Friday, January 23, 2009

Investing with Dopes and Crooks

(News-Herald, January 22) The folks who manage my investment portfolio sent me a nice note at the beginning of the month.
Actually, when I say “investment portfolio” I mean the little wad of money that I’ve been squirreling away in the teacher equivalent of an IRA. I confess to not being a great money manager, a confession that does not come easily because, like many people, I have a vague sense of shame floating over the monetary portions of my life. It embarrasses me that I am not, somehow, in better financial shape.
I have never undertaken a large financial transaction in which I did not lose money. My personal financial planning and cash flow management skills are slightly more impressive than a magic eight ball. I don’t want to be rich; if I can just get one more kid through college, it won’t bother me to eat macaroni every day until I retire at age ninety. But I will be embarrassed.
I started the retirement account years ago, and figured I had at least done that part right. Turns out I would have been better off burying the money in the back yard, and somehow I feel ashamed of that as well.
My retirement fund is run by one of those companies that somehow makes money move in and out of thin air, represented locally by a nice man who gets ahold of me every few years or so to make sure that, I don’t know, I’m still alive or something. They periodically send me little letters to tell me about the thin air that my money moves in and out of.
Now, given the economic meltdown, I expected that this newsletter might contain a little something extra like “Ooops” or “Sorry” or “Really, don’t freak out.” Instead, this newsletter included puff pieces on the order of “How to make the most out of family time” or “Our friend, the amazing toaster oven.”
Maybe they just weren’t sure how to proceed in the midst of financial chaos. Maybe they didn’t want to disturb me. Maybe it’s hard to type up the newsletter with everyone crowded together on the window ledge. I don’t know. But I feel moved to write them a note to help them with this daunting task.
Dear Nameless Investment Firm:
Perhaps you’re unsure what to tell me at this point in your charming quarterly communications. Well, here’s what I need to know.
See, even out here in the cheap seats, we’ve been able to get a vague sense of the causes of all this mess, and they seem to boil down to two things—people in the financial industry who are crooks, and people in the financial industry who are dopes.
So what I really need to know is, which are you?
Did you figure to make money trading in things that were, at best, shady and, at worst, unethical?
Or did you get involved trading in “instruments” that were created by the crooks and traded by people too lazy, dumb or unimaginative to see the signs of impending disaster?
Please pick one. Please note that the “We just didn’t know this could happen” defense means you’re choosing “dope.” The “We knew there were potential issues but we figured we could skate past them” defense means you’re choosing “crook.”
I understand that it’s hard to spin either choice. There’s no easy way to say, “Yes, we’re run by a bunch of crooks and/or dopes, but you should still entrust us with your retirement fund.”
It could help to follow that up with something along the lines of “Lessons we have learned from this.” But maybe you haven’t learned any yet other than “Welfare is only for people who make a really REALLY big mess out of their business.”
Still, you’ll have to trust me when I say that I can be forgiving.
After all, I haven’t been doing any due diligence, either. I didn’t study up on you, follow up on your work, or insist that your local representative talk to me more than twice a decade. I have been a lazy dope, too, so I can relate. True, it’s not my chosen profession to pay attention to these things, but it is my money and my life, and I handed it over to you, grateful, frankly, not to have to think about it any more. I know that I have to do better. It would just be comforting to hear that you know that you do, too.

1 comment:

Danny Lucas said...

Well when it comes to money, they don't call you Mr. Green for nothing, eh?

You are not alone.

I recall hiring a Financial Planner and shelling out $500 to say hello. She asked me my goals in life, but I thought hiring HER was one of those goals fulfilled.
"Uh, take my money and make some more....give yourself a cut in the process".

Time went by, and the silence became more than a song by Simon and Garfunkle. She wrote me a letter. I took this to be the "next step" in our growing relationship.

The letter said:
"After careful evaluation, I have decided I do not enjoy a career in Financial Planning. I will no longer be serving you.
Thank you."

My $500 was as gone as her career.

I bought 5,000 shares of stock for the first time in my life in October, 1987. Within one week, the market crashed 25% and was the worst decline all the way back to the Depression and 1929 fun. It took years to break even.

