Real Estate: Information Overload and How to Think For Yourself

Is it me or has it been just about impossible for the past several years now to go through a day without hearing or reading something about the housing market? At first, it was all about how everyone was making boatloads of money in real estate (with the implicit message that anyone not in on the action, read: renters, would get passed by in the great economic rat race), and more recently, everything has centered around the fear of housing bubbles, rising interest rates and the subprime mortgage market. Truisms that seemed to make so much sense a couple years ago (e.g. "real estate is never a bad investment because prices always go up!") have been replaced by others (e.g. "there's a giant housing bubble in our country caused by an overheated run-up in housing prices!"). With so much information overload out there, how do you separate the wheat from the chaff to figure out what is and isn't important when you're looking to buy or sell property? Some thoughts below:

1. Reject all the truisms - personal finance is by nature "personal" which means that no one truism applies to all inviduals. So, no matter how many times you hear a pundit repeat mantras like "renting is for losers", just because the message is loud and persistent, it doesn't mean that it's necessarily true for you. Remember, there's no help like self-help, and by thinking about issues actively and critically rather than letting others tell you what to do, you're more likely to make better informed decisions.


2. Don't be afraid to do the math - a lot of truisms that you'll hear on the news or read about on the Internet can be verified (or disproved) by doing a little math. For those of you who are math-phobic, there are a bunch of tools and calculators on the Internet that can help you crunch numbers. Caveat: the only problem is that some of these calculators are more reliable than others, and I could dedicate entire posts to this topic.

So, all I've told you so far is to reject everything you read and hear along with some vague notion that you should be dusting off your old Algebra books to do some math. How is that supposed to help you? Well, I admit that I certainly haven't provided any magic answers, and that's partly on purpose - I don't think there are quick and easy answers. However, I do believe that popular notions about the real estate market are rife with unjustified and oftentimes incorrect myths, mantras and exaggerations, some of which I have tried to address here and here. For now, I'll leave you with this article "What Happens When the Boom Goes Bust" from the Motley Fool, one of the rare articles about housing that I have found to be informative and well thought out:

According to the National Association of Home Builders, the average price for a new home in 1980 was $76,400. In 2005, the average was $295,100.

That's incredible! $218,700 in caaash ...
Before you get too excited thinking about investing in real estate and flipping houses, ponder this: Over a 25-year period, that $218,700 gain comes out to a 5.6% annualized return.

Think about that. If your stock investments had grown at just 5.6% annually over the past 25 years, you'd be kicking yourself. And with good reason -- during that time, the S&P 500 earned 10.3% annually -- almost double the average gains in housing....

Treat investing like you treat homeownership
During the past eight years, home prices have grown at a much faster clip, so some of you are probably accusing us of cheating. We aren't.

Instead, we're taking a long-term view -- because that's the only view that can make you super-rich.

What's a mere million
Consider that cocktail-party story about Sal from Asbury Park who made a million a few years ago flipping condos in Miami. It's a great story, and we'll go ahead and bet that bits and pieces of it are true. In fact, it might all be true.

But for every Sal from Asbury Park, there was a Jimmy from Hackensack who got in over his head and lost everything. Yeah, that happened too. That's why the subprime lending market is collapsing around HSBC (NYSE: HBC), Washington Mutual (NYSE: WM), and New Century Financial (NYSE: NEW), among others.

And even if Sal did make a million in 2003, is he set for life? Certainly not. In order to make that nest egg last, Sal can only withdraw about $40,000 per year. Our guess is that Sal wants to live better than that. So he probably kept flipping houses. Flipping and flipping until the Miami condo market came down around him. Or, if he's still holding properties, the real estate boom cycle has ended, and Sal will be lucky to eke out 5% returns over the next decade or more -- all the while servicing the debt he needed to buy those condos in the first place.

A cautionary tale
Of course, Sal's a figment of our imagination, but we invented him to make a point. One great year will not set you up for life. Even a short-lived real estate boom won't make that happen. To set yourself up for life, you need decades of good years. And the stock market is the wealth-building enterprise that has demonstrated the ability to return 10% per year for decades. In other words, buy a house for the comfort, but buy stocks for the profits.

