Why I Don’t Invest In Stocks
I could easily title this article as “Where I Don’t Invest & Why”. But specifically I want to address Stocks, Index Funds, REITS and even conventional Real Estate Investing.
I’ll do several parts over the next few weeks in this series so I can cover them all.
For me right now, the purpose of investing is to achieve Passive Income that exceeds my Savings, Expenses & Taxes.
Which means all of my investing is geared toward this and if it doesn’t produce income and if that income isn’t as passive as possible, I’m not investing.
So let’s first start with stocks.
If I were to invest in stocks, they’d need to produce passive income. So that gets rid of any stock that does not pay a dividend.
Now if we look at dividend yielding stocks, it comes down to a comparison on what my dividend income would be on a stock versus what I can earn now with my current investments. I mostly do secured private lending on Real Estate (I’m basically the mortgage for other people) and I earn 8–12% per year pretty easily.
So a stock would need to be paying me an 8–12% annual dividend. Not impossible, but very few do this.
Now, I’m not just investing for income blindly.
I also want to like and understand the investment.
It needs to fit me and my goals.
It must be in something that is vital to enough people that it’s valuable.
And I won’t overpay.
When I buy a stock, I would need to like the actual company. Not just pick a ticker symbol on a list of potential stocks that look good. To like the company I need to understand things like their goals and purposes, values and policies, what their culture is, how they treat people (staff, customers and public), if they’re ethical in their practices, and also what their short and long term plans are. I’d need to see their books, I’d need to see their major production stats and I’d need to speak those who make decisions to understand if I want to be in business with them.
Plainly, I am not going to get access to even half of that information without bringing some serious money to the investment table.
Warren Buffet might, because he is buying large stakes in the company and is a big player.
Me putting in a few hundred thousand or even a few million, or the average investor who is buying handful of shares…we’re not going to get that kind of access. So I can’t really say I like the company.
I would need to understand the company. Back to my previous point, there is only so much data I am going to be able to get from the company to truly understand them financially. Not only that, but a company is a lot more than just finances.
There is the Executive planning and visioneering. I’d need to be able to understand the short and long term plans and what the vision is for the company. This isn’t just a motivational speech at a shareholders meeting either. I run a company and I know that what’s talked about between the executives behind closed doors in meetings is not always shared with staff, clients or even investors.
A company is made up of the people who work there. I’d need to understand them too. Do the staff like working there. Are they invested in a long term career or are they just there for a few months or years until something better comes along? Is the company bettering their lives are or they just treated like a number? When staff are treated like a commodity and not happy where they work, this spills over into the operations and customer interactions.
I’d need to understand the products and services they offer well enough to be familiar with the area, the industry, the competitors, the market and economic forecasts. For example, I know nothing about cars. While it might sound cool to say I invest in car dealerships, I don’t know the first thing about that business or that product. I can’t control what I don’t understand and therefore I wouldn’t invest in a car dealership right now.
The stock would need to fit me as an investor. This one for me is impossible. I like tangible objects and I like control. I don’t have either of those things with a stock, no matter how good the stock is.
For one, when I buy stock, I don’t even get the stock certificate anymore. It is held in custody by a corporation in New York called the DTCC (Depository Trust & Clearing Corporation). I don’t like the idea of buying something and being called the “owner” but someone else gets my property instead of me. I want more than digits on a screen. And frankly, I want more than a piece of paper. As a common stockholder in a U.S. corporation, if they go insolvent I am the last on the list to get paid. So if they sell everything and pay everyone off before me, there likely isn’t anything left. Which begs the question of what do I actually own?
I also want control. I can proxy vote at shareholders meetings or attend in person sure, but what CEO or Board is actually going to listen to me? It’s a pacifier to make me feel involved. When it comes to decisions, publicly traded companies are going to do what they think will increase the share price the most and pay them the most as executives. I also don’t want my ownership divvied up among thousands of strangers. If I own a house and I want to paint the house, I don’t have to ask anyone. But if you, everyone else reading and myself all own the house together, even though we’re all owners, none of us truly have control because every decision involves the other parties. I don’t like that in an investment.
There’s also the aspect of market manipulation. I don’t want the performance of my investment to be subject to the whims of unethical criminals who can and will manipulate the share prices. If I’ve learned anything about the stock market it is that almost 100% of it is manipulated. When you see the highest performing stocks with the highest prices have little to no profit that should tell you something. And to me it tells me that the prices are made up and they are under the control of someone that is not me.
The stock would need to fit my goals. This goes back to the Passive Income thing. If it doesn’t pay 8–12% in passive income, I’m not interested. When I did a quick search of stocks with an 8% dividend or higher, what I found was a very short list and most of them did not qualify for my investment based on the previous points in this article.
The problem with a stock that doesn’t pay an 8–12% dividend is that it is not competitive with the yields on my other investments. This means that I’d have to sell them for a profit to generate income. And when I sell assets to pay bills, I am getting rid of assets (dumb idea) and I am also putting myself at risk of running out of things to sell, and thus running out of money someday. Wealth shouldn’t be reduced in value over time due to the selling off of assets.
The stock needs to produce something vital. For me, vital means things like Food, Clothing, Shelter, Transportation, Water, Oxygen, Education, Health, etc. This really narrows the list down. There are stocks in companies that produce or provide these things, but do they meet all of the points above?
Also, if I want to invest in something that provides shelter, why invest in stock in a company that provides shelter instead of just buying a house or apartment myself and renting or owner financing it to someone? Keep in mind, I want control and vitality of what’s being produced and in most cases with a stock, I’m not going to get both.
I won’t overpay for the stock. Warren Buffett says “price is what you pay and value is what you get.” Warren also spends hours per day pouring over the financial statements of publicly traded companies in order to determine their actual value in comparison to the advertised price. Warren has been doing that for decades. I haven’t. And I’m not a financial analyst and I wouldn’t know the first place to start to pick apart the value of a publicly traded company to determine if I’m overpaying.
Keep in mind, when a company issues stock they are trading future earnings for cash up front. You’re quite literally buying their earnings. So then why are some stocks with no earnings priced higher than similar stocks that do have earnings? And what happens if I pay for the stock and then the earnings decrease? Or taxes go up and I keep less? How is that reflected in the price I’m paying?
Wall Street is a legal financial casino and they only win if investors overpay. So by definition, a company issuing stock wants me to pay them more than they’re worth. Why would they go public and then sell at a discount? No they want all of the money they can get their hands on and they want it now. Which means they need me to overpay otherwise it doesn’t work for them. And only in the case of guys like Warren Buffett, can they be beat at their own game.
I’ll wrap this up with a quick story about Cornelius Vanderbilt who in 1868 was swindled out of $7 million in a fraudulent stock purchase (equivalent to around $140 million today). Vanderbilt was one of the wealthiest men in the world and not someone you’d consider illiterate in terms of finances. So if something like that could happen to him with all of the money, lawyers, accountants and experts he had in his life…what about the average investor?
If you’re reading this and you’re wondering if you should be investing in stocks or not, I want to invite you to tune in to my free weekly financial education course.
Every Friday at 10:00 pm EST I teach a free course online about finances and I’ve been doing so for the last 4 years now.
Here is a replay of last week’s course:
If you’d like to register to attend this week, it will be Friday at 10:00 pm EST and you can sign up for free here!
To Purpose, Wealth & Freedom,
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)