Another job had a firm handling 401K's for employees that "diversified" your "contributions" into a wide array of risky, but high yield stuff, or "safe" but low yield stuff, and anything in between....even foreign stocks. Who could ask for anything more?

Quarterly, they sent a detailed package with Excel pie charts in blazing colors. Each of my 10 choices were on the pie, with varied widths.
Figures followed below.

Over time, I began to notice that I was always going UP each quarter, even when the market was not so well for the world at large.

It took me a while to realize that the UP, consisted of my quarterly "contributions" exclusively. The company match was gone. Any true yields were gone. This money market was the equivalent to putting a buck in your wallet every day and getting a surprise pie chart showing $90, 90 days later. You now paid a commission for someone to put my dollar in my wallet. I opted out and you would have thought the IRS Chairman had been called for his opinion.

"Vesting" is a function of years on the job. 5 years equals a whole vest to wear. But if you were hired at the start by a Temp Agency, you were NOT an "employee"....even though your money was an "employee". You worked for the Temp, not the Company. Sorry.

This affected vacation accrual too, since only an employee earns vacation.

Since my next job started at 50% MORE than this outfit in Erie after 5 years, plus gave me a company car, 2 weeks vacation for starting Day One, and health benefits, I told Erie to give me whatever vest I was entitled after all those years. I bought some shrimp and dip with the check.

In less than 90 days at the new job, a $100 a week raise was in order. When I saw this, I could not wait for my next trip to Erie and see my former coworkers, who year in, and year out, whether most contributive and creative, or alcoholic on the pallet pile out back....ALL got 25 cents an hour increase every year. That's $10 a week or $520 a YEAR.

$100 a week INCREASE after a few weeks began to look good, then commission was added as an inducement on top.

A normal person would be happy. But I knew that more money meant you now have more WORRY about how to keep it.

I had stashed quite a bit of emergency cash in the attic, but learned that squirrels who were given the privilege to come into my attic and out of the winter chill, enjoyed Federal Reserve Notes for dinner.....all of em.

I went to Las Vegas for some company award and they gave me some "spending" dollars for one-armed bandits and such. I was now ahead.

A spouse said: "I have to go to the bathroom. I'll be back in a few minutes.
Looking around so as not to appear a ladies room viewer, I mosied over to a one-arm machine, inserted a dollar coin, and lights lit up, horns blared, vibrations began, and I stepped back as dollar coins overflowed all over the carpet. $262 for pulling an arm once.

This was awesome.
I plunked dollar after dollar and used both arms to pull at times as I played over and over.
I lost $3,000.
I have never been to Presque Isle Downs by the way.

I bought some jewelry.

(sorry, the memory got me carried away)

Jewelry value declines BEFORE you pay for it. About 90% downward in value. Jewelers will tell you that they could gather all the materials and make the item for far less, so why pay you MORE?

You know how you think of the right answer days after you really needed it sometimes and it is too late?

The right answer to the jeweler is that he is correct. He could buy the materials, fashion the item and do it for less.
The damn thing is already made and sitting in your hand. There is no labor or value added, you moron.

So, to sum up finances....
Stocks? Ix-nay!

Autos? Not very prudent!

401K? Find out what the "K" really stands for It is missing 3 prior letters.

Squirrel Food? Extend the hunting season please.

Ladies Room? Look, but don't touch!

Macaroni futures is the way to go. I think you have the magic figured out.

When I lived in Florida, (not a real state and should be admitted, but NOT to the Union), I was surprised to see a thriving economy. Everybody down there deals in what I guess would be called barter. Cash only too.
There is no local or state tax in Florida. The folks decided this was so good, why bother with any other taxes or price mechanisms. Even the smily yellow face at a Florida Wal Mart is programmed to utter "Would you be willing to give us $2 for that item instead of your offer of $1 ???"
Everything is negotiable in Florida. It grew out of the drug trade and seems to work.

Wanna buy a house?

It is best to defer to Biblical wisdom when money is involved.

I think it is somewhere in Leviticus that says:

"Verily, verily I say unto you.
Thou hast entered this world without so much as a belly button to your name.
(Note: I am not pulling your cord here)
Thou may leave this world with all the lint accrued to said button."
~~~ Leviticus 29:40

Congress has declared lint taxable, overuling God.

From my Flickr