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Wall Street Steward Blog

Reader Questions - January 2011

When this blog was launched in November 2010, I said that if any readers had questions they wanted a straight answer to, for them to contact me via e-mail and ask away.

It is possible that I did not know exactly what I was getting myself into, because I have received dozens of questions already. Instead of discontinuing the Q&A, I am going to make it a monthly feature on the blog. This is the January 2011 version.

Not all questions can be answered. If the question involves a specific investment or your personal financial situation, a phone call is a better medium for us to use.


What is the best way to break into the financial services business?
-Shawn M.

DON’T. Find another profession. If you are dead-set on it, keep reading…..

Although I cannot claim to know the best way, the route that I took worked pretty well. I recommend contacting the largest firms on Wall Street (Merrill Lynch, Morgan Stanley Smith Barney, UBS, etc.) and volunteering to be an UN-PAID intern. The reason is that it will prove to the firm that you are serious and that you are hungry, and what better place to learn the ropes than inside one of the largest firms on Wall Street?

Once assigned to an advisor, make a deal with him/her. In exchange for you busting your tail all week for them, you would like 1 hour per week to sit down with them and ask them questions about the business so that you can learn.

Don’t have the guts to ask that? Find another profession.

Most advisors will feel flattered and should agree to help you…find one of those.

The MOST important thing is not what you learn about the financial business, but rather learning IF you are the type of person that can handle the financial business. If so, GREAT! If not, at least you found that out early on in the process and there is still plenty of time to go read tea leaves. Not that there is anything wrong with…….nevermind.


How often should I re-balance my 401(k)?
-Katie S.

This is a personal preference type of answer but here goes: every 2 years.

The whole point of a diversified portfolio is that when certain investments perform poorly, then the other investments should perform well enough to reduce the “ups” and “downs.” This is assuming that all of the investments represent different asset classes and different styles.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification DOES NOT ensure against market risk.

That being said, there are times when a certain investment style will remain strong for a long period of time and if a portfolio is rebalanced constantly, then it is effectively selling an investment that is doing well to buy one that is performing poorly – TOO OFTEN.

Let the winners run. If the portfolio gets way out of whack, then re-evaluate.

I would say at MOST, re-balance every year…I prefer every other year.


{insert company here} had trouble, filed for bankruptcy, and the stock went to zero. How is it that they were able to re-issue new stock and it is doing well and has value?
-Tom M.

Tough question. When a company has serious issues – a pile of debt, bad contracts, poorly made products, etc., it usually starts losing money and eventually this can lead to the company filing for Chapter 11 bankruptcy protection.

However, bankruptcy is not always a bad move for a COMPANY….it allows them to wipe away their debt, reorganize, and essentially start over. This is exactly what many companies do, and with the help of a clean balance sheet, no debt, and an accommodative federal government, some companies are able to emerge from bankruptcy.

Bankruptcy is almost always bad for the STOCKHOLDER. The reason is that the common stockholder is the last person in line for the proceeds of the liquidation of the assets. They are behind the bond holders, creditors, employees of the company, the IRS, and the preferred stock holders. Usually they get nothing and their stock is declared worthless.

When a company emerges from Chapter 11, they usually are not the same company. Yes, they still make cars/airplanes/computers/etc. but they no longer have the huge debt and the other issues. Sometimes, they literally become a different company by changing the name of the “old company” to something like “XYZ Liquidation Company.” This new company then issues stock, and it starts trading again.

If you have further questions about this, please visit this link:

When Companies Go Bankrupt


When evaluating a company’s stock, shouldn’t I just watch what the insiders of the company are doing with their shares? I mean, if the CEO is selling shares, he/she probably knows that the stock is going to go down, right?
-Don T.

NO. Insider buys and sells CAN be a valuable tool to evaluating the direction of a stock price, but in most cases, it means nothing. Merely “noise.”

Insiders have to file a form with the SEC if they plan to buy or sell any of their own company stock and they are given a specific time frame in which to execute their trades.

Furthermore, usually the officers own so much company stock, that they may be just slowly reducing their holdings for diversification purposes. It DOES NOT mean they think the stock is going down.

For example, in mid-November 2010, Bill Gates sold approximately $155 million of his company stock at prices between $25.72-$25.87. Bill’s net worth is estimated to be $53 Billion, and it is estimated that he still owns 620 million shares of his company stock.

Observation #1: Bill sold less than 1% of his shares
Observation #2: The stock is currently trading at almost $28
Observation #3: Bill cost himself about $12 million by selling early

Oops. Meaningless information as it relates to the stock price. If you sold shares of that same company today, you would be selling at a better price than the founder of the company!

Thank you for reading, and please send in one of your own questions. You might just see your question end up in a future post!

Creative Commons License photo credit: Micky.!