Rule #1 Finance Blog

With Investor Phil Town


Remember the post about Lynn, whose husband was pressured into buying FDP? Here's a followup.

Hi Phil:

I see you used my story on your blog.  Thanks for not using my real name.   If only it ended on a positive note. 

My husband had already verbally given the go ahead to purchase FDP so the paperwork was already set in place.  Needless to say, he purchased 2,500 shares of FDP at $16.997/share.  He had to cut a check for $21,684.00 and borrowed the other half on margins which he didn't even realize he did (a very very high risk endeavor).  Plus, Mr. _______ from _______ [name of broker removed] made a nice hefty commission ($850) on my husbands temporary insanity move.

To make a long story short, I was having anxiety attacks
for days.  I was asking Jerry all of these questions and he couldn't even
answer them. 

I asked him if he was buying margins.  He said he thought
he told Mr. _______ he didn't want to buy margins so he assumed that it
wasn't margins he was buying. 

I asked him what fee was the broker
making.  He couldn't tell me that. 

I asked him what 2,500 times
$16.997 was.  He hadn't realized that it was $42, 492.50 not

I asked him why he thought FDP was a great deal.  He
couldn't answer my quesions only to say that FDP was going to be paying
out a dividend to their shareholders and he could make something off of

I asked him why he liked this guy so much.  He said he seemed to
make a lot of sense and stated that if Jerry wasn't making money, he
wouldn't be able to keep him as a customer and he wouldn't be able to
make more money. 

I asked him if I could be his broker and he could pay
me a hefty fee. He didn't seem to like that comment to much. 

I read
your e-mail to Jerry along with my research.  I think it was an
eye-opener and I was glad I had your information to back up what I
basically had already told him.   Much better hearing it from you than
his wife who I guess doesn't know much.

He couldn't believe that I reacted the way I did and asked me what I
was going to do when I started investing in stocks with real money?  I
told him first of all, I was going to paper trade as long as I needed
to in order to learn and get comfortable with it and secondly, my money
was in cash and I had not violated Rule #1.  He told me I hadn't made
any money.  I told him I hadn't lost any money. 

He did finally call
Mr. _______ up to cancel and get back into cash.  At that point, I knew
we were going to lose money but I didn't care.  I just wanted to get a
million miles away from that transaction and that broker.

I asked Jerry if he mentioned to Mr. _______ what he said about not
wanting to buy margins.  Mr. _______'s comment was, next time I guess
I'll have to make myself more clear.   I'm praying that there isn't
going to be a next time.  I think I will be writing Mr. _______ a
letter myself. 

I see that FDP has an MOS of approximately $2.50.
Great Rule #1 investment huh?   I got my check back today, at a loss of
$1, 694.60.  That hurt a lot but that didn't hurt as much as Jerry making
that decision without getting my opinion especially since I love doing
research.  I thought I was the one without any patience and yet I find
myself being the total opposite.  I guess that prayer for patience that
I asked God for many years ago has really worked.   Praise God!

Thanks for being a great sounding board Mr. Town. I appreciate it as it does help to vent.  Thank you.


P.S.  Yes I still love him and I plan on staying married and making it
to #22.  He's a great husband, father, friend, provider and most of the
time, listener and partner.   I just hope that this situation doesn't
happen again.

 And here's what I told her:

So the broker charged you guys a 2% commission on the entire purchase
price of $42,000 and made off like a bandit with $850.  And then he did
it again when you sold.  So he ripped you off for $1700. 

Get this: If
you did the same trade at Scottrade it would have cost $7 in and $7
out.  $14 total.  So this guy hit you for $1686 over the real cost.
And now you know how he makes his money.  He creates a great story
about something that just has to go up, creates a strong sense that you
have to do it right now.  And somehow creates enough loyalty on the
phone that you don't just go do the trade online for $7.  Actually, I'm
thinking that takes a lot of skill.

And who knows.  Maybe FDP will rocket off into the stratosphere.  I
don't have a crystal ball.  But what I do know is that this is not an
investment. It's a speculation.
  Pure and simple.  And if you speculate,
you can win big and you can lose big.  There's not certainty one way or
the other.

I just don't like to speculate.  It's too hard on the emotions.  I much
prefer to invest.  Investing takes a bit more time and a bit more
patience, but for the first time in history, the little guys like you and
me can get the information.  It just takes a little practice.

I hope for your sake that FDP doesn't go rocketing up, just because
your husband will have to be a saint to forgive and forget!  If that
happens, just remind him that the fact that sometimes the shooter makes
his point on a crap table doesn't make shooting dice a great investment

Now go play!