It was one of my father's sayings about stock market
declines: "When they raid the whorehouse, they take the pretty ones
with the ugly ones." They all look suspect to me now, but in the case of AIG
(American International Group), that's one particularly ugly whore. Only days after receiving an $85-billion
bailout from the Fed to keep from going belly up, the company spent a half million dollars on a "retreat" for company employees at an exclusive California resort spa. Congress is insisting they pay back the half-mil, while approving another $35 billion for the company in additional aid.
Of course, it's beyond outrageous, but it's a revealing glimpse into the mentality of today's corporate America. Talk about a group of people who have become dependant on government largess — and they're all wearing suits and carrying Blackberries.
My sincerest sympathy goes to those who have been crack-backed by the decade of gains that have just been wiped out. I feel your pain. I retired from the field of play after the tech-stock bust of 2000 and am still licking my wounds. That's when I finally realized that the market — the Dow, NASDAQ, futures, commodities, you name it — was an insider's game. If you're someone like me, the only way to make money is if you're lucky enough to bet with the insiders. It's like casinos: The odds favor the house. And just like the casinos, market institutions are always coming up with new ways to bet. Only instead of blackjack, keno, and craps, they call them financial instruments, derivatives, puts, and calls.
I come from a family of investors. When I was a little boy, my parents had to explain to me why my grandfather had given me 50 shares of Nabisco for my birthday instead of a toy truck. Afterwards, when my mother took me to the grocery store, I would insist she buy Vanilla Wafers, just to support the company.
My grandfather, who came to this country with nothing, would buy a stock and hold it for a quarter-century before he sold. He taught my father the same principles: Buy shares in a solid company with a future and hold on to them forever. That sort of conservative wisdom helped put me through college, but the Internet age changed everything.
Part of the insiders' game is that they don't teach you about the stock market in school. You have to learn it from other insiders. I learned from my father about the intricacies of the game. I entrusted my investments to him because he was better than any broker; he was smarter than most, did better research, and he actually cared. He kept books of moving averages that he would track using his own methods. When a stock broker would show him his new car, my father would say, "I want to see your clients' new cars." He would explain he was such a conservative investor because, "My father got wiped out in the stock market crash of 1929." It was the same for 70 or so years. Then he got an online account.
My father persuaded me that my intuitive judgment was as good as anyone's and, if I did the proper research, I could make money in the market. When I pulled the trigger on my first online trade, it was as big a rush as drawing a straight flush. It was like having a loose slot machine in the house. I was way up for a while and began imagining myself as having some latent ability to think a step ahead of the herd, but then the herd trampled me. I'll spare you the gory details, but I was left bewildered and feeling guilty that I had failed because I was too impulsive or my research was flawed. I had read books by everyone from Lee Ioccoca to Melvin Van Peebles. I looked at as many as five separate sources for expert opinion before making a trade but made the mistake of falling in love with the "pretty ones" and holding on to them too long. I took my lumps and bailed out, no wiser but certainly sadder. I didn't even get a free buffet out of the deal.
Imagine my surprise when I found out that my online brokerages, first Donaldson, Lufkin, and Jenrette, and then Harris Direct, were under investigation for their sales practices. It seems that some of the "experts" giving presumably impartial advice had financial interests in many of the stocks they were supposed to be reviewing. Both companies promptly went under and class-action lawsuits were filed, but because of lack of a paper trail and institutional candor, I could never prove that the shares I purchased were tainted by someone else's personal interest. It helped my pride to know I wasn't a total fool, just a sucker and a mark. But it hurt my pocketbook just the same.
In the end, they even got to my father. Dad, who had maintained the same investment philosophy his entire life, was lured into a group of clients who were given exclusive access to IPOs (Initial Public Offerings), which created so many instant millionaires in the '90s. He soon found out that part of his ass was missing. Dad was smarter than me; he had other assets. My financial plan is now probably much like yours: Vote for Obama and pray.