How to Really Ruin Your Financial Life and Portfolio Read online

  Contents

  Acknowledgments

  Introduction

  Chapter 1: Trade Frequently

  Chapter 2: Trade Foreign Exchange

  Chapter 3: Believe in Your Heart That You Can Pick Stocks

  Chapter 4: Assume That Recent Trends Will Continue Indefinitely

  Chapter 5: Pour Continuer . . . Sell When Things Look Bleak . . . and Stay the Heck Out of the Market

  Chapter 6: Know in Your Heart That This Time It’s Different . . . and Act on It

  Chapter 7: Dividends Are for Spending—Not Investing—Just Ignore Them or Use Them to Buy Baubles

  Chapter 8: Cash Is Garbage—Except When It’s Not

  Chapter 9: Put Your Money into a Hedge Fund

  Chapter 10: Try Strategies That No One Else Has Ever Thought of . . . You Can Out-Think the Market

  Chapter 11: Use the Strategies That University Endowments and the Giant Players Use

  Chapter 12: Commodities Are Calling . . . Will You Answer the Phone?: Everything That Happens in Your Life Involves Commodities

  Chapter 13: Go on Margin for Everything

  Chapter 14: Sell Short

  Chapter 15: Do Not Have a Plan for Your Investing or for Your Financial Life Generally

  Chapter 16: Do It All Yourself

  Chapter 17: Pay No Attention at All to Taxes

  Chapter 18: Believe That Those People You See on TV Can Actually Tell the Future

  Chapter 19: Do Not Start Even Thinking about Any of This until the Absolutely Last Moment

  Chapter 20: Don’t Believe That Any of This Matters Very Much, This Money Stuff

  Chapter 21–49: How to Ruin Your Greatest Asset—You

  Choose a Career with No Possibility of Advancement

  Choose a Career with Little Chance for a Good Income

  Choose Lots of Education over Lots of Pay

  Show No Respect for Your Boss or Fellow Workers

  Don’t Learn Much about Your Job, Industry, or Employers . . . Just Wing It

  Do the Minimum Just to Get By

  Show Up in Torn Jeans, Unshaven, Unwashed, Any Old Way You Feel Like Showing Up

  Show No Regard for the Truth

  Display Open Contempt for Your Job, Your Fellow Workers, Your Boss, and Your Clients/Customers

  Act Like You Are Morally Superior to Your Job and Your Colleagues

  Do Not Be Punctual

  Don’t Hesitate to Have a Cocktail or Two at Lunch

  Gossip and Sow Divisiveness at Work

  Second-Guess Everyone around You at Work, Especially Your Boss

  Threaten Your Boss and Employer with Litigation

  Look for Grievances at Work

  Make Sexual Advances to Anyone You Find Attractive

  Make Excessive Phone Calls, Texts, and E-Mails on Company Time

  Play Video Games at Work and Make Loud Noises as You Do

  Make and Keep Lots of Personal Appointments on Company Time

  Listen to Your Colleagues’ Conversations and Snoop on Their E-Mails

  Talk about How Much Better Earlier Employers Were Than Your Current Employer

  Brag about Your Great Family Connections

  Pad Your Expense Account

  Borrow Money from Your Fellow Employees and Don’t Pay It Back

  Question, Mock, and Belittle Your Tasks

  Flirt with Your Colleagues’ Significant Others

  Proselytize at Work and Belittle Anyone Who Doesn’t Share Your Political or Religious Beliefs

  Say Anything You Want That Comes into Your Head

  About the Author

  Copyright © 2012 by Ben Stein. All rights reserved.

  Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

  Published simultaneously in Canada.

  No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750–8400, fax (978) 646–8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748–6011, fax (201) 748–6008, or online at www.wiley.com/go/permissions.

  Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

  For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at (800) 762–2974, outside the United States at (317) 572–3993 or fax (317) 572–4002.

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  Library of Congress Cataloging-in-Publication Data:

  Stein, Benjamin, 1944- author.

  How to really ruin your financial life and portfolio / Ben Stein.

  pages cm

  ISBN 978–1–118–33873–5 (cloth); ISBN 978–1–118–46148–8 (ebk); ISBN 978–1–118–46145–7 (ebk); ISBN 978–1–118–46146–4 (ebk)

  1. Portfolio management. 2. Investments. 3. Finance, Personal. I. Title.

  HG4529.5.S717 2012

  332.024—dc23

  2012020166

  FOR BIG WIFEY+

  Acknowledgments

  The first person I knew who was interested in investing was my mother. She had little training in it, but read Barron’s, The Wall Street Journal, and Forbes voraciously. When she died, she left my sister and me a pretty darned good portfolio. She also left me with two fine admonitions: “Buy on the rumor and sell on the news,” and, “Bulls make money and bears make money, but hogs get slaughtered.” I am not quite sure what either of these mean in practical terms to the long-term, index-oriented investor, but they must mean something because my mother did leave a good portfolio.

