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Millionaire Corner Blog

This Land Is My Land - Or Was It Made For You And Me?

Woody Guthrie’s 1940s folk song “This Land is Your Land” was revived in the ‘60s - just in time to help young baby boomers seeking backseat means to torture their parents on family road trips. Trips that – at least in a child’s mind  - stretched from California to the New York Island.

Our family rumbled along in a boat-length Chrysler station wagon affectionately called the “Green Dragon” and captained by my father, who arrived in the U.S. after World War II with nothing but the proverbial steamer trunk.  He’s keen to explore the far corners of the country he loves so much and in distant years somehow tolerated the soda-exploding, one-hundred-bottles-of-beer-droning company of his offspring.

And, yes, if you’re wondering, my dad did make it in the U.S., joining the large ranks of immigrants before him who realized their individual American Dreams, helping a lot of other people along the way and making this country a better place in the process. Okay, I’m a little biased toward immigration. I wouldn’t be here without it, so don’t take my word for it. The Partnership for a New American Economy, a nonpartisan group dedicated to immigration reform, recently reported that more than 40 percent of 2010 Fortune 500 companies were founded by immigrants or their children.

Fortune 500 companies founded by immigrants or first-generation Americans employ more than 10 million people worldwide, have a combined revenue of $4.2 trillion and have created some of the nation’s most valuable brands including eBay and Google. It’s hard to deny the contributions immigration continues to make to the U.S. economy, yet many Americans want to shut the door to a future Herman Hollerith or Thomas J. Watson, both immigrants and founding fathers of an enterprise that would become IBM.

Folks opposed to immigration tend to see new arrivals as a drain on public resources or competition for scarce jobs, but a recent study by the American Enterprise Institute, or AEI, suggests immigration can boost our sagging economy through innovation and job growth. According to the institute, the addition of 100 immigrants with science and technology degrees results in an additional 86 jobs for U.S. natives. These non-native scientists and engineers hold a disproportionately high number of patents leading to the creation of new businesses and new jobs, according to the AEI, which found that lower-skilled nonagricultural immigrants also provide economic stimulus leading to additional jobs.

Highly educated immigrants pay more than $22,500 in wage-related taxes, while their families receive less than one-tenth back in programs such as Medicaid, according to the AEI. Millionaire Corner research shows that 11 percent of Americans at the upper wealth tiers – those with $25 million or more -  were born outside the United States. More than one-fourth had parents who immigrated to the U.S. and more than 40 percent, grandparents.

Contrary to negative stereotypes, immigrants create jobs and pay their share of taxes, yet opposition to both legal and illegal immigration persists in the land that was made for you and me. Perhaps Americans forget how tightly immigration is woven into the fabric of our lives. A few weeks ago, my book club was trying to make sense of the fate suffered by Japanese Americans during World War II. The events, touchingly depicted in The Hotel on the Corner of Bitter and Sweet by Jamie Ford, caused us all to reflect on our immigrant past.

Our group members - unified by our love of books (and food and wine), come from – literally – all corners of the earth. We boast an engineer from Egypt, a physician from India, a small business owner from Germany – and those are just the new arrivals. Most of the rest of us are sons and daughters of immigrants, or have married into an immigrant family. What about your family, friends, in-laws, classmates, co-workers?

Less frequently sung lyrics by Woody Guthrie describe barriers to the American Dream:

I was walkin'  -  I saw a sign there

And that sign said - no tress passin'

But on the other side  .... it didn't say nothin!

Now that side was made for you and me!”

 Which side are you on? 

Feeling Lucky? Channel Clint and Make Your Own Day!

 Want to be rich and successful? Then you’ve got to ask yourself one question, “Do you feel lucky?”

Right now I'm channeling Clint Eastwood - who most recently stole my heart with his Super Bowl ad challenging America to get back in the game. But who can forget Clint growling the question while pointing a gun that may or may not be loaded at the "punk" in "Dirty Harry."

The link between luck and success is so firmly established in our collective consciousness it has inspired research at universities from Stanford to Princeton. Even mathematicians have spent countless hours quantifying luck with formulas that look something like “λ(E)=Δ(E) * [1-pr(E)].”

Okay, it’s Greek to me too, but the number guys tell us that luck is a function of the probability of an event happening and the impact the event would have on us.  By the way, the impact can be positive or negative.

