Fundamentals of Investing meets Tuesday nights in Room J113 at Sandra Day O’Connor High School on the east side of San Antonio.
Sandwiched between J111 (the scantly attended Build Your Own Drip Irrigation System) and J115 (the chockablock Flipping Properties Made Easy (despite the national housing downturn, Texas will post price gains in ’08)), Room J113 is painted penitentiary gray except for the door and door frame, both of which are a shade I’ve heard my mother refer to as burnt sienna. Across the hall in J112 is a class tantalizingly titled Unintended Consequences.
The course opens with a vague but provocative question: “Do you realize you are living through a time period of major, revolutionary change?”
It’s hard to pinpoint what change we’re talking about here. iPhones? Oil prices? The first African American presidential nominee?
“We’re living longer, spending more and saving less,” comes the grave response. “But the days of traditional employer-funded retirement plans are going fast.”
Restless legs and busy fingers begin to settle.
“Fact is, you are going to be responsible for your own retirement, and that’s scary. But it can be done.”
Don, our antediluvian instructor, is missing an ear and a sizable chunk of the right side of his head where an ear is supposed to be, as though he bore the brunt of a massive sledgehammer whack. Amazingly, his speech is unimpaired and actually quite pleasing; he has the sweet drawl of a Texan granddaddy. Don’s personal uniform consists of high waisted khakis, a black leather belt, substantial white K-Swiss sneakers and a short-sleeved forest green polo shirt with the words Adult Community Education embroidered in white thread above a tiny pocket. He is a retired air force officer and former professor of industrial psychology, including 12 years at the University of Puerto Rico. He would describe his own personal investment style as “ultra, ultra conservative.”
Don tells us we can become millionaires if we want. He is going to teach us the basic concepts, principles, research techniques and vocabulary we need to become millionaires and the rest is up to us.
A huge mastodon of a man enters J113, out of breath and sweating moderately. Summer has just officially started but it’s been in the upper 90s for weeks. He stuffs his enormous self into the tenth grade desk behind me despite twenty five alternative seating options available. His huffing rustles the back of my hair and I want to move, but more than that I want to seem equanimitous and polite so I stay put.
Don tells us that over the course of…the course, we will need to do some serious thinking about our living, and our lives. His reliable fumbling with English lends spice to an otherwise bland subject.
No answers are right or wrong, he continues. Maybe we want a Porsche. Maybe we want a skiing chalet in Colorado. Maybe we want to spoil the grandkids.
What we don’t want, he stresses, is to be a sailboat without a rudder.
“Here’s your Bible,” he says, tossing a Standard and Poor’s Security Owner’s Stock Guide on the tiny tablet of each small desk.
The man behind me’s breathing has slowed to normal.
Financially, romantically, occupationally – I’ve always been a sailboat without a rudder.
Before Don no one had ever put it quite that way, as such a bad thing. A thing not to be.
A laissez faire approach to life has served me well so far with a few notable exceptions, exceptions that have in all honesty propelled me here, to J113 and the woolly world of purposeful personal finance.
What do I what do I what do I want?
Retiring a millionaire sounds pretty good. I will aim for that.
In order to retire a millionaire at age 65, Don declares, you have to get cozy with the Rule of 72, a mental shortcut for estimating compound interest. Albert Einstein may or may not have called compound interest “one of the most powerful forces in the universe”. And while Einstein was a physicist not an economist you get the drift: compound interest is a big fucking deal. It’s how you accumulate wealth.
The Rule of 72 looks like this: Years to Double = 72 / Interest Rate and sounds like this: Money doubles every 8 years if it grows at at rate of around 9% per year.
So, in order to retire a millionaire at age 65, you must have the following rather huge amounts tucked away in “growth vehicles” (stocks, bonds, mutual funds, appreciating raw land, whatever) earning around 9% each year.
Stay with me.
And brace yourself:
Age 25 $31,250
Age 33 $62,500 (see? it doubled in 8 years)
Age 41 $125,000
Age 49 $250,000
Age 57 $500,000
This rudderless sailboat finds herself slightly behind schedule.
Don instructs us to fill out four trees’ worth of soul-sucking paperwork apparently lifted from various banks and brokerage houses: Financial Goals Worksheet, Income & Expenses Worksheet, Personal Net Worth Worksheet, Personal Risk Assessment Worksheet.
While we grapple with zeros and negatives and generally disappointing numbers, Don buoys our spirits. Most people with big houses and new cars every year are not wealthy, he lectures, pacing the length of the double whiteboards. They just have a high income. There’s a big difference between the two, he insists, though you can’t always tell in a consumer-oriented society like ours. Wealth is what you have in assets, not what you spend. Wealthy people make their assets beget assets.
Over the course of…the course, besides “Remember The Rule of 72”, we learn Don’s other favorite maxims: “Make Assets Beget Assets” and “Make An Agreement With Yourself” (to pay off the balance in full each month on any credit card, to save 10% of each paycheck, to pour savings into growth vehicles, to get a living will).
“Do you mean we should be saving 10% before taxes or after taxes?” the woman I suspect is a Russian bride asks.
“Yes,” Don responds.
She repeats the question louder, slower, taking his age in to account.
