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I think the public can do extremely well in the stock market on their own. I think the fact that institutions dominate the market today is a positive for small investors cuz institutions push stocks unusually lows, they push them unusually highs. For someone that can sit back and have their own opinion and know something about an industry, this is a positive.
It's not a negative. So, that's what I want to talk about and the single the single most important thing to me in the stock market for anyone is to know what you own. I'm amazed how many people own stocks. They they would not be able to tell you why they own it. They couldn't say in a minute or less why they own it.
Actually, if you really press them down, they'd say the reason I own this is the sucker is going up. I mean, that's the only reason That's the only reason they own it. And if you can't explain I'm serious, you can't explain to a 10-year-old in 2 minutes or less why you own a stock, you shouldn't own it.
And that's true I think about 80% of people that own stocks. And this is the kind of stock people like to own. This is the kind of company people adore owning. This is a relatively simple company to make a a very uh narrow, easy-to-understand product. They make a 1-megabit SRAM CMOS bipolar risk floating-point data IO array processor with an optimizing compiler, a 16-dual port memory, a double-diffused metal-oxide-semiconductor monolithic logic chip with a plasma matrix vacuum fluorescent display.
It has a 16-bit dual memory. It has a Unix operating system, four Whetstone megaflop poly silicon emitter, a high bandwidth that's very important, 6-GHz double metallization communication protocol, an asynchronous backward compatibility peripheral bus architecture, four-way interleaved memory, a token ring interchange backplane.
And it does it in 15 nanoseconds of capability. Now, if you own a piece of crap like that, you will never make money. Never. Somebody will come along with more Whetstones or less Whetstones or bigger megaflops, or smaller megaflops. You won't have the foggiest idea what's happening. And people buy this junk all the time.
I made money in Dunkin' Donuts. I can understand it. I uh When there was recessions, I didn't have to worry about what was happening. I could go there and people were still there. I didn't have to worry about low-price Korean imports. I mean, I just didn't have You know, I can understand it. And you laugh.
I made 10 or 15 times my money in Dunkin' Donuts. Those are the kind of stocks I can understand. If you don't understand it, it doesn't work. This is the single biggest principle. And it bothers me that people are very careful with their money. The public, when they buy a refrigerator, they get a Consumer Reports.
They buy a microwave oven, they do that. They ask people what's the best kind of radar range, or they or what kind of car to buy. They do research. On apartments. When they go to When they go on a trip to Wyoming, they get the Mobil Travel Guide. Or California, when they go to Europe, they get the Michelin Travel Guide.
People will hear a tip on a bus, on some stock, and they'll put half their life savings in it before sunset. And they wonder why they lose money in the stock market. And when they lose money, they blame it on the institutions and program trading. That is garbage. They didn't do any research. They bought a piece of junk.
They didn't look at the balance sheet. And that's what you get for it. And that's what we were being driven to. And it's self-fulfilling. The public does terrible investing, and they they say they don't have a chance. It's because that's the way they're That's the way they're acting. I'm trying to convince people there is a method.
There are reasons for stocks to go up. Uh Coca-Cola, this is very magic. It's a very magic number. Easy to remember. Coca-Cola is earning 30 times per share what they did 32 years ago. The stock has gone up 30-fold. Bethlehem Steel is earning less than they did 30 years ago. The stock is half its price of 30 years ago.
Stocks are not lottery tickets. There's a company behind every stock. If the company does well, the stock does well. It's not that complicated. People get too carried away. And first of all, they try and predict the stock market. That is a total waste of time. No one can predict the stock market. They try to predict interest rates.
I mean, this is a If anybody could predict interest rates right three times in a row, they'd be a billionaire. And since there's not that many billionaires on the planet, it's very you know, I took I had logic so I had a syllogism and then studied these when I was at Boston College. There can't be that many people who can predict interest rates because there'd be lots of billionaires.
And no one can predict the economy. I know a lot of people in this room were around in 1981 and 1982 when we had a 20% prime rate, with double-digit inflation, double-digit digit unemployment. I don't remember anybody telling me in 1981 about it. I didn't read I studied all this stuff. I don't remember anybody telling me we're going to have the worst recession since the depression.
So, what I'm trying to tell you it'd be very useful to know what the stock market's going to do. It'd be terrific to know that the Dow Jones average a year from now would be X, that we're going to have a full-scale recession, or interest rates are going to be 12%. That's useful stuff. You never know it, though.
You just don't get to learn it. So, I've always said if you spend 14 minutes a year on economics, you've wasted 12 minutes. And I I I really believe that. Now, I have to be I have to be fair. I'm talking about economics in the broad scale, predicting the downturn for next year or the upturn or M1 and M2 3B and all these all these M's.
