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Archive for the ‘Investments’ Category

“Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark.”

— Text on the now modified website of investment firm, Bernard L. Madoff Investment Securities LLC. owned by former chairman of the Nasdaq Stock Exchange Bernard Madoff.

If his business dealings indeed were of High Ethical Standards, I’d HATE to see business being done based on LOW Ethical Standards!

(Bernard Madoff was arrested last Thursday and charged with a single count of securities fraud. The Securities and Exchange Commission immediately filed separate civil charges against Madoff. The fraud is possibly one of the biggest in history. The alleged loss of investors’ money is estimated at 50 billion dollar! Yes, boys and girls, that’s FIFTY THOUSAND MILLION DOLLARS! All removed from their owners by ‘fair-dealing’ while observing the Highest Ethical Standards!)

The reason I used a picture of Jim Cramer (Mad Money) with my previous ‘Stock tip’ post was that I totally agree with Jim’s vision on ‘stock tips’: Tips are for waiters.

Back to Mark Skousen’s recommendation at the Freedom Fest.

When I heard him give this old style barber shop ‘tip’ (he didn’t even care to call it an ‘investment idea’), I was puzzled. That’s not a thing you expect from a serious professional Ph.D. Economist Investor Big Wig who rubs shoulders with Presidents of the United States. And a man who organizes conventions where there are actually numerous speakers, themselves highly successful investors, who will spend their entire alotted time to warn you to stay away from people who give out (more ususally ‘sell’) ‘stock tips’. (More on some of these speakers in a later post)

It got worse. People asked Mark questions about the business. Smart questions. And while happily babbling on and on for minutes after each question, it became painfully obvious that he had no clue whatsoever about the company. Or if he did, he wasn’t sharing it with us. He rattled off some ratios like the company’s P/E, which is of course, without proper context, completely meaningless. And this was an investment guru with numerous highly praised investment books on his name?

Of course, one has to understand that this man is not in the business of managing money. His business, plain and simple, is selling subscriptions. Subscriptions to his extremely expensive investment news letters. And we all know how these work: you ‘predict’ a boat load of winners. The ones that turn out a loser you forget, the ones who do VERY well, you use to prove how good you are and sell more subscriptions. You only have to go to the man’s website to see what I mean. To not-too-naive people these are huge warning signs: completely ignore these folks. Although I’m not suggesting that Mark Skousen belongs to them, you will also find a lot of operators of the infamous ‘pump and dump’ schemes in this arena. (Although, I admit, I was wondering how a man, who, according to his website -which I will not link to – has made such astonishing predictions, can still tout a company like Luminent, while total lay-men like myself are already quite familiar with the huge problems in the sub-prime lender business and the (then) looming credit crunch)

So, while I left that presentation with the distinct resolution not to touch that stock with a ten feet pole, I DID decide to follow it… so as to gleefully rub my hands when its price would go where I expected it to go.

This stock, which was ‘sold’ to us as being a steal at ten dollar, however, did NOT go where I expected it to go. Within a couple of weeks it would go WAY beyond that! It bottomed out at 36 cents! Yes, thirty six cents. This is where I realized (or hoped, rather) that the market was overreacting: sure this company had some serious issues suddenly (margin calls), but it was not an Enron, so from 10 bucks to 36 cents was, IMHO, just plain ridiculous. So I put some money in it, and sold it a few days later when it was back at $1.39. Sure, I still think it can recover much more, but then, it can also go bankrupt. And I don’t invest in situations this dubious and uncertain. Yes, I may speculate in special situations like these, a quick in and out with a limited amount of money, but that’s it. Sure, I could have put everything I had in this: I would have been a millionaire by now. But I also could have been broke. I fully understood, going in, that I was trying what was tantamount to, what is called, grabbing a falling dagger. So, in the end, I think I did well.

Which probably can’t be said of all those newsletter buyers and stock tip followers who started loading up when LUM went from 10 bucks to 9.

Last month I was at the freedomfest in Vegas. There were many speakers and they covered a broad range of topics, but it was very heavy on ‘investing’.

During the ‘fest’ I learned that the organization originated in the investment world. That explained a lot. In fact, the organizer of the event was a certain Dr. Mark Skousen, PhD, Economist. Apparently a very well known figure in the investment world. I attended a few of his presentations.

Clearly a gifted speaker.

In one of the presentations he thanked us for attenting, and showed his appreciation for us showing up at his conference by giving us a HOT stock buying tip, that he recently had shared with his customers. He told us about a company by the name of Luminent Mortgage Capital Inc (stock symbol LUM). It was an excellent buy, was going to declare some healthy dividend and … well, it was just a steal! Ok, it had gone up a little the past few weeks, due to Mark recommending it to his top customers, but when it leveled out at about $10, we should all load up!

He humbly bowed to the applause.

I invested some money in it. And then I sold my stake.

I more than trippled my money in, oh, about a week’s time. Made a couple of thousand bucks. It paid for the trip and the conference and then some!

Don’t you just love ‘stock tips’?

(Yes, of course there is more to the story! Subject of a subsequent post)