How a financial planner lost his home

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Billy Pilgrim
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How a financial planner lost his home

Post by Billy Pilgrim » Wed Nov 09, 2011 6:45 am

I am reading this right now and honestly it scares me to death.
Anyone can get into this situation, even the well educated.
http://www.nytimes.com/2011/11/09/busin ... se.html?hp
Last edited by Billy Pilgrim on Wed Nov 09, 2011 9:56 pm, edited 1 time in total.

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Taylor Larimore
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Re: How a financial planner lost his home

Post by Taylor Larimore » Wed Nov 09, 2011 7:21 am

Hi Billy:

Thank you for sharing this article.

It took guts, especially for a financial planner, to tell the story of his financial mistakes.
"Simplicity is the master key to financial success." -- Jack Bogle

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neurosphere
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Re: How a financial planner lost his home

Post by neurosphere » Wed Nov 09, 2011 7:46 am

We have an obligation to learn from our own mistakes. And we have the OPPORTUNITY to learn from other's mistakes.

While this can indeed happen to anyone, as the article does well to explain, those of us who have lived through this recent housing/financial situation now have some data points about 'almost worst case scenario events', which we can apply to the future. This is regardless of whether we were directly affected, or whether we learn from the stories such as the one in this article.

It is stories like this one which help me be comfortable with the fact that my home is not as big as my peers, that my vacations aren't as fancy, and my emergency fund is larger than would be suggested by the conventional wisdom.

Thanks for sharing.

Neuro
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Re: How a financial planner lost his home

Post by orlandoguy » Wed Nov 09, 2011 8:02 am

Obviously, I've not read the author's new book yet as it doesn't come out until January, but I am a huge fan of his website which includes some unique and inspiring drawings. I think many Bogleheads will appreciate his clear style and bold graphics as I have. http://www.behaviorgap.com

Orlandoguy

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Re: How a financial planner lost his home

Post by tfb » Wed Nov 09, 2011 9:08 am

Did he really lose his home? He moved to a new city for a business opportunity. The business opportunity didn't work as well as he thought. He moved back to his base, where 90% of his clients were. He made the right decisions in a crazy real estate market and maximized the option value given to him by the banks: 100% financing, refinanced to an option ARM (with cashout?) and picked the lowest payment (interest only or less than interest). These smart moves minimized his risk. When he moved, he had no equity in the home; he never had any since the beginning. He had an option on the upside but no risk on the downside. It wasn't his home per se. He did a successful short-sale when he moved.

Mistakes? The only mistake I see is that he didn't sell it at the top for a profit. I don't blame him for that. Nobody can time the market perfectly.
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Re: How a financial planner lost his home

Post by trico » Wed Nov 09, 2011 9:12 am

Do any of these type of people graduate from hi school? Or does anyone pay cash for what they want? I guess not.

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Re: How a financial planner lost his home

Post by pkcrafter » Wed Nov 09, 2011 9:33 am

Thanks for posting this, even though it's rather depressing. I've followed Richard's writings for sometime and he was a regular contributor to Portfolioist. Sigh.

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Re: How a financial planner lost his home

Post by RenoJay » Wed Nov 09, 2011 9:37 am

I admire his willingness to share his story (although he's also pitching his book.) What scares me is this:

"Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market. A few months later I found myself working a phone at a Fidelity Investments call center."

Seems anyone can be a financial adviser. I recall a financial adviser who, in 1999, helped a friend "diversify" his life savings by mixing it evenly between Cisco, Yahoo, Intel and AOL.

Seems the lesson for him was don't believe Realtors or mortgage brokers. The lesson for the rest of us is don't listen to financial advisers like him. No matter how many lessons our society learns, we still seem to always have a need to ask the barber if we need a haircut.

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Re: How a financial planner lost his home

Post by Grt2bOutdoors » Wed Nov 09, 2011 9:56 am

I normally would give credit to a person who is able to come forward with such a story. In this instance, the plug for his book being released on January 3rd makes me give pause. Do you think for a moment that such an article would have ever been written and released to the public at large for comments had potential profit motivation not been involved?

There have been instances where people lose homes and other property due to job loss or medical issue, however many of those facing similar circumstances such as Mr. Richards encounter these problems for one simple reason - they overleveraged themselves without any thought to the potential ramifications of such an action. Some call it greed, some call it other things. All of them failed because they lacked common sense. If it sounds too good to be true, it usually is.

