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Tess Vigeland: People, people, people. How many times do we have to tell you, picking stocks is a fool's errand? In fact the Chicago Sun-Times has a monkey -- true story! -- who often does as well as or better than the professional stock pickers. Well Cash Peters apparently thought he, or at least his money manager, was special. His tale of woe begins with one fateful phone calm, and ends -- well, we'll let him share.
Cash Peters: So OK, here's the story. One day my financial adviser calls and tells me, "Hey, Sirius satellite radio, man -- that's a great stock. And it's only six bucks." So, not being a fool, I took his advice and bought it. Lots of it. Now, fast-forward two years and it turns out I was a total fool. My Sirius shares were worth 6 cents each. Each! And the company was teetering on collapse. Exactly. David Lazarus is a financial columnist at the L.A. Times.
David Lazarus: You know, it's really the breaks of the game. If you're going to go to Las Vegas, sometimes you're going to win, sometimes you're going to lose. More often you're going to lose. The stock market typically is going to offer you better odds. Well, last year, obviously, that's not the case. Last year the stock market gods took away instead of giving.
Oh, fine. But what happens if the gods keep taking away and a company like XM Sirius goes down the toilet? Bruce Carlin is finance professor at UCLA's Anderson School.
Bruce Carlin: Bankrupt companies do have a chance to restructure and come out of bankruptcy, and equity holders are represented in those restructurings. So just because a company does go bankrupt doesn't mean it's not going to rebound. Obviously, investing in bankrupt companies is a very risky business.
Peters: Well, it wasn't bankrupt when I put my money into it.
Carlin: Yeah, I know, but that's the risk of investing.
Investing-slash-gambling, because that's what it is really.
Anyway, what now, now that my stock is practically worthless? Well, to find out I called up money genius Jonathan Clements at Citigroup. You can do that when you're on the radio. He's director of financial guidance at something called MyFi. Now, first he said:
Jonathan Clements: Hmm.
Which sounded hopeful, I thought. Until he added:
Clements: Cash. I hate to break it to you, but you've already lost the money.
Peters: Yeah, but it might go back up if they survive. Whereas, if they go bankrupt, I lose everything. I lose even the potential for it to go back.
Clements: And that's why people hold on to individual stocks. Because people hate to admit they made a mistake.
Peters: But I didn't make a mistake, did I? That's my point. My idiot financial adviser did. Right, David? Back me up on this.
Lazarus: PT Barnum would have loved you, because you're falling right into the "There's a sucker born every minute" trap.
Peters: Why am I sucker? Just because I bought into the whole society thing. I trust people with degrees.
Lazarus: And you're right to do that to a certain point, but there's going to be a lot of people listening to this who say, "Wait a minute, two words: Personal Responsibility." Those are two very important words.
Clements: Move on. Get a fresh start. Say goodbye to this chapter in your life and build a better diversified portfolio.
Peters: Is the chapter you're referring to Chapter 11?
Clements: Whichever chapter it happens to be.
Peters: Yeah, right. So, alright, I've lost tons of money and it's not my fault. I need to know, if you're a stockholder and the company you invest in goes bust, what happens to your investment? Jonathan?
Clements: In all likelihood it's gone forever. I mean, in bankruptcy, employees get paid, the government gets its taxes, then they start to pay off the bondholders. By the time they've paid off all these various people, the stockholders, who are last in line to get any money, typically get nothing.
Peters: Don't you think that's unfair?
Peters: Err...oh. Really? It may seem strange, but I disagree strongly. But anyway, bottom line, here's what I learned. Three things: Trust nobody. That's number one. Number . . . really. I'm done with financial advisers. Number two: you have to embrace change. Instead of clinging on to the old, archaic ways -- such as that antiquated idea of having investments that are actually worth anything -- you need to be flexible.
Lazarus: You start rewriting your game plan as you go along. For instance, at one point I was going to send my kid to college and have a comfortable retirement. Now I'm going to send my kid to college and my wife and I have a murder-suicide pact.
Yeah, that's a good idea. Bruce Carlin has a less hysterical suggestion.
Carlin: Moving forward, older people or people 10 years from retirement have to start converting into fixed income that they can depend upon. Families need to be taking out fixed-interest-rate loans for 30 years that they can depend upon.
All of us little guys who aren't the Gordon Gekkos of the world, all of us are just sort of floundering and hoping for the best, and feeling very much like we're caught up in the whims of fate. What do you do? You hold your breath, you hang on, and you get through it because you know, ultimately, no matter how hard this hurts, historically speaking, you're probably going to come out ahead.
It may just take 150 years or so, that's all. And the third thing I learned? I will never, ever again invest on a tip. Historically, whenever I've picked stocks myself, I haven't ended up broke.
And did Jonathan care about that? Absolutely not.
Clements: Well, there you go. You remember your winners and you blame your losers on other people.
Peters: You're a horrible, horrible man. Let's never speak again.
In Los Angeles, I'm Cash Peters for Marketplace Money.