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The Coffeehouse Investor newsletter provides you with brief bursts of inspiration in your journey toward simplifying your investment decisions and increasing your investment returns!


The Coffeehouse Book

The New Coffeehouse Investor Book

The Coffeehouse Investor

How to Build Wealth, Ignore Wall Street & Get On With Your life by Bill Schultheis

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Hello Bill,

It seems to be what we have today is “not our father’s” stock market.

Seems the “real economy” is not the focus any more, with all the complex innovations–or casino capitalism (depending on one’s perspective.)

I’m starting to wonder if the stock market has become much more risky than we expect…..your thoughts?

Thanks!  T. 

Casino Capitalism is a good description of the stock market of late.  It seems the volatility of common stocks has only gotten worse. 

Despite all the underhanded “wheeling and dealing” of the Wall Street crowd, the stock market really hasn’t changed much over the years.  Sure, the day to day, and week to week gyrations might be greater than they were 40 years ago, but our challenge is to ignore that. 

Your portfolio, if not your psyche, should be completely immune to the short term swings in the market.  What the S&P 500 index does over the next two months is irrelevant.  Its return over the next 10 years is relevant, so let’s take a look at that.

Over the next decade, the returns on common stocks will be driven by three factors.  Earnings growth of the underlying companies, the dividends paid out, and the change in its price to earnings (P/E) ratio.

Earnings are likely to grow at 4-6%, and with the current dividend at about 2%, it means that, without a change in the P/E ratio, common stocks would generate an annualized return of about 6 -8%.  The big unknown in all this is the change in the underlying P/E ratio over the coming years, a change that would greatly impact the core return of 6-8%. 

The big unknown that we deal with today isn’t casino capitalism – it is the same unknown that your “father” had to deal with 40 years ago – a long-term change in P/E ratio. 

You might say that “Some things never change.”  A change in P/E ratio isn’t one of them.

A good first step to initiating positive change in our lives is to reflect on how we are spending our time and energy today. 

Are the things we focus on, and the time we spend on activities, creating positive rituals or fostering bad habits?   

Authors Jim Loehr and Tony Shwartz, in their book, The Power of Full Engagement, ask the question “How are you spending your energy now?”

They continue on,

Each of us finds ways to avoid the most unpleasant and discomfiting truths in our lives.  We regularly underestimate the consequences of our energy management choices, failing to honestly acknowledge the foods we are eating; how much alcohol we are consuming; what quality of energy we are investing in our relationships with our bosses, colleagues, spouses and children; and how focused and passionate we really are at work.  Too often, we view our lives through rose-colored classes, painting ourselves as victims, or simply denying to ourselves that the choices we are making are having a consequential impact on the quantity, quality, force and focus of our energy.

Food for thought, as we move through our daily activities and get on with our life.

Making change happen in our lives is a whole lot easier if we look at change as something that will greatly accentuate our presence and purpose in life. 

Too often in the past I have looked at change as a burden, or a dreary chore that needed to be carried out, just for the sake of change.  For instance, if I want to find more time to write, carving out 60 minutes of my day best happens in the early morning – meaning I have to create a ritual of getting to bed earlier, and rising earlier. 

It is a whole lot easier to establish this ritual if I focus, not on getting up 60 minutes earlier, but on my purpose – my desire to reveal The Coffeehouse Investor philosophy to investors across the nation.  

In their book, “The Power of Full Engagement” authors Jim Loehr and Tony Schwartz write about the process of change,

“The first step in our change process is to Define Purpose.  In the face of our habitual behaviors and our instinct to preserve the status quo, we need inspiration to make changes in our lives.  Our first challenge is to answer the question, “How should I spend my energy in a way that is consistent with my deepest values?”  The consequence of living our lives at warp speed is that we rarely take the time to reflect on what we value most deeply or to keep these priorities front and center.  Most of us spend more time reacting to immediate crises and responding to the expectations of others than we do making considered choices guided by a clear sense of what matters most.”

“We are so much more than we allow ourselves to believe.”

I have that quote on my desk, scribbled on a piece of paper from a presentation I must have attended a long time ago, even though I can’t remember or acknowledge the wise sage who shared it with me. 

But I like it, and I believe it.   

If we are only using 10% of our capacity, what’s going on with those other 90% of our brain cells, sitting there, nothing but dormant gray matter in our head? 

Time for a change in your life? 

I am reading a book, The Power of Full Engagement, and although I am not big into “self help” books, this one has struck a chord with me.  Below is a quote from addresses the difficulty of making change happen. . . .  

“Change is difficult.   We are creatures of habit.  Most of what we do is automatic and nonconscious.  What we did yesterday is what we are likely to do today.   The problem with most efforts at change is that conscious effort can’t be sustained over the long haul.  Will and discipline are far more limited resources than most of us realize.  If you have to think about something each time you do it, the likelihood is that you won’t keep doing it for very long.  The status quo has a magnetic pull on us.”

Paradise - Not This Year!

One of my favorite “investing” books isn’t really a book on investing.  It is a book that discusses the dynamics of “change” in corporate America.  It is titled Creative Destruction: Why Companies That Are Built to Last Underperform the Market–And How to Successfully Transform Them

I have commented on this book in past blog postings, in part because it presents such a compelling case for The Coffeehouse Investor philosophy of building portfolios. 

To sum up the book’s main thesis, it is incredibly difficult, if not impossible, for companies to destroy themselves on the back end and recreate themselves on the front end to keep up with the rapid pace of change. 

Reflecting on this book got me to thinking . . .

Is it possible that organizations are reluctant to change simply because the people inside the organization are reluctant to change?

On a scale of 1 to 10, how successful are you at initiating change in your life, to keep up with dynamics of change in society? 

For example, I suspect statistics would reveal that, as a society, we are retiring earlier and living longer. That sounds good on the surface, but presents many challenges.

It means you need to make our money last longer. 

It means you are challenged to stay healthier longer, because even though you might be living longer, the last few years of your life probably won’t be any better from a “quality of health” standpoint. 

Change is difficult, but not impossible. 

We’ll discuss that next.