  My father, a famous economist, was the least interested in money of any man I have ever met, yet he had some excellent wisdom about money. Almost all of it could have been summed up under the simple heading: “Be prudent.” I rarely have been since he died in 1999, to my great cost.

  My sister, far and away the most prudent Stein now living, and her equally prudent husband, Melvin, have often advised prudence upon me and I thank her and him. My first genius investor mentor was my first agent in Hollywood, George Diskant. His predictions about the economy were not always borne out, but he told me about BRK and that was worth plenty.

  Other great influences were my spectacularly good money and banking teacher at Columbia, C. Lowell Harriss, and my superb econ teachers at Yale, Henry Wallich and James Tobin, inventor of “the Fed model” and “Tobin’s Q”, both designed to tell when the stock market is overvalued and when it is undervalued. Neither seems to have had much predictive value in recent years, but they are certainly correct in general direction.

  It has been my great pleasure in the last 25 years to have had a great broker at Merrill Lynch in Kevin Hanley, and more lately in his brilliant colleague, Jerry Au. I have also been privileged to get a general introduction to the erudition of John Bogle. I keep a lot of my stash at Fidelity. I have also made the acquaintance of Ned Johnson and his lovely daughter, Abigail. The Johnsons and their company have done me much good. The Johnsons and John Bogle truly are the small investor’s best friends.

  For about the last 10 years, I have been a pal and frequent dinner and speaking companion of Ray Lucia, a stunningly well-informed and articulate investment advisor (now retired). I have learned a huge amount from Ray and his brother Joe, whom I consider my own brothers.

  If there is anyone smarter in speculation that Jim Rogers, and quicker to see what’s happening, I don’t know who that would be (unless it’s Warren Buffett.) I was on a show with him on Fox for many years and always learned from him and still do. The whole gang on that show, especially host Neil Cavuto, always challenge and impress me.

  By an extraordinary twist of fate, I have become pals in the last several years with Warren E. Buffett, surely the greatest genius in investing and in life generally. He is light years ahead of where I will ever be, but he has inspired me and years of reading his annual reports have sparked some kindling in my woolly brain.

  Finally, my closest friend, Phil DeMuth, has spent countless hours doing research on investing, often on vague lines I have suggested to him, but usually on his own thoughts. We talk of little else but investing, and it is always useful. Few men that I know have as good a fr
iend as Phil and I am grateful.

  Well, maybe that wasn’t final. . . . The real acknowledgment is to life its own self. Life has flattened me so many times, lifted me up and laid me down low, given me a wildly false sense of security, then showed me who was boss, taught me so much fear and humility that I felt compelled to offer the lessons in this little book to those younger than I am. “Experience keeps a dear [meaning ‘expensive’] school,” said Ben Franklin, “but a fool will learn in no other.”

  I am that fool—but like many a fool at a King’s Court, I have seen plenty and can share it. Maybe it can all be summed up by what my Pop said: “Be prudent.” But what is prudent? Maybe some idea of it can be gleaned from this book.

  Introduction

  Your basic human is not a great investor. Successful investing requires extreme patience; we humans are impatient. Rewarding investing requires nerves of steel—or else perfect forgetfulness; we humans are frightened, nervous animals. Making money by investing requires singleness of purpose; we humans are scattered and distracted, pulled in all directions at once. The great investors carefully think through their moves, guided by eons of experience; we real-life human being investors are rash, impulsive gamblers.

  Great investors are not swayed by fads and fancies. The ones with two feet and receding hair are wills-o’-the-wisp, blown all about by what is happening at the moment.

  The ones who make money over their lifetimes are steadfast of purpose, well informed, listen to wise guidance, reject counsels of impatience and despair. The real-life investor gobbles up misinformation, listens to fools and knaves, and gyrates wildly in his actions, almost always against his own best interest.

  I know all of this. I have seen it in my own life on many an occasion. I have seen it in the lives of men and women I know, even supersmart men and women. They make extraordinary mistakes that cost them real money.

  Educations are imperiled. Retirements are jeopardized or lost. All of that comes from making poor investment decisions.

  Investors do not do the wrong thing because they want to lose money. They do the wrong thing because they are, well, human. And humans are simply constructed of fear and greed and confusion, while great investors are made up of sterner stuff.

