"Why I Fired My Broker"

Over the weekend I read a great piece by Jeffrey Goldberg in The Atlantic Online called, "Why I Fired My Broker." I caught myself chuckling a few times. And chuckling WITH Goldberg, not AT him. Because most everyone has been torched in this bear market.

It is a long article, so my advice is to print it out and read the entire thing.

You'll read Goldberg meeting a mix of characters, the most amusing being a "survivalist" in Arizona.

He also talks to folks including Bill Gross of Pimco and even Seth Klarman of Baupost:

Klarman went on, “Here’s how to know if you have the makeup to be an investor. How would you handle the following situation? Let’s say you own a Procter & Gamble in your portfolio and the stock price goes down by half. Do you like it better? If it falls in half, do you reinvest dividends? Do you take cash out of savings to buy more? If you have the confidence to do that, then you’re an investor. If you don’t, you’re not an investor, you’re a speculator, and you shouldn’t be in the stock market in the first place.”

Longtime readers know I believe the concept of having an emergency fund, in a savings or money market account. Separate from everything else. Most financial people say to make it worth three to six month's of your living expenses. I think it should be six months, unless the household had two full-time earners confident of remaining employed for the foreseeable future.

It's interesting that Klarman is quoted in the article as saying a person should have one or two YEARS worth of living expenses saved in cash. And he also stores water bottles in his basement.

Comments

[Hopton]

Great article, thanks!

[John]

You're welcome. It's been a while since I read an investment article as good as that. I still chuckle to myself thinking about some parts of it.

[HZ]

It was a good read. Now I have more respect for Seth Klarman for he probably gave the truest advice. However it is sad that the author couldn't figure out some basic and easy things to do with his money, given all his sophistication. It is really not that hard: buy TIPS when the yield is above 2.5% (3% is even better but then you may never get a chance). In the long run it will beat 50% of all investments -- since that is how fast the GDP can grow. If one wants some excitement then put 50% in a consumer nondiscretionary index fund like the KXI. Someone ought to be able to have advised him on that. Will not make him reach but will let him sleep soundly and he will gain purchasing power over time.

[John]

HZ: I agree that the author has sophistication, that it at first blush it was surprising he wasn't more informed about investing. But then I've found some people are very intelligent in a field, but almost helpless at investing. He's a child of a great secular Bull, and got lulled into a certain mindset I guess.

Agree also about Klarman.