Hammer to my own head

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Sep 17, 2008 9:23 pm

I am ready to hit myself in the head with a hammer (I suggested someone on this forum do that and I should not have.)

Client wants to move whole portfolio of various mutual funds to cash because market is too risky.

Next he wants to know what I think of $50,000 each in gold and silver.

I calmly and seriously ask if he would be comfortable with potentially experiencing a $50,000 loss in a short period of time (I have no idea what gold will do but I know it can be volatile).

At first he laughs at me.  When he sees I am not smiling or joking, he explains that he fishes with some guys that trade stocks.

The bottom is near and if not we will all be replaced by guys that fish.

Sep 17, 2008 9:44 pm

Actually, if the bottom is not near, we will all BE guys that fish.

Sep 17, 2008 9:49 pm
ytrewq:

I am ready to hit myself in the head with a hammer (I suggested someone on this forum do that and I should not have.)

Client wants to move whole portfolio of various mutual funds to cash because market is too risky.

Next he wants to know what I think of $50,000 each in gold and silver.

I calmly and seriously ask if he would be comfortable with potentially experiencing a $50,000 loss in a short period of time (I have no idea what gold will do but I know it can be volatile).

At first he laughs at me.  When he sees I am not smiling or joking, he explains that he fishes with some guys that trade stocks.

The bottom is near and if not we will all be replaced by guys that fish.

 
Explain to him that he is selling low.  If he does not bite, do your job.  Liquidate the MF's, and buy options on silver and gold, allowing him to use leverage, participate in the upside, limiting downside risk, and you will still have money to work with if his fishing buddy is wrong.  Everybody wins.
Sep 17, 2008 10:11 pm
SonnyClips:
ytrewq:

I am ready to hit myself in the head with a hammer (I suggested someone on this forum do that and I should not have.)Client wants to move whole portfolio of various mutual funds to cash because market is too risky.Next he wants to know what I think of $50,000 each in gold and silver.I calmly and seriously ask if he would be comfortable with potentially experiencing a $50,000 loss in a short period of time (I have no idea what gold will do but I know it can be volatile).At first he laughs at me. When he sees I am not smiling or joking, he explains that he fishes with some guys that trade stocks.The bottom is near and if not we will all be replaced by guys that fish.



Sell him a variable annuity.

 
You're a one trick pony Bobby.
Sep 17, 2008 10:16 pm

Actually, he's got a point, primo.  A VA may fit quite nicely for this guy.

Sep 17, 2008 10:18 pm
deekay:

Actually, he's got a point, primo.  A VA may fit quite nicely for this guy.

 
For someone who wants to cut and run as soon as the market moves against him?  I'm sure the arbitration over the surrender fee will be pleasant.
Sep 17, 2008 10:21 pm

Gold is going to be very hot in the next year or two (especially with inflation being understated and ESPECIALLY if we dont hit a bottom).  Silver could def. but def. not as much as gold. 

Materials and metals are one way to take advantage of a PORTION of the clients' assets, and a portion across diff. high quality fixed income (Munis with solid local footing like NYC or LA, not Modesto, California), high quality corp. and some Treasuries.  I say diversification is very key in these times.  I dont aim to make clients rich during these times, I go to cap. preservation.  Buy n Hold just doesnt cut it nowadays (look at Russia's index when they invaded Georgia, very steep declines).  Add the last 3 days of the Dow, point proven.

Just be strong and be smart.  Look at where you going before you jump in is my only caveat.  Opportunity is still out there.

Sep 17, 2008 10:36 pm
Primo:
deekay:

Actually, he's got a point, primo.  A VA may fit quite nicely for this guy.

 
For someone who wants to cut and run as soon as the market moves against him?  I'm sure the arbitration over the surrender fee will be pleasant.
 
I said MAY.  I have no clue for sure.  If a VA will keep him invested vs. trying to bail out, it MAY be appropriate.
Sep 17, 2008 10:40 pm

ok

Sep 17, 2008 10:43 pm

Tell him to stay put, in your recommendations, or find another advisor. What would your Doctor do if you said, "Well how about some of medicine A and a bit of medicine B?" Like Nick Murray says, if you begin getting told what to do by your clients you will soon know how it feels to be pecked to death by ducks.

Sep 17, 2008 10:47 pm

Tryintomakeit I appreciate the suggestions however October will be my 19th year as an advisor and I would say that the last 3 days only prove that we are past 2 days and not quite yet at 4 days.  No disrespect but there is no proving anything in what we do.
As I am sure all of you know, once you have these conversations with a client you have a ways to go before you can even discuss serious investment advice.
You first have to explain that although you know it is common knowledge, the moon is not really made of cheese.  Selling at the top and then rebuying at the bottom would assure great wealth but the time machine is in the shop for repairs.  I was really hoping others would post the crazy stuff that they are hearing so I could be smug and say "well atleast I am only dealing with 3 guys in a boat, other advisors have it worse."