Travel Tips from a Weary Traveler

Having spent several weeks on the road shuttling through airports and hotels, I wanted to share some travel tips that I learned along the way:

• Hotel Rewards Programs - Make sure you register for your hotel chain's rewards program when you book your hotel stay or at some point during your hotel stay (during check-in or check-out probably makes most sense). If you register for the rewards program after your hotel stay, you may not be able to get credit for your previous stay (something I learned the hard way).


• Airline Rewards Programs - Did you know that you can get airline mileage credit for flying on other airlines? So, for example, if you happen to collect all of your mileage through U.S. Airways, if you take a flight on United, you can apply your United flight mileage to your U.S. Airways frequent flyer account. Check your favored airline's website to see its specific policies.


• Getting a Better Airplane Seat - I love web check-in but find that it's hard to switch to a nicer seat online. If you have the time, even if you've done web check-in, go to one of the automated self-service machines and check-in again. You may actually be offered better seats (as has happened to me). And, of course, there's always the tried and true method of directly asking one of the airline's customer service agents.
  


• Rental Car - Before you drive off the lot, check your car to make sure all dents, scratches and other problems have been documented. Rental car agencies in big cities are busy and are happy to send you off as quickly as possible. Taking a couple minutes to inspect your car before driving away can save you the headache of filling out an incident report when you return your car and the rental agency "discovers" scratches and dents.
  


• Forget Your Toiletries? Many hotels will provide a complimentary toothbrush, toothpaste, razor and just about anything within reason. So, if you're annoyed by or can't figure out all those ridiculous TSA restrictions on what you can and cannot bring on the airplane, rest assured that you should be able to at least brush your teeth for free.


• Airport Security Screening - Save yourself a headache by packing your belt, jewelry, watch, cell phone, Blackberry, coins, etc. in your laptop bag, purse or bookbag so that you can get through the security screening with as less hassle as possible. Also, if you happen to buy a one-way ticket at the last moment at full refundable fare, be prepared to be selected for additional security screening. And, if your name is Robert Johnson or Gary Smith, you're probably screwed.
  

Why Women Love Handbags

Like most guys, I've always been confused by one of the great mysteries of the world: what's with women and their handbags? Part fashion accessory, part functional, most bags seem to accomplish neither. They're either way too big (read: suitcase) or way too small. And how is a $2000 bag with the Louis Vuitton symbol plastered all over it considered stylish instead of ostentatious free advertising?

In her book review of It's In the Bag in the Atlantic Monthly, fashion write Lynn Yaeger lends some insight into the mysterious female mind (to be fair, this applies to guys and their man-purses):

As a fashion writer (and, let’s face it, compulsive shopper), I’ve spent the last couple of decades looking at extravagantly priced handbags, trying to uncover their secrets: Why are women dragging veritable suitcases to work when their male counterparts make do with a billfold and a BlackBerry? Why does a frivolous bag like the coquettish Fendi Baguette, shaped as the name would indicate, cause a sensation while the Chanel 2005 (introduced in 1998), which looked like a high-tech pillow and prided itself on its ergonomic correctness, lay a tremendous egg? The answers, it turns out, lie far beyond considerations of practicality or even objective aesthetic appeal. (Sometimes a jolie laide bag will take off while a lovely purse languishes.) This much can be said with certainty: Handbags have nosed their way into a place once occupied almost exclusively by diamonds and fancy furs, functioning as badges of honor, announcements that you’ve arrived at a particular economic or social level, or at the very least, emblems of hopefulness, yearning, and optimism—I have the same bag as a movie star! I am someone to be reckoned with!—that can be brandished for all the world to see.

And, so therein lies the rub - it's about status. A nice purse equals high status. I suppose the guy equivalent would be cars, watches and the big-screen TV. But, with the guy items, I get why the 52 incher is better than the 40 incher or why the Porsche with the super horsepower beats out the cherry red Chevy Cavalier. But, what makes the $920 Gucci bag better than an $8 Target bag? And who can really tell if the knock-off Chinatown Prada bag isn't the real thing? Anyways, pardon me while I go check out the hot new 3 series from BMW......

