I was reflecting the other day on my earliest investing memories. I used to spend a lot of time with my grandparents and two things stick out from my early memories. The stock market and horse racing. I remember my grandfather reading the paper every day to check out the results from the prior day in the stock market and at the track. He had a system for handicapping the horses and jockeys and would log their performances in a notebook. Now when we went to the track he would never bet more than a few dollars on any race and I am sure in his lifetime he has probably come out break even which is more than I can say for most people that “bet on the ponies”.
Thankfully I did not develop a love for the horses, instead falling into love with my grandfather’s other passion the stock market. My first exposure to the stock market came in 1984 when I was finally old enough to be taught how to read the stock tables by my grandfather. I remember sitting at the dining room table pouring over the stats in the Wall Street Journal with my grandfather after he would get home from his job at Nabisco. For the younger readers there was no internet or CNBC to watch and get stock prices. My grandfather would make some notes in his notebook and call his broker and tell him what he would want to buy.
One of his rules that was generally good advice was to buy what you know. It’s a rule I still actively use today. If I can’t understand how a company makes money and what they do or manufacture than it will not see any of mine or my client’s capital.
To fast forward to my first investment. I had recently been given my first boombox (Google it Kids) for my birthday and was in love with music and electronics two things I still love to this day. I remember the trip to the Crazy Eddie store in Brooklyn, NY while we were celebrating my Aunt Rosie’s birthday. For most Gen X kids Crazy Eddie was the place to get electronics in the Tri-state (CT, NY, and NJ) area. Crazy Eddie Antar had the wildest marketing. He had a spokesman on TV talking about how his prices were insane! As an 8 year old kid I had no idea what any of that actually meant or how he did it. I just wanted to get a Sony Boombox to play my cassette tapes and listen to the radio with my friends at the playground since I couldn’t touch the stereo equipment.
So in September 1984 I decided to make my first investment in the stock market. When my grandfather asked what I wanted to buy he was shocked. With my recent trip to get a boombox on my brain and an article in the Wall Street Journal about this thing called an IPO I told him CRZY!
In hindsight it is very fitting that the first stock I ever purchased had the ticker symbol CRZY!
In September 1984 I gave my grandfather the $50 I had been given from my Great Grandmother Lizzie for my birthday and we went to his stock broker’s office and gave it to him to purchase 5 share of Crazy Eddie (CRZY) stock for $8. This will floor all of you young folks who are used to eTrade’s super low commissions but I paid $2 a share or $10 for my first purchase. When I asked my grandpa why it costs $10 to purchase my stocks he said it was the cost of doing business. My how the times have changed.
I remember looking in the newspaper every day and watching the stock price move up and down and calculating how much my 5 shares was worth. I remember learning about splits during my time owning CRZY and my share got as high as $70 something dollars. I thought I was the smartest kid in the world. Little did I know it was all a fraud and eventually the company went bankrupt and Crazy Eddie, his cousin and his nephew Sam Antar would go to jail for securities fraud. I was in HS when they were prosecuted and I remember following it closely.
Who knew that I would learn some of my greatest investment lessons when I was 8 years old.
Sometimes looks can be deceiving
My view of that Crazy Eddie store was that they were killing it. They had all of the latest and greatest products (I bought my first Nintendo there as well), were always crowded, had great advertising, and “insane prices”. What wasn’t to like. Well little did any of us know it was a too good to be true and a fraud.
Always dig deeper into the numbers
Being a good investors in individual stocks requires an investor to take the time to understand what the books look like and spot red flags. They are rarely obvious but it has become much easier with the transparency that exists today.
It is OK to take a profit
At one point I had turned my $50 into almost $400 in just a couple of years. I didn’t understand that it was OK to sell it and take my profit. I had the fear of missing out at 10 years old and didn’t even realize it. Investing can be an emotional rollercoaster if you let it be. As famed investor Jesse Lauriston Livermore said “No one ever went broke taking a profit”
Diversification is important
I really didn’t have enough money at 8 to diversify my holdings but when Enron and Worldcom went bankrupt from fraud it was not a devastating event for my portfolio. So it is important to remember diversification when you are building your portfolio.
Have a plan
One of the problems with my grandfather’s investment strategy was their was no real plan for when to sell the stocks. He had a general rule of when his profits hit 50% he would sell but that is a terrible strategy for long term success. He invested in Microsoft in 1988 for the split adjusted price of 0.50 a share he sold it in 1992 because he had made “3 times his investment”. I know there are tons of stories about missed opportunity but many times they are missed opportunities because the investor did not have a plan.
My 8 year old self could have never figured out that Crazy Eddie’s was a fraud but the lessons I learned from this early investment have proven invaluable as I have worked with clients. Buy what you know, diversify and have a plan is the basic core of my investment discipline and I learned these lessons as a child. We would love to help you with your portfolio. If you would like a second opinion or a fresh point of view schedule your meeting here.