You Idiots Deserve To Be Poor

May 25, 2012

"I want to be young, smart and successful! So I'll do it vicariously through these people."

From Bloomberg:

Ryan Cefalu, who lives with his wife and two kids in Baton Rouge, Louisiana, saw in Facebook’s much-anticipated initial public offering a chance to buffer his retirement fund. His expectations fizzled along with the stock within the first minutes of trading.
“It’s disheartening to know that things get over-hyped,” Cefalu, a 34-year-old data-systems manager who spent about $4,000 on the stock, said in an interview.

Let’s assume that quote isn’t taken out of context, although it’s hard to imagine what context it could be taken out of. The most overhyped IPO in history, and Mr. Cefalu is expressing surprise at what, exactly? He’s implying that he bought the stock before it was overhyped, or that said hype has something to do with his losses.

Here’s another fool who deserved to soon be parted from her money:

“I thought it would be fun to get in on the initial frenzy,” said Linda Lantz, an online marketer in Granite Bay, California, who bought 100 shares. “Now it makes me think ‘Oh God, should I bail or is it going to come back?’”

Fun? Where is the fun? Is it inherently “fun” to have a line in your E*Trade account that reads:

100 FB NASDAQ 5-17-2012 $39.84?

If you want fun, go target shooting or buy a kitten. (If you want lots of fun, combine the two.) More to the point, if you’re investing for fun, you’re in even worse shape than a guy who goes into debt to film a movie and then begs for people to cover the expenses.

You invest to make money. Sweet feathery Jesus, how much more obvious a point could this be? Look, we get that an iPad or a Birkin bag conveys something about your status and tells passersby that you want them to think you have disposable income. But Facebook stock? You do know that corporations no longer issue physical certificates, right? You can’t literally show your stock purchase off to people unless, again, you invite them to look at your computer screen while you’re logged into your brokerage account.

Michael McClafferty, a freshman finance major at Michigan State University, saw his “first big investment” turn into a $3,000 loss when he sold the shares at $35.
“I didn’t want to lose more,” McClafferty said. “I didn’t know what to do.”
The 19 year-old student estimates he spent $8,000 more than he wanted to while repeating orders that wouldn’t go through on the first day, and failing to cancel them because of the technical problems.

Anyone want to bet on whether Mr. McClafferty has incurred any student loans? We hope to God that he has rich parents financing the education that he’s getting but that isn’t taking. This would be slightly more forgivable if he were majoring in sociology.

Some out-and-out lying doesn’t hurt, either:

Pat Brogan, a Yahoo! Inc. manager who trades on sites run by E*Trade and Fidelity in her spare time, called the experience of buying Facebook stock the “biggest fiasco” in her 30 years of day trading.

Two points from Ms. Brogan’s debacle. Number 1, no one day-trades for 30 years, for the same reason that no one plays day-Russian Roulette, day-wrestles grizzly bears or day-shoots up heroin for 30 years.

Also, risking your own money in the hopes of returns isn’t something you do “in (your) spare time.” It requires a little more intellectual commitment and wariness than do quilting or playing Gran Turismo 5.

Alright, a 3rd point. What was she expecting? Of the thousands of equities she could have chosen to purchase last week, she picked the one with zero history as a public company. If you’d asked her “Why’d you buy Facebook today, instead of Hewlett-Packard or Time Warner?”, what do you think she would have answered? Or any other sheep who thinks investing is about status and internal feelings of hipness rather than making a mother-loving profit?

Because they thought they could beat the system. They’d be the ones to buy Facebook at (its opening price + x), then sell it hours later at (its opening price + x + y). Which is to say, they had to know they wouldn’t be the absolute first in line, right? And that the people who did get in earlier were entitled to their own profit, right? Still, Ms. Brogan and her compatriots had it all figured out. They’d get in early enough to allow those preceding investors their profit, then enjoy their own as they cashed out to the next round of lemming/piranha hybrids on the horizon.

