Nov 29 2008

All’s Well That Ends Well

“There is no royal road to anything.  One thing at a time, all things in succession.  That which grows fast withers as rapidly; that which grows slowly endures.”  – J.G. Holland

 

A friend and fellow CeFiMS alum recently made me aware of a Viewpoint published on BBC News by Sir Evelyn de Rothchild.  The perspective of Sir Evelyn is one that has formed from living an amazing life in a world that only the most accomplished and privileged ever experience first hand.  He has also been in the game long enough to qualify his observations and recommendations at this critical juncture.  I strongly suggest you read his Calls for Action and make special note of what he says about oversight, modern executives and the reality of our predicament.

 

It’s amazing to consider that thanks to the Internet we have easy and rapid access to information on just about everything – but so much of it is exaggerated or filtered rubbish.   In fact, it is nearly impossible to know what to believe much of the time.  I suspect that beginning with the earliest European corporations of the 17th Century, exagerations and inaccuracies have been used to raise capital and keep investors in the dark.  There have been countless laws enacted over the decades in every country to thwart the unscrupulous.  Recently, after the MCI-WorldCom and Enron scandals, the U.S. enacted the Sarbanes-Oxley Act of 2002 to address accounting accuracy and transparency among other things.  Unfortunately it apparently didn’t adequately address valuations, leverage, credit derivatives, and age-old greed at any cost.  So needless to say, we still have a great deal of work to do.  If you are not a Wall Street insider and would like a flavor of what was actually going on before the crash, read The Autumn of the I-Banker from New York Magazine.  You will be shocked and stupefied!

 

Finally, I received a letter from Charles Widger, Chairman & CEO of Brinker Capital.  I don’t know if Mr. Widger knows what he is talking about (I hope he does because his firm has some of my hard-earned money), but he believes now is a good time to consider your options.  According to Mr. Widger, “Historically, the stock market bottoms about one year into a recession caused by financial panics and well ahead of economic recovery.  Assuming recessionary slow growth began in the fourth quarter of 2007, the U.S. stock market should begin recovering in the first half of 2009.”  Let us all hope and pray that past observations are relevant in this case.  Happy Thanksgiving!    

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Nov 24 2008

Never too late to make it right

“In their heyday, fund managers would go to ideas dinners at the best restaurants in New York and London and persuade one another to make the same investments.  Those excluded from the dinners would peer at the SEC filings of the smarter among them and copy their trades, eliminating the advantages the more intelligent investors had in the first place.” – Jesse Eisinger

 

Halleluiah!!!  The U.S. presidential election is over and whether or not you like the outcome at least maybe now we can get on with other pressing matters.  Let us hope and pray that our new president will be up to the task because there isn’t much that doesn’t need to be repaired!  When I first decided to start my own blog, my intention was to focus on financial and economic information that readers committed to prudent personal finance would find useful.  Unfortunately, recent developments have forced me to recognize that much of what we were taught or innately believed about the global financial markets and the economy in general was incomplete – at best.  In fact, even Alan Greenspan acknowledged under questioning that he was mistaken in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions (see Greenspan Denies Blame for US Crisis, Admits Flaw).  So for the time being I will mostly limit my recommendations on how to invest.  It is certainly a good time to spend less than you bring in and build a significant cash position.  There are most definitely great investment opportunities out there, but it is still a better idea to have an adequate cushion and then to pay down any debt before you invest in such an unstable and uncertain environment.

 

Now for my soapbox.  We have all been a little too enamored with the financal wizards that make shiploads of money without producing anything of tangible value for many decades now.  I suppose this is largely because we believed the system was working for the most part and we were benefitting from it as our investments increased in value.  Now it is apparent that many of these same wizards actually contributed to the current crisis and now suddenly we don’t like them so much.

 

If we look at this situation from a sanguine perspective it could just be the the wake-up call we all needed.  Too many people around the globe have been caught up in taking whatever they could get regardless of the financial smoke and mirrors involved in getting it.  If you want to gamble, go to Las Vegas, but for those of us that wish to earn a decent living by providing a valuable product or service and then invest in other companies or enterprises that do the same in order to profit long term from the value being generated, we should be able to do this too.

 

I will gladly invest my money in worthwhile investments but the people I deal with and all that touch my hard-earned money for that matter need to understand the the meaning of fiduciary relationship.  They simply need to pick up a copy of Black’s Law Dictionary which defines a fiduciary relationship as, “one founded on trust or confidence reposed by one person in the integrity and fidelity of another.”  A fiduciary should feel the ultimate sense of responsibility for a client’s money – well above his or her own personal gain.  One final thought: W. Edwards Deming said, “Profit in business comes from repeat customers, customers that boast about your project or service, and that bring friends with them.”  We all need to consider this very carefully!

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