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Stock Ideas Investors Daily Edge Conversations From The Past Week
Stock Ideas Investors Daily Edge Conversations From The Past Week 
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| Conversations From The Past Week |
| Monday, 20 October 2008 | ||||||||
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The market is unbelievable right now. Down 700, up 900, down 700…and that could be in the first half the day these days. The market is changing so fast it is hard to write an article and have the data be relevant by the time you finish the article. So rather than try to follow the ebbs and flows that are changing in 15-minute increments, I thought I would share some of my recent conversations with you. The first one occurred last Saturday night. I was having dinner at a restaurant with my wife. This particular night, the restaurant was crowded by the time we got there. This was my fault for watching the end of the Notre Dame game (I should have left for the restaurant earlier and not watched the end, I would have been better company). Because of the wait, my wife and I decided to sit at the bar. During dinner, my cell phone rang and it was my brother. We don’t talk as often as we should, so when I saw that it was him calling I decided to answer. He wanted to check on me after the huge selloff the previous week. We talked for a few minutes and I let him know I had come out of it just fine (actually a little ahead). I told him we were out to dinner and that I would call him back the next day. There was a gentleman and his son sitting next to us at the bar. I could tell the man was separated or divorced just by the conversations he was having with his son. After overhearing my conversation with my brother, the man asked me what I do for a living. I explained that I trade my own money and that I write an investment newsletter. This was probably a mistake as now he really wanted to talk—and it turns out he sells cars for a living. I have to admit, I felt sorry for him. Trying to make a living selling cars in this economy has to be tough. But then he told me something that made me feel even more sorry for him. It turns out that he was in the middle of a divorce and that as part of the divorce settlement his soon to be ex-wife got half of his 401K and the value was determined on September 30. Yet the man had not moved money to the sidelines on that day, he held on hoping for a bounce. His thought was that he had to give her $40,000, but if the market bounced sharply after the record-date and before the day he actually had to cut the check, it wouldn’t be as painful. Instead of working out like that, the man had dumped everything on October 9 (yes the worst possible day) and he only $65,000 left. So now his ex-wife was getting 40K and he was only getting 25K.
Now I felt really bad for the guy. His income has to have fallen sharply over the last few years, now his 401k drops by 70 percent between having to split it and the market decline. He was asking me what to do going forward. I asked him how long he wanted to work and he said he would be working at least another 20 years. I told him that I thought now was the time to be buying for the long term. We might not be at a bottom just yet, but that if he wasn’t planning on using the money for at least 15 years, there could be some real bargains out there. The second conversation I want to share was the one that took place with my brother the next day. Just over two years ago my brother changed jobs and he called me asking me what he should do with his 401k from his old company. I told him he should move everything to cash or a money market fund and then transfer it to an I.R.A. at one of the online brokers. My brother has never been interested in the market, so he usually calls me when it is time to make any changes in his retirement accounts. Well it turns out that he didn’t complete the instructions I gave him two years ago. He moved the old 401k to the savings account, but he never moved it to one of the online brokers. So for the past two years, it has been sitting there earning two percent or so. He must be feeling pretty lucky right now. His new 401k was falling (but not too badly) and his old 401k was safe and sound. Now he wants to know what to do with it. I told him the same thing as the guy at the restaurant. You have at least 20 years until retirement, now is a long-term buying opportunity. Hopefully he follows through this time and moves that money. I told him I won’t run it for him, but I will give him suggestions, just like I do my readers. The third conversation happened on Wednesday. I was outside getting some air when two of the guys from the office upstairs came down to ask me how things were going. I told them it was a frustrating market, but that for the most part I had been making money. Both of these guys are pushing 60. One trades fairly actively and he and I talk often about the markets and what we are seeing and doing. The other gentleman is not nearly as involved in the markets and he wants to retire in two years. He asked me what he should be doing. I told him he should have had most of his money out of stocks and in fixed income some time ago. But if he still had money in stocks, he might want to wait for a few months and then check back with me. My father retired two years ago and he has a pension and a small 401k since the company didn’t start the 401k program until he was almost to retirement. When he finally retired, he asked me what to do with the 401k. Since he wanted to completely severe ties to his former company (with the exception of the pension of course), I suggested that he move the money out and I hooked him up with a broker friend of mine. My friend Jay and I worked out a plan for my father and he has all of this money spread between four fixed income mutual funds (a blend of corporate bonds and government bonds). I share these stories with you for several reasons. Each week, I try to give general advice or knowledge that will work for the majority of the readers. However, not all investors fit into one mold. Everyone has their own timeframe for when they will need their investment money and as result every person should have their own plan. The second reason for telling these stories is that when I am getting approached by this many people in one week asking me what to do, I have to believe a bottom isn’t too far off. The proverbial wall of worry that the market likes to climb seems to be pretty high right now. Good luck and good trading, Rick P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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