Remember the post about Lynn, whose husband was pressured into buying FDP? Here's a followup.
Hi Phil:
I see you used my story on your blog. Thanks for not using my real name. If only it ended on a positive note.
My husband had already verbally given the go ahead to purchase FDP so the paperwork was already set in place. Needless to say, he purchased 2,500 shares of FDP at $16.997/share. He had to cut a check for $21,684.00 and borrowed the other half on margins which he didn't even realize he did (a very very high risk endeavor). Plus, Mr. _______ from _______ [name of broker removed] made a nice hefty commission ($850) on my husbands temporary insanity move.
To make a long story short, I was having anxiety attacks for days. I was asking Jerry all of these questions and he couldn't even answer them.
I asked him if he was buying margins. He said he thought he told Mr. _______ he didn't want to buy margins so he assumed that it wasn't margins he was buying.
I asked him what fee was the broker making. He couldn't tell me that.
I asked him what 2,500 times $16.997 was. He hadn't realized that it was $42, 492.50 not $21,684.00.
I asked him why he thought FDP was a great deal. He couldn't answer my quesions only to say that FDP was going to be paying out a dividend to their shareholders and he could make something off of that.
I asked him why he liked this guy so much. He said he seemed to make a lot of sense and stated that if Jerry wasn't making money, he wouldn't be able to keep him as a customer and he wouldn't be able to make more money.
I asked him if I could be his broker and he could pay me a hefty fee. He didn't seem to like that comment to much.
I read your e-mail to Jerry along with my research. I think it was an eye-opener and I was glad I had your information to back up what I basically had already told him. Much better hearing it from you than his wife who I guess doesn't know much.
He couldn't believe that I reacted the way I did and asked me what I was going to do when I started investing in stocks with real money? I told him first of all, I was going to paper trade as long as I needed to in order to learn and get comfortable with it and secondly, my money was in cash and I had not violated Rule #1. He told me I hadn't made any money. I told him I hadn't lost any money.
He did finally call Mr. _______ up to cancel and get back into cash. At that point, I knew we were going to lose money but I didn't care. I just wanted to get a million miles away from that transaction and that broker.
I asked Jerry if he mentioned to Mr. _______ what he said about not wanting to buy margins. Mr. _______'s comment was, next time I guess I'll have to make myself more clear. I'm praying that there isn't going to be a next time. I think I will be writing Mr. _______ a letter myself.
I see that FDP has an MOS of approximately $2.50. Great Rule #1 investment huh? I got my check back today, at a loss of $1, 694.60. That hurt a lot but that didn't hurt as much as Jerry making that decision without getting my opinion especially since I love doing research. I thought I was the one without any patience and yet I find myself being the total opposite. I guess that prayer for patience that I asked God for many years ago has really worked. Praise God!
Thanks for being a great sounding board Mr. Town. I appreciate it as it does help to vent. Thank you.
Lynn
P.S. Yes I still love him and I plan on staying married and making it to #22. He's a great husband, father, friend, provider and most of the time, listener and partner. I just hope that this situation doesn't happen again.
And here's what I told her:
So the broker charged you guys a 2% commission on the entire purchase price of $42,000 and made off like a bandit with $850. And then he did it again when you sold. So he ripped you off for $1700.
Get this: If you did the same trade at Scottrade it would have cost $7 in and $7 out. $14 total. So this guy hit you for $1686 over the real cost. And now you know how he makes his money. He creates a great story about something that just has to go up, creates a strong sense that you have to do it right now. And somehow creates enough loyalty on the phone that you don't just go do the trade online for $7. Actually, I'm thinking that takes a lot of skill.
And who knows. Maybe FDP will rocket off into the stratosphere. I don't have a crystal ball. But what I do know is that this is not an investment. It's a speculation. Pure and simple. And if you speculate, you can win big and you can lose big. There's not certainty one way or the other.
I just don't like to speculate. It's too hard on the emotions. I much prefer to invest. Investing takes a bit more time and a bit more patience, but for the first time in history, the little guys like you and me can get the information. It just takes a little practice.
I hope for your sake that FDP doesn't go rocketing up, just because your husband will have to be a saint to forgive and forget! If that happens, just remind him that the fact that sometimes the shooter makes his point on a crap table doesn't make shooting dice a great investment strategy.
Now go play!
Phil