More new age types engaged in the “science of luck” believe that individuals can improve their luck with an intentional focus of positive energy. Like Clint, I believe our national comeback and our personal good fortune starts with believing in ourselves. Before you cry “Balderdash,” consider the opinions of some of the nation’s most successful investors. Seventy percent of $25 million- plus Americans attribute their wealth to “being in the right place at the right time,” according to Millionaire Corner research. Two-thirds identify “luck” as one of the key secrets to their success.

A lot of us – including folks who buy lottery tickets and those who play high-stakes poker – want to know why these people seem to have all the luck. Venture capitalist Anthony Tjan, who in his spare time blogs for the Harvard Business Review, believes that being lucky in business is fundamentally about having “the right lucky attitude.”

Tjan bases his opinion on hundreds of interviews conducted while researching a book on luck. Perhaps most interestingly, Tjan has learned that a lucky attitude begins with humility – the root of self awareness. The theory syncs with other research concluding that lucky people are simply better at recognizing good fortune when it comes their way. Beth Goldstien takes the humility/self-awareness theory one step further in her book Lucky by Design, published this month McGraw Hill: Lucky people recognize opportunity, but have also mastered the ability to exploit it.

British psychologist and author Richard Wiseman teased out the luck factor in a simple study of people who considered themselves either exceptionally lucky or unlucky. Both sets were given a newspaper and asked to determine how many photographs were inside. On average, the lucky people reported back in seconds, while the unlucky folks took several minutes. Why? The lucky people were much more likely to spot a half-page message on page two that said, in two-inch type, “Stop counting. There are 43 photographs in this newspaper.” The unlucky people were also likely to miss a second message placed further inside the newspaper. “Stop counting. Tell the experimenter you have seen this and win $250.”

Our research shows that older investors – those age 65 and older - are much more likely to credit their success to luck. Does this suggest humility is a virtue more aligned with the Greatest Generation? More than two-thirds of seniors with $5 million to $25 million, say being in the right place at the right time was a key factor in building their wealth. More than 60 percent say luck helped them acquire their fortunes. High net worth investors age 54 and younger are less likely to credit luck (45 percent) or being in the right place at the right time (55 percent).

At risk of offending Lady Luck, I feel compelled to add that while affluent investors feel luck is vital to success, they place even more importance on hard work and education. So, if you aspire to join a group I’ll call the Lucky Rich People Club, be humble and self aware, and then get an education and work hard. As the saying goes, “The harder I work, the luckier I get.”

Land of Opportunity No More

 

I am attending a “going away” luncheon today that is quite bittersweet.  It’s for a bright energetic young man who came to America as a land of opportunity, and found it to be severely lacking.  In fact, he is now deciding to emigrate to Asia where there truly is opportunity.

My friend came to the US from Poland with the equivalent of an MBA from a Polish university.  His English was pretty strong and he worked on a contract basis for  us frequently during his stay here.  Very bright and able to teach himself skills, especially online design skills, he would have been a great full time employee.  In fact, we tried to help him through the immigration process and paid for an attorney to assist us.  But it was to no avail.  The system is broken.  No claims are being processed unless you work for a large company who can somehow grease the wheels.

I will never forget his excitement when he sat in on our staff meeting, generally done via conference call, and gleefully said, “My first conference call!” at the end.  He thought his business career was zooming.

But a floundering economy and a broken immigration system is forcing him to return for awhile to Poland…..and then to new opportunities.  Those that no longer exist here in the land of the free and unemployed.

Our ongoing research with investors reflects similar pessimism and frustration.  Stuck now in the neutral to bearish mode since 2008, our investor confidence indices are no longer confident.  Focus group and quantitative research both indicate that three quarters of investors no longer believe the future will be better for their children and grandchildren.

And our Super Committee wasn’t so Super, was it?  If those individuals worked in my corporation and couldn’t solve a problem after 4 months…I would fire them.  Why can’t we fire these incompetent statesmen?

I want my children to grow up in the Land of Opportunity.  I am embarrassed that my country let my Polish friend down.  What can we do to change this?

Looking for Love in All the Wrong Places

By George Feiger

President and CEO of Contango Capital Advisors

The evil financiers (perhaps I am one of them) caused the global financial crisis, in turn prompting voters everywhere to push politicians to layer new capital requirements and regulations on to the financial services sector. This is a big mistake.

