Jackson avoids personal wealth loss

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Published: January 26,2009

So far, so good. Investors in the capital city of Mississippi seem to be avoiding the personal wealth loss affecting other Southern cities, particularly Birmingham, Ala., and Memphis, Tenn.

“The housing crisis evaporated an estimated $7 trillion of wealth across the United States,” said Stacey Wall, CEO of Pinnacle Trust, a wealth management firm in Ridgeland. “Combine that with an almost $5-trillion loss last year in the stock market, the worst collapse in 77 years. The only other time Americans have lost that much wealth in such a short period of time would have been during the Great Depression.”

Still, added Wall, Mississippians have fared better than most around the country because the decline in housing prices has been less severe at home than in many other areas.

Jeremy Chalmers, a Philadelphia attorney specializing in financial matters, said he’s not surprised to hear about reports of losses in Memphis and Birmingham because “as you know, Regions is based in Birmingham and Morgan Keegan is based in Memphis. After Regions acquired Morgan Keegan, millions of dollars of were directed to the RMK bond funds managed by Jim Kelso. The funds have lost over 90 percent of their value. This was money that investors were led to believe was as safe as a CD. In many cases it appears the brokers believed the same thing.”

Chalmers, who has filed cases on behalf of Morgan Keegan bondholder investors, was quick to add, “I don’t think all investors who lost money in the stock market are entitled to a recovery through litigation. However, investors who believe that they were misled about the risk associated with certain investments may want to take a closer look. The RMK bond funds failed because Mr. Kelso invested in the riskiest tranches of securities offered.”

Even though Morgan Keegan had a significant presence in Jackson, Chalmers said he has not seen the same degree of destruction.

“I don’t know if all the Morgan Keegan brokers in Jackson bought the (Kelso) story hook, line and sinker,” he mused. “Or perhaps it’s attributable to WorldCom, after which folks around here either don’t have anything left to invest or are so gun shy everything is in ‘T’ bills. Then again, I don’t know if there are investors who lost money and simply haven’t done anything about it yet. You don’t hear about everyone who’s a victim in these cases. They’re typically more pro-conservative, pro-tort reform — and have never sued anybody. They may accept the loss as part of the risk associated with the investment.” (By press time, calls to Regions’ Mississippi office had not been returned.)

Jackson-based Wealth Management’s Roger Muns, a chartered financial analyst and a certified public accountant who recently presided over the CFA Society of Mississippi, cautioned Jackson investors about ways to minimize personal wealth loss during the economic downturn.

“Investing using borrowed funds will magnify your losses or gains,” he said. “Instead, investing under a written investment policy will help you in troubled times. The policy defines the asset allocation targets and ranges of exposure to volatile equities and less volatile bonds. Diversification will not prevent losses in severe market conditions.”

In the last five quarters with few exceptions, all equities styles fell in value, Muns said.

“When equity markets are expected to perform poorly, you should over weight bonds (or cash),” he said. “Using what I call a normal asset allocation, during the recession years 2000 through 2002, a 70 percent allocation to bonds and 30 percent allocation to equities would produce positive returns in each year. Today’s recession is the worst since the Great Depression, and no investor can escape losses in these market conditions.”

Logan Flatt, CFA, an investment manager from Dallas, Texas, told PowerWealth.com, “It’s tough being a millionaire in the United States today. After all, a million bucks doesn’t buy as much as it used to. Our famous millionaire forefathers like J.P. Morgan, H.L. Hunt and J. Paul Getty had it so much better. They lived in the best of times for the U.S. dollar.”

Contact MBJ contributing writer Lynne W. Jeter at Lynne.Jeter@gmail.com.

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One Response to “Jackson avoids personal wealth loss”

  1. James Morgan - Puritan Financial Advisor Says:

    Then again, I don’t know if there are investors who lost money and simply haven’t done anything about it yet. You don’t hear about everyone who’s a victim in these cases.

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