Oh, who are we (and they) kidding? The day traders and speculators who tried to buy Facebook stock as early as possible would have held onto it had it risen. Fortunately for them, or at least for us, it didn’t.

But no, the alleged “30-year day trader”, the college kid, and the Louisianan looking to settle his retirement in one day know more than the insiders do.

The chance of you purchasing Facebook stock at the appropriate minute on the day of its IPO, then selling it within a day or two at a substantial profit, is nonexistent. First, you don’t know as much as the stock’s underwriters do, and second, if you’re greedy enough to try and time the market like that, you’re not going to be satisfied with a modest $4 or $5 gain. You’ll want that baby to rise to hundreds of dollars a share, just as AOL (now around $28) and Yahoo! ($15 or so) did. Otherwise you’re alleging that the avarice that got you there in the first place can be kept in check at certain points. Come on.

We do way too many sports analogies on this site, but that’s not going to stop us from doing another one. If you sink a half-court shot to win a Kia Sorrento at halftime of an NBA game, even if you hit nothing but net, the home team’s general manager is not going to offer you a contract. Not even at the league minimum. You got lucky. The ability to consistently hit half-court shots is as rare, and as practically useless, as the ability to time when to get into and when to get out of IPOs. We say “practically” useless because you can’t build an offense around 3-point attempts taken 47’ from the basket, any more than you can build an investing strategy around knowing when to board and disembark the IPO train.

Twitterer @DubaiAtNight, who was one of the most insightful commenters on Control Your Cash back when we allowed comments, put it best:

Imagine if had been Koch Industries that went public. (As if. The Koch brothers aren’t stupid.) The biggest private company in the world then opens itself up to general investors, and a combination of nefarious underwriting and technical glitches leads to a bunch of unprepared dilettantes losing their money. The U.S. Senate, the President and the SEC wouldn’t be able to land on Koch management fast enough. The 1%, keeping the 99% down, etc., etc. Meanwhile, if a tousle-headed 20-something with an affinity for hoodies is at the helm, and if the product in question is something commonplace, benign, and beyond most people’s technical understanding, no big deal.

Investing isn’t a freaking game. It can be fun and rewarding, but a) not over the course of an afternoon and b) it takes work. Here, read this and step back from the maelstrom. You can thank us when you’re rich.

Filed Under: Bad Examples, Investments Tagged With: , , , , , ,

Preventative Maintenance, Your New Best Friend

May 9, 2012

WARNING: Never mind the graphic images. Once this gal’s voice enters your head, it ain’t coming out anytime soon.

 

When your humble blogger was a Cub Scout, his pack watched an anti-smoking film that contained his first exposure to tracheotomy. The video featured a guy smoking a cigarette through a hole in his neck, which was followed by a helpful if nauseating cross-section diagram that showed how surgeons somehow detached the patient’s windpipe from his blackened larynx and had it connect to the outside world at a point of contact somewhere near his Adam’s apple. If the description sickens you, you should have seen the video.

The happy result is that no one in that church basement ever lit up a cigarette.

Which of course is a lie. Most of those kids ended up becoming high school classmates, and several turned into pack-a-day smokers. One of the adults in charge of the Cub Scout meeting smoked during the video, never reasoning that a) maybe it’d have been better to have instead smoked after the kids went home and b) him lighting up in front of everyone sent a louder message than did the recorded image of a cancer patient.

This is a personal finance website, and this isn’t an anti-smoking screed: hell, the more you smoke the more elbow room the rest of us eventually enjoy. But there’s a point to be made.

Look at our cover girl, Terrie, 51. Doing a 180º isn’t going to make a difference at this point. She can lead the healthiest lifestyle imaginable: eat a whole foods diet, drink nothing but ionized water, run 5 miles every morning (notwithstanding that she now has the lung capacity of a web-footed salamander), and it won’t matter. Nothing’s going to regrow the hair, or the lower jaw, or the throat flesh. She’s a casualty waiting to happen, and might even be dead by the time you read this. People who are dumb enough to smoke, largely don’t care.

