Tuesday, September 30, 2008

ANIMAL FARM

I am not an economist. Nor have I had the time to properly review the “don’t call it a bail-out” legislation, which apparently is still up in the air. So I cannot intelligently discuss the issue. However . . .

My mentor Jim Gill, once a broker with Shearson Hayden Stone, used to always say, "Bulls make money, bears make money, but hogs get slaughtered."

It is obvious that the hogs caused the current financial “situation”. I truly hope that they get the slaughter that they so richly deserve, and are not saved by any kind of bailout. But knowing Congress I suspect that many of its members list hogs among their bigger contributors and supporters.

A 2007 post from the SURVIVING STOCK MARKET blog titled “
Bulls, Bears, Hogs and Sheeps” (from Malaysia of all places), which I found in a Google search of the quote, adds “sheep” to the list of investors. Unfortunately the sheep have also contributed to the severity of the situation.

According to the post (the highlight is mine) - “Sheeps are great followers... They don't have to make decisions... All they need to do is to follow the trend or tips.... But one thing is for sure, the stock market is a very highly competitive place... People don't give away tips.... For they need to stay in the front in order to get the profits.. Real tips are not revealed, and those revealed are lousy tips... So, sheeps who get tips, get slaughtered as well... Those that follow trends always happen to be the last and the most foolish of the block... They always enter the uptrend late and when smart people are making their exit.... So, they alone ride the slide downhill....

Do the sheep (or should we call them lemmings) deserve to be slaughtered as well for following the hogs? What do you think?

Investing, whether in the stock market or real estate, is not rocket science. All it takes is basic common sense, an asset apparently not held by many investors or even brokers.

Is it common sense to think you can buy and maintain a home with only 5% down? Is it common sense to think that housing prices will continue to rise ad infinitum and it is therefore ok to refinance annually and borrow 100%, 110% or more of the current value of a home – so that you can pay off your credit card balances and start to build them up again? Is it common sense to think that a 712 square foot condo (that is not located in Beverly Hills or Park Avenue) is worth $220,000 (though I am glad someone did when my parents were selling their unit, which cost them only $60,000+ five years earlier)?

The bottom line – obviously don’t be a hog. And also don’t be a sheep. Use the brain that God (or nature) gave you!

Before I go I should point out that the legislation does have one provision that applies to 1040 filers - the exclusion for forgiveness of home-mortgage debt, set to expire after 2009, is extended through 2012.

If I may quote from Joe Kristan’s post “
Tax Provisions in the Bailout” at the ROTH AND COMPANY TAX UPDATE BLOG – the forgiveness of home-mortgage debt is “a break to the most feckless home speculators, while those who do their gambling at casinos or in the stock market get no such break”.

Just one more thing, he said Columbo-like. Speaking of bank bail-outs, I was surprised when a client, with substantial business and personal deposits at Wachovia, mentioned this week-end that it looked like his bank (also my parents’) was also in trouble. But yesterday morning I heard on the news that Wachovia was being bought out by Citigroup. Years ago, when the trend of bank mergers first began, I predicted that one day there would be just one humongous bank left standing - the Bank of America (not necessarily Bank of America). My prediction may come true sooner than I thought!

I was reminded of my long-time advice regarding choosing a bank at a delightful dinner with friends/clients this past Saturday at The Grain House Restaurant of the Old Mill Inn in Bernardsville. I would advise clients to use the smallest bank in town – a one-brancher if you could find it (are there any left?). As a depositor at a large national bank like, for example, Wachovia you are one customer in billions - but at a small local bank you are one in hundreds, or at most a thousand or so, and would certainly receiver better, more personalized service and attention.

TTFN

BTW – Speaking of Columbo – who was originally intended for the role?. Peter Falk was not the first choice.

2 comments:

Bruce said...

Are you referencing the pre-series/movie? If so then Bert Freed would be the answer.

If you are reverencing who was in contention of the series itself the stage actor Thomas Mitchell had died so Lee J. Cobb and Bing Crosby were suggested. Bing said no and Lee J. Cobb turned it down.

Robert D Flach said...

Bruce-

I was not aware of a television movie or episode featuring Columbo before the original Peter Falk entry "Prescription: Murder" with Gene Barry as the killer. Thanks for the new bit of trivia.

I had been aware of the stage version with Thomas Mitchell.

The answer I was looking for was Bing Crosby. It was my understanding that the role was originally written for der Bingle.

TWTP