In 1980 one of my neighbors was a senior vice-president at Dominion Securities. He told me a story about how some people understand neither the stock market nor what stock brokers do.
On a Monday morning a young woman appears in his downtown Toronto office and says she has $200 and she would like him to invest it so she can come back on Thursday and have $400.
Being a curious and pleasant man, he asks her how she came to decide on this goal.
“I want to buy a sports jacket for my husband’s birthday on Friday. It costs $400 and I only have $200.”
It appears that she may have not fully understood transaction costs, reasonable investment yields, and long-term planning.
If you were he, what would you have done?
My friend’s reply:
“I will make you the fairest offer you will get on Bay Street today. I’ll flip you for the $200.”
I wonder if much has changed since. With all the talk about financial literacy, it would be interesting to know what people expect the entry behaviour of the prospective students to be.
Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.
email@example.com | Twitter @DonShaughnessy | Follow by email at moneyFYI
With that kind of threshold, it would be “heads I win, tails you loose.”
Like the stupidity rating in life insurance…..