We’re back…… Using home equity as ATM’s!!!!

[CA renter]

[quote=earlyretirement]I said it before and I’ll say it again. The VAST majority of the people out there vastly overestimate their investment skills/abilities/timing.

I’m not saying everyone. But I’m comfortable with saying the vast majority of people out there. Everyone thinks they will do wonderful and their leverage/arbitrage play will work out for them. Especially in a stock market like this where it keeps going up. Everyone thinks they are some genius or guru. (Kind of like in the dot com days…. and the real estate bubble years).

Yet they won’t admit they probably $hit their pants during the financial crash and the Great Recession. Where no matter how many times they tried to catch a falling knife their hands got awfully bloody. Nope. They won’t admit that.

I’ve seen it time and time again over the last twenty years.

The people that leverage will always argue how they will always do smart and wise and fantastic things with the money that make it a smart or wise investment. Yes, sometimes it is. But lots of time it doesn’t turn out well for them.

And in many of those cases, you’ll never hear from them. They will tell you about their best investments but never about their worst investments or leverage plays that didn’t turn out well.

Human nature….[/quote]

Absolutely true.

I had a friend who was a fairly big-time commodities trader on Wall Street. He made many millions over the years, and I figured he still had most of it, especially because of the way he talked and how he and his wife spent money. We often talked trading and he would make fun of my positions (not terribly small, considering they were never leveraged) while showing me his very large positions and puffing his chest out. Always thought that was all his money. I always deferred to everything he said because he was an old-timer on Wall Street and had held powerful positions there.

Long story short, we ended up in a situation where they owed us money (just a few thousand, but still…), and we are now entering our second year in our collection efforts. They are flat broke, and I mean really, really broke. Apparently, all of those large positions were leveraged to the hilt. Because of his Wall Street connections, he was able to leverage far more than most people ever could, and his positions turned against him. Because of his age, he will never, ever be able to recover from this.

[Coronita]

[quote=spdrun]Yeah, but you’d have had to have been Stevie Wonder not to see the 2008 crash and foreclosuremageddon as some sort of business opportunity.[/quote]

I think more people in this country rather focus on failure and failure mentality than focusing on things that could possibly make their lives better. Afterall, it’s much easier to think things aren’t possible and do nothing than it is actually to the opposite…People might have seen a crash or crash like thing, but most of them didn’t do anything to take advantage of it…And some still are trying to convince themselves that RE prices are gonna further crater despite what appears to be the opposite..For every person that fails for whatever reason, I can think of dozens of others american who have already failed by not doing shit.

[earlyretirement]

[quote=CA renter]
Absolutely true.

I had a friend who was a fairly big-time commodities trader on Wall Street. He made many millions over the years, and I figured he still had most of it, especially because of the way he talked and how he and his wife spent money. We often talked trading and he would make fun of my positions (not terribly small, considering they were never leveraged) while showing me his very large positions and puffing his chest out. Always thought that was all his money. I always deferred to everything he said because he was an old-timer on Wall Street and had held powerful positions there.

Long story short, we ended up in a situation where they owed us money (just a few thousand, but still…), and we are now entering our second year in our collection efforts. They are flat broke, and I mean really, really broke. Apparently, all of those large positions were leveraged to the hilt. Because of his Wall Street connections, he was able to leverage far more than most people ever could, and his positions turned against him. Because of his age, he will never, ever be able to recover from this.[/quote]

CA Renter,

This ties in with that other thread we were all discussing how you never really know one’s true net worth. Your example you gave is a good one and there are LOTS of stories like that out there.

The ironic thing is many times it’s these so called financial gurus on Wall Street that end up flat broke. I also know some Wall Street types that totally got crushed during the Great Recession. It’s hard for me to fathom a guy making a few million dollars a year or tens of millions in his lifetime and having NO net worth or worse yet NEGATIVE net worth but there are lots of those guys out there.

When times are great they spend it all thinking it will always be there. Or they leverage it and lose it or they leverage it, make more money, leverage THAT and keep going but the thing with those types is they always think they can leverage and keep winning and sometimes it doesn’t turn out that way.

Wall Street is akin to a Casino in many respects. Look at Pattern Day traders and how they get 4 X buying power of whatever funds they have in their account.

