Adam Smith, Lincoln, investing, ethics, morality

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.” Adam Smith

“Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.” Abraham Lincoln

The butcher, the brewer and the baker provide goods and services to earn their keep. That is what Abraham Lincoln describes in his statement.

When investors buy shares in a company “from their regard to their own self-interest” they often hold it for two decades or longer.  I did that with Berkshire Hathaway, investing to support the company in providing goods and services. It was the only security that I owned.

The average stock holding period on the NYSE from 1929 to 2016 has declined to an unbelievable 8.3 months! That was 2016.

Today?

Since the rise of high-speed trading, the average holding period for a stock has been reported to be as low as 22 seconds! That is not a misprint; the figure is available from many sources.

The butcher, the brewer and the baker, the providers of the labor which Lincoln refers to are hard to find in a 22 second holding period. The ethics and the morality of this type of investing are suspect. But it is not going to go away.

The fourth habit of the Monday Morning Millionaire Program members (buy and hold) is a habit of true investors. Long holding periods defer tax and let “compounders” like exchange-traded funds work their magic.

“Compounding is the eighth wonder of the world.” Albert Einstein.

The cautious encouragement by the Monday Morning Millionaire Program for members to sell puts and calls is much closer to what is currently happening on Wall Street. However, since this attitude will not go away, why not take advantage of it? (By “cautious” we mean selling puts and calls — only sell, never buy puts and calls, in a “fun” portfolio if you have one.)

A separate issue at this time is that now is an excellent time to look into profit-taking and portfolio rebalancing, that is, the fifth habit of the Monday Morning Millionaire Program.  Over the last few weeks, the S&P 500 has gone up sufficiently to do that. There would be no tax hit in tax-advantaged portfolios, but other portfolios would likely incur taxes.

Check with your accountant, may you often face such problems, enjoy the ride.

Please note that the Monday Morning Millionaire Program contains opinions only. It does not provide any investment advice or endorsements.

 

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

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