For another example, this one from personal knowledge, here’s a family friend who smoked himself to death. His house had more full ashtrays than ours has electrical outlets. The end came a few months after the picture was taken, but 3 years after he’d had the first lung removed. (They don’t remove a second lung.) A fresh start, such as it was, and this was how he expressed his gratitude to the surgeons who prolonged his life.

The same problem of exacerbation applies to finances, too. Making a $900 payment on the credit card you owe $19,489.34 on means next to nothing. It’s like coughing up something black one morning, seeing the face of God in the mucous, then deciding that from this day forward that you’re only going to smoke menthols.

Lot of help that is, jerkface. I already have a $19,489.34 balance on my VISA card. (But only $8,593.32 on my MasterCard! Why can’t you look at the positive instead?)

Depending on your attitude, you’re going to find the following advice either patronizing or useful: You won’t get your hand bitten off the 20th time if you don’t put it in the leopard cage the 1st time.

Yeah. Habits start off annoying, and eventually become effortless. Whether it’s 20 minutes of yoga every morning, taking your dog for his daily constitutional, even something as mundane as brushing your teeth; you do it because you should, and soon enough you don’t think twice about it, to the point where omitting the repeated behavior becomes more of an inconvenience than performing it does.

You see what we did there? Substitute something negative (smoking, beating your kids, financing everyday purchases) in the list of habits in the preceding paragraph. If you habitually incur credit-card debt, or habitually squander a fixed ratio of your salary on gambling, it’ll feel awkward to start not doing so.

The number of 50-year-olds who overcame decades of financial stupidity to build lasting wealth is virtually zero. Gaining realization is something the younger and more impressionable folks do. So can you change? Probably not. But if you’re sincere about wanting to, the patented secret method is to simply do it. While financial trouble isn’t easy to dig out of, it’s at least possible to do so – unlike turning black lung tissue into pink.

If any of this resonates, or hits uncomfortably closely, congratulations! You’re a test case. Downsize. It’s only temporary, anyway. The luxury townhome you’re renting and can barely afford? Suck it up and take on a roommate. Don’t think of your lifestyle being cramped, think of the few hundred dollars a month you’re now receiving and weren’t before. Same goes for the Target “retail therapy” and peer pressure group dinner dates at restaurants you’d never frequent on your own.

No one wants to lay the foundation, but everyone wants to live in the penthouse. You can’t get there without the necessary intermediate steps. Building wealth, employing leverage, compounding your net worth – none of that works unless your net worth is positive in the first place.  Otherwise you’re just making a bad situation worse.

You can cut expenses. Not like that kook at The Simple Dollar who counts the thousandths of pennies it costs him each time he opens his fridge, but rather in large and impactful ways. You can find masses of cash in your portfolio that are just sitting there instead of being put to work – e.g. the savings account that you could easily turn into a money market account or a mutual fund. What the hell is stopping you?

Filed Under: Bad Examples, Capitalism, Consumer Debt, Education Tagged With: , , , ,

Work From Home! (You Can’t Possibly Think This Is Legit)

May 4, 2012

As a model, the woman in this “work from home” ad is far too hot to actually work from home

(UPDATE, February 2014: The site in question here no longer exists, go figure. The URL now redirects to Build.com, which is a subsidiary of UK building materials giant Wolseley. Build.com is basically an online-only equivalent of Lowe’s or Home Depot.) 

If you still watch conventional old TV, as opposed to Hulu or something similar, you’ve seen the ads. Generally speaking, the further removed you are from the major networks and from primetime, the more the ads promise.

Work at home. Work from home. Make $6000 a month, putting in just a few hours a day. Or if you prefer, make unlimited money. Obviously this is too good to be true, but exactly what are these companies offering beyond a vague promise at financial freedom? What do they require you to sell?

Your humble blogger recently donned his protective headgear and dived into one heavily promoted site representative of the genre, Internet-Wealth-Builder.com, because multiple hyphens in a URL are a sure sign of an upstanding business.

