I recently emailed my father and godfather to ask for some paternal financial advice for this Father's Day column - these two guys spent their careers on Wall Street. My father was a stock options specialist on the floor of the American Stock Exchange, and my godfather, "Uncle Ralph," was a stock specialist on the floor of the New York Stock Exchange.
I worked as a clerk for my dad and Uncle Ralph during alternating summers when I was in college. The first couple of years, I was behind one of those circular booths doing mundane tasks, like copying and filing completed orders. It may have been clerical work, but it was a dazzling environment. It was the heyday of physical exchanges, and much of the transactional process was still done with paper and pen. (Picture the trading floor scenes in the 1987 movie "Wall Street.") Every so often, Ralph would lean into the booth and say something like, "In this business, you can be right just 51 percent of the time and make great money!" And dad would say, "Watch closely, because your old man is about to do something cool!"
Once I settled him down a bit, dad highlighted a key theme for every investor: patience. The past four years has been a difficult time for savers and yield investors, but the recent decline in bond prices and the corresponding rise in interest rates over the past month has been a good reminder that much higher rates are coming. "Bond investors should prepare by keeping durations shorter and quality high," dad said.
He also chimed in with some great practical advice: "A big part of wealth building is to spend less and live within your means." That may seem obvious, but when my father was at the height of his career, guys around him were driving big cars and buying fancy houses, only to see big changes when the stock market crash of 1987 hit.
My father and Ralph are old school -- they are not interested in buying any index, so for you individual stock fans out there, this may be the only column where I discuss some core concepts about stock trading.
Dad also reminded me, "Remember what your Uncle Ralph used to preach? Buy what you understand and is easily visible in everyday life."
After he reiterated his half-right mantra from 30 years ago, Ralph chimed in with, "If you don't understand it, don't buy it. Vanilla is more popular than tutti-frutti." Great advice for all those investors who poured money into all sorts of ideas over the years.
For those of you who become enamored with your stock purchases, Ralph has some simple but prudent advice: "Let's say you buy two stocks at the same time. If after some months go by, you find a better opportunity, keep the winner and sell the loser. In one case, your opinion is being proven right, not so in the other." A majority of investors do the opposite, hoping that the loser will turn around. This dovetails well with Ralph's warning that "a security doesn't know you own it; its feelings will not be hurt if you decide to sell."
Dad and Ralph have both always believed that cash is an asset class -- I have never heard either of them complain when they had cash on hand, especially if they could not find a compelling reason to put the cash to work. And neither of them has EVER complained about paying taxes on trading profits. As dad likes to say, "An investor who worries about capital gains will soon have no gains about which to worry!"
That's just few from the fathers in my life. ... I bet your dads have some good ones, too!
(Jill Schlesinger, CFP, is the Emmy-nominated, Senior Business Analyst for CBS News. A former options trader and CIO of an investment advisory firm, Jill covers the economy, markets, investing and anything else with a dollar sign on TV, radio (including her nationally syndicated radio show), the web and her blog, "Jill on Money." She welcomes comments and questions at firstname.lastname@example.org.)