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Saved by a Crash

Andrew Forsythe  |  September 23, 2020

THIS IS THE STORY of a bitter life lesson that taught me two things: the desirability of managing my own investments and the perils of putting almost all my eggs in one basket.

In the late 1980s—and early in our marriage—my wife and I were busy raising four kids, while also managing two demanding careers. Our dream was to build a beautiful house on a large wooded lot that we owned in the hills west of Austin, Texas. We had already hired an architect, who was drawing up the plans, and we expected to pay for the house from our stock portfolio.

When I graduated from law school, I was fortunate to have a few stock market investments, courtesy of my parents, who were firm believers in working hard, saving and investing. This was back before the internet, the explosion of low-cost brokerage firms and the popularity of index funds.

In those days, it was common to use a stockbroker, the old-fashioned kind who charged hefty commissions and did all the trading for you. We lived in a different city from my parents, so I needed to find a stockbroker on my own. I wasn’t sure quite where to begin. I finally decided to call up the only rich guy I knew and ask him who his broker was. The rich guy’s broker was, by all accounts, very reputable. He was a partner in a big brokerage firm, with a fancy office in a skyscraper downtown. To my inexperienced mind, he really knew his stuff.

Between the kids and my career—I was working 60 hard and stressful hours a week—I had neither the time nor the interest to worry about our investments, so I was content to have my new broker take care of them. It soon became clear that he was in love with one particular stock, a health care company called Medical Care America (MCA). Before long, about 90% of our stock portfolio was in that one stock.

Naive and preoccupied as I was, I still should’ve realized this was a problem. But I didn’t. Besides, I had this well-respected stockbroker looking out for me. What could go wrong? Our MCA stock eventually dropped almost 60% in a single day, that’s what.

I can still remember being so upset that I called our venerable broker at home on a Sunday. When I told him that we were counting on the stock to fund our dream home, and what could we do now, he replied, “Build a smaller house.”

A little late, I guess, but the lightbulb went off. I decided there and then that it was up to me to manage our investments and I would never again blindly put my trust in anyone, no matter how well regarded. I began to do my homework and, a few years later, was helped by the coming of the internet and the wealth of financial information it provided. I was also helped by the rapid growth of investment houses with low fees that were built around the idea of assisting independent, do-it-yourself investors.

I abandoned traditional brokerage firms for good and established accounts at Vanguard Group and Charles Schwab, where we’ve happily remained ever since, and where I’ve maintained a low-cost and well-diversified mix of stock and bond investments, mainly index mutual funds and exchange-traded index funds.

The collapse of MCA’s stock was a hard and bitter lesson. But my wife and I were lucky it occurred early enough in our lives for us to recover. In many ways, it was the stock crash that saved us—and turned us into independent investors. While the day may come when I’m too old and senile to manage our investments by myself, the poor soul who gets the job of helping me will have to live with a cranky old man forever looking over his or her shoulder.

Andrew Forsythe retired in 2017 after almost four decades of practicing criminal law, first as a prosecutor and then as a defense attorney. Along with his wonderful wife, kids and grandkids, he loves dogs and collecting pocketknives.

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