Wall Street Reflection

The United States Stock Market is an unpredictable network of economic transactions between buyers and sellers. Instead of trading tangible goods they trade stocks, or shares, of companies. These shares can come in the form of singular units of one company, such as Facebook, or a fund filled with many different company’s stocks in one. The interest in such exchanges comes from the Idea of Investment. Investopedia com defines investment as, “An asset or item that is purchased with the hope that it will generate income or appreciate in the future”.

In the stock market, people put their money on the line in hopes that the price they bought shares of a stock at will become higher over time. For example, in 2013 cyber security firm FireEye was first released for purchase on the Stock market at $20 a share. It’s the price as of recently has hovered around $40 a share.

In turn for every share purchased when it was originally released for public exchange that was held until now would yield a $20, or 100%, increase on investment.

This large return is however few and far between as the market is incredibly unpredictable leading to just as many losses as gains, if not more. The stock market is often considered a single entity when it isn’t one at all. Within it in are thousands of different companies stocks. Each moves at a different rate based on market perception around it, the company’s performance. and the economy as a whole. With such wide concepts motivating it’s truly impossible for anyone to “beat” the market.

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Yet so many people put faith in others, usually known as financial advisors, to invest their money for them. Fred Schwed Jr’s classic book. Where are the Customer’s Yachts? explores this idea of letting others guide our financial future and more while revealing financial principles and providing many laughs along the way.

Although Where are the Customers Yachts was published in the 1940’s it provides an unparalleled look into the United States Stock exchange and the guiding principles of investing that hold true into the present day. Three main principles explored are how to be an investor, monitoring your investments, and emotions. Fred Schwed‘s masterpiece begins with a simple question, ”Where are the Customer’s Yachts”? The origin of this question helps to explain the meaning behind the book as a whole. A group of people are admiring the vast amount of yachts off the coast of Newport, Rhode Island. After being revealed that they are owned by Wall Street’s richest brokers one individual asked where the customer’s yachts were. Wall Street’s wealthiest participants are the brokers, those who handle the exchanges for millions of transactions daily. It’s not impossible to make money as an individual trading stocks but the individual must.

View investing as a privilege. not a right. Schwed looks to teach those who read his book about the many perils of investing, and how to avoid them. You must question even/thing and take anyone’s opinion for what it truly is, their own opinion, This leads me to the first important concept I got from Schwed‘s book, how to be an investor. Schwed begins the topic of being an investor by dismissing the common belief many have about Investing. He writes, “Speculation is an effort, probably unsuccessful, to turn a little money into a lot” while “ investing is an effort, which should be successful, to prevent a lot of money from becoming a little”. The concept of getting rich quickly is a common idea thrown around among stock traders. Most investors are in fact, speculators. They believe that every idea they have is a good one and will create a huge fortune out of nothing. Unfortunately that is not how real investing works.

In order to be an investor you must use as many facts as possible to make educated decisions. To speculate is to believe a company with potential will soon turn into the next apple. To invest is to wait until that potential turns into fact. There will always be money to be made on a stock even after it’s gone up from being just a potential home run. However if you invest based solely on potential you will strike out more than you’ll hit one out of the park, leading to larger losses than gains. To invest on potential is to invest solely on theories, Schwed writes. ”All of these theories are true part of the time: none of them true all of the time. They are, therefore, dangerous, though sometimes useful”. No one knows exactly what will happen all the time. A theory isjust an idea until proven otherwise. To invest on the idea of stock being a winner is like shooting blindly at a target. You may hit it once in a while but you’ll surely miss it more times than you’ll hit.

Schwed argues that it’s more beneficial to wait until you have some clarity before going in on an investment. The second major principle I found was to monitor your investments. In Schwed‘s novel he spends a great deal of time telling his readers to question everything. No matter what the investment you don’t know what you don’t know. Schwed writes, “the most difficult of all answers” is “I don‘t know”. He believed that difficult questions were often met With “detailed answers”. He also believed that these detailed answers were not often fact. People like to make themselves seem like they know what they’re talking about, however the only way to truly find out if something is true is to research something for yourself. One of his best examples of this involves mutual funds. Mutual funds are funds filled with many different stocks.

They are often considered safer than stocks because they are more diversified filled with many companies as opposed to just one. Each also has a mutual fund manager. Schwed writes that at the end of the day these managers, “take all the money and throw it up into the air. Everything that sticks to the ceiling belongs to the clients”. This analogy implies that the clients aren’t ever making anything, which is not true. The root of the idea is what Schwed is actually trying to reach, that the manager’s are just as much trying to profit as you. He implores his readers to monitor each of their funds so they know what they contain and ensure that their money is increasing at a rate they expect it too. This same principle could be applied to individual stocks. Companies. investors. and investment companies want you to buy more shares of stock.

Presenting information to you it could trigger a shift In the market. It is up to you as an individual investor to make sense of this information as important or not. A stock can go down just as fast as it increased. The final main principle I found in Schwed’s book involved emotion. It ties into both the previously mentioned principles as well. We all want to believe that we’ve found the next Apple. However, without the patience to wait until they have more clarity an investor could miss every time, Schwed writes an investor, “is just another fellow trying to be smart, or lucky or both”. There is no sure fire way to be a smart investor as opposed to being a lucky one. There is however plenty of ways to set yourself up to be a smart investor. Emotion drives everything we do.

If we can avoid thinking emotionally and more factually any investor will have a better chance of succeeding. Jumping in on a stock a person has Just found presents far more risk than a stock an investor has researched for months. Schwed exclaims. “The burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool”. When we don’t succeed we like to blame everything but ourselves. We let our emotion get the best of us. If we let failure fuel us to be better next time on the basis that we as individuals need to improve as opposed to everything around us only then can we find true success. Fred Schwed’s book, Where are the Customer’s Yachts?, presented a lot of information any student of investing needs to be exposed to. Through astonishing facts. principles to live by, and a few jokes along the way he presents a clear guide to succeed in the unpredictable jungle known as Wall Street.