Is the Value of an Ivy League Education Overrated?

What's the value of an Ivy League college education (or really, an education at any "elite" private university)? There's certainly a mystique in popular culture about the Ivy League, particularly among non-Ivy Leaguers, that goes something like this: Students at Ivy League schools are a bunch of eggheads different from you and me. With their smarts and prestigious gold-minted degrees, they are set for life as they ascend the upper echelons of power, business and wealth. Like all myths and stereotypes, there are some elements of truth shaded in this notion, but what is the true picture? Is an Ivy League college education superior to an education at State U or some other college? Looking at several objective factors as well as some anecdotal evidence below (which admittedly is not scientific), the answer to this question is a resounding MAYBE...

1. Exclusivity

There is no doubt that Ivy League schools are some of the most selective universities in the world. The acceptance rate at Harvard is around 10%. Contrast that with Texas Tech University and its almost 70% acceptance rate. So, we know that it's hard to get your foot in the door at the Ivy League schools, but what does that mean? I think all we can conclude from the low acceptance rates is that lots of high school seniors apply to Ivy League school because Ivy League schools are desirable.

2. High Caliber Students

Students who are accepted for admittance to Ivy League schools tend to be high achievers, at least from traditional metrics such as grade point averages and SAT scores. In addition, there is ever increasing pressure to demonstrate superlatives above and beyond academics, whether in the field of athletics, volunteer work or something else. So, when you put all these super achievers together, you get a great synergy (or at least in theory). From an anecdotal standpoint, this argument seems to have a lot of traction among the Ivy Leaguers I know. Smart kids, particularly smart kids who are motivated and driven, will push other smart kids to perform their best, share ideas and produce innovation. However, a fair number of the Ivy Leaguers also point out that the undergraduate experience at an Ivy League school is not all about intense intellectual debate and curiosity, and you may be surprised by what goes on within the student body - everything from stereotypical StateU-type binge drinking and partying to rampant cheating and plagiarism to a more than uncommon intellectual non-curiosity. So, while certain synergies come from putting a bunch of smart people together, does a driven high achiever excel because of the environment or is that same person going to excel no matter where he or she goes to school?

3. Cost

One negative aspect to Ivy League schools certainly has to be the price tag. The tuition, room and board at Dartmouth, for example, is currently $43,341 per year. Contrasting with Texas Tech again, the tuition, room and board for Texas residents at Texas Tech is an estimated $17,554. Assuming that the respective tuition, room and board figures remain the same over four years (highly improbable given the tuition increases at both public and private universities), we're talking about a $100,000 difference over four years between Dartmouth and Texas Tech. If a Dartmouth student finances his/her education solely through student loans, that's over $170,000 in debt by graduation. Now, imagine that the Dartmouth grad goes to a private graduate school and finances that education through debt. The $170k from college is some serious money, but now we're talking about some serious serious money! Don't think it ever happens? Check out the plight of two young married doctors with over a HALF MILLION dollars in student debt.

4. Quality of Faculty

So, maybe the Ivy League advantage comes from the quality of the faculty and classes. After all, some of that genius must rub off on the students, right? Again, my anecdotal evidence indicates no clear conclusion. The vast majority of Ivy Leaguers that the Honchos have spoken to felt that quite a few of their professors were uninterested in the teaching aspect of their jobs. What, you say - teachers who don't want to teach? Similar to any other major research university, Ivy League schools are in competition for grants and funding, and that comes from research and publishing. As such, professors are rewarded for their research and publishing efforts and not so much for teaching. Sure, the Ivy Leaguers found some gems here and there, and in some cases, had inspirational relationships with professors who became their mentors, but as a whole, many professors seemed to be distant from teaching (and rationally so, considering the reward scheme). One Ivy League alum who took classes with two different Nobel prize winners found the genius of the laureautes less than inspiring. The first Nobel laureaute missed more than half his classes while traveling back and forth between Europe to build a villa and put a graduate student in charge of teaching the course. The other Nobel laureaute refused to engage any points of view that differed from his own.

