When I was eleven and living in Canada, I used to take the Toronto Subway to the Canadian National Exposition to ride the rides and enjoy the fun midway games. One day I decided to use some money I had earned from mowing lawns to try and win a stuffed animal. One of the concession people showed me how easy it was to throw the baseball into the little bushel basket for the win. It looked so easy when he did it.
After trying unsuccessfully a couple of times I finally hit two in a row and won not just one but two beautiful stuffed fish. In my young entrepreneurial mind I quickly calculated the value of the stuffed animals against the two dollars I had spent winning them. It seemed to me with some new signage on my existing lemonade stand I could quickly convert it to a stuffed animal resale business. My excitement was encouraged by the
Expo worker who assured me I had a real talent for the game and could certainly clean them out if I kept playing.
Let me just say that after spending another five dollars of my own, then borrowing five more from my brother, I went home dejected with my two very expensive fish. I learned then that being greedy could ruin an otherwise good experience.
The two dangerous emotions that often drive the stock market are fear and greed. If investors allows these emotions to take hold they may find themselves selling when things are cheap and buying when they are expensive. It is the curse of the investor that even though our mind often knows what’s best, our emotions can be very powerful.
Clever salesmen can use these emotions against you and encourage you to do things that may not be in your best interest. When greed is present people will make hasty and poorly thought out decisions. Modern technology has made it easy for scammers to bring a plethora of questionable offerings right into our homes.
Criminals have become very good at disguising their online schemes to look innocent and sincere, but one constant remains as a bright red flag. In almost every case, fear or greed are the lures they use to draw people in, but if you pay attention to your feelings it can be quite easy to tell when something just isn’t right. If a person or advertisement is appealing to your greed, or playing on your fears, put up your defenses.
Learn a lesson from my experience at the Canadian Expo. If you find yourself tempted to make a financial decision based on fear or greed, pack up your fish and go home.
A visitor to my office this week commented that I must really hate it when the stock market is down. I explained to him that there are many different areas of investing and the stock market was just one of them. In fact, among my client base as a whole, the stock market accounts for only about a third of our total investments.
With the Parade of Homes in town this week I think it is appropriate to remind people that real estate can also be a valuable investment tool. I first became interested in real estate as a teenager when I was reading a financial journal about the nation’s wealthiest individuals. After listing all the various ways they made money, in their professions, businesses or otherwise, it went on to say that the largest portion of their wealth was obtained through owning real estate.
Early in my career I met with a man who owned a chain of drug stores. I asked him about the profits from such a venture to which he responded that his retail businesses were only there to pay the payments on the real estate, but that it was the real estate in which the stores were housed that created his true wealth. I have since found the same attitude among many other successful business people who use their businesses as a way to acquire more real estate, which is their main asset.
Most average investors are not aware of the various ways to own and profit from real estate. They think of the three terrible “T’s” of rental properties, Tenants, Taxes and Toilets, and want no part of it. They are not aware of the many ways through which regular investors can share ownership in some of the finest real estate in the world without ever having to lift a finger.
My 15-year-old son has invested his own earnings in some of these projects. One day we drove past a very large and successful business and I said, “Do you realize you own part of that building, and as that store makes money and pays rent, part of it comes to you.” He was fascinated.
I feel that an allocation of commercial real estate is important. While stocks have been struggling over the past year, REITS have been a viable diversification tool. It is a shame so few people know how to take advantage of this opportunity.
As you admire the beautiful homes in this year’s parade, give some thought to adding a real estate portion to your own investments. If you think all is gloomy in the investing world, it is likely because you just don’t know where to look.
Who will win the Super Bowl? According to a report by Risesmart, the city with the lowest unemployment rate has won the game 74% of the time. Since the unemployment rate in Denver is currently the lowest in 15 years, and the last time Denver won the Super Bowl 17 years ago its jobless rate stood at 2.9%, it looks like we have our winner.