Becoming a financial planner does not require a special degree, training and/or stringent licensing examinations governed by a state body. All it requires is the ability to sell yourself to someone willing to buy it. That is not to say, all financial planners are incompetent, for the most part it is no different than any other profession, you will have great, good and a few rotten apples at the bottom of the barrel.
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SpecialK22
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Re: How a financial planner lost his home

Post by SpecialK22 » Wed Nov 09, 2011 10:03 am

tfb wrote: He moved back to his base, where 90% of his clients were. He made the right decisions in a crazy real estate market and maximized the option value given to him by the banks: 100% financing, refinanced to an option ARM (with cashout?) and picked the lowest payment (interest only or less than interest). These smart moves minimized his risk. When he moved, he had no equity in the home; he never had any since the beginning. He had an option on the upside but no risk on the downside. It wasn't his home per se. He did a successful short-sale when he moved.

Mistakes? The only mistake I see is that he didn't sell it at the top for a profit. I don't blame him for that. Nobody can time the market perfectly.
It's not entirely correct to assume that he shifted all downside risk to the lender. While he may have been expecting that the lender would not seek a deficiency judgment against him, the risk would still be relevant. The situation and your points do raise an interesting question though: Did he know what he was doing all along? The way he portrays it was that despite his financial savvy he was swept up in the emotional frenzy of the housing bubble. This could very well be true but it also presents a better marketing ploy for selling a book, as well as a better way to garner public sympathy. Conversely, if he was to admit to taking a calculated risk in order to get out of an underwater mortgage should the market decline by shifting most downside risk to the lender/government, the public-at-large would be far less sympathetic.

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Re: How a financial planner lost his home

Post by Rick Ferri » Wed Nov 09, 2011 10:10 am

Carl Richards sent me an advanced copy of his forthcoming book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. It was funny, easy to read, and reminded me of Bill Schulthies book, The Coffeehouse Investor. I highly recommend it.

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Re: How a financial planner lost his home

Post by porcupine » Wed Nov 09, 2011 10:13 am

tfb wrote:Did he really lose his home? He moved to a new city for a business opportunity. The business opportunity didn't work as well as he thought. He moved back to his base, where 90% of his clients were. He made the right decisions in a crazy real estate market and maximized the option value given to him by the banks: 100% financing, refinanced to an option ARM (with cashout?) and picked the lowest payment (interest only or less than interest). These smart moves minimized his risk. When he moved, he had no equity in the home; he never had any since the beginning. He had an option on the upside but no risk on the downside. It wasn't his home per se. He did a successful short-sale when he moved.

Mistakes? The only mistake I see is that he didn't sell it at the top for a profit. I don't blame him for that. Nobody can time the market perfectly.
I didn't read the entire article (yet) - I need to have my blood stop boiling before I do so.

But based on the above summary which is right on the money, it appears that he made out better than all right. What's his problem? Why is he complaining? I am missing something here ... help me, someone!!

- Porcupine

PS: I was about to say that Boston Gal, one of my go-to bloggers, would skewer this dude if she hears about him. Looks like she has already done so!

PPS: I love his sketches - have come across them earlier and shared them as well.

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Re: How a financial planner lost his home

Post by DRiP Guy » Wed Nov 09, 2011 10:23 am

'Could happen to anyone?'

Ha.

Are you people out of your [collective] minds?

Hey, I was offered negative am loans, lines of credits, second mortgages on 'equity', refi with cash back, larger houses etc.

Did I do any of those stupid things? Guess.

HINT: Not everyone has a hole in their head where the greed gets poured in.

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Re: How a financial planner lost his home

Post by 3CT_Paddler » Wed Nov 09, 2011 10:27 am

I didn't like this part of the article...
I have a friend who is going through a tough time financially. He has a high income, but is burdened by debt from a few real estate deals that went south. He continues to take fairly expensive ski trips. That would seem irresponsible in his situation, and maybe they are.

But I now realize that it is not that simple. Maybe those trips are keeping the guy alive, or saving his marriage or keeping him sane enough to work.


Really? It seems to me the guy is doing the same thing he did previously... rationalizing unwise financial decisions. If you cannot afford something, you don't buy it.