I’m not saying leverage can’t be used wisely. Because it certainly can. But if we are going to discuss the merits of leverage and HELOCS you have to also discuss the potential pitfalls as well.

[quote=spdrun]

Why? So your 401k starts looking like a 201k…

Because I had no 401k or 201k or whatever, just a decent freelance gig and a non-trivial bank account. (And no interest in investing prior to the 2008 crash, but that changed in the ensuing months and years.)[/quote]

Congrats for entering the market at a good time. Hopefully a financial crash like the one we experienced is a once in a lifetime type event. You entered at a great time but it just comes down to good timing (i.e. luck) that you didn’t yet have a 401k. It’s very difficult to time the market. Just when you slap yourself on the back telling yourself how smart you are…… the market can whack the heck out of you fairly quickly.

[quote=spdrun]Yeah, but you’d have had to have been Stevie Wonder not to see the 2008 crash and foreclosuremageddon as some sort of business opportunity.[/quote]

Well, yes there were lots of opportunities but almost always in these kinds of events there are a lot of Monday Morning Quarterbacks. Don’t underestimate the power of fear. There were a lot of people that were scared and already tried catching a falling knife.

It’s great that you took advantage of things and it worked out for you. I also came out of the crises even better, but I’m not devoid to the fact that it was a very scary time for many.

I remember during that difficult time. I had a very close friend who works on Wall Street. He is a Partner at one of the big financial firms in NYC. He was old school and very wise. I remember him telling me about walking away from a $300,000 deposit that he put down on an apartment he was buying (investment property). He was just totally frightened because the whole financial world felt like it was going to collapse. spdrun, most people don’t realize how close we came to a systemic meltdown.

It’s easy to say now that you would have had to have been blind not to do/see X. But the reality is things could have really gone the other way…..

Also, with leverage you can have a guy that is on the right side of trades for 20+ years…. but then leverages it all on one “sure thing” and loses it all. I’ve also seen that. It doesn’t really matter your track record over the span of a long time….ultimately it just comes to the end of the day you still having everything you made and some people leverage one time too many…

[spdrun]

Personally, I’m hoping for another crash (at least in the stock market — since the property market in my region is still down where prices belong). I only trade short-term at this point, so it won’t hurt me much, but it would be a hell of an opportunity. I feel like I took advantage of 2008, but not ENOUGH advantage.

(They tend to happen once every 10-20 years, not necessarily once in a lifetime, so here’s hoping! And no, I don’t give a rat’s ass about people who are stupid enough to overleverage.)

[an]

[quote=spdrun]Personally, I’m hoping for another crash (at least in the stock market — since the property market in my region is still down where prices belong). I only trade short-term at this point, so it won’t hurt me much, but it would be a hell of an opportunity. I feel like I took advantage of 2008, but not ENOUGH advantage.

(They tend to happen once every 10-20 years, not necessarily once in a lifetime, so here’s hoping! And no, I don’t give a rat’s ass about people who are stupid enough to overleverage.)[/quote]
this is coming from a guy who leveraged to get his 4 houses. Lets see… Economic crash causes stock to crash, your tenant looses their jobs, like in 2008, and they stop paying their rents. You still have to pay the mortgage while trying to get them evicted. When you got them evicted, you see that they just trashed your place and will cost you tens of thousands to repair. Yeah, that scenario sounds so desirable, just so you get pick up a few cheap stocks.

[earlyretirement]

[quote=spdrun]Personally, I’m hoping for another crash (at least in the stock market — since the property market in my region is still down where prices belong). I only trade short-term at this point, so it won’t hurt me much, but it would be a hell of an opportunity. I feel like I took advantage of 2008, but not ENOUGH advantage.

(They tend to happen once every 10-20 years, not necessarily once in a lifetime, so here’s hoping! And no, I don’t give a rat’s ass about people who are stupid enough to overleverage.)[/quote]

I hope you realize just how silly it comes across hoping for another “crash”. As to how much it will “hurt” you… you have no way of knowing how badly it would affect you.

I don’t think you quite understand the events that took place during this last financial crises. NO, that wasn’t a once every 10-20 year type thing. Yes, the stock market can take big dives but that wasn’t all that happened during this “Great Recession”. I suggest you take a closer and more in-depth look at the events that took place this last crash.

