A Great Financial Understatement

I spend a fair amount of time reading and reviewing some of my older posts, mostly to check the awkward writing style, and to repair broken links and such. I tripped across a classic understatement I made in the summer of 2008

Bad Day on the Market

That was the day after the market meltdown that eradicated a great deal of wealth in a few short days. Remember that the real obliteration of wealth happened on September 20th, 2008, but this was a start (thanks to me being laid off I was a little preoccupied, so I didn’t write about the huge market drop on that day).

In a short paragraph I stated:

Figured I’d add my 2 cents to the fray of Bloggers talking about the problems on the Stock Market these past few weeks. Is this an opportunity to buy? Should we be selling? Is it time to crack open skulls and eat the goo inside? Don’t ask me, I am standing pat for now, and we shall see what happens. My portfolio is down a fair amount, but my feeling is, now is the time, just to “Not Look”. Remember most of my stock holdings are in an RRSP, and thus aren’t a short-term investment either. I am watching TD with intent.

I do like the line, “…Is it time to crack open skulls and eat the goo inside? …” (I stole that from Kent Brockman on the Simpsons), but I was a man of my world, I didn’t touch my holdings (and at the time I still held Nortel, that had not gone bankrupt quite yet). This market apocalypse did lead to my Best Financial Decision Ever, but only because I had money from my Severance Package to invest.

Always interesting to review the past, wonder when the next Stock Market Apocalypse will happen? Hope not soon.




How Class B Shares Cured Me of Stock Picking

When I was young I invested in individual stocks, I watched trends and I tried to read the Yearly prospectuses. It was thanks to reading the original WWE IPO (after I’d bought some of their stock) that I was cured of stock picking of “interesting stocks”. Unfortunately it didn’t cure me of investing in Nortel, which I worked for at the time, but again, that is my own damn fault.

Treasures in the Prospectus

class b shares

The Market Where You Need to Know All the Rules
Image courtesy of audfriday13, at FreeDigitalPhotos.net

To outline what I found out when I read the stock prospectus I found a very interesting explanation of the Shares I was going to buy here:

WWE has a dual class share ownership structure, which includes Class A and Class B stock.  The McMahons own a de minimis amount of Class A stock and all of the Class B stock.  The two classes have equal economic rights and unequal voting rights, meaning that each Class A share is entitled to one vote and each Class B share is entitled to ten votes.

Class B Shares ?

So if I owned say 100 shares of WWE, I was allowed to vote on yearly proposals at the shareholder meetings and such, but at the end of it all the McMahon family owned enough stock to do whatever the heck they wanted (almost like in their wrestling matches), and this meant my purchase of the initial stock was effectively loaning the McMahon’s money, as I would have no say in how the firm was to be run. I do realize that I will never own enough stock in any company to be able to actually impact the ShareHolders meetings, however, I know a stacked deck when I see it as well.

This one sticks out as a huge example of what can happen if you don’t read the documentation available to you, about where you are putting your money, and this made me get out of individual “interesting” stocks. With Index Funds, and with ETFs that use Indexes, at least I know that I am not relying on a single stock, and assume that the folks who devise the mix for the Index have taken into consideration any “Class B” or any such derivative Tom-Foolery, into consideration.

Are there other Stock Peculiarities folks have noticed after reading the yearly prospectus from the company?


The Next Big Stock Market Crash ?

October 29th is the anniversary of the big bang or the first big stock market crash , which was a large contributing factor to the great depression of the 30’s, and it begs the question, when is the next big stock market crash, and how can I prepare for it?

How bad was the crash of 1929? The following useful 10 year graph might help:

The Stock Market Crash of 1929

The crash and it’s follow on

Amazing stuff eh? I didn’t know about this period.

  • There was a short recovery in January 1930, and then everything went down from there
  • It took a long time to get back to 1929 levels
  • There was still a great deal of market volume along the way too

What Can We Learn From This?

The Economic situation back then has about as much to do with today, as it did with the great Tulip Bubble Burst. Some say the world is a very different place. Don’t get me wrong, this kind of catastrophic drop will happen, just that comparing 1929 to now is foolish, so many things are different, not much can be learned from 1929 (other than, this can and will happen again). If you’d like PBS supplies this Useful Timeline Leading up to the Crash, if you think you can find any parallels there.

Is this another “fire and brimstone” rant about losing money, and such? No, in fact, if you are an Index’er or Couch Potato I would give the same advice as I gave many months ago (and stole that advice from our friend Preet), Live With It and Don’t Look. You will most likely have to re-balance in a while, but do that when you normally would and go back to your regular life, is the only advice I could give.

If you “timed” the market right, good for you, it is most likely through blind luck, but good on you, if you dodge the “big one”, but it was luck (unless you are part of the inner sanctum of traders who knew it was coming, in which case you are most likely guilty of Insider Trading).


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