Sep 18, 2008 12:02 am

I have clients who want to go to cash, buy gold, take everything and buy a CD or Treasuries.  They hear the panic on the television and they are rightly afraid.  They are getting investment advice from Vince the Sham Wow guy and we have to calm them down and explain the dynamics of what is happening or at least pretend that we know.



I'm calling 15 to 20 clients daily right now to prepare them for the bad news, hold their hands and try try try to get them to come in and/or make some decisions about repositioning or staying put.   It seriously amazes me how some people don't want to make a decision, yet want to place the blame on us if...scratch that....when it all goes bat shit.   Possibly because I've had these clients for many years, through the 2000 crash and before, most seem to be takin things in stride and some even express worry for me because they know I'm stressed out.  (I'm drinking scotch right now to ease the stress )  The newer clients that I have who invested at the peak of the market are freaked and I probably will lose some of them, because they are grasping at straws and think they can find a better deal somewhere else.  So sorry.   I never promised you a rose garden.

For those who want to go to cash.... and crap...who can blame them.  I do what they want.  Move the mutal funds to mmkt fund.  Sell the most volatile stocks into cash/mmkt.    Tell them that we may be reaching a bottom but again...maybe not.  Who knows. My freaking crystal ball is broken.   If we have more downside (which I believe we will certainly have), well, at least we have stopped the bleeding.  When they feel comfortable in moving back into the market.....dollar cost averaging, just in case we are still not down.

After 9-11 the DOW got into the mid 7000 range.  It only feels so bad right now because the rapid downturn is unexpected to the general public and they don't understand.  Twin Towers falling, that they get.  Leveraged credit swaps ?  Nope.  The shake up we are going through has been coming for several years now and is going to change the financial industry for years to come.  Change is scary.
 
My client base is basically older pre retirees or retired and they aren't so concerned with growth, market timing etc.  They want to preserve their principal and stop the damage.
Right now I feel like the little Dutch boy trying to stop the leaking.  If the clients want cash....so be it.   It's their money.
Sep 18, 2008 12:32 am

Babs,
You make some good points.  What we all have to remember is that this time is worse ONLY because it is happening now.  For example.

A huge meteor slams into the earth and wipes out 98% of all life.  Kinda sucks but....
Couple of million years later and the last 2 dinosaurs remaining are facing an ice age and global cooling like you could not imagine.  Here is the conversation:

I know, that meteor thing was bad but times are different now.  We're cold!  They had it easy.  Atleast the explosion was hot.  This will never end.  Snow is in the forecast.  Fast forward.

The earth warms.  The ice melts.  Conversation:

Sure it was cold, but atleast you can WALK on ice.  Now it has melted.  They had it easy.  We gotta learn how to swim.

Repeat.

Thank goodness this business is this hard.  This is why we get paid so well.  Not many can do what we do.  DO NOT.  repeat.  DO NOT.  Get sucked into the "this is worse".  We are all our clients have to lean on.  You may not be able to stop their transactions but you can refuse to agree or encourage their self destructive panic/greed driven investments.

My collateralized and leveraged $.02 worth.

Sep 18, 2008 1:24 am

I had a client who wanted to sell out of his Money market fund!! You know, bloomberg/cnn/msnbc is really playing up that Money Market Fund that lost 3 cents on the dollar, and they're really getting people worked up over money market for frack sake! 

Not only did he have no exposure to lehman/AIG/WaMu in the mmk, but you know what he wanted to invest the difference in?  TRE.  The african gold mining firm.  That was a fun conversation. 

Sep 18, 2008 4:28 am

I believe more Money Markets could be next. Check Treasury yields yesterday after that announcement about the U.S's oldest money market account breaking the $1 NAV and freezing redemptions.


I know my reps were on a conference call about a year ago and management said that they found a SIV (Structured Investment Vehicle tied to mortgages) in our money market and to keep the the NAV at $1, they decided to take a write-down. Correct me if I am wrong, but I believe there were a few firms who had that happen.
 
Banks have lost so much money with writedowns, lackluster earnings, ARS buyouts, etc, that they simply can not afford to keep that NAV at $1 if it gets bad.
 
This is a question that I want to know. If short-term Treasuries are in the 1-2% range, why the heck are money market yields so much better? Meaning, what do they have inside them that gives them the additional juice?
 
I really believe the best alternative is a Treasury, 4-5 star bankrate.com brokered CD or an agency bond.
 
Sep 18, 2008 9:00 am

Gotta love VA's with what's happening.  I spoke to a conservative client yesterday who was panicking because his account is down over $50,000.  The one thing that he wanted when we started working together was not to lose money.

 
Client: "I don't know what to do. I'm losing so much money.  Shouldn't I just move all of my money to CD's.?"
 
Me: "Joe, do you remember when he first put this account together for you and I told you that the worst case scenario would be that you would have a guaranteed income of $60,000/year for the rest of your life starting at age 75?"
 
Client: "Yes. I remember."
 
