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This rule is actually a bit more complicated than some of the others.

First, I need to define what I mean by “bad deals”. I’ll start with myself. You need to know that I’m quite conservative. I save money. I have money markets, CDs, savings accounts. Interest rates are low right now. It’s a BAD DEAL.

Other people invest differently. Some people buy gold. Some people who buy gold think that gold is being manipulated to the downside. There is an entire internet culture of conspiracy theorists who spin tales around gold. If the price of gold is being “suppressed” as they say then for them it’s their own personal BAD DEAL.

Then there’s gambling. All investing, whether we like it or not, has an element of gambling about it. Some people complain about the odds. The house always wins. Just once, they’d like to pull the lever and walk away a winner. They don’t. They just complain because it’s a BAD DEAL.

Complaining about bad deals is actually a complex, maladaptive sort of pattern. It goes like this: 1. You have a preconceived view of how the world ought to work. 2. The world doesn’t work the way you think it should. 3. You complain about that. 4. You feed your own frustration and anger. 5. You try to get others frustrated and angry. 6. You get more and more angry if they don’t agree with you. 7. In extreme cases, this can lead to criminal behavior.

There are a number of alternatives along this path, places where you can branch off before you become criminally insane. That’s the “Instead…” part of this rule. I wasn’t going to put that in the title; but I thought it was too important to leave out. You can’t just tell people not to do something. You need to offer an alternative. Now, this is not the only alternative; but when it comes to investing I believe it’s the most imporant. What is it?

FIGURE OUT HOW TO GET ON THE OTHER SIDE OF THE DEAL!!!

Oh, man. How many people never make that leap of logic? Let’s go back to the three examples.

First, my own personal case. Lots of money in a savings account earning diddly-squat interest. I could join the chorus of Federal Reserve bashers, or I could take on some risk in the stock market. I had “cash on the sidelines” in my trading account, and that’s what got me back to break even (in fact, as of this writing I’m in the black a little). At this point, I feel like I have enough in the market. Yes, I’d like to see my cash investments earning more; but I’m not complaining. The returns I’m giving up are paying for the peace of mind that comes from knowing the investments are insured and will not decrease. There is no point in complaining about the low interest rates. I can’t change them. Even if I joined some kind of political movement that had “Make the Fed raise rates” as its objective, it would probably never change anything. Not only would I be out the lost interest, I’d be out my time and whatever money I gave to the organization. Not worth it. No point getting angry. It’s a bad deal, but I DON’T COMPLAIN ABOUT BAD DEALS. I either get on the other side, or if I can’t get on the other side, or have already put enough money on the other side, then I stop thinking about it. At least, I stop thinking about it until it’s time to rebalance the portfolio. The point is not to take bad deals lying down. It’s to do the best you can with a bad deal, and then move on with life.

OK, next the goldbugs. Many of these guys are classic complainers. They actually do have a political movement, led by Ron Paul and a host of newsletter guys. Let’s throw in Peter Schiff, Alex Jones, and that wierd New Age guy who made that movie Zeitgeist. These guys want to abolish the Fed and replace it with a gold standard. As you might be able to tell from the tone of my writing, I think this would be the bonehead move of the century. In fact, I do my own share of complaining about what idiots these guys are, and I admit that I have my own little unhealthy problem with this. I know that I can’t change their opinions. However, the mere fact that people were out there saying so much about gold got me thinking. What did I do? I traded in and out of gold on the way up. I never had a huge chunk of my portfolio in gold. I’m not, and never will be a “True Believer” in precious metal investments for the long term. You see what I did though? There was all this interest in the metal, a bunch of people who are advocating something that I believe would be a disaster for the economy. Yes, I complained; but then I said, “maybe they have a point, but even if they don’t a lot of people are following them and that will cause their investments to rise”. I GOT ON THE OTHER SIDE OF THE DEAL. I consider it only a partial victory though, because I still complain about these people sometimes.

