Learn to Earn: A Beginner's Guide to the Basics of Investing and Business - Couverture souple

Lynch, Peter

Couverture souple

ISBN 10 : 0684811634 ISBN 13 : 9780684811635

Editeur : Simon & Schuster, 1996

Synopsis

Many investors, including some with substantial portfolios, have only the sketchiest idea of how the stock market works. This book claims this that the basics of investing - the fundamentals of the economic system and what they have to do with the stock market - aren't taught in school. When individuals have to make important decisions about saving for college and retirement funds, this failure to provide a basic eduction in investing can have tragic consequences. For those who know what to look for, investment opportunites are everywhere. The average student is familiar with Nike, Reebok, McDonalds, the Gap, and the Body Shop; the majority of teenagers have drunk Pepsi or Coke, but only a very few own shares in either company or even understand how to buy them. The author demonstrates that the basic principles behind public companies haven't changed in more than 300 years.

A propos du livre

Extrait :

Chapter 1

A Short History of Capitalism

The Dawn of Capitalism

Capitalism happens when people make things and sell them for money. Or if they don't make things, they provide services for money. For much of human history, capitalism was an alien concept, because the bulk of the world's population never got their hands on money. Over thousands of years, the average person lived out his or her life without buying a single item.

People worked as serfs, slaves, or servants, for masters who owned the land and everything on it. In return, the workers were given free room in a hut and a tiny plot of ground where they could grow their own vegetables. But they didn't get a paycheck.

Nobody complained about working for zero pay, because there was no place to spend it. Once in a while, a pack of traveling salesmen would come through town and set up a market, but a market was an isolated event. The kings, queens, princes, princesses, dukes, earls, and so forth, who owned all the property -- buildings, furniture, animals, ox carts, everything from gold jewelry to pots and pans -- kept it in the family. It wouldn't have occurred to them to sell off a piece of land, even if they could make a big profit and have less grass to mow. There were no "for sale" signs in front of castles. The only ways to acquire real estate were to inherit it or to take it by force.

In many parts of the world, since the earliest days of Judaism and continuing with Christianity, business for profit was an X-rated activity and lending money and charging interest could get you kicked out of the church or the synagogue and guarantee you an eternal spot in hell. Bankers had an unsavory reputation, and people had to sneak around and visit them on the sly. The idea of benefiting from a transaction, or getting ahead in life, was regarded as selfish, immoral, and counter to God's plan for an orderly universe. Today, everybody wants to improve his or her lot, but if you had lived in the Midge Ages and you said your goal was to "get ahead" or to "better yourself," your friends would have given you blank looks. The concept of getting ahead didn't exit.

If you want more details about what life was like before there were markets and before people worked for a paycheck and had the freedom to spend it, read the first chapter of Robert Heilbroner's classic book The Worldly Philosophers. It's a lot more fun than it sounds.

By the late 1700s, the world had opened up for business with brisk trade between nations, and markets were cropping up everywhere. Enough money was in circulation and enough people could buy things that merchants were making a nice living. This new merchant class of shopkeepers, peddlers, shippers, and traders was becoming richer and more powerful than princes and dukes with all their real estate and their armies. Bankers came out of the closet, to make loans.

Our Pioneer Investors

The history books give many reasons for America's great success -- the favorable climate, the rich soil, the wide-open spaces, the Bill of Rights, the ingenious political system, the nonstop flow of hardworking immigrants, the oceans on each side that protect us from invaders. Backyard inventors, dreamers and schemers, banks, money, and investors also deserve a place on this list.

In the opening chapter of our story as a nation, we read about native Indians, French trappers, Spanish conquistadores, sailors who sailed in the wrong direction, soldiers of fortune, explorers in coonskin caps, and Pilgrims at the first Thanksgiving dinner. But behind the scenes, somebody had to pay the bills for the ships, the food, and all the expenses for these adventures. Most of this money came out of the pockets of English, Dutch, and French investors. Without them, the colonies never would have gotten colonized.

At the time Jamestown got started and the Pilgrims landed at Plymouth Rock, there were millions of acres of wilderness land along the eastern seaboard, but you couldn't just sail there, pick your spot, clear a space out of the forest, and start growing tobacco or trading with the Indians. You had to have permission from a king or a queen.

In those days, the kings and queens ran the whole show. If you wanted to go into business in the royal lands, which was most of the land on earth, you had to get a royal license, called a "charter of incorporation." These licenses were the forerunners of the modern corporation, and business people couldn't operate without a charter or a piece of somebody else's charter.

Religious groups such as the Quakers in Pennsylvania got charters. So did groups of merchants, such as the ones that founded Jamestown. And once you had the royal permit to settle the land and start a colony, then you had to look for the financing. That's where the earliest stock market comes into play.

