Don't Hate The Money Monster

Sorry to disappoint all of you Wall Street haters out there, but the lesson of the movie Money Monster is not that Wall Street is ‘evil’. The lesson is that when you invest your money in something, whatever that may be, it is up to you to educate yourself about what you are investing in instead of simply following someone else’s advice, especially if that someone else is a talking head on TV.

If you are a seasoned investor with a well-diversified portfolio, then you are going to watch Money Monster for its entertainment value, Monday-morning quarterback the movie for a few minutes afterwards, and then move on with your life. There is nothing controversial or overly thought-provoking in the movie for you. CEO’s lying and taking advantage of loop holes, making secret deals with union leaders to avoid or prolong strikes to manipulate share prices – it’s all run-of-the-mill normal ‘evil’ capitalism to you. Markets and share prices go up and come down and based on when you buy, you’ve either made some great money by the time you sell, or you’ve taken a bath if you sell now, or worse yet, are forced to sell at market bottom for some reason, but have diversified and saved enough that you don’t have to sell at bottom, but can hold on and ride out the storm, or in the worst case scenario, completely lose that fraction of your portfolio, but have that loss cancelled out by holdings and gains in other areas. No big deal, right? Diversification, golden rule, etc., etc.

But, if you’re a novice investor or someone who is not actually invested in the market yet, you’re going to see Money Monster and it is going to reinforce all of the ‘evil’ Wall Street stereotypes that you have come to know and love over the years. The poor little guy who comes into a large sum of money and invests it without any real knowledge of money, the market, the company he is investing in, all because he is trying to do something a little smarter with the windfall than blow it on a new expensive car or ridiculously expensive home theater system. And to top it off, that poor little guy is taking the advice of an investor turned cable finance channel showman a la Jim Cramer on a single given day as he looks for that one great investment that is going to turn his $60,000 into a million bucks in no time flat. The novice and non-investors out there are going to walk out of Money Monster feeling even more conspired against and stolen from by the big banks and ‘evil’ capitalists than they already feel because of their self-perceived non-self-inflicted, down-trodden life state – still waiting for that one big break that will help them get rich, and get rich quick through a single investment.

The lesson of the movie Money Monster is this: Please, please, please, for the love of God, if you do not know anything or very little about money and you come into a chunk of it, either via inheritance, lottery, surprise duffle bag full of money mysteriously left on your door step, or some other means, DO NOT, I say again, DO NOT, invest that money without learning as much as you can about investing first! And for the sanity of all of us who are forced into the position of not feeling bad for you when you do so, DO NOT invest all of your money in a single position – a single stock, a single commodity, a single store, a single person, a single advisor, a single family member, a single family business, a single investment house, a single hedge fund, etc.

This lesson has been out there for all of us since the dawn of investing, folks. When you work at Enron, you don’t take all of your 401K money or all of your windfall from Great Aunt Shirley’s will and put it all in Enron stock. The single greatest advice on investing is NEVER, NEVER, NEVER, put all of your eggs in one basket. I know a lot of you out there that just said, “Well, duh,” to yourself and rolled your eyes, but if you watch any news interview with your average non-informed investor right after a market crash, or spend any time watching American Greed on CNBC, then you know the common theme in these post-crash or post-swindle stories is someone taking all of their money and investing it all in one place. “I took my life savings and gave it all to one guy and it was a scam and now I have nothing!” “I worked at Enron, I invested every penny at Enron, and now I have nothing!” These stories wouldn’t exist if people weren’t out there still doing this.

If you want to drive a car, we have laws in place that say you must be trained. Go try to rent a plane without a pilot’s license and see what happens. Yet, you can open a brokerage account online without any training what so ever. You can take your life savings, no matter how small or large that sum may be, and invest it in the most ridiculous way possible and there are no laws to stop you. I am not saying there should be, but capitalism, folks, she expects you to at least have some common sense and learn a little bit about something before you invest your life savings in it! And honestly, that’s not a lot to ask.

