A Millionaire’s Secret To A Good Life

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[The Financial Meltdown]

In the 1980’s I was a Market Maker at the American Stock Exchange.

While there I noticed some things about the Members of the American Stock Exchange, who retained their wealth and did not blow it on drugs, drinking or women. It was mostly married individuals, with children, who invested their money wisely.

Most noteworthy, were Orthodox Jews. For them G-d and family came first.

The people with the best balance of family, religion and financial integrity, were those individuals with a net worth of approximately $2 million. More than this and money itself became a god. (More of this later.)

Obviously the money individuals earned on Wall Street in the 1980’s is not comparable to the sums earned now. The difference is a factor of 10.

Back then traders thought that the first asset, and the most important, was a house. Most individuals purchased a house in a decent area- with good schools. Of course many individuals sent their children to private schools- especially Orthodox schools (Yeshivas); but if one lived in the suburbs the public schools could be excellent.

The traders who lived in Queens, Brooklyn or Staten Island, would purchase a two family home. This was usually so that a parent could live with them- and make certain that the children were taken to school and then after school and back home safely.

The homes would be purchased almost always with a fixed rate 20 year mortgage. Individuals, who earned their money on Wall Street, knew that interest rates could vary widely and did not trust variable rate mortgages.

After the purchase of a home there was always the question of what should be done if one had a good year. The wise individuals would usually prepay their mortgages, that is, they would keep their mortgage payments constant- but make an extra payment to reduce the principal of the mortgage and thus, pay off their mortgage at a faster rate. This was true because the interest rate on a mortgage was usually more than the interest rate one could obtain by investing the money elsewhere. But there was one more important factor. When a Wall Street professional goes broke, and it frequently occurs, no one goes after his house. Why? Because no one would do business with a clearing firm or brokerage house that was willing to throw children out on the street.

Money would always be invested in the clearing account. But this was not always necessary. Professional market makers have astounding leverage and the amount of capital necessary was only the net balance in the trading account at the end of the day- and any deficiency could be borrowed from the clearing broker.

The next investment, at least for members of the American Stock Exchange, was to purchase a seat. Frequently, if one were a trader, the clearing house would purchase a seat at a fixed rate of interest. If the seat declined in value by 25%, the seat owner would be obliged to make a payment to reflect the decrease in value of the asset. (It is more complicated, but this is a simple way to view the purchase of an asset.) A seat could also be used as collateral for trading.

After this an individual would purchase stocks- individual stocks and mutual funds. I have known too many Wall Street professionals, who lost their money by investing in one or two stocks. And even their seats on the American Stock Exchange by purchasing stocks on margin.

If your net worth had increased to perhaps $5 million, the smart individuals invested their money by owning a mixture of treasury notes and bonds as well as state and municipal bonds in addition to stocks. No one tried to pick the best time to invest. Investments were made on a regular basis and were consistent.

But most members, at least those with a brain, knew that the most important asset in which they could invest was their children and a good education.

It was usually those members, who had too much money and power that lived unhappy lives.

I knew someone; we will name him "Al" who was worth $20 million. But his two children were drug addicts and eventually had criminal records. Who in God’s name would want $20 million and two children, who were drug addicts? This man deserved better, but he had spoiled his two sons.

That is the problem with too much money. You believe that you can purchase anything. And in the end like former chairman and CEO of Bear Stearns Jim Cayne and his counterpart at Lehman Brothers, Dick Fuld, you are hated by everyone once your net worth sinks.


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