by Dave Barry
Stockbroker Financial-Strategy Decision-Making Chart
Your Specific Situation
Stockbroker’s Recommended Financial Strategy
I’m a young person with a modest income, but I’m expecting it to grow. I’m investing for the long haul and willing to take some risks.
You should definitely buy stocks.
I’m an older person, nearing retirement and thinking in terms of conserving my “nest egg.”
The wisest course for you would be to invest in the stock market.
I’m a homeless person with no income, living on Dumpster food and sleeping in a storm drain. I smell like a toilet, and tiny spiders live in my hair.
If you find any money, bring it in, and we’ll put you in low-cost stocks.
I’m a happily married woman, but I’m attracted to my boss (he’s also happily married). Lately we’ve been spending more and more time together, and I’m afraid something might happen. The problem is on some level, I think I want it to.
Unless you want to destroy what sound like two perfectly good marriages, both you and your boss need to really think about where you’re heading, and then buy stocks.
I’m a vampire.
We can make special arrangements to sell you stocks at night.
I just learned that a giant asteroid is going to strike the earth tomorrow, wiping out all human life.
There are some terrific stock bargains to be had in this type of market.
As we can see, the unique strategy that the stockbroker is going to tailor for you will involve selling you stocks, because, duh, he’s a stockbroker. His job is to sell stocks. If he were in the cattle business, trust me, the unique financial strategy he’d tailor for you would involve heifers.
Does this mean that stocks are a bad investment? Not at all! Stocks can be an excellent wealth-building mechanism when they are going up, as we learn by studying the following statistical graph:
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But sometimes, stocks go down, as we see here:
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And sometimes stocks seem to be going in both directions at the same time:
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And sometimes there is no way to tell what the hell is going on:
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So the “bottom line” is that the stock market is unpredictable. Nobody really has a clue what it’s going to do. Oh, sure, there are many stock market “analysts” and “experts.” They’re on TV all the time, wearing suits and talking in a confident, highly informed manner. But it turns out that their specific area of expertise, in a nutshell, is: the past. They’re extremely good at thinking up possible explanations for things that have already happened. If there is one teensy gap in their understanding, that area would be: the future. Here, they are pretty much clueless. That’s why those financial shows on TV always sound like this:
HOST: Welcome to Inside Wall Street from the Inside, the program where Wall Street insiders, with inside information, give you, the investor, the “inside scoop” on what’s really going on inside the stock market. Today the Dow Jones Industrial Average fell 13 points, so let’s go straight to our panel of insiders and see “what’s cooking.” John, we’ll start with you.
FIRST EXPERT: Well, Bob, I think what we’re seeing here is investors reacting to developments in the Middle East.
HOST: What, exactly, were those developments, John?
FIRST EXPERT: Beats the shit out of me, Bob. Foreign affairs are not my specialty; I’m a Wall Street insider. All I know is, they are always having developments over there in the Middle East, and in my inside opinion, investors are reacting to them.
HOST: Mary?
SECOND EXPERT: Bob, I would have to agree with John to a degree, but I think investors are also feeling a deeper sense of unease.
HOST: Over what?
SECOND EXPERT: Oh, I don’t know if it’s anything specific, Bob. Did you ever just wake up, and you felt a sort of, you know, unease? I think that’s what’s going on with the investors. They’re like, “Whoa! I’m uneasy!”
HOST: Norm, do you agree?
THIRD EXPERT: To an extent, yes, Bob. But only to an extent.
HOST: What do you mean?
THIRD EXPERT: I have no earthly idea, Bob.
HOST: All right, then. Now let’s ask our Wall Street insiders to “put on their prognostication caps” and give us their assessment of what we can expect to see from the market in the coming days and weeks. John?
FIRST EXPERT: Bob, I look for the market to continue to experience downward pressures. But by the same token we could very well see some trends that could tend to exert countervailing pressures. Which of these factors will dominate remains to be seen.
HOST: So you’re saying the market could go either down or up?
FIRST EXPERT: Don’t put words in my mouth, Bob.
HOST: Mary?
SECOND EXPERT: I’m afraid I’m going to have to disagree with John on this. I think what we’re seeing here is a number of forces at work.
HOST: What forces would those be, Mary?
SECOND EXPERT: Dark forces, Bob. Powerful forces. Forces that threaten not just the city of Gondor, but the whole of Middle Earth.
HOST: But . . . isn’t that the plot of The Fellowship of the Rings?
SECOND EXPERT: Whatever.
HOST: Norm? What’s your take on the direction the market is going?
THIRD EXPERT: Reply hazy, Bob. Try again.
HOST: Are you reading from a Magic 8 Ball?
THIRD EXPERT (putting something behind his back): No.
HOST: All right, then! We’re out of time, but our panel of insiders will be here again once again tomorrow night to offer their insights on whatever the market does tomorrow. So be sure to tune in! Or, you can just watch this show again.