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Re: How a financial planner lost his home

Post by learning_head » Wed Nov 09, 2011 10:30 am

Best part of the article:

"bumper sticker, “Honk if I’m paying your mortgage.” "

Yes, Mr. Carl Richards, the financial planner, I am paying for your mortgage.

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Re: How a financial planner lost his home

Post by DRiP Guy » Wed Nov 09, 2011 10:36 am

I still worry about what others think of my behavior, which is one reason I haven’t shared this story with many people until recently.
Oh well, here let me help you with that:

I think you are a --deleted-- who happily and knowingly lived far beyond his means, even eyeballing MORE greedy speculative crap (the million dollar house), and then were more than content to 'reframe' your moral stance and write yourself a 'mea culpa' to stick SOCIETY (the honest taxpayers like me who just quietly lived within our means) with the bill and the hangover from your personal multi-year party on credit.

And now you want to leverage that MIND-NUMBINGLY INFURIATING story into a book, so that you can profit from it?

Clear enough, Carl*?

*(and anyone and everyone else out there who acted like Carl)

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Re: How a financial planner lost his home

Post by ddb » Wed Nov 09, 2011 10:39 am

It sounds like Mr. Richards is sharing his story now in order to promote his upcoming book. I don't see much virtue in that.

Also, frankly, a financial advisor who takes out a negative-amoritzed loan probably shouldn't be a financial advisor. It's one thing for a financial advisor to neglect his own financial situation, but it's altogether different to actively participate in the destruction of his own financial situation.

Also, his firm Prasada Capital, LLC doesn't inspire much confidence. He manages $56 million in 160 accounts (according to his ADV filed with the SEC), with a published fee schedule of 1.5% on the first $15 million of houshold assets, and 1.0% on any household assets exceeding $15 million. He also describes his primary investment strategy as:
Prasada’s primary investment strategy is the use of ETFs (exchange trade funds), typically SPY (ticker symbol for the ETF) collared with options to protect the downside risk.
He also claims to select third-party investment managers for clients, which means that clients pay his fee PLUS the fees of the third-party manager.

Yikes. I really hope nobody buys his book.

- DDB
Last edited by ddb on Wed Nov 09, 2011 10:43 am, edited 1 time in total.
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Re: How a financial planner lost his home

Post by ddb » Wed Nov 09, 2011 10:42 am

DRiP Guy wrote:I think you are a scum bag who happily and knowingly lived far beyond his means, even eyeballing MORE greedy speculative crap (the million dollar house), and then were more than content to 'reframe' your moral stance and write yourself a 'mea culpa' to stick SOCIETY (the honest taxpayers like me who just quietly lived within our means) with the bill and the hangover from your personal multi-year party on credit.
I generally agree with the tone and message of your post, but can you please explain how "SOCIETY" or taxpayers footed any of Mr. Richards' bills?

If a bank loaned him money and then the house sold for less than the value of the loan, then the bank lost money. The bank didn't come to your house, or to the government, and take any money? Some banks were loaned money by the government, but these loans weren't gifts.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

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Re: How a financial planner lost his home

Post by Bungo » Wed Nov 09, 2011 10:46 am

The biggest red flag I noticed in this article was the following:

"Within a few weeks, we were looking for a place to buy. I felt we could afford around $350,000."

If you're proposing to spend a third of a million dollars, especially borrowed dollars, the key is to think, not feel.

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Re: How a financial planner lost his home

Post by ObliviousInvestor » Wed Nov 09, 2011 10:51 am

porcupine wrote:But based on the above summary which is right on the money, it appears that he made out better than all right. What's his problem? Why is he complaining?
I read the article, and I don't think he was complaining.
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Re: How a financial planner lost his home

Post by Oicuryy » Wed Nov 09, 2011 11:11 am

ddb wrote:I generally agree with the tone and message of your post, but can you please explain how "SOCIETY" or taxpayers footed any of Mr. Richards' bills?

If a bank loaned him money and then the house sold for less than the value of the loan, then the bank lost money. The bank didn't come to your house, or to the government, and take any money? Some banks were loaned money by the government, but these loans weren't gifts.
Banks are doing what they can to deal with the losses. They are cutting customer perks, raising fees, raising credit standards and making only the safest loans. The result is a general tightening of credit. Less credit means less borrowing which means less spending which means slow economic growth and high unemployment. That is how society is paying for Mr. Richards' debt and the debts of millions of others who borrowed money and didn't pay it back.

