Corporate Greed and Investor Confidence
Have we finally reached the end of our economic recession? Can we expect the market to continue to rebound? These are questions many investors consider as they parcel out their retirement investment spending. The corporate scandals of the past few years, Enron, WorldCom, etc., “created a crisis of investor confidence the likes of which hasn’t been seen since the Great Depression,” as reported by Fortune magazine. Has investor confidence returned to the market?
As investors we are certainly more wary than in the glory days of the ‘90s when stocks could be chosen by flinging a dart onto a page of the Wall Street Journal. Rates of return are not guaranteed in a system like the stock market where investment values are not necessarily based on the earnings of the investment. “The consequence of this situation (corporate scandals) is that, as long as it remains possible to be able to make money without regard for production, there will be room for speculative markets that take off, fly high for a time, and then crash land in spectacular fashion,” writes Harry Glasbeek, author of The Scandals, the Stock markets and Corporate Law. Glasbeek’s outlook seems to reflect skepticism of a true market rebound with our current system in place.
Alan Greenspan told the Senate Banking Committee in July of 2002 that “an infectious greed seemed to grip much of our business community… It is not that humans have become any more greedy than in generations past. It is that the avenues to express greed have grown so enormously.” Greenspan points out the opportunities for greed that the stock market provides regarding corporate disclosure of their financial position and their relative stock market price. Ronald Honse, a representative of the Communications Worker Labor Union, explained this concept. “Corporations [are] misrepresenting their worth, claiming they [are] worth much, much more than they [are]. As their true value is disclosed, their value drops and their stock value plummets.” Honse alerts us stating: “Since a large portion of 401k’s and retirement funds are invested in the stock market, their value also decreases.” Now more than ever, IRA investors must be cognizant of what their retirement portfolio is doing. Clyde Weiss, a member of the American Federation of State, County, and Municipal Employees (AFSCME), estimated “The Enron scandal alone caused AFSCME’s members to lose $1.5 billion in pension value.” This makes it even more clear that the days of passive investing are over.
With the advent of IRAs and 401k’s the government effectively passed the responsibility of saving for retirement onto the employees. Now it appears that the corporate scandals of the early 21st century are passing the responsibility of investment accountability on to the individual investor. It is time for individual investors to become better educated on finances and investing. Whether we like or not, we are all now individual investors. Robert Kiyosaki, in his book Prophecy tells us, “Being proactive, educated, and prepared is much better than the financial strategy most people have when it comes to their investments… the passive strategy of ‘buy, hold, and pray.’”
Guidant,
Your article is most timely. But then the time considerations as to investment have always been the same.
My Grandfather was in legal practice when the market crashed in 1929. He and his law partner went short. Took every dime they could gather and went short. In the face of all the pundit advice. I always said it was a remark made by the shoe shiner who went into a discussion of his portfolio. This small event had Sam and Bernard look at each other and say oh my god if this is where the thoughts are of the average stock buyer, the time has come. GET OUT.
They did and from that moment on my Grandfather never bought another certificate of stock. He came to California after giving up the practice of International law in New York. He wrapped himself in real estate and other then that never invested again. Of course in view of the times he did nothing but suceed.
It was his theory that Real Estate is a slow game in which you can interject and have an effect. He went into Bank of A. looked at all of their REO's made a selection. Then went to the properties and informed all the tenants that the rents were now reduced and any tenant that could not pay should come and see him and arrangements would be made to exchange labor for rent.
This conduct continued up and through Bank Holiday in 1933. The guy had a feel and could do no wrong. Of course he was admitted to practice in most courts all over the world and spoke about seven languages. His idea of preparing me for life was to apprentce me to a plumber while I was attending Beverly Hills HIgh School. I thus obtained a rather interesting view of life in Beverly Hills from under most of the houses.
I have followed his advice and in spite of this most wonderful example I have screwed up about one transaction for every five good ones.
I hold to his views. Trust no one with your goodies. Handle them yourself. This way you can only blame yourself. I do almost every day. I do not discuss my successes.
Cheers Lucius