Millennial Generation特指在千禧年跨入青年行列的一代人，也就是我们常说的80后和90后。本书作者Patrick O'Shaughnessy 就是一位80后，他的父亲是知名投资人James O'Shaughnessy，他依靠独特的投资方法独步华尔街（见[相关阅读]，What Works on Wall Street，The New Rules for Investing Now，Predicting the Markets of Tomorrow）。
Tell me a little bit about writing the process of writing this book itself. How did you start? Who was your ideal reader? What I was noticing among my friends – many of whom knew about investing – was that they were being extremely conservative and of course my key point was as young investors, they should be much more aggressive. They should be investing almost all their money in the global stock market, not worrying about short-term movements and in fact welcoming bad returns in the short term because that creates opportunities to buy low.
Then surveys started to come out about what millennials were doing with their money, and it made me realise that this was a very widespread problem.
It got me reading more about psychology and studies that showed that the economic environment in your formative years, in your teens and your 20s have a lifelong impact on how you think about stocks and risk. These are called “Depression babies” because people growing up in the Depression were forever scared of the stock market. My grandfather was one example. And I think we millennials have had a similar experience with the Great Recession. That experience of watching the stock and housing markets crash had a big impact on us. So when I saw this trend confirmed the surveys from big banks, it inspired me to want to write something to rectify that situation.
And I wanted to get it out as quickly as possible because I think this is a timely message because every year that passes, the potency of our dollars diminishes.
Why are millennials investing for the first time in the stock market different from first-time investors of previous generations?
There are a couple of key differences. One is how and where we’re investing and another is the vehicles that we’re using. For example, mutual funds that give us access to the global markets at very, very cheap prices and in a very tax-efficient way.
Because of the environment in which we’ve grown up, millennials are very sceptical of the stock market. So far they have taken what they think is a conservative approach to their investments, putting about half of their money into cash. The unfortunate thing for millennials is that cash, while it’s safe in the short term, can be very dangerous over long-term periods. Whereas the stock market which is very dangerous in the short term has historically been the safest place for your money over that three- to four-decade time horizon that we enjoy.
You were 23 during the 2008 financial crisis. That was probably when millennials accumulated the most fear of markets. How did it not shake your faith in the stock market?
I was very scared like anybody else. But, I had read a lot about market history, understanding that the best time to participate in the stock market is when people are actually the most scared because that creates the best opportunity.
So I recognised that despite being very scared myself, as a young investor with a very long time [investing] horizon, this was actually an opportunity not a dangerous time.
What makes investing in the stock market a secure long-term option for millennials? Two disturbing trends have been happening over the last few decades. First is that we’re saving a smaller and smaller percentage of our income. So in the 70s, it was very difficult to save more than 10% of your income. Today that’s more like 5% of your income so we’re saving less and less.
Second, the government is spending a larger percentage of its budget on social security and Medicare to support us in retirement. Now the problem that I outline in the book is that the money to pay for these support programmes – social security and Medicare – comes from taxpayers.
When Medicare was started in the 60s, there were about seven people working, and paying taxes to support every one retiree, today there is about four and a half workers for every retiree. When millennials get past their prime-earning years, in 20-30 years, there’s going to be about two workers for every retiree.
The unfortunate reality is that our population is getting much older and an older population is more expensive to support.
What that tells me is caution makes sense. If you start when you’re very young, you have this huge advantage of time on your side and you can sidestep these obstacles that may come from lesser payouts from social security or Medicare.
In your book you recommend three broad rules for investing. How did you arrive at three rules? I tried to isolate the three most important basic concepts for people to be successful over the long run.
Now the first one, “go global” – I arrived at because of this concept called home bias. I also like to call it portfolio patriotism. This is the tendency of investors to focus their investments on stocks in their home country. People prefer stocks that they know, whose products and services they use, they see on TV, etc.
Historically that’s been a bit of a dangerous thing to do. Individual country markets can have very bad runs but a truly global portfolio has never had that kind of long-term poor performance.
The second thing is to “be different”. The popular trend for millennial investors has been investing in index funds. You buy the entire market and you do so for a very low fee. That is a very good starting point for a lot of 401ks or retirement accounts. But a better performance is possible by building a portfolio that’s very different from the overall market – focus on higher-quality cheap stocks that the market is just beginning to notice.
