Got your attention didn’t I ?
You all do realize that anyone who buys a new car is UNDERWATER the minute you sign the papers and drive off the lot ? That you get further and further underwater every single day ? Maybe thats why so few are buying new cars ? We havent instituted a bailout for their underwater car loans.
So whats the difference between being underwater on a mortgage and underwater on a stock ? Is it that “experts” will tell you to hold the stock in hopes of it going up in value and then explain that those with homes worth less than their mortgages shouldn’t feel bad about breaking their mortgages and defaulting ?
I think “Buy and Hold” for stocks is one of the all time great marketing scams. Ignore it. Always.
“Buy and Hold” for your house is a mantra you should always live by. The difference ?
You can live in your house. You get utility from your house. You may get a deduction for interest paid on your tax bill. You can develop a positive emotional attachment to a house.
A share of stock….well you can…you can look up the price anytime you want if you think thats fun. There is no utility of a share of stock beyond its financial value. The value of a house is that its your home.
The fact that you may be underwater in your mortgage is of no relevance if you can make the payments.
If you can make the payments on your mortgage, it shouldnt matter if your house is worth 10pct of your mortgage. If you can make the payments, make them.
My last house, I remember being freaked out watching as my rate on my Adjustable Rate Mortgage went up and up as I watched the value of my house go down. For 2 years my rate went up, my house value went down. Fortunately, I liked living there. I wasnt building any equity, in fact, I was negative, but I was going to have to pay to live somewhere. On top of everything, my credit was bad enough, I didn’t want to make it any worse. In fact, I knew that if I didn’t make the payments on my house, my chances of ever owning a house again were none and none. So I kept paying the note every month. In spite of the financial pain.
Then a funny thing happened. Interest rates started to go down. I didnt even know it until I got my annual notice saying that my mortgage payment would go down. The value of my house wasnt going up, but for the next several years, my payments went down. It took years, but I actually built equity in the house.
Which is exactly the point. Buy and hold works when it comes to the HOME you LIVE IN. Turning in the keys because you have negative equity is a fool’s game. If you do, YOU WILL NEVER OWN A HOUSE.You will be a renter FOREVER.
Your home has far more value than its mark to market price because you can live in it . Do whatever you can to stick it out. It will pay off for you in the long run
Its great to see President Elect Obama aggressively taking on the economy prior to his taking office. Unfortunately, the economic advisory team that he has put together looks more like a semester’s worth of great guest speakers for an MBA class than an economic advisory team that can truly help him.
There are a lot of great minds on the list.
“Robert Rubin, Larry Summers, Laura Tyson, who served as Clinton’s top economic adviser; former Fed Vice Chairman Roger Ferguson; Time Warner Inc. Chairman Richard Parsons; former Securities and Exchange Commission chairman William Donaldson and Xerox Corp. Chief Executive Officer Anne Mulcahy.
Google Inc. CEO Eric Schmidt, Michigan Governor Jennifer Granholm and Roel Campos, an ex-SEC commissioner, and Warren Buffett are also on the advisory board.”
Notice anything missing ?
Not a single entrepreneur. Yes Warren Buffett started a business, but he will be the first to tell you that he “doesn’t do start ups”. Which means there isn’t a single person advising PE Obama that we know of that knows that its like to start and run a business in this or any economic climate. That’s a huge problem.
If we are going to solve our current economic problems, our President needs to get first hand information on the impact his proposed policies will have on real Joe the Plumbers. People who are 1 person companies living job to job, hoping they get paid on time. We need to know what the impact of his policies will be on the individually owned Chrysler Dealership in Iowa. The bodego in Manhattan. The mobile phone software startup out of Carnegie Mellon. The event planner in Dallas. The barbershop in LA. The restaurant in Boston.
Entrepreneurs that start and run small businesses will be the propellant in this economy. PE Obama needs to have the counsel of those who will take the real risk inherent in creating companies and jobs. Those who put their money and lives on the line with their business.
Without it, the rules of unintended consequences of any economic policy could hit you in the mouth in ways you never expected. Things like forcing companies from being taxpayers to the underground cash economy, or forcing new hires to be independent contractors to avoid having to pay their insurance or higher matching social security amounts. Your current group has no one with 100pct of their networth on the line. I promise you that the possibility of losing it all will provide a completely different perspective than any of the “knowledge” the esteemed, learned members of his current advisory team offer.
PE Obama, I’m always available to help, but my recommendation would be to randomly go through the new incorporation filings and ask for volunteers to give feedback. Ask the people who are actually starting new businesses what they need.
Entrepreneurs will lead us out of this mess. Talk to them.
I voted for President Elect Obama.
The rest of my votes went almost exclusively to Republicans , Libertarians and Independents.
In looking at the Democratic platform, there are a few things I agree with, but on the economic side, other than being ok with him raising my effective tax rate to 40pct, there isn’t a lot of his economic policy that I do agree with him on. So why did I vote for him ?
Its simple. Having an elected black President will do more to energize this country than any economic or social policy ever could. In a single day of voting, our amazing country once again reinvigorated the dream that any child in this country, no matter what circumstances they are born into, can grow up to be anything they want, including President of the United States.
That dream, staying viable, being reinvigorated, will do more for this country than any economic policy or any legislation that could ever be passed.
