Money Blue Book

This is so classic. On March 11, 2008, this financial commentary by “financial guru” Jim Cramer was featured on his popular Mad Money television show on CNBC. The customary Cramer angry rant was made in response to a call and write-in question about the serious viability and liquidity concerns regarding Bear Stearns, one of the world’s largest global investment banks and brokerage firms, and a company that has been hit particularly hard by the subprime mortgage meltdown. The abbreviated Mad Mail question and exchange can be viewed on Jim Cramer’s CNBC Mad Money Blog. Frankly, his response should be written in all caps, since he tends to holler his answers. I wouldn’t be surprised if Jim Cramer later requests to have it take down out of sheer embarrassment.

This is what blindly listening to the advice and commentary of financial gurus and pundits in the mainstream financial media outlets like CNBC will get you:

Tuesday, March 11, 2008 On Mad Money

• Dear Jim: “Should I be worried about Bear Stearns in terms of liquidity and get my money out of there?” - Peter
• Jim Cramer: “No! No! No! Bear Stearns is fine. Do not take your money out. Bear sterns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear. That’s just being silly. Don’t be silly.”

Friday, March 14, 2008:

With liquidity problems snowballing and financial conditions deteriorating, Bear Stearns reaches for a life preserver, and works out a financial rescue deal with JP Morgan Chase and the United States Federal Reserve to help keep the 5th largest U.S. bank afloat. Bear Stearns’ chief executive, Alan Schwartz, explaining why the bank turned to the Fed and a rival bank, said:

• “Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.” (Reuters).

With the mood deathly grim and takeover speculation rampant, investors bail - sending Bear Sterns stock price plunging on record volume, losing more than 45% of its total market capitalization in one fell swoop.

Sunday, March 16, 2008, And The Day After

Facing the brink of imminent collapse and financial insolvency, Bear Stearns is bailed out and acquired by JP Morgan Chase, preventing the worst case scenario of bankruptcy protection. The company is acquired for only a tiny fraction of what it was once worth at a mere $2 per share for a total all stock deal of $236 million. The Federal Reserve agrees to provide additional funding to help the dying bank and prevent widespread panic and frenzy (CNN). Next day, the price of Bear Sterns stock plunges by almost 85%, sending deathly chills down the back hairs of all investment banks and those in the financial sector. Companies that dabbled in subprime mortgage backed securities continue to wait anxiously for the credit crunch guillotines still making their rounds.

My Take On Jim Cramer’s Advisory Statement and The Moral Of the Story

While Jim Cramer’s statment about Bear Stearns seems utterly ridiculous now, on the flip side, there is a slight possibility that perhaps he wasn’t addressing the stock price of Bear Stearns but rather those customers who had investment and brokerage accounts held at the ailing company. He didn’t exactly recommend that investors buy or hold Bear Stearns stock in that particular comment, although, he has made such comments in the past. If the latter was what he meant, Jim Cramer, as an educated financial commentator, should have framed his comment better by addressing FDIC and SIPC protections to alleviate account holder concerns. But instead of discussing the relevance of broker bankruptcy protections, he chose to address the performance and on-going concern issues of Bear Stearns. This leads me to believe he was in fact rendering an opinion about Bear Stearns as an equity investment, and was completely blindsided by the investment banker’s later revelations about its liquidity.

…Which leads me to the whole point of this article. Do not believe everything you hear from financial pundits and so-called experts or gurus. All investors should learn to perform their own research and due diligence. No one can predict the movement of market action and stock prices. While the stock market is inherently designed to be efficient with demand complimenting supply, the truth of the matter is that not all crucial information is in the public domain. As someone who works in a legal field with some first hand and indirect observation of what goes on behind the scenes, I can assure you that there is a lot of inside trading and underhanded conflict of interest transactions going on, despite the SEC, DOJ, and FTC’s valiant attempts to root out the evil do-doers.

The movement of the market is also heavily influenced by the emotional lemming-like horde mentality of investors. Like ESPN sportscasters, financial reporters can only truly and accurately report what they observe on the spot. No one has the magical crystal ball to see into the future. They may attempt to make reasonable projections, but those stock picks, like March Madness basketball pool selections, are frequently wrong. The only way to weather investment storms and financial unpredictability, is to remain diversified and invest in broad stock indexes such as low commission mutual funds and exchange traded funds (ETF’s).

Updated! Active $50 Promotion Codes Verified

Sign up with ShareBuilder today to take advantage of their $50 promotional offers for new accounts before they expire. The ShareBuilder bonus codes listed below are for new individual customers. While some people have been able to successfully open up several ShareBuilder accounts and earn multiple new account bonuses, the policy technically limits such bonuses to just one.