So, go see Money Monster and either enjoy it, hate it, find the main character either a hero, anti-hero or cliché uninformed investor, but please never lose sight of the fact that while the lesson of the movie may be diversify, diversify, diversify on the surface, the real message is, PLEASE, for the love of all in this world, DON’T INVEST YOUR MONEY IN THE MARKET IF YOU DON’T KNOW WHAT YOU ARE DOING! Leave that money sitting in an FDIC insured savings account until after you take the time to learn more about investing and the market!

Photo via Pixabay

Why You Should Skip That New Car In Your 20s

When you are in your 20s – early 20s if you skip college and go right to work – or maybe your mid to late 20s if you finish school before taking on that first full-time job – you are most likely going to find yourself earning more money than you ever have before in your life. While this salary will pale in comparison to the money you will most likely be making in your 30s, 40s, 50s, 60s, etc., this new windfall in your bank account is very likely to get you thinking about buying a shiny, brand new car.

If you’re like me, you drove a few clunkers through high school and college, and the prospect of trading that money sitting in your account and that money coming in from those future paychecks for a new car is going to be a very powerful temptation.

But, while it seems like a pretty harmless financial choice because you’re young and have all those years of working ahead of you, opting for a brand new car at this point in your financial life can greatly affect the amount of money you can save and the dividends and investment gains you can earn over the course of the rest of your life.

If you insist on upgrading to a new vehicle, at least go with a pre-owned car because it will save you a lot of money up front and you won’t get hit that hard with depreciation – at least not as hard as if you buy a new car. But if you already have a car, and it’s not leaving you stranded by the side of the road once a month, it might make the most financial sense to keep the car you already own.

According to a study by the National Institute on Retirement Security, some 45% of working-age households have no assets in a retirement account, and those that do have an average balance of $40,000. The average price of a new car, according to USA Today is $33,560. How many of those households with no balance or below average balance in their retirement account have a brand new car that is costing tens of thousands of dollars? Take into consideration that most car purchases are financed, which adds financing fees on top of the price of the car, and consider the value of a new car drops 20% in the first year and by more than 50% by the fifth year, and you can clearly see how saving the money you would spend on a brand new car is clearly the better financial decision.

It is important to remember that your desire for that shiny, brand new car will definitely subside once you’re knee-deep in five years’ worth of car payments and an inflated interest rate. Plus, keep in mind that if you can pull together just $16,000 in five years (that’s $266.67 per month), and invest that money, even at a return of 7%, you would have $120,000 in 30 years. And 30 years from now, you most likely still won’t have that shiny new car you were just dying to get in your 20s.

Photo by Mike Birdy via Pexels

As The Highest NASDAQ Closing In History Turns 10 Years Old...

Today marks the 10th Anniversary of the NASDAQ Peaking at 5,048.62.

An entire decade has passed and we are nowhere near the numbers when the tech bubble burst in 2000. Right now, the NASDAQ is at 2,431. Some things have changed since then, though. Fast Company has given us the following to reflect upon:

World's Richest Man Then: Bill Gates
World's Richest Man Now: Bill Gates

U.S. Cell Phone Penetration Then: 34%
U.S. Cell Phone Penetration Now: 89%

Number Of Daily Newspapers In The U.S. Then: 1,480
Number Of Daily Newspapers In The U.S. Now: 1,422

No. 1 Web Site Then: AOL
No. 1 Web Site Now: Google

Internet Users Worldwide Then: 360 Million
Internet Users Worldwide Now: 1.7 Billion

No. 1 Auto Manufacturer In The World Then: General Motors
No. 1 Auto Manufacturer In The World Now: Toyota

Non-U.S. Revenue Percentages...

One of the most important aspects of investing your hard-earned dollars is to ensure that you are diversified to guard against fluctuations in sectors of your portfolio that may be overweighted, such as what happened to a lot of people in 1999 when they were overweighted in tech and what happened to people at Enron who were way overweighted in their own company stock.

It pays to do a little digging because things may not always be as they seem.

