Making money has very little to do at all with photography. In fact, it's proven for most people to be a very efficient way of loosing money, over time. As a former ASMP chapter co-president, a reader of professional forums, and an adviser for a large community college commercial arts program, I can say that the number one cause of failure I've seen for nearly every imaging business, over time, is not the inability of the photographer who owns it to make salable photographs, and it's not the photographer's inability to charge for their work, rather it is what the photographer does with the money they make which becomes the critical factor in their financial failure or success.
Sadly, a spot where even the most savvy photography business owner usually comes up short is in saving for a rainy day; and even more important, saving for retirement. Or saving for the point at which he or she becomes fed up or discouraged and wants to leave the "field of battle" for nicer surroundings.
I have a number of friends and plenty of acquaintances who maintained "successful" careers for twenty or so years only to come to the realization, near the end, that there would be no real continuing income from stock photography sales, that it's incredibly difficult to get profitable gallery representation, and that they've mostly invested every cent back into their businesses instead of into sound, financial investments. Their lifestyles take a dive and their outlook becomes a bit grim. It's especially hard to value and sell a single proprietor business based on one person's craft knowledge.
Some, who worked and lived in Markets like Boston, Austin, Seattle and various spots around the country to which new industry flocked, have built up enormous equity in the homes they live in. Not by rigorous planning but sheer, dumb luck. But many more have had the opposite experience of watching a lifetime worth of mortgage payments result in property ownership, the value of which is just treading water. At least the photographers in the growing markets can sell their homes and harvest the equity but they'll also have to consider moving somewhere cheaper...
Every once in a while I'll meet a photographer who was quite disciplined and took the advice of the person who wrote, "The Automatic Millionaire" ( David Bach) and invested month by month and year by year into an investment account and ended up taking advantage of compound interest. These few generally end up with more than enough money to allow them to travel and pursue what had been drudgery but is now a fun hobby - photography.
I know several Austin photographers who decided early on in their careers that they wanted to own the studios they worked in, own the houses they lived in and also own rental properties in town. They made a bet on the housing and real estate markets here and ended up doing well through good economic times and bad. Most will retire well just on the sale or long term lease of their studio properties. The additional rental properties are icing on the cake.
By way of disclaimer, I know just enough about investing to be a danger to myself and others. I seem to have the reverse "Midas Touch" when it comes to picking individual stocks. But I am smart enough to listen to good advice and not dabble in things I don't understand. Anything I discuss here is just residual fallout from having read Benjamin Graham's book.
First off let me say who it was that recommended the book to me in the first place. It was none other than Ultra-billionaire, Warren Buffett. If Buffett had a mentor in his early years it was certainly Mr. Graham. Buffett suggests this book in order to provide the reader with a foundational understanding of the history and mechanisms of not just the stock markets but also bonds of all kinds and other, more obscure instruments of investment.
Graham does a great job of laying out a history of financial market booms and busts, and growth and decay. The first take away of the book for me is that I would have lost everything I ever earned if I had convinced myself that I could make a fortune as a day trader.... Or that "everything is different this time."
After having read the book I'll probably recommend it to my friends who: Read fast with good comprehension. Have the stamina to get through 623 pages of financial/economic history and the discussion of investment theory. Understand basic math. Want to be financially secure. Obdurately still believe in the Easter Bunny, and the "hot stock tip."
As a photographer I've made every financial mistake I can think of. I've done jobs without getting a written agreement and been burned almost every time, in one way or another. I've taken big, unexpected profits and rather than putting all, or even some, of the money into an investment or retirement account I've blown it on "re-investing in the business" which is mostly photographer code for: I bought a really cool camera system that I've convinced myself will make me money somehow, somewhere down the road. I've routinely fallen into the Dunning-Krueger trap of believing I know "better" than the rest of the investing market. I've bought stocks and then sold them quickly, sometimes after loosing a bit of money but usually for just a bit more than the friction of trade minus the regular tax that triggers when holding a stock for less than a year. Only to watch the stock revive and rocket up just after I've sold it. I've sold too soon and bought too late.
I can only imagine how different the financial outcome for my business, and the businesses of so many other photographers, would have been if we'd read more books like this one in our twenties and put into practice even just some of the things we could have learned.
If you are interested to read one point of view about markets and investments while cooling your heals during the pandemic I think this one is interesting. Graham certainly goes in depth.
