Learning Finance from the "Smartest Guys in the Room"

I was looking for a movie to watch tonight. I going through our DVD library I hit this one. Maybe it was the 60 Minutes thing yesterday about Mortgages, but I guess I wanted to see what started a different economic mess.

"Enron: The Smartest Guys in the Room" is a documentary, and before you roll your eyes and start thinking about those horrible ones in school with the hand-cranked filmstrips, or Michael Moore knocking on doors looking for a sandwich (kidding!), this is pretty darn captivating stuff.

What separates this one for me is that it really is the people involved discussing in archival footage what went on. The sub-title sums it all up; "It's Only Business."

Enron wasn't always a punchline. It was the seventh largest company to ever declare bankruptcy. A company so powerful they created the California rolling power outages!

So what can we learn from the movie in regards to personal finance. I think that here are some great lessons:

• 401K investments - Never over invest in your companies stock! People thought that they were missing out if they didn't. That they weren't showing company spirit! Meanwhile the Executive team was selling as fast as possible, often after telling the rank and file to buy!
• Don't be afraid to ask questions - This is a great story of the Emperer Has no Clothes. When a couple (and it was VERY few) analysts asks questions on how they were really making money, Enron talked to them like they were too stupid to understand, and killed most probing into the company until it was burning. There are NO stupid Questions.
• New Economy - There is no new economy. You have to make a profit, if you don't eventually, and sometimes in spectacular ways, you will run out of money. Money is finite...even when there is a lot of it. For your finances this means you cannot continue to charge things without paying it back, because...money is finite, whether it is yours or the banks!
• Integrity is Everything - There are no get rich schemes, no magic new ways to riches. You certainly can lie for a bit to get ahead, but it will catch up to you, or if you are one of the very few and lucky, everyone around you.
• Slow and Boring - Which stock would you rather own, Enron or GE. GE has been going nowhere for a long time, no rapid movement, but...it makes money day in day out. Any other kind of investing is gambling!

The other side note, which was interesting, Ken Lay died before he could go to trial. Given that he was never convicted, he is innocent, so no one can go after his estate. Pretty hard way to protect your family!

Slow and steady is boring, 5-10% a year is boring. But Personal Finance is not a Video Game that needs to go back to GameFly tomorrow. Risk=Rewards, but excess Risk=Broke!

How about you? Any movies inspire your Personal Finance choices?

Common Investor Mistakes Revealed

You might not think of yourself as an investor, but you are. Most of us have a checking account and probably a savings account, even if it is for just Christmas or your Emergency fund. A good portion also have 401K accounts or some other retirement account available to them via their work.

But even if you are just starting out, or have been maxing out your 401K there are five very common investor mistakes made over and over again. Retirement is a compounding game, meaning that returns magnify returns. You really can't afford to drop even 1% a year over 30 years.

If you invested $10,000, never touched it again and earned 4% interest compounded yearly (BTW avoid any investment that only compounds yearly :) ) after 30 years you would have $32,433.98, but at 4% percent it would be $43,219.42 or $10,785.45 more...more even than your original investment.

So here are Five Common Mistakes to Avoid:

1. I Have Plenty of Time to Worry about That - Actually you don't. Using those 4% numbers above; if you have that investment for 20 years instead of 30, your out nearly $17,000! Time is the friend and enemy...use it wisely
2. It is too Late - It's never to late! Once again time is ticking and every second lost is money lost. This goes for everyone: The best time to invest is now!
3. I Won't Take any Risk - While I believe we should all invest within our own tolerance level, unfortunately risk equals reward. You have to balance out the two. As shown above, every percentage is very important over time.
4. I am Captain Cowboy, Let it Ride! - OK, as I have stated before risk management is key here. You need the returns, but risk is still risk. If you want to bet on every tip out there go to Vegas, but read Viva Wall Street first.
5. All in your Company's Stock - One word that should scare the heck out of you at night; the 20th Century Frankenstein...ENRON. The company would have pep rallys, tell the the working staff how great things were going, wait for them to buy to drive up the price of the stock, then sell! I am not saying don't buy any either, take advantage of ESOPs (Stock Options) if you can, just do not peg a higher percentage then you should have of that type of investment class. If you think you need 20% Mid-Cap stocks, and your company is a Mid-Cap stock company and it is run well, etc, fine put some, 5-10% of it in the stock. It is hard to be the nay-saying when your cube mate is high-fiving the janitor, but when/if it tanks, you may be out of a job, but you won't be starting over.

Look, take whatever I say with a huge grain of salt. I am not a stock broker, but I just see people tossing away $10,000's of Dollars. Get with a retirement fund helper. Find someone you trust, then...don't trust her/him! Ask questions, lots. Read blogs (especially this one :) )Don't feel stupid. People can feel dumb all the way to the poor house!

But whatever you decide, make a plan and start working it today. The investment interest you save may be your own!