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November 16, 2009
In Wall Street We Trust?
Most of you who read this blog on a regular basis know that I am also the Editor and Co-Owner of the NoteWorthy Newsletter. Our annual convention took place last week in San Diego, California. A much more comprehensive look at the convention will appear in the December issue of the newsletter, but I wanted to give it a shout-out, as it was the inspiration for my thoughts this week.

First, even though we were battling with a down economy, a midweek convention, and a new locale, our attendance was a VERY respectable 148 folks. Just as importantly, my months of anxiety and sweating bullets leading up the convention were, for the most part, overblown. Yes, there are things we need to work on and improve upon, but the convention was extraordinarily well-received. I myself came away with a completely revitalized attitude and made the decision I am DONE relying on other people to manage my retirement.

There were two things that brought me to this realization. Full disclosure: from October 2007 to early 2009, the net asset value of my IRA fell 65%. Yeah, that’s not a typo – believe me, I wish it was. I currently have less in my IRA after 16 years of contributions (and 401K rollovers) than if I had taken ALL the money I’ve saved over those years and stuck it in my mattress. THIS IS NOT AN EXAGGERATION - IT IS FACT! Sure, I had my money diversified in several different mutual funds, but EVERY ONE of those funds is managed by someone who couldn’t give a rat’s ass about my individual goals for retirement. Whether he/she makes or loses money (for their customers, mind you) – they don’t care. As long as they earn their big bonuses – who cares about the investment goals of Clint Hinman in Liberty Lake, WA? We’ve already seen that demonstrated fully in the way Wall Street pays itself, regardless of whether the big firms make money or lose billions.

So – I’m reading the November 9th edition of Time Magazine, and there’s a story about why Main Street still hates Wall Street. One of the last paragraphs of the piece had a profound effect on my outlook going forward. To paraphrase, it essentially confirmed what I already knew: the big investment banks are NOT looking out for your financial future. You CANNOT rely on them to make wise investment decisions on your behalf- they simply DON’T CARE about anything but themselves. You lose money, and they blame “the markets”, not their inability to keep your money out of harm’s way.

The second thing was my reading of the book “House of Cards”, which talks about the rise and fall of the once-mighty Wall Street powerhouse Bear Stearns. It offers a behind-the-scenes look at the conversations and decisions that likely affected every single person reading this blog. See, even though you probably never wrote a check to Bear Stearns, you likely had an account with a Charles Schwab, or a Fidelity, or a Prudential, or even a Bank of America or Citibank. All these firms then ‘diversify’ their investments (on your behalf, remember) by sending monies to other big boys on Wall Street.

Well, you may remember hearing about two hedge funds that were run by a subsidiary of Bear Stearns called BSAM, or Bear Stearns Asset Management. These two funds placed big-time bets on subprime mortgages (all while the fund managers were lying about the true percentages of their subprime exposure, but apparently that doesn’t matter in the world of high finance) and got hammered because of it. In fact, the two poster children of dumbass investing (the co-managers of these funds) were acquitted just last week of any wrongdoing, even though they almost certainly contributed (either directly or indirectly) to YOU losing money in the stock market crash of late 2007 and most of 2008. After all, arrogance, greed, and stupidity aren’t crimes, but I wouldn’t be opposed to a bill that made them so!

As the big boys at Bear Stearns were trying to decide what to do about the massive failures of these funds, the CEO at one point essentially said “Screw ‘em – they’re big boys”, when a concerned employee said his big clients (who are unnamed, but one can assume they are household name financial institutions where you have your investments) would stand to lose millions. Just think about that for a minute. One may even be tempted to go along with him and say “Yeah, screw ‘em – let those banks eat those huge losses.”

Let me ask one question: Where do the banks get their money? Where do the investment firms get their money? (This the point in this blog where it gets so quiet we can hear a pin drop) YOU. ME. Your friends, family, acquaintances. THAT’S where the money comes from.

So where do we go from here? Well, by the end of the year I’m moving all my retirement funds into a self-directed IRA. I am going to take my knowledge of real estate and investing and provide for my retirement myself. What am I going to tell my household name investment company when I close out the account? Well, to borrow Bear Stearns’ former CEO’s words – screw ‘em.

Care to join me?

Clint


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