The uh I'm talking about economics to me is when you talk about scrap prices. When I own auto stocks, I want to know what's happening to used car prices. When used car prices going up, it's a very good indicator. When I own hotel stocks, I want to know hotel occupancies are up. When I own chemical stocks, I want to know what's happening to the price of ethylene.
These are facts. Aluminum inventories go down five straight months, that's relevant. I can deal with that. Home affordability, I want to know about when I own uh Fannie Mae or I own a housing stock. These are the facts. You can There are economic facts and there's economic predictions. And economic predictions are a total waste.
And uh interest rates, Alan Greenspan is a very honest guy. He would tell you that he can't predict interest rates. He could tell you what short rates are going to do in the next 6 months. Try and stick him on what the long-term rate will be 3 years from now. He'll say, "I don't have any idea." So, how are you the investors supposed to predict interest rates if the head of the Federal Reserve can't do it?
So, I think that's uh but you should study history. And history's the important thing you learn from. What you learn from history is the market goes down. It goes down a lot. The math is simple. There's been 93 years this century. This is easy to do. The market's had 50 declines of 10% or more. So, 50 declines in 93 years, about once every 2 years the market falls 10%.
We call that a correction. That means That's a euphemism for losing a lot of money rapidly. But we We call it a correction. And uh uh so, 50 declines in 93 years, about once every 2 years the market falls 10%. Of those 50 declines, 15 have been 25% or more. That's known as a bear market. We've had 15 declines in 93 years.
So, every 6 years the market's going to have a 25% decline. That's all you need to know. You need to know the market's going to go down sometime. If you're not ready for that, you shouldn't own stocks. And it's good when it happens. If you like a stock at 14, it goes to 6, that's great. You understand the company, you look at the balance sheet, and they're doing fine.
You're hoping to get to 22 with it. 14 to 22 is terrific. 6 to 22 is exceptional. So, you take advantage of these declines. They're going to happen. No one knows when they're going to happen. It'll be very People tell you about it after the fact that they predicted it, but they predicted it 53 times.
And uh So, you can take advantage of the volatility in the market if you understand what you're own. Uh so I think that's the key to element another key element is that you have plenty of time. People are in unbelievable rush to buy a stock. I'll give an example of a well-known company. Walmart went public in October of 1970.
1970 it went public. It already had a great record. It had 15 years performance, great balance sheet. You could have waited 10 years saying you're a very conservative investor, you're not sure this Walmart can make it. You want to check your your you see him operate in small towns, you're afraid they're going to make it in seven or eight states, you want to wait till they go to more states.
You keep waiting. You could have bought Walmart 10 years after it went public and made 35 times your money. If you bought it when they went public, you would have made 500 times your money, but you could have waited 10 years after Walmart went public and made uh 30 over 30 times your money. You could wait 3 years after Microsoft went public and made 10 times your money.
If you knew something about software, I know nothing about software. If you knew something about software, you would have said, "These guys have it. I don't care who's going to win, Compaq, IBM, I don't know who's going to win, Japanese computers. I know Microsoft MS-DOS is the right thing." You could have bought Microsoft.
Again, I'm repeating myself, stocks are not a lottery ticket. There's a company behind every stock. And you you can just watch it. You have plenty of time. People are in an amazing rush to purchase a security. They're out of breath when they call up. You don't need to do this. It's uh the uh You need an edge to make money, too.
People have incredible edges and they throw them away. I'll give you a quick example of uh SmithKline. This is a stock that that had Tagamet. Now, you didn't have to buy SmithKline when Tagamet was doing clinical trials. You didn't have to buy SmithKline when Tagamet was talked about in the New England Journal of Medicine or the British version, Lancet.
You could have bought SmithKline when Tagamet first came out, a year after came out, let's say your spouse, your mother, your father, you were a nurse, you were a druggist, you were writing all these prescriptions, Tagamet was doing an amazing job of curing ulcers, and it was a wonderful pill for the company because if you just stopped taking it, the ulcer came back.
See, it wasn't it would have been a crummy product if it you took it for a buck and then it went away. But, it was a great product for the company. But, you could have bought it 2 years after the product was on the market and made five or six times your money. I mean, all the druggists, all the nurses, all the people, millions of people saw this product.
And they're all buying oil companies, you know, or drilling rigs, you know. It happens. And then 3 years later or 4 years later, Glaxo, even a bigger company, it's a huge company, British company, brought out Zantac, which was a better, at that time, an improved product. And you could have seen that take market share, do well.
You could have bought Glaxo and tripled your money. So, you only need a few stocks in your lifetime. They're in your industry.
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