For instance, you may be invested in a U.S.-based company thinking that you have covered the U.S. portion of your portfolio, when in fact, most of that company’s revenue is coming from more unstable foreign sources.

Below, find the 15 largest U.S. firms and the percentage of their non-U.S. revenue...

Intel - 80%
ExxonMobil - 75%
Coca-Cola - 70%
Chevron - 63%
IBM - 63%
Altria Group - 62%
Proctor & Gamble - 53%
Cisco Systems - 50%
AIG - 44%
Pfizer - 43%
General Electric - 41%
Johnson & Johnson - 41%
PepsiCo - 36%
Dell - 33%
Microsoft - 32%

Why Ethics Are In Decline...

There are two reasons that I am writing about business and ethics again today. 

Reason #1: At the end of May, I began receiving emails from Strong Financial, my former investment company that became my former investment company after it’s founder and captain, Dick Strong was caught using time zones and different closing times of international markets to pad his own personal stake in the company. These emails were talking about how exciting it was for Strong Financial customers that Strong Financial was going to be “merged” into Wells Fargo, thus resulting in access to new Wells Fargo investments. I must admit that I had a very difficult time getting excited about this because I knew that the only reason these Wells Fargo investments were being made available to me was because Dick Strong acted in an unethical manner, was caught, and forced out of his leadership positions, resulting in the fail of Strong Financial and the necessity for it to be picked up by Wells Fargo in order to survive. Could you imagine spending your life building a company, then losing it just because you got a little greedy? This time-zone play was wrong and Dick Strong knew that it was wrong, and now his life’s work is going to end up as part of a division of Wells Fargo.

Reason #2: Teresa was at traffic school this past Saturday and re-told to me a story that the class’s instructor told her. When this instructor was a young girl, her family was involved in a car accident while on a road trip. The evening of the accident, the instructor and her sister found themselves in a strange town with nowhere to stay the night while their parents were in the hospital being treated for their injuries. The instructor’s mother called for a priest and the priest found a family for the girls to spend the night with that lived in the same town that the hospital was in. As the instructor was telling the story to Teresa’s traffic school class, she commented on how things were different back then and how people could be trusted.

We all know that things were different back then, but then this led me to ponder the question of why we have accepted this decline in ethics over time.

There is no question that, on the whole, American society grows more and more unethical every year. American business can do little but follow that trend because American business is made up of the same individuals that make up American society.

Ethics do not decline overnight, so there is not a clear-cut morning where we wake up and things are suddenly unethical, but even though this slide of ethics has occurred over decades, I cannot help but ponder why there are so many people out there in the business world that tolerate loose ethics, or a lack of ethics altogether, from the people they do business with and the people that they employ.

Why does an 18 year-old kid in the work place today think it is perfectly all right to sit in the company bathroom and text message his friends while on the clock? Is it technology’s fault? Is it how children are raised now as opposed to then?

It may be part of the reason, but what I am coming to believe is that the largest portion of blame for this slide in ethics lies with people out there in the business world who tolerate it.

Ethics thrive when unethical behavior is not tolerated, therefore, naturally, ethics decline when unethical behavior is tolerated. The text messaging kid’s managers know what he is doing, but they continue to let it happen. If the company’s owner knew what the kid was doing, he would be fired, but why do the managers tolerate this unethical behavior? Their tolerance of it not only allows his unethical behavior to continue, but contributes to the rise of unethical behavior from others at the company as well.

So, what can we as business owners and professionals do to ensure that ethics stop declining? Never tolerate unethical behavior from those we do business with and those that work for us.

Saving At Its Worst...

At this point in the economic game, any American who actually manages to save some money should be praised, but there’s a right way and a wrong way to do it.

A Pennsylvania man that was not named by The Week Magazine, most likely so he wouldn’t be bombarded with calls from financial planners, recently walked into a bank with 37 4 1/2 gallon buckets filled with pennies he had accumulated over 40 years.

The pennies totaled $10,060. Putting $10K away over 40 years is not extraordinary, but with more Americans not saving anything at all, it’s not too bad.

