After my mother died, I inherited a nest egg that was the result of my father’s hard work over 30 years, which put me in the position of being approached by a series of “financial advisors.” They invariably promised to help me “invest” this money wisely. Fortunately my father had been both an economist and treasurer of a large travel agency, so he had provided me with a sound financial philosophy, solid practices and a healthy distrust for both Wall Street and investment “experts.” He had also retired successfully in saner economic times.
When he stopped working full-time banks were paying above 6% interest on savings. When I inherited his life savings, a return like this would have enabled me to live quite comfortably, especially since I was able to earn money as a tech and business writer. But many of my friends were “day trading” and the stock market was hot so I began to get visions of the high life. Since I was in the high tech arena I tried to leverage what I thought was my insight into some quick gains, with very mixed results.
So I sought out the help of some “experts,” bearing in my mind many of my father’s principles: minimize risk, save money, and don’t buy in “installments” (credit).
So – only one of the following men was a “brilliant economist” (the one on the right, my father)
— the other was the Fed Chief that deregulated the markets.
Getting involved in the “financial world,” what I found was an “industry” that had more confusing jargon than even the technology world in which I worked —and an agreed upon set of rules and agreements. One of these was that over the “long term” stocks would outperform bonds, real estate and simple savings (which were seen as sucker accounts) and that this was a “proven fact.”
The problem was, of course, that no one knew exactly what the long term was; if you were 30 years old you could be realistically expectant that you might have a long term perspective until you were maybe 60 –but of course even this wasn’t guaranteed –you could drop dead at anytime.
After buying a few stocks and losing my ass, I soon discovered that “the long term” was really a euphemism for “hoping the shit would recover.”
Still financial advisors tried to convince me of “known truths” like:
- The need to set financial goals
- The need to diversify
- The wonders of asset allocation
They did not appreciate that my father had impressed upon me the need to see the stock market as a giant craps table –and the longer you risked your money, the more likely you were to lose.
There was only one goal for me which I expressed thusly: “My goal is to make the most money in the shortest time with no loss of principal.” But financial experts were not particularly impressed with this concept. They tried to explain that “financial goals” were dependent on “time horizons,” “risk tolerance” and similar terms that I thought were pure bullshit.
Finally I bought into some of this when a friend recommended a seasoned broker at Smith-Barney in Boston, who shifted me over to her assistant who promised to make money for me with “solid companies” and he put together a portfolio of blue chips. One of these was Microsoft, which soon faced a very serious anti-trust judgment in European courts. I mentioned this to my expert who told me not to worry because I had a financial profile that kept me in my stocks for “the long term.” I tried to argue that Microsoft might lose quite a bit of its value the following week, and I wanted to sell my shares and maybe buy them back cheaper, but he assured me that this went against my profile.
I listened to his malarkey for about an hour, tried to use common sense, and finally hung up with the idea that maybe, just maybe, the nonsense he had spewed was right and I was wrong. Sure enough Microsoft went from $80 a share to $30 over the next month, and it just recovered slightly recently (20 years later). I lost enough in value that I quit that expert and left Smith-Barney.
In comparison with this brilliant approach, my father was a believer in something called “compound interest.” This means actually putting away money you earned and letting it grow according to the following system:
He also believed in another principle: “Don’t Buy Shit You Can’t Afford.” This meant that I was the last kid I knew to have a color television in the living room, but I also never knew a day when my family was ever in debt.
After college I could not believe how my friends recklessly ran up credit card bills and later got involved in complicated real estate deals that put them in hot water. I never got rich but I always made the rent and lived well. Then when I inherited my father’s hard earned savings, and got burned a few more times in the “financial markets,” I bought a condo and kept working. I didn’t pay much attention when Congress passed “financial deregulation” or the Gramm-Leach-Bliley Act in 1999, until I witnessed the real estate bubble, and near financial collapse of 2008, and the credit default swaps and massive debts and bailouts of “financial institutions.”
While many people suffered terribly, my main clue to what had actually happened was that banks suddenly didn’t need to pay any interest to savers. Where my father had earned 6% compound interest on his savings, I suddenly could earn nothing in the bank. The reason for this was the “financial stimulus” – or the printing of completely worthless currency. This was the inevitable result of decades of fraudulent activity, and a transition from using “capital” as a way to create real wealth and value to simply a way of multiplying phony electronic “currency” on a computer screen.
And of course through such “deregulation,” the banks had effectively become casinos –now merged and partnered with investment brokers and insurance companies – they traded complex and risky “instruments” like derivatives and were “too big to fail.” But of course they did fail –and were bailed out again and again with more funny money.
And now, suddenly when I again tried to avail myself of the wisdom of financial experts, I was “advised” that I had to take “reasonable risk” to earn a return and not deplete my savings. But I was approaching “retirement” – mainly because no one wanted to hire an old fart like me anymore -so now I was anxiously looking for passive income.
At this point, when I was asked for my goals I simply said, “to not end up on the street when my money runs out.” Another way to put this was that I no longer had a “long term” time horizon. A friend of mine, in his 80’s had bought into the “long term” myth as well. Unfortunately his “long term” ended in 2008 and he lost all of the gains his “expert advisors” had accumulated. He sold at major losses, terrified and to avoid losing more, and of course his holdings would have recovered eventually, but he needed safety and was screwed.
The question for me was a bit more palatable. Having finally gotten through the acute anxiety of thinking the entire financial system would surely collapse, after amassing $3 trillion in debt that could never be paid back (and it was still printing worthless money), I decided to concentrate on the present moment, rather than the long term.
But I wanted to understand how this “financial system” really operated so that I would not be victimized and sought out by other “advisors.” I figured maybe someone had an answer for my situation that I had failed to discover. One advisor my own age admitted that I was screwed if I wanted a safe return that I could actually live on; “reasonable risk” even in bonds meant that I had to accept the potential loss of as much as 20% of my principal at any time in the future due to an unexpected event.
My alternative was inflation and running out of money when I was drooling in a nursing home. And as I explained to women who wanted me to take them to Paris or Hawaii, I was not rich but I was solvent. I could take them to Paris or Hawaii if I died in 10 years, but if I lived another 20 (I’m 65) I needed to save a bit more, and if I lived as long as my dad (86) they were out of luck –I needed my cash.
I went back into the stock market, looked at bonds, options, ETFs and other strategies, and took what I called limited and prudent risk. My discussions with financial “advisors” became a bit more heated. When I had “misunderstandings,” meaning that they didn’t tell me the truth about how bonds or options worked, I got very angry and moved my money to other institutions. More often than not they could not understand my displeasure and unwillingness to play their game –which again was like a giant craps table where the longer you keep the money on the numbers the more likely you are to get wiped. Just as a “7” will inevitably occur in craps, so too will a “correction” occur in the stock market.
The other obvious truth is that the market is completely rigged in favor of those who can afford inside information. 60 minutes just did another piece about how electronic traders “front load” transactions, seeing what retail investors are looking to buy and purchasing shares ahead of them, thereby raising the price, and then selling them back to the investors at a profit. WATCH IT HERE
These “professionals” are called “market makers.” Seriously? They are criminals. This does not take into account the other criminals called “insider traders” or as another 60 minutes piece referred to them, “researchers.”
So I have a new strategy. I go at it alone and I believe in guerilla economics. I follow the momentum of the herd, buy and sell quickly, take my profits and then when I have enough I wait. I try not to get caught in the “undertow” of a “correction” or panic, which happens regularly. I read rumors about earnings and cautiously take advantage of any edge that I can get, knowing that most market commentary is false and misleading, I then just act accordingly.