THIRD EXPERT: Signs point to yes, Bob.
So, to summarize: Nobody really knows what the stock market is going to do. There may be some people who have some inside information about individual stocks, but they sure as hell are not going to go on television and tell you.
Does this mean that the stock market is really no more than a giant gambling casino? No! Gambling casinos are much more rational. The roulette wheel doesn’t give a damn what’s going on in the Middle East.
Don’t get me wrong: I’m not saying you should take all your money out of the stock market and bet it on roulette. You get much better odds with blackjack.
13
HOW TO READ A CORPORATE ANNUAL REPORT
Mainly You Should Look at the Pictures
THE BEST WAY FOR YOU, the investor, to evaluate a corporation is to look at the corporation’s annual report. This is an expensive, glossy, high-quality publication that the corporation puts out every year to reduce the likelihood that it will have any money left over to give to its stockholders.
There are four crucial elements of a standard corporation annual report:
• It should have a formal photograph of the top corporate officers posed in such a manner as to assure you, the investor, that the corporation is run by serious businesslike white men who, to judge from their facial expressions, have zucchinis up their butts.
• It should contain random wads of corporate prose, generated by a computerized corporate-prose generator, explaining, in a manner that is vague and yet at the same time virtually incomprehensible, what an excellent year the corporation had thanks to the Vision and Leadership of its officers.
• It should have photographs of impressive visual things—molten steel molting, large robot machines doing things with their robot arms, cheerful workers working, industrial pipes going in all directions, etc.—to indicate that the corporation has been a very busy beaver, which is why it does not have time to stop and explain in any detail what it actually does.
• It should have many charts, graphs, and columns of big numbers designed to impress upon you, the investor, the fact that there are complicated financial things going on
in the corporate world that you would never in a million years understand, so it’s better if you leave these things to your corporate officers and go back to watching American Idol.
When all of these elements come together, you get a high-class annual report that should look something like this:
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14
HOW TO MANAGE A HEDGE FUND
Step One: Go to Lunch
ASK YOURSELF THIS QUESTION: Could you use an extra $200 million or more in income per year?
If your answer is “yes” or “I guess so,” you should start a hedge fund. This is the hot new thing to do in the investment world. Remember in the late 1990s, when all those twenty-five-year-olds were starting dot-com businesses and getting rich on paper until the dot-com boom collapsed like a cheap lawn chair under a sumo wrestler and they all had to go back to boring, mediocre-paying, dead-end jobs like everybody else, and your heart was filled with joy?
Well, that’s similar to the boom going on with hedge funds now. Everybody is starting them. Even as you read these words, there’s a McDonald’s employee somewhere saying, “I’m tired of asking four-year-olds which toy they want with their Happy Meal! I’m going to start a hedge fund!”
The reason hedge funds have become so popular is that there is big money being made. HUGE money. Top hedge fund managers make hundreds of millions of dollars a year. These people don’t vacation in Maui. These people leave Maui as a tip.
You need to get in on this. You don’t want to be the last person in your car pool to start a hedge fund. So stop always letting “the other guy” start a hedge fund! Get off your butt and start a hedge fund of your own.
“But Dave,” you object. “I don’t know how to manage a hedge fund! I don’t even know what a hedge fund is. I never even look at the newspaper business section unless for some reason it has a photo of Angelina Jolie.”
No problem! I’m going to tell you everything you need to know in this chapter. I happen to be an expert in this field because I read an entire article about hedge funds in the New York Times Magazine. It took me nearly a half hour to finish the whole thing, and I had to read many big technical words such as “quantitative,” “portfolio,” “cognoscenti,” “ferment,” “whopping,” and “Switzerland.” But I did it. That is the kind of research that makes this book the kind of book that it is.
The first issue we need to address is: What, exactly, is a hedge fund? Basically, it is a large quantity, or “pool,” of money, or “dough,” usually billions of dollars, which you get from investors. You, the hedge fund manager, invest this money in various things, or “instruments,” such as stocks, bonds, currencies, commodities, harmonicas, etc. If the fund makes a profit, you take a healthy percentage; if the fund loses money, you take a plane to Venezuela.
To be a good hedge fund manager, you can’t base your investments on a hunch or whim. You must base them on research and hard data. Like, suppose you’re at a restaurant with some people you know, and one of them, for the first time in your recollection, orders a bacon, lettuce, and tomato sandwich. And then another one says, “Hey, that sounds good! I’ll have a BLT also!” And a third one goes, “What the heck! Me too!”
Now, to a normal person, this is nothing more than three people ordering the same sandwich. But you are not a normal person. You are a hedge fund manager, and you recognize that what you are seeing here could very well be a significant trend. Every day, hundreds of millions of people order sandwiches, and if even just, say, 5 percent of them suddenly order BLTs, the economic effect could be significant, as is shown by this simple formula:
B = LT2
This tells us that there is going to be a major upsurge in the demand for bacon, which in turn means that bacon will be affected by the Law of Supply and Demand, as represented by this graph:
So now you know for a fact that the price of bacon will definitely go up, unless for some reason it goes down or remains the same. You also know that bacon actually comes from pigs, or, as they are known in the investment world, “porks.”
