Beating Broke

Personal Finance from the Broke Perspective

Archives for September 2008

Should WalMart have Bought WaMu?

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Finance Junkie at Pluggedinfinance had a pretty good idea.  Why not allow WalMart to bail out one of these failed banks?

I think it’s a splendid idea.  I like WalMart.  I disagree with the arguement that WalMart puts mom and pops out of business.  I think that WalMart makes life better for a pretty large number of people.  And I, for one, would be excited to see what they would do to the banking industry should they enter the market.

So, why not let WalMart buy a bank?  I’m sure they’ve got the capital.  And they have the will and ability to pull a bank out of the hot water.

I wonder who needs to be contacted to get this moving?

WaMu Fails, Gets Bought in the Same Day

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Earlier today, banking giant WaMu, was put into a conservatorship by the U.S. Treasury.  That’s a nice way of saying that the bank was failing and failing fast.  I’m of the opinion that if they can’t handle their money very well and fail, then let them fail.  Sure it disrupts things, but that’s the American way.  Or it was.  Now we just print/mint more money to bail these businesses out and off they go.  How come nobody bailed out Enron?  And don’t tell me it was because of the fraud stuff going on.  You should note that several other institutions that have “failed” and been put into a conservatorship recently were announced as being under investigation for fraud.

That’s neither here nor there though.

Later this evening, it was announced that WaMu was being bought by another financial giant, JPMorgan Chase.  What we are now seeing is a consolidation of many of the failed banks.  It’s the cycle of business life.  Businesses near failure and get bought.  Or fail.  Some just slip into the ether and are never heard of again.  But if this continues, we’ll only have three or four major banking businesses around.  Not exactly horrible, but it makes it pretty hard if you dislike a couple of them.

With a bailout looming for the economy (with money freshly minted from thin air) we might begin seeing a turn around.  I kind of doubt it however.  The Government doesn’t have the 700B that Paulson says it will take to bailout the economy so they’ll weaken the dollar to nearly nothing by doing it.  Sure, it’ll weaken if they don’t, but we can’t just go around making money as we go.

Dollar-Cost Averaging

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Let me start by saying that investing is risky business.  You should consult a professional for professional advice before doing any investing.  I’m a hobbyist, not a professional.

What exactly is dollar-cost averaging?

Dollar-cost averaging is a method of long-term investing.  By buying stocks in smaller chunks over time, the amount you pay for the stocks will balance itself out to an average.  So, in an example, if you were to buy 1 share of Microsoft for $50, then another share for $40, your dollar-cost average price per share would be $45.  So if the shares go back up to $50, you would be making money by selling.  Obviously, this is normally on a much larger scale.  Think 10s, 100s and 1000s of shares.

Another example.  If I buy 50 shares of Microsoft stock at $50 and then the stock market tanks.  Suddenly, my 50 shares of MSFT are only worth $25 each.  That hurts.  The stock is still strong, but the market is poor.  I decide to buy more.  This time, I can buy 100 shares for the same amount as before.  Now, I own 150 shares of Microsoft and my total cost is 50@$50 and 100@$25.  My cost per share is dollar-cost averaged down to $33.33 each.  The stock only has to gain $8 for me to break even, and anything beyond that is gains. (note that I’m not including anything as far as fees.  Those will vary)

In troubled economic times, many people often overlook the benefits of dollar-cost averaging and participate in the mass hysteria.  If, instead, investors would take advantage of the opportunity, they could find themselves the recipients of a handsome profit when the market returns to it’s normal levels.  That, of course, is if it returns to it’s normal levels.  Which it most likely will.