By: Cameron MacKenzie
Why do people get into the market?
By that I mean: what is driving people to do this with their money over something else? What drives people to invest their money over using it to buy a boat, go to Paris, finish the basement, build a stone patio to enclose the outdoor grill/fridge/sink combo? We could spend real money to do a thousand things but, for whatever reason, we don't. Instead, we think investing is smart. Prices rise. Valuations increase. It seems as though the benefits of investing are objectively obvious but, for those of us who haven't yet been to Paris, I think a very different process is at work.
I’ve spent a lot of time with my parents this summer, and I disagree with my dad on everything from politics to sports to how to sear a steak. But we do agree on money. When we talk about money the conversation is easy, the solutions are simple, and even when we disagree we acknowledge and respect one another’s position. This is because we agree on the fundamentals of how to handle money, and those fundamentals were laid down by my grandfather.
I remember as a kid watching my grandfather read the newspaper in his big leather recliner. He’d kick his feet back and spread open the financial section, the pages of which were covered with those miniscule lines of print. He was always reading those tiny lines—at his house, at our house when he would come to visit, or at the beach when we would go once a year. He’d come down from the hotel in his shirtsleeves and dress slacks rolled up to his ankles and he’d sit under the umbrella and study those tiny lines all day long with his big feet in the sand.
When I’d ask him what he was reading he’d say “stocks,” which did not satisfy me. One time I remember him bringing me onto his lap and opening the paper in front of me and beginning to explain to me what a stock was. He told me that if a lady had apples and wanted to sell them for one dollar, he would buy a one dollar apple, and then try to sell it to someone else for two dollars. That didn’t sound fair to me. If apples cost one dollar then everyone should pay one dollar.
But what if, my grandfather said, tomorrow they cost three? And when he said this—and you’ve got to understand that my grandfather was a deeply serious man, not a lot of laughing, not a lot of jokes—when he said this, the look in his eyes was like a little kid taking a cookie out of the cookie jar. This was a secret my grandfather was letting me in on. There was a little smile in his voice. And I got the sense that in that smile was something big and complex and adult and fun. Fun, if you could play it just right. If you could see all the angles. Why would apples cost more tomorrow? And what are you going to do if they cost less?
My grandfather made good money in the market. After he retired, he cashed out his pension and started to invest and, almost up until the day he died, he played the market. He said he’d worked eight hours a day his whole life and he wasn’t about to stop. He loved it. And it was several years into investing on my own, trying to figure out the real price of Cisco and Intel and Sun Microsystems, that I began to realize my own interest in the market was tied directly to my relationship with my grandfather. By trying to understand the market I was not so much trying to understand him (that’s too literal), but I was trying to understand the same thing he understood. I was playing the same game. I was following his lead. I was trying to be his grandson.
Now, that’s a sweet story. I had a good relationship with my grandfather, and he was successful. But turn that story on its head for a minute. What if my grandfather had spent his whole insurance on a bad bet? What if he blew the family nest egg on land speculation or backed a friend for a failed restaurant or car dealership? What if he lost it all and ruined the family? What if that was the inheritance that got passed down? And if something like that happened (and did happen, in fact, to my great-grandfather) what would my relationship to money be like today? What if that relationship was governed not by excitement but by fear, by anger, by the desire to right a wrong, or by the desire to prove myself to someone who’s long gone?
Easily half of a financial advisor’s job is telling grown adults to calm down—to sit back and think for a second before they do something stupid. Advisors don’t just manage money, they manage people. Heck, they manage marriages. They manage familial relationships. They counsel their clients on how to deal with kids and in-laws. They do this because nearly all personal relationships are in some way tied to money, and the nature of those relationships, the quality of those relationships, depends on how the people involved think about money. Good managers know this. They try to learn what makes their clients tick. But this process can be sped along quite nicely if the client himself knows what makes him tick.
Investing is, objectively, the smartest thing you can do with money. Money does grow. Prices do increase. Valuations do rise. And while there is a mountain of evidence to support this, ask yourself who the first person was who told you so. Think about your relationship with that person. Think about how they made you feel, and why they made you feel that way. Getting to the bottom of that subjective relationship is the first solid step to figuring out what you really believe when it comes to managing your money.
In these slow summer months when we may indeed find ourselves spending time with the people who most profoundly influenced us, and most profoundly influenced our relationship to money, I think it’s worth taking a second to notice what we believe about money and why. It's worth thinking about how our beliefs about the nature of money and the market have, in essence, been passed down to us. And, perhaps most importantly, now that we are ever increasingly in the position to do so, it's also worth trying to understand how we may begin to pass on what we’ve learned to others.
Opinions expressed here are those of the author and not necessarily those of SagePoint Financial, Inc.