I'm Losing Control!!

Todays post gets at the heart of the issue in times like this. I'm reprinting article from Jason Zweig. Zweig writes a column for the WSJ and is a writer we quote often in our coaching sessions with clients as well as our regular day to day interection with you. Todays column is appropriate and very timely. Please take the time to read it in its entirety. You'll be glad you did.

THE INTELLIGENT INVESTOR
OCTOBER 7, 2008
By Jason Zweig

So do you feel like quitting yet?

If Monday's 800-point intraday plunge in the Dow Jones Industrial Average made you want to give up and get out of stocks, you're not alone.

I've written column after column advising investors to buy stocks on the way down, and readers are in pain. "You say not to bail," one reader emailed me over the weekend, "but all funds are down. ... This whole stock market has me so upset, [I feel] like a deer in the headlights." Another wrote: "We are, you see, about to enter another Great Depression, just like the last one only much worse. ... It's way too early to be buying stocks. ... Or I could be really nasty and ask you which brokerage house paid you to run this stupid column now."

Right or wrong, I work only for The Wall Street Journal. But what all of us are feeling is the loss of control we sense when we are faced with anything that is frightening, inexplicable and important.

That lack of control not only makes us feel powerless; it also changes the way we view the world. Very small amounts of fragmentary information can suddenly seem to be fraught with meaning: Did something move on "the grassy knoll" the day John F. Kennedy was assassinated? Will one down day in the stock market lead to another and another?

Even the greatest investors have felt the same kind of fear and pain you are probably feeling. For proof, look no further than "Security Analysis," the classic textbook by Benjamin Graham and David Dodd, which has just been reissued in a commemorative edition. Graham was one of the best money managers of the 20th century, a brilliant analyst and market historian, and Warren Buffett's most influential teacher and mentor.

The new book reprints the text of the 1940 printing, in which Graham addressed the market devastation of the previous decade. Just as the roughly 90% fall between 1929 and 1932 had seemed to be fading, the stock market dropped sharply again in the late 1930s. As market historian James Grant puts it, by the time Graham was ready to finish the 1940 edition, "He had had it."

That helps explain one of the great ironies of market commentary. Graham himself stuck largely with stocks in his investment fund. But at the conclusion of his book, he advised the institutional investors among his readers to shun the stock market entirely and invest in bonds. Graham doubted they could stomach "the heavy responsibilities and the recurring uncertainties" stirred up by stocks.

How does the feeling of being overwhelmed affect investors? Research conducted by psychologists Jennifer Whitson of the University of Texas and Adam Galinsky of Northwestern University shows how it changes our perceptions. In one of their experiments, people were first rattled by a computer that gave them unpredictable feedback on their performance at a trivial task, stripping them of their sense of control. These people became much more likely to perceive shapes in a swarm of random dots.

"When you sense that you have a lack of control," says Prof. Whitson, "you're much more likely to try twisting and pretzeling explanations and seeing patterns that aren't even there."

In a related experiment, investors who had been stripped of their sense of control by market volatility were convinced that they had read more negative evidence about a company than they had actually seen -- and were less willing to buy the company's stock.

In other words, when our sense of control is threatened, we feel the natural urge to pretend that whatever information we do have is more complete and reliable than it is. Imagining that we know what's coming next (even if we think it will be bad) gives us a slight feeling of comfort.

As an investor, however, it's absolutely vital to separate what you can truly control from what is beyond your control. The only thing you can know for sure is that stocks are steadily getting cheaper. You cannot control whether or not the market will continue to trash stocks, but you can control how you respond.

If we are not headed into a depression, panic hardly seems justifiable.

What if we are?

Even during the Great Depression, the best investment results were earned not by the people who fled stocks for the safety of bonds and cash, but by those who stepped up and bought stocks and kept buying on the way down. A man named Floyd Odlum made millions of dollars putting his cash into battered stocks. His motto throughout the market nightmare of 1929 to 1932 never changed:

"There's a better chance to make money now than ever before."

Michigan: Top 5 in Foreclosures; One of the Best Real Estate Opportunities

If you spend any time listening to the various news outlets, it is very easy to become less than positive about Michigan; the slowing economy, declining home values, rising unemployment, etc. I want to share with you in Paul Harvey's famous words, "the rest of the story."

One of the keys to having perspective today is by looking back in history. Probably the closest similarity to what we are going through is the Houston, Texas market in the mid to late 1980's, click here to read more. The similarities between Texas & Michigan are strikingly familiar.

1. Texas' primary industry then was its Oil production, here in Michigan it's Auto manufacturing.

2. The Savings & Loan crisis of the 80's is similar to what is happening in the Sub-prime mortgage market although not quite to the same dollar volume, at least not yet.

3. Texas was in a recession then, and Michigan is currently the only state with a negative GDP.

What made the Texas time period worse than Michigan now was the passing of a few tax laws making tax credits available to investors which prompted huge over building and over supply of residential and commercial construction. We have not seen the same over building, especially in Lansing. For Texas, this led to a longer recovery time for housing values and inventories than we will need to prepare for.

