Investing is about the future, but to make reasonable predictions, you need a healthy understanding of the past.
I was reminded of this by a recent posting on our Motley Fool Income Investor message boards. Someone was looking for suggestions for good stocks for a 12-year-old, and member ZzF00L answered with a reference to a 1962 Leave It to Beaver episode.
Rocket ships or utilities?
In "Stocks and Bonds" (season five, episode 194), Beaver and Wally take an interest in investing, and Ward decides to let them give it a try and learn about the market firsthand by making an actual investment. What's interesting about this episode is that investors today face many of the same problems Wally and the Beav did more than 40 years ago. We're all looking to earn money on our savings, but finding a place to earn a return above what a savings account provides -- a little less than 4.5% today -- without taking on a heaping pile of risk isn't so easy.
In the episode, Ward steers Beaver and Wally toward a dividend-paying company, Mayfield Power and Light. If that doesn't sound like a nice, safe, and absolutely boring investment, I don't know what does. But the boys are simultaneously tempted their friend Eddie Haskell to invest in Jet Electro, a company that builds rockets.
Naturally, Jet Electro's stock shoots up, and the boys can't stand their boring local utility a minute longer. Ward relents and moves their money into the rocket company. Can you guess what happens next? The rocket company loses steam, and the boys lose almost their entire investment. Anyone who indiscriminately picked up a dot-com in 2000 can empathize. In the end, Ward saves the boys because he kept some of their money in slow and steady Mayfield Power and Light.
Things aren't so different today
In the market today, just like in 1960s TV land, the companies that garner the most attention are those with new, unusual products that promise to change the world. Unfortunately, they also often lack fully proven business models. Sirius Satellite Radio
On the other side of the coin are the Mayfield Power and Lights of today. Companies such as Dominion Resources
Foolish final thoughts
It's fascinating to me that a television show from 1962 can explain the some of the difficulties investors still struggle with today. I can see this episode taking up permanent residence in my video library right next to the 2004 World Series and other timeless classics.
In many ways it's good that the behavior of the stock market hasn't changed all that much in the past 40 years -- that leaves opportunities for investors who appreciate boring investments. Having a little Mayfield Power and Light in your portfolio to provide dividend payments during all seasons can't hurt.
Sometimes those boring investments can also perform like rockets. CaliforniaWater
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