Have I Got a Deal for You

“I bought and sold FB shares as a TRADE, not an investment. I lost money. When the stock didn't bounce as I thought/hoped it would, I realized I was wrong and got out. It wasn't the fault of the FB CFO that I lost money. It was my fault. I know that no one sells me shares of stock because they expect the price of the stock to go up. So someone saw me coming and they sold me the stock. That is the way the stock market works. When you sit at the trading terminal you look for the sucker. When you don't see one, it's you. In this case it was me.”
Mark Cuban

The buildings that line Wall Street are filled with people who are smarter than me, richer than me, more informed than I will ever be, and probably a lot of them are prettier than me. Don’t forget there are sharks swimming in that ocean and they are looking for a meal. If a genius billionaire like Mark Cuban can be taken to the cleaners, don’t think you can outsmart the street.

That doesn’t mean you should hide your money in mason jars. It just means you need to understand your own motivations and limitations. In an excellent article by Barry Ritholtz 10 Ways for Dealing with the Sharks on Wall Street the author examines some recent examples of people who thought they were sharks only to discover they were in fact, dinner for the real sharks. Greece successfully disguised their bad financial condition from their partners in the Euro zone through a complex dollar/yen swap for Euros. It netted Goldman Sachs, the engineers of this deceit, $600 million dollars! It netted Greece national bankruptcy. A San Diego school district attempted to avoid financial responsibility by issuing bonds that make no payments for 20 years. They pay 6.8% tax free rather than 4.1% that was available at the time. Over the course of 40 years this folly will cost the taxpayers nearly $1 Billion for a $105 Million loan rather than $300 Million for a normal loan. In both instances politicians were attempting to avoid responsibility until after they were retired at the expense of the future. The sharks were only too happy to help them on the road to ruin. After all the deal makers got their money up front.

Always examine your own heart. If you trying to pull a fast one on the world, the chances are you will lose. Just ask the folks that took out liar loans during the real estate bubble.

Take your time. Collect good information. Understand unless you happen on a bit of inside information, the institutional investors have more knowledge than you do. The institution can and does hire the best accountants and attorneys money can buy. Seek out wise counsel, preferably someone who will not benefit from your decision.

Keep it simple. If you don’t understand something don’t buy it. The insurance company pays their lawyers big bucks to write those incomprehensible 40 page annuity contracts. All those clauses are not there for your benefit. Those contracts exist to protect the interests of the company.

Ask who gets what from whom and when do they get it. This is true of financial products sold by commission salesmen, but it is also true of more complex traps for the unwary. Think about the current student loan mess. The university can raise the price of their service because there is a large pool of federally guaranteed money to pay the university no matter what they charge. $40,000 a year is no longer limited to the Ivy League. The university gets their money, up front, in cash no matter what they charge or whether the student graduates or fails. The banks are guaranteed a wage slave for a decade or more. Student loans are not discharged in bankruptcy. The student is guaranteed nothing, not a job, not even a degree.

Barry Ritholtz ends his article with a observation that is so good, I have used it as a stand alone quote. “There is no free lunch: Repeat after me: There is no free money, no riskless trade, no way to turn lead into gold. If you remember no other rule, this is the one that will save your hide time and again.”

Psalm 131:

[1] LORD, my heart is not haughty, nor mine eyes lofty: neither do I exercise myself in great matters, or in things too high for me.
[2] Surely I have behaved and quieted myself, as a child that is weaned of his mother: my soul is even as a weaned child.
[3] Let Israel hope in the LORD from henceforth and for ever.