Thursday, June 05, 2008

School Stories 4 - more Investments

In my Investments class, I’m not sure why she said she would be telling us rules of finance all through the class, because she hasn’t mentioned them since. So, I don’t know if by “rules” she actually meant “facts”…I like lists, so I was looking forward to the “rules”, but that’s fine. I’ll share the most interesting bits, and also the things that I put a lot of stars by, since important information is good to know whether or not it’s interesting.

1. NEVER, EVER OWN A PARTNERSHIP. It never works. She said that in all of her years of experience, she’d never seen a partnership work once. If you and your friend want to start a business, you start it and hire him, or have him start it and hire you, but do not start a partnership.

2. Pawn shops are a good place to buy jewels. You don’t have to have an ugly wedding ring, just have it re-set in a setting that you like. “Do you think the diamonds from diamond stores were just mined in Africa? No!” She said that places re-set diamonds all the time.

3. She taught us about “shorting”, which is the way to make money when you think that a stock’s price will be falling. Basically, what you do is sell stock that you don’t technically own, with the promise that you’ll buy it back later. (And you buy it at the lower price after the price falls.)

The example that she gave us of how it sort of works, is, she wanted these yoga DVDs. And she couldn’t find them anywhere. And she found them on eBay as a Buy It Now, so she bought them. (She likes Buy It Now because someone always outbids her at the last moment in the regular auctions.) And then a box came from Overstock.com. So the seller had ordered it for her on Overstock, and pocketed the difference. And at first she was like “Heyyyyy” because she could have gotten it for less, if she would have just checked Overstock. And then she was like “Good for them,” because that’s a smart way to make money on eBay. And that was her example of shorting.

She said there are two movies that have good examples of shorting: “The Runaway Jury” and the recent James Bond one, “Casino Royale.”

She also reminded us that after 11 September, trading had been closed. She said it’s kind of interesting because the terrorists hate us, and they hate our capitalist society, but that they funnel their money here, because they want to make money, too. She said that on 11 September, a lot of businesses were affected. Obviously. So like suppose you have stock in some company whose office was in the World Trade Center. With the attack, some businesses were completely destroyed. And the terrorists knew that was going to happen, so millions of terrorist dollars were shorted on those companies. (“It kinda makes them even more sleazy and slimy,” she said.) Get it? So suppose company ABC has their office in the WTC. The terrorists sold stocks for ABC that they didn’t have, to people who didn’t know about the attacks that were about to happen. Then they bought shares later (to make up for the ones they’d already sold at a high price) at super low prices. Lame! (But interesting.)

4. Here’s another interesting story. It’s kind of similar to the movie Catch Me If You Can, with Leonardo DiCaprio. SO, the regulatory agency for stocks and stuff is the SEC, which is the Securities Exchange Commission. And what they do is not make sure that you always make lots of money, but they make sure that you have all the information that you need to make informed decisions about the risks that you make with your money. Okay, good, great. WELL, know how in Catch Me if You Can the guy is like the best of the best at counterfeiting and he ends up working for the good guys? The same thing happened with the SEC. Joseph Kennedy was like the grandfather or something of the Kennedys that are all famous now. And how did he make so dang much money? Bootlegging. Mafia involvement. Insider trading of stocks. When the depression hit, he was one of those people who would pay pennies for stocks, and for farms, etc, just because some people were so desperate that they would take anything. So since he was super shady and totally good at insider trading, he was chosen to be the first SEC Commissioner. Awesome. I had no idea that the Kennedy family made all their money through shady stuff.

5. If you’re looking to invest, don’t jump into the first thing you find. Look around and see if you’ll be getting the right amount for the amount of risk you’re taking.

6. We have this guy in my class who has a bunch of credit card debt. It’s really funny because he talks about debt and different ideas and questions that he has, and he’s super open about it. But our professor pretends that it’s all a hypothetical situation. Like nobody would possibly make such a big mess of their finances. “Everything in this class is always hypothetical,” she says. And everyone kind of laughs about it.

7. One final interesting thing from Investments, which you may know if you’re a math person, but I didn’t know. It’s called The Rule of 72. Basically, you divide 72 by your interest rate and the result will be the number of years that it will take to double your money. It’s not perfect, but it gets you close. Neat!

We also just started our little Personal Finance part of the class, so after next Monday I should have some good, useful information to share.

1 comment:

Olympus said...

Hey, my dad told me that 72 rule.