Silk Stockings do not equal honesty
A friend of mine has a son in a different state who has recently changed careers to go into the financial services industry. The son, being from a family based on character and high moral values, chose a company that he was assured shared his values of moral integrity and honesty. He chose to join the ranks of Merrill Lynch. We should all know how that story is playing out. Here is a link to an article published today relating how New York's attorney general is investigating Merrill Lynch's executive bonuses passed out at the end of 2008 - just before the takeover by Bank of America and the "bailout" that you and I will pay for for many, many years.

Now, my friend's son was certainly not one of the favored executives and should not be personally sullied by Merrill's executive's actions, but he should decide if his moral values and those of his employer are still in congruence.

On a cold day in January, a man sat at a metro station in Washington DC  and started to play the violin. He played six Bach pieces for about 45  minutes. Since it was rush hour, it was calculated that a thousand people  went through the station, most of them on their way to work. Three minutes went by and a middle aged man noticed there was a musician playing. He slowed his pace and stopped for a few seconds and then hurried up to meet his schedule.

A minute later, the violinist received his first dollar tip.  A woman threw some money into the hat and continued to walk. A few minutes later, a man leaned against a wall to listen to the musician, but after looking at his watch he walked away. Clearly he was late for work.

The one who paid the most attention was a 3 year old boy. Obviously in a hurry, the mother tugged at the boy, but the kid stopped to listen to the  violinist. Finally, the mother gave a hard push and the child continued to walk, turning his head all the time.

This action was repeated by several other children.  All the parents, without exception, forced them to move on. In the 45 minutes the musician played, only 6 people stopped and stayed for awhile.  About 20 people gave him money but continued to walk. He collected $32 when he was finished playing.

Silence took over, no one noticed.  No one applauded, nor was there any recognition.

No one knew the violinist was Joshua Bell, one of the best musicians in the world. He played one of the most intricate pieces ever written with a violin worth 3.5 million dollars.  Two days before his playing in the subway, Joshua Bell sold out at a theater in Boston where the seats cost an average of $100.

This is a true story.  Joshua Bell, playing incognito in the metro station, was organized by the Washington Post as part of a social experiment about perception, taste and priorities of people. They queried that in a commonplace environment, at an inappropriate hour:

• Do we perceive beauty?
• Do we stop to appreciate it?
• Do we recognize talent in an unexpected context?

If we do not have a moment to stop and listen to one of the best musicians in the world playing the best music ever written, how many other things are we missing?

What’s a good credit score? According to credit scoring giant Fair Isaac Corp., the best FICO score range as of late 2008 stood at 760-850, according to reports; that minimum is roughly 20 points higher than it would have been a year ago.  

Barring any major federal action to loosen up these markets on the consumer level, these factors make it particularly important to make sure there are no skeletons in your credit closet.  

The Federal Reserve Board’s statistics show that outstanding consumer credit has increased from a bit more than $2 trillion in 2003 to $2.5 trillion by the end of the second quarter of 2008, representing a 25 percent increase over five years. These high levels of debt, combined with a global credit crunch, have tightened up lending to all but the best customers–and they’re having trouble too. 

If you have extraordinarily high debt levels, a record of late payments or very little money to put down on that home or car, you need to do some advance planning before you contact any lenders. Here are issues you need to incorporate into your planning: 

• Get some advice: You might be focused on paying down debt or saving up your down payment, but credit is only one part of your lifetime financial picture. It might be a good idea to talk with a tax professional or a financial planner to learn how to best use credit. It’s always good to determine what your limits should be.

• Pay down the balances you have: Next year, Fair Isaac Corp., the company that created the FICO score, will be adjusting the way it computes its credit scores. One of the top changes will be a greater negative weight on credit utilization–how close you get to the borrowing limit of each of your accounts. The company says that for optimal scoring, each account’s outstanding credit should be no more than 50 percent of the credit line and hopefully less.  As you’re paying down your balances, it’s wise to focus on the highest-rate credit cards or loans first.

• Set a credit report review schedule: You have the right to get all three of your credit reports—from Experian, TransUnion and Equifax—once a year for free. You can do so by ordering them at www.annualcreditreport.com. Don't order all three of them at the same time, though. By spreading out the dates you receive each of your credit reports, you'll get a continuous view of how your credit picture looks because the three bureaus feed each other the latest information. It's a good way to clean up errors and keep a steady watch for identity theft.  By the way, all those ads that advertise free credit reports? Most of them will demand a credit card number from you, which means at some point those reports won’t be free. The aforementioned Web site is the best place to get reports that are truly free of charge.

• Pay on time and pay more than the minimum. If you’ve been late with payments or have stuck only to paying the minimums, it’s time to give that up now. Here’s what you do. To avoid late payments, note the due dates when the bills arrive and then set a date for payment five to seven days ahead so you’ll definitely be able to mail your payment on time.  To put more toward the balance, finally do a budget–this will help you identify the non-essential spending you’ve been doing so you can pay your outstanding credit balances faster.

• Cut up cards, but don't close the account: Closing accounts—even those that have had zero balances for years—is a bad idea. Lenders want to see a long record of responsible credit management, and longtime accounts that you haven't touched in years may actually help your score because it shows you have some restraint.

• No-doc or low-doc loans? Find another way: If you are self-employed or otherwise don’t have a lot of verifiable income, you may have the most trouble getting a loan. While banks and other lenders two years ago might have bent over backwards to lend to people with unverifiable income, that gravy train is mostly over now. If you do get a loan, you’ll pay far more for it than you would have before the credit markets blew up.

January 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Michael B. Broadhurst, CFP,
a member of the Hampton Roads, VA chapter of the Financial Planning Association.

Today, I read a column that tells a similar story from a more modern perspective. Jeff Clark, the author, writes an investment newsletter. Here is an excerpt from his paper today:

“. . . The stock market, right now, is a giant guessing game. Neither fundamental nor technical analysis is working. And investors doubt their faith.

It's like finding your spouse in bed with your priest. Two deep-rooted bonds are shattered at once.

So how do we get through this?

I can only offer you this advice (which Keanu Reeves shared in The Replacements, an otherwise forgettable football move)...

"Pain heals. Glory lasts forever. Chicks dig scars."

• Pain heals. We've been through this before. We survived the stock market crash of 1987 and the sequel in 1989. We endured the Asian currency crisis in the late 1990s and suffered through the Internet meltdown in 2000.

Today feels worse. But it's not. Investors have weathered all the other financial crises over the years. And we'll get through this one, too.

• Glory lasts forever. The ability to keep one's head while all others are losing theirs creates greatness. Warren Buffett earned his fortune by making smart decisions in a bear market. His investment prowess will live on forever in the minds of long-term value investors.

I'm certain that five or 10 years from now, we'll all look back at some of these debt-free stocks trading at less than eight times earnings, slap ourselves on the forehead, and wonder why we didn't buy more.

• Chicks dig scars. The battle-tested warrior gets more respect than the rookie just entering boot camp. Traders who've been in the trenches for decades have more followers than hedge-fund managers just out of business school. . . Experience is valuable. . .

It's okay if your faith in the market has been shaken. Mine has too.

But just as the sanctity of marriage is much stronger than the indiscretions of one spouse, and faith is mightier than the actions of one priest... the free market and capitalism are much stronger than the shenanigans in Washington and Wall Street. . .”

Between the two of us, Michael and Louis, we have seen almost 75 years of market swings, both up and down. We know that proper portfolio design and attentive execution go a long way to cushioning your portfolio from drastic swings like the ones we are experiencing now. While it may sometimes seem like we are repeating empty platitudes, the mantra of "stay where you are, this too will pass" is still true.