Bruce Springsteen and 5 Important Investing Lessons

Bruce Springsteen called out my name, and the spotlight swung towards me. 

 

My family and 18,000 strangers started cheering as they saw me on the Jumbotron in the arena. Blinded by the light, I dropped to one knee and tried not to drop the ring from my pocket…

 

Five years ago, I proposed to my girlfriend at a Bruce Springsteen concert, with a little help from ‘The Boss’ himself. It was one of the greatest thrills of my life! 

 

Thankfully someone caught the event on camera (you can see it on YouTube), and the Miami Herald later wrote about it.

 

At that point, American Dream Investing was still in its infancy. My father, Richard, and I founded the company just a month earlier. My first article, about fees, was written a few months later.

 

A lot has changed over the last five years. Rachel and I are married and have two kids. I became a Forbes contributor and fulfilled my dream of being a published writer. 

 

Sadly, my dad passed away last year, and I’ve made it my mission to continue his legacy by teaching his investment philosophy.

 

To commemorate the fifth anniversary of my (very public) engagement, I wanted to share with you five quick investing lessons based on the songs of Bruce Springsteen:

 

• Atlantic City – Many people believe the stock market is like a casino, but investing is not gambling if you approach it the right way. 

An investor owns shares in a real business, usually with a long-term goal of getting a return on that investment.

I consider day traders and get-rich-quick speculators to be the real gamblers in the market. 

There’s nothing wrong with that, as long as they understand which camp they fall into. 

Personally, I prefer to limit my downside by carefully choosing investments, studying them in-depth, and steadily growing my portfolio over time.

 

• Brilliant Disguise – Unfortunately, accounting fraud and irregularities happen from time to time. 

Companies can ‘massage’ their earnings, which is why we like to focus on free cash flow, which is very difficult to manipulate.

We have no tolerance for fraud and need to know that we can trust a business’s management. 

If we suspect that one of the stocks in our portfolio needs to restate its earnings due to accounting irregularities, we will always cut ties with that stock, even if it means taking a loss.  

To dive deeper into this topic and learn how you can use financial disclosures to spot irregularities, I highly recommend the book Financial Shenanigans by Howard Schilit.

 

• Glory Days – It’s important to estimate whether a business has become complacent and its best days are behind it or if it’s still capable of growing its earnings. 

The market expects constant innovation and growth; companies that don’t fulfill these expectations see their glory days pass them by.

Understanding a company’s financial picture and analyzing its fundamentals is the backbone of our investing approach. My team and I do a lot of this hard work and share our analysis with our Members. 

We invest in companies that generate a lot of cash and are not just resting on laurels.

 

• If I Should Fall Behind – The economy is cyclical, and some businesses and sectors fall out of favor with the broader market. The market may be punishing a stock unfairly because its specific industry is currently unpopular. 

The trick is spotting an out-of-favor stock that has a good likelihood of turning things around.

We like to find high-quality dividend stocks with strong balance sheets that are unloved by the market. 

If we have a strong conviction that the company will rebound, we “load up the truck,” buying more shares and collecting income while waiting until the market comes around. 

It might take a few years for that to happen, but we’re generating consistent cash in our portfolio in the meantime.

 

• Reason to Believe – Your investments don’t always go up; market corrections and severe downturns happen every few years. 

This volatility can make it difficult to remain steadfast with your investment goals. 

Managing your emotions is the most challenging aspect of investing. 

If you believe in yourself and the reasons why you’re investing, you can avoid selling into a panic and locking in losses. 

 

Now it’s your turn: What’s your favorite Bruce Springsteen song? What are some of the best investing lessons you’ve learned from your experience as an investor?

 

Hit reply and let me know. I’ll be including the best answers in a future email.

 

Also, keep an eye out for a future email from me, as I’ll soon be announcing details about a special new project I’ve been working on. 

 

Here’s to many happy returns!

 

Karl