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9 Investing Lessons from Hamilton

By Kirsten Guerra - Jul 26, 2020 at 6:47AM

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If you're not already investing, now is the time. History has its eyes on you.

Can I be real a second? For just a millisecond? The release of the Broadway hit "Hamilton" on the Disney+ platform has been a great boon to Disney (DIS 0.56%) by boosting subscribers and expanding into new audiences. Beyond that, "Hamilton" has even more to offer -- this time, to new investors. If you've been thinking to yourself, "now is the time I should get started investing!" you're right, and here are a few investing lessons sprinkled throughout "Hamilton" to get you started.

Hamilton logo - the silhouette of a man standing atop a star behind the word Hamilton.

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1. Is it a question of if, or which one?

Alexander Hamilton saw the value in associating himself with the Schuyler family, hoping to see his status grow right alongside theirs. This is exactly the goal of an investor: Buy shares of a company and grow your profits as they grow their business. On average, stocks can help grow your wealth by 10% per year. Compare that to the 0.06% average annual return of a savings account, and I don't understand how you stand to the side. There's no question if you should be investing (assuming you already have an emergency fund and no high-interest rate debt), but you may find yourself wondering: which investments?

2. You cannot be everywhere at once. You're in dire need of assistance.

The average investor may feel overwhelmed by the idea of holding many stocks, but diversification is important. Diversifying your money across multiple stocks or other assets is key to minimizing risk. If that's starting to sound kinda draining, don't worry. Index funds are your right hand man. An index tracks a whole collection of stocks all at once-say, 500 of the largest companies in the US market (the S&P 500). All you have to do is invest in one index fund to gain exposure to many companies all at once.

3. The price of a fee's not a price that you're willing to pay.

When Britain tried to tax the colonists' tea, they got frisky; imagine what's going to happen when they try to tax our investments! No matter what method of investing you choose, be aware of fees. Fees chip away at your gains. If you invest through an active mutual fund manager, be aware that fees can be quite high and active management usually doesn't even beat the market. If you invest with index funds, look for a low expense ratio. If you prefer to pick individual stocks, make sure you're using one of the many brokerages that offer commission-free trades. 

4. Look around, look around.

Eliza would've made a great investor with all that searching and scanning. In fact, this is one of the best ways for new investors to get started with individual stocks. Look around. Did you just get a Roku (ROKU -0.31%) and notice that all your friends now have one too? Maybe you drive a Tesla (TSLA -0.89%) and feel surrounded by a fervor for the next generation of electric cars. Perhaps you noticed that everyone and their sister signed up for Disney+ to live their best Hamilton life. You're a part of consumer sentiment, which can be a strong indicator of which companies will find continued success. Start there. That would be enough.

A still of the live Broadway recording ofHamilton, with Leslie Odom Jr. as Aaron Burr.

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5. Be willing to Wait For It. 

Burr might have made a great investor with all the patience he encourages. While many are quickly burned by trying to double their money in the stock market overnight, the real secret to wealth generation is long-term investing. The best thing you can do is start investing early and wait. With the magic of compounding returns, you'll be surprised how much you'll have in retirement. Be thinking past tomorrow!

6. Look for a mind at work.

If you choose the route of picking individual stocks, you'll find there are many ways to assess whether a company is right for your portfolio. If you're not sure where to start, consider this: look to the leader. Great leaders are skilled at capital allocation (putting profits back to work to grow the company), have a clear vision, and inspire their workforce. Look up interviews with the CEO on Youtube. Call in to a quarterly earnings review (yes, even you can be in the Room Where It Happens) and listen to how leaders discuss the business. Do you trust them, or are they not very forthcoming on any particular stances? Bonus points if one of the leaders was also a company founder. It's rare that any leader can match the passion that a founder has for their own business -- and, well, we've seen what can happen when a John Adams takes over for a George Washington.

7. Let them know what you're against and what you're for.

Rather than hosting cabinet battles to argue your impassioned stances, modern investors can make their positions known by voting with their dollars for the future they'd most like to see. The ESG investing framework (Environmental, Social, and Governance) can help with that, whether you're looking for companies at the forefront of climate change solutions, paying employees fair wages, or including women in the boardrooms -- work!

8. Learn to Say No To This.

After you've put in the work to find the best companies that you believe will almost certainly rise in value over the next 3-5 years, try to avoid selling. There are valid reasons to sell a stock, of course, but fear shouldn't be one of them. Sometimes stocks move unpredictably -- that's how the market works. If one of your stock drops in value, it's worth looking into why, but it doesn't mean to sell right away. Is the drop due to a fundamental change in the business since you first invested? Did the whole market move, causing your stocks to dip with it? Maybe that's a buying opportunity. 

A still of the Broadway recording of Hamilton, with characters Hamilton and Eliza looking out into the distance.

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9. And finally... keep winning anyway. 

Let's get meta for a minute and step outside the Broadway stage. In the real world, imagine you were offered a chance to invest in Lin Manuel Miranda's upcoming musical, a little number called "Hamilton." You already know that Miranda's previous show, "In the Heights," was a Tony-winning success and that investors profited. However, the price of entry is much greater this time as early hype is high for the ten-dollar founding father. Would you invest?

In hindsight, it's easy to say "yes, of course I would have invested!" But the truth is, many would have turned away at the price of entry. In the same way that investor interest drives stock prices up to the point many would decry them as "overvalued," it was pricey to be an early investor in Hamilton. However, immense returns would come to those who focused not on the price alone, but on the fundamentals: Miranda was leading the show, he was still incredibly talented following the success of "In the Heights," and there was no reason to believe his winning streak was over. Everyone has heard to "buy low, sell high." But what's even more likely is that winners keep on winning, and it might be hard to find a winner for cheap.

Kirsten Guerra owns shares of Walt Disney. The Motley Fool owns shares of and recommends Roku, Tesla, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

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