Of course this report comes as really bad news for investors based on the Super Bowl Indicator which states that if an AFC team wins the big game, the stock market will be down for the year. This predictor is 81% accurate so it looks like by the end of the game today, Denver fans will be celebrating while investors will be mourning.
The challenge of statistics in a world full of numbers is to distinguish between those that have value and those that do not. As is often stated by statisticians, correlation does not equal causation. Just because two things happen at the same time does not mean that one caused the other. I was looking at a graph showing a direct correlation between the divorce rate in the state of Maine, and the national consumption of margarine.
It seems that the more margarine we eat, the more people get divorced. Some might argue that margarine versus butter consumption is directly related to family income. It could then be surmised that an increase in margarine use correlates to deteriorating family finances, which could actually increase divorce rates. Hmm, we may have something here.
Moving on to my next graph I see a direct correlation between the number of people who drowned in swimming pools with the number of films Nicholas Cage appeared in that year. Are his films really that bad?
Wall Street analysts often use statistics to prove relationships. Some can be pretty impressive while others seem questionable. Take for example the current market conditions that have the price of oil and the U.S. stock markets moving in almost lockstep. As a result, we are hearing experts pointing to the correlation and blaming one on the other. Some are saying that if you want to know where the stock market is going, follow oil. The problem is that this correlation is only a new phenomenon. I have reviewed the numbers and can find no historical evidence for a true correlation between the two. In this situation I usually remind people that stock and oil prices will continue to be correlated, until they aren’t.
Statistics, graphs and predictors are wonderful tools, but like all tools, need to be used by a skilled craftsman. My favorite college course was statistics, largely because it taught me to always question what those graphs were trying to tell me.
As for the Super Bowl Indicator, I suppose it will accurately predict the stock market, until it doesn’t. And the city with the lowest unemployment rate will win the super bowl, until they don’t. But just to be safe – go Carolina. Sorry people, but clients before football.
Retirees like to assemble a bucket list of things they want to do before they leave this life. During my seminar this week I talked about some of the special people I have known during my career, and the lessons I learned from them. Some stories are sad and some happy, but all provide useful lessons as we plan our own bucket lists.
Agnes was a penny pincher who lived in a small apartment. She dreamed of travel but refused to, insisting she couldn’t afford it. She was generally an unhappy lady, living in constant fear of just about everything including her money not lasting. I encouraged her to enjoy life a little and do some of the things she dreamed of but her response was always, “I can’t afford it.” No one, including her own family, would have ever imagined that she was worth millions.
Evelyn was as bright as they come, full of energy and a love for life. She loved her family and used her abundant resources to spend time with them and bless their lives. She had learned that money was not happiness, but it helped her create happy moments for herself and others. Investing was her lifelong hobby. When she came by she would open several large binders and carefully review every position. She was an informed investor but not a worrier. One day she asked me about a new company she was excited about,
saying that in about ten years she was sure they would dominate their industry. “Do you think I should buy it?” she asked. I just smiled as I said, “Evelyn, do you realize you are 93 years old?”
Ben was such a dear friend. He was a brilliant investor, but when he retired he turned it over to me and said he was going to go play. And play he did. From Caribbean islands to exotic European cities, Ben saw it all. Every few months he would stop by, tanned as could be, to check on his investments before heading off to cross another item off his bucket list.
My last meeting with Ben was a very sober one. He told me he was dying. As we talked about his life and his great adventures his tone softened as he confessed how very unhappy he had been. He told me the things that had mattered most to him in his youth, his family and faith, he had abandoned, and despite all his attempts to find happiness through playing, happiness eluded him. He longed for a little more time to try and make his life right. Unfortunately, he died two weeks later.
What is on your bucket list? Is it aligned with your “Values” list? As a financial advisor I spend a lot of time encouraging people to enjoy their money rather than just hoarding more of it. I have learned from so many friends that money can be a wonderful tool, but like any tool, it has no value if not used, and it’s real value depends on the hands that use it.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 1173 S. 250 W. Suite 505, St. George, UT 84770.
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