Now for the rest of the story-- Michigan for many reasons will remain in the top 10 for foreclosed single family homes in the next 12 to 18 months - maybe a little bit longer than that. This fact will produce two main realities for us.

1. We will have many opportunities to buy homes from banks at very low prices.

2. There will be an increasing number of families and individuals in our market that need a place to live and cannot get an affordable mortgage due to lower credit scores and tightening lending standards.

Add these two things together and you are at the cross roads of opportunity - if you're prepared. It's been said that Luck is where opportunity and preparedness meet. This is a great time to add real estate to your portfolio, whether you buy and hold the property for 2 to 5 years or flip it, now is the perfect time to buy - prices are low.

We are helping clients evaluate whether this strategy makes sense - it's not for everyone. By doing a cashflow analysis, we can help quantify the numbers in your scenario to determine what the best and worst case outcomes could be. Here is just one case study, but we are working with more and more clients to achieve similar results.

This couple purchased land and built a home just outside of town 3 years ago. When they completed their home, they had it appraised for $50,000 more than they paid to build it. Today it appraises for about $5,000 less than they paid to build it. This was not very exciting news.

Then, this summer, a home in their neighborhood came on the market and they soon found out that the home was listed well under what it had sold for a few years before. It had sold then for $100,000, and the bank was asking for $65,000. They offered $60,000 and their offer was accepted. They plan to put $10,000 into it as improvements - in this case, a roof and carpet and a few other minor repairs. They will likely not do any of the work themselves as they are very busy with life right now.

We will do a loan for $70,000 and the value of the home on an appraisal is around $90,000. To make a long story short, in 5 years, the value will likely be around $130,000 while the mortgage balance will be around $65,000. They plan on renting the home for the same amount as their monthly payment.

The will end up with nearly $60,000 in equity in the home - WITH NO INVESTMENT OF THEIR OWN MONEY. They could sell it in five years, or they could hold it for 15 years and then sell it. In 5 years, they will likely turn a $60,000 profit without a dollar of their own money (remember their loan paid them back their initial investment.) Do you know what kind of return that is? It's an infinite rate of return - how does that sound? In 15 years, the home will likely be worth over $150,000 and be close to being paid off. Lemonade from Lemons.

I will be sharing some of these strategies and case studies at our next Wealth Workshop. Recent attendees give their comments below. Don't miss this opportunity to evaluate a strategy that can boost your financial net worth. If you are a builder, come learn how a "Trade" can help you retain the value of your neighborhood and provide a win - win to everyone involved.

I am committed to you, my client. In a market like this, it is less likely that you will make a mistake and lose money. It certainly isn't guaranteed, nothing valuable is, but with the right professionals involved, you have a great chance of doing well. I look forward to seeing you at the Kellogg Center on the 27^th!

Anyone CAN do something positive in THIS market - will YOU?

Using Technology to Accelerate Your Business

Technology can cause giddyness in some people, like an 8 year old waiting to open presents on Christmas morning or it can cause paralysis of analysis because you don't know where to start. It can be a tool that helps you maintain some efficiency throughout your day or it can be a time waster. In any case, it's important to remember that technology in and of itself is not good or bad, in fact it's amoral. It is a tool. How we use it determines if it's good technology or not.

One of my favorite business books is Good to Great by Jim Collins. In his book, he has a chapter on Technology and interestingly enough, the research team for the book "ferociously debated whether this topic merited its own chapter." (Good to Great, pg. 159) The point of the chapter is not about technology itself because "no technology... can [make a] good company great...can make you Level 5...can turn the wrong people into the right people...can instill the discipline to confront the brutal facts of reality nor can it instill unwavering faith." (Ibid, pg. 161)

You first need to know your Hedgehog Concept, which is the intersection of 3 circles. The 3 circles are: 1. What are you deeply passionate about? 2. What can you be the best in the world at? and 3. What drives your economic engine? According to Collins, "a Hedgehog Concept is not a goal to be the best, a strategy to be the best, an intention to be the best, a plan to be the best. It is an understanding of what you can be the best at." (Ibid, pg. 98)

Once you understand what your Hedgehog Concept is, then you can ask the question, "Does the technology [you're considering to implement] fit directly with your Hedgehog Concept? If yes, then you need to become a pioneer in the application of that technology." (emphasis mine, Ibid, pg. 162) "The good-to-great companies used technology as an accelerator of momentum, not a creator of it." (Ibid, pg. 162)

What does all of this mean to you as a sales professional or business owner? It means that you first need to know what is it that you can be the best at and then find the technology to help you do more of "that." Before you go out and spend your commission check on the next greatest mobile phone, the latest and greatest software or spend time on your website or blog, you need to know what are you most passionate about, can you become the best at it and will you be _____ (fairly, highly or overly - you decide) compensated for it?

When you have an answer to that, then technology can become the accelerator and create momentum to accomplish more.