And hoping or wishing for something like that to happen again is just silly. Odds are if it did happen, it would affect many people in your life, your family’s life, your friends and neighbors. Job market, economy, financial system, your tenants, etc.

Even if your stock portfolio comes out ahead, no telling how much carnage it can cause in your personal or professional life. For example, I did well in the stock market during the meltdown (mainly because I was short selling the bond insurers and banks). However, I lost FAR more in my businesses with lost income due to the horrible economy, people losing jobs, etc.

It’s clear after that comment you don’t quite understand just how close we came to a meltdown. And financial meltdowns typically never work out that well for anyone.

[quote=AN]
this is coming from a guy who leveraged to get his 4 houses. Lets see… Economic crash causes stock to crash, your tenant looses their jobs, like in 2008, and they stop paying their rents. You still have to pay the mortgage while trying to get them evicted. When you got them evicted, you see that they just trashed your place and will cost you tens of thousands to repair. Yeah, that scenario sounds so desirable, just so you get pick up a few cheap stocks.[/quote]

I still don’t know the personalities on this board that well. Or their personal situations but yes, this example above is just one example of what could happen. Many people get cocky or too confident when things are rolling their way.

Wishing and hoping for a major systemic crash and meltdown so you can score some good stock entry points comes across as kind of silly to me. JMHO.

[spdrun]

Not hoping for a systemic crash, but Dow dropping to 9 or 10k inside of a few months would be awesome. Basically hoping for a repeat of late-2011. Besides, a lot of the “imminent systemic crash” hype was just that — an excuse so that people wouldn’t be too outraged at Zimbabwe Bennie’s inflationary policies. That Flavor-Aid sure tasted gooooooood to the average Dumberican who doesn’t realize that they’ll be paying the price for the next 20 years.

[an]

[quote=spdrun]Not hoping for a systemic crash, but Dow dropping to 9 or 10k inside of a few months would be awesome. Basically hoping for a repeat of late-2011. Besides, a lot of the “imminent systemic crash” hype was just that — an excuse so that people wouldn’t be too outraged at Zimbabwe Bennie’s inflationary policies. That Flavor-Aid sure tasted gooooooood to the average Dumberican who doesn’t realize that they’ll be paying the price for the next 20 years.[/quote]
what make you think it’ll stop at 9-10k and not continue to fall to 5-6k?

[spdrun]

If it does, it does. But I suspect that Bearded Bennie will open his yapper and say something smart to keep the sheeple buying before it drops to 2008 levels.

[Coronita]

“Hope” or hoping for a market to go the direction you want is hardly an investment strategy.

[spdrun]

We’re not talking strategy. I just said that crashes make me happy. Technically not even crashes. I like volatility.

[flyer]

Interesting stories, CAR and ER, and agree with both of you.

Even though many of us took some risk to build our wealth, I think, most likely, it was very calculated. Today, it seems, some people seem to be willing to throw all caution to the wind, leverage to the point that they could lose everything, and “hope” for the best.

I wish everyone who is “playing” in this economy the best, but as both of you, I’ve seen this scenario play out in a negative way several times with friends.

The stats on the net worth in this country tell the whole story. They aren’t pretty. I always wonder what all of the “players”–such as the ones mentioned in the OP–plan to do if some unexpected life event should come their way? Scary stuff.

[CA renter]

ER,

Exactly! Over the years, I’ve come to the conclusion that most traders are no different than the professional poker players in Vegas. They just wear suits, instead.

One more thing that really surprised me was the inability/unwillingness of these Wall Street types to see the financial world and economy in a holistic way. I had always thought that traders on Wall Street would be totally knowledgeable about all things financial: accounting, economics, history/socio-political aspects of the economy, etc. During my discussions with some of these higher-level traders, I discovered that they didn’t know any more about these things than some hairdressers do. They only knew about the one asset class (or classes) that they traded, and that was it; they were not “intellectuals” who grasped how their actions could affect other economies or the potential socio-political ramifications of their actions.

While I do believe that some at the very top have a better understanding of the interconnectedness of markets and societies, our global economies are, for the most part, being run by rather ignorant cowboy traders who haven’t the slightest regard for how their actions might affect the rest of the world. It’s pretty frightening when you think about it.