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Re: How a financial planner lost his home

Post by Grt2bOutdoors » Wed Nov 09, 2011 11:15 am

ddb wrote:
DRiP Guy wrote:I think you are a --deleted-- who happily and knowingly lived far beyond his means, even eyeballing MORE greedy speculative crap (the million dollar house), and then were more than content to 'reframe' your moral stance and write yourself a 'mea culpa' to stick SOCIETY (the honest taxpayers like me who just quietly lived within our means) with the bill and the hangover from your personal multi-year party on credit.
I generally agree with the tone and message of your post, but can you please explain how "SOCIETY" or taxpayers footed any of Mr. Richards' bills?

If a bank loaned him money and then the house sold for less than the value of the loan, then the bank lost money. The bank didn't come to your house, or to the government, and take any money? Some banks were loaned money by the government, but these loans weren't gifts.

- DDB

I'll take a stab at this using only known public facts: Generally speaking, when banks which provide credit incur losses, those increased costs of financing are passed onto future borrowers in the form of higher fees and interest rates. The mass defaulting of mortgages has definitely impacted future borrowers through the mechanism of stricter lending guidelines and higher fees. How many instances do we hear of credit-worthy borrowers having to pay more in fees or being subject to increased scrutiny by lenders? In addition, we as taxpayers have been shouldering the ongoing expense of Fannie Mae/Freddie Mac which is now effectively owned by the government by virtue of "us" bailing out privately owned entities. Today's newspaper indicates Fannie just asked for another 7.8 billion dollar handout. Who is paying for that? Ever wonder why interest rates on credit cards are so high, assuming you carry a balance? It is due to the high cost of offering unsecured credit to the masses.
Last edited by Grt2bOutdoors on Wed Nov 09, 2011 2:27 pm, edited 3 times in total.
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Re: How a financial planner lost his home

Post by DRiP Guy » Wed Nov 09, 2011 11:18 am

ddb wrote:
DRiP Guy wrote:I think you are a --deleted-- who happily and knowingly lived far beyond his means, even eyeballing MORE greedy speculative crap (the million dollar house), and then were more than content to 'reframe' your moral stance and write yourself a 'mea culpa' to stick SOCIETY (the honest taxpayers like me who just quietly lived within our means) with the bill and the hangover from your personal multi-year party on credit.
I generally agree with the tone and message of your post, but can you please explain how "SOCIETY" or taxpayers footed any of Mr. Richards' bills?

If a bank loaned him money and then the house sold for less than the value of the loan, then the bank lost money. The bank didn't come to your house, or to the government, and take any money? Some banks were loaned money by the government, but these loans weren't gifts.

- DDB
I am by no means an expert but it seems that since the housing blow up in late 2006, people have been bandying about two potential causes of the melt down:

* Greed and specifically, the willingness to bend or break rules to try to make a buck (bankers, borrowers, brokers, RE agents, etc)
* Pervasive lack of actual counter-party risk in the transactions due to lax fraud enforcement, generous bankruptcy process, and guarantees (explicit and implicit) by government to the lenders to bail them out in the case of default.

The fact my own home value is now at a 1/3rd of what it supposedly was worth at the bubble peak, and the fact our nation is drowning in our national debt and the fact nearly one in ten people looking for work can no longer find, just to mention a few effects, seem to me to be adequately illustrative of the price exacted by society and individual honest taxpayers by immoral scumbags who profiteered knowing that they would never be held to account, and that the bill would be picked up by someone else, even as they were excused to go on and try the next 'hot' thing. Maybe even author a book about it!

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Re: How a financial planner lost his home

Post by Bungo » Wed Nov 09, 2011 11:20 am

GRT2BOUTDOORS wrote: In addition, we as taxpayers have been shouldering the ongoing expense of Fannie Mae/Freddie Mac which is now effectively owned by the government by virtue of "us" bailing out privately owned entities. Today's newspaper indicates Fannie just aaked for another 8.7 billion dollar handout. Who is paying for that?
Moreover, Fannie and Freddie's activity serves to prop up house prices at a higher level than would be sustainable without this intervention, which constitutes an additional cost for anyone buying a house in today's market.

