In another post, I commented how I do not feel very sorry for the “victims” of Bernie Madoff. No one forced these people to give him their money. They did so out of greed. Yes, he was a con-man and the system should have caught him long before, but if they want to blame anyone, they should look first in the mirror. Especially those that gave him all of their savings.
Am I a monster? Hardly. I feel bad for the people who are in hard times through no fault of their own. Like the story I just saw on NBC about the family in Fort Meyers Fl who bought a condo in a new development. With more than 300 units in their building, they are the only occupants. All the other units are empty. The builder has cut off power to most of the building, maintenance, and security. The builder has offered to move them to the next tower, but their lender, Chase, said they would not transfer the mortgage to the new unit. These people are stuck with no money to move somewhere else and no way to sell their current condo. That’s a horrible situation to be in.
This recession had taught everyone a lot of lessons. I just hope that we all do not forget them. Let’s review some of what we learned from Madoff.
1. Never invest all your money in one place. I know that Warren Buffet says to put all your egss in one basket and then watch the basket very carefully. But he also says to only choose the basket after doing very complete research. Most people don’t have the time to do the type of research Buffet suggests. So spread the money around. Stocks, bonds, metals, selling options, real estate, cash and others.
2. Know where your money is. Many investors gave their money to a hedge fund which invested with Madoff. In this case they did not lose everything. But even still they should have known where their money was. Ignorance is no defense.
3. Understand your investment and investing. I sell options. And with options you can have very nice above average returns. But there is also the possibility of loss. Above average loss. Before you buy or sell anything, you must know what it is, how it works, what your risk is and when and how you will get able to get out.
For example, when someone becomes a member of my site, I tell them to paper trade along with me for at least a couple months. I have had members lose money on trades because they entered their orders incorrectly. If they had paper traded they would probably not have made such elementary errors.
Many of my members are attracted to my site because of the better than average gains. But some of them tell me they want better than 10% a month returns. Others feel that 10% monthly is a decent return. These people are living in a fairy tale. 10% a month is AMAZING! Hedge fund managers would sell their first born for one year with 10% monthly returns. Yet some members think that it is only decent.
4. Be in control. I feel you should be able to get your money out of an investment when you want. This is called liquidity. Only invest in liquid markets. Even if you are new to real estate investing: you should only invest in properties that can be sold relatively quickly.
If anyone appraoches you with an investment in which your money is tied up for months at a time, make sure you can afford to lose that money. Because you just might lose it all.
5. Stay on top of it. Remember that you have worked hard your entire life for the money you have. But earning it is not enough. It is time for your money to work for you. For that to happen, you must be financially educated enough to know how to make it grow.
If you are a reader of my blog you are already more financially savvy than 90% of the population. Kudos to you. But there is always more to learn. Stay on top of your investments and they will take care of you.
Ignore your investments and you will end up giving them away.