We love rags-to-riches stories.
Like the Horatio Alger tales of yore, we’re captivated by the turnaround story. The Apple Computer that Steve Jobs arranges financing for, so he can bring out the iMac, iPod , iPhone, and iPad. Now Apple is so successful that the index geniuses at Nasdaq have decided to bet against it. (Good luck.)
Or the plucky emerging market company, like Petrobras, that markets its product to a growing China and grows to be one of the largest oil companies in the world. We like to cheer for the underdog.
That’s why so many people are enticed into buying penny stocks or hard-luck stories. An internet ad or a hot tip from an acquaintance promises stunning wealth in a very short time. Just look at what $1000 invested in Apple in 1994 did, they say. It would be worth $50 thousand today.
But lottery tickets rarely pay enough to justify their purchase. That’s why the states sell them! For every Apple out there there’s a hundred “Innovative Software” or “Wolahan Lumber” or “Magnetic Technologies” that either went nowhere or into bankruptcy. That’s why they call it speculation.
Investing is hard work and most people can be pretty successful if they establish disciplines, manage risk, and learn from mistakes: that is, if they do the work! That’s the side of the Horatio Alger story that’s forgotten—the sweat equity of equities. It can and is profitable, but only if you work at it.
Douglas R. Tengdin, CFA
Chief Investment Officer
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