Dave Barry's Money Secrets (10 page)

OK, I’ve given you some practical, “can’t miss” business ideas. If you try them, and they work out for you, I ask for nothing in return except for your thanks, and a large amount of money. Also, if you find any reading glasses, those are mine.

12

HOW TO GET RICH IN THE STOCK MARKET

Or: Not

T
HE STOCK MARKET, or “Wall Street,” is the most prominent symbol of our national wealth, bestriding the American economy, in the words of Walt Whitman, “like some kind of big thing that bestrides something else.”

But what, exactly, is the stock market? In technical economic terms, it is a building in New York City where hundreds of excited men and women gather to shout at one another until they have armpit stains the size of catchers’ mitts. These people are called “traders,” and they are trading “stocks,” which are pieces of “paper” that say the “bearer” owns a tiny fraction, or “share,” of a company.

For example, if you buy one share of Microsoft, and Microsoft has ten billion shares outstanding, you—even if you are just some dirtbag
—
literally own one ten-billionth of Microsoft.
Does this mean you can go to Microsoft headquarters in Redmond, Washington, and exchange your share for, say, a coffeemaker? Of course not. A coffeemaker is three shares.*
 
³⁰
For one share, you get an acoustic ceiling tile.

But the real value of stocks doesn’t come from trading them in; it comes from holding on to them while they appreciate in value. For example, suppose that, back in 1950, you had $10 to invest. If you had put that $10 into a bank passbook-savings account at 2 percent compound interest, and you kept it there, today it would be worth, allowing for inflation, $238.62.*
 
³¹

Sounds pretty good, right? But if you had taken that same $10 and invested it in IBM stock in 1950, today it would be worth, geez, probably a
lot
of money. Of course you can’t
use
this money, because by this point, if you’re still alive, you’re sitting in a nursing home watching
Wheel of Fortune,
with a streamer of drool from your mouth to your lap, wondering what the hell you did with your teeth.

So, the financial lesson we learn from this example is that you should never leave your money anywhere for
too
long. Your best use of this particular $10 would have been to blow the whole thing on a steak dinner back in 1950, when good steak was cheap and nobody gave a damn about cholesterol.

But getting back to the stock market: It can be a good way to make money, but only if you know what you’re doing. You do NOT buy stocks based on the latest fad, or some “hot tip” from your uncle Herb. For one thing, you don’t have an uncle Herb. For another thing, the only way to make money in the stock market is to use a rational system, based on solid information,
not
guesswork. The only
proven
way to make money in the market is to follow this three-step procedure:

Step 1:
Gather all available financial data on the top one thousand stocks for the past twenty-five years.

Step 2:
By conducting a thorough analysis of each stock—taking into consideration its performance against the overall market, splits, price/earnings ratio, earned-run average, etc.—select the ten stocks that have performed best in this time period.

Step 3:
Using a time machine, go back twenty-five years and buy these stocks.

This system is pretty much foolproof except for one teensy flaw, which you may have already detected: You are
way
too lazy to do the research. Most people are. This is why most people use stockbrokers.

A stockbroker is a person who has been trained to analyze your personal situation and develop a unique financial strategy that is tailored specifically to your needs and your goals, using the following chart:

Stockbroker Financial-Strategy Decision-Making Chart

As we can see, the unique strategy that the stockbroker is going to tailor for you will involve selling you stocks, because, duh, he’s a
stockbroker.
His job is to sell stocks. If he were in the cattle business, trust me, the unique financial strategy he’d tailor for you would involve heifers.

Does this mean that stocks are a bad investment? Not at all! Stocks can be an excellent wealth-building mechanism when they are going up, as we learn by studying the following statistical graph:

Photography Credits

But sometimes, stocks go down, as we see here:

Photography Credits

And sometimes stocks seem to be going in both directions at the same time:

Photography Credits

And sometimes there is no way to tell
what
the hell is going on:

Photography Credits

So the “bottom line” is that the stock market is unpredictable. Nobody really has a clue what it’s going to do. Oh, sure, there are many stock market “analysts” and “experts.” They’re on TV all the time, wearing suits and talking in a confident, highly informed manner. But it turns out that their specific area of expertise, in a nutshell, is: the past. They’re extremely good at thinking up possible explanations for things that have already happened. If there is one teensy gap in their understanding, that area would be: the future. Here, they are pretty much clueless. That’s why those financial shows on TV always sound like this:

HOST:
Welcome to
Inside Wall Street from the Inside,
the program where Wall Street insiders, with inside information, give you, the investor, the “inside scoop” on what’s
really
going on inside the stock market. Today the Dow Jones Industrial Average fell 13 points, so let’s go straight to our panel of insiders and see “what’s cooking.” John, we’ll start with you.

FIRST EXPERT:
Well, Bob, I think what we’re seeing here is investors reacting to developments in the Middle East.

HOST:
What, exactly, were those developments, John?

FIRST EXPERT:
Beats the shit out of me, Bob. Foreign affairs are not my specialty; I’m a Wall Street insider. All I know is, they are always having developments over there in the Middle East, and in my inside opinion, investors are reacting to them.

HOST:
Mary?

SECOND EXPERT:
Bob, I would have to agree with John to a degree, but I think investors are also feeling a deeper sense of unease.

HOST:
Over what?

SECOND EXPERT:
Oh, I don’t know if it’s anything
specific,
Bob. Did you ever just wake up, and you felt a sort of, you know, unease? I think that’s what’s going on with the investors. They’re like, “Whoa! I’m uneasy!”

HOST:
Norm, do you agree?

THIRD EXPERT:
To an extent, yes, Bob. But only to an extent.

HOST:
What do you mean?

THIRD EXPERT:
I have no earthly idea, Bob.

HOST:
All right, then. Now let’s ask our Wall Street insiders to “put on their prognostication caps” and give us their assessment of what we can expect to see from the market in the coming days and weeks. John?

FIRST EXPERT:
Bob, I look for the market to continue to experience downward pressures. But by the same token we could very well see some trends that could tend to exert countervailing pressures. Which of these factors will dominate remains to be seen.

HOST:
So you’re saying the market could go either down or up?

FIRST EXPERT:
Don’t put words in my mouth, Bob.

HOST:
Mary?

SECOND EXPERT:
I’m afraid I’m going to have to disagree with John on this. I think what we’re seeing here is a number of forces at work.

HOST:
What forces would those be, Mary?

SECOND EXPERT:
Dark forces, Bob. Powerful forces. Forces that threaten not just the city of Gondor, but the whole of Middle Earth.

HOST:
But . . . isn’t that the plot of
The Fellowship of the Ring
s
?

SECOND EXPERT:
Whatever.

HOST:
Norm? What’s your take on the direction the market is going?

THIRD EXPERT:
Reply hazy, Bob. Try again.

HOST:
Are you reading from a Magic 8 Ball?

THIRD EXPERT
(
putting something behind his back
): No.

HOST:
All right, then! We’re out of time, but our panel of insiders will be here again once again tomorrow night to offer their insights on whatever the market does tomorrow. So be sure to tune in! Or, you can just watch this show again.