Working Wounded Blog: Earned Money or Found Money?

Did investors really earn their recent stock market gains?

Sept. 26, 2007 — -- OK, last week was good for my portfolio. And except for all you bears and shortsellers out there, it was probably good for yours too.

Far be it from me, especially after the turbulence of the last few months in the stock market, to rain on anyone's parade. Then again, I'm a columnist, so rainmaking is part of my DNA and job description.

Here is my question: Did we "earn" the stock market gains of this past week or were they based on a unique, and mostly unrepeatable, set of circumstances? This is a very important workplace question because it potentially casts a big shadow over your portfolio. But it's also a question that has ramifications back where you work, not just for your investments.

As always, let me tell you a story to illustrate this distinction.

A number of years ago, I was running a startup. We had a small and uncertain revenue stream, so I kept things small, very small. One-person small. But our trend line looked good and we were poised for growth. (You'll notice that even as a one-person shop, we never use "I" or "me." Welcome to the land of trying to look bigger than you are, otherwise known as entrepreneurship 101.)

We negotiated a big contract with a publisher to create a series of instructional videotapes. After trading exclusive distribution rights to an existing award-winning video, they gave us a lucrative six-figure deal, which was roughly double the money that we needed to actually create the new videos.

So we did what any good capitalist would do with a bulging bank account. We hired new staff. Two and a half, to be exact.

A year later, we learned an important lesson, just before I laid off all the staff. Not all revenue is the same. There is revenue that is ongoing as a result of operations, aka the good kind. Then there are one-time cash flows that aren't replicable. This other kind of money isn't evil, heck it's still green. It's only a problem when you confuse it with the ongoing type.

This story came to mind this week. Because the reason that the Fed swooped in with a big rate cut was precisely because the economy was starting to falter. The faltering housing market, rising energy prices, etc. In short, the Fed rode to the rescue precisely because there were problems.

I understand that many investors are heartened by the Fed's desire to keep a lid on potential problems by freeing up cash to a very tight credit market. But the big point to me is that all the problems still exist. The only thing that has changed is that we now know that the Fed is ready to ride to the rescue.

Don't get me wrong. I have a picture of Ben Bernanke right next to my bed. I want him to be successful, insanely successful. It's just important to not confuse the Band-Aid with the wound, something that I fear many of us are doing right now.

Quote of the Week

"Money is something you've got to make in case you don't die." -- Max Asnas

Book Excerpt of the Week

"The Power Years" by Ken Dychtwald and Kadlec (Wiley, 2005)

"In our live-for-today society, many of us tend to satisfy our current appetites and pay little regard to our future needs or to the way we'd like to live and feel a few years down the road. If we gave more thought to the financial requirements of our future, the balance between today and tomorrow would shift, and while we might have a little less spare cash today, we'd wind up having a lot more tomorrow."

Bob Rosner is a best-selling author, an internationally syndicated columnist, popular speaker and a recent addition to the community of bloggers. He welcomes your comments at bob@workingwounded.com.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.