The following item from Forbes is related to much of our discussions here: http://www.forbes.com/2002/04/12/0412grubman_print.html I don't know who desreves the most scorn in this ugly mess. I am certainly no cheerleader for full service brokerage firms, their brokers, analysts or the lawyers who jump into this fray. Ultimately, I come back to each person being reponsible for making their own informed choices whether it be in your finances or your personal life.The same lawyer referenced in the article was on CNBC today. He said his client knew nothing about investing and relied on his broker and the glowing reports of SSB analyst Jack Grubman. The client lost 455k and was forced to declare bankruptcy when Global Crossing tanked and he couldn't cover all of the margin calls. Apparently it was ok that the client put every penny he had to invest into Global Crossing and also took out a margin loan to buy more. That was his only investment (this is not stated in the article, but came out in the discussion on CNBC). Now he wants to have his losses made good. How can you generate sympathy for ANY of the parties involved in this? BRG
I am a fairly intelligent woman, a former lawyer, and I can tell you how it can happen. There is so much emotion tied up for some people in their money and their investments. They don't know who to turn to for advice and who to trust. Many ended up trusting the untrustable.As the tech stock market peaked in March 2000 we were told, it was a new economy, and that things were different now and the best was yet to come. Even Uncle Al (Greenspan) said so. I didn't lose 455k and I rarely bought stock on margin, but intelligent as I might be in other areas, I just didn't know how to recognize a blow off market top -- a bubble. I knew nothing about charts and how to read them, or market history. I had no way to identify a mania. I was busy working all day, just watching the business news at night and dreaming about early retirement. As the Naz fell, I kept hearing, everywhere, that it will come back, the market always goes up, and that it was "too late to sell, now." It was always too late to sell, as stock prices got lower and lower, it was foolish to sell now. The bottom was in. All during the Fall/Winter of 2000, I remember well, analysts and other "experts" were calling the bottom. And the frequent rallies from "oversold" made that point of view seem valid. Yes, we all need to take responsibility, but many didn't know at the time what that meant. I didn't. Reading and following analysts commemtary may have seemed like the responsible thing to do . . . I have a friend who is a brilliant computer analyst and an executive with one of the major independent rating firms, and he was recommending I buy EMLX in late 2000 when it was 140 (presplit), because his company had a "strong buy" rating on it. By then, I knew enough to laugh, and I was learning to short stocks.gloria (poorer than in 2000, but wiser, much wiser)
Then there are those of us who take a long-term view of the market and look at the last several years of performance and not just the last two (which haven't been the greatest years to be in the market).My stock portfolio is still down 24% from its March 2000 high. But instead of focusing on that, I focus on my portfolio's CAGR (compound average growth rate) of slightly over 20% over the last 7 1/3 years and it's a different picture. If I focus on my 20 1/3 years CAGR of 17%, it's easy to take this little blip in the market in stride.Staying in the market at all times; thru both bull and bear is 90% of the battle. If you buy and hold a broad index fund or a diversified portfolio of stocks WITH REAL EARNINGS and hold them thru thick and thin, you will get rich.The emotional investor with a short-term trading mentality is destined to lose. The unemotional investor with a long-term perspective will always do well. As Warren Buffett says: "in the short-term, the stock market is a voting machine. In the long-term, it's a weighing machine."
As Warren Buffett says: "in the short-term, the stock market is a voting machine. In the long-term, it's a weighing machine."Just to clarify, Buffett was quoting Benjamin Graham.
As Warren Buffett says: "in the short-term, the stock market is a voting machine. In the long-term, it's a weighing machine.""All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." -- Warren BuffettMy stock portfolio is still down 24% from its March 2000 high. But instead of focusing on that, I focus on my portfolio's CAGR (compound average growth rate) of slightly over 20% over the last 7 1/3 years and it's a different picture. If I focus on my 20 1/3 years CAGR of 17%, it's easy to take this little blip in the market in stride.I don't suppose that a compulsive exercise regimen, lying on the beach stoned out of your mind on cannabis, cheating on your wife with Costa Rican trollops or trolling message boards would be considered "coping mechanisms".
