolio is very real. For the past two years I've been testing ideas, trying various approaches, spent a small fortune on investment books, I follow about 20 investment blogs daily and subscribe to several investment news services. While I'm ready to put myself and my thesis out there for all to see and ridicule; let me be the first to say, I've been wrong before, I might be wrong again! There is no room for hubris in the stock market.
Thank you for joining me,