[earlyretirement]

[quote=CA renter]ER,

Exactly! Over the years, I’ve come to the conclusion that most traders are no different than the professional poker players in Vegas. They just wear suits, instead.

One more thing that really surprised me was the inability/unwillingness of these Wall Street types to see the financial world and economy in a holistic way. I had always thought that traders on Wall Street would be totally knowledgeable about all things financial: accounting, economics, history/socio-political aspects of the economy, etc. During my discussions with some of these higher-level traders, I discovered that they didn’t know any more about these things than some hairdressers do. They only knew about the one asset class (or classes) that they traded, and that was it; they were not “intellectuals” who grasped how their actions could affect other economies or the potential socio-political ramifications of their actions.

While I do believe that some at the very top have a better understanding of the interconnectedness of markets and societies, our global economies are, for the most part, being run by rather ignorant cowboy traders who haven’t the slightest regard for how their actions might affect the rest of the world. It’s pretty frightening when you think about it.[/quote]

CAR,

Yep. Absolutely true about traders on Wall Street. Not everyone on Wall Street is like that. There are some old school type guys that are intelligent, mitigate risk, experts with asset classes, and understand true risk/reward scenarios.

But traders for the most part aren’t really too much different from professional poker players in Vegas. In fact, in many cases, I’ll argue that the professional poker players in Vegas might even be more intelligent because they understand the real world and at least are “street smart”.

I mostly work with high net worth and ultra high net worth folks. Earlier in my career I worked with some ‘supposedly high net worth’ traders. I saw “supposedly” because these guys might be worth 7 figures one day but the next day they would be worth nothing. As you mentioned, they were just gamblers.

Very quickly I stopped working with these trader types because they were a nightmare dealing with. For one, even though today they had lots of $$$$ the next day they would get panicked because they needed funds back as they got themselves in a hole. Just a vicious cycle. And most of them were very very very clueless. They would just yo-yo from being up one day and down the next.

Like you mentioned, you would think they would be intelligent. Understand about different asset classes, understand financials, profit and loss statements, risk/reward ratios. You would think if they are managing tens/hundreds of millions of dollars they knew more than you. Right? Nope. That many times isn’t the case.

I mean these were guys that were making 7 figures yet they were RENTING and not owning a place. They would always tell me how it was silly to buy as they could use that money and turn it into even more money. Yet at the end of the day somehow they never seemed to own anything and many don’t have anything to show for it.

These guys were dining out at expensive restaurants, showering girlfriends with expensive jewelry, taking fancy trips or traveling in first class. Supposedly wealthy guys. Yet, they never owned anything and always tried to argue that they were successfully using leverage.

I remember these guys would kind of rag on me because I preferred to wait and save up to buy a property. I didn’t really want to use leverage and they laughed saying how stupid it was. How they were making tons and tons of money and how they could turn all that money into more money. I was fine just saving and buying a place with cash after I saved up. Yes, very conservative but it was more my style.

So over the course of 20 years I’d work hard, save, buy a place. Rinse repeat. Obviously it gets easier as time goes on as you have more places, have more income and can save up more each year. The thing is the trader types will always say what I’m doing is stupid and how they can make more blah blah blah.

One thing I think is just much different today is we totally live in an “I want it now” society. Everyone wants to get rich overnight when that is just about impossible without taking on massive amounts of risk.

These guys will never understand or appreciate the power of compound interest or charting out a spreadsheet over many years/decades and watching it every year.

Yes, technology vastly improved the trading market. It’s a wonderful thing. But many traders of today don’t know how it was way back before the $7.99 trades. I remember when I first started investing. You had to actually call up a broker and it was wicked expensive. I remember paying upwards of $70 for a stock trade.

Back then you actually had to really think about if you wanted to invest in a company because the commissions were so high. LOL. Now it’s $7 trades and people trying to move with momentum.

It’s ok to trade and I know many successfully do it over a shorter period of time. But very few people that I’ve met that are active day traders are truly successful over a long period of time.

[Coronita]

Shit if I were to listen to most people hear that says how everything is a bad idea, I’d be piss poor today in this environment in the absence of government/employer guarantees…..

Good luck people. Since I guess most of you here have already “made it”, I guess it’s obvious to know what the ticket is to financial independence…

[Author]

Posts