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Re: How a financial planner lost his home

Post by DRiP Guy » Wed Nov 09, 2011 11:21 am

Bungo wrote:The biggest red flag I noticed in this article was the following:

"Within a few weeks, we were looking for a place to buy. I felt we could afford around $350,000."

If you're proposing to spend a third of a million dollars, especially borrowed dollars, the key is to think, not feel.
And then he got a house that was, what, a half a million? Then rapidly contemplated another one in the millions... all while admitting his expenses were more than his income, and while admitting his own thoughts regarding 'lifestyle' spending was essentially summed up by:" How come those guys have a boat and we don't?"

If he is writing this to engage through enragement, it worked beautifully.

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Re: How a financial planner lost his home

Post by bb » Wed Nov 09, 2011 11:32 am

ddb wrote:I generally agree with the tone and message of your post, but can you please explain how "SOCIETY" or taxpayers footed any of Mr. Richards' bills?

If a bank loaned him money and then the house sold for less than the value of the loan, then the bank lost money. The bank didn't come to your house, or to the government, and take any money? Some banks were loaned money by the government, but these loans weren't gifts.

- DDB
Ummm - bad decisions were made and now --economic policy comment deleted--

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Re: How a financial planner lost his home

Post by 3CT_Paddler » Wed Nov 09, 2011 11:35 am

I don't know if I would say that guys like the author are to blame for this crisis. Banks/investors were willing to lend to anyone. And initially that lending sparked a housing boom that everyone was excited about. The bust was just the flip side of the boom.

Right now if you are a young person (who has a good job) and are just now looking for a house to buy, the recent recession is a blessing. In 2005 a young person looking to buy a home didn't have nearly the value and opportunity that is out there today.

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Re: How a financial planner lost his home

Post by johnubc » Wed Nov 09, 2011 11:48 am

I do wonder what his advice would have been to one of his clients who came to him and said, I know I should not buy a house for this amount of money, but I want it, and my income will continue to increase, as well as the value of the house.

The fact that he was a financial planner concerns me more than if he were a salesman.

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Re: How a financial planner lost his home

Post by porcupine » Wed Nov 09, 2011 11:52 am

ObliviousInvestor wrote:
porcupine wrote:But based on the above summary which is right on the money, it appears that he made out better than all right. What's his problem? Why is he complaining?
I read the article, and I don't think he was complaining.
I read only the first page/view, and this (quote below) to me, appears like he was complaining about the big bad world that got him to where he is (even though he obviously details all of his moves in the subsequent pages, which I am yet to read).
I found myself wishing that I could get back there, connected to the simple ordinary stuff of my family’s life.
From what I read of tfb's summary, it appears that the author sold his house at a short sale (he probably did not lose a lot of money - for comparison purposes, our condo that we purchased in 2005 is down 66% of its value, and we still own it and don't want to go the strategic default route) and he still has his job (of advising others to do stupid things maybe?).

- Porcupine

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Re: How a financial planner lost his home

Post by HomerJ » Wed Nov 09, 2011 11:56 am

I’ve also learned some things about risk. Risk is an arbitrary concept, until you experience it. And I’ve noticed myself focusing more on the consequences of something going wrong than just the probability of that happening.
This is an important lesson everyone should learn.

Still, I have little sympathy for this guy... First loan was 0% down, then they re-financed (pulling $200k in cash out) into a loan where they were paying LESS than the interest (so amount owed went UP every month).

That's just asking for disaster...

But it looks like it will all work for him... He basically lost nothing, and I'm sure his book will sell well.

I wish the stupid bank that loaned him all that money could have failed though. Zero consequences for anyone. Both he and the bank are doing just fine.

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Re: How a financial planner lost his home

Post by HomerJ » Wed Nov 09, 2011 11:57 am

Rick Ferri wrote:Carl Richards sent me an advanced copy of his forthcoming book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. It was funny, easy to read, and reminded me of Bill Schulthies book, The Coffeehouse Investor. I highly recommend it.

Rick Ferri
I'm not sure I want to give him any money.

