There’s no doubt about it…the world is changing. And when it comes to our financial futures, things aren’t the same as they used to be. Company pensions are all but a thing of the past. There’s talk of uncertainty when it comes to the availability of social security in our future and our kids’ futures as well. One way that people can better prepare for their future by taking control over their own investments. However, personal investing can be scary, daunting, or overwhelming if you don’t know what you’re doing. Luckily, there’s a local investor that has been helping people get on the right track.
Former CPA Joseph D. Allen, owner of Joseph & Company, LLC, has been helping people invest better on their own since 2011. Judging by his track record, he might be onto something. Over the past seven years, his stock portfolio grew 268%, outperforming the market by 121%.
Unlike most investment pros, Joseph doesn’t manage people’s money directly. He simply shares with others what he himself is doing, through regular updates and alerts, allowing others to invest as he is. And because he is investing his own money, he lends a personal touch (and vigorous research) to each and every buy and sell decision. Together with Joseph, subscribing members can benefit from his knowledge and invest with confidence.
We recently sat down with Joseph and dug into his history and the world of investing. If you are even slightly interested in the mystery that is the stock market, you will want to read on.
Q: How did you get into personal investing?
I was sixteen when it first dawned on me that I had to fund my own college education (I grew up in a large family and we were not rich). Stocks seemed like a way to boost my savings with little effort. So, I talked to a broker friend from church, read books from the library, put around a thousand dollars into a brokerage account, and gave stock investing a try. My first investment, by the way, was not a winner – far from it. My 1997 tax return shows that I paid $934.90 for that first stock, and in less than two months, I had sold out for just $403.85, netting a loss of almost 57%. Ouch. Clearly, stocks were not an easy road to riches. But I still believed. Stocks had potential. I just had to find a better way.
Q: What led you to move toward this full time and start Joseph & Co?
By my junior year of college, I had established a clear career goal of managing money professionally, full-time. I didn’t know what form it would take, but professional, full-time money management was the goal. I knew it would be a journey and I was OK with that. The first and most logical step in the journey was to learn the language of business – accounting. So I got a degree in accounting and finance, passed the CPA exam, and spent the next several years working as an accountant. In 2010, when Joseph & Company was born, I had already been investing for over thirteen years and had developed a certain level of confidence in my methods. I had also been tracking my results for a number of years and found I was beating the market. Everyone had just gone through a financial crisis and market panic. Maybe, I thought, I could help others invest better. I was already spending a lot of time researching investment ideas. Perhaps, I could leverage my efforts to not only help myself but help others too. If a business could be a win-win for everyone, it seemed to be the sensible thing to do. So I got it up and running.
Q: What do you do in a typical day?
Most days begin with coffee, breakfast, and the Wall Street Journal. It’s amazing how much investing and business knowledge is accumulated by steadfastly reading the business press on a daily basis. Investing, at least the way I practice it, is largely a process of learning, so a lot of what I do involves reading. I read the quarterly and annual reports of companies I own, as well as those I am following. I read trade publications, statistical tables, financial magazines, news articles. I also read business biographies. When I am interested in a company or industry, I’ll read anything I can get my hands on. I’ll do other things besides reading, such as listen to investor presentations or watch CEO interviews, but the written form seems to be the most efficient way to soak up the raw facts. I try to work full days Monday through Friday, and usually put in several hours on Saturday and Sunday. I am thinking about investment ideas constantly. In a way, my work day never stops. On the other hand, investing research doesn’t feel like work because I love what I do.
Q: What are the benefits of personal investing over those traditional methods?
Traditional methods pretty much equate to average results. And if you think about it, this makes sense. A method designed for masses of people should not take much special skill or effort. And when it comes to investing, it just isn’t possible for the masses to all achieve above-average results. Wherever the masses are, that defines the average.
I’ve taken a different path, investing in a handful of stocks, because I believe (and am in the process of proving) that I can beat the market average. When I started publishing the newsletter, I set a clear goal of beating the market over the long term. If I didn’t believe that, then I would be better off choosing a more traditional method. Fortunately, the portfolio I manage has beaten the market by a pretty wide margin so far, so I’m encouraged to stay the course.
Q: Why do you feel personal investing is important, beyond just the normal 401K/Roth IRA’s that people do?
