Selling Low

While walking through the parking lot at West Ferris to attend the Terrence Dickinson astronomy lecture, I overhead a small group of people lamenting the current stock market crisis. I missed their logic which blamed the whole thing on Stephen Harper, but I’m sure they had some reason. The woman mentioned that just today she lost $12,000 on the market and would now have to stay in the workforce past age 55.

Uncle Joe was a great believer in that old adage of buying low and selling high and I was tempted to ask the woman why on earth she would sell low. Uncle Joe would never sell low, hanging onto a stock until it disappeared rather than break his investment creed. Joe said that once he put money into a stock he essentially wrote it off his books. The money was spent, just like lending it to a relative – and that was that. If, in later times, he could sell the paper to someone he would make money. No doubt he kept a record somewhere in his mind about how much he ‘made’ on the stock market, but it was not a major worry to him.

Sure Uncle Joe watched the stock ticker and wondered if he could convert some paper into a new Cadillac that year, but he did not consider the stock market his main moneymaker. Nor did he consider it the comfort for his old age. Aunt Bertha, who shuddered at buying stocks, was in charge of the retirement fund. She put the money in a bank savings account, relying on the miracle of compound interest. In turbulent times like these, Aunt Bertha simply turned off the radio. I wondered if the woman in the parking lot should have done the same yesterday.

Chances are the woman who ‘lost’ $12,000 did not lose a penny that day. Unless she sold low. She likely still holds the same portfolio as she did the day before. If she had some spare cash, she might have added to her stocks, but maybe she did not have any money in a savings account. There are two times when your stock portfolio affects your pocketbook. One, when you take cash and give it to someone in exchange for paper promises, and two, when someone gives you cash for that paper. You can watch the stock ticker all you want, revelling in glowing promises of increasing stock value, but until you get some actual cash, you have nothing.

The prospects of an RRSP or even a RIF losing your pension may look bleak, but until you have to get money from them, it is all paper value. As the people in the market keep telling us, you are in for the long term. Hopefully, some sense will return to the market before your mutual fund manager will have to sell some of that paper to put money into your bank account.

Aunt Bertha, bless her soul and the resulting inheritance, would have said the whole mutual fund system was nothing but a house of cards. She trusted her money to the Bank, on their promise that they would only lend out her money to solid investments, like people needing a mortgage. Unfortunately, people began buying houses like stock market paper, looking at it as an investment, not a place to live. When the real estate market stopped its madness, some of these people had to sell low or default on their promise to pay. Encouraged by economists and stockbrokers, too many banks around the world bought into the fable of the stock and housing market. Whoops.

It was a very enlightening lecture and I hoped the woman who lost all that money yesterday got the message that all astronomers know: we are very insignificant in the still expanding universe. The financial woes besetting the stock market may be the worry of the day for those people who had cash to speculate in shares. However, for the most of us, as long as we have a source of income that puts food on the table and a roof over our heads, we might better spend our time gazing at the stars.

Who knows, we may see a shooting star and be able to make a wish.