Sitting at the feet of a Seller of Stock Options (part 2 of 5)

DISCLAIMER: This is an interview with a friend and should be read as such. For professional investing advice, please consult your personal financial advisor. This interview should in no way be construed as professional investing advice for your personal portfolio. You are responsible for your own money, not me or Greg Hull.

Last time, Greg and Charlie and I chatted about the fruitless pursuit known as “mutual funds” and about the necessity for people to be educated in more effective forms of investing…

Lance Schaubert: It really has to do with stopping, pulling back and critically thinking and reflecting on what’s going on in the market as opposed to giving it over to someone else.

GH: Right. You can’t just throw darts at a dart board with stock symbols on it and hope to make money.

LS: [laughs.]

GH: That was in the nineties.

LS: Tech boom?

GH: We’re not in those days.

LS: “What’s this symbol MSFT? I think I’ll throw some dollars at it. See what happens.”

GH: [giggles.]

LS: “AAPL? What’s that?”

GH: [laughs.] GOOG?

LS: [laughs.]

GH: “They just search stuff on the internet, they can’t make any money!”

LS: [laughs.]

GH: [laughs.]

Charlie Arnold: What’s the internet?

LS: Ask Al Gore. Practically, if a poor man wants to put some money back, or someone raised in a poor home, or someone raised in a low-to-low-middle class home and they actually want to break this cycle, they’ve got a Paradise Falls jar on their writer’s desk and their throwing quarters into it [wipes away elephant tears. sniffles.] Like this friend I have, what does this look like for them?

GH: Well the first step to any financial plan is being out of debt.

LS: [laughs.]

GH: Zero debt.

LS: Zero?

GH: You’ll hear people say that there’s good debt and bad debt. There is no good debt and bad debt, there’s just debt. Period. Being out of debt is one of the best ways to become financially independent. Now there are two times in your life where you can get cheap debt and I would recommend taking advantage of that. Those two times are in school, because the government gives you cheap money to go to school.

[youtube=”http://www.youtube.com/watch?v=Dc3sKwwAaCU”]

LS: Mmmm.

GH: And second is when you own a home, you have cheap money in your home and you can refinance that because money sitting on the foundation of a house doesn’t do anything for you.

LS: Greg housing markets don’t crash! Everybody knows that—

GH: Housing markets go on eight year cycles.

LS: Oh.

GH: And the housing market is usually directly opposite of the stock market. People will panic out of one and jump into the other.

LS: Housing’s up right now?

GH: Housing’s on its way up. The market’s on its way up. Housing is kinda. . .

LS: Better than it was?

GH: It’s better than it was. I don’t see it dropping drastically in the next eight years, but I don’t see it necessarily improving beyond what it’s at now. The one thing they’re not creating any more of is land. So it is a good investment.

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LS: Yeah, but they’re thinking about going to Mars. So. . .

GH: [laughs.]

LS: I know NASA closed down, but Space X, you know, they’re gonna start shipping people out to space, dude!

GH: I dunno about you, but I like the Pacific Ocean a little more than the Sea of Tranquility.

LS: [laughs.]

GH: [laughs.]

LS: Oh Reagan.

GH: Yeah. I just think people need to be educated about their finances. For example – just by knowing where your money is going each month will change somebody’s complete financial outlook.

LS: Telling it where to go as opposed to. . .

GH: As opposed to letting it fall out of your hands. One of the simplest ways to budget is the envelope method. You take a whole bunch of envelopes and you write down your bills for the month. You prioritize them based on needs. Then you take your money once you get your paycheck you don’t deposit it in the bank. If you have direct deposit, you go withdraw the cash from the bank. Then you take the physical dollars and fill the envelopes each month. You just progressively fill the envelopes down the priority list and once they’re filled, that’s when you have money left over. That’s when you can do what you want. The first envelopes are always giving and savings. If you don’t give and you don’t save, there’s never going to be enough left over.

LS: That’s what they mean when they say, “pay yourself first” ?

GH: Mmm hmm. Like I said, I don’t need a savings account. Just putting something into savings. And even if it’s $10 or $20 – something is better than nothing to start with. If you can get to the point where you’re putting one, two, three hundred dollars a month, you’ll have the means to where you’ll be financially stable in retirement, in your later years. That will sustain you for the rest of your life.

LS: So savings for emergency fund? Or savings for short term stuff? Or savings for this investing stuff?

GH: Both. All. Yes.

LS: So get out a debt, like Ramsey: Cheetah intensity.