Now, don’t misunderstand: Some of my best friends are regulators. But although one type of regulation – that concerned largely with disclosure – is a good idea, empowering bureaucrats to negotiate with banks behind closed doors on how to apply vague rules is not.

Why, Why, Why?

Why did virtually all the big European banks pass their stress tests with flying colors, only to have French-Belgian Dexia completely collapse?

Why do I have to read Zerohedge – a blog for financial professionals, presumably not including evil financiers – to learn of the likelihood of big problems with securities backed by prime mortgages (heavily California-originated, stated income only and with seconds outstanding as well)?

Why do I have to turn to the Institutional Risk Analyst to understand that big US banks are carrying home equity lines at par even though the firsts that precede them are underwater?

Why did we in Contango Capital Advisors have to do a lot of detective work to discover, over a year ago, that all the large U.S. money market funds were more than 50 percent filled with commercial paper from the big European banks most exposed to sovereign risk?

Why did we not know the magnitude of the off-balance-sheet entities supported by Citibank late in 2007? Or the magnitude of credit-default swap contracts that AIG sold uncollateralized? Why did we not know that our most famous broker/dealers were cooperating with short-sellers to create mortgage-backed bond issues designed to fail? Or that auction-rate securities auctions were, in fact, failing for months while being artificially supported by dealers?

Let’s continue.

Why did we not know that regulated financial institutions had loaned Long Term Capital Management enough to be leveraged 90 times? Why were we not told that Enron, an SEC-registered company with world-famous auditors, was creating sham transactions with entities that it controlled?

Who Should We Trust?

In all these cases, a variety of people did know. Of course, the managements of the entities concerned knew, but perhaps were not likely to volunteer a completely accurate picture of the situation. The other people who knew, or should have known, were the regulators. After all, even before the crisis, the finance industry was one of the most regulated on the planet.

Yet in each and every one of the cases cited, the regulators did nothing. Various and probably complementary explanations likely exist. No one listens to voices of prudence at the height of a boom – look at the success of the broker/dealers in persuading Congress to allow them much greater leverage not long before the crisis. The best and the brightest get paid much more at Goldman Sachs than at the Office of the Comptroller of the Currency and so tend to work for the former. The infrastructure and other resources available to the regulatory agencies represent a fraction of the tools available to the leading financial institutions.

More insidiously, if your next job after being a regulator is with the regulated, how tough will you be on prospective employer? This revolving door between government and its “dependents” is all too evident between the military and its contractors as well as between Congress and lobbyists.

Fine. But let’s learn our lessons from this.Relative to the regulators, the market has been much more effective at imposing discipline and ending dumb things. Bear Stearns’ and Lehman’s repo lines dried up as soon as it became apparent what they held and that the taxpayers would not step in. The Euro Zone is now approaching a crisis point because no one buys from governments unable to make good on their bonds, just as no one lends to the banks that are loaded with such debt. The market has been far from perfect in this regard, of course.  But although Milton Friedman famously noted that the market predicted nine of the previous five recessions, he omitted to mention that economists and regulators predicted none.

Make Real Choices Not Wish Lists

Damon Runyon once said, “The race is not always to the swift, nor the battle to the strong – but that is the way to bet it.”

Markets have a much better track record than regulators in indicating increasing risk and in forcing actions that reduce that risk. Our actions to make another great crisis less likely should be focused on making markets more effective. That means forcing much greater levels of very timely disclosure of what is in trading and loan books as well as of what collateral stands behind obligations, not just at the transaction level but in terms of aggregate exposure to counter-parties and the like. Anyone who has tried to extract usable risk information either from public company filings or from published regulatory data knows that most of what counts has been deliberately obscured by aggregation, omission or worse.

The wave of new regulation has, in small part, attempted to address this issue. In particular, there has been an attempt to force all derivative transactions to be conducted through exchanges. This would both make price and volume visible and force adequate collateralization from all parties. Price and volume disclosure would enable much smarter purchasing as well as calculation of aggregate exposure. Full bilateral collateralization would prevent any entity from becoming dangerously over-extended: It would have to raise huge amounts of good collateral before it could do so. But no moves have been made to significantly amplify any other details of actual exposure to credit or market risk.

