Living Rich

How to lose 60% in the stock market

My financial advisor/licensed stock broker whom we shall call by the name of Rebecca was one of those stock market investors who lost a lot of money during the great recession.  In July 2008 Rebecca had her money, close to a million dollars of it, equally divided between a diversified emerging markets fund, a mid-cap growth fund, a large value fund, a specialty natural resources fund and a specialty real estate fund.  If you are a stock broker you know which funds I am talking about. Needless to say Rebecca was very aggressive in her investment choices, bordering almost on reckless and speculative.  Well, she paid the price.

We parted ways around the time the interest yield curve started flattening.  We had many discussions about the state of the economy and disagreed on how my money should be invested.  I told her that I am concerned the interest rate curve inverted from positive to negative and historically……to make a long story short, I fired her.  Our paths crossed again around the middle of 2009 at a cocktail party that was hosted by one of the largest banks in the nation who shall remain nameless but whose initials are HSBC.  After 3 or 4 Margaritas, she told me her story.  She thought her investments along with her clients’ investments were doing “OK”, with losses of less than 20% for the year until President Bush delivered his speech on September 24, 2008 announcing the government’s bailout of banks with toxic assets.  She thought the president’s speech caused more of a panic in the market which precipitated an abrupt panic selling. To make her situation worse, she sold all her stocks on or about October 10, 2008 after the Dow plunged approximately 2,500 points between September 25 and October 9, 2008 because she thought stocks would continue to go down.  But when the Dow gained about 900 points on October 28, 2008, she put her money back into the same 5 funds they were in before because she thought the bear market was close to bottom.  But stocks kept going down. On or about November 20, 2008, she took what was left of her money out of the market again and put it all in a money market fund, now convinced that the bottom of the bear market has a long way to go.  When we met at that cocktail party in mid-2009, all her money was still in a money market fund.  None of her money was invested in equities because she did not know that the recession ended.  Indeed the NBER did not proclaim, until a year later, that the recession ended in June 2009.  That was how she lost 60% of the value of her portfolio.  You would think a stock broker knows enough about the stock market to NOT lose 60% value of her portfolio. It’s a dirty little secret. But the truth is that many stock brokers, financial advisors, investment advisors, economists, speculators, financial gurus, hedge fund managers, market watchers, business forecasters and the so-called stock market geniuses lost money in the last recession just like most people did.  Billionaire Carl Icahn, Andrew Smithers, Paul B. Farrell and James Dale Davidson must have lost a lot of money this year if they followed their own advice the "big crash" is coming in 2016.

My last contact with Rebecca was towards the end of 2013 when she told me over the phone that she has not yet recovered all the money she lost during the great recession…..“good I’m not yet forty five, so I still have plenty of time to recover the money before I retire..”, she cheerfully said.  I’m glad above it all, she had a cavalier attitude about losing 60% of her money.  I LOL, though I never made any disparaging remark.  I could have told her, “…and I was paying you for financial advice when I made over 50% return on my money by the time the great recession ended?!!”

********************************************The book I wrote, "Living Rich and Loving It" which is available on Amazon Kindle strives to develop a vision that being rich is not only about achieving financial independence.  It’s about living a happy, healthy, simple, balanced and fulfilling life with minimal stress. Aiming high and setting your goal much higher than your peers to build a successful life sounds great but it should not be at the expense of your health and relationships. Doing more than you think is necessary, than just doing enough to get by is admirable but it may take its toll on you.  Your mental drive must be balanced with maintaining physical fitness and spending ample leisure time with loved ones. Workaholics and over achievers realize much too late in life that the path they had taken was the wrong one.  The road to victory does not have to be the roughest road...Read more

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