Appendix A. Appendix

Lessons from an ARS Investor

Harry Newton

Background: After I got some cash in the fall of 2007, my broker put $4.5 million of my cash into auction-rate securities. He said it was a "cash equivalent." I could get my money every seven days. He also put in $800,000 of his own money. Many months later we all got our money back because our brokerage company—not the issuer—redeemed them. The company didn't need to. The company did it to win favor with its clients, like me. I'm guessing the company also worked some deal with the issuer. Here are some lessons I learned from the whole ghastly experience:

  1. Don't believe anything your broker tells you. If he knew, he'd be rich. He wouldn't be wasting his time advising a pauper like you (and me).

  2. Check everything three times. Remember it's your money. You worked hard for it. No one else cares about it.

  3. When in the slightest doubt, say no.

  4. Don't chase yield, also called "returns." Auction-rate securities offered us a trivial increase in return—less than a quarter of 1 percent. Yet the risks turned out to be gigantic. Many of us have lost our entire investment for a trivial potential increase in return.

  5. Wall Street has no crystal ball and no conscience.

  6. There is no way for a small investor (less than $50 million in assets) to ever win a fight with Wall Street. The odds are stacked against you. I could write a book.

  7. If you ever do get into a fight with Wall Street, know that the squeaky wheel gets the most attention.

  8. The worst thing ...

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