The sad story of American Home Mortgage

Last week, I lost $14,000 in the stock market. I didn’t do anything wrong—it was just a bad few days. Still, $14,000…. I pick up pennies from the sidewalk. If someone gave me $14,000 to actually spend, I would be stumped.

I gain and lose money all the time in the stock market (I surely lost several thousand more today), but I don’t normally track my investments. I simply look at my monthly statements, groan or smile, and file them away.

My investment style is a combination of whatever looks good at a particular time (I buy but seldom sell), and my desire to protect Peggy from volatility. When we got into the market, she worried about how I would react to losing money, but I soon realized that she was more grieved by it than I. She interpreted every up as a fluke and every down as the start of Great Depression II. I accepted both as normal, and held to the belief that, over time, the market would go up more than it went down. The worst down we saw was 40%, and that was okay. It wasn’t something to sneeze at, but it wasn’t tragic either.

My first thought upon investing in stocks was to buy low and sell high. Everyone thinks that, only it’s harder than it looks—a bit liking throwing rocks at darting night birds. That’s why I mostly stopped selling, that and the tax liability.

Over the years, I felt like I should study investing more, but the subject didn’t interest me so I kept putting it off in favor of work that I could stand back and look at. Things like remodeling projects. In the last month, I’ve been making up for lost time. The main thing I’ve learned is that even knowledgeable investors have trouble making a significant amount of money in the market (although losing a significant amount is easy enough). Finding a way to beat the market is like finding a cure for the common cold. If scientists can cure a rare cancer, surely they can cure a common cold, or so it would seem, but after decades of work and millions of dollars, colds remain defiant. This gives my market studies a dismal air because, there being no one to tell me what will work, I might do really well, or….

The impetus to today’s sell-off was the fall of American Home Mortgage Corporation. This evening, I saw a graph of its demise that was updated every five minutes throughout the day. A year ago, AHM was selling for $36 a share. Today, it opened at $10.47. At 2:00, it was still at $10.47. By 3:00, it was $1.14. Picture that graph. First, a long horizontal line. Then a sharply descending vertical line. Then a slightly wobbly horizontal line. Then nothing. Like a heart monitor on a dying man.

Imagine that you woke up this morning in Houston or Milwaukee, and went to your job at AHM expecting an ordinary day, and then top management announced to Wall Street that bankruptcy was looming. Bang! By mid-afternoon you’re out of your job and possibly your savings. That’s drama. I once heard about an economist who was so moved by graphs that he sometimes cried. I can see that now, and it makes studying the market a lot more interesting.