Friday, September 12, 2008
The litigious society that we are, it wouldn't be surprising if contractor Adam Freid of Thousand Oaks, California ends up with something to show for his Freddie Mac stock pick that went horribly wrong when the U.S. government stepped in to take over the mortgage giants and, in the process, wiped out most shareholders.
As discussed in this Wall Street Journal report, his sons' education is riding on it.
Adam Freid, a general contractor in Thousand Oaks, Calif., says he was through day-trading stocks and instead looking for a promising long-term investment when he read some of Henry Paulson's recent comments about Fannie Mae and Freddie Mac.One can only imagine the particulars surrounding this story - a general contractor in Southern California where home prices are falling faster than they went up a few years back and, given his most recent gamble, the future complainant's perhaps shocking reversal of fortune since the housing bubble burst.
The Treasury secretary's assurances that the government-sponsored mortgage companies would raise more capital gave Mr. Freid the impression that a government takeover wouldn't be necessary. So he bought approximately 25,000 Freddie Mac common shares last week at about $5 each. "After reading that, I said, 'I'm going to buy this stock. It's been beaten up, but it will go up over time,' " Mr. Freid says.
Now he says he is out more than $100,000 -- money that he was saving for his two young sons' college education. He is also talking to a lawyer about a class-action lawsuit against Freddie Mac, which angry investors say offered no hint of what was to come when announcing earnings last month. "I'm completely distraught," Mr. Freid says.
Most investors are aware that stock investing carries risks and that share prices can collapse if the business fails. Yet in the case of Fannie Mae and Freddie Mac, there are unusually loud cries from individual investors who can't understand how they got the short end of the stick.
You can never be sure.
But, one thing you can be sure of today in the U.S., if somebody's got to get the short end of the stick, it will certainly be "the little guy".