How a Financial Adviser Lost His House

oracle

oracle

Read this story today thought it might be worth sharing...

I’m a financial adviser. I get paid to help people make smart financial choices, and I speak and write about personal finance issues for this publication and others.
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So this is the story of how I lost my home
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That was May 2003. Housing prices were already crazy
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I felt we could afford around $350,000. We called a real estate agent named Mitch, who had signs on all the bus stops: Talk to Mitch! He picked us up in a gold Jaguar,
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We ended up buying the house and paid the asking price of $575,000.
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As late as February 2006, a comparable home in our neighborhood sold for $998,000
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But then came the collapse in the stock market. I had clients calling in tears and breaking down in my office. People who had never worried about their portfolios were calling me from their vacations.
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Read full story on cnbc

I think this story is a reminder about human psychology of greed/fear which takes over rational thinking even when you think you are not being influenced by it . This can be very dangerous when you are investing as Americans found out with their housing crises.

Becoming a contrarian does help to a certain extent from falling into the trap of greed/fear.

What else do you think might help in developing the right temperament while investing?

Cheers,
Oracle.
 
Problem with contrarionism is that more people just become perma-bears rather than having a rational temperament. People always go to extremes (positive or negative).
 
Aaron_C said:
Problem with contrarionism is that more people just become perma-bears rather than having a rational temperament. People always go to extremes (positive or negative).
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It's very interesting how some people become almost zealot-like in their beliefs when talking to some people about investing. I'm suprised there are so many.
 
Bigtone said:
financial pro is name only
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No doubt about it, the GFC was much tougher on the US than it was here. That can make it easy for us to make judgements about the so called experts and others affected by it.

There's plenty of people who have made a fortune by borrowing money and investing in real estate. I know for a fact that some successful people on this forum owe their success to agressive borrowing strategies.

Do you consider yourself well educated in property investment?

* Put your hand up if you've paid mortgage insurance? Wave if it was for a 95% loan.
* What about a 'Living Of Equity' strategy? Have you looked at the posts and books which describe it and wondered if it could work for you?
* Cross collateralised all your properties because the banks will be more generous?
* Sat down with a bank or broker and asked, "What's the most money I can borrow?"

My experience is that very few property investors have done a really thorough risk profile of themselves. In the financial planning space I've performed risk profiles on people and it's amazing how different their property investing and borrowing behaviour is from their actual risk profile.

I've lost count of how many times I've suggested that people have a maximum purchase price of $X, only for them to make an unconditional contract at $X + 20% or more. Sure, they still get the money, but they're leveraged to the hilt.

About a year ago I was encouraging a client to get some income protection insurance because any interuption to his employment would cause him to go broke within 30 days. His response was, "God will provide." I should have told him that God had already provided by putting me in front of him telling him to get the insurance.

We should probably count ourselves lucky that most of us have never had to face the decisions and consiquences of our actions like the author of this article. Prior to his experiences the author may not have been a true professional, but now I'd wager he definitely is someone worth listening to.
 
IMHO it's the tragedy of the commons: those that spent big and went broke got to enjoy the good times, and now their times are tough. Those that lived within their means didn't enjoy the trappings of excess, and now their times are tough.

Not really an incentive to minimise risks etc. No consequences. Hell without the sin, as they say.
 
That story sums up my view of the financial planning services very well...

I mean no offense to the "good" planners (who are few & far between IMHO) but when it is easier to become a self professed "professional" (I use that term tongue in check in this context) than it is to get through high school (which takes ~5yrs of effort), one has to stop and question just how "professional" the industry really is....

As a professional in another industry (not finance...) and having endured the burdens required to attain and maintain such a profession, I am often left bewildered at how much effort and energy people put into earning money, only to then turn to a financial "professional" with seemingly blind faith, that could easily be quite similar to the protagonist of the aforementioned article.

IMHO, we have a highly disproportionate number of good financial professionals here, which is not indicative of the quality of the industry as whole, which is far lower than around here, as I see it.
 
It's not very professional. It's more a knowledge bank of rules, good structures, types of taxes you need to pay etc.

But the professional's prediction is probably just as good as your one. If he was so good at predicting he'd have retired and not be giving you advice.

When using financial planners or any advisors, the important thing is to realise you need to make the decisions at the end of the day because it's probably as informed as the advisor's decision. The advisor is just there to facilitate things and advise you on execution, structuring etc. But not on the actual 'punting' or 'investing'
 
PT_Bear said:
His response was, "God will provide."
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That is exactly what my close friend tells me whenever I mention my investing and financial goals to him. Keeps telling me to relax, join him for a beer and smokes, and not worry about life. After all "God feeds the birds and provide the plants with sunshine."

I tell him God has provide me with the brains to be forward-thinking, and knowing that my financial future must also depend on my thoughts and actions.

Regards,

Daniel Lee
 
He picked us up in a gold Jaguar
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Gold Jaguar doesn't mean he's loaded or successful. It just means he bought a gold Jaguar.

Who told them he was an expert, other than Mr Jag Man's self proclamations?
On bus stops, no less!



All that glitters isn't gold.


*sigh*
 
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