My takeaway? A smart friend's advice many years ago led me to invest in a well known balanced index fund. It's done well enough that I'm entering this phase of life without abject panic and without throwing the mother of all photographic garage sales.
I do regret all the ways I've wasted money over the years. But on the other hand I'm happy to have been married (and continue to be married) to a fun but frugal partner who did read books like these even back in our early 20's and who has provided a set of guard rails for my occasional, unfounded episodes of irrational extravagance. (I'll never live down buying a 5 series BMW near the end of the 1990's. I can still hear the quiet advice to consider a Honda Accord ringing in my ear...).
I won't give you much advice here. Most of our readers are people who are smart; smart enough to keep their hobbies and their jobs separated. Smart enough to get employer matches to their 401K's, and smart enough not to rush out and buy Hasselblad systems the minute you get your first big job from a major company.
But here's the advice I would give to Ben, or anyone silly enough to want to be a freelance photographer:
1. Don't buy a single piece of new gear until you have a year's worth of living expenses tucked into the bank and waiting for some sort of disaster. The disaster will come. And probably not just once...
2. Invest in financial instruments that have been demonstrated to have a decent return, are low enough in risk and which have very low costs or fees.
3. Make investing automatic. Do it every month. At least every quarter. Believe in "dollar cost averaging" and understand that few, if any, people can successfully time the markets with any reliability. Most who try end up losing money. Lots of money.
4. Unless you have lots and lots of time on your hands to research and pore over statistics and annual reports consider making most of your investments in a well regarded index fund administered by a very large and stable investment company.
5. Consider nice restaurant meals and trendy vacations to be luxury extravagances and not routine purchases. I have an acquaintance who feels that his family "deserves" regular, pricy vacations and he hustles them onto planes and drops upwards of $8K -10K more than once a year. He also buys new cars as if they have the same kinds of sell by dates as eggs and milk. The rest of the time he bemoans how broke he is and how far in debt he's become --- ostensibly through no fault of his own. Learn to cook. Learn to shop. Learn to vacation on the cheap.
6. And, finally: Never take financial advice from other photographers. Think about it. They are photographers, for God's sake!
But the book is nothing if not an interesting and deep look at investor psychology. The understanding of which is almost always handy.
21 comments:
7. Put as much money as possible into Bitcoin baby! All the way up to $500K per coin.
Yes, dollar cost average every month, for sure. Sock away as much as you can. Buy ETFs across diversified sectors instead of mutual funds as they outperform mutual funds 85% of the time. Vanguard is a great company. Delegate a little mad money for individual stocks from time-to-time.
Don't carry ANY credit card debt. Pay off your balance, in full, every month.
IF you decide on college, then for goodness' sake study something useful and carry as little student debt as possible. The universities assume ZERO risk while charging you up the wazoo for their mostly inferior product. Apply for as many grants/scholarships/"free" money as possible and WORK part-time. Work is the most important class you'll ever take.
If you work for an employer that offers a partial match for 401(k) contributions, go for the max. It's free money.
A reminder, none of the comments or my original post should be relied on as financial advice. If you have questions about investing be sure to find a reputable, licensed advisor to assist you. Everyone's tax situation seems to be different. Check with your CPA before making big buy/sell decisions in financial instruments, funds, etc. to make sure you understand the tax consequences.
I can't speak about Bitcoin. I don't understand that market or product.
I agree with Anonymous that you should try never to carry a balance on a credit card!!!
I disagree with his/her assessment of college and university educations. It's good to study a very wide range of subjects in undergrad years regardless of the imputed, future (unpredictable) financial returns. The role of a good education is to create good citizens. It was never meant to be vocational training. Go to University to learn how to think. Go to trade school to learn to memorize stuff you'll use on a specific job.
Always max out your employer's 401K match. As Chuck says, it's free money.
Is Bitcoin like the Dutch Tulips?
Let me add what I have learned from 55 years of investing. (I began at age 29.) Augmented by reading almost every book on the subject and taking courses at the graduate level.
1. Everything Benjamin Graham says is correct. There are two footnotes: a) The emotions of greed and fear impede following his advice are very hard to overcome. b) Few people can spare the time to do the required research.
2. For most people, dollar averaging (investing the same amount every month) and putting the funds into a Vanguard ETF or a 401(k) is the most practical approach.
3. When the comes that everyone around you is interested in the market and it is a subject of discussion at dinners and cocktail parties, become very fearful. That has preceded every market crash but one in my investment lifetime.