5. Connections

So, that brings us to connections, and this is where I think the Ivy League / elite private college advantage comes in. For certain industries and professions, investment banking and management consulting come to mind, it certainly appears that having the Ivy League degree is advantageous for getting one's foot in the door. Certain traditionally clubby professions such as finance are disproportionately populated by Ivy League alums. When these companies look to recruit each year, Ivy League schools are their major sources for talent. Similarly, Ivy League undergrads tend to serve as feeders to Ivy League law schools and business schools, and many white-shoe companies tend to hire a disproportionate number of recruits from the Ivy League professional schools.

But, this advantage does not seem to cross all industries or professions, including medicine, sales, entertainment, engineering, computers, accounting, sciences, etc. After all, is organic chemistry really that different at Harvard versus UCLA? Are Harvard students learning about special atoms that their counterparts in Westwood aren't? I don't think so, but then again, I never took organic chemistry.

6. Conclusion

It's hard to measure from objective standards whether there is an absolute rule as to whether it makes sense to go to a Princeton over a Penn State or vice versa. The Honchos know graduates of both fine institutions who have gone on to do great things, as well as graduates of both who aren't doing such great things. Ultimately, the decision is a matter of individual choice.

Bear Stearns Subprime Mortgage Analyst Called Out by NY Times

In today's New York Times article "Crisis Looms in Market for Mortgages", reporter Gretchen Morgenson takes a Bear Stearns subprime mortgage company analyst to task for issuing a positive report about subprime mortgage lender, New Century Financial Corporation, whose stock subsequently dropped over 75% shortly after (for you visual ones, see the Yahoo Finance chart below).

(Note: Bear Stearns had upgraded New Century's stock on March 1)

It turns out a large number of New Century's customers were defaulting on their loans, forcing New Century to stop making new loans, leaving the company in need of an emergency cash infusion from outside sources to stay in business. The article goes on to tackle the bigger issue of the $6.5 trillion mortgage securities market and how increasing lax standards for issuing loans has created greater risk for massive defaults.

So, was this just a bad read on the part of the Bear Stearns analyst or is there a bigger issue here? For whatever it's worth, it turns out that Bear Stearns finances a portion of New Century's business. Not necessarily a problem in itself as Bear Stearns, like any large investment bank, probably does business with most of the large companies in the country, but it certainly does sniff of similarities to the Dotcom boom when Wall Street analysts were pumping up stocks of companies that their investment banks had business relationships with. And we all know what happened to the Dotcom boom:

(Nasdaq)

Tax No-No: Don't Inflate Your Deductions by 6x (duh)

For those of you working on your taxes trying to figure out all of your charitable donations from the past year, keep in mind that it's probably a bad idea to try and claim deductions six times the fair value of your donation. TaxProf Blog has a post about a court case involving a Goldman Sachs investment banker who made $115k and tried to deduct $55k in used clothes donations. While the tax court found that the fair value of the clothing donation was only $9k, amazingly enough it found that the Goldman investment banker was not negligent in overestimating the value of her donation. So, how in the world do you explain $9k in used clothing? From the Tax Court's ruling:

According to [the Goldman banker], she routinely purchases designer clothing and shoes, wears the items once or twice, and then donates them to an upscale thrift shop in New York, New York.

That's terrific. My only question is how in the world she found the time to do all of this shopping, especially given the legendary hours that i-bankers are known to work.

How To Pick the Best Airplane Seats

Whether you're an aisle or window person (if you're a center seat type of person, I'd love to hear why), I recommend that you check out Seat Guru the next time you're looking to book a flight. Not every aisle or window seat is equal, and Seat Guru does a terrific job of showing where the premium seats are (and sometimes this doesn't even mean exit row seats) through a nifty layout and comment interface. Pretty much every domestic and major international airline is covered, and this includes all the different types of airplanes used in the airline's fleet. If you're one of those people who fly first class, well, you stink. I'm jealous.