  Investing involves making money, or trying to do so. There are billions, trillions of words out there written about how to invest wisely. There are far more than I know about. Among those I do know about, I highly recommend anything by my pal Phil DeMuth, or by Warren Buffett, or by John Bogle, the founder of Vanguard, the world standard in low-cost index investing, a simply great way to invest. John Bogle on Investing is as good a book as there is on the subject. If you had to read only one book, this would probably be your choice.

  There are so many hopelessly confused books about investing out there it would be impossible to know where to begin listing them, and why bother?

  Unfortunately, investing also involves people throwing around their money and putting it in a place where other people can take it away from them. This is a bit like the comment often credited to P. T. Barnum: “There’s a sucker born every minute—and two to take him.”

  Very unfortunately, those two are often lawyers, but even more often, they are in the world of investments. The variety of ways and means by which people can relieve other people of their money is breathtakingly infinite. Newsletters. Conferences. Software. Expensive kinds of investment guidance, sometimes called hedge funds, other times called other names.

  Often these schemes are run by men who genuinely want to help the investor and truly do. It is far from true that everyone who handles your money is a thief, and I have the great pleasure of working frequently with men and women who do a great job protecting their clients.

  But there are more than enough people out there who, through all kinds of motives, but mostly out of all-too-human self-interest, will not have much hesitation in deciding between their interest and yours.

  My late father, Herbert Stein, an extremely smart man and a world famous economist, devised what he called Milken’s Law, which, he believed, often explained investment options presented to the public by promoters. It went as follows: The constant ME is always greater than the variable U.

  It is sad but it’s true.

  Over the last many years, your humble servant, moi, has written and published many books seeking to help investors make sound decisions. I have given so many speeches about it that it scares me. I always preach the basics. But listeners often do not care to hear the basics. They want frills and fads and they usually are wrong to point themselves in that direction. Men and women make terrible mistakes, often because someone they trusted told them to do so.

  So I guess making affirmative suggestions to investors has not worked very well, or at least not perfectly.

  Now I am going to try a slightly different approach. I am going to suggest ways to ruin your investment portfolio. That’s right: I am suggesting ways to ruin your portfolio. Possibly, if you see that you are doing some of these things, you will step back and think about whether you really want to make such efforts at self-destruction. Or maybe you won’t. I know that I rarely learn from experience until I have been hit over the head a million times. Maybe the approach of this book will be more helpful than that.

  Long ago, when I was a speechwriter for Mr. Richard Nixon and observed his speeches, I learned a great lesson: When a speaker starts a speech, the main thing the audience wants is for him to finish.

  Possibly the same is true for books about how to ruin your portfolio, so let me start right away so you can finish right away.

  Chapter 1

  Trade Frequently

  You’ve been in a casino. You’ve watched hockey. You’ve watched tennis. You know it’s all about “the action.” It’s about rapid, speedy moves, about drama, about sudden changes. That’s why it’s exciting.

  Investing in a broad index fund and just letting it sit there, as John Bogle and Warren Buffett and Ben Stein and Phil DeMuth advise, is boring. It is slow. It is like watching paint dry. Why do it? What if the historical data shows you almost always do better by just buying the index and holding it rather than by frequent trading? What if those data are overwhelming and go back over many decades? What if they conclusively prove that jumping in and out of the market leads to returns so much lower than buying and holding—that you might as well just keep the money under your pillow as trade frequently? What if they show that this is true not only for 80 years in the United States but all over the world where stock corporations are allowed? So what?

  Those data were about average returns from average investors. You don’t want average returns. You are not an average John Q. Investor. You are Superman or Superwoman. You want super returns and you are going to get them. And again, by definition, if you just buy and hold broad swaths of the market, you get the returns of the total market over long periods. Guess what: That’s not good enough for you. Not even close.

  Instead, you go, guys and gals, go for frequent trading.

  There are many ways to approach this. Here is one obvious winner: Buy some new proprietary trading software, load it into the old Mac, turn on the computer, and let’er rip!

  The people who made that software knew what they were doing. They aren’t just scamming you. They are unbelievably rich billionaires. And they got that way from trading stocks. Yes, they are keeping it quiet, but they are way beyond Warren Buffett in terms of their success at investing.

  They have to be, don’t they? Yes, of course they do. How else would they have the stones to tell you how to trade? How else would they have the sheer genius to develop and market a brilliant system to trade a lot and beat the market? They are geniuses. I just told you a million times now.

  But they are not like those mean-spirited, harmful, stingy billionaires President Obama talks about. They are kind-hearted, generous, super billionaires. They want to share their secrets with you so you’ll be part of The Billionaires Club, too.

  They aren’t selling this software to make a piddling few bucks on each disc they sell or every program you download. That would be beneath them. Those are pennies to men and women like them. They have billions, maybe trillions, from their investing acumen and their trading brilliance. So they don’t sell this software to make money.