Even the small steps that have been taken triggered howls of protest, both from the broker/dealers and from “industrial users.” That the broker/dealers object is hardly surprising: OTC derivative business is their most profitable precisely because it is utterly opaque. Customers can’t shop for price and terms in any systematic way.

The “industrial users” say that the requirement to post collateral against “hedging” (they never speculate, of course) would raise their costs and be passed on to consumers. This is as risible as the posturing of the broker/dealers. First, no industrial company “hedges” 100% of whatever is at risk. Indeed, the big energy and commodities firms have trading operations bigger than those of most banks. Second, you can bet that if an industrial user exemption is granted, many financial institutions will sprout industrial subsidiaries. Third, if transparency helps to avoid market crises, the costs of holding collateral will be a very small price to pay to avoid losses of the type we saw in 2008 and 2009.  

The big players have the money to lobby for the regulatory solution rather than the market solution of enormously enhanced disclosure. And of course the regulators support them – for jobs, resources and a secure future. We users of the market need to stand up for the market, for those with the loudest voices in the current debate will not.

 

George Feiger is CEO of Contango Capital Advisors (Contango), the wealth management arm of Zions Bancorporation and an affiliate of Zions First National Bank. The opinions expressed above are solely those of Mr. Feiger, and do not necessarily reflect the views of Zions Bancorporation, its affiliates or its management.

IMPORTANT NOTE: Wealth management services are offered through Contango, a registered investment adviser and a nonbank subsidiary of Zions Bancorporation. Investments are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value of amount invested.

Market & Economic Commentary Heard Off The Street: Our Mob May Be Smarter Than Theirs

 

The Contango Capital Advisors Investment Strategy Group, a subsidiary of Zions Bancorporation, provides regular updates on the economic and financial environment.

By George Feiger

President & CEO of Contango Capital Advisors

Thomas Jefferson asserted that “a democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine.” This commentary acknowledges that the financial crisis has brought out the mobs. However, democracy can sometimes be a force for economic progress.

Extraordinary short-sightedness, a triumph of instant gratification over common sense and the lure of apparently easy money have created in Europe and in the US different but analogous challenges of debt-bloated societies and undeliverable social promises. Our financial structures, having attempted suicide by greed, are severely wounded and unable to support normal business activity. The US has, in common with the Europeans, a deep disconnect between what the people want and what the people can get. Much needs to be restructured, in a fundamental way.

Talk Is Cheap

It is the job of the political process to reconcile what is wanted with what is achievable. In neither Europe nor the United States have political leaders stepped up. They say only what they think the people want to hear. In Europe, this means promising to save the Euro – but without imposing enormous but necessary sacrifices on the taxpayers of the “north” – and without dismantling the corrupt and inefficient social structures of the “south.” In the US, one party promises to cut most government expenditures without harming anyone really, while the other proposes to tax more without further hobbling the economy.

A growing realization that these claims are empty appears to be transforming people into mobs. Riots and strikes are spreading in Europe. Here, the Tea Party is being joined by Occupy Wall Street in a rejection of our normal political processes for resolving social problems. Yet amid the chaos there is, for the first time, a real glimmer of hope, at least for the US. Our mob seems to be smarter than theirs and starts from a better place.

The only way to have both balanced budgets and substantial social benefits is to generate economic growth. Expenditure cutting, like cost cutting in a business, though essential, soon reaches a natural floor. Our politicians, under enormous pressure from waves of public disapproval, appear at last to be turning to fundamental reform of the tax code.

Drastic simplification of the code is the only way to lower marginal tax rates for everyone and thereby provide a strong stimulus to growth while collecting more tax revenues by getting rid of the mountain of tax preferences that allow much economic activity to escape taxation altogether. Because we have an entrepreneurial economy not heavily encumbered by unions and bureaucratic processes, we can be confident that real tax reform will generate real economic growth.

A Misguided Mob

The mob in Europe shows no such perspicacity. They are fighting to keep excessive benefits and labor-market-strangling rules. In lieu of tax reforms, they propose to punish the bankers and speculators, followed (in the north) by imposing draconian expenditure reductions on the south. Structurally, the fact that there are 17 governments in the Euro Zone makes a policy of dramatic tax and benefit rationalization virtually impossible to put in place in any case. This has already become evident in the difficulties of organizing the much more immediately urgent task of bailing out the banks.