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Re: How a financial planner lost his home

Post by porcupine » Wed Nov 09, 2011 11:59 am

rrosenkoetter wrote:
Rick Ferri wrote:Carl Richards sent me an advanced copy of his forthcoming book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. It was funny, easy to read, and reminded me of Bill Schulthies book, The Coffeehouse Investor. I highly recommend it.

Rick Ferri
I'm not sure I want to give him any money.
+1. At best, I will share it from the local library.

- Porcupine

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Re: How a financial planner lost his home

Post by ObliviousInvestor » Wed Nov 09, 2011 12:00 pm

porcupine wrote:
ObliviousInvestor wrote:
porcupine wrote:But based on the above summary which is right on the money, it appears that he made out better than all right. What's his problem? Why is he complaining?
I read the article, and I don't think he was complaining.
I read only the first page/view, and this (quote below) to me, appears like he was complaining about the big bad world that got him to where he is (even though he obviously details all of his moves in the subsequent pages, which I am yet to read).
I found myself wishing that I could get back there, connected to the simple ordinary stuff of my family’s life.
I think it's perfectly possible to make a mistake, fully realize it was your own fault, and still wish desperately that you had not made that mistake. That's how that part came across to me. I think Richards is pretty clear that the mistake was his own.
Mike Piper, author/blogger

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Re: How a financial planner lost his home

Post by SecretAsianMan » Wed Nov 09, 2011 12:20 pm

Taylor Larimore wrote:Hi Billy:

Thank you for sharing this article.

It took guts, especially for a financial planner, to tell the story of his financial mistakes.
I don't think guts is the right word. He's advertising his forthcoming book and financial planning business. I'm sure he thinks the article will help him seem more relatable to his target audience. I can think of a few things he is full of, but guts isn't one of them.

SAM

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Re: How a financial planner lost his home

Post by porcupine » Wed Nov 09, 2011 12:26 pm

SecretAsianMan wrote:
Taylor Larimore wrote:Hi Billy:

Thank you for sharing this article.

It took guts, especially for a financial planner, to tell the story of his financial mistakes.
I don't think guts is the right word. He's advertising his forthcoming book and financial planning business. I'm sure he thinks the article will help him seem more relatable to his target audience. I can think of a few things he is full of, but guts isn't one of them.

SAM
+1

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grokzilla
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Re: How a financial planner lost his home

Post by grokzilla » Wed Nov 09, 2011 12:27 pm

I'm just completely stunned that in 2006 he did not realize that we were in the middle of a MASSIVE housing bubble.

I'm just joe consumer and it was readily apparent to me. I left California for Washington in 1998. After selling a home in 2002 and moving back to California that same year it was READILY apparent that something had gone VERY wrong in the housing market in my four year absence. I then refrained from buying back into the market specifically because I knew prices were way out of whack with local population earnings. I even told a friend not to buy (me thinking the bubble was about to pop. Of course, he did buy in 2004 and sold in 2007 and walked away with nearly $250K in gains. But he got lucky and just missed the collapse).

Just mind boggling that people couldn't see this coming though I had no idea how bad the Wall Street component of the crisis had gotten.

Bottomline: I have no sympathy for his predicament. No excuses for it. And, frankly, I don't think the story says anything other than use some common sense and don't behave stupidly.

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HomerJ
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Re: How a financial planner lost his home

Post by HomerJ » Wed Nov 09, 2011 12:28 pm

ddb wrote:Also, frankly, a financial advisor who takes out a negative-amoritzed loan probably shouldn't be a financial advisor. It's one thing for a financial advisor to neglect his own financial situation, but it's altogether different to actively participate in the destruction of his own financial situation.
Yeah, this is pretty bad... You have to be pretty stupid to take out a loan where you are paying LESS than the interest each month. And not paying less than the interest on purpose because you're investing the extra money elsewhere, but because you CANNOT AFFORD to even pay the interest each month. And for a financial advisor to do it? I can't comprehend such a thing.
Also, his firm Prasada Capital, LLC doesn't inspire much confidence. He manages $56 million in 160 accounts (according to his ADV filed with the SEC), with a published fee schedule of 1.5% on the first $15 million of houshold assets, and 1.0% on any household assets exceeding $15 million. He also describes his primary investment strategy as:
Prasada’s primary investment strategy is the use of ETFs (exchange trade funds), typically SPY (ticker symbol for the ETF) collared with options to protect the downside risk.
He also claims to select third-party investment managers for clients, which means that clients pay his fee PLUS the fees of the third-party manager.
Holy cow... Rick Ferri, you probably shouldn't be promoting this guy... He's one of the "bad guys" we talk about here on these boards. 1.5% fees!

