Dad was walking out of Fresh Market in John’s Creek with his young son. He turned to the boy and asked, “Do you know what a wild goose chase is”?
“No,” his son replied.
Muttered the exasperated father, “It’s when your mother sends us to the store to get something they don’t have.”
Investors may be on a wild goose chase of sorts - seeking something that is not there.
The stock market has been frustrating. Witness a Wall Street Journal headline, “For Stocks, a Wrong-Way February 29 ‘Leap’.”
Consumer prices are up 4.3% over the past 12 months. The benchmark 10-year Treasury bond on 2/29/08 yielded 3.532%, well below the inflation rate, before taxes! Guaranteed fixed income instruments carry risk, erosion of purchasing power. Even the search for safety may be a wild goose chase!
What to do? How about this? “Turn $1000 into $1 million trading stocks in just 5 years or l e s s…Guaranteed!” WOW!
Since my activities as an investment advisor and financial planner are regulated by state and federal watchdogs, were I to make such a claim, most likely I would end up in jail. Yet you can find the aforementioned teaser on the Internet. Just point, click, and send money for a system “so simple even a 10 year old kid can understand and apply.”?
There is a goose in this equation somewhere but it isn’t the guy running the ad.
Challenging times bring out the “get rich quick” gurus, peddling schemes with catch phrases like, “so easy anybody can do it.” Really?
Remember all the seminars on “how to make money in real estate”? Now the pitch is “big bucks through foreclosures.”
It’s a carnival of sorts. “Our futures trading seminar teaches low risk ways to make money.” Day trading systems…hot momentum stocks…step right up!
Flying around the country doing seminars in hotel ballrooms is expensive and energy draining. Why schlep from city to city eating chicken and peas for a living pushing books and subscriptions when all one has to do is to take
$100,000 inside an IRA and invest it at 24% per year compounded? Presto - in 10 short years you have $1,076,520! Beats working!
S.E.C. Press Release 2007-179 (www.sec.gov) detailed “widespread problems and perils for older investors” from “free lunch” investment seminars. A year long investigation of numerous seminars showed 100% to be pure sales presentations; 13% appeared to be fraudulent; 23% involved potentially unsuitable investments; and 50% featured ex-
aggerated advertising claims. The SEC took note of the following pitches: “How to receive a 13.3% return,” “Immediately add $100,000 to your net worth,” “How $100k can pay $1 million dollars to your heirs.”
Colorado’ s Rocky Mountain News has warned of dubious oil and gas deals. A 4/7/07 article cited a case against a Texas Company that was making “cold calls” to Coloradans. Salesmen stated that an investor could profit from three oil and gas wells, expecting a monthly return of about $4,200 on a $52,000 investment. As John McEnroe would proclaim,
“You cannot be serious!”
Invest $52,000 and get almost all of your money back ($50,400) in the first year-plus a tax-deduction? Honest Texans aren’t stupid. If a deal was that good why are they hawking it to outsiders on the phone? The sad thing about these gimmicks is that they still work!
The North American Securities Administrators Association (NASAA) released on 5/15/07 its annual forecast of the Top 10 Traps likely to ensnare investors, (www.nasaa.org). Foreign exchange trading abuses and Internet frauds are on the increase. “Affinity fraud” targeting religious, ethnic, cultural, and professional groups is a growing problem. The common bait is the “promise of high returns for little or no risk.”
Even the recent big GeEven the recent big Georgia Power Ball winner of mega-millions only had a 1 in 175 mil-
lion chance of winning. Try telling him that playing the lottery is a bad investment! A wild goose chase can pay off…sometimes, but rarely!
If you ignore inflation risks, Treasury securities and CDs become “no risk” benchmarks. On 2/29/08, 2-year Treasury paper offered a yield of 1.62%; 5 year paper, 2.47%. A two year CD sported an APY of 2.55%; a 5 year CD, 3.28%. Any return quoted above that should be checked for reality and risk factors.?
Ben Graham, the father of value investing, said in 1973, “Fair-weather investments, acquired at fair-weather prices, are destined to suffer disturbing price declines when the horizon cloudover - and often sooner than that.”
Relative to current economic storm warnings, Jack Gage, writing in Forbes , “The Economic Drift” (3/10/08), notes, “…the good news is that collateral damage from the credit market fiasco and concerns about consumer spending have made shares of high-quality companies Relative to current economic storm warnings, Jack Gage, writing in Forbes , “The Economic Drift” (3/10/08), notes, “…the good news is that collateral damage from the credit market fiasco and concerns about consumer spending have made shares of high-quality companiesmore affordable.”
Prudent investment strategies abound and common-sense portfolio allocations should be tailored to a well-crafted financial plan. But chase a wild goose and you may end up eating crow.
3930 East Jones Bridge Road Suite 150 Norcross, GA 30092 770-441-2603 (Fax) 770-441-7936
The Investment Coach 1994, Walker Capital Management Corp. Lewis Walker is President of Walker Capital Management Corp. and Walker Capital Advisory Services, Inc., a Registered Investment Advisor (R.I.A.) Securities and certain advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative of SFA which is otherwise unaffiliated with the Walker Capital Companies.
Posted by hkelly as Financial Planning with Lewis Walker at 3:28 PM EST