Friday, February 27, 2009

Late Stage MBA - Josh Moritz- Will MY Education Solve the Stock Market Problem?

My son asked me a question tonight about the stock market. I did prod him to do so as part of learning how to think a bit more creatively about writing and to help me get started on a topic for tonight's blog. So the question is: by getting an MBA will this lead me to solving the stock market problem we have today?

Of course, no way. Although I consider myself a pretty bright guy,and unless there is some devine elightenment (and frankly given my performance in my finance course), this education is going to give me an idea of how we got into this mess, but not necessarily how to come up with a solution. There are plenty of smart people worrying about that. I am going to concentrate on coming up with a business idea that I love and that makes me some money. On the other hand, I wouldn't mind on taking a few minutes of making a contribution to the solution.

My feeling is that while I might join Wall Street either in the form of private equity or investment banking or just go back to being a marketing guy, is that our financial system is a form of legalized piracy even under the most draconian regulations. Smart Mafia dudes would do well to go to Babson (and if they have to settle for Harvard or Wharton, so be it) and leave the "business" behind and just come up with the next form of Credit Default Swaps that the SEC and Congress never even considered regulating.

I know that my finance professor disagrees with my POV regarding that the finance is really a form of legalized piracy. But he did give us to read a wonderful article called "Fuzzy Numbers" by a guy named David Henry (McGraw Hill, copyright, 2000-2004) which described that much of our financial reporting is clearly an art, not an exact science. I learned that GAAP is not short for Generally Approved Accouting Principles for nothing. You really have to read the footnotes in financial statements and then "scrub" the numbers by adding in and subtracting out certain items in order to get a fair comparable understanding of what is going on in a company. Given the broad way numbers can be presented and altered, legally, a regular old fashion consumer of financial products really should just invest in a well regarded mutual fund or bank CD's. You have to have the tempermant and at least a bit of training to understand the fine print--it is caveat emptor. Even though I don't think that I will be able to leave Quickbooks behind, I am hoping that by the time I take my next financial course I will be at least a bit capable of geting to the bottom of the annual reports and 10K's.

One of my favorite investment stories, is my father's investment in Chock Full Of Nuts coffee stock in the late 1950's to cover my college education. Despie almost finishing a PHD in engineering, dad did not exactly follow the stock market carefully. I think his investment went from $10 to $1 by the time I was 18. He should have read the fine print.

A more recent one are the people who have invested in bank stocks that were trading around $5 a few weeks ago and are now even lower, thinking that how could they go lower? Well guess what, you don't know what you don't know and the stock market is kind of emotional.

There was a great story of Iococca taking over Chrysler in 1979 when the car company was struggling then. The stock was trading at $11 and Ioccocca was quoted as saying how much lower could it go? The next year it went to $5. And of the soccer coach who had lost all 10 games for the season. How worse could it go? He lost 11 the following year since his team now had to play 11 games not 10. So my advice: invest heavily, take risks but with a juandiced eye; be sure that you are willing to drive a taxi-cab well into retirement just in case.

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