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Re: How a financial planner lost his home

Post by Grt2bOutdoors » Wed Nov 09, 2011 12:34 pm

rrosenkoetter wrote:
ddb wrote:Also, frankly, a financial advisor who takes out a negative-amoritzed loan probably shouldn't be a financial advisor. It's one thing for a financial advisor to neglect his own financial situation, but it's altogether different to actively participate in the destruction of his own financial situation.
Yeah, this is pretty bad... You have to be pretty stupid to take out a loan where you are paying LESS than the interest each month. And not paying less than the interest on purpose because you're investing the extra money elsewhere, but because you CANNOT AFFORD to even pay the interest each month. And for a financial advisor to do it? I can't comprehend such a thing.
Also, his firm Prasada Capital, LLC doesn't inspire much confidence. He manages $56 million in 160 accounts (according to his ADV filed with the SEC), with a published fee schedule of 1.5% on the first $15 million of houshold assets, and 1.0% on any household assets exceeding $15 million. He also describes his primary investment strategy as:
Prasada’s primary investment strategy is the use of ETFs (exchange trade funds), typically SPY (ticker symbol for the ETF) collared with options to protect the downside risk.
He also claims to select third-party investment managers for clients, which means that clients pay his fee PLUS the fees of the third-party manager.
Holy cow... Rick Ferri, you probably shouldn't be promoting this guy... He's one of the "bad guys" we talk about here on these boards. 1.5% fees!
Market timing with options is not a cheap exercise. :lol:
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: How a financial planner lost his home

Post by Grt2bOutdoors » Wed Nov 09, 2011 12:37 pm

What I find particulary striking is that published authors are actually defending his actions. Or am I completely mis-reading some of these posts? :?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: How a financial planner lost his home

Post by ObliviousInvestor » Wed Nov 09, 2011 12:54 pm

GRT2BOUTDOORS wrote:What I find particulary striking is that published authors are actually defending his actions. Or am I completely mis-reading some of these posts? :?
If by "his actions" you are referring to Richards' poor financial choices, I don't think anybody was defending those. (I certainly wasn't.)
Rick Ferri wrote:Carl Richards sent me an advanced copy of his forthcoming book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money. It was funny, easy to read, and reminded me of Bill Schulthies book, The Coffeehouse Investor. I highly recommend it.
Taylor Larimore wrote:Hi Billy:

Thank you for sharing this article.

It took guts, especially for a financial planner, to tell the story of his financial mistakes.
Mike Piper, author/blogger

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Re: How a financial planner lost his home

Post by HardKnocker » Wed Nov 09, 2011 12:56 pm

I quote:

"our debt was out of control"


Don't go to this guy for financial advice. :roll: He's a fool. Thank God he's not a brain surgeon, he might have killed somebody.

Meanwhile we have posters on this forum who want to borrow money and buy stocks with it. :(
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

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Re: How a financial planner lost his home

Post by jon-nyc » Wed Nov 09, 2011 1:16 pm

Thanks for posting the article, it was an interesting read.

I have to say I don't think it could happen to anyone, though.

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Re: How a financial planner lost his home

Post by jon-nyc » Wed Nov 09, 2011 1:27 pm

In case anyone is wondering if his brush with bankruptcy has improved his FA skills, this sketch from his website should put that to rest.

http://www.behaviorgap.com/sketch/lived-through-hell/

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randomwalk
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Re: How a financial planner lost his home

Post by randomwalk » Wed Nov 09, 2011 1:33 pm

jon-nyc wrote:In case anyone is wondering if his brush with bankruptcy has improved his FA skills, this sketch from his website should put that to rest.

http://www.behaviorgap.com/sketch/lived-through-hell/
I wonder if there's some context for that sketch? This recent article by Richards seems to argue the opposite, at least for a diversified portfolio:

http://bucks.blogs.nytimes.com/2011/08/ ... investors/

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Re: How a financial planner lost his home

Post by Justin618 » Wed Nov 09, 2011 1:35 pm

"Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market. A few months later I found myself working a phone at a Fidelity Investments call center."
I laughed at this one.