I have said it before, the power of the American Spirit is what separates our country from every other. We have been able to overcome the stupidity that politicians do every year, and will do for ever more. The election of Barack Obama is a shot of adrenaline for those who felt they could never participate in the American Dream.
How do you stimulate and turn around the economy in this day and age ? Motivate those who in the past couldn’t , wouldn’t or didn’t, into those who can and do. Motivate those who can and do, to continue to innovate and increase productivity.
As any successful CEO will tell you, leadership, vision and motivation has far more impact on results than any tax cut or increase. While I prefer lower taxes, I can tell you that no entrepreneur or CEO worth a damn in this country gives up or works less because of a change in tax policy. In this country you work harder to achieve your dreams and goals.
I can honestly say that I never thought that I would see a black President in my lifetime. I’m incredibly proud and excited to be part of this moment in our history. I believe that the election of President Obama will energize many, many more of our fellow citizens to work harder to achieve our goals.
I’m Bullish on America.
I wish I would have listened to myself more closely. This is from more than a year ago.
Today’s boom stocks are hedge funds that are going public. Fortress could be the netscape of the boom with Blackstone and many others to follow. Would I buy ? No. I personally would never buy stock in a public hedge/private equity fund. Ever. My position is based on basic common sense and a rudimentary understanding of the hedge fund business. Here is the logic:
When you are an investor directly into a hedge fund you have 1 single element of leverage on the hedge fund , and that is the ability, often with very stringent limitations, to pull your money from the hedge fund. That is it.
That leverage is mighty however, particularly for the bigger investors in the hedge fund. Why ? Because when an investor pulls a significant amount of money from the fund, it creates a cascading series of problems.
It may cause the fund to have to sell securities in order to pay back the investor while still retaining their required or chosen cash levels.
The more leverage the fund uses, the more the cash problem is leveraged as well.
A fund’s “scoreboard” is their return and their amount of assets. Its also their marketing pitch. If they perform, they can draw more money into the fund if its open, or to their next fund if its closed. If they don’t outperform, they can usually forget about growing or their next fund. Its unfortunate, but you rarely if ever hear about the hedge funds that closed unless they were absolutely huge.
Hedge funds obviously don’t want their big investors to withdraw, so they work incredibly hard to make sure they outperform their peers. As the number of funds has grown, so has the difficulty to outperform. There are so many funds chasing the same deals in every area of specialty that the funds keep on investing in riskier and riskier deals. All in hopes of keeping their “money happy”
Bottomline is that hedge funds scramble hard each and every day to make their big investors, some of which can leave on the drop of the hat, happy.
Appeasing hedge fund investors is a very, very different business than making shareholders happy.
If a shareholder sells their share of stock, the hedge fund wont really care. Sure, they want the stock price to go up. They own shares of stock in the fund, and as the stock price goes, so goes some percentage of their networth. That should be enough for them to do whatever it takes to increase the stock price, right ? Maybe
Increasing the price of a share of stock is as much marketing to create demand for the stock as it is earnings of the fund.We also call this increasing the P/E of a stock. There are dozens of ways to increase the PE of a stock that is showing a profit. Hedge fund investors care about 1 thing. Cash. Money that is returned to them. Shareholders care about the price of the stock. One is capital returns, the other is capital appreciation.
That difference is just common sense, but its significant.
Which makes me wonder why those who put money into these hedge funds are letting them take the fund public. It will certainly change how the fund invests and manages its assets, even if the fund says it wont.
They can’t be responsive to shareholders and investors with the same story
Hedge funds are known for laying it all out on the line and doing the big deals. Often ones considered to be crazy by outsiders, but smart by insiders. They are the ones buying the lousy or stagnant public companies and taking them private, remastering them, only to reissue them to the stock buying public investor a couple years later at multiples of their investment.
How many public companies do you know that are known for their risktaking ? That gladly take outsized risks that some consider crazy,and do they do it on an ongoing basis ? How many public companies do you know that aren’t focused on hitting “the number” to keep shareholders happy ?
The hedge funds that are staying private have to be licking their chops. Competing against public hedge funds that have to deal with reporting and disclosure requirements is a lot easier than competing with a company that is stealth in their actions. They also know that despite proclamations to the contrary, the public funds will certainly change how they approach investing to make the market happy. The earnings of public funds impact the brand of the fund. If earnings are good, its business as usual. If earnings are bad, and / or the stock underperforms, then the public fund’s brand , and their ability to raise money is diminished.
Finally, the IPO also seems to put public shareholders on the opposite side of the ledger of those that have invested in the fund directly. Shareholders participate with management in the earnings of the fund, while those who put cash into the fund participate in the returns of the investments of the fund. Of course, the higher the return on investments, the greater the income of the fund itself and the numbers allocated to public shareholders. But fund investors returns are also a function of how much or how little management takes off the top. This isnt a problem when things are going great, but its always a problem when things aren’t going great.
This post isn’t expert commentary. Its just a friendly heads up based on what I see.
If you are looking at investing in any hedge fund stock, take a long, hard look at the business,IN PARTICULAR, the tax consequences of the investment and your place as a shareholder before you buy. If you are looking at just getting in and hoping it goes up because its the hot company in a hot industry… Welcome to 1999
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