Everything is a risk and has a cost in life. There is an opportunity cost for people who are unwilling to take investment risks, and that is the loss of the opportunity to make money. This is most easily applied to business and makes more sense for most people vs applying it to stocks. In business you have the possibility of making it more successful or less and if you do not take certain risks, such as spending money in advertising or hiring more people, etc. then you run the risk of not succeeding, but you also run the risk of failing and losing money if you do take the risk. So you have to weigh it out, because you can’t stay stagnant.
As for the economy, the current problem is the direct result of unchecked greed and poor laws. It was very evident early on that this was an untenable situation. People should not buy what they can’t afford it’s true, however, the current situation was created by banks and people who saw an opportunity in the change to lending laws. They created a ponzi-like scenario that stretched lenders who agreed to lend because they could sell off derivatives of the loans they issued, therefore removing themselves from danger, or so they thought.
Let me note also that there are people who, in fear, sold out of their retirement and savings accounts only to find that inflation has devalued their money as much or more than the market. The problem with inflation, it rarely goes the other direction whereas the stock market tends to rebound.
I recall a conversation I had a few months ago with a fellow. He told me rather gleefully and smugly how he had just received a call from his investment advisors assistant inviting him to a seminar to talk about investing in turbulent markets. He sarcastically asked the poor girl if she was going to show him how to make 30%? Of course she did not kow what to say in response and then he launched into his reasoning of how the market had lost 30% in the last year and since he had his money in cash, he actually made 30+% in comparison. On hearing this, I knew he was more the fool than I thought him to be. For one thing, I knew he had been in cash for the last 5 years, and had lost out on all the opportunities that others had made money at. He had also scored a big negative in terms of the inflation battle, so he really lost money all the way around. His logic though, was his biggest losing point. He operates from a fear position and that will cost him many opportunities. We must remember that thought there are many people in pain right now, alot of those same people made a lot of money in the past couple of years and may own several homes, etc.
The biggest thing in investing is to manage fear and temper greed. If you can do those two things, as well as be patient, you will succeed.
Filed under: household management | Tagged: economy, fear, greed., money, stock market
I disagree with the following sense. We have CD’s, high interest rate in ladder style, taking care of the entire property tax, which means it is entirely deductible. In stock market, insider friends always say: if you are not losing, you are already ahead. If the market condition is good, I would be in it myself, but because it is simply not, plus it is on a down trend, I welcome a free fall. The trick about stock buying is to be selective and be cheap when you buy, so your wouldn’t have such a hard time when you sell.
BTW: No longer allowed until next year, you could also make money on short sell.
When you said 30%, did you mean 30% of the stock value or did you mean the 30% of the margin amount?
Also, why do you have absolutely nothing nothing to say about your upbringing? Do you not have anything good to say about your father and mother? What about brother and sister if you have any? Are in all in bad terms with one another? Did you disappoint them in anyway?
I’m afraid that’s too bad for you. My family has done very well in the stock market for many years. My grandfather was a broker and I was also a broker. I’m a very interested investor and have been studying it since I was in my early 20’s.
The current situation is, as I said, untenable, but it is not the fault of stocks or the companies hind them. Executive pay has been a big issue in my investment standards for years and everyone one of my past clients would confirm that. Employees of public companies should be paid in relationship to how well the company s doing and how well it is compensating it’s shareholders.
The current situation goes far beyond this with hedging the market and derivatives of investment products as I said.
With regard to the 30%, no, he actually said that he figured he made over 30% by having his money in cash. And no, it has nothing to do with margin, although I could talk for days on the uses of margin.
With regard to the FDIC maximum, I find this a useless tool for making investment or savings decisions. It is simply the amount that can be insured by a bank. This can be broadened for example when you have larger deposits, say $500,000 in a bank like CitiBank and they get the additional deposits insured through other banks they are affiliated with. Still, I think it’s a useless savings tool and not one you should be using to make investment or income decisions.
Between 2 person, you could have FDIC cover the both up to $600K, not $200K for both, depends on the account setup, before the new proposal $250K each account bailout deal. What maximum did you think I was talking about?
When 9 stocks are falling for every 1 is raising or not moving, we have my funding in CD’s, or you could keep it inside your pillows, either way is better than in the market. When the storm comes, you look for a shelter, you don’t just stand in the rain. Since no one can do short selling until next year, the only way to make a profit now is by not being in it, unless you are either gambling, or you are doing insider trading.
If you go to the website http://www.fdic.gov/regulations/index.html you will see all of the guidelines for the FDIC, of which there are many. I assumed you were talking about deposit insurance (as in Federal Deposit Insurance Company), and as I said, there are many ways to go about it. People used to go around making deposits at many different banks, and as technology and other factors came into play, banks pushed to be able to expand the parameters of what they could insure.
I’m not suggesting that you run out and put your money in the stock market right now. However, there is a major buying opportunity coming very soon and if you miss it, you will have lost more than if you had it in the market to begin with.
Individuals and traders can do short selling now but not on certain companies. You can also short futures, currencies and other derivatives all day long.
Putting your money in your mattress, as the saying goes, in this particular market will guarantee a loss against inflation. The numbers the Fed puts out for inflation are a flat out lie to the American People and the world. We are in one of the worst inflationary periods of my life time and the tools used for accounting by the Fed are misleading.
Personally, I am looking into some hotel investments that pay 11-13%. These type of investments would not have the liquidity of cash, however, for a portion of your investments it would be nice to get a solid return.
Not until 2010 for all matter that anyone should go out and end up not being able to retire.
I guess that depends on your age and how much money you have. Are you predicting a change in the economy by then?
I am not confident of there being a change that speaks to the benefit of the middle class by then at all considering the direction of the current politics.
There is something much larger that comes into play with continued government regulation and control, which equals loss of personal freedom and ability to control ones future. There is a also a balance between people’s willingness to work hard and generate jobs and savings when it is being eroded away by taxes, fees, forced services and inflation. Expect this for the next 4-8 years if the big spenders and tax raisers get into office. And then imagine, if you can, the country trying to recover from that.
So how much money did I just raised for not being in the stock market for the past few days? I am out because it is not time to be in, but will be in soon again. My point is, this is in fact time of opportunities by staying out and watch it like a hawk. While I am not in, I am fueling up to buy up everything cheap with the same amount of money that I already have. When I am not making money while everyone else is losing, I am relatively speaking richer, and in fact the only one that is still on the up and up collecting interest, while everybody else no longer could retire for another few years just over the last few days. I don’t just act like a stay home mom watching the economy, I watch the world news as things unfold, live.
At this point, it is not inflation that is the worry but deflation, a wonderful thing for those who are already functioning on cash and not on credit, and what is the biggest spending in the past 20 years exactly? Government spends on your behave, even if you don’t pay now, you would still have to pay eventually, possibly with interest that is not known or reported to you, Now that the retirement for tons of people is wiped out, motivate the need to work across the majority of the people even for very little salary, and that indicates once and for all who we need to vote for.
So what is the biggest spending for the last 20 years do you think?
How much do you think I raised for staying out of the market for the past few days relatively to the loses on retirement funds until the interested rate cut just a few minutes ago? Now 1/2 point cut with 1.5% remaining, very soon cash would be king.
Let me respond backwards, I guess. I don’t think I erased an approved post. If I did, it was not intentional. You can resend it if you like.
I don’t think you raised any money staying out of the market in the past few days, but you did avoid losing money, so you saved money. My understanding from the news and statistics, is about 30%. That’s a good savings. My point with regard to the fellow I mentioned earlier is that when he was out of the market (and he has never been in the market) there were lots of things to buy and it was not the across the board disaster there is now. When he was out, I was making 33% on average with some stocks going much higher.
Cash is definitely KING now and has been for about a year (unless it costs you more to convert to cash, ie. cap gains and income taxes). People who can access large blocks of cash either directly, or via margin or even credit cards with zero-interest for a year can use that money to scoop up some deals in many areas.
See my post on deflation for my response to your question.
I’m a little unclear on what you mean about the biggest spending for the last 20 years? Are you asking where the government spent the most of our money? I think the government has figured out a way in the past 20 years to collect more money from the people than it ever has in the past. This has only fueled the misappropriation of funds, and government greed. Frankly, I prefer to decide where to spend my money rather than have the government decide. I don’t need government as my middle man because government decreases the value of what I have. Only take a look at the value of the dollar, where the government keeps trying to convince us it is a good thing to let it drop in value.
The largest expense in the government is on Social Programs, and it is at about 56% of the total budget. In 1948 Social Programs were about 10% on the budget. Social Security accounts for about 20% of the 56% total. The Federal debt report shows that todays debt was also caused by Social Program spending (9% of the budget is these debt payments), which indicates that there is more spending on social programs than there is money being collected. To some that would mean raise taxes, but personally I feel there is enough taxes being collected, the management of these monies is what needs improvement.
Perhaps I should write a separate post on this as well? The per capita, national average for spending by the Federal Government in 2007 was $9,666 per person. This is $38,664 for a family of four! If related back to spending in the 1940s, this equates to $8,000 per person in excess spending. If families could pay less taxes, fees, (and other names the government has for these levies), they would increase their own standard of living, savings rates and financial security. I can not see any reason why the government should be allowed to manage our money because nothing has improved with the governmental hand out. Not our education, health care (not including technology which has noting to do with government), national debt, personal freedom, cost of living, social security or families with two-parent homes.
And about retirement for tons of people being wiped out, it’s important to note the only way to assure your retirement is wiped out is to sell out at the low. In my experience, there are lows, but things usually recover or level out and start the upward climb again. Hold onto your fear has always been my recommendation.
Usually recover is your words, but not so much in this case as we are all in the uncharted territory. How many years would it take to recover and when it does, one of the two or both might be the factor: would you then get out and use the profit; would you be too old by then to get to enjoy the retirement.
Bailout, interest rate cut, ban on short selling, only slow down the free fall and provide a softer landing, still doesn’t fix the problem. Free market has to play itself out. We are all in the middle of the market house cleaning that finally caught up based on greed. For those companies that are heavily involve with mortgage and got caught with CA, NV, and FL, you can stay in so that you are not wipe out according to your words, but they are not going to be going anywhere either, and you cannot take it with you.
Everything is different this time around, because it is no long just about people who couldn’t afford the mortgage without a job. It is very much about failure or refusal to pay for their losing with their real estate bet. A lot of people would finance something that is worth $1M for something that is still worth $1M, but plenty of them would no longer be willing to finance something that is now only worth $700K, specially for those interest only loan. It was a bet and it was a failure bet.
I was asking you if you know what is the one biggest governmental spending on one single issue within the last 20 years.
The government has no money, the government is currently borrowing. That debt will be paid, and we are the one who will be paying it, and the sooner the better because we would not be paying interest that doesn’t benefit the tax payers. This is funny how we all went from a national surplus to an abyss in just 8 years.
I said that it’s social security, although I find that hard to believe. But that’s what all the reports say? Can you find anything else?
Free market’s must play themselves out, and te sooner our government realizes it, the better. However, it’s not to their advantage or their expansive employee’s advantage, so don’t hold your breath!
I’ve been a raving maniac on greed for years and wow! Guess I was a real fortune-teller! Actually, it was my biggest pet peeve as a broker, and told all my clients not to invest in companies that overpaid executives.
As far as retirement, I think it’s time for Americans to stop trying to be so independent and for families to support each other. It’s a weak trend that needs more strength.
Regarding the the goverment repaying debt–what gave you that idea? There is no intention to repay unless at a lower rate…hence the degradation of the US currency.
And BTW, there was no inteion of anyone actually paying off these high mortgages ever…only the intention to float on a degraded currency with ongoing inflated pricing. Had that conversation years ago too. Fact is, we’re all just easing back from the government (taxes), no real ownership. …violation of the constitution.
And yes, you’re correct, the residents of the US will pay, but never enough. You know how it is with interest rates….you can never catch up, especially with all your spending!
What gave me the idea of repaying the debt is not an idea but current affair. We are borrow from another country, guess who is knocking on the door sooner or later? By the way, we haven’t seen the bottom of the market yet, as we have not seen or told the worse of this whole situation yet. If we are lucky, sometime next year, if not, more so in 2010 just like what I said in my previous post for real estate, but still subject to change of course due to unknown surprises.
I would like you to give your opinion on Dow down 35% from the peak though. What does that mean to you?
Yes, it’s a current affair, but like said, I don’t think there is any real intention of repaying it except by devaluing the dollar which makes it less, but costs us more. These moronic ideas are what got us here in the first place. The ‘excess’ or ’surplus’ budget was not really a surplus and I said so at the time. They had a windfall year or two at our (tax payer) expense, which kicked ff the greed factor as they started spending it as quickly as they could. This is the period when being a government employee began to get so lucrative as the salaries and perks went up, that it began serious government expansion at an untenable pace.
When debt needs to be repaid, there are all sorts of ways that gets done…even selling our national monuments or public park lands to raise cash as is happening in CA!
My opinion on the Dow being down 35% is that it’s caused by the government meddling in the private sector. The run on the banks and the pressure to merge was started by the government forcing the take-over of Bear Sterns. They basically hog-tied the company and forced them to accept JP Morgans take over bid. Now you see JP Morgan just got WAMU for nothing! The price they paid would not even buy two of the buildings WAMU owns if WAMU started selling off assets. There is a group in Washington that is orchestrating this big land/business grab and it’s causing a free fall in the market. And people in this same group are going to allocate or be involved in the distribution of the $700 billion (or whatever ballooned out number that becomes).
As long as the government is meddling around in the market it will continue to fall. Stocks are completely undervalued because their cash reserves and assets have far more value than their current outstanding shares.
The greed here as not stopped and personally, I think Americans should be outraged and protest this whole process.
You are absolutely dead on.
Next year we will see Dow 7800 or lower, wanna a bet?
Oh, you’re back with a new email. Wonderful.
It’s already there, the Dow that is. It could be there tomorrow or the next day, it’s obvious.
But the point is really, why is it there and what to do about it. How can people protect themselves? It doesn’t matter whether you are a stock holder/investor or not, because it is reflecting the current economic environment. It is an indicator and what it is doing is pricing the new president into the market. Perhaps Americans made a bad choice? Hopefully not. The market reflects economic optimism and pessimism, and as a way is designed to emerge from these bad times, the market will reflect that as well.