Comments on: Don’t Panic! http://www.marialanger.com/2008/10/12/dont-panic/ Web site and blog for Maria Langer, freelance writer, commercial helicopter pilot, and serious amateur photographer Mon, 15 Mar 2010 12:42:06 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Michael Rowe http://www.marialanger.com/2008/10/12/dont-panic/#comment-119309 Michael Rowe Sun, 12 Oct 2008 21:34:26 +0000 http://www.marialanger.com/2008/10/12/dont-panic/#comment-119309 What a great post. It is amazing to me to see how many people just don't get it. My favorite was someone who had a ton of T-Bills, and said, I am very concerned about the market, I think I need to divest the T-Bills and go into a mutual fund for safety. Can you believe that? The basic there is the exact opposite. The safest investment (and for the most part the least return) is T-Bills. But if you've already ridden the ride down on stocks, selling at the bottom is the worst thing you can do. I went to a session last week at Duke University, before the bail out passed, with an incredible panel. I posted the detailed notes ("<a href="http://www.michaelrowe01.com/Site/Random_Thoughts/Entries/2008/10/1_Duke_-_The_Financial_Crisis%2C_What%E2%80%99s_Next.html" title="here" rel="nofollow">Duke, The Financial Crisis, What's Next?</a>"). The scariest part was the discussion on Marked to Market accounting, and how the SEC was being pressured to remove this function. Removing Marked to Market accounting would remove any reality in the value of a company, thereby making your statement on the value of GM even worse. Right now, Marked to Market account means that an asset is worth what the market would pay for it right now. With the current housing bubble burst, that means the value of your house is what you can sell it for, not the value of the loan. Same is the case for GM in the above example. GM is worth what it would take to buy up all of it's stock, which should be the value of all of it's assets. Now realistically GM is probably undervalued, meaning that if you sold off all the pieces of GM, after buying up all the current stock, you would have a profit. This was the theory behind all the corporate raiders in the 1980's. <em>Michael Rowe´s last blog post: <a href="http://www.michaelrowe01.com/Site/Random_Thoughts/Entries/2008/10/7_Carbon_Footprint_of_Search.html" rel="nofollow">Carbon Footprint of Search</a></em> What a great post. It is amazing to me to see how many people just don’t get it. My favorite was someone who had a ton of T-Bills, and said, I am very concerned about the market, I think I need to divest the T-Bills and go into a mutual fund for safety. Can you believe that? The basic there is the exact opposite. The safest investment (and for the most part the least return) is T-Bills. But if you’ve already ridden the ride down on stocks, selling at the bottom is the worst thing you can do.

I went to a session last week at Duke University, before the bail out passed, with an incredible panel. I posted the detailed notes (“Duke, The Financial Crisis, What’s Next?“). The scariest part was the discussion on Marked to Market accounting, and how the SEC was being pressured to remove this function. Removing Marked to Market accounting would remove any reality in the value of a company, thereby making your statement on the value of GM even worse. Right now, Marked to Market account means that an asset is worth what the market would pay for it right now. With the current housing bubble burst, that means the value of your house is what you can sell it for, not the value of the loan. Same is the case for GM in the above example. GM is worth what it would take to buy up all of it’s stock, which should be the value of all of it’s assets.

Now realistically GM is probably undervalued, meaning that if you sold off all the pieces of GM, after buying up all the current stock, you would have a profit. This was the theory behind all the corporate raiders in the 1980’s.

Michael Rowe´s last blog post: Carbon Footprint of Search

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