Finally, there’s gambling. A lot of people gamble. Everybody knows the odds favor the house. That’s the first thought. A natural second thought is, “which games are least stacked against me?”. Plenty of gamblers make this leap. The next leap, the one that many fail to make (by now you should be able to guess) is, HOW CAN I BECOME THE HOUSE? Yes. Call me what you will, but the dumb money goes to Vegas. The smart money is running stock screens to see which gaming companies are the best buy. Smarter yet, you can ask yourself what the worst possible game is, and how to get on the other side of it. The lottery is commonly cited as the game with the worst odds. It’s run by the government, so you’d think you couldn’t get on the other side. Au contraire! Now you have to make even more leaps. Learn about the lottery. Where does the money go? Did you know that the convenience stores get a cut of the winnings in many states? Some lotteries earmark funds for specific purposes, such as education. When lotteries were first passed in many states, a lot of people probably wanted to know what the odds were on the tickets. There were probably fewer people asking where the money would go, and how it would transfer from public into private hands. Government money tends to find its way into private hands. Performing such an analysis may or may not have led you to any investing opportunities. The market may have performed this analysis before you did, and priced lottery revenues into the share prices of convenience store operators or educational providers. Performing the analysis would still have been useful. It’s a good exercise.

These are just a few examples. I’ve also applied this way of thinking to options recently. You say that put is too expensive? I say it’s not expensive enough! You see a bad deal? Don’t complain about bad deals. Instead… get on the other side.

Just one final note, which really ought to go without saying. There are some bad deals you don’t want to get on the other side of. If International Baby Mulcher takes your offspring, owning stock in it will probably not assuage your grief. In other words, you don’t want to invest in something that goes so radicly against your beliefs that you start to feel guilty. Your beliefs may change, but they shouldn’t change for the sake of earning money.

Who isn’t affected by the financial crisis? The man who has no posessions. Somewhere, there are people living apart from Wall Street, with no money in the bank. Somewhere in a jungle, or on an island, natives gather coconuts and fish. Life goes on.

Of course, I’m not a native. I’m a participant in this thing they call “the economy”. It’s hard not to get down about it. Some people try to do something about it. You’ve got people literally running out and buying gold and “squirrleing it away” in their safes or under the mattresses and shit like that. Of course, somebody could break into their house and steal it. Some people answer that with “I’ll buy guns and ammo”. You know, the easiest way to get shot is to carry a gun. Then, not only will they take your gold, they’ll take your life too.

So, with the economy on the skids, and me not wanting to sell out at a bottom, what am I buying? What can I buy that can’t be stolen. What can I buy that won’t make me a target?

When I hit publish on this piece, maybe I’ll climb into the car and head to the coast again like I do sometimes. One time last week I did that, and it was sunny. There I was gliding up the Highway, with the hills on my right and that Pacific on my left. The Sun shining off that water and it was real gold that nobody owns or controls. And I was reminded of that other bit of scripture, about the beautiful river that flows from the throne of God. Except it wasn’t a river, it was a whole ocean. God’s gift to man. There for the taking; but without posession, trade, or conflict.

And they can take all my stocks, bonds, cash and physical posessions and they can even kill me–but the sea breeze and the golden sunlight shine in my mind forever. Where neither moth nor rust doth corrupt.

Now, here is what a real depression looks like:

Now, I try to imagine this having happened at the WaMu in dowtown Redwood City, and it looks nothing like this. First, the WaMu is surrounded by Redwoods and palm trees. The sun is shining all the friggin time. Aside from that, we have the FDIC. That doesn’t stop people from withdrawing funds. Waiting for a check from FDIC is not comforting, even though the check has never failed. There’s a first time for everything.

Another reason we don’t see scenes like this has to do with technology. In cyberspace, Bailey has no place to give speeches while people make electronic transfers out of their accounts. That’s exactly what I did last Friday.

I do most of my banking with Navy Federal Credit Union. I used to say, “If Navy Federal fails, we’ve got bigger problems”. Well, we’ve already got big problems. So. Friday, I distributed some of my life savings out of NFCU. No point having all my eggs in one basket. I took some of those eggs and put them in a local bank, of all places. It turns out that local banks are actually doing OK, since they make local loans and they didn’t all succumb to the frenzy of the subprime nonsense.

While we were waiting for the account to process, the clerk told me an interesting story that happened in Antioch, CA–a far flung East Bay subburb about half way to Stockton. It seems that in a certain cul-de-sac, almost all the neighbors got in over their head with bad loans. A certain person on this cul-de-sac, with the cash to do it, offered to re-fi or purchase and rent back the homes to these people. They all got to stay in their homes. The cul-de-sac is presumeably green, neatly trimmed, and well taken care of; unlike other areas which are peppered with the distinctive brown lawns and sherrif’s notices of foreclosure. The bailout artist is already pulling in a nice rental income, and will probably come out way ahead in the long run.

It just goes to show, crisis breeds opportunity.