GH: Yeah, Dave Ramsey’s great. I think his financial peace seminars are wonderful to a point. But he stops at the point of getting out of debt. There’s some resources you can find as far as getting out of debt and all that, but there’s not a whole lot he does past the point of being debt-free and having reserves – having an emergency fund.

LS: Right. He talks about life insurance and building a legacy – he calls it “building wealth.” I don’t like those terms. It doesn’t really fly with me, but a legacy for my kids does. He talks about mutual funds.

GH: And that’s one of the things: I think he’s good up until the point of being debt free. After debt freedom, you can find much better information. Mutual funds are not an avenue for building a legacy. Mutual funds are a tool for individuals to be able to sustain themselves in their later years. If you want to build real wealth, you can’t do it through mutual funds. If you want to be able to sustain more than just you and your spouse and maybe your kids, you can’t do it through mutual funds. What you really have to do is to look at larger investments. Do research on your own. Invest in stocks and companies that money managers are doing for you, but doing poorly. Basically a money manager will do the same thing that a bank will do. A banking system basically takes your money, Lance, puts it in an account, says “I’m gonna give you %1 on it,” and then they turn around and invest it to get 12, 15, 25, 30% on it. So they pay you with your own money.

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LS: So we’re cutting out the middle man.

GH: Pretty much.

LS: I like that. [laughs.]

GH: [laughs.] It’s like: why should I pay someone to do something for me when I can do it better myself?

LS: It’s kinda like when you learn to change the oil on your car.

GH: Yeah.

LS: You’re like “MMMM! I’m changin’ my OIL!”

GH: I just dropped my car off. It cost me $17 in parts – oil filter, oil. It cost me $22 in labor. It cost me more to have them do it than it does to buy the stuff. That’s ridiculous to me.

LS: It’s the same with this.

GH: It’s the same thing with this.

LS: Fascist banks.

GH: [laughs.]

Join us next week for part two on Ask the Experts!

Here’s a little amateurish infographic to emphasize what we keep saying. Feel free to repin:


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  1. Ask the Experts: Stock Options (part 3 of 5) | Lance Schaubert

    […] Last time, Greg and Charlie and I chatted about the fruitless pursuit known as “mutual funds,” the tech boom and the value of doing your own research. We also introduced Charlie to the internets, but that’s neither here nor there… […]

Quick note from Lance about this post: when you choose to comment (or share this post with your friends) you help other readers just like you.

How?

Well, see, your comments & sharing whisper a few things to those who come after you:

The first is that this site is a safe place to speak up & stay curious. That it's civil. That discussion is encouraged. That there's no such thing as a stupid question (being a student of Socrates, I really and truly believe this). That talking to one another and growing together is more important than anything we could possibly publish. That the point is growing in virtue and growing together and growing wise. That discovery is invention, deference is originality, that we all can rise together. The only folks I'm going to take comments down from are obvious jerks who argue in bad faith, don't stay curious, or actively make personal attacks. And, frankly, I'd rather we talk here than on some social media farm — I will never show ads and the only thing I'm selling anywhere on the site or my mailing list is just the stuff I make.

You're also helping folks realize that anything you & they build together is far more important than anything you come to me to read. I take the things I write about seriously, but I don't take myself seriously: I play the fool, I hate cults of personality, and I also don't really like being the center of attention (believe it or not). I would much rather folks connect because of an introduction I've made or because they commented with one another back and forth and then build something beautiful together. My favorite contributions have been lifelong business and love partnerships from two people who have forgotten I introduced them. Some of my closest friends NOW I literally met on another blog's comment section fifteen years ago. I would love for that to happen here — let two of you meet and let me fade into the background.

Last, you help me revise. I'm wrong. Often. I'm not embarrassed to admit it or worried about being cancelled or publicly shamed. I make a fool out of myself (that's sort of the point). So as I get feedback, I can say, "I was wrong about that" and set a model for curious, consistent learning, and growing in wisdom. I'm blind to what I don't know and as grows the island of my knowledge so grows the shoreline of my ignorance. It's the recovery of innocence on the far end of experience: a child is in a permanent state of wonder. So are the wise: they aren't afraid of saying, "I don't know. That's new: please teach me." That's my goal, comments help. And I read all reviews: my skin's tough, but that's not license to be needlessly cruel. We teach one another our habits and there's a way to civilly demolish an idea without demolishing another person: just because I personally can take the world's meanest 1-star review doesn't mean we should teach one another how to be crueler on the internet.

For three magical reasons — your brave curiosity, your community, & my ignorance:

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