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    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life
    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life
    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life
    Ebook196 pages2 hours

    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life

    By Bill Schultheis

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    About this ebook

    In 1998, after thirteen years of providing investment advice for Smith Barney, Bill Schultheis wrote a simple book for people who felt overwhelmed by the stock market. He had discovered that when you simplify your investment decisions, you end up getting better returns. As a bonus, you gain more time for family, friends, and other pursuits.

    The Coffeehouse Investor explains why we should stop thinking about top-rated stocks and mutual funds, shifts in interest rates, and predictions for the economy. Stop trying to beat the stock market average, which few “experts” ever do. Instead, just remember three simple principles: Don’t put all your eggs in one basket. There’s no such thing as a free lunch. And save for a rainy day.

    By focusing more on your passions and creativity and less on the daily ups and downs, you will actually build more wealth—and improve the quality of your life at the same time.
    LanguageEnglish
    PublisherPenguin Publishing Group
    Release dateApr 16, 2009
    ISBN9781101050385
    The Coffeehouse Investor: How to Build Wealth, Ignore Wall Street, and Get On with Your Life

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      Book preview

      The Coffeehouse Investor - Bill Schultheis

      001001

      PORTFOLIO

      Published by the Penguin Group

      Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, U.S.A.

      Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario, Canada M4P 2Y3 (a division of Pearson Penguin Canada Inc.)

      Penguin Books Ltd, 80 Strand, London WC2R 0RL, England

      Penguin Ireland, 25 St. Stephen’s Green, Dublin 2, Ireland (a division of Penguin Books Ltd)

      Penguin Books Australia Ltd, 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty Ltd)

      Penguin Books India Pvt Ltd, 11 Community Centre, Panchsheel Park, New Delhi - 110 017, India

      Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore 0632,

      New Zealand (a division of Pearson New Zealand Ltd)

      Penguin Books (South Africa) (Pty) Ltd, 24 Sturdee Avenue,

      Rosebank, Johannesburg 2196, South Africa

      Penguin Books Ltd, Registered Offices: 80 Strand, London WC2R 0RL, England

      This edition published in 2009 by Portfolio, a member of Penguin Group (USA) Inc.

      Copyright © Bill Schultheis, 1998, 2005, 2009

      All rights reserved

      Originally published as The Coffeehouse Investor

      by Longstreet Press (1998) and Palouse Press (2005).

      Selections from Dalbar QAIB study used by permission of Dalbar, Inc.

      Selections from Morningstar Presentation Materials and Sales Ideas.

      Source: © 2008 Morningstar. All rights reserved. Used with permission.

      Publisher’s Note

      LIBRARY OF CONGRESS CATALOGING IN PUBLICATION DATA

      Schultheis, Bill.

      The new coffeehouse investor : how to build wealth, ignore Wall Street, and get on with your life / Bill Schultheis.

      p. cm.

      Includes bibliographical references and index.

      eISBN : 978-1-101-05038-5

      1. Investments. 2. Portfolio management. 3. Finance, Personal. I. Title.

      HG4521.S357825 2009

      332.6—dc22 2008036659

      Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book.

      The scanning, uploading, and distribution of this book via the Internet or via any other means without the permission of the publisher is illegal and punishable by law. Please purchase only authorized electronic editions and do not participate in or encourage electronic piracy of copyrightable materials. Your support of the author’s rights is appreciated.

      penguinrandomhouse.com

      Version_2

      To all the Coffeehouse Investors,

      Vanguard Diehards,

      and everyone else who has taken a moment

      to share this investment philosophy with others

      Table of Contents

      Title Page

      Copyright Page

      Dedication

      PREFACE

      Chapter 1 - THE COFFEEHOUSE INVESTOR

      Chapter 2 - THIS THING CALLED RISK

      Chapter 3 - APPROXIMATING THE STOCK MARKET AVERAGE

      Chapter 4 - BUILDING A COMMON-STOCK PORTFOLIO

      Chapter 5 - MY FAVORITE PIECE OF PIE

      Chapter 6 - SAVING IT

      Chapter 7 - LIFE, LOGIC, AND PARADOXES

      Chapter 8 - TRAVELS OF A COFFEEHOUSE INVESTOR

      Chapter 9 - SPENDING IT

      Chapter 10 - INDEX FUNDS AND BEYOND

      Chapter 11 - LET’S HAVE SOME FUN

      Chapter 12 - THE JOURNEY CONTINUES

      APPENDIX

      NOTES

      ADDITIONAL READING

      INDEX

      ABOUT THE AUTHOR

      PREFACE

      ON MARCH 8, 2000, TWO DAYS BEFORE THE NASDAQ STOCK index topped out at 5,048, I presented a Coffeehouse Investor seminar focusing on three simple principles that were introduced when this book was first published in 1998. These are lifelong principles that we all know to be true, principles that were probably shared with us long ago by a wise old friend.

      1. Don’t put all your eggs in one basket.

      2. There is no such thing as a free lunch.

      3. Save for a rainy day.

      After the seminar, a middle-aged man named Bob approached me and admitted that he had connected with the three principles and needed to make some changes to his portfolio.

      Bob had everything going for him. He revealed to me that he had just met the woman of his dreams and was preparing for a trip around the world. On top of that, he was set to retire and live happily ever after on a portfolio that had grown in value to over $1.6 million.

      After meeting with Bob and reviewing his account, which consisted of something like twenty-five large-cap stocks and five mutual funds of the same flavor, we came to the conclusion that he didn’t need to have much money at all invested in the stock market to maintain his lifestyle for the rest of his life.