401k’s and IRAs are tax-advantaged vehicles for holding investments. And while many IRAs allow for wide choice of investments (stocks, mutual funds, etc.), many 401k plans are limited primarily to mutual funds. I would never tell people to avoid 401k plans since a lot of employers match contributions. Even though investment options are limited, employer-matching can represent a very substantial return on investment for merely contributing to the account. After an employee leaves his or her employer, the employee is usually free to make a tax-free transfer to an IRA. As mentioned, many IRAs offer investors wider selection than is available in employer-sponsored 401k plans. I am a big fan of IRA accounts, and have utilized them for years.
More important than the choice of investment vehicle, is the choice to save and invest. It is tempting to think that saving can be put off until later, but one should never underestimate the impact of time on investment results. Time is the not-so-secret weapon that has allowed many to become rich. Even average results, accumulated over a very long holding period, can add up to many times the original investment. Of course, increasing the rate of return does not hurt either and that is where stocks and stock picking come in. Mutual funds, such as those offered by many 401k plans, generally produce approximately average results over the long term. Stocks, on the other hand, have the potential to produce returns far above the market average. Of course, stocks can also produce terrible returns. So if one chooses to invest in stocks, it is important that care is taken in the selection process.
Q: How much money does one need to get started in investing?
One can start investing with very little. If one is interested in stocks, for example, there are a lot of stocks for $50 or less, and the cost to buy or sell stocks through online discount brokerages has fallen to $7 or less. Some brokerages do not require a minimum balance to open an account. Fees are the primary consideration when deciding how much one should have when starting out. For example, in my stock portfolio, I make around 10 trades per year. At $7 a trade, said transactions would cost $70 annually. This $70 represents a drag on investing performance. Here’s what I mean. If my investment balance is $700, then $70 represents 10% of the balance. If I plan to make trades costing $70 during a year, then I’ve got to beat the market by 10% just to break even – a severe handicap. On the other hand, if I were to start with $7,000, it’s a different story. $70 of commissions represents just 1% of $7,000, which is a much more achievable break-even hurdle.
Q: What can first-time stock market investors expect?
Most people have heard that stocks are long-term investments. But a lot of people may not know why. The reason is because the stock market is totally unreliable over short periods of time. One day, the market might wake up happy and stocks might be selling at all-time highs. The next day, the market might panic and stocks might crash to all-time lows. And while the stock market can be wildly unpredictable over the short-term, the longer term trend is much more in line with the general trend of underlying business growth – which has nearly always been up! As businesses save back a portion of their earnings each year and invest these “retained earnings” into equipment, people, and products… sales and profits grow. When sales and profits grow, you can bet that stock prices grow. So, the best way to invest in stocks is for the long run.
Q: What would you say to someone that is scared they may lose their money?
One way to control against investment risk is to broadly diversify across many stocks or even many different types of investments. This will likely result in more or less average returns and the investor will probably grow neither rich nor poor by adhering to such an approach.
Another approach, which is the one I have chosen for myself, is to control risk by investing primarily in companies with the following three characteristics:
- Good business
- Good management
- Good price relative to value
This is a simple philosophy that has evolved out of many years of trial and error. And, in my experience, it works! Each of the three elements considerably lowers risk, and at the same time, increases potential returns. A good business has competitive advantage, for example, that protects against future business failure. A good manager gets the most out of his or her resources, and knows how to react when times are tough. And buying a stock at a bargain price not only decreases the downside, but also increases the upside.
Of course, it takes skill and effort to identify such opportunities (since a combination of all three is pretty rare). But this method of stock picking isn’t as hard as one might think. One must acquire some general knowledge about business and valuation, keep a disciplined mind, and exercise good judgement. Plenty of people have the tools, but surprisingly this simple three-part strategy has long been unpopular among investors, professional and non-professional alike. Warren Buffett is one who seems to take a similar approach. And I’m not comparing myself to Mr. Buffett… he’s in another league entirely. I guess what I’m saying is, you don’t have to be Warren Buffett to buy stocks of good businesses, run by good managers, at good prices relative to value.
Joseph & Company’s mission is simple, yet powerful: to help people invest better. To Joe, better means three things: lower cost, less time, and (most importantly) superior investment performance.