Personal Finance 101 - Know Your Financial Picture

For many people including myself, spending one's limited free time on personal finances can feel like a major drag. After all, who wants to spend a beautiful weekend afternoon entering in receipts? The obvious response to this is that the more you know about your own financial situation, the more empowered you will be in making informed financial decisions for yourself and your family. I wish I had a more clever response than that, but I don't. In any case, here are some fundamental metrics to get you started on understanding your financial situation:

1) Net Worth

Net Worth = Assets - Liabilities; or in English, net worth is the overall snapshot of your financial situation -- it's where you stand when you line up all the "stuff" you have against all the money you owe.

To calculate net worth, I would recommend creating a spreadsheet or using commercial software such as Quicken or Microsoft Money. If that sounds like too much of a pain, check out NetWorthIQ, where you can figure out your net worth online.

You'll need to enter in two types of data: your assets and your liabilities. Assets are your "stuff", including all your bank accounts, retirement accounts (401k, IRA, 403b, etc.), stocks, bonds, mutual funds, cars, market value of your home if you own, value of your real estate holdings, and other personal property. "Other personal property" includes things like the diamond ring that grandma gave you, the Monet hanging over your fireplace and the Mickey Mantle rookie baseball card that your mom almost threw away when she was cleaning your room. On the liability side, you have items such as the principal amount of your mortgage, auto loans, student loans, and any other loans, along with your credit card debt and any other debts that you may have. Add up all your assets. Add up all your liabilities. Subtract the total liabilities from total assets, and you've got your net worth number.

2) Monthly Cash Flow

While net worth gives you an overall financial picture, you'll also want to take a snapshot of your monthly cash flow. That is, in a month, how much money do you bring in, and how much money goes out? Unfortunately, unless you have a photographic memory of all the Starbucks and McDonalds purchases, this is where entering in receipts comes into play if you want a completely accurate picture. If a month seems too long, try keeping track of cash flow for a week. After keeping track of your cash flow, you should be able to answer the following questions: What are my total fixed monthly costs ( e.g. rent, mortgage, utility bills, groceries) and, consequently, how much money do I need to bring in in order to meet those fixed costs? What does my discretionary spending look like? Am I saving money? If so, how can I save more?

And perhaps most important, figuring out your monthly cash flow will let you know what amount of emergency reserves you should have handy in order to meet your living expenses. A lot of experts will generally suggest having 3 to 6 months of living expenses as a rule of thumb. Those numbers sound about right, but again it depends on one's personal situation. If you're a DINK (double-income, no kids), one partner losing their job might not be as disastrous as a family with a single breadwinner who loses his or her job. If you're in an occupation where other comparable jobs are not readily available, it may make sense to have a bigger cushion of emergency reserves.

Dumb Purchases

Most of us have made dumb purchases in our lives, especially dumb impulse purchases. Here are some of mine:

1. SiPix SC-1300 Digicam

This 1.3 megapixel special was my first (and only) foray into the digital camera world. Everything worked perfectly, except for the minor inconvenience of the battery lasting for only 3 pictures (4 on the lucky days).



2. 15 shares of Cisco stock in April 2000, back when Cisco was supposed to overtake Microsoft as the biggest and baddest company in the world. My stock's stellar performance to date.

3. Clothes that are way too big for me. It took me about a decade to learn that baggy clothes generally do not look good on most people, especially me. Unless you're a rapper.

4. Too many groceries. Perhaps it's the small things in life, but few things make me happier than seeing a packed refrigerator filled with fresh produce and other goodies. The downside is that the Honchos periodically find themselves throwing away food unnecessarily either because they forgot about the food or simply overbought groceries. Worst grocery buy ever? 20 heads of cabbage for $0.99 (from a special deal as part of the grand opening of a supermarket). Needless to say, the Honchos ate a LOT of cabbage for two weeks and that was after giving away as many heads as we could:

The Problem with HGTV

We're generally fans of HGTV (the Home and Garden Television Network for those of you who do not have cable or are visiting this blog from outside the U.S.), but that isn't to say that there aren't some major problems with the network.

