Everyone always loves to say “do your own research before purchase”, “make sure to do your own due diligence” or “this is just for informational purposes, not to recommendation to buy or sell” and garbage like that. People are clearly reading investing opinion pieces because they can’t reach their own conclusions, and are prepared to defer to someone they feel is more knowledgeable. The disclaimer is just a cop-out to avoid blame if things hit the fan.
With that in mind, I’ve been happy to write about pretty much anything on this blog, and am equally open with thoughts and ideas about investing to my real life friends and family.
After reading about Lending Club, my best friend and I went 50/50 on a $500 investment. We discussed all the available loans, would send back and forth loan options to fund, and after we’d loaned out the $500, all the loans were doing very well. We’d originally planned to re-invest the proceed, but instead we borrowed more from Lending Club to re-invest (leveraging my friend’s great credit rating since I didn’t have any American credit at the time). Another $2500 in and we were collecting loan proceeds to pay off our debt (and Mr. Cheap was feeling like a tycoon).
Then our first “post Christmas” crash hit, a bunch of our loans went into delinquency, and eventually bankruptcy. Our money has broke even (with the high interest loans JUST covering those who have been defaulting), and our hope is to break even or at least have a bit of our originally $500 left when we pay off the loan we took out.
More recently, in the middle of the sub-prime shakedown, Washington Mutual was yielding over 10%. I talked to my friend about how I love dividend stocks, how stable banks are, and how much they value investors’ long term confidence in their ability to pay dividends. Trusting my judgement, my friend bought in to WaMu at over $30. The stock prompt started nose diving. Partly because I wanted to share her pain, and partly because I honestly thought it was unwarranted pessimism, I bought it myself at $21, buying on margin (which wasn’t terribly smart since I’m not working right now and will have a very low income when I’m back at school). Neither of us invested more than we could lose, but it really sucked when they started saying they’re going to cut their dividend by 2/3rds (I can forgive a low stock price, but if you cut your dividend you’re dead to Mr. Cheap).
Recently when I was talking to my friend I expressed my amazement that she’d still listen to me babble about money since the only thing I seem to be able to do is lose it for her. “Experience is a great teacher but she’s a costly one” rings in my mind, and more and more I see the wisdom of not providing specific financial advice to people you care about. Talking about the thoughts and philosophies are fine, but making specific recommendations just sucks if they don’t work out (and there’s always a risk they won’t).
Of course, do your own due diligence and acquire your own experiences before following any of my advice ;-). A wussy, garbage cop-out, but perhaps a wise one.
Mr. Cheap, You continue to have my utmost respect because you seem to be willing to try just about anything on the investment side and you crack me up while doing it. So as I’m reading this, I was certainly going to quote some piece of your article to illustrate my point, but there were around 5. I settled on this one: “if you cut your dividend you?re dead to Mr. Cheap.” 🙂
On investment advice to friends and relatives, I certainly shy away from recommendations, but I’m in a profession that pulls toward friends and relatives asking for advice anyway, so after sheer exhaustion from sweating about that advice, the last thing I want is to add another realm of responsibility for others’ problems. So, my advice, subject to disclaimer, is take the “wussy, garbage cop-out” approach. (
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I always wondered why bloggers bothered to put a disclaimer – on the one hand it’s good to let readers know that they shouldn’t blindly follow your advice, on the other hand what are the consequences if they did follow a bloggers advice and lost money? I don’t see any.
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The disclaimer thing is funny – I do it just for the what if scenario. You never know if someone starts to see you as an advisor and then it comes back to haunt you – pessimistic I know!
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great post
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I add the disclaimer partly because I am brainwashed to do so by my firm for my work website. They are convinced (and have me convinced) that if you write anything, DON’T put the disclaimer, and someone goes out and acts on your writing and then subsequently loses money – they may have legal recourse.
While in most cases one would hope it would get laughed out of court, just the hassle of showing up, preparing documentation, building a case, etc. is enough that I would rather err on the side of caution.
Disclaimer: I am not a lawyer, you should seek your own professional legal counsel before taking this advice. Heck, you should seek your own professional english teacher’s advice before even attempting to read this comment.
😛
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HA! nice one.
The moment I heard about that prosper.com site I knew it was something I’d never buy into, god knows THAT didn’t need a disclaimer…lending money to people who are probably low on it because they’re bad with money?! ha! I learned that the hard way lending a couple hundred to a friend in Uni…though when I did finally get $ back our dollar was much much stronger.
That being said, when I started investing I did make some more-than-spec buys. Practically cause I thought the name sounded promising.
Silly moves are the best to learn from.
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I’m not too keen on Prosper – nothing wrong with it but I get my fixed income fix thru XSB (iShares short term bond ETF).
Please note that I am not an investment professional, lawyer, or accountant and I don’t own shares nor do I have any affiliation with Prosper or iShares.
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Cute post, Mr. C.
Hmm. Fixed income fix eh, Mike? Has a nice ring to it. Say it five times fast.
I was momentarily considering buying a bunch of XSB, and suing you when it went down 12 cents, but you foiled my plans by putting in your disclaimer.
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Fecundity – that line “fixed income fix” was the only reason I even left that comment…. 🙂
Mike
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I think there might be a difference between blogs like this one which attract people with a bit of common sense (and me) and some of the high-traffic US moneyblogs, which walk a line between advice site and personal blog, and sometimes seem to attract some awfully naive sounding commenters. I would probably want a disclaimer if I was the top google result for “save $10,000” or something.
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Very true Guinness, our commenters (including you) are a “cut above” in my opinion.
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Wow I feel for you and your friend with the MaMu deal….
The disclaimers are necessary but obviously there will still always be those who get lazy and trust us crazy bloggers opinions…
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The timing of this post was rather funny. Friday night I had dinner with friends from the US and my one friend was telling me about his (very) recent experiences with Prosper. I wonder how bad his “post Christmas crash” experience will be. Still, I’m curious.
What kind of interest rates did you PAY on Prosper? That’s the part that kind of confuses me. Couldn’t you find a better rate somewhere else rather than using Prosper to borrow?
Also, what types of credit ratings did you loan to? I would think if I ever lended on Prosper I would stick to B or better credit ratings but they definitely aren’t sure things either.
I have a strange addiction to reading proposals on Prosper. I’m constantly floored at how idiotic people can be when it comes to credit. So many of these people are looking for money to help pay off high interest debt on numerous credit cards but rarely mention their plans to stop using those cards once the debt is paid off. Many of them are likely shopping addicts.
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Interesting comment Telly – I didn’t catch the part where they borrowed from Prosper as well as lending to…seems a bit odd.
Mike
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Telly & Mike: B+ would be a good policy. We got a loan at 8.5%, we tried to loan out to C+s who are paying 16%+. I got greedy and ventured into some D’s that looked good. We avoided people with bankruptcies or with delinquent payments (but that didn’t help much).
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