The landing page requires you to enter your name and email address before proceeding. Once you do, you’re led to a different URL, that of something called the Monitium Marketing System (pronounced “moe-nih-tee’-um”, like it matters). A 10½-minute video starts automatically, which makes one wonder whom Monitium is trying to appeal to: people who are too impatient to commute to a job every day, but who are willing to sit through a interminable series of graphics?

Both the video and the supporting copy are relentlessly vague. The company offers

one of the best business models available for today’s entrepreneurs, a business model with low risk, low overhead, great tax advantages…

What’s not to love about that? How about the next 5 words:

and a low start-up investment.

More on that in a moment.

“Membership platform.” “The latest tools.” “Wealth creation blueprint.” Co-op marketing, member support, network of partner companies…fine, but why the secrecy? Will we be selling cat toys? Anthracite coal? Spice racks? Outboard motors? All of the above?

The generalities continue unabated. 4 minutes in, there are still zero details given as to what this business entails. “Win-win situation”. “Leverage”. And the especially verbose “industry-changing proprietary platform.” There’s more layering here than at the Fairbanks Outdoor Beauty Pageant.

The site features a picture of a smiling man whom you’re supposed to contact if you want more details. He has a Broward County, Florida phone number that’s also associated with various limited liability companies, and these include a real estate office that sells foreclosed houses in the adjacent county.
After watching the video, the sales pitch finally begins. You’ll receive a “wealth creation system” for only $50 a month, if you don’t cancel before your 2-week trial expires. The company discloses neither the form nor the content of the wealth creation system. For all you know, you might need a VCR to play it.

To get past the landing page I gave a fake name (Jerry Sandusky) and email address, but figured it’d be prudent to stop short of giving a fake credit card number. Fortunately, I had enough time to read through the company’s privacy policy and terms of service, each of which was more gripping than the 10½ -minute video.

With a little more research, we find out that our “all of the above” guess from a few paragraphs ago wasn’t too far off the mark. We’ll spare you the sausage-making details and the ordeal of reading through the press release, but if you pay the $50 a month, you get to sell and distribute products from Monitium’s “partners”. These include eXfuse, Monitium’s açai berry juice and meal replacement shakes arm; SoZo, which bottles a coffee-based energy drink; Wow Green, a line of cleaning products (bonus: WowGreen.net is currently inaccessible), and something called Smart Media Technologies, which makes a browser toolbar. If you have the aptitude for selling enough of these products to cover your expenses and earn a comfortable living, more power to you. But it seems that spending 40 hours a week in an office or on a job site would be less grueling and offer a better return.

Other network marketing companies – Amway and Avon are the archetypes of the industry – are more blatant about how they operate. But to the marks of the companies that tout the wonders of working from home, “unlimited income” sounds far more appetizing than does “sell cosmetics to your friends”.

The good news is that there are plenty of legitimate, less dramatic ways to work from home. (Just ask the blogger who commutes from his bedroom to his dining room table every morning.) There’s a quiet army of virtual assistants who handle the clerical busywork, data entry etc. that some businesses need to get done but can’t justify hiring a full-time person for. More web developers work at home than in a formal office, for the simple reason that a computer and an internet connection are the sole requirements for the job beyond one’s expertise. And one of the great seismic shifts in recent employment demographics is the movement of advertising art directors and copywriters from in-agency to at home.

Unfortunately for the less industrious among us, working at home requires you to have marketable skills; ones that you could use in the real world if you so chose. The trick, if there is one, is to start with the job and then take it home instead of the other way around. If you really want to, and you plan accordingly, you can indeed work at home and enjoy all the resultant benefits. But if you think that working at home can consist of nothing more than sitting idle and watching the checks roll in…well, you might be sitting idle for a while.

This article is featured in:

**The Carnival of Personal Finance: The Color Wheel Edition**

Filed Under: Bad Examples, Making Smart Choices Tagged With: , ,
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