Launa and I were visiting about raising kids and how sometimes it seemed we were teaching the same lessons more than a few times. We wondered whether they just didn’t pay attention, didn’t want to hear what we had to say, or perhaps they did listen and did care but just had really short memories. Whatever the reason, certain themes tended to be recurring around our home. And then there were those few times when we cried out in utter amazement, “What were you thinking?” Of course, the obvious answer was that they weren’t thinking or they never would have done something so dumb. Ironically that’s exactly what I was thinking this week when some young men decided to egg the windows of my home. What were they thinking? Was it really that much fun? And, didn’t they see the security cameras recording the whole thing? I suppose their parents will soon be asking them the same questions.
One problem with being a parent is trying to keep that serious face required for these teaching moments, while at the same time remembering some of the dumb moments in your own youth.
Last week I received a call from an individual about a “fantastic” investment opportunity that is apparently moving through our area. He told me several people he knew were involved and were reporting very high returns. The deal involved highly leveraged investing in foreign currency markets. I am very suspicious of any investment that offers unreasonably high returns, and one that relies on investor testimonials throws up even bigger red flags. Even if the investment was legitimate, there are probably relatively few people for whom foreign currency trading is an appropriate investment. Certainly the investors involved have been taught to be more careful, sometimes by painful experience, but like kids, adults too can have short memories.
Since we were little kids our parents taught us there is no free lunch, yet too many keep looking for it. They taught us the road to success is paved with hard work and patience, yet many continue to seek short cuts. It seems that as soon as a “fantastic” opportunity presents itself, and as long as other people are running to get onboard, past knowledge is tossed out the window in pursuit of that golden ring. Inevitably this leads to the later question, asked in sorrow, “What was I thinking?”
If you are tempted to do something with your hard earned dollars that you know in your heart is a bad idea, regardless of how tempting it seems, even though others claim to be making huge profits, stop, take a long breath and think the matter through. Eggs can be washed off windows and many dumb mistakes are quickly forgotten, but if you lose your life savings trying to outsmart the foreign currency markets, or any other market, you may never be able to recover financially. Make the commitment to stop saying “What was I thinking?” by making the decision today to start doing your “thinking” first.
I wrote some years ago about my experience in a speech contest in junior high school. We were asked to address a world problem under the topic “Listen World.” The other day I came across a picture taken standing by my sister Liz after she had also won her division. As I looked at that photo I began reciting the opening words to her speech, which I still remember, having heard her give it many times during the several levels of the competition.
She began like this. “Listen World, and you will hear the voices of those who tell you there is something new needed to change the world. Nothing new is needed; Old fashioned honesty will do.” She then went on to lay out many of the world’s problems that would quickly disappear if people would simply speak and act the truth.
This week I attended a symposium presented by a Harvard business school professor on the many challenges facing businesses and investors. Much of the discussion in these types of meetings revolves around how to determine what is true. I found my mind drifting back to Liz’s speech from so long ago and I realized that many business and investor problems could be solved with just a little honesty.
Consider how much of our resources are consumed on security, insurance, legal bills, regulations, police, prisons, military, public assistance programs, retail products, labor costs etc., that is related to dealing with dishonesty. How much would the world save if all fraud were to suddenly disappear? Furthermore, imagine if all politicians were honest in their language, in their dealings and in the fulfillment of their jobs. What a change that would make.
Unfortunately, since my sister gave that speech I fear we have gone in the opposite direction. In many ways lying has not only increased, but often it has become expected, and even accepted as normal. The Latin expression, Caveat Emptor, or “buyer beware” is truer now than it ever was, and certainly true in the investing world I work in. It would be wonderful if we could trust what we read, what we hear, and what people do but unfortunately, that is increasingly not the case. I continue to advise people, especially seniors, to be very skeptical of the information that comes their way, especially through the internet, or unsolicited in the email box. If I do not know the source or the sender I rely upon Ronald Reagan’s phrase, “Trust but Verify,” which I have updated to “Distrust, until you verify.”
It is difficult enough for most people to analyze whether an investment opportunity is good or not. It is made more difficult when you don’t know if you can trust your information. My sister was right. A little honesty would truly change the world. Since that doesn’t seem to be happening, be very careful in all your financial matters. I suspect that the problem will only continue to get worse, especially when it relates to your money.
We all have times when we must decide if we are going to follow a particular plan we have established or succumb to the emotional pressure of the moment. What parent hasn’t taught their children that the best time to make a tough decision, is before the tough decision arrives. Then it falls to the child to have the courage to stick with that decision when emotions are pulling them in a different direction.
I have had times as a pilot, while flying in zero visibility, when my senses tell me one thing but the instruments are telling me something else. That I am writing this column today is evidence that in those stressful moments I chose to obey my training.
Serious investors spend significant time learning the rules of investing and organizing their portfolios in such a way as to protect themselves, from themselves, in times of stress or emotion. They know that when investing gets emotional, either from rising or falling markets, it is possible for human senses to be overwhelmed, leading to sometimes disastrous decisions.
During these emotional moments, investors must decide if they are going to trust their distorted senