Beware of hot tips, financial gurus and a high opinion of your own abilities.
By Jack Runniger, O.D.
Has the falling stock market caused you any lost sleep?" I asked a friend who had most of his retirement funds in stocks.
"I sleep like a baby!" he replied.
"Really?" I asked in surprise.
"Yep. I wake up every two hours and cry!"
The falling market has created some new definitions for investment terms:
- Bull market: A random market movement causing an investor to mistake himself for a financial genius.
- P/E ratio: The percentage of investors wetting their pants as the market keeps crashing.
- Standard & Poor: Your life in a nutshell.
- Cash flow: The movement your money makes as it disappears down the toilet.
I can't place all the blame for my investment failures on the falling market. I was always a lousy investor even when times were good.
ILLUSTRATION BY AMY WUMMER
"A stock broker I know gave me a great tip," a friend told me when I'd first achieved sufficient income to be able to invest some of it. So I followed his advice. Unfortunately, the stock almost doubled over the next year, inflating my confidence in hot tips as the source of income growth. This was to be the source of my undoing.
During my Navy days in World War II, I had developed a friendship with a guy I'll call Les Scruples (to protect the guilty). I lost track of him after the war until I read an article about him in Time magazine about 35 years ago. He had become one of the leading patent attorneys in the United States.
The Time story concerned his being the attorney for Budweiser as they sued an exterminating company in Florida for using the ad slogan, "Where there's life, there's bugs." This was judged an infringement on the Budweiser slogan, "Where there's life, there's Bud."
We re-established our friendship and I was undoubtedly somewhat dazzled by his big-wheel activities and vacation home in Key Biscayne, Fla. So when he offered to let me in on a silver mine venture he was undertaking in Arizona, I borrowed money and became an extremely minor miner owner.
Too late I discovered that my old war buddy had become an alcoholic -- my money now lies buried in the depths of the mine.
Like money out the window
Still not convinced of my inadequacy as a financial genius, I next invested in a resort hotel that was being constructed. I watched them digging what I thought was the foundation for the building, only to discover later that they were digging a hole in which to deposit my money.
"What you need to do is buy land," a financial adviser who had been recommended to me by a friend suggested. "It has to appreciate in value because there is no more land being manufactured."
Sounded sensible to me, so I invested in three of his properties. I soon learned that it wasn't the land that appreciated. Instead, what rose in value was his bank account, while my own depreciated.
I may not be the brightest star in the firmament, but it did finally begin to dawn on me after a couple more fiascos similar to these that perhaps the "experts" whom I had been listening to could better be termed financial typhoons, rather than tycoons.
Hopefully, you'll learn this lesson earlier than I did.
Runniger, our consulting editor, lives in Rome, GA. He's also a past
editor of OM.
Optometric Management, Issue: May 2003