Paying Bills a Challenge for Rich Too

The Donald Ducks Debt

As a hedge fund manager, I deal with wealthy individuals all day long. And although many of my clients boast multimillion-dollar net worths, you'd never know it from their modest lifestyles and plain-spoken ways. Many of these people mow their own lawns, fix their own cars and do their own laundry. They live well within their means and carry no debt whatsoever. Wealthy? Yes. Flashy? Not so much.

On the opposite end of the spectrum is Donald Trump, whose brash TV persona and penchant for publicity have turned him into a cottage industry of his own in recent years. In 2006, after an author claimed Trump wasn't really a billionaire but merely a multimillionaire, Trump sued for defamation.

Trump's bravado wouldn't be so tiresome if his business accomplishments actually lived up to the hype. In recent weeks, there have been several indications Trump is having some difficulty meeting his obligations.

As reported by Crain's Chicago Business,  Deutsche Bank (DB) is suing Trump, seeking to collect a $40 million personal guarantee made on his 92-story Chicago high-rise. Trump has claimed the credit crisis is an extraordinary event that would permit a loan extension. Try that one out the next time you're late paying your MasterCard (MA) bill.

Stumped by Trump

* Trump Entertainment (TRMP) – 1 year

Also dodging its debt is Trump Entertainment Resorts (TRMP), which will skip a $53.1 million interest payment scheduled for Monday. Donald Trump is the company's non-executive chairman and largest shareholder. Shares closed Friday at 31 cents.

Reputation is every businessman's biggest asset. Rather than simply reminding the public of how successful he is, Trump might be better served by demonstrating his business acumen by simply meeting his debt obligations.

Those of far more modest means seem to be able to accomplish that task. Why not Trump?

On the Shelf

Published in 1931, Philip Carret's "The Art of Speculation" is a brilliant and timeless take on mastering the investment game across bull and bear markets alike. Carret's thoughtful insights are as useful in trading Raytheon (RTN) today as they were in trading Remington-Rand during the Great Depression.

Among the highlights are Carret's "Twelve Commandments for Speculators," many of which would have undoubtedly saved countless portfolios over the past 11 or so months:

#1 Never hold fewer than 10 different securities covering five different fields of business.

#2 At least once in six months reappraise every security held.

#3 Keep at least half the total fund in income-producing securities.

#4 Consider yield the least important factor in analyzing any stock.

#5 Be quick to take losses, reluctant to take profits.

#6 Never put more than 25% of a given fund into securities about which detailed information is not readily and regularly available.

#7 Avoid "inside information" as you would the plague.

#8 Seek facts diligently, advice never.

#9 Ignore mechanical formulas for valuing securities.

#10 When stocks are high, money rates rising, business prosperous, at least half a given fund should be placed in short-term bonds.

#11 Borrow money sparingly and only when stocks are low, money rates are low or falling, and business depressed.

#12 Set aside a moderate proportion of available funds for the purchase of long-term options on promising companies whenever available.