The Secrets of Successful Investing
The Widow and the Wall Street Sharpies
What happened next was not pretty. At some point in the late winter, the riverboat gambler side of the widow’s brother reared its ugly head and he saw a bargain. He bought stocks for himself—and the widow—in a company called New Century Financial.
In the March 11, 2007 edition of The New York Times, Gretchen Morgenson wrote:
On March 1, a Wall Street analyst at Bear Stearns wrote a surprisingly upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.
At the beginning of April, New Century Financial filed for Chapter 11. As of this writing, the widow’s $375,000 fund is down to $217,000. Her brother’s wife is secretly slipping her money to help pay for groceries and an occasional hairdo.
The story does not end there.
Even Losers Are Big Winners
Bear Stearns—the giant investment banker that upgraded New Century back on March 1—saw two of its mortgage-related hedge funds tank. The result was a multibillion loss to investors, whereupon the company’s stock tanked, dropping 27% in 2007. The co-president of Bear Stearns, Warren Spector—the person most responsible for this investment catastrophe in subprime mortgages—was fired. In his August 8 story in TheStreet.com, Brett Arends wrote:
And every investor who has watched the [Bear Stearns] stock collapse from more than $172 to just $117.78 in a few months is probably kicking himself for not selling at least some back at the peak, before the crisis hit.
Four savvy investors did just that.
Step forward, Alan Greenberg, Sam Molinaro, James Cayne and Warren Spector.
Who are they?
Top honchos at … Bear Stearns. (Or they were: Spector has now left in a management shake-up. The others remain.)