Tuesday, February 9, 2010

Things I Have Learned

When powerful forces have vested interests take advice with a grain of salt (if it hasn't all been used on roads around the eastern US this week.)

About six years ago, a client asked what I thought about General Motors bonds. I recall saying they weren't trading very well, but why ask me when others, like Moody's was spending millions on the answer. The bond rating agencies were telling the world things weren't as bad as they appeared.

A year ago, a friend told me she was thinking of buying National City Bank stock. The branch manager and senior management of the bank said the price was far too low and they were one of the best capitalized banks in the country. About a month later, they ceased to exist as PNC bought them before they had to declare bankruptcy.

Whenever we begin a discussion with, "people a lot smarter than I am...." it's a fair bet that those smart people are wrong. The graph above has to put your teeth in edge as words and the market diverged. In the words of Deep Throat in All the President's Men during the Nixon debacle said repeatedly, "follow the money."

When oil was at $150 dollars a barrel, the more Goldman Sachs publicly said it was going to $200 the more convinced I was that we would see $80 before $200.

The Attorney General is suing Bank of America for fraud in the purchase of Merrill Lynch as the state of Merrill was withheld from shareholders.

So trust common sense in your investment dealings. If you can't pay attention, hire someone to pay attention for you, but never give up a healthy portion of skepticism. Even if you're talking to yourself.

John Barnyak
Stonehouse Asset Management