The Entrepreneurial Investor

The headlines would have you believe that a AIG, Bank of America, and other Wall Street titans decide the economy's fate.

Imagine this scenario: in the not-too distant future a man is cryogenically preserved until a cure can be found for his terminal disease. Before freezing himself, the man invests all of his money in real estate and stock market index funds. 200 years later, the defrosted man receives a pill that cures his disease...

Those who resolve to learn from past financial mistakes will be entering 2009 with a great deal of caution. 2008 was an epic year for the discovery of errors among regulators and financial institutions of all sorts, including money managers, investment banks, traditional banks, and insurance companies. When gigantic, well-established companies like Washington Mutual, AIG, Citigroup, Lehman Brothers, Bear Stearns, Fannie Mae, and Freddie Mac collapse within a matter of months, we know that mistakes have been made.

What a year. Some say we are facing the greatest economic crisis in a century, but the situation is so complex, no one can really be sure. Some predict another Great Depression. Others warn of the potential for hyper-inflation as the Federal Reserve's printing presses shift into overdrive.

...and some days the bear eats you.This saying represents an old western philosophy that fate is fickle, life has its ups and downs - you win some and you lose some. Ultimately, how you manage life’s travails determines whether you win in the long run, and the long run is what matters.

Congress learned from the Great Depression that allowing banks to enter the investment business risked destabilizing them. In 1933 the Glass-Steagall act prohibited bank holding companies from owning other types of financial services, asking banks to stick to banking business only. But 66 years later the lesson was forgotten, and in 1999 this provision was repealed.

Audiences loved the knife-fight scene in Butch Cassidy and the
Sundance Kid (1969,Campanile Productions).Smooth-talking
Butch Cassidy faces huge,ugly Harvey Logan,who holds a
gigantic Bowie knife.Butch says the fight cannot start until he
and Harvey agree on the rules.

Any experienced investor knows that no one can predict the
future. Nevertheless, one should try to imagine many possible
futures. Such mental agility helps an entrepreneurial investor
develop contingency plans, as contingencies are the reality of
every tomorrow.

Entrepreneurial investors have a low tolerance for broad generalizations and so-called “conventional wisdom.”The frequent and sometimes fanatical debate over the pros and cons of dividends perfectly illustrates the reasons for our disgust with the passionately argued nonsense that so often passes for investment advice.

Do you remember your first summer job? In retrospect,it's easy to see that summer employment builds character,reinforces social skills,and helps teach the value of a dollar. It's hard to not benefit from the experience,but the additional lessons gained from entrepreneurialism can mean the difference between long-term financial uncertainty and personal independence.

Foreclosure filings and bank repossessions have been surging,and some predict that as thousands of adjustable mortgages reset to higher rates in May and June,banks and borrowers will face unprecedented pressures.

We may be witnessing a worldwide economic shift of historic proportions. In the second half of the twentieth century, America's industrial and manufacturing economy evolved into an information and service economy. Today,a new source of wealth and productivity appears to be emerging:the eco-economy.

Last month we mentioned that the sub-prime mortgage collapse left many banks scrambling to meet minimum capitalization requirements. Some stopped issuing loans to refill their coffers. Others managed to get large infusions of cash.

For the past few months,America's subprime mortgage drama has dominated the news,but its threat to the overall economy puzzles some people.

Do Investors Have the Stomach for Post-Modern Volatility

Volatility is Not Necessarily Evil

Why company visits still matter.

Five tools that help us find new investment ideas

Are populist political winds blowing toward higher taxes for investors

Ten Signs of a Strong Company

Five arguments for a concentrated portfolio

WCAM visits Berkshire Hathaway’s annual meeting in Omaha, Nebraska.

Wall Street Lingo: Why "priced for perfection" is a bad thing.

Long-term probabilities help us understand when “too soon to tell” is not too soon to act.