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It’s the strategy! October 27, 2008

Posted by shaferfinancial in Uncategorized.
Tags: , , , ,

Having been in the mortgage business, I am not surprised at the amount of people who think they can “shop” for financial instruments as if they were shopping at Wal Mart.  After all, that is exactly what we have been taught to do; buy the product with the lowest price.  I learned my lesson a long time ago, that the lowest price isn’t necessarily the best buy.  How many times did I buy some cheaply made product, that broke soon after I bought it, or never worked as advertised.  Trudging back to a store, to re-buy a product is bad, but having a major personal financial set back because of it is much worse.  I bought mutual funds, that never worked as advertised.  I bought stocks that were cheap (and speculative).  Fortunately, I learned from my mistakes.  However, many seemingly don’t or at least don’t learn the right lessons.  Take a neighbor who insisted on purchasing an option arm, with that introductory interest rate of 2%.  When I told him that actual interest rate was 7.5% and that I could get him a fixed rate loan at 6%, he told me I was wrong.  Oh well, another deal lost by me!  He wants out of his option arm now, but is upside down and can’t make it happen.  He told folks I was trying to rip him off, when I told him the truth about his option arm loan!!!!!  Or the almost daily e-mails I get about some stock that is “really going to take off.”  They never do.  Or the conversations I get in with folks who like to talk about fees and expenses on their mutual funds.  Seems to be a new macho thing about how low you can get your fees and expenses in mutual funds now!  Doesn’t matter that you saved 1% on fees and expenses if your mutual fund is down 42%!  My high expense REIT is still up in this bear market!  Or of course, EIULs, which never go negative, but have high fees and expenses are simply rejected for that reason by these same folks!  

Folks here is the truth.  There are literally millions of folks out there selling financial products such as mortgages, stocks, mutual funds, life insurance, annuities, etc.  95% of them have no formal finance education.  99.5% of them haven’t looked at the actual evidence of the results of their advice.  They simply parrot what the corporations tell them.  Mortgage sales people are perhaps the worse, with no actual test having to be taken to even prove technical competence.  Imagine that, the biggest financial decision most people ever make (their mortgage) is in the hands of folks that don’t have any finance education.  Well at least these people are being drummed out of the business at least temporarily with the current market.

Its the strategy that is important, not the amount of fees or commissions. The right strategy can make hundreds of thousands of dollars difference in a persons financial life. So if some person or company makes a good living by selling you a product that dramatically improves your financial position, why is that bad? They are selling you their intellectual capital, don't they deserve to be well compensated?

Choosing financial products because of fees or expenses is like taking a date to Burger King for their $1 special, and wondering why you never got a second date!








1. Sean Carr - October 28, 2008

Thought I would give an update to the discussion we had about hedging for a possible bad bear market. I recommended SRS (approximately $85 at the time) to balance a real estate portfolio. I have closed that position today at $198. It could certainly go higher but the price, by my calculations, is no longer justified by the fundamentals of the IYR holdings of which this fund is a 2 to 1 inverse. So now as you say it’s all speculation. With over 100% gain in 3 months its time to lock in profit and ignore greed, which should not be in the calculations anyway.

Going forward I like your recommendation of HCN but not in the near term as fundamentals are no longer driving the market. If anything is to be learned it’s to think about how to hedge in times of volatility. Sometimes that’s not obvious or even possible, but in the case of SRS there was little downside considering the earnings of the past few quarters in commercial REIT’s and the upside, as we have seen, can be quite dramatic in a fear driven market. Japanese Yen is not a bad place to stay for those of use moving to the sidelines, which is of course a hedge against the dollar. I would strongly recommend that an individual seek the console of a financial professional if they don’t understand why the dollar continues to loose ground to the Yen. This is not an investment, it is a strategy to maintain the value a liquid position until such a time as the individual feels comfortable moving into an investment. 2009 may just be a lousy year, time will tell. Good luck to those navigating these treacherous waters.

2. shaferfinancial - October 28, 2008

Thanks Sean for your thoughtful post and ideas. Personally, I am less concerned with volatility as profitability will drive stock values long term. I think by the end of the year the emotion will be wrung out of the market and a more profit driven pricing will occur. Glad you had such a great outcome with SRS, it really gets me thinking about hedging real estate properly. Always learning about the investment game!

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