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Gerry Callihan
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My bio is a short and simple one. I'm a high school graduate, period. I spent most of my working life as a over the road trucker. An independent, if you will. The first book I read on investing was One Up On Wall Street by Peter Lynch. Then came many others including Benjamin Graham, Charles... More
  • Dow 14,000. The Next Big Number

    About 35,000 years ago, one of our ancestors made some tally marks on a bone. What he was keeping track of is unknown. What we do know, however, is that numbers inevitably followed. Numerals, numbers, digits, figures; pick a name. They rush through the portals of our eyes and ears and scurry to our brain. Once there, they begin their incessant chatter. Most of us don't pay much attention to their small talk of plusses and minuses, ratios and returns, percentages, means, averages, and on and on. We don't care about all that. Thinking is hard work. We're lazy. We're into instant gratification. We want the final number, the old bottom line, and we want it now.

    With that final number, that special number, we can justify our actions. Our perception of that number becomes our reality, our truth. A good example of this is when an investor pays fifty cents a share for a thousand shares of some pink sheet leper. "Hey," he thinks, "what have I got to lose if this thing tanks. A lousy fifty cents a share." A $500 loss has been reduced to fifty cents.

    If the numbers are reluctant to support a particular undertaking, we'll go to great lengths to convince them otherwise. We'll slice, dice, and crunch them. We'll take them raw or if need be, some of us will cook them. Numbers don't lie until we coerce them.

    And when those little rascals can't be coerced, they're ignored. We buy a lottery ticket in the morning and spend our workday dreaming of how we'll spend our winnings. 15 million to one doesn't pertain to us. Odds are for other people. We're special.

    We endow numbers with mystical powers. The lucky number 7. The unlucky number 13. Our personal lucky number. Third time's the charm. Bad things come in threes.

    We roll the dice, and the spots become numbers, and the numbers become illustrations and personifications. Boxcars. Snake eyes. Cross eyes. Little Joe. Nina from Pasadena.

    Ironically, when numbers are employed to help us do great things is when they become most mundane. Numbers make it possible to explore the surface of Mars and peer into the innards of the Titanic. We stare in wonder at all the fantastic achievements of the human race and ask ourselves, "How?" Numbers. Boring numbers. The fun starts when we ask those little critters to measure something immeasurable.

    By our very nature, we, as investors are irrational. Our emotions take over and we do stupid things. We buy when we should sell. When stocks are cheap, we want nothing to do with them. Why? The big number. Whether it's Dow 14,000 or Dow 7,000, the big number is what we are fixated on; it's our crutch, our teddy bear, our security blanket. The big number validates our decisions, and invariably, because we constantly misinterpret what the big number is trying to tell us, our decisions are usually wrong.

    The irrationality of investors is supported and enhanced by the media. You can't blame them. Competition is fierce. You've got to attract readers, listeners, and viewers. Let's listen to two fictitious radio announcers describing the same bad day on Wall Street.

    Announcer 1, from Station WZZZ.

    "Good evening. This is Hal Bland with the latest news from Wall Street. The value of shares in many companies fell today as concerns about the economy in the near term caused investors to sell."

    Announcer 2, from Station WOMG.

    "Good evening. This is Betty Breathless with a breaking news alert from Wall Street. Stocks plummeted today as rampant anxiety about the shaky economy caused already panicky investors to run for the exits."

    WZZZ will be out of business in six months.

    Take a look at the headlines: 'STOCKS SOAR', 'STOCKS NOSEDIVE', 'MARKET MELTDOWN', 'THE BULL CHARGES ON', 'INVESTORS FLEE', STOCKS IN FREEFALL'. It's a wonder we make any money at all.

    We don't buy shares of a company anymore. We don't look at ourselves as partial owners of a going concern. We buy stocks, and stocks can be naughty. When the price of our stock drops, we feel betrayed. We've spent our hard-earned money for that stock and now it has let us down. "How dare it!" we fume. When the price goes up we brag to our friends about our stock as if it were our overachieving child. As it rises, it takes our ego with it. "Savvy," we think, "it's great to be savvy."

    But when all of our stocks misbehave, along with those of everyone else, we look at the big number, and we tremble. We can feel the clammy fingers of fear closing around our throats. That bravado and swagger we had when we bought our stocks has evaporated. The big number is shrinking. Everyone is getting out! Sell at the market! Sell! Sell! So we get out. At least we avoided the bottom. Our 30% loss could have been 50%. Whew.

    But someone was buying, weren't they? The whole time the big number was unraveling, someone was buying. Hmmmm. Perchance, was it you?

    Thanks.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Feb 08 3:42 PM | Link | Comment!
  • It's The Person In The Bathroom Mirror

    When I first started investing in the market, I used a financial advisor. I was soon to learn that my advisor was in fact a salesman, and a good one at that. For several years I followed his suggestions and invested my hard-earned money in couldn't-miss mutual funds, limited partnerships, and a few other things I'm too embarrassed to mention. When I questioned my advisor about the dismal returns I was realizing, he always had an answer. He probably had quite a list of answers because I never heard the same one twice.

    Well, one day it happened. I was sitting at the kitchen table reading about mutual funds and something called an expense ratio. In the article was a short list of some of the funds sporting excessive ratios. Three of them were nestled in my portfolio. More reading followed. And then, even more reading. Knowledge is power, isn't it?

    A few months after the scales had fallen from my eyes, I received a phone call from the man who was going to make me rich. He had a hot mutual fund that was guaranteed to soar. This fund would be a life changer if I invested enough in it. I asked him the name of the fund. He told me. I agreed to meet him the next day. After hanging up the phone, I consulted a book I had purchased. It listed thousands of mutual funds with in depth information about each one, including fees and expenses. The life changing fund was in the book. It had a 5.5% front end load. Now, just whose life was he talking about?

    The next afternoon I met my advisor at a local restaurant. He was waiting for me in a booth. On the table in front of him lay a beautiful leather portfolio. We shook hands and I sat down. He opened the portfolio with a flourish. I didn't give him a chance to get started. I told him everything I'd learned about the fund, spending extra time on it's past performance and kneecap expense ratio. I'll never forget the look on his face. He closed the portfolio and offered to buy lunch. I declined. He left. I never saw him again.

    Since then, I've done my investing through a brokerage account. I do my own homework and research. I've made mistakes and learned from them. I had more successes than failures, but at times I can't help but think that the failures can sometimes be more beneficial than the triumphs.

    Before there is any misunderstanding, I want to say that there are countless numbers of good and honest financial advisors out there. Kudos to them. It must be a tough job.

    My situation, however, was not unique. It occurs all the time. People can be too trusting, too ignorant, or too lazy to do some research and ask questions; lots of questions.

    In the end, it's up to you. It's your money. You worked hard to earn it and that money should be respected. It's up to the person in your bathroom mirror.

    I mentioned earlier that I never saw my advisor again. I did, however, hear from him one last time. It was a couple of years after our meeting in the restaurant. He called me at home. It was Saturday night and I could tell from his speech that he'd been drinking. What he had to say to me only took a few seconds. He said people in his profession should really care about the people whose money they take to invest. I agreed. He hung up. I suppose he'd been looking in the mirror.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Jan 15 3:45 AM | Link | 2 Comments
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