The day I knew I’d forever manage my own finances

Investing advice line

Cold calls and whales

Investing advice doesn’t come cheaply. Thinking back now, it was almost exactly the scene out of the movie “Boiler Room”.  That scene had shown the brokerage guys of a “chop shop”, cold calling doctors and trying to find what they called a “whale”.  They were trying to sell their pump and dump scheme for a cancer drug.  They ended up getting a doctor so excited about buying in that he was almost begging to buy more. You can watch the two minute clip here.

For me, It was a typical weekday in the mid-80s when my desk phone rang at my university job.  I don’t remember how he said he got my number, but he went immediately into his spiel.  He asked me a little bit about my investing habits that I probably reluctantly shared a little.  He then pitched his “Home improvement / Construction” company stock and asked me what I thought the results of all the fires and floods in California would be?  When I answered “repair projects”, he knew he had me on the hook.  The guy on the other end of that phone violated every SEC regulation that I now know more about.  He was comparing returns on the stock to Snapple, which was the hot stock at the time, along with several other unrealistic comparisons and claims.

A sinking feeling

The cost for my investment? $5,000

I received the simple order slip in the mail in 2 days, with the area for my SS# highlighted in yellow, and a signature line. I remember getting a sinking feeling in my chest, even still to this day.

The story plays out, almost exactly like several scenes in the Boiler Room movie.   At first, the stock ticked up from about $5 per share to 7 or 8, which made me happy, but one or two days later, it was beneath my purchase price and hit $1 and change a couple days later and stayed there.  During the drop, the broker would not take or return my calls.  NOTE:  If a brokerage firm says they “Make market” in a particular stock, it’s probably a bad deal for you.

A lesson your Mom can love

When I finally got him on the phone, he agreed to sell my shares on my demand, he was already pitching me another “investment idea”, which I quickly declined.  He said something about calling me in the future with other ideas.  I abruptly stopped him and said, “Listen, if my own Mother lost me $5,000 dollars, I’d never speak to her again.  Don’t ever call here again.”  A very long silence and then we hung up.  I received a check in the mail for my remaining proceeds along with a write off at the end of the year for my taxes. That was the day that I knew I’d forever manage my own financial affairs.

That was an expensive lessen but it taught me almost as much as business school taught me. While I haven’t always had great investment returns, I can live with my own choices much easier than the recommendations of others.  My Father used to tell me about fighting, and he said, “Jim, there’s always someone tougher, right around the corner.”  and I say that about investment shysters.  There will always be people like Bernie Madoff around every corner.  Do your own research and live with the outcomes.

Do you have any horror stories?



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