• It's called "Home and Garden" but where is the "Garden"? Maybe the network has some garden-related shows, but I've never seen one. Residential real estate has been booming on a national scale for the past 5+ years, so I'm not surprised that the focus is currently on "Home". Maybe when the "housing bubble" pops or deflates, we'll start to see a whole lot more gardening shows.
• Is it me or does pretty much every show on HGTV (especially House Hunters, Designed to Sell and What You Get For the Money) brim with unbridled optimism and good cheer about the housing market? If you watch HGTV, it's almost like the good times are still rolling (and will keep rolling) in the residential real estate market across the entire country. I can think of two reasons for this: (1) the housing market in the U.S. boomed for so long creating widespread popular interest in real estate, and HGTV capitalized on that interest and created shows to meet its audience. Now that the housing market has cooled significantly in many regions of the country, many of the shows on HGTV seem outdated, probably because of the time it takes to produce television shows and the lag in time from filming to broadcast and (2) it's a whole lot easier to sell advertising to the Home Depots of the world when you present a cheery disposition of the housing market, as opposed to "the sky is falling" stop-investing-in-real-estate atmosphere that has gripped many a housing market.
• All that being said, I did stumble across a show on HGTV called "Buy Me" which appears to be produced by HGTV's Canadian operations, and it's a show that I highly recommend to all of you. Normally, I wouldn't recommend that you watch a TV show as generally TV, in my opinion, can really dull the brain. However, I make an exception for "Buy Me" because it does a great job of portraying the realities AND stresses of the home selling and home buying process. Maybe it's the Canadian sense of pragmatism and earnestness, as opposed to the American unblinding optimism, that connects with me, but I think anyone who has gone through or is thinking about buying or selling a home will really relate to the individuals in the Buy Me show. First of all, the show is realistic - along with showing the champagne celebrations when deals are closed, it shows the warts of the process, including the stress and psychology of negotiations between buyer and seller. Second, unlike the U.S. HGTV shows, gasp, deals actually fall through on Buy Me, and some shows end with unhappy buyers, sellers and real estate agents. Lastly, even when deals are consummated on the show, sometimes the camera catches seller's or buyer's remorse. For all these reasons, Buy Me is a fantastic program that really strives to depict the reality of buying and selling homes, both the good and the bad.
  

Career Profile: Wall Street Equity Research Analyst

Want to know what a Equity Research analyst on Wall Street does? Me too. I had the good fortune of interviewing one of these analysts. Check out the interview below:

The Skinny

Title: Equity Research Associate
Length of time in field/profession: 4 years
Location: NYC

Details

Mr. Honcho: So, what do you do for a living?
Wall Street Guy: I work for a brokerage firm where I write research analyzing companies and forecasting stock prices.

Mr. Honcho: You're a stock picker?
Wall Street Guy: Sort of. My company manages assets for high net-worth individuals. I don't actually sell products or manage any client's particular portfolio. Rather, I research individual companies and generate investment ideas and recommendations.

Mr. Honcho: What kind of companies do you research?
Wall Street Guy: Gas utilities and specifically natural gas distribution companies.

Mr. Honcho: Why gas utilities?
Wall Street Guy: I'm interested in the energy sector, especially new developments that will help promote the conservation of natural gas. Energy is an important aspect of our economy, and at the same time, the generation of electricity accounts for 1/3 of our country's greenhouse gas production.

Mr. Honcho: What kind of skills do you need to do your job?
Wall Street Guy: Accounting and finance, particularly an understanding of financial ratios. Also, I read a lot, and careful reasoning skills are important.

Mr. Honcho: What type of education do you have? Is that where you developed the formal skills to become an equity research analyst?
Wall Street Guy: I went to an Ivy League college where I studied economics. College was helpful for developing a certain mindset, getting the background for how the economy and stock market work. For my day-to-day work, it's mainly important to be analytical - both mathematically and verbally.

