WE CAN GATHER financial facts and research issues. But what we learn will always be tainted by what we’ve experienced.
As I mentioned last week, anecdotal evidence often proves more powerful than statistics. I’m talking here about the same phenomenon—but writ larger. What we read in articles and books is scant competition for the informational scraps we collect throughout our lives: the comments our parents made, the milieu we grew up in, the stories we hear from colleagues, the adventures we’ve had, the pain we see among friends.
What’s influenced my financial thinking? It’s odd what comes to mind. Often, the incidents were minor and the comments were made in passing. But they struck a chord with me because they said something about human nature or pointed to some financial truth. Here are just eight of the incidents I recall:
1. “You can’t go wrong with real estate.” I remember my mother saying that during the 1970s. Home prices were soaring along with inflation, even as inflation allowed homeowners to repay their mortgages with depreciated dollars. At the time, I thought I was learning some great financial secret. Today, it reminds me of how fickle financial trends are.
2. At age 16, I became fascinated by macroeconomics and read everything I could get my hands on. A book in the school library mentioned that publicly traded companies want their shares to perform well. I had never before given any thought to the stock market and, for months, I puzzled over that sentence. Why should companies care about their stock market performance? After all, hadn’t they already sold the shares and pocketed the proceeds? Clearly, I had much to learn.
3. On Oct. 19, 1987, I was working as a lowly fact-checker at Forbes magazine. We had heard that the stock market was collapsing, but nobody knew precisely how great the damage was, so we headed to the stock market ticker, located in one corner of the building’s third floor. A roll of light brown paper, similar in size to what you might find in the bathroom, rolled through the clattering machine. As I recall, that day the machine spat out just three readings for the Dow Jones Industrial Average: down more than 100 points at mid-morning, down 230 in the early afternoon and, finally, down 508 at the close.
Reporters gathered around the ticker, almost giddy about the market carnage. After the ticker proclaimed the Dow’s 508 point drop, two of the magazine’s more seasoned journalists announced they were hopping into a cab and heading down to Wall Street, to see if folks were jumping out of windows.
4. After the market closed on Oct. 19, I called a stockbroker friend. He said there was sure to be rioting in the city, so he was heading to his New Jersey home to get his car. He was then going to drive back into the city, collect his mother from Queens and whisk her to safety.
5. Early in my career, one of my favorite folks to talk to was Steven Somes, a money manager at State Street. His notion of financial nirvana: having enough money to buy the S&P 500 and live off the dividends. Your lifestyle would be unperturbed by market fluctuations. Instead, you’d own both a portfolio and an income stream that would grow in perpetuity at roughly the same rate as the economy. Tragically, Somes died of heart failure in 1995, at age 37.
6. The early 2000s housing boom was, in many ways, crazier than the late 1990s tech-stock bubble, because it touched so many more people. I recall countless stories from that time. Among them: A colleague from The Wall Street Journal and her husband were moving cities and there was a relocation allowance to be had, which included financial help toward a home purchase.
My colleague described the crazy open houses mobbed by potential buyers. She and her husband would get to walk through a house just once and then—to have any chance of buying the place—they had to make an immediate bid. They knew the market was out of control and yet, reluctant to give up the relocation benefit, they still went ahead and bought, with an offer far above the asking price. Needless to say, it didn’t turn out well.
7. “Recent research suggests that regularly seeing good friends in the local park will bring a greater boost to mental health than having a shiny German automobile parked outside your retirement home,” Andrew Oswald, an economics professor at England’s Warwick University, told me for a 2005 article for The Wall Street Journal. “My candid advice to aging Americans would be to use your hard-earned cash to invest much more in friendships than in material items.” I’ve heard similar thoughts expressed by others, but for some reason Oswald’s words have always stayed with me.
That brings to mind a related comment from my fellow financial author Bill Bernstein: “A BMW isn’t an automobile. It’s an IQ test.”
8. During the fall of 2008—I’m referring here to both the season and the stock market—the sense of panic was palpable. I even got a call from a financial planner, whom I considered a veteran investor, wondering whether he should sell. Until that moment, I don’t think I’d fully realized that knowledge is truly no match for emotion.