As far back as 1602, Dutch people were buying shares in the United Dutch East India company. This was the world's first popular stock, sold on the world's first popular stock exchange, which operated from a bridge over the Amstel River in Amsterdam. Crowds of eager investors gathered there, trying to get the attention of a stockbroker, and when their pushing and shoving got out of hand, police were called in to restore the peace. The Dutch spent millions of guilders (their version of the dollar) for the privilege of owning shares in United Dutch East India, which today, with so many companies known by their abbreviations, might well be called UDEI.

In any event, the Dutch company took these millions of guilders raised in the stock sale and used the money to outfit a few ships. These ships were sent off to India and points east to bring back the latest Far Eastern merchandise, which was the rage in Europe at the time.

While optimists paid higher and higher prices for the shares of United Dutch East India, figuring the company would make them a fortune, the pessimists bet against the stock through a clever maneuver called "shorting," which was invented in the 1600s and is still being used by the pessimists of today. In the case of United Dutch East India, the optimists turned out to be right, because the stock price doubled in the first years of trading, and the shareholders got a regular bonus, known as the dividend. The company managed to stay in business for two centuries, until it ran out of steam and was dissolved in 1799.

No doubt you've heard how Henry Hudson sailed his ship, the Half Moon, up the Hudson River in what is now New York, looking for a passage to India, thus repeating the navigational mistake made by Christopher Columbus. Have you ever wondered who paid for this wild goose chase? Columbus, we all know, got his financing from King Ferdinand and Queen Isabella of Spain, while Hudson got his from the aforementioned United Dutch East India Company.

Another Dutch enterprise, the Dutch West India Company, sent the first Europeans to settle on Manhattan Island. So when Peter Minuit made the most famous real estate deal in history, buying Manhattan for a small pile of trinkets worth sixty guilders (twenty-four dollars in our money), he was acting on behalf of the Dutch West India shareholders. Too bad for them the company didn't stay in business long enough to get the benefit from owning all that expensive downtown New York office space.

Seeing how the Dutch financed their New World adventures, the English followed their example. The Virginia Company of London had exclusive rights to a huge area that extended from the Carolinas through present-day Virginia and up into part of today's New York State. That company footed the bill for the first expedition to Jamestown, where Pocahontas saved Captain John Smith from having his head bashed in by her angry relatives.

The settlers at Jamestown worked there but didn't own the place, a sticking point from the beginning. They were hired to clear the land, plant the crops, and build the houses, but all the property, the improvements, and the businesses belonged to the shareholders back in London. If Jamestown made a profit, the actual residents would never see a penny of it.

After seven years of nasty disputes and complaints from the settlers at Jamestown, the rules were changed so they could own their own private property. It turned out not to matter at the time, because the original colony went bankrupt. But there was a great lesson to be learned from Jamestown: A person who owns property and has a stake in the enterprise is likely to work harder and feel happier and do a better job than a person who doesn't.

The exclusive right to do business along the rest of the coastline from Maryland into Maine was awarded to yet another English company: the Virginia Company of Plymouth. The way the map was drawn in those days, most of New England was part of northern Virginia. When the Pilgrims landed at Plymouth Rock and stumbled onto shore, they were trespassing on property belonging to the Plymouth Company.

Every schoolchild learns how the Pilgrims risked their lives to find religious freedom, how they crossed the cruel ocean in a tiny ship, the Mayflower, how they suffered through cold New England winters, how they made friends with the Indians and got their squash and pumpkin recipes, but nothing about the remarkable story of how they got their money.

Let's back up for a minute to review this story. The Pilgrims had left England and taken up residence in the Netherlands, where the first stock market got its start -- not that the Pilgrims cared about stocks. After several years in the Netherlands, the Pilgrims got fed up and decided to move. They had three possible destinations in mind: the Orinoco River in South America; a section of New York controlled by the Dutch; or a parcel of land offered them by the Virginia Company of London.

The one thing holding them back was a lack of cash. They needed supplies and a ship, and could afford neither. Without financial help, they would have been stuck in Europe forever, and we might never have heard of them. This is when Thomas Weston entered the picture.

Weston was a wealthy London hardware dealer, or ironmonger, as they were called in those days. He had access to property in New England and he had access to plenty of cash, and he and his pals thought the Pilgrims would make an excellent investment: So they made an offer they hoped the Pilgrims wouldn't refuse.

Weston's group, who nicknamed themselves "The Adventurers" even though they weren't the ones going on the adventure, agreed to put up the money to send the Pilgrims to America. In return, the Pilgrims had to agree to work four days a week for seven straight years to make the colony profitable. At the end of seven years, the partnership would dissolve and both sides would split the profits, after which the Pilgrims would be free to go their own way.

The Pilgrims accepted these terms, because they lacked an alternative, and began packing their bags. Then at the last minute, Weston turned the tables on them and changed the contract. Now, instead of having to work four days a week for the good of the business, they were required to work six. This would give them no free time to plant a home garden, or mend their clothes, or practice their religion, other than on Sundays.