Hi Kirk -
The other end of investing is developing a tax wise distribution plan.
Pre-tax savings - What is the best way to get it over the tax wall?
What would you like your legacy to be (kids,causes,etc),then design your plan around them.
CB
This will be interesting. There's not enough time left for me to realize any substantial gain through investing. But Jason Zweig's introduction suggests the psychology underlying investing and trading behavior remains valid. That's the point of interest to me in a time when the bulk of stock trading is carried out by computers reacting in microseconds to criteria framed by algorithms we can never understand. Is there still such a thing as intrinsic value? Peter Lynch was enough of a true believer in the 1970s and '80s to drive Fidelity's Magellan Fund to more than double the return of the S&P 500 for a dozen years, growing it from $14 million to $18 billion in value. That was done hewing to Graham's principles while much of Wall Street was vying for an invitation to Michael Milken's Predators' Ball and babbling verities such as "Greed is good". That mindset pretty much set the stage for 2006 through 2009. Something tells me that although the economy recovered, our society (perhaps} did not. On the other hand, it could be that I've just grown so old that I no longer form up enough capacitance to activate a touch screen. Get those kids off my lawn.
Graham's book was written in a time when successful companies established stable business models with well-defined product lines (mostly involving manufacturing of something or other) and could stick with those things for decades. I'm not sure how relevant that sort of "value investing" is today. Things change too quickly, and the real money (if you're looking for high returns) comes from investing in startups BEFORE they go public, or at least latching onto them as soon as possible once they're public, and then hanging onto the shares long enough for each dollar you put in to be worth $10,000 or more.
For the investor who is more risk-averse than that, the best solution is to put your money into exchange-traded index funds that track the S&P 500, Russell 2000, etc. rather than trying to pick individual companies to invest in on your own. Even better is to find a good wealth manager to do the work for you, as long as percentage they take is very small (1% or less of managed assets annually). However, the good ones usually require an initial investment of at least $500K, sometimes more than that.
both Buffett and Graham seem to have suggested that a good index fund generally beats a wealth manager in the long run because lower costs mean more re-investment.
$500K seems like a manageable minimum for a wealth manager account but if you put the same $$$ in a balanced index fund, watched it for 20 years, I conjecture it would match or beat the pros. At least, that's what a large part of history tells us.
There will always be outliers like Peter Lynch but wouldn't most of us be pretty happy with an average 7-10% return on our investments? I would be.
To Chris, the weak point for most investors is that they are funneled into retirement plans that are tax advantaged at the front end but tax penalized at the back end. Seems to make a lot more sense to invest in equities in a conventional account and pay only Cap Gains at the end. Especially if you keep expenses in retirement low enough. As I understand it capital gains is tiered by % of amount withdraw from a non-tax advantaged fund (as long as the equities have been in the account for longer than a year) so by staying under certain caps you could devise a tax free withdrawal plan. But I could be horribly wrong. Is it still 0-20-24 ?
Also, conventional (non-tax advantaged equities and financial instruments) accounts are not subject to required minimum distributions. You can leave as much as you want from a non-tax advantaged account to your heirs.
I'm sure people will wade in if I'm wrong, but please cite references...
And I kind of apologize for going so far off topic.... At least it's not about my pool or pool. That's gotta take some of the sting out.
No apologies necessary. For almost everyone, it's hard to go out and do good work when the wolf is at the door, or, worse, when the wolf is sitting down to drink your coffee in your kitchen. Indeed, every single aspect of our society today pushes us all to live in a totally financially-stupid manner. So your pushback is much needed.
I was fortunate enough as a photographer to save and invest over these years.
Graham and Buffet are correct in the power of compounding but also (with Buffett) investing in index funds. "Beating the Street" is a great title but for most of us it is a fool's errand.
The other bit of advice I would offer in light of my own failings is patience. We are all envious of the 26 year old who sunk $5000 into Tesla when it was $35. But that most likely will not happen to us. Playing the long game is a far more reliable way to win.
The other thing I would note is the frenzy of RobinHood investors whose antics move hot stocks with alarming speed and generate headlines that attract the gullible.
Congratulations Mark. Well done. Now devise a smart strategy to systematically take it back out, a little at a time, with the lowest tax consequences! And then...let me know how it's done. KT
Kirk, I switched early into Roth IRAs. Paid tax on the conversions but now can withdraw tax free.
