You Have Time
A most valuable possession when investing...
by Brian Graney (TMF [email protected])
ALEXANDRIA, VA (Sept. 29, 1998) --Too often, young investors (we're defining "young" as 20 to 30 year-olds here) are overlooked by the Wise and mysteriously-named "investment community." The ads in the glossy financial magazines pitching investment advisors and the like usually feature a middle-aged man fishing in perfect peace on a tranquil lake. Turn on the TV, and all of the mutual fund companies seem to have hired the same people to do their commercials, which typically show a graying man watching his grandchildren playing joyfully in the yard, or something to that effect.
In the background, soothing music plays and a breathy voice says "This could be you some day, if only you give your money to someone you trust. Trust us -- the Sue & Grabbit family of funds."
Sure, investing is a lifelong process and it only makes sense to pitch retirement planning to those that are closest to retiring. Those folks are the ones who are most likely to get a panicked sense of insecurity after seeing these investment ads and think, "Oh no! I want to be that person in the fishing boat on the lake, but I'm so far behind everyone else. I need one of these funds!" Bingo. Score one for the mutual fund house.
But the Wise and their marketing people have got it all wrong. Their thinking is upside down, back to front, and inside-out. They should be pitching their products to the young investors out there, since they have such a large advantage over their older counterparts. Yes, young investors have that cherished commodity that no trader, no matter how savvy, can corner the market on: They have time.
In investing, time is the ultimate arbiter of performance. Need proof? If you had placed $40 in Coca-Cola (NYSE: KO) stock in 1989, you would now have about $550, including reinvested dividends. Not too shabby, huh? Meanwhile, $40 of Coke stock bought 70 years earlier in 1919 is now worth (gulp) over $5 million, including reinvested dividends.
The variable in this little exercise, of course, is the time factor -- something young investors have in abundance over their older counterparts. But the underlying lesson here isn't that the longer you hold onto a stock, the more money you can make. More importantly, the real lesson is the longer you hold onto the stock of a well-chosen, industry-leading company such as Coke, the more money you can make.
This is what the Drip Portfolio is all about -- finding these industry-leading companies and holding onto them for 20 years, 30 years, or even 70 years, so long as the companies keep performing up to snuff. The portfolio wants to invest in companies that are clear-cut industry leaders, with understandable businesses and management teams who have shown that they know how to improve revenues, earnings, margins, and shareholder value at a consistent clip over many years. The firms' products and competitive positions must have some staying power, since the portfolio wants to be an owner in the chosen businesses for a long, long time.
What's even better for the young investor, the Drip Port plans to invest its money in "the chosen ones" month-by-month, a little at a time. Not surprisingly, a newly-minted college grad such as myself does not have a great deal of disposable income lying around. The whipper-snappers of the world are far from their prime earning years and have lots of new expenses like college loans, car payments, and rent that eat up a good deal of their meager salaries. And that's not even considering money for the dozens of late-night pizza runs and rock concerts on which 20-somethings are required by law to waste a good portion of their paychecks every month.
But surely, after all of the monthly bills are paid and fun money is expended, there must be a little bit of money left over each month for a young person to invest. Is it $100? $50? $1.63? If so, then a young investor is in business and can start investing regularly in a DRP. (Unless the individual's left-over income is closer to that last figure, in which case more immediate needs -- food, for instance -- take precedent over investing.)
So, young Fools, you are in an enviable position. While the Wise are more worried about getting their grubby hands on your parents' money, you can do an end-run around your older investing brethren by dropping small amounts of your hard-earned dough into the DRP of a well-chosen, industry-leading company. Remember, you have time on your hands.
Time to learn about investing and form a solid idea of what kind of an investor you want to be.
Time to take out the magnifying glass and look closely at companies that catch your eye.
Time to let the wonders of share price appreciation and increasing dividends do their thing.
Time to say goodbye for tonight.
--Brian Graney
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