Just when I thought I've heard about all the possible silly
things people do with their money when stressed about risks comes this amazing
story about a southern California
woman who literally almost threw away her life savings because of her fear of
keeping money in a bank. (And, if you think you wouldn't do something as dumb as this financially, please keep reading).
According to a recent article in the Orange County Register, "Police went to
Whole Foods where managers told them an elderly customer came in a few days
earlier, hysterical after she realized she had mistakenly returned the box of
crackers with her life savings inside. Frightened by the government takeover of
several banks, the Lake Forest
woman, whose identity was not released, had decided to take her money out of
the bank and hide it in her home."
For sure, plenty of folks are worried about the safety of
their money with the stock and real estate markets getting pummeled in 2008.
But, folks worrying about the safety of keeping their money in the bank
reflects irrational fear. If the FDIC system backing up our banking system
failed to protect bank account depositors, holding onto paper money isn't going
to do you any good either.
While most folks can see the silliness in keeping cash in a
cracker box, consider some other dumb things people have been doing a lot more of
* Selling stocks, which dropped about 50 percent since their
late 2007 peak and buying "safe" Treasury bonds which were in high demand in
2008 and offering paltry yields. Now, don't get me wrong - I understand the
emotions behind this. No one enjoys feeling like they're going down with a
sinking ship or part of the losing team. But selling low and buying high is the
opposite of how smart investors make money. Otherwise sound investments that
are beaten down in price offer value. That's why smart long-term investors were
buying, not selling, stocks after they fell and you should be as well.
Barron's recent article on the topic of Treasuries excellently highlighted the historic potential overvaluation of these seemingly safe investments.
* Following supposed prognosticators who claimed to have
predicted all these bad things that have recently happened. NYU professor Nouriel
Roubini has been running around and
pointing out all the bad things and claiming that he told you so. However, he has been highly negative for a long time. I documented this in a recent article about Roubini.
These folks remind me of all the gurus who came out after
the 1987 stock market crash claiming told you so status. Shearson stock market
analyst Elaine Garzarelli, was one of many gurus who supposedly predicted the
stock market's '87 crash. Garzarelli's fund, Smith Barney Shearson Sector
Analysis, was established just before the crash. Supposedly, Garzarelli's
indicators warned her to stay out of stocks, which she did, and in so doing
saved her fund from the plunge. Shearson quickly motivated its brokers to sell
shares in Garzarelli's fund. Thanks to all the free publicity she got from
being interviewed as a prognosticator, investors soon poured $700 million into
These investors ended up being sorry. In 1988, Garzarelli's
fund was the worst-performing fund among growth stock funds. From 1988 to 1990,
Garzarelli's fund underperformed the S&P 500 average by about 43 percent!
So even the few investors who were in her fund before the crash in 1987 (when Garzarelli's fund outperformed the
S&P 500 by about 26 percent) still lost. What she saved her investors by
avoiding the crash she lost back (and then some) in the years that followed.
To my amazement, media outlets are still asking Garzarelli for her predictions and here's what she told Business Week in late 2007 for her 2008 predictions: "Garzarelli is advising investors to buy some of the most beaten-down stocks,
including those of giant financial institutions such as Lehman Brothers, Bear
Stearns, and Merrill Lynch. What would cause her to turn bearish? Not much.
‘Our indicators are extremely bullish.'" She also said the Dow would close 2008
at 16,000! Could she have been more wrong?!
nonsense from knuckleheads on online message boards and blogs. For example, in
response to a recent news report about housing prices dropping significantly
from last year, consider this online posting, "Even if there were mortgages to
be had, people have learned a valuable lesson from this housing bubble. No one
in their right mind is buying now unless they're looking at at least a 50%
discount...from today's prices!"
If you're already stressed about challenging
economic times, reading such gibberish will just make you more anxious. The
reality is that there are plenty of mortgages being done these days and real
estate prices aren't going to fall 50 percent from current levels. A recent index of home
affordability is the best it has been since the 1970s as I discussed in a recent article.
Copyright Eric Tyson, 2008 - 2016 all rights reserved.
Eric Tyson is the only best-selling personal finance author who has an extensive background as an hourly-based financial advisor and who does not accept speaking fees, endorsement deals or fees of any type from companies in the financial services industry or product or service providers recommended in his articles, books and his publications.