Our bet is that we will achieve enough tax reform in the US to restart the economic machine whereas Europe will continue to struggle for at least the next decade. We are holding our US equity positions (focused on global blue chip companies) and are waiting to rebuild our emerging market and resources portfolios. Europe, on the other hand, needs to get a lot cheaper to draw us in.

The opinions expressed above are solely those of Contango Capital Advisors and do not necessarily reflect the views of Zions Bancorporation, its affiliates or its management.

IMPORTANT NOTE: Wealth management services are offered through Contango Capital Advisors, Inc. (Contango), a registered investment adviser and a nonbank subsidiary of Zions Bancorporation. Investments are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value of the amount invested. Some representatives of Contango are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango. CCA1011-0163

Bernanke Needs a Crash Course in Psychology

By Adriana Reyneri

Federal Reserve Chairman Ben Bernanke is asking for more help from Congress to turn around our ailing economy, but what he really needs is a crash course in psychology. Something like “Passive-Aggressive Consumers for Dummies.”

Today Bernanke told members of the Joint Economic Committee that Americans have “been very cautious in their spending decisions” due to a blah-blah-blah of macro-economic factors. Bernanke is a brilliant economist, but he’s missing the social-emotional side of this cautious spending picture. Americans are not just cautious, they are mightily peeved.

Most of us are spending less because we have less money and – thanks to high unemployment, a depressed housing market and broken banking system – no access to credit. But many of us are choosing not to spend – or borrow if we’re able – because we’ve traveled that well-advertised route toward excessive consumerism. While we may have enjoyed the journey, we certainly didn’t like where it ended. The deepest and longest economic downturn since World War II.

Fooled once, shame on you, Mr. Bernanke. Fooled twice, shame on us. We see the point of those record low interest rates. You want us to stop saving and head to the malls and car lots, or visit our favorite online stores. You want us to borrow against our futures, and our children’s futures, in order to buy more stuff and eat more food and consume more entertainment. You want us to return to our traditional roles of driving 70 percent of the nation’s economy.

Well, we’re not going to. If you want to know why, check out the definition of  “passive-aggressive” behavior. In layman’s terms, it’s a refusal to do something that’s expected of you in an effort to exert control over a relationship. Many passive-aggressive folk stop talking. America’s new passive-aggressive consumers have stopped shopping.

The pysch text book will tell you that people indulge in passive-aggressive behavior when they feel helpless or mistrust those in charge. Reducing our spending, paying off debts and increasing our saving are the three sure things that many of us can do to improve our financial situation. We know saving will strengthen our household’s position in the short term, and will help the nation in the long turn.

We don’t want consumer debt to take a chunk of our paycheck every month. We’ve learned that frugal living can have its own intrinsic rewards. We believe deep in our hearts that our nation is better than its credit cards. We want to get America back on its feet – but not by buying a new pair of shoes or set of wheels. We want to invest in education and innovation – not a suite of LazyBoy recliners. So, if we seem a little sulky in the aisles of WalMart, it’s because we’re playing the strongest card we citizens seem to possess – that of the passive-aggressive consumer.

Confidence in Government So Low It's Funny

How low is our confidence in government? I was reviewing some of the data that we recently pulled from our monthly fielding with investors today and came across a result that was so on point at what is wrong with America today that I burst out laughing.  We had asked over 2500 investors ranging from barely any wealth all the way up to multi-millionaries whether they believed Congress and President Obama could work together to make a workable jobs plan.  Only 8 percent of investors Agreed or Strongly Agreed that this was possible.  In fact, just over 1 percent Strongly Agreed to this possibility.

Not surprisingly, 74 percent of investors (basically three quarters of Americans) didn't believe that our government could work together to solve our problems.  While it is really sad that we feel this way, the question becomes who or what is the cause of the problem.

I believe there are three primary reasons that our elected officials cannot work together.  I think the term limits for those in the House of Representatives are too short.  The problem is because they are always worried about losing their jobs.  

The second reason  is that it is so expensive to continually run for Congress.  Congress people are always busy raising money for the next election.  When can they do their jobs and really understand the billions of pages put in front of them?  The need for media and the related cost exacerbates this need.  They need to get the donations from the big spenders and then they are obligated to follow the interests of their biggest donors.  I think many a good person has been corrupted in office due to the need to raise money to continue to campaign.

The final reason is caused by the electorate.  Some of the representatives, especially the newly elected Tea Party representatives, are truly trying to follow the beliefs of those who elected them.  I believe, however, that there is a fundamental philosophical difference between the left and the right that is more divisive than ever before.

 Theoretically it has always been there, but the advent of cable news and the 24/7 discussion of these differences has made them virtually insurmountable.  Not only are the differences clearly being identified, the pros and cons of each issue are laid before us.  While in the past we could ignore issues and pretend not to understand, now we have no choice but to understand and to support our own values.

I think the Congress is stuck in the middle of the mess which is self-perpetuating.  I think the Financial Times said it best this week when it said that "America just needs to go back to being America".  We need to be leaders and not let our individual interests threaten the strength of the whole.  Look at how the Eurozone is floundering.  We are acting just like them...and we are not separate countries.  Just acting like them.  Separate countries made up of red and blue states.

What do you think?

Financially Fallen Stars are Object Lessons in Responsible Money Management

Money management can be a vexing and daunting prospect for many, especially in a down economy whose recovery is all but certain. This may explain a perverse fascination with reports about celebrities who, through bad habits, bad investments or bad attitudes, or even through no fault of their own, squander their considerable fortunes. Dan Berman, posting on AdvisorOne.com, recently rounded up the ten worst financial meltdowns by athletes. It’s a Hall of Fame roster of an investing Hall of Shame.

Legendary quarterback Johnny Unitas, for example, lost $4 million and John Elway $15 million. But the champ is Mike Tyson, who suffered a $400 million knockout, primarily through reckless spending ($173,000 for a gold and diamond necklace?).

Athletes, of course, aren’t the only ones to drop the money management ball. Musicians, too, have seen their debt go off the charts. Perhaps the most infamous case is MC Hammer, who at the peak of his chart-topping success in the early 90s, bought, among many other things, a $30 million home and spent a half million dollars a month on a full-time staff, according to CNBC. By 1996, he was nearly $14 million in debt and filed for bankruptcy.

The New York Post reported this week about the sad case of Rock and Roll Hall of Famer Sly Stone, the legendary frontman for the pioneering rock and funk band Sly and the Family Stone, who is now homeless and living in a van in Los Angeles.  

Actors, too, can find themselves in trouble when they don’t stick to a money management script. Nicholas Cage, a collector of among other things, vintage comic books and ancient castles, was forced to sell them all after being hit hard by the 2008 economic collapse.

Especially confounding to everyday investors must be the plights of lottery winners who blow through their winnings. Here are people just like themselves who defied the odds and hit the jackpot, but threw away their good fortune. A St. Louis wig shop owner’s situation sounds particularly hairy. She won $18 million in 1993, and in addition to the purchase of a million dollar house and such, she donated more than $1 million to Washington University and more than $277,000 to Democratic candidates. Reportedly, a gambling habit did not help matters and she filed for bankruptcy in 2001.

During the Depression, screwball comedies such as Bringing Up Baby and My Man Godfrey were wildly popular with audiences, who found escape from their economic woes by laughing at rich people acting foolish. The modern-day equivalent may be the “Real Housewives” franchise and other reality shows that depict wealthy people in an unflattering light.

Reality TV buffs insist they watch these programs because it makes them feel that despite their troubles, their own lives in comparison seem not as messed up. This may be why stories about financially fallen stars are of such interest. Tight as things may be paycheck to paycheck, at least we aren’t saddled with the mortgage on a Bavarian castle.

 

Emotional Investing, My Foot!

By Adriana Reyneri

Lots of research dollars have gone toward studying the notorious “cycle of emotional investing,” which you can see illustrated in a nifty graphic on the Northwestern Mutual website. The cycle begins with optimism, rises up through excitement and thrill and peaks at euphoria. You know what’s coming, don’t you? Emotional investors eventually flounder in the troughs of despondency and depression, which leave them with just about enough money for coffee and a donut at the local Dunkin’s.

Some caffeine and sugar later, emotionally and financially strung-out investors experience hope, which leads to relief, which leads us back to optimism. Those of you familiar with the cycle may have noticed that I left out anxiety, denial, fear, desperation, panic and capitulation. I figured the average American investor is sick of all these negative feelings - particularly fear, desperation and panic. 

 Emotional investing takes place on a daily basis. In a May survey by Millionaire Corner, 42 percent of participants admitted to making an investment decision based “solely on emotion.” And when 42 percent of the people admit to doing something, it’s likely that a lot more are actually doing it. It was no great surprise to learn (gender bias showing) that men were much more likely than women to succumb to irrational investment decisions, 49 percent versus 33 percent, respectively. Nor was it a revelation that investors rated the success of their emotion-based decisions as 44 on a scale of 100 – an “F’ in my book.

 Fear, desperation and panic also take on a whole new level of significance in today’s turbulent markets. I’ve been to Six Flags. I understand the difference between the Whizzer and Vertical Velocity rides. I get that fear and panic can get you into a whole lot more trouble when the market drops by 500 points in just a few hours.

 The problem with the emotional investing theory is that - like the insanity plea - it’s much abused. Too many rueful investors claim they were out of their minds with fear or greed and leave buried the root causes of their bad investing. To illustrate, I'll tell you about a"friend" who listened to her teenage son back in 2009. He lifted his face from a big bowl of milk and Cheerios and, talking over the morning’s financial news, recommended buying stock in General Motors. He reasoned the federal government “would never allow GM to go bankrupt.”

 Granted the stock was selling for 85 cents a share at the time, but it would have been quicker and more efficient to flush the money right down the toilet rather than to invest in GM that fateful spring. A few months later the company filed for Chapter 11 and earned the nickname “Government Motors.” Still, as rueful and abashed as my “friend” feels now, she really can’t blame fear and greed for her folly. Emotions really had nothing to do with it - unless the feelings list now includes laziness and stupidity.

 On the whole investors appear to face more of a threat from their own  ignorance and negligence than they do from their emotions. It may sound harsh, but this unsettling realization offers hope. We can channel Warren Buffet, enlist the help of a trusted financial advisor, engage with the plethora of planning tools on the Internet and slowly develop the investor discipline necessary to build and maintain wealth. Fear and emotion – with a little panic thrown in – may even speed us on our way to a methodical savings plan and balanced investment portfolio

 So, the next time you decide to jump into an investment without checking the depth of the water, remember the sad tale of Government Motors. Do your homework before putting your money to the test. Keep in mind there are no guarantees. Even investors who always do their homework occasionally fail.

BLOG ENTRY - MILLIONIARES PREFER MADE IN AMERICA?

In some research we will be releasing this week, we asked the question of whether investors are more likely to choose products made in America than in the past. The answer was overwhelmingly positive with more than half beginning to seek American made goods, regardless of wealth segment. Women were even more likely than men to look for American made goods.

The reason, we believe, is two-fold. The economic crisis that continues to persist is causing the growth of some of what could be called "localization". It's interesting that in an environment where you can now reach someone around the world instantly that we are beginning to retreat a little more into ourselves. Maybe we want to protect ourselves and those we love a little more. That feeling extends to helping the community around us.

I find myself wanting to shop at the little local sports store that sells bikes or soccer gear rather than going to Target or the big chains. I actually probably pay a little more, but i feel a sense of helping someone out. As a small business owner, I feel a sense of duty to support other small business owners. As the world grows closer, I want to feel like at least I can help my little corner of it.

The second reason for the growing tendency to buy American is a duty of patriotism that many are starting to feel. Suddenly we are no longer the shining light on the hill to the rest of the world. Our own economy sucks and we want to pull it out of the sewer not only to help ourselves but to restore that feeling of pride many of us grew up with. The only thing that seems to keep getting in our way is the politicians, on both sides of the floor.

When I was in the process of buying my first grown-up car, there was no way I was going to buy American. Everyone - whoever everyone may be - said that American made cars were not as well made as German or Japanese cars. At that point I bought a Honda and was pleased. Even though I now have several Japanese and German cars sitting in my driveway (teenagers, you know), I think my next car will be made in the USA.

My dad has always owned a Chevy, because if you were growing up with a flat-top in the 1950's you had to drive a Chevy. My dad still has a flat-top and always buys a Chevy. He recently bought a 1969 Camaro. As he would say, its his only investment holding its value.

In the next week we will be doing some in-depth focus group research on some of these issues. If any of you have something you would like us to add, just let me know.