Asshair#3 A cautionary tale. Asshair#3 could arguably be *ME*, as in "fool me once, shame on you, fool me twice, shame on me". Hence, this may belong on the 'anti-mustachian wall of shame', but I'll include it here to keep the series in the same thread.
By 1996, I was doing well at SG (software giant), my vested SG stock options were worth a good deal of money (~$2.5M). But I had begun to get nervous about having a portfolio worth that much $$. Nervous about whether my self-guided investing was good enough, or whether I should hire a financial consultant / analyst to help me keep my money invested wisely & safely. As Will Rogers said, "The only thing more important than return on your investments, is return OF your investments".
Aside: If you have similar concerns - DON'T WORRY! Keep planning your investing, and investing to your plan. You're as smart as any high-priced financial advisor IMHO. Low Cost ETF's are the vehicles to use today - Total Stock Market, Total Bond Market, and REIT's are what I'm invested in today. I only wish I had listened to my own advice in late 1999...
In late 1996 I was contacted by Asshair#3 - yes, a cold calling stock broker based in LA who dealt mostly with high-dollar-figure clients, many of whom were at SG. I said I wasn't interested, but he convinced me to invest $100K with him, and he would use that amount to show how much he could increase my investments. I maintained a separate account at Fidelity where I had grown a $33K initial investment to almost $800K, so I wasn't worried about losing $100K.
My plan: pick a date, and do a 'sell-buy' - exercise the vested stock options, and SELL enough shares to generate enough cash to BUY the remaining shares outright, and hold those shares in my account for at least 1 year. On that initial sell-buy, I paid short-term capital gains equal to my income tax rate (36%). A year later, I could sell any remaining shares, and pay only 15% long-term capital gains taxes on those shares. In the late 90's, SG stock was on a roar - rising, splitting, rising again, etc.
Asshair#3 was initially successful enough to convince me to do the sell-buy into an account with him. In the fall of 98, I did the sell-buy, generating a >$1M tax bill (ouch! - I know...), leaving roughly $2.5M in stock value in that account. I also moved some $$ into my original self-directed account, bringing it's total to over $1M, and life was good.
I had always wanted to live on the water, so soon after, I bought a house on a large nearby lake for >$1M. I wanted to pay cash, but Asshair convinced me to get a mortgage against my stock account - aka *margin* the stock against the lake house. [In hindsight, I'm sure this generated a nice big kick-back for him]. For the first year or so, this presented no problem... SG stock continued to climb. Even the $10K annual waterfront tax bill was a small amount to pay to be able to walk out my backdoor, jump in the boat, and go play on the lake.
But in the fall of 1999 there was a highly publicized court ruling against SG that could potentially impact SG's stock growth. I asked Asshair, and he said to "stay the course", that it could never get that bad. "SG is the 'Ferrari' in your account". At SG, I worked on a major Macintosh product, and solved 'Y2K software defects' in the software we were building - we found nothing too dramatic to solve. But there was an end of 99 hysteria about Y2K that made me nervous. I knew the stock market was an emotional market, not always built on actual value, but on *perception*. That's why on Dec. 30, 1999 (Why do I remember that date so clearly? It was my birthday), I realized I hadn't slept the previous night worrying over the stock market, and called Asshair#3 from a family vacation in Hawaii to say I wanted to "sell all shares in SG, pay off the lake house, and invest in something less risky - like bonds, and perhaps put some in some $$ in Apple." (I had worked on a Macintosh product the previous year which was doing well in the market, and thought Apple's stock price still had some growth room left - I was happy with the way Steve Jobs was leading Apple). I said I wasn't worried about any of the nightmare Y2K issues, but was worried about the overall emotion-in-the-market, so wanted to get into cash, and sit-it-out. That day, my account value was north of $5M. Needless to say, Asshair#3 talked me out of it - talked me out of selling.
Over the following 3 months, I saw SG's stock nudge downward in large part due to the highly publicized court ruling. By March, the value had plunged erasing 5 years of stock growth. But that time, I had been forced (twice) to sell shares to cover margin calls against the shares margined for the lakefront property. In late March, I said I wanted to sell enough to pay off the mortgage, and hold the property in cash, but by then most of my fortune "on-paper" had disappeared. Soon after is when he convinced me to invest in Enron.
Yes, the news on Enron was out, and it was clear the stock was going down, but Asshair's pitch was, "Come on - it's ENRON. Surely they can beat this, and come out of this stronger than ever. It's ENRON." I had 10% of what was left in Bonds, ~$600K in cash, and most of the remainder still in SG stock. (I know - facepalm). He invested that ~$600K in Enron, and a half-dozen Dot-Com companies hoping to see the same kind of increases in those stocks that SG had seen in the late 90's. But it was not to be...
Enron tanked. ALL the Dot-Com stocks tanked. In those stocks alone, I lost upwards of $600K. SG stock tanked, and stayed low. I finally closed the account with Asshair, and the story got back to his leadership, and got him fired. [It was little consolation, as last time I checked, he's still active at another SoCal based stock firm]. The annual $10K (!) tax bill on the lakefront house (you read that correctly) had by 2003 became a burden, so eventually I sold the house - for a profit, but that ROI did not offset the stock losses. Eventually moved into a more modest house in the area and paid down >40% up front. But things were not good at home. Later (2006) separation, and divorce followed, and after the lawyers bills, and 50/50 split, and once the dust settled, I was left with less than $350K in total assets, and monthly spousal support (including child support) bills.
A hard story - true. But all behind me. I've learned a lot, and will never make the same mistakes again. I may never have as much money in my FI funds, but I've learned to be happy with what I have, and I will always listen to my own investing advice. Advice that's allowed me to grow my FI funds over the years to a point where FI is within reach.
. . . .
Next up... in 2004, I had my one true Epic FU money story.... Asshair#4 may have been a good coder, but was a terrible manager. And even though I had seen my fortunes decrease, it didn't stop me from using what FU funds I had to pull-the-FU resignation trigger.