The final “get out of your own way” which is actually where I spend the most chapters in the book, is the most important because a great strategy is only going to work if you have the emotional discipline to stick with the strategy through tough times. If you think about 2009 and how difficult a market environment that was, many people sold out at exactly the market bottom. We do this all the time because we’re scared when the market crashes and we get greedy when it rises. But we should do the exact opposite.
Can you illustrate an instance of high-quality stock that was cheap enough to be a good investment? So, one example that I love, that we’ve owned a lot of, is Seagate Technology, which makes hard drives. It had been a rather expensive stock, and was doing quite well. But in the aftermath of the financial crisis, the market quickly turned on Seagate and decided that hard drives didn’t matter any more.
It sold off and it did really badly for a time but it got very, very cheap. Seagate was smart with its cash. They said, wait a minute, we’re ridiculously cheap right now. We’re going to use our own cash to buy our own shares.
The strategy is like buying dollars for 50 cents. So the stock was one, very cheap, two, they were smart with their cash. And the market started to take notice and it started to do well. Even though very famous investors like Jim Chanos, the famous short-seller, were saying, ‘this stock is terrible, it’s going to go out of business,’ it ended up doing extremely well.
I’m tempted to ask, if there was a fourth rule, what would it be? I am happy with these three as core tenets. I think maybe a fourth rule would be to try to focus on low fees. To try to keep the costs low. Because costs compound over time just as returns do in the stock market. So the lower costs you pay the better you’ll do.
But sometimes costs are appropriate. Hiring a financial adviser, one that can help you through the emotional tough times is a very smart move for a lot of investors. Sometimes financial advisers get a bad rap because they charge high fees which reduce your returns but the fact is, a good financial adviser can help you through the toughest times which will essentially pay for them many times over.
By saving you from doing a stupid thing at a stupid time, financial advisers earn their keep.
But for investors who are new to this, isn’t that asking them to do a bit much? Investors out there will know if they can handle this more nuanced way of investing. In the last chapter, I give a hierarchy of my suggested investment recommendations.
It starts with basic index funds. If you’re a “set it and forget it” type that doesn’t want to get too sophisticated and doesn’t want to do a lot of work on their own, starting with a basic global index fund is a great way to start and there is nothing wrong with that.
I think that is far better than sitting in cash or doing nothing at all. So for those that are a little intimidated by the more complex strategy, by all means I think the index approach is a smart one and will work. I just do think that for the right person out there, the person who is a little bit more interested in investing and earning higher returns, that following this five-point strategy will lead to superior results over the long term.
Who are the writers on finance and economics you like to read? There are so many. Daniel Kahneman wrote Thinking Fast and Slow. I’ve learned more about markets probably from his writing even though he is not really an investor but a psychologist. David Dreman, who wrote the Contrarian Investment Strategies – I read the book when I was 21 years old. He was one of the first writers to recognise the importance of psychology in markets and the outlying strategies for doing well in spite of our emotions.
You studied philosophy in college and you said that you were more interested in the behavioural aspect of investing. How does your education inform your investment? My background in philosophy and psychology was extremely useful because the advantages that exist for investors are the result of investor psychology. So the fact that everyone was selling in March and February of 2009 at the exact wrong time created an opportunity for other people. The selling was purely driven by emotion, panic and fear. By understanding the market’s emotions you can do very, very well by removing those emotions from the equation.
On that topic of relying on logic rather than emotional intuition, what advice would you have to give to millennials?
My advice is to remove your emotions as much as possible. That our intuition, while very well suited in survival settings and selected for evolution, works great in survival settings. It works terrible in markets. It actually pushes us to do the exact opposite of what we should be doing. In almost all cases, I would urge millennial investors to completely ignore their emotions and focus only on checklists, rules-based strategies. Automatic investments so that you’re not getting in your own way. That’s one of the key things I highlight in those chapters.
In answering your last question, I should have mentioned my own father who has written four books and taught me everything that I know and believe about investing in addition to those other two guys. The key lesson that he taught me at a very young age is that the moment emotions get involved in the investing process, your success will go away. The only way to be successful in the long term is to be completely emotionless so I would hope and suggest that millennials try to remove their emotions from the equation at every step.
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