Mr. Honcho: So, what do you think about the big drop in the stock market this past week?
Wall Street Guy: Well, I lost a lot on my investments, especially because I'm in a China exhange traded fund (FXI).

Mr. Honcho: Was the fall in stock prices justified or was this an aberration?
Wall Street Guy: A significant protion of the financial community thinks that stock prices have been way too high and a correction was necessary and in order. Part of how stocks trade is based on fundamentals and part is based on psychology. The high stock prices we have seen have not been justified by the fundamentals, but the prices stayed high as long as investors were optimistic.

Mr. Honcho: Do you have any predictions moving forward?
Wall Street Guy: My guess is that investors are going to wait for prices to come down further before they're ready to buy. The world economy is currently enjoying healthy growth, and continued growth is forecasted for 2007. I don't expect stock prices in China to return back to levels from before this week for at least several months.

Mr. Honcho: What do you think about the Efficient Markets Hypthosis?
Wall Street Guy: It's nonsense. The general public is on a certain playing level, but then there are the elites who are on a whole other level. The elites are elite in that they have access to all kinds of information that the general public doesn't or if they do, don't know how to use the information.

Mr. Honcho: What kind of information or resources do you have that the general public doesn't?
Wall Street Guy: The average person relies on the news to get their financial information. To be a good investor, you have to have a strong background in accounting and finance. Also, as part of an institution, I have access to all industry publications, which for my coverage area is about a dozen publications. The general public does not have access to these types of publications unless they pay top dollar. At my company, we have access to extensive databases of information that the average individual can't access unless they're willing to pay thousands of dollars a month.

Mr. Honcho: Maybe the average investor like myself doesn't have the research capabilities that you have, but what about the mutual funds that average folks can invest in? By pooling our resources with the mutual funds, don't the mutual funds even out the playing field for average folks?
Wall Street Guy: Maybe, maybe not. Most mutual fund managers are generalists - they know a little about everything.

Mr. Honcho: Why should I invest money with an asset manager or actively-managed mutual fund when I could be putting my money in an index fund or ETF?
Wall Street Guy: For the average investor, you want to go with a passive fund since most actively-managed mutual funds do not beat the market after accounting for expenses.

Mr. Honcho: Ok, last question. What do you think about last year's record Wall Street bonuses?
Wall Street Guy: Well, it reflects the M&A (mergers and acquisitions) boom, which most of my banker colleagues believe will probably continue for a while.

How To Find A Good Attorney (really!)

There are few things harder than finding a good competent attorney (some would say it's impossible; insert your favorite lawyer joke here). Unless you deal with lawyers on a frequent basis, you probably have little exposure to the legal profession. And, usually if you find yourself in the position of looking to hire a lawyer, it probably means that something bad has happened - either you're looking to sue someone or someone is suing (or worse, prosecuting) you, and you need help STAT. So, how in the world do you find a good lawyer? Here are some tips:

1. Make sure the attorney is admitted to the Bar in the state in which that lawyer practices. However, keep in mind that being a member of the Bar is by no means an indicator of the lawyer's quality - it is merely a minimum gate necessary to practicing law.
   


2. Check the lawyer's disciplinary record. Most states have public databases maintained by the states' respective supreme courts and can provide information about whether the lawyer has ever faced any disciplinary actions or sanctions.


3. Check with your network. Because law is a service profession, nothing is more important than reputation. Talk to your friends, family, business associates, etc. to get recommendations.
   


4. TV and print ads tell you little about an attorney's quality other than the fact that the attorney paid money for that advertising. Because most states have ethics rules limiting what lawyers can say in advertising, there's little that can be gleaned from those ads. That's why you never see anything more than some guy in a suit sitting in front of an imposing bookshelf of fancy-looking tomes (most of which are there for decoration as most legal research is now done online).


5. Look for the right specialist for your situation. If you're looking for a divorce attorney, it makes no sense to hire a criminal defense attorney, even if that person is the second coming of Johnny Cochran.
   


6. If all else fails and you're forced to cold-call attorneys, look for someone who appears diligent and responsive. If the attorney doesn't return messages promptly, it's probably an indicator of things to come.