If you are a Costco member, you may be entitled to special Costco Member Benefits for new ShareBuilder customers by using this link - they are worth even more! If you are a Costco Executive Member, use code: COEXECWALL08, to earn $90. If you are a Costco Gold Star or Business Member, use code: COGOLDWALL08, to earn $70. All non-Costco members should use the following table of codes to claim their free bonus money for new accounts:

ShareBuilder is still currently offering $50 cash promotions to new ShareBuilder broker customers who fund their accounts with at least $50 of their own money or make at least one purchase transaction on their accounts (terms vary). Taking advantage of this free offer is relatively straightforward as ShareBuilder’s basic accounts have no minimum balance requirement, which means you can maintain your account with any amount of money you wish. Basic accounts also have no inactivity or subscriptions fees.

For a few years now, the company has become a popular online discount broker option for many new investors. Most people are attracted to the company’s low trading fees and their lack of maintenance or minimum balance requirements for basic accounts. At $4 per trade for equity transactions through an automatic investment plan, and $9.95 for regular real time market orders, ShareBuilder’s commission fees are competitive with that offered by other discount brokers.

Steps To Open A New ShareBuilder Account and To Qualify For Your Bonus Offer:

1. First, you’ll need to open a new ShareBuilder account and make sure you enter one of the active promotion codes listed on the table above. When selecting the account type, you should choose the basic individual account since there is no minimum for that account type and no additional subscription fee required.
2. The exact qualification terms will vary slightly. But next, you will either need to fund your new account with at least $50 of your own money, or you will need to execute at least one purchase. Either way, you will need to transfer into your account a bare minimum of funds.
3. Finally, after your account has been funded with at least $50 and your first purchase has been executed, you’ll need to wait around 4-6 weeks to receive your bonus money. Upon receiving your promo code bonus, you can transfer your bonus money into your checking account and decide what you want to do with the stock trade you made.

With The Qualifying ShareBuilder Stock Purchase You Made, You Should Leave It Alone And Let It Grow

One of the requirements to qualifying for the ShareBuilder promo offer is to make at least one equity trade. If you’re a new investor or you are opening the account merely to take advantage of the free bonus offer, then I’d recommend buying a stock that you will likely hold onto for a long time. Since there is no hard credit check for opening a ShareBuilder account and a modest transaction fee is required to sell your small stock position, I’d recommend holding onto whatever shares you purchase for a long, long time. After all, once you receive your $50 bonus in a few weeks and transfer the free promo money to your checking account, your monetary situation will have nearly evened out in terms of out of pocket money invested.

I suggest putting your starter money into a more stable exchange traded fund (ETF), which is basically a broad index fund that trades like an ordinary stock. Most ETF’s are less prone to wild trading swings and are less adversely affected by the news of a single company. Since I invest mostly in Asia funds, I recommend ETF’s that track the performance of emerging markets like China, Taiwan, South Korea, and Singapore, although Brazil and Mexico are worthy mentions as well.

If you want broader coverage, go for the iShare MSCI Emerging Markets Index (EEM). If you want regional growth coverage, go for the South Korea iShare MSCI Index (EWY), or if you’re gutsier, try the iShare FTSE/Xinhua China 25 Index (FXI). Yes, they are all certainly riskier and more volatile than your average bear, but do remember that you are investing with free ShareBuilder promotional money anyway. $50 is not that much so you might as well bet the house and hold for the ages. Who knows, in 25-30 years your $50 may have steadily grown into a few thousand dollars through the magic of compound interest. In that time I will personally report back here on how much my bonus money has grown.

So you’re thinking of opening a Roth IRA account? Congratulations! Although it’s only one small step forward in sound financial planning, it’s one giant leap towards building your financial future and saving for retirement. By now you’ve likely settled on which investment retirement account (IRA) vehicle is best for you. There are three major types - Roth IRA, deductible IRA, and the non deductible IRA. All offer tax deferral benefits but the retirement account that is most appropriate for the majority of ordinary individuals and married couples is the Roth IRA. Unlike traditional IRA’s (both tax-deductible and non-deductible), Roth IRA’s enjoy several great advantages and benefits which make them very attractive for those who want to invest and plan for their future retirement. Here is what every prospective Roth IRA investor and account holder should know:

1. Withdraws from Roth IRA’s after age 59.5 are generally not taxed, because you pay your taxes on the front end by contributing after tax dollars.
2. Because most people steadily increase their total income over time as they get older, they usually either stay in the same marginal tax bracket or end up at a higher bracket level at retirement. Thus, Roth IRAs enable savvy savers at retirement to accumulate more money than even tax-deductible IRA’s.
3. Unlike a traditional IRA, not everyone is eligible to open and contribute to a Roth IRA. For 2008, the Roth contribution limit is $5,000 as long as your income falls below $101,000 if you’re single, and $159,000 if you’re married filing a joint tax return. There are income phaseouts after that.
4. Unlike a traditional IRA, with a Roth you can withdraw your original contribution money at any time for any emergency reason, tax free, and without penalty and you don’t have to replace the funds, unlike a 401K or a traditional IRA. Of course, it’s always best not to withdraw because that stops the compound interest process.

