Bill Schultheis: GameStop Saga Both Fascinating and Tragic
The financial advisor and author on the best ways for young investors to get started.
Several factors have led investors to venture into trading over the past year: extra time and cash on hand due to coronavirus-related lockdowns, free trading, gamified platforms, and a soaring stock market. In a recent conversation on “The Long View” podcast, we asked financial advisor and author Bill Schultheis to share his views on whether novice investors might gain long-term wisdom from the experience of trading stocks. He also shared his opinion on the best way for beginning investors to get started and why trying to stay ahead of the latest hot technology is a losing battle.
The complete podcast and transcript cover a number of other areas: why he believes in owning the whole market; Bill’s career trajectory from commission-based broker to holistic financial planner; and how he helps his clients focus on what really matters. We also touched on the contents of Bill's latest book, The Coffeehouse Investor's Ground Rules.
Since you mentioned stock market game before, I feel compelled to ask about Robinhood and GameStop (GME) and gamifying investing. That story has ignited a discussion about the best way for investors to get started and whether dabbling in individual stocks is a necessary part of the learning process. Where do you come down on that question?
Well, that whole GameStop activity has been a fascinating part of our culture on many different fronts. And I think right up front, it's important for me to say that I'm not against someone who enjoys gambling. I love to go to a casino two or three times a year and I probably set my limits at $200 to $300 that I'll lose before I walk away. And I love sitting at the blackjack table. I mean, it's fun. And in my past life when I was in college, I tried to write programs to beat the blackjack dealers. It never worked, but I had fun doing it. And so, there's this part of us that enjoys gambling. But when I look at this whole GameStop thing, we need to call it what it is. It's gambling, it's speculating. And it's really clear that at least for me, I tried to accentuate the difference between investing for the long term, putting together a game plan that will see you through your retirement years, and gambling. It's two different animals, even though you are using the same elephant called stocks that are traded on stock exchanges. And to the extent that people have clarity on that, it is what it is. I think it is a tragedy, or more so an opportunity, for me, for us, for parents, for grandparents, to creatively educate folks who want to do the right thing on the difference between gambling and investing.
I got an email a couple of days ago from a random person saying, “Hey, Bill, I've got two sons, and they think I should be investing in Bitcoin, and that's the way to build wealth over the long haul.” How should I respond to them? And my response on the whole Bitcoin, blockchain [phenomenon is]--technology, I'm not smart enough to figure it out. I don't know if anybody is. And so, how do I integrate that in my portfolio? I integrate it in the context of buying the entire market. And I'm sure that there are companies that are working on blockchain technology, and I own those companies to the extent that they are represented in my portfolio. But for me to try to stay one step ahead of what is evolving in technology, in the different sectors of our society, it's just a losing battle, and it is going to cost me dearly over my lifetime of investing.
What do you think about the idea--and I've heard this from some people since the whole Robinhood thing really began to gain traction--the idea that this is how people can learn in a low-stakes way. They make mistakes, they pick themselves up, they learn that there's a better way. Do you think that there's maybe some wisdom in that, that this is sort of a low-stakes way for young people to figure out what they're doing? Or would you just discourage anyone from even experimenting in this way?
I would say that I would ask a person what their goal is. And for every person who says, “I enjoy the GameStop activity and I enjoy following Bitcoin and I want to get rich quick,” there are probably 99 people who want to do the right thing. They say, “What can I do with my money so that I accentuate my chances of reaching my longer-term goals?” It's kind of the silent majority. And I only say that because they're the people that reach out to me over the past 20 years. And for them, there is, in my opinion, no value in looking at the stock market and following stocks from an educational standpoint, in the context of building long-term wealth. If anything, it should be an educational process, in that looking at stocks and following the stock market is counterproductive to building wealth.
And I share an example in my book, and again, I kind of got a ringside seat here with Microsoft (MSFT) being in my backyard from 1987 through 1990. Microsoft, the company, and Microsoft, the stock, performed off the charts. They were great. From 2000 to 2008, Microsoft, the company, did phenomenally well--the earnings continued to go through the roof. Microsoft, the stock, dropped by 80%. And the reason why is because in the short run, you're not really investing in Microsoft, the stock. Microsoft, the company, has nothing to do with its stock price over the long haul, other than maybe influencing it in share buyback. Microsoft, the stock, is driven solely by the emotions of investors. And that can be an expensive lesson to learn for people who are wanting to tune into the stock market with the hopes of building wealth to see them through their retirement years.
In your books, you take a cynical view of Wall Street and urge investors to do their best to tune out the stories and what it tends to sell. But index funds are flying off the shelves. Does that mean that Wall Street has gotten better, and that the environment has gotten better for retail investors?
Gosh, Jeff, that's a great question. And I do, I guess, take a cynical view of Wall Street, but on one hand--and I pointed out in my recent book The Ground Rules where Wall Street is not the enemy, Wall Street is not the evil empire. In fact, Wall Street, the entity that is conducive to the flow of capital and new ideas, it's essential for our capitalistic society. And there's a lot of things wrong about our society, but there's a lot of things right and one thing that's right is it's an opportunity to bring new ideas to market.
I'm critical of Wall Street in the context of them being so aggressive in their marketing that you are going to reach your financial goals by following my expertise. And what I want to do is I want to present to Coffeehouse Investors an opposing strategy of taking charge of your financial well-being by making sure that you capture the market's return long term and then focus on what you can control, which is, when you're working, how much you're saving and when you're retired, how much you're spending so that you're in control of your financial destiny, and it isn't reliant on anybody's ability to pick stocks and predict trends and forecast the industries. And I have to say that Coffeehouse Investors, who have embraced that the past 20 years, it's incredibly gratifying to see the impact that it's had on their lives, especially for women, especially for female investors, because I think that they more than men want to do the right thing, are open to logical choices so that they can be in charge of their financial destiny.
And so, when it gets back to Wall Street, on one hand, there's a lot of good stuff coming out of Wall Street. I mean, you look at like target-date funds. Yeah, they may not be the perfect investment, but allowing someone to become gainfully employed at 25 and they're automatically signed up to participate in a target-date fund. What a great evolution that has been--automatic deposits from checking accounts to investment accounts. I mean, things like that that automate a person's ability to build wealth, I think are great venues for people to reach their financial goals.
Christine Benz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.