“I…said…yes,” Don bellows back.
The Russian bride cringes and the rest of us exchange impish grins. “Anything and everything you can,” he insists. “If you can’t do 10%, how much can you do? 1%? Whatever you can. As much as you can. Financial advisers will tell you this over and over. Do 10. 10 is the baseline. Try to get to 40. I want to see you get to 40!”
It’s fun to see Don show emotion just because it’s so rare; his emotion,
and fun, in this class.
Every now and again a chorus of laughter from one of the other rooms will echo off the cement
walls and a silent but palpable wistfulness pervades J113. The learning taking place in our room is
the sobering, serious kind that sucks while you’re doing it and rocks in retrospect.
The weeks go by.
Don teaches us to decode the NYSE composite list in Barron’s, the differences between common and preferred stock, how to read annual reports, questions to ask your broker. After the lexicon’s been broken down, retiring a millionaire seems so idiotically simple even the teenagers whose desks we’re borrowing could do it.
One night we come to class and he’s written a list of local brokers on the board. Nothing wrong with a discount broker like the ones online, Don says, but me, I like to know the person I’m giving my money to.
Time to put knowledge into action, he enthuses, then spends thirty minutes explaining warrants.
I am financially terrified.
During breaktime I hang around the classroom, hoping to get Don alone. After weeks of hangnail-picking research plus two Sundays on the living room floor with a calculator, I know who I want: mostly Pfizer
and Medtronic (which both happen to be on sale at the time of this writing) and (because I personally can tolerate some risk and I love the company) Continental Airlines. Pfizer’s an interesting case because it has a direct purchase plan, meaning you can cut out the broker altogether and just buy stock directly from the company itself with no enrollment fees.
“Don,” I begin, summoning my fledgling investor confidence, “I really want Continental.”
He shakes his dented head. “I wish you’d pick a different sector. Or buy Southwest.”
“But Continental’s nearly bottomed out,” I venture. “It’s so cheap.”
“They could go bankrupt,” he points out.
“The American government won’t let all its airlines go bankrupt,” I reason.
“Not all of them,” he concedes, “but which ones will survive?”
“I don’t know,” I say weakly. My classmates are filtering back into the room and making their way to their desks. “How do I know?”
Don purses his lips and shoves his hands into his khaki pockets. “Well, you’d have to watch closely and see how they respond to the fuel crisis. Watch how quickly and how deeply they cut costs. See if they get rid of the unions. That would be a good sign. Then they’d have to get rid of their retirement packages. And so on.”
“OK,” I whisper.
“It’s gamble-y,” he finishes.
A shadow falls across the tablet of my desk as the kodiak of a man behind me raises his hand. “Yeah, what about what everybody says, ‘buy low, sell high’?” he asks.
Don approaches the front row of adolescent furniture and plants himself there, crossing his heavily sun spotted arms. “Do you have the guts?” he suddenly shouts. The class is riveted. “Do you have the guts to buy when everyone’s selling? Then do it!Go ahead! Buy GM!”
The old adage works, he says, but most people don’t have the stomach for it.
My favorite of Don’s accidental neologisms typically follows a group illumination, like when he asked if we’d ever really thought about the fact all public utility companies in the United States are monopolies.
“Bonds in utility companies? Come on! Think they’re going out business any time soon? Know any house that doesn’t need a plug?”
Our class is full of copious note takers, me clearly in the frontrunning, though I’m writing about the class not about investing, but no one knows that and besides, when Don says this about municipal bonds everyone stops writing even me and looks up in wonder.
Taking in our expressions he casts his most charmingly confused English phrase upon us:
“Am I whipping your appetite yet? Huh?”
Don totally whips my appetite. I want bonds. Now. A lot of them. Why didn’t I even think about this shit before? Off course, rudderless sailboat.
As it turns out municipal bonds mature in like 5 years and since I’m not a U.S. citizen (and only Allah knows if I’ll ever be) I don’t have that kind of time. Instead I decide to contact the guy at Wachovia recommended by Don.
We meet in his office on my lunch break. We agree that stocks are the best option for my particular situation and he opens my account. I give him my money and he gives me a nice smile.
Don is not satisfied with this. All class every class he continues to pull the existential anxiety trigger. Now we know how to retire a millionaire. What about when we retire? What are we going to spend the fruits of our labor on? We must think ahead.
“You have to figure out what you want,” he commands from the front of the room, sometimes fixing his dour, deeply lined gaze on me. “Put some direction in your life. What do you want?”
I look out the classroom window to a) avoid Don’s beady squint and b) check if a metaphorical answer might be sitting around the football field.
It’s likely the people who carve their goals and rewards in stone do achieve results faster and more fully than those of us who trawl the seas rudderlessly, happily visiting unexpected atolls. Me, I’m not convinced it’s necessary or even prudent to set in concrete what you want if you find yourself (as I do) in immigration limbo.
But there’s no denying how genuinely thrilling it is to go to bed knowing your money is working for you.
Hopefully your appetite is whipped, at least a little.
TNB does not endorse any of the financial information or advice in this post. Clearly, taking financial advice from an anonymous pony is capricious at best. Pay off your credit card and sign up for a class in your own community.