Choosing The Best Broker To Open Your ROTH IRA Account With, And What To Look For:

The majority of investors choose to start their retirement savings with a Roth IRA. The best course of action is to open the account with a reputable broker rather than a bank. Some banks and credit unions offer retirement accounts but their choice of investment vehicles like certificate of deposits are often limited with low rates of return. Here are some basic criteria you should take into consideration when deciding which broker to open your Roth IRA account with:

1. Choice Of Investment Options Including Mutual Funds and Exchange Traded Funds (ETF’s) - A Roth account is merely the account type. With the funds your contribute to it, you can use it to trade any type of investment vehicle you wish from stocks, bonds, to mutual funds.
2. Low Commission Costs and Account Fees - My recommendation for new investors is to stick with mutual funds and low cost index funds. Always make sure the maintenance fees for funds are reasonable.
3. Automatic Contribution - For those who wish to invest regularly, try to look for a retirement broker that offers the ability to make automated fund transfers into your Roth from your linked bank account.
4. Minimum Balance Requirement - Most brokers have minimum initial investment and balance requirements. For new investors, the minimum requirement may be an initial hurdle if the limit is to high. However, even for those who only want to start up with a few hundred dollars, there are options available.

Investing In Mutual Funds - The Best Approach For New Roth IRA Account Holders

New Roth investors should put their money primarily into mutual or index funds. Here are two of the top brokerage firms that specialize in their own family of mutual funds and have built a reputable track record of solid returns. For new retirement account holders and those who are unsure about their investment approach, low cost, no load mutual funds are the less volatile and smarter way to invest for your future.

1) Fidelity - (Sign Up) - Fidelity Investments is where I chose to open my Roth IRA account and it’s also the place where I manage my 401k. I like their clean and easy to use website interface and the fact that they have a very established track record. They offer a basic approach to opening a Traditional or Roth IRA. The minimum investment requirement is $2,500, but that amount is waived if you can commit to future automatic monthly contributions of $200 per month. For new and young investors who don’t have $2,500 to invest right away, they can start out with just $200 and agree to put in $200 per month in the future.

Fidelity offers a huge variety of attractive mutual fund and index fund options, many of which have no transaction fees (although minimum balance requirements for Fidelity’s index funds are rather high at $10,000). With a Fidelity account, you can trade Fidelity family funds for free, although there may be early redemption fees.

2) Vanguard - (Sign Up) - Vanguard is most well known for offering one of those lowest expense ratios for access to their family of Vanguard index funds. Opening a Roth with Vanguard will enable you to trade Vanguard mutual funds for free as well. While they ordinarily charge an annual $20 fee for each Vanguard fund account with a balance under $10,000, the maintenance fee is completely waived and eliminated if you simply register for account access on Vanguard.com and agree to accept electronic delivery of statements, reports, and other shareholder materials through Vanguard’s e-service package.

For most Vanguard funds, the minimum investment requirement requirement is $3,000 per fund. However, with the broadly indexed Vanguard STAR Fund (VGSTX), the initial minimum balance requirement is only $1,000. The STAR Fund is a stable fund well suited for the beginner retirement account investor with limited funds to start. Once your investment has grown, you can always upgrade to one of the more targeted Vanguard Life Cycle Funds designed to suit investors depending according to their target retirement date. For me, I would choose the Target Retirement 2045 fund (VTIVX).

Vanguard expense ratios are quite low - a predictable trademark of most Vanguard funds. Vanguard is probably best suited for fund investors who want to concentrate their investing efforts primarily in index and mutual funds rather than individual stocks, the best course for the vast majority of investors.

Investing In Exchange Traded Funds and Individual Stocks - Another Approach For Roth IRA Investors

Currently there is an investment movement away from loaded investments and expensive adviser managed funds, and towards exchange traded funds (ETF). ETF’s are attractive because not only do they track the diversified performance of broad indexes, they also offer very low expense ratios and may be easily traded like ordinary stocks. If ETF’s are your intended approach, then you will need to find a Roth IRA discount broker that offers low per trade commissions and low fees. Here are a few low cost discount brokers that I either have accounts with or have had a history of positive trading experiences with:

Top Discount Broker Picks For Roth IRA Investors Who Want To Trade ETF’s And Individual Stocks

1) Zecco - (Sign Up) - Zecco was one of the pioneers for the movement towards free stock trades. Although it has since scaled back the terms of its original free trade promotion, this discount broker still offers a great commission deal for free equity trades. Currently, account holders receive 10 free trades per month so long as they can maintain at least $2,500 in total account equity, which includes the total value of cash and stock positions. Otherwise, individual equity transactions for market and limit orders cost $4.50 per trade. Although there is technically no minimum balance investment requirement, if you want to take advantage of the free trade offer, you should maintain at least $2,500 in your account.

