A little while ago, I was talking to someone about investing. We’ll call him Bob. Bob told me he had
been given a small (relatively speaking) sum of money. If I remember correctly, it was about
$20,000.
Bob is getting married soon (Summer of 2010) and this money was given to him (and to his
bride) by the bride’s family in order to pay for the wedding.
Since Bob majored in finance and his bride didn’t seem to have any interest in investing, it was
natural for him to want to have a hands-on-approach with respect to how the money would
be handled.
Well, one day Bob and I were out golfing and he asked me what I thought he should do with the
money. He made it clear that he wanted to invest it in something. He had about a year until he was
going to have to withdraw it in order to pay for the wedding.
I was surprised when Bob told me that he was hoping, perhaps expecting, to increase it to
$30,000 over that period of time – a 50% return.
At the time, I told him I didn’t know of an investment that would produce that kind of a
return – defining “investment” as: “An operation which, upon thorough analysis, promises safety
of principal and an adequate return. Operations not meeting these requirements are speculative.”
I think he was a bit surprised by my response. Maybe he thought I would tell him to invest in
so-and-so instruments, perhaps a low-cost mutual fund? Or maybe he thought I’d tell him of
a specific security that I had been studying? I’m not sure what he was thinking.
But he followed up his surprised look by telling me about a pharmaceutical company (I think)
that his friend’s Dad is an employee of. He was seriously considering investing in it. I hadn’t
heard of the company, which is what I told him.
When it seemed like I wasn’t offering him any “investment advice,” our conversation
transitioned back to golf.
But if I were to have that conversation back, I’d have told him something different. I would have
suggested to him that he might be better off having a wedding for $10,000 and saving the
other $10,000, than trying to earn a 50% return in one year, by speculating.
As the adage goes: “A penny saved, is a penny earned.”