Me: "Now that the market has taken a significant hit and it may continue to go down, your worst case scenario has dropped to $60,000/year for the rest of your life starting at age 75."
 
Client: "That's what you just told me before the market drop."
 
Me: "Exactly!  A good market will ultimately help you get more, but no matter how bad things get your worse case scenario can't get worse...and it's pretty darn good.   Moving your money will negatively impact your worst case scenario and if the market improves, you won't be able to benefit."
 
I'm a broken record with the VA's.  I argue that the fees are pretty high and they can hurt people if they are used incorrectly, but they can be great investment vehicles if they positively impact investor behavior. 
 
 
Sep 18, 2008 11:07 am

I had a conversation with a retired farmer yesterday.  Didn't come in to change anything, but wanted to know my opinion.  He took everything I said and just before he left..he said, you know, its the little guys out here who are the last to know and the ones who are ususally left holding the bag.  I made a comment on here a month or so ago about pulling clients out of the market in Aug/Sept/Oct of last year,(those who would listen).  Putting in short term cd's, mmkts, short duration funds, inflation protected bond funds. I also talked with a Vet from Ed Jones who I still consider a good friend and he said he wouldn't put any money in bonds..(this was Dec 07), he's free thinker, manages 200 mil and likes his LP, but doesn't drink the koolaid. 

 
I got hammered by almost everyone on here, saying I was trying to predict the market.  Buy and hold is the way, and I'm destroying my clients assets.  Bottom line is, I am very skeptical of the research put out by ANY wall Street firm.  IT IS IN THEIR BEST INTEREST TO KEEP THE CLIENTS IN THE MARKET, NO MATTER HOW BAD IT GETS.  I work for my clients and my clients heirs, not LPL or Ed Jones or Morgan or Wachovia or anyone.  All this propoganda about staying in the market spewed by the big firms is skewed towards their self preservation. 
 
 My good friend at Morgan was telling me a week or so ago.."the lows are in"...the market is on the way up from here.  That was 1000 pts ago.  He has been advising with Morgan (dean witter before) since 1992 and has a book of 300mil.  HE is spewing Morgans research...he is not thinking for himself.  Any dumbass can step back and say...wow all these no doc loans for 500k mortgage for two walmart workers....hmmm....is this right.  You want 850k for an 800sq ft bungalow in a shady neighborhood....wow what a deal....where do I sign.  Greed is NOT good. 
Talked with another friend yesterday, lives in around Wake Forest.  John and his wife want to move back to Jersey.  He said when he put his house on the market last Spring, they were told there was 18 month supply for his price point.  He was told last week, there was now 42 weeks of supply.  They pulled it off the market.  It's not going to get better anytime soon...be prepared. 
Sep 18, 2008 11:34 am
anonymous:

Gotta love VA's with what's happening.  I spoke to a conservative client yesterday who was panicking because his account is down over $50,000.  The one thing that he wanted when we started working together was not to lose money.

 
Client: "I don't know what to do. I'm losing so much money.  Shouldn't I just move all of my money to CD's.?"
 
Me: "Joe, do you remember when he first put this account together for you and I told you that the worst case scenario would be that you would have a guaranteed income of $60,000/year for the rest of your life starting at age 75?"
 
Client: "Yes. I remember."
 
Me: "Now that the market has taken a significant hit and it may continue to go down, your worst case scenario has dropped to $60,000/year for the rest of your life starting at age 75."
 
Client: "That's what you just told me before the market drop."
 
Me: "Exactly!  A good market will ultimately help you get more, but no matter how bad things get your worse case scenario can't get worse...and it's pretty darn good.   Moving your money will negatively impact your worst case scenario and if the market improves, you won't be able to benefit."
 
I'm a broken record with the VA's.  I argue that the fees are pretty high and they can hurt people if they are used incorrectly, but they can be great investment vehicles if they positively impact investor behavior. 
 
 
 
I have a few VA's that were funded in the last 6 months to a year that are down 15-20% right now. 
 
I'm sure I'll be having that exact same living benefit conversation.  "Hey Mr. Client, this is exactly why we purchased this annuity".
Sep 18, 2008 12:26 pm

Actually, I'll let you know after I move my clients...sorry, but I bet you would be one to jump in right before you told your clients to...frontrunner....

Sep 18, 2008 12:38 pm

BSpears.....I for one did not comment on your observations. I do think that some people ( FAs ) actually do rely on the " Research " Department far too much and in fairness so do clients. Check out 1) Buy - of course most people already know , 2) Hold - we don't have an opinion , meaning  or  but nobody will ever be able to pin that opinion on me and finally 3) Sell - they decided to state the obvious it is

I was away on an Incentive Trip to LA and the thing that strikes me from listening , reading and observing there are a lot of fundemental changes going on in addition to the HEADLINES.
Check out the U.S Housing Markets ( Major ) I was stunned to see housing inventory in some cities ......3 or 4 YEARS and does not include the New Home inventory coming in to the system.