When it comes to helping people take control over their finances, McDaniel College alumnus Buck Hartzell believes solid information and education are just as important as amusement. Hartzell is director of investor operations and development at The Motley Fool, http://www.fool.com a multimedia financial services company dedicated to building the world's greatest investment community.
Hartzell, who graduated with a degree in sociology, will be joining McDaniel President Roger Casey for a SmartTALK conversation Wednesday. Hartzell's talk will cover some key points for both individuals interested in investing and business owners who are thinking of seeking outside investors.
According to Hartzell, anyone who follows a few key steps can be successful investing: embrace technology or you will get run over by it, every problem is a software problem, culture eats strategy for breakfast, and maximizing value to all stockholders. The Times spoke with Hartzell a few days before his SmartTALK at McDaniel.
Q: Why should people even get involved in investing?
A: Let's first start with the goal of investing. We invest to make money, but more than that, to increase our purchasing power over time. So if we choose to invest we forego buying stuff. If we postpone that consumption we hope that we'll be able to purchase even more of that item in the future. Over the long term, the stock market is the best way to increase your purchasing power.
Q: Lots of people want to get involved in the stock market, but don't because they don't really understand it. Can you explain briefly how the stock market works?
A: The stock market is a marketplace that brings together both buyers and sellers. We tend to think of the stock market as a complex adaptive system.
Q: The average person doesn't have a master's in business administration or a degree in financing, so who can invest in the stock market?
A: Most people don't tend to learn about investing in school. Instead it's something handed down from a friend or family member. We believe the best person to manage your money is you. If you don't hold high interest debt — think credit card — and have a saved up a rainy day fund, you are a good candidate to invest in stocks.
Q: What are some first steps for people who want to get involved in investing? Should they already be maxing out their 401K and how much money should they have in savings?
A: The best way to start is to be a saver. If you spend less than you make you're off to a great start. We also recommend you have a rainy day fund that equals about six to nine months of living expenses. Now you're ready to invest. A great place to start is a low cost index fund. You can get broad exposure to the market's return for very low costs. The next step is to consider investing in individual companies and that's what we specialize in.
Q: Before someone starts investing, do they need to get a stock broker, or can they manage their own portfolio?
A: We believe everyone is capable of managing their own portfolios. Before handing over the keys to anyone else, make sure you understand how exactly they get paid. Be specific and ask if they get paid based on any of the things they are recommending to you. Also ask if they own what they are recommending. The National Association of Personal Financial Advisors has a list of fee-only financial advisers that might be able to help with planning issues though many aren't comfortable advising on individual stocks.
Q: When considering investing in a company, what should potential investors be looking for?
A: First, it's important to internalize that you are buying a piece of a company and not just a piece of paper. A great place to start is to look where you spend your discretionary dollars each month. Any repeat purchases are a great candidate to research further. We like good businesses, run by capable and honest managers. We prefer owner/operators who have much of their wealth tied up in the business. We also like to see an engaged board of directors who also has a significant amount of their worth invested in the stock.
Q: When Facebook entered the stock exchange a few years back, we continuously heard the phrase IPO, what's that?
A: An initial public offer, or IPO, is a way for a company to raise money by selling a part of its business to the public. Access to capital is one of the reasons our economy has been so robust and innovative over time.
Q: It seems there is a bit of a disparity between men and women and investing: men are more likely to invest than women. Can you explain that disparity?
A: Ironically, women are better investors than men, on average. We wrote a whole book about that called, "Warren Buffett Invests Like a Girl." Men typically like to "trade" or buy and sell frequently. Women are more loyal to their stocks and tend to buy and hold onto their positions. So I think it's safe to say that men or more emotional when it comes to investing, and this hurts their returns significantly. Their trading activity is a usually a result of following the news too closely and getting caught up in the noise instead of focusing on the business.
Q: Is it easier or better to invest in local or United States-based companies, or does it matter if you branch out into international brands?
A: Well that's an interesting question. We believe people get too caught up in this aspect of investing. Does it really matter where the company is domiciled? It's probably a better idea to look at where their revenues are coming from. Coke sells about 55 percent of their product outside of the United States so one might argue that it's more of an international company than it is a U.S. company.
Q: How important is it for investors to be a part of a community of investors, similar to the discussion boards on your site?
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A: We very much believe in the power of collective knowledge. When you bring a diverse set of thoughts and expertise to a problem you can make better decisions. Most investors will benefit greatly from the interaction between other smart investors. The power of community and collective knowledge are more insightful than a single opinion from a highly trained expert. You can check out an example of the power of the collective by visiting caps.fool.com.
Reach staff writer Krishana Davis at 410-857-7862 or email@example.com.
If you go
What: SmartTALK with Buck Hartzell of The Motely Fool and McDaniel College President Roger Casey
When: 7 p.m. Wednesday, Oct. 8
Where: McDaniel College, Decker Center Forum
Cost: Free and open to the public