2) TradeKing - (Sign Up) - Notice: For a limited time only, TradeKing is offering new account applicants a free instant $50 bonus in their brokerage account when they fund and trade via the provided link). TradeKing is a popular deep discount broker that offers very low commission fees. Currently, each market and limit trade costs $4.95 per trade. There are no annual fees for IRA accounts and no minimum balance investment requirements to open a Roth account.

3) ShareBuilder - (Sign Up) - ShareBuilder has established itself as a popular discount broker, offering comparatively low commission fees for equity transactions at $4 per trade through automatic investment plans, and $9.95 for regular real time market orders. There is no minimum investment balance requirement to open a new Roth or an ordinary brokerage account. The $25 annual fee is waived if you sign up for a trading plan other than their basic plan.

New ShareBuilder Promotion Codes: (Updated)

• Gift50 - $50 promo code
• Huskeralum45 - $45 promo code (Not for Roth or IRA accounts - individual accounts only)
• Student50 - $50 promo code (Not for Roth or IRA accounts - individual accounts only)
• Share50 - $50 promo code (Not for Roth or IRA accounts - individual accounts only)

I think it’s time all market investors learn to turn their backs on the daily stock ticker blips coming out of Wall Street - not completely, but just enough to regain their emotional composure so they can properly implement the correct long term investment strategy.

Don’t Gamble Your Money Away - Invest For the Long Term

Not too long ago, I wrote about one of the biggest dangers to rational investing - emotional trading based on panic buying and selling. The wise and prudent investor should put aside irrational emotions, and always invest for the long term if they can help it. Unless you are very close to retirement, your investment plan should be to hold for the long haul. When you invest for the short term and try to make some fast money, you cease to become an investor and transform into a gambling market timer. But financially, day traders and gamblers live and die by the sword. Yes it is certainly exciting when you occasionally can make a quick 50% profit in one fell swoop, but like all gamblers, their desire to constantly make fast money inevitably causes fatal missteps that will ultimately result in financially devastating losses.

Years ago I tried out the gambling day trading strategy. It was during the dot com boom. Yes I made quite a bit from very short term trading bursts, but overall, my losses outnumbered my gains. My short term investing strategy led me to essentially buy high and sell low. My emotions caused me to jump aboard a skyrocketing stock price run when it was actively soaring, and the same emotions caused me to bail quickly but prematurely when prices were actively plummeting. I still regret those fledgling investment days when I was still a naive college student who knew nothing about the stability and wisdom of long term investing. Even if you want to invest in the stock of a riskier company, you should still invest for the long term. In the long run, most stock prices do usually rebound so long as the market sector and the underlying company’s financials remain healthy.

Try To Follow Business News Regularly, But Don’t Obsess About Changes In Individual Stock Price

The easiest way to avoid trading on emotions and irrational exuberance is to simply stop obsessively and compulsively tracking your portfolio’s stock prices every moment of the day. Back when I started stock trading in 1999, I used a fledgling brokerage firm called Datek (company has since been acquired by TD Ameritade). At the time I used their service, the company introduced a revolutionary and neat little online stock price streamer tool that fed my tracking obsession. I used to love sitting in front of my computer screen and watch the green and red ticker numbers cycle up and down hypnotically. Because my trading account was linked to those numbers, I was able to to see how much I was making or losing in paper gains and losses on a real time basis. This real time convenience did nothing but cause me to unnecessarily panic when prices went down, and become irrationally confidant when markets soared, during a period when day-to-day stock market prices were dangerously volatile.

Since then, I’ve learned that the smartest thing any investor can do is to avoid looking at one’s investment portfolio numbers so frequently. It’s important to know where your financial portfolio stands, but don’t make it a habit of tracking every tick and number change. This has permitted me to become more relaxed and confident in executing trades based on my long term investment strategy. I don’t get too bogged down by short term dips anymore as I’ve weaned the real-time technological temptations out of the investing picture. Once you stop checking your stock prices all the time, you’ll be able to invest with more confidence and with a more sound and stable long term horizon.

As always, all well informed investors should make it a habit of following and reading daily business news articles as well as paying attention to current event developments. It’s important to know how the markets as a whole are doing and to be aware of which sectors are healthy and which are not. I still track financial statistics, but I pay more attention now to broad market and economic indicators than anything else. I am more concerned about long term market health than individual stock prices and performance on a day to day basis. That’s what all prudent investors should learn to do if they truly want to invest and grow their nest egg for the long term. If you are a new investor, you should also stay away from investment message boards and forums. Peer pressure has a way of greatly distorting and messing with one’s investment mind.