My non-retirement taxable accounts I am leaving alone as much as possible until I am older.
OTOH I am not unhappy to pay taxes which is a small fee that tells me I made OK money.
I'm a huge Warren Buffer fan and have Benjamin Grahams book, although I'll admit I never finished it.
All 6 of your points are good advice.
I laughed real hard at #1. I worked for 30+ years as an independent Engineering consultant. Often Engineers (mostly young) at customers of mine would enquire about whether they should try to work for themselves as a consultant. The first thing I'd ask them is can they go 6 months, or better yet a year, without ANY income. They usually lost interest a that point.
I tried to explain investing to a friends young daughter who had her first job that provided a retirement plan. The best analogy I could come up with was rolling a snowball in the snow. Initially rolling a small snowball adds just a little to its size, but over distance the ball gets bigger and each extra foot etc. adds more than the last one to its size. I explained that investing was similar, but time was the equivalent of distance in the snowball analogy. Starting small was fine, but be sure to do it early. It was the best example of compounding I could come up with that would suit my target audience.
A house is for shelter not investment purposes. Some get lucky and it serves both needs but one should never count on that. People who make their living on real-estate will tell you that the big advantage is not in the price appreciation of their properties, but the generous tax avoidances that are provided by the tax code.
My kids are in their very early twenties and I've hopefully gotten both of them off to a start at financial independence. The broadest index fund out there is the Vanguard Total Stock Market (VTSAX) and basically encompasses the entire Us stock market. They both have an account with some starter money and while one is still in school and the other just out I've instructed them both to add to it regularly once established in the workplace.
I actually dabble in individual stocks quite a bit, but to be honest I think it is more to keep me busy than any idea that I will outperform the market. We all have to have a hobby and I figure I could choose something worse.
The 5 Series wasn't a mistake if you allowed yourself to enjoy it. That's the sweet spot among BMWs, and Texas is the perfect place to own one. Austin to El Paso in six hours, hey?
JC, I loved driving my 540. It was very quick and if you were heading to West Texas back then you could, for the most part, comfortably cruise at 115 or 120 mph. No other cars in site. But as soon as the warranty expired the car started to as well. It became more and more problematic. Might have just gotten a lemon but my next car was a Honda that delivered 120K before the first hiccup. A huge difference.
But yeah, the memory of punching in out on I-10 heading West is still sweet. Just way too much money for a car.
The first 48,000 miles were heaven. The next 20,000 miles were pricey. The balance of fun to the dollar shifted in the wrong direction.
Good memories though. Won't do it again.
If you hadn’t been so frugal you could have bought that BMW in the early 1990s rather than the late ‘90s before their quality control shot off the edge of the cliff like Wylie Coyote. Might still be driving it today, weekends only, as a treasured classic.
Hi Kirk, 2/3rds of your point #2 have me scratching my head a little:
Seeking investments which have "demonstrated a decent return" seems like exactly what Mr. Buffett has warned people about, noting in 1999 that:
"Investors project out into the future what they’ve been seeing. That’s their unshakable habit: looking into the rear-view mirror instead of through the windshield"
Meanwhile, risk is part of investing, and the higher the potential returns, the greater the risk is likely to be. Per Mr. Buffett's suggestions, I put a major chunk of my money into a Vanguard S&P 500 index fund. But while I think of this as a fairly "safe" investment, market volatility is a fact of life! I am just smart enough to know that I'm not particularly smart about investing, so I do not attempt to time market booms and busts: When the market crashes, I just shrug and take comfort in knowing that it's done that before, and by not panicking, I've survived crashes in the past.
Jeff in Colorado
Jeff, I thought by saying, "financial instruments" instead of individual stocks that what I was conveying was to look to index funds which had good track records and decent returns. I have never advocated picking single stocks as a retirement strategy but I guess if people want to dabble with a small percentage of their holdings there's no real hard.
I'm a big believer in funds that track the markets. I think we're both thinking the same thing I just didn't write it as clearly as it needed to be written.
The most important rules about investing are about knowing yourself well enough to overcome your own inclination to spend instead of invest. If you start early and make the biggest possible contribution to the tax-advantaged retirement savings vehicles, your idea of what lifestyle your salary buys you will be less, and that is the best gift you can give your future self. If you always spend beyond your means, the same thing will happen to you, just the other direction.
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