Wikinvest Wire

Sorry about that college money boys

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.

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.
IMAGENow 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.
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.

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".

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Anonymous said...

This guy is too stupid for sympathy.

His kids' educations could have been covered by the 125K. If he was worried about inflation, a couple CD's would've been prudent.

But his kids did get the education they needed: "Don't put all your eggs in one basket." Along with "My dad is an idiot."

Anonymous said...

Sad thing too, is that with $125,000 today, and his kids being, what, 5-ish, he doesn't really need a home-run investment strategy to save for their education.

Dan said...

I'm confused, a day-trader and a general contractor? It seems to me that this fella is using his kids to add a tug to the ol' heart strings when he tells his story.

Anonymous said...

I would hardly classify someone with $125,000 to gamble on a penny stock as "the little guy".

Anonymous said...

This guys story aside, it really is unbelievable that Paulson, and the management of both Freddie and Fannie were busy saying everything was okay just a month ago. Somewhere there should be accountability for such misrepresentation.

Anonymous said...

Thanks for a great story - and picture to boot. I wondered who the idiots were taking the other side of those trades. Now I know.

Little guy??? Taking a $125k position in one stock isn't so little. Surely the story doesn't mean to imply that was his only investment. hahahahaha

Tim said...

There are lots of unanswered questions here. Was it really his kids' college fund or was it just a few percent of his assets available for investment?

My guess is it's the former, but either way, it was a bonehead move.

Anonymous said...

None of you get it. Since 1938, Fannie Mae has been portrayed as Government backed company. Which has made the entire country feeling safe about the company.

Additionally, they offer the opportunities for people to invest money and earn 8.25% with that belief that the Governement was backing them. But what happens, the Government steps in and wipes out every taxpayer savings and decides that they will be paid 10% interest per year for helping out Fannie Mae. In the past week, I have watched "retiree's" get lose their savings because they were told by the banks, "it's a great investment".

For those who mock and laugh at this guy who felt he was doing right for his family, better take a look at their next 401K statment and see how you will be effected. Oh by they way, not only will American's lose alot of money from this, we will also be left to pay for it.

I just want to say a sarcastic " thank you" to our government for pulling out the rug from underneath us again.

P.S the Super Super Super Rich were not effected by this.

Scott said...

Anonymous said it best. The lesson is "My dad is an idiot". He has
not being paying attention

little larry sellers said...

The people I feel sorry for are those who invest in commodities and "real" assets because the fundamentals are so terrible everywhere else, yet still take a beating because our government can't stop lying and manipulating. We now face a global bear market where the only thing doing well at the moment is the US dollar, which is absurd.

Sorry anon 4:34, but I cannot muster any sympathy for Mr Fried. Anyone who still believes what Paulson says is a glutton for punishment.

Anonymous said...

Easy come, easy go. Quick bucks as a contractor, quickly lost in the markets. Who cares? Why is this guy special? Why is this news?

Anonymous said...

Great, so now us taxpayers have to cover stupid stock speculators in addition to stupid home speculators? Let's just socialize everything. Nobody will have to work, except for the guy running the printing press.

Anonymous said...

Paulson is the one that vouched for the companies and then he took them under. there should be some accountability but there won't be.

dearieme said...

On risk and return:-
If you don't need the return, don't take the risk.

Anonymous said...

Most of the comments about this situation are absolutely stupid. The Federal regulator overseeing Fannie Mae and Freddie Mac said both firms were adequately financed just several days before they were taken over. .The CEO said the same thing. I would have to assume the outside auditors and directors felt the same way. However MorganStanley came in over last weekend and determined that in essence Fannie Mae and Fredie Mac had cooked the books, They classified as good assets billions of dollars of worthless future tax credits.There is no question that this is totally wrong in contect of the situation. I bought Preferred Stock of Fannie Mae on May 13th 2008 that was classified as AA rated by the rating agencies. In less than four months they are now almost worthless. This is as bad as Enron. I hope someone starts a class action suit as I will be glad to join.I agree with most comments about being a litigious society however when there is fraud or cooking the books I am all for it.This is another Ennon in my opinion.

staghounds said...

Funny, no one ever complains when the stock they bought goes up a lot.

He could have bought ten pounds of gold and buried it in the yard for fifteen years. Or done one of those tuition savings things.

Eric said...

Class action lawsuit against who...
You might as well sue the neighbor's dog

Anonymous said...

My hunch is that this guy did not have $100K sitting in a 529 savings plan for his kids. That's just the cover story. He sucked the money out of his HELOC and thought he could make a quick buck to "finance his kids education" and pay back the money. You read about this same thing from time to time when someone buys $100k in lottery tickets. This dummy does not deserve any sympathy at all. His kids are going to wind up getting the best education possible though: seeing what a dumb a** dad is with money will encourage them to learn more about finance and economics.

Anonymous said...

Let's focus on Mr. Freid, his history with his business dealings. Then maybe we will get to the bottom of this. This bit of wanting & doing everything for his 2 boys is a good touch, though. But I don't think anyone is buying it.If he was really looking out for his sons' education, then he should have left the funds alone.

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