Declaring Independence From an Irresponsible Era

That greatest of American holidays is upon us yet again: On the Fourth of July we gather as families and as a nation to celebrate this unique experiment of government of the people, by the people and for the people. There will be backyard barbecues and boat rides aplenty to celebrate the achievements of the founding fathers and all the generations that followed. Flags will proudly be displayed and fireworks will dominate the evening skies as we mark the occasion of the 233rd birthday of the founding of the United States of America.

But swirling in the hickory- and hamburger-scented smoke and subtracting a little from the grandeur of the pyrotechnic displays is the knowledge that we are at a critical point in the grand experiment. The credit crisis has produced a deep recession and incredible amounts of wealth have been decimated in just two years. Many of our most cherished beliefs about investing have been destroyed along with our cash.

Most Americans totally accepted that real estate always went up. After all, as Will Rogers pointed out to us they aren't making anymore. Buy and hold always worked in the stock market because U.S. industry always innovated, adapted and overcame obstacles. Those long-held ideals have turned out to be just another marketing ploy to sell houses and mutual funds.

As a nation, we lost our way. We became a get-it-now society. Concepts like hard work, prudence and thrift went right out the window. It was just too easy to make money shuffling around pieces of paper. Want a new boat? Refinance the house and take out some equity. Trip to Bora Bora? Put it on the credit card and pay it off with next year's stock profits.

It was not just Wall Street, although it certainly can take a fair share of the blame. Those firms never could have produced the toxic mountains of paper if the large investment funds had not reached so far for higher returns. The funds would not have stretched if investors did not demand that their advisers be in the top deciles each and every quarter of the year.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.