After arguing with Weston and getting nowhere, the Pilgrims decided to set sail without a signed agreement and without any travel money, because although Weston had paid for everything so far, he refused to advance them another cent. They had to sell some of the butter they'd made for the trip so they could pay the port charges and leave the harbor in the Speedwell, the ship they had outfitted in Holland.

The Speedwell leaked, so they were forced to return to port, suspecting all along that the captain and sailors were in cahoots with Weston and had deliberately sprung the leak. Most of them crowded into a second ship that was smaller and slower than the Speedwell -- the Mayflower.

They were crammed into the Mayflower, on their way to their promised land in Virginia, when they drifted off course and overshot their destination. Realizing their mistake, they tried to turn south, but the rocks and shoals of Cape Cod blocked their passage. Rather than risk a shipwreck in these unfamiliar, rough waters, they dropped anchor in Provincetown harbor.

From there, they moved to Plymouth, where they built their shelters and planted their crops. With Weston having cut off the money flow, the Pilgrims needed a new source of cash. They worked out a new deal between another group of investors (headed by John Peirce) and the Plymouth Company, which owned the land.

The Pilgrims would get one hundred acres apiece to use as they pleased. Peirce would get one hundred acres per Pilgrim. On top of that, he and the other investors would get fifteen hundred acres apiece for paying the rest of the Pilgrims' moving expenses and for bankrolling the settlement.

Among their many other worries, how to survive the winter, how to get along with the natives, and so forth, the Pilgrims had to worry about how to pay back the two groups of investors, Peirce's and Weston's, who had put up considerable sums to carry them this far. As much as we like to think of the Pilgrims as focusing only on God, they had the same problems as the rest of us: bills.

After one year of the Plymouth colony's being in business, the Mayflower sailed back to England on a visit with an empty cargo hold: no furs, no gems, no crops, nothing the investors could sell. Plymouth was losing money and continued to lose money season after season, or as they say on Wall Street, quarter after quarter. This made the investors very upset, as investors always are when they get zero return on their money. Worse than that, they had to send more supplies back to the colony, so the costs were going up.

By 1622, Weston was fed up with Pymouth and supporting the high-cost Pilgrims with nothing to show for it, so he gave away his share of the business to his fellow "Adventurers." Meanwhile, John Peirce was sneaking around the other investors' backs, trying to get control of Plymouth for himself so he could become the "Lord Proprietor of Plymouth Plantation." He didn't get away with it.

For five years, Pilgrims and investors carried on their money dispute: the Pilgrims complaining about a lack of support and the investors complaining about a lack of profits. Then in 1627, the partnership was dissolved, with the exasperated investors selling the entire operation to the Pilgrims for the modest sum of eighteen hundred British pounds.

Since the Pilgrims didn't have eighteen hundred pounds, they had to buy the colony on the installment plan: two hundred pounds per year. This was the first "leveraged buyout" in American history, a forerunner of the famous RJR Nabisco deal of the 1980s that became the book and the movie Barbarians at the Gate. (In a leveraged buyout, a company is purchased with borrowed money by people who can't really afford it.) The Pilgrims' leveraged buyout was the first time in our history that workers took over the company business.

Now comes the most interesting part of the story. As soon as they had established themselves, the Pilgrims decided to live in a communistic way: They pooled their resources and no individual was allowed to own any private property. Governor William Bradford, the Pilgrim leader at the time, saw right away that the communist arrangement would fail. He realized that without private property, the people would have no incentive to work very hard. Why should they bother, when all the inhabitants of the colony g...

Présentation de l'éditeur :

Mutual-fund superstar Peter Lynch and author John Rothchild explain the basic principles of the stock market and business in an investing guide that will enlighten and entertain anyone who is high-school age or older.

Many investors, including some with substantial portfolios, have only the sketchiest idea of how the stock market works. The reason, say Lynch and Rothchild, is that the basics of investing—the fundamentals of our economic system and what they have to do with the stock market—aren’t taught in school. At a time when individuals have to make important decisions about saving for college and 401(k) retirement funds, this failure to provide a basic education in investing can have tragic consequences.

For those who know what to look for, investment opportunities are everywhere. The average high-school student is familiar with Nike, Reebok, McDonald’s, the Gap, and the Body Shop. Nearly every teenager in America drinks Coke or Pepsi, but only a very few own shares in either company or even understand how to buy them. Every student studies American history, but few realize that our country was settled by European colonists financed by public companies in England and Holland—and the basic principles behind public companies haven’t changed in more than three hundred years.

In Learn to Earn, Lynch and Rothchild explain in a style accessible to anyone who is high-school age or older how to read a stock table in the daily newspaper, how to understand a company annual report, and why everyone should pay attention to the stock market. They explain not only how to invest, but also how to think like an investor.

À propos de cette édition

• Éditeur: Simon & Schuster
• Date d'édition: 1996
• ISBN 10: 0684811634
• ISBN 13: 9780684811635
• Reliure: Broché
• Nombre de pages: 272