The following story is told by Oliver White, senior investment writer for the Motley Fool Stock Advisor, which may change the way you view the economy, the stock market, and life's fortunes.
"I need to go back 80 years. Back to 1928, in Altoona, Pennsylvania. When a 2nd-generation Irish railroad worker named John Reilly bought a single share of Knight's Life Insurance of Pittsburgh...
John, the father of six, paid $10 for the stock. Then defended it for decades from lowballers and scoundrels who tried to buy it out from under him and his family.
Then in the late 1950's, American General insurance company started acquiring Knight's Life. And after a few years, the Reilly family investment was split and converted to American General shares...
John's six children eventually inherited the stock. And by the 1980s, through splits and reinvested dividends, their investment was worth hundreds of thousands of dollars...
It helped buy homes in places like Pittsburgh and Somerset, PA, and Vienna, VA. And helped pay for college degrees for John Reilly's grandchildren from schools like Wharton, Penn State, and Stanford.
And with plenty of American General shares still in place after all this, continuing to multiply and grow all the way up to 2001 when AIG acquired American General -- no member of the Reilly family ever once thought of selling. After all, AIG was a bellwether of the American economy. And the insurance business had been profitable for the Reilly family. So much so, that...
By 2007, John Reilly's ONE SHARE had grown into more than $480,000!
And it looked as if his amazing investment could one day help pay college tuition for his great-grandchildren. Yet, I'm afraid you know the rest...
Last month, over the course of a few days, AIG's share price plummeted. Destroying $180 billion in shareholder wealth (that's roughly equal to 3 Enrons)... and almost brought down our entire financial system, before the government loaned the company $85 billion.
And while the Reilly family (my in-laws) was coming to terms with the fact that their total AIG investment is now worth less than $12,000, and that the vision and hard work of their of their patriarch had been mostly obliterated -- top AIG executives took a posh spa retreat to California. Threw themselves a banquet and awarded each other handsome bonuses.
It was a slap in the face! And a wake-up call...
We've seen Wall Street play fast and loose with our investment money for too long!
In recent years, Wall Street firms basically turned themselves into massively leveraged casino operations: Lehman Brothers was leveraged 25 to 1... Goldman Sachs was leveraged 26 to 1... while Morgan Stanley was leveraged 34 to 1. Heck, even AIG, an insurance company, was leveraged 13 to 1!
'The US economy is in big trouble. Many Americans are outraged at the way our financial security has been sacrificed.'-- The Wall Street Journal, July 28, 2008
It's no wonder so many Americans are hopping mad! A lot of people woke up to the news recently that some of their "conservative" blue-chip investments had a lot less in actual assets than they thought...
1 comment:
"And while the Reilly family (my in-laws) was coming to terms with the fact that their total AIG investment is now worth less than $12,000, and that the vision and hard work of their of their patriarch had been mostly obliterated -- top AIG executives took a posh spa retreat to California. Threw themselves a banquet and awarded each other handsome bonuses."
What hard work? That $10 had been saved up 80 years ago, what work had been put into it since then? Boohoohoom it bought them houses, university education, and now they only have $12k left...how about doing some diversification.
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