      After working with Bob to create a financial plan, I remember telling him, It is time to diversify.

      Intellectually he knew he needed to make some changes in his life, like buying some bonds, but emotionally he couldn’t do it. How did I know that? Because four months later he called me and confessed he hadn’t done a thing and his portfolio had plummeted about $500,000.

      Again we reviewed his financial plan, and again I responded, Bob, it isn’t too late to diversify.

      He nodded, but I knew he was thinking something different. . . .

      I own world-class companies.

      My stocks and mutual funds will come back, just like last time.

      My stockbroker is telling me to hang in there.

      My stockbroker’s analysts are telling him to hang in there.

      I’ll diversify when my portfolio gets back to $1.6 million.

      Intellectually he knew he needed to make some changes, but emotionally he still couldn’t do it. How did I know that? Because five months later he called me again and confessed he still hadn’t done a thing and his portfolio had plunged another $400,000.

      Again we reviewed his financial situation, and again I responded, Bob, it still isn’t too late to diversify.

      He nodded again, but I knew he was thinking something different. . . .

      I own world-class companies.

      My stocks and mutual funds will come back, just like last time.

      My stockbroker is telling me to hang in there.

      My stockbroker’s analysts are telling him to hang in there.

      I’ll diversify when my portfolio gets back to $1 million.

      The tragedy of this story is that instead of taking that trip around the world, Bob decided to go back to work.

      Not because he wanted to.

      Because he had to.

      002

      After thirteen years of working with retail and institutional accounts for a major Wall Street firm in Seattle, Washington, I decided to take a break. After stepping away from a career in the financial industry, it became obvious that an investment story very different from Wall Street’s traditional story needed to be told. That is how this book came about.

      Now, ten years later, after reflecting on the profound impact The Coffeehouse Investor has had on people’s lives during a period of immense global turmoil and market volatility, it is time to reestablish these lifelong principles as fundamental to building wealth, ignoring Wall Street, and getting on with your life.

      By choosing to read this book, you are taking a significant step toward creating a successful portfolio, which, for many of us, means building a nest egg to see us through our retirement years. No one said it was going to be easy; and right now there seem to be a lot more questions than answers about this thing called retirement, which means that this new chapter in your life can be full of predicaments or possibilities.

      It all depends on you.

      By choosing to read this book, you are also taking a significant step toward accepting personal responsibility for your retirement. That’s good, because if we listen closely, corporations have been telling us for quite some time that we need to be more responsible for our retirement. On top of that, the government is starting to tell us that we need to be more responsible for our retirement.

      The time to start is now.

      Maybe one of the reasons this retirement thing is so daunting is because we are accepting responsibility for something completely opposite its definition. . . .

      re•tire (rĭ-tīr’), v. 1. to withdraw or go away to a place of privacy, shelter, or seclusion.¹

      I don’t know about you, but that is not how I plan on spending my retirement. I want to live an abundant life every day for the rest of my life and have the financial resources to do it, and I’m sure you feel the same way.

      The concept of retirement is still so new to our society, because, for the most part, we are stepping away from our careers earlier and living longer. For example, in 1940 the average age of retirement was seventy, but the average life expectancy was only sixty-two. Today the average age for retirement is sixty-two, and the average life expectancy is seventy-seven!²

      Even though we are retiring earlier and living longer, our retirements shouldn’t be about withdrawing or pulling away. These years should be about reaching out and expanding our possibilities of how we work and play, at a pace that reflects the energy level we have for both.

      In visiting and working with countless investors who have properly prepared for retirement, I am inspired by the zeal that these people bring to this new chapter of their lives. It is a time for new friends, new discoveries, new passions, and new possibilities.

      But I have also had too many discussions with too many people who carry with them a nervousness that they are going to outlive their money, and this nagging anxiety that they can’t seem to shake saps the passion for life right out of their bones and right out of their lives. That is a tragedy because the goal, it seems to me, is to have our financial resources accentuate, not detract from, our capacity to live a full life for the rest of our lives.

      Before we begin the journey of moving from predicaments to possibilities, let’s take a look at how we got into this predicament in the first place.

      In my opinion, the predicament took hold on August 16, 1982. I remember that day very well; in fact, I remember it as if it were yesterday. I was spending my summer vacation driving a wheat combine on the steep hillsides of our family farm.

      I had just finished eating lunch on that hot summer day when the radio broadcaster announced that the Dow Jones Industrial Average had jumped thirty-nine points.

      Holy Toledo, thirty-nine points.

      You’ve got to remember, back in 1982, when the Dow was trading at 895, a ten-point swing in the market was a big deal. But that day the index surged thirty-nine points and stirred a sleeping bull. The stock market proceeded to generate an annualized return of 18.5 percent over the next eighteen years, which was about 80 percent more than its historical long-term average.

      Holy Toledo.

      I didn’t know it then, but 1982 was also the year that a few corporations across the country began introducing self-directed retirement plans, better known as 401(k) accounts, into the workplace. Today these accounts are the primary retirement plan for millions of investors, but it wasn’t always that way.

      Once upon a time, if you were lucky enough to work for a corporation that offered one, you participated in its pension plan, otherwise known as a defined benefit plan. In this type of retirement plan, the corporation took on all the responsibility for saving enough money each year and investing it to meet its employee pension obligations. When you retired, the corporation sent you a monthly pension check for the rest of your life.

      What a deal.

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