My problem, however, is that if this guy had started putting the $251.50 he was averaging per year in pennies into an investment that returned even 5% per year, he’d have $20,252 instead of $10,060, even after paying taxes.

Putting these pennies in buckets instead of investing them was a monumental mistake.

“Some people don’t think pennies add up to anything,” this man’s wife was quoted as saying.

I’d love to have seen the look on her proud face when she found out that an annual trip to the bank with these pennies could have doubled their money.

What Is Insider Trading?

Sure it looks fun in the movies and it is basically what started this whole Martha Stewart mess, but how many of us understand insider trading?

Well, there are a good deal of gray areas when it comes to the insider trading laws, much like how traffic laws are open to interpretation but can still land you in jail based on how they are interpreted.

Insider trading laws were enacted in a five-year period following the 1929 crash to combat some common abuses of the era.

Basically, it is illegal for you buy or sell shares of a company based on information that you receive from an officer or key employee of that company.

If this individual tells you, or in some other way, provides information to you that they believe will, or is commonly known to, effect share price and you then go and buy or sell shares in that company, you have then committed a crime.

Here’s the kicker. If the person telling you this information is not an employee of that company nor discloses to you that they heard this information from an employee of the company, you can buy and sell all that you want to with this information, completely legally.

If you are walking down the street and find a memo that says Microsoft is going to stop selling software and develop a new line of oven mitts, you can legally act on that information. More so, if you break into Bill Gates’s house and see this memo on his desk, you can be prosecuted for breaking into his house, but you can buy, buy, buy and sell, sell, sell, fully legally with the information that you saw while you were illegally in his home.

But, if you hear it from a Microsoft employee and you act on it before it becomes public knowledge, you can end up in jail for insider trading.

Geographic Diversification In Investing

There are so many things in our everyday lives that we are looking at differently now, after 9/11.

Financial Journalist Andrew Feinberg captured the new way that we must look at portfolio diversity best when he wrote, “In the post-9/11 world, I fear that our painstakingly diversified portfolio is actually dangerously concentrated. I mean, we are overweighted in Manhattan big-time.”

This is something new in investing, but a very valid point in the world we are living in today. Every analyst will preach non-stop about the importance of your portfolio being diversified. In yesterday’s world, diversifying amongst different countries, different sectors, different companies, different sized-companies and different company philosophies was enough, but with terrorism threatening U.S. cities, investors even need to diversify where their investments lie within the U.S.

Business in Manhattan literally ground to a halt on 9/11 and some investors learned that their diversified portfolios were extremely heavily invested in companies that resided in Manhattan. Investors need to check their portfolios to ensure that their U.S. investments are spread out over the geography of the nation as well.

Fred Alger, An American Hero

My thoughts are with all Americans today as we mourn the loss of our collective innocence one year ago today...Let us never forget the tragic and heroic events of that fateful day as we push forward into our future...

Seven years ago, Fred Alger, the founder of Fred Alger Management decided it was time for some rest after taking himself, investors, and his company to the forefront of the investment world.

Fred handed the reigns over to his brother David who had been with him all along and then made his way to retirement split between Switzerland and parts of the U.S. This past September as Fred and his wife were getting ready to leave the house in East Hampton, New York, which they had leased for a month’s vacation, Fred glanced at the television and saw One World Trade Center ablaze.

Fred Alger had chosen the 93rd floor of the World Trade Center for his offices and recalls that it took him quite some time to realize not only that his brother and former colleagues were in harm’s way, but that they had been killed in the attack. Nearly all of the firm’s employees perished.

Fred Alger Management was virtually wiped out on September 11th, but in the typical Fred Alger style, instead of leaving his investors in peril, he immediately cancelled retirement indefinitely and is now working to get the firm back on its feet.

Former employees who had moved on after coming into their own at Fred Alger immediately lined up to help run the now-leaderless funds and pensions. Today, almost a year later, Fred Alger Management is pretty much back on its feet and pushing forward, a symbol of spirit and determination.