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Let me say this about that.

I am often amazed by how little most folks actually know about how things work in their lives.  I don’t necessarily mean physical things like refrigerators, thermostats, or cell phones.  I mean institutions like banks, insurance companies and the stock market.

I know a number of guys who claim success investing in the stock market, but when pressed, display a pathetic lack of knowledge as to how the whole thing works.  This lack of knowledge can often fool people into thinking they are making money, when in fact, they aren’t – or at least not as much as they think.

Say for example, John wants to invest $1,000 in “BloJo Inc”, a $10 stock listed on the New York Stock Exchange.  He calls his broker to handle the transaction and is charged a 3% ($30) commission – resulting in an actual purchase of 97 shares, or $970 of “BloJo” stock.  Three months later…    John’s broker tells him he is going to sell the stock at $10.50 per share for a total of $1018.50 and make him a profit of 5%.  He also charges John a 3% commission for the stock sale totalling $30.56.  Since the sale took place within one year of the purchase, John must pay federal ‘ordinary income’ tax on his profit ($1018.56 – $970 = $48.56) of  $17.00.  But wait, John lives in Atlanta and must also pay a 6% state income tax of $2.91

John will tell you he has earned a 5% profit on his investment.  But he has paid $60.56 in commissions and $19.91 in taxes – all of which results in a $61.91 or 6.2% LOSS !!  John is a dumbass, but he’s not alone.

Take another activity aimed at the intellectually challenged Americans – casino gambling.  Last year, U.S. casinos took in nearly $100,000,000,000 in revenue – that’s $100 billion American gamblers wagered on a long term mathematical IMPOSSIBILITY  !!  That’s right.  Casinos only allow games to be played in their establishments that make it mathematically impossible to win in the long run.  Sure, you might win on a single roll of the dice, but if you continue long enough, it is impossible to win.  So, what do you call a group of people that spends $100 billion per year on a guaranteed loosing proposition?  That’s right – dumbass.

Probably the most misunderstood “necessity” in American life is term life insurance.  Insurance companies spend millions in advertising telling you that no American family should go without the “protection” of term life insurance.  It’s the worst investment you can make – short of the ‘investment’ you might make at the casino.  The cost of term life insurance is determined by a number of factors – age, health, family medical history – even education levels and socio-economic status.  Insurance companies use “actuary tables” that take all these facts into account and predict the most probable date of your death. For example, the tables show that a male my age, in perfect health, can expect to live an additional 17.44 years.  The cost for me to buy term life insurance would be calculated to assure the insurance company gets a tidy profit, even if I live the full 17.44 years.  If I die earlier, the insurance company’s loss is mathematically offset by guys who live longer than 17.44 years.  You are better off putting the premiums in a CD. People who believe term life insurance is a sound investment could be characterized by the term – dumbass.

The old saying that “A fool and his money are soon parted”  certainly applies to the average U.S. citizen.  It is regrettable because most of us could avoid giving our money away simply by paying attention and ‘doing the math’.  I don’t hold out much hope that a great awakening is going to occur in America, however, simply because the fastest growing segment of American society is – dumbass.

And, that’s all I have to say about that.

Shambo