My takeaway - it's a low bar to being a "financial planner" and it further affirms my DIY boglehead position.

Justin
"Investing is simple, but not easy" - Buffett.

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Re: How a financial planner lost his home

Post by PreserveCapital » Wed Nov 09, 2011 1:35 pm

learning_head wrote:Best part of the article:

"bumper sticker, “Honk if I’m paying your mortgage.” "

Yes, Mr. Carl Richards, the financial planner, I am paying for your mortgage.
The way the article reads, it sounds like he was actually writing the article while he was driving.

That's a big no no carl.

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Re: How a financial planner lost his home

Post by NoVa Lurker » Wed Nov 09, 2011 1:58 pm

GRT2BOUTDOORS wrote:I normally would give credit to a person who is able to come forward with such a story. In this instance, the plug for his book being released on January 3rd makes me give pause. Do you think for a moment that such an article would have ever been written and released to the public at large for comments had potential profit motivation not been involved?

There have been instances where people lose homes and other property due to job loss or medical issue, however many of those facing similar circumstances such as Mr. Richards encounter these problems for one simple reason - they overleveraged themselves without any thought to the potential ramifications of such an action. Some call it greed, some call it other things. All of them failed because they lacked common sense. If it sounds too good to be true, it usually is.

Becoming a financial planner does not require a special degree, training and/or stringent licensing examinations governed by a state body. All it requires is the ability to sell yourself to someone willing to buy it. That is not to say, all financial planners are incompetent, for the most part it is no different than any other profession, you will have great, good and a few rotten apples at the bottom of the barrel.
Agree with this completely.

I have sympathy for many people who lose / short sell their home, and I don't tend to judge people for the financial decisions they make, but I have no sympathy for Richards. His story makes it clear that his financial mistakes were due to greed along with bad judgment. His current actions (with his tell-all article and book, and his behavior as a financial advisor) make it clear that greed is still his primary motivator, and the article is full of self-serving justifications.

He writes that he realized, "my moral obligation to my family trumps the contractual obligation to the bank." By "my moral obligation to my family," he means, "what was best and easiest for me."

I guess any self-serving financial behavior could be justified as "my moral obligation to my family."

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House Blend
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Re: How a financial planner lost his home

Post by House Blend » Wed Nov 09, 2011 2:39 pm

Billy Pilgrim wrote:I am reading this right now and honestly it scares me death.
Anyone can get into this situation, even the well educated.
http://www.nytimes.com/2011/11/09/busin ... se.html?hp
Not my reaction. I try putting myself in his shoes, but I'm having a hard time getting them to fit. Could also be generational differences, but

borrowing 100% of the costs to buy a home,
at a price almost double what I estimate I can afford ($350K vs. $575K),
using an adjustable rate mortgage,
refinancing to increase leverage, and
ramping up spending as fast or faster than income,

are five things that I would never do.

Appears that he is a carrier of the one-marshmallow gene.

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Re: How a financial planner lost his home

Post by GregLee » Wed Nov 09, 2011 2:50 pm

grokzilla wrote:Of course, he did buy in 2004 and sold in 2007 and walked away with nearly $250K in gains. But he got lucky and just missed the collapse).
There's a moral there. Going heavily into debt and lucking out when the housing market rises doesn't mean you made a good decision to buy. Equally, going heavily into debt and losing big when housing tanks doesn't mean you made a bad decision to buy. It was a gamble that you could have won. Looking back at an investment decision which turned out badly and trying to draw the conclusion that the decision was, therefore, mistaken, seems silly, to me.
Greg, retired 8/10.

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Re: How a financial planner lost his home

Post by Fallible » Wed Nov 09, 2011 3:21 pm

I enjoyed reading Richards's article, but I'm not sure what to think of it. It's interesting that a few years ago, the New York Times ran a piece by its financial reporter Edmund Andrews about his personal financial (mortgage, etc.) mistakes, at the same time mentioning his new book about same. Much of the reaction to that was similar to the postings here: praise for admitting his mistakes, but some skepticism that he was entirely forthcoming and would no doubt gain from promoting his book.
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