<They don't know who to turn to for advice and who to trust. Many ended up trusting the untrustable...Yes, we all need to take responsibility, but many didn't know at the time what that meant. I didn't. Reading and following analysts commemtary may have seemed like the responsible thing to do>I hear what you are saying, but I think there are some larger truths or concepts at work here. Since the beginning of time there have been people very skilled at separating fools from their money or property. Some of the best/worst ones have developed those skills and can appear very respectable and be very convincing in their pitch. The stock market is only one of the many fields where these people may be found. The idea that one would allow someone to place their entire nest egg into a single stock and leverage it even further with margin goes way beyond trusting the wrong person. Common sense dictates that one should tread lightly into areas that they know little or nothing about. It would also dictate that you do not ask a car salesman "should I buy a car from you?" Likewise, you should not buy an expensive whole life insurance policy along with a fee filled annuity based solely on the recommendation of an insurance salesman. There are many well trained sales people who have honed their sales pitches so they can wear you down. Being able to say no is a skill that can save you throughout your life. As the stakes get higher, that skill becomes even more important. I remember reading about a few Microsoft millionaires who also found themselves in bankruptcy because of similar poor choices. They followed a brokers advice by exercising their MSFT options near its highs, kept the shares, borrowed heavily against their value and made leveraged buys of very risky tech holdings. When the stocks tanked along with the MSFT shares, it created a helluva negative domino effect. They got wiped out in addition to being left with an unpayable tax bill based on the MSFT share value at the exercise date. This strategy provided tremendous income for the broker. Of course they also signed the agreements allowing all of this to take place. As a former lawyer how would you typically respond to someone who came to you well after the fact saying "I had no idea what I was signing", especially if it related to their entire life savings? A CPA could have easily warned them of the tax risks. They could have gotten unbiased investment advice from any number of sources. They of course blamed only the broker.It is a basic principle that when one has a major financial decision to make (or any major decision for that matter) one should not rely solely on the advice of someone who stands to benefit substantially from your decision. For the MSFT employees who had 1-2 million in options asking a broker what should I do with this was crazy. They should have done what most of the other MSFT employees did: get some professional advice in laymans terms from someone who would not be involved in any transactions. I posted the other day that ABT still had over 90% of the funds in it's 401k plan invested in company stock. My gut tells me that they are not at all alone. It was foolish for people to be 100% invested in their company stock before Enron. I don't even have a word for it to describe those who have seen the Enron example and not changed their behavior at all. Yet if their company tanks, I am positive they will be screaming to be made right again. BRG
gurdison writes,I posted the other day that ABT still had over 90% of the funds in it's 401k plan invested in company stock. My gut tells me that they are not at all alone. It was foolish for people to be 100% invested in their company stock before Enron. I don't even have a word for it to describe those who have seen the Enron example and not changed their behavior at all. Yet if their company tanks, I am positive they will be screaming to be made right again. The article linked below has the Top 10 for "percent company stock" in the 401k plan. Procter & Gamble tops the list with 95% of the 401k plan assets in PG stock. General Electric is #8 on the list with 77%, Texas Instruments is #9 at 76%.http://money.cnn.com/2002/01/29/401k/401k_stock/intercst
From the CNN article:Like Enron, about 2,000 companies have 401(k)s jam-packed with their own stock -- and employees can't touch it for years no matter what's happening on Wall Street.and alsoThe law that finally passed was a much more watered down requirement - a 10 percent cap only in cases where companies require you to invest in their stock. It's a situation that almost never occurs.These excerpts seem to be contradictory. Are employees at these 2,000 companies being forced to buy and hold company stock in their 401(k) accounts, or are they not?If they are, then by all means legislation is required to address that problem, and the phrase "almost never occurs" is nonsense.If they are not, then what exactly is the problem?sydsydsyd
Yes, we all need to take responsibility, but many didn't know at the time what that meant. I didn't. Reading and following analysts commemtary may have seemed like the responsible thing to do . Plenty of other analysts were saying that things were too freaky to predict any more. Two large hedge funds closed--their principals said they couldn't divine the market at that point (late '99/early '00). We had dot-com stocks quadrupling in a month, with no earnings and more importantly, no plan to ever have earnings--just attract eyeballs, or market share. So the S&P500 was up an incredible amount in five years, but many people saw or heard about others who had become filthy rich, so jealousy and greed kicked in. Things that might be worth a little risk, like investing in the S&P500 index with a P/E at its historical high, suddenly seemed mundane--hey, it might take four years to double at "only" a 20% growth rate. People leveraged and avoided diversification hoping to get rich in a year and then someone popped the bubble.If you're not good at investing, you'd better be good at picking which advisors you're going to listen to. I think it was someone paraphrasing Warren Buffet with "I'd rather have a good chance of getting a good return that a bad chance of getting a great return, but possibly losing everything."
Common sense dictates that one should tread lightly into areas that they know little or nothing about...BRG,If everyone were to exercise their common sense most of the time, there would be world peace.Felbi.
<If everyone were to exercise their common sense most of the time, there would be world peace.>I agree with you. Most times when we fail to apply common sense, the price is relatively small. In the context of the thread, the price for the individual was very high: loss of their life savings. I caught part of a 60 minutes segment where a very colorful con man was featured. He described how easily people gave him large sums of money based only on his appearance and his story, which varied according to the "client". One person gave him 15k (all he had) with the idea that it would turn into 75k in a matter of weeks. Others gave him well over 100k. While I always like to see these scammers proscecuted, it is painfully obvious that both parties bear responsibility in these matters. None of these things happen without the full cooperation of the victim. Just how many four baggers in four weeks are out there? The scamees always want to believe. They throw their common sense out the window. Unfortunately, it happens all too often.BRG
Galeno, You might want to check your work before hitting "submit reply"- your last post did not contain ANY anti-American ranting. I'm sure you will correct this oversite.jb
Commodore64 wrote:Galeno, You might want to check your work before hitting "submit reply"- your last post did not contain ANY anti-American ranting. I'm sure you will correct this oversite.I'm patiently waiting for the next terrorist attack on the USA. It will be far more fun to do more anti-American ranting then <grin>.
"I'm patiently waiting for the next terrorist attack on the USA. It will be far more fun to do more anti-American ranting then <grin>. - galenoGaleno, if they ever do any really big serious damage we will retaliate BIG! You can bet on it. Just picture a big sheet of glass; you get the picture. - Art
Galeno, just remember one more thing. Anything they got we got more of and bigger. And, those suicide bombers need to remember one other thing; we know where their families are. We know who they are, who they are related to, and where they come from. If they make us mad enough we will get angry enough to do some real damage. - Art
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