“Know what you own and why you own it.”
These are the words of legendary money manager Peter Lynch straight from his number one national bestseller Beating the Street, first printed in 1994.
After two decades on the shelves, Beating the Street remains one of the greatest resources for any serious investor. I highly recommend it to anyone who wishes to take control of their own finances.
I’ve personally found loads of useful information and tips packed into those 336 pages, but if I could take just one thing away, it would definitely be the aforementioned principle.
Again: Know what you own and why you own it.
Now, knowing what you own and why you own it might seem like common sense, but I find the practice is actually quite rare among many of today’s investors. Ask most people which stocks their 401(k) is composed of, for instance, and the response usually goes something like this:
If that’s not scary to you, I don’t know what is, because it means people are allowing institutions to manage their assets with virtually no personal oversight whatsoever.
I find this method of money management to be both lazy and troubling for any investor, but when it comes to millennials (a demographic I happen to be a part of), I find the lack of involvement to be particularly ironic. After all, this is the same generation that sparked the Occupy Wall Street movement just a few years back…
For a generation with so much disdain and distrust towards big banks and institutions, I just can’t see the logic in letting someone else choose where your money goes. I can’t see the logic in not investing at all, either.
The reality is if you really want to take the power back, it starts with taking control of your portfolio. No one ever got to the 1% by storing their money under their mattress. If you want reward, you need to be willing to take risks.
Yet the numbers continue to show that millennials aren’t taking control of their finances as they should be. Many of these individuals aren’t even investing at all, and those who do rarely know which companies they own, let alone why.
In 2014, UBS surveyed over 1,000 adults between the ages of 21 and 29, finding that they devoted just 28% of their portfolio to stocks and 52% to cash. For perspective non-millennials keep 46% in stocks and just 23% in cash.
What this means is that millennials have, by large, been missing out on one of the single-greatest bull markets in equity history. The S&P is up 60% over the last four years, and all the while, millennials have been busy pointing fingers and blaming previous generations for their current financial woes.
Now, none of this is to say millennials aren’t justified in their distrust of Wall Street or frustration for the economic downturn that fell onto their laps, but it is to say that crawling into a shell and writing off equities is NOT the solution.
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Indeed, my fellow millennials grew up during the Internet crash and financial crisis of 2008, but the reality is equities have gone UP over the long run, just as they always have and always will.
One thing many millennials don’t seem to realize is that the stock market is only controlled by Wall Street because we let it be. The less stake we have in the game, the more influence big banks and institutions will have, plain and simple.
Likewise, the less you know about what stocks you own any why you own them, the more likely you are to fall victim to the lackluster investments of others. This fact holds true for investors of all ages, but it seems mostly lost among younger generations.
I’ll admit, I could certainly be a bit biased here because I sell informative financial newsletters for a living, but my personal standpoint is that if you want to retire wealthy, you need to own equity as early as possible… And if you’re going to own equity, you should know as much as possible about the companies you own and the industries they live in.
Ultimately, this is information big banks and institutions will never give you. It’s information you either have to seek out on your own or receive from others. Yes, it takes more work on your end, but you’re kidding yourself if you think your money is ever going to grow without any due diligence or personal involvement in your portfolio.
The truth is if you want an edge, you need to sharpen the blade yourself. The best way to do so in the market is to always know exactly what you own and why you own it.
Until next time,
Jason Stutman
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