Armed with this information, you call your commodities broker, and you purchase an option to buy, let’s say, $1 billion worth of pork bellies. Then—this is very important—you write this information down on a piece of paper, so you will remember to sell this option before it expires. Otherwise, you’re going to wake up one morning and find a UPS man at your door with like 517,000 tons of pig carcasses, and unless you have a really huge freezer, you are going to have to invite everybody you know to an emergency barbecue.
OK, now pay close attention, because here is where the “hedge” part of the hedge fund comes in. At this point, you have invested on the assumption that the price of pork will increase, which is called taking a “long position,” or “going long,” on pork. At least I’m pretty sure that’s what it’s called. It might be called “going short” on pork; I’m always getting those two confused. Just to be sure, ask another hedge fund manager which is which before you actually attempt this.
But whichever one it is, you need to “hedge” your bet on pork bellies by, at the same time, placing a financial bet in the opposite direction. How do you do that? You do it by asking yourself this question: If people are ordering more BLT sandwiches, what kind of sandwiches are they ordering less of?
Exactly: tuna. So at the same time you are going long (or short) for $1 billion in pork bellies, you want to go $1 billion short (or long) in tuna bellies. Then, having hedged your fund, you can go shopping for the helicopter-equipped yacht that you will be able to purchase with your share of the hedge fund profits.
That’s it! That’s all there is to running a hedge fund! The whole process should take you less than two hours per day, including lunch. And the beauty of it is, no matter what happens to the market, you are guaranteed to make huge amounts of money, according to the New York Times Magazine, which is solely responsible for the contents of this chapter.
I realize that you may have one or two lingering questions, such as: “Shouldn’t I also take a strong position in mayonnaise?” and “How, exactly, do I get investors to give me $2 billion in the first place?” Those are good questions, and I wish I had time to answer them. But right now I really need a sandwich.
15
HOW TO GET RICH IN REAL ESTATE
Simple, Foolproof Techniques Unconditionally Guaranteed to Work 100% of the Time for Anybody!
Except You
IT’S EASY TO GET RICH IN REAL ESTATE. You don’t have to take any risk, or work hard, or even have a central nervous system. That’s how profitable real estate is!
How do we know this? The same way we know everything: television. Turn on your TV pretty much any weekend and click through the channels, and soon you’ll see an infomercial featuring a real estate genius sitting poolside at a swank vacation resort and explaining his simple system for getting rich, which he has decided, out of generosity, to share with everybody in the world:
REAL ESTATE GUY: Hi! I’m Bob Pronghandle, and I’m sitting poolside at this swank resort connoting success because I want to tell you about my incredible program, Get Rich by Becoming Wealthy Making Big Money in Real Estate. You know, as I was driving here today in one of my several Rolls-Royces that I own because I have so much money from real estate, I was thinking about some amazing facts I’d like to share with you:
• Did you know that more millionaires got rich through real estate than any other way?
• Did you know that you can buy real estate without having any money?
• Did you know that over the long run, real estate always goes up in value?
• Did you know that every night, giant flying lobsters from Mars play Scrabble on top of the Chrysler Building?
Well, my incredible program, Get Rich by Becoming Wealthy Making Big Money in Real Estate, can show you how to harness the powe
r of this information to break out of your loser infomercial-watching existence and achieve the lifestyle and Rolls-Royce quotient you have always dreamed of. But don’t take my word for it! Joining me here poolside are two regular people like you, Norm and Gladys Hingler. Norm and Gladys, welcome!
NORM: Thanks, Bob. Good to be poolside.
REAL ESTATE GUY: Tell us about your experience with my incredible program, Get Rich by Becoming Wealthy Making Big Money in Real Estate.
NORM: Bob, in my own unrehearsed words, it is a dream come true. Our lives have totally changed. Like, last night, Gladys ate the whole jar of cashews from the minibar, and I took a look at the price and it was $12.50, and for a minute there I was like, “ARE YOU OUT OF YOUR FRICKING MIND, GLADYS? TWELVE-FIFTY FOR LIKE SEVENTEEN FRICKING NUTS??” Then I remembered, “Hey! We’re rich now, from real estate!” Although if you ask me, swank resort or not, $12.50 is a ripoff.
GLADYS: They weren’t even that fresh.
NORM: It’s OK to say “fricking,” right? They told me don’t say “fu . . .”
REAL ESTATE GUY (interrupting): OK, getting back to my program, Get Rich by Becoming Wealthy Making Big Money in Real Estate: Can you tell us how you found out about it?
NORM: Well, Bob, things were bad. I’d been working most of my life in the field of roadside fireworks sales, but it wasn’t steady work.
GLADYS: It was two weeks a year.
