Get a Haircut and Get a Real Job - Truth Behind Old Myth

For years, I was told by my parents and other people who cared about me to "study hard, go to a great school, get a good education and land a great, high paying job". This was "accepted" truth as a map to happy, rewarding life.

Well, I did that...for a while....

Then suddenly it hit me. What about all those at companies like Merrill Lynch and Bear Sterns?

That reminded me of one of my friend, let's call her Kimberly. Kim was very bright and motivated girl. She was one who followed previous mentioned mantra to the letter. She was in top 1% of her graduating class at Brown University. Then she worked for one of the top management consulting companies in the world. After a few years of that, she went back to business school and got an MBA from Northwestern. This is when I've met her. I was introduced to her at a house party in Evanston.

Upon graduating from there, she landed a job at Bear Sterns as a currency trader. Sure, it wasn't an investment banking job that she dreamed of, but the hours were a little better. I kept in touch with her throughout the year, even when she moved from Chicago to NYC. She was making six figures plus a healthy bonus. Her and fiance bought a condo in Greenwich Village and moved in together. Everything was looking good for them.



Then, Bear Sterns went under. Her paycheck and stock options disappeared. Her fiance was laid off also. Before they were both making six figures, but now they couldn't afford to pay mortgage. They sold their car as well as drained their savings. They were able to sell their condo at small loss and moved in with his parents in Kansas City.

Things did turn around for Kim though. fiance got a job at a local bank. They moved out of his parents' house and moved into their own. She decided to stay home though, since they are on the way to being parents themselves.

So what happened? Have we been lied to all our lives? We've thought that good education and good job were all we needed to live happy life. Well, we have been told what to do but not why behind that logic.

Now, let's take a look at the reasons behind the age-old advice. What is the end result of having a good job?

Good, steady paychecks. In other words, A GREAT, STEADY, PREDICTABLE, POSITIVE CASH FLOW. Well, that is based on an assumptions that the company that is giving us those paychecks will be in business and will continue to employ us.

But what have we seen so far? That is not the truth, is it? Companies go out of business and people lose jobs. Nothing last forever. So what should we do? We have to diversify that cash flow stream. More to follow...

What Goes Up, Must Come Down: Wall Street and Its Bull Bias

I don't know who said "What goes up must come down...". Was it 'Spinning Wheel" by Blood, Sweat, & Tears or Sir Isaac Newton? I am not sure but either/both of them hit the nail right on the head.

Well, we all have heard of bull market this and bear market that but let's define those terms first. The terms "bear" and "bull" are thought to derive from the way in which each animal attacks its opponents. That is, a bull will thrust its horns up into the air, while a bear will swipe down. These actions were then related metaphorically to the movement of a market: if the trend was up, it was considered a bull market; if the trend was down, it was a bear market. (Source: Investopedia)

So bull means the market goes up because people are optimistic and bear means the market goes down since people are pessimistic. Now we know what 'bull' and 'bear' mean, let's see why Wall Street has inherent bull bias.

Let's get something clear, first. The primary purpose any business is to make money, or "profit". That means you bring in more than you spend as a business. Well, in order you to make money, you have to sell something, be that be product(s) or service(s). In case of Wall Street firms, they do both. They sell services, as in underwrite securities, both debt and equity, to raise money for both private and public entities, as well as sell marketable securities products to investors.

To sell those products and services, there has be a demand for them. And that demand has to be create by desires of people who want to invest their money. An investor typically purchases security because he or she thinks that the total cash flow from security will be greater than the cost of the security.

For instance, let's say you buy a share of Apple Computer at $200, you are expecting that the price of that stock will go up in the future ("Bull" market bias), so you can sell it for more than $200 and make money. But what if you thought the market was going to go down ("Bear" market bias), you will spend that $200 on something other than that stock. That will lower the demand for that stock, in turn, will lower the demand for both product and service of Wall Street Firms, which will lower profits of those firms.

Therefore, in order Wall Street firms to make greater profit, they have to create demand for their product and service. That means people have to be willing to invest in securities. And we all know that we do that in hopes of selling those securities for profits down the road. Hence the inherent "Bull" market bias of Wall Street firms.

Why New Financial Truth?

I felt that sinking feeling in my stomach. It was like 2001 again. I saw my investment portfolio and retirement account. Thanks to some extra selling just before the closing bell, the Dow managed to post its worst daily point loss in history today, - 777.68 points (September 29, 2008). That is about $1.1 trillion dollars of wealth vanishing.

The previous record was 684.81 point drop that took place on September 17, 2001, during the post-tech bubble recession. That decline was steeper than today's on a relative basis (7.1% compared to today's loss of 7.0%). But those two cannot come close to the Black Monday (1987), the day which the Dow lost 22.6% of its worth.

I was done listening to these so called 'financial experts' on TV and internet.

Jon Stewart vs. Jim Cramer - FULL VIDEO @ Yahoo! Video

All that time, money, and my life (Well, since I was trading my life for money at so called, 'job'.) had gone down the drain.

NO MORE!!!

I knew what I had to was clear:

I ACTUALLY HAD TO GO BACK AND STUDY PEOPLE WHO BEAT THE MARKET ON CONSISTENT BASIS, INSTEAD OF JUST LISTENING TO SO CALLED 'EXPERTS'.

That is why I started this blog. This was for my education but I am hoping you guys can get some value out of it as well.

Here are some interesting quotes from Warren Buffett in his 2007 Shareholder Letters (Page 3):

"You may recall a 2003 Silicon Valley bumper sticker that implored: 'Please God, Just One More Bubble.' Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower's income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA -- home price appreciation -- would cure all problems."

He followed that with an update of one of his most famous quotes over the years, now pertinent more than ever:

"You only learn who has been swimming naked when the tide goes out -- and what we are witnessing at some of our largest financial institutions is an ugly sight."

I guess we were all swimming naked... More to follow.


(Here is an insider story on how we got to this mess by Michael Lewis, the author of 'Liar's Poker', a semi-autobiographical book about his role as a bond salesman on Wall Street during late 1980's, interesting considering this was when the Black Monday happened.)