My First Investment

Erie-Lackawanna

As a kid I lived in Ramsey, New Jersey -- one of the very first suburbs and about 25 miles from New York City. Right through the middle of our town ran the Erie-Lackawanna railroad. A classic American 4-track railroad -- the outer two tracks carried commuters to and from work in the city, while the inner two carried freight to and from places all over.

I loved everything about railroads. When the crossing guardrail came down on the way to school, I'd sit down and wait, hoping it was the big, long freight. Mesmerized by the various painted cars, I wondered who the companies were and what it was they were carrying.

My dad was one of the many commuters on Erie Lackawanna. Like most of the commuters’, he came home every night with the New York Journal American and I would devour it. One day while I was checking out the New York Stock Exchange listings, Erie-Lackawanna caught my eye. Selling at $2.62 a share, I had to have it.

Having spent their youth enduring the Depression, my parents had something of a mental block against investing. They had always encouraged my sister and me to save, but were vigorously opposed to stocks. Convinced he was right, my father was filled with glee at every story of wrongdoing, fraud, or big stock going down. My parents were wonderful and intelligent and as right about the stock market as they were rich -- not at all.

The $300 I had managed to save from my paperboy, leaf raking and grass cutting jobs was safely ensconced at the Community Savings Bank in Ramsey. NJ earning a whopping 2.5% a year. I figured I had enough to buy 100 shares plus pay a commission. I asked my parents, reasoning that the stock could only go down $2.62 but could go up...lots! And it was Erie-Lackawanna, for Pete's sake -- I could do no better. I was eight years old – I knew everything!

They gave me that distressed look usually reserved for piercing or tattoos and told me my money was safe where it was. They weren't about to let me waste any of it buying those crazy stocks. But, I'm a persistent little cuss, and bugged them endlessly over the coming months.

That Christmas I awoke to a set-up model railroad in the basement and a certificate for five shares of Erie-Lackawanna in my stocking. Five shares of a $2 stock --they probably paid more in commissions than the stock was worth. No matter, I was a proud shareholder. Five shares instead of 100, but who was counting?

Me, that's who. The following summer, Penn Central bought Erie-Lackawanna. They paid $16 a share and I got my check for $80. Not bad for a prepubescent, but about $1,520 less than I could have had. A brutal lesson in opportunity cost at the tender age of eight.

I entered my own private Depression and my parents' attempts at soothing me failed miserably. They told me to be thankful I didn't jump out a window. That "insiders" ran the market for their benefit and the little guy could never win in the long run. They had, in fact, saved me from future problems. I should consider myself lucky. If I had gotten the $1600 I would certainly have gone on to lose everything in the market. Be grateful for that 80 bucks and head immediately to the bank.

They meant well.

When my father was born, the Dow Jones Industrial Average was less than a hundred. When he died at 83, it had passed the 10,000 mark. In the end, it was my parents who taught me most about investing. If they were right, I asked myself, why were they so poor? Their aversion to the stock market (and losing out on a fortune) motivated me to learn all I could and is why I teach people about investing today. The market works just as it should -- chugging along, like the Erie-Lackawanna of my youth.