Several years ago, I started a software development job at a MegaCorp. I was very fortunate in that the branch I worked at felt more like a small company, and our product was one small niche out of the much larger pie of software the company produced. This saved me from dealing with most of your standard corporate bullshit. When I started, I was not only making nearly 30% more than I had at my previous company, but I was also given $7,000 of company stock, to be vested in increments over several years. I couldn’t believe it: this seemed like an amazing deal.
But then the stock value tanked. And I mean really tanked. By nearly 50%. Suddenly, those sweet stock grants were only worth $3,500, and this would continue to decrease during my time with the company. I was stuck in an odd loop where I had to pay tax to receive the vesting shares, but this tax was paid by selling shares, which incurred short-term capital gains tax. It was a clusterfuck, and I became very familiar with Schedule D on my taxes. Too familiar. I eventually wised up and started paying the tax using cash I transferred manually to my brokerage account, but the damage was done, and I had already spent a lot of the meager amount I was receiving just to receive it.
After leaving the company, I sold all of my shares, as I was no longer legally obligated to hold them during the “blackout” periods between quarterly reports. I made about $1,000. And I’m glad I sold when I did, because if I had waited just a little bit longer, they would have gone done to about half of that.
I came out all right. But many long-term employees there had originally held tens of thousands of dollars in company stock, and they had the pleasure of watching that halve several times over. When you’re in your 50s and 60s, that’s got to be pretty scary.
And that, my friends is why I don’t own individual stocks.
But of course, there’s more to the story.
As I’m talking about this, I want to be clear: I don’t think there’s anything wrong with taking a small bit of money and playing stocks with it. I have friends who have played with a few stocks, some doing well, others not, I’m not here to judge (at least, not in this respect, ha!). There are far worse ways to spend money, so if you want to throw a couple hundred here or there, maybe even a thousand if you have the assets to back it up, sure, have at it. I’m not even opposed to people buying a lottery ticket every now and then, for entertainment purposes. It costs about as much as an energy drink, and probably isn’t as bad for you (and Risky likes his Doubleshots). But I personally never had any interest in playing these games, and here’s why:
I don’t give a shit. There’s nothing about stock picking that sounds fun to me. This is a cliche in personal finance, but if the experts can’t predict the future, what makes you think that you can? There are too many shills in stocks, and there are too many people who think they are brilliant. “Oh, I KNEW this company was going to go up!” Did you? Did you really? Because the road to hell is paved in good intentions, first to market is usually not the first to success in the market, and even companies with high profits sometimes have a low stock value.
But hey, I get it. We’re all keeping our eyes open for that big break, right? The problem is, too many people think this is the only way to succeed in life. “The little guy can’t get ahead!” I don’t believe this is true at all, though it is more difficult for some than others.
First of all, researching stocks is boring. Second of all, researching stocks still doesn’t give you a crystal ball into the future, even when the information is good and accurate. Third of all, you are just as likely to pick a loser as a winner.
And here’s the other problem: telling people your stock picks just feels skivvy. It’s like your neighbor’s cousin’s friend who tells you that buying investment property is a slam dunk, the money is easy, you’re missing out not doing it right now. It feels that level of skivvy to me, anyway. And you have a whole world of people “picking” stocks based on their biases, interests, etc. It’s like buying fishing lures based on colors that you think are pretty. It’s like picking “lucky numbers” for the lottery – absolutely stupid. And the other cliche is true, a broken clock is right twice a day. It seems insane to me to think you can replicate even your lucky successes over the course of decades, and if you can’t do that then what really is the point?
Whereas your gut may serve you well in nature, when your subconscious is picking up on clues you don’t consciously understand (my gut once told me to leave a valley early, and there was a nasty thunderstorm on my way out), your “gut” in terms of stocks isn’t picking up on anything, just assumptions and superstitions that play to your ego. That’s why gambling is a common addiction: who doesn’t want to feel powerful and predictive?
Now, I’m a shameless advocate for doing a little research, setting up a Roth IRA, and starting to invest. I think the largest barrier people face is just not knowing where to start, and for me, once I had an account setup, it became easy. But stocks are not the only investment class out there. I’ll return to this later.
Also, why do people think they are so sophisticated for pursuing money? The endeavor is as old as value itself. It seems that as soon as somebody has a decent income or decent savings, suddenly they become adroit “stock pickers”, or they try to buy investment property, or they rush into buying a house. “See, I am sophisticated, watch me pursue alpha!” Of course, some of this is our society’s emphasis on responsibility (which isn’t all bad), but then you get people who think that renting is for losers, and you know how I feel about that. So you get rich off stocks, then what? Do you just go around telling people to invest in the stocks you invested in? “This is the only way it’s done!” No. It doesn’t work like that. Do you just tell people to buy investment property? A lot of people do that, but it often doesn’t work out for those who take their advice. I’m not impressed by any of this, so I especially don’t care to try any of it myself.
If you want to retire, finding a way for your money to grow is important. Now, there’s a lot of things that should change in our society to make retirement easier. We can talk about this. We can have discussions. We can have votes. But all of that is another subject. In trying to make money grow, people do such crazy things. Instead, tell me your hopes. Your dreams. Tell me what God has called you to. Tell me what brings you lasting joy. Now tell me how money is helping or hindering these things. See, I think this is more important than the raw growth of money, but that’s not as sexy as saying, “Wah, I bought Tesla stock and it went up, I’m soooooo smart, I knew it would go up!” Who the fuck cares? Did you sell and make enough for that big trip you’ve always wanted to take? Were you able to share anything with others? Did you take your family out for dinner? Did it help you buy those books you really enjoy? Did it help you fix your car, or pay off your house early?
Most people, even when they get the GAINS, just waste it all on stupid consumer crap. Gains don’t help you if you’re just pissing them out. Why is this never talked about? A 200% return doesn’t do you any good if you just spend it all on cigarettes and booze or, more commonly, extremely expensive electronic gadgets.
Looking for a big break is one thing, but getting greedy is another. Billionaires are people, too, but the element of the human psyche that compels your average Joe to stock pick is the same element that compels billionaires to try to earn more. Am I taking crazy pills? You think billionaires don’t like to brag about their stock picks, too? What do you think these risky hedge funds are all about? At the end of the day, billionaires are average Joe’s, too. Having loads of money doesn’t change the lizard brain, so to speak. And I don’t doubt some of them think that growing their billions is the “responsible” thing to do. I think a misreading of the Parable of Talents does a lot to feed the Protestant Stupid Ethic, our nation’s obsession with hard work and earning money.
Another reason I don’t stock pick is that I’m not sure how I’d recommend other people do it. Thinking you have some super-secret strategy that some of the sharpest minds in the world have failed to see is pretty arrogant, but unless you have a really good strategy for picking stocks, how can you help others with that? I always think of the refugee families I used to work with. If somebody comes to the United States seeking a new life, what do you tell them that can help them succeed? Buying TSLA is not the answer. Buying investment property is not the answer. Far better is to help them through the difficult paperwork process, to help them build job skills, to help them learn English, and to emphasize the need to live below one’s means (which I guarantee you they are already better at than you are).
And this honestly is why I don’t write about stocks very often: I’m not sure they’re very important to a person’s larger financial picture. Living below one’s means, being strategic and intentional about how you live and how you spend your money and what sorts of risks your lifestyle exposes you to are so much more important then your investments. Yes, if you want to retire and you aren’t super rich, you need to find a way to grow your money. But stocks only get you so far if you’re otherwise a dumbass with a high income. And over the course of history and all nations, stocks have never been a slam-dunk (research Japan’s “lost decade”), just as no investment has ever been a slam-dunk.
Now, I’d be remiss to not at least mention how I invest my money, since that is a key element of how I plan to early-retire. Like most others in the FIRE sphere, I’m an index investor, meaning I invest in index funds. Rather than buying individual stocks, index funds invest in the entire market, picking up stocks from almost every company out there. While I’m not willing to bet on individual company stocks (and remember, stock value is not necessarily related to a company’s success), I am willing to bet on the economy and innovation in general, and the United States has a long history of this and is in a very strong position for continuing to grow for a very, very long time. I fully understand that the hopes I have in the US economy would probably not be well-placed in, say, the economy of Kenya. And it’s nothing against Kenya, but if you live in Kenya, your retirement strategy would probably need to be much different. And yet, living strategically below your means would still be extremely important. I try to focus on those universal principles, as the individual strategies may differ. In some countries, investment property is really the only way ahead. In those cases, you’ll want to know your stuff, but this won’t negate any of the core principles, and those core principles are what intrigue me the most.
With index funds, you aren’t going to outperform the market. By definition, you will perform along with the market. But the market does have a very long history of growth. It’s not sexy 20%-annual-returns growth, but it’s still impressive. But that’s also why compound interest is so powerful and why having a large quantity of money can do far more for you than simply getting a high return. An annual 3% return on $1,000,000 is $30,000, which more than pays for all my expenses in a year. The struggle is not getting a 3% return, the struggle is building that $1,000,000! (and this is just an example that popped into my mind). Do you feel comfortable investing for 20 or 30 years in a handful of volatile stocks? I sure as hell don’t.
So there really isn’t much to hock about index funds. I personally think they are superior simply because they avoid the high risks of individual stocks. They are not risk-free, of course, but you if want to put your money somewhere that is extremely likely to grow in the long-term, it makes a lot of sense, and it avoids the hassle and entropy of, say, an investment property. But again, there’s nothing sexy about them, and nobody gets to say they got a 500% return on their index funds: it doesn’t work like that. Sadly, people would rather take a big risk for that big return than a smaller risk for a smaller, but more certain return. But there are thousands, if not tens of thousands of people who have successfully early-retired using some strategy largely built on index funds. And there’s a lot of things to discuss along the way. Even I’m not going to call these a slam-dunk, and that’s why I never recommend people start investing until they are ready. But everybody wants to get rich fast, when it turns out that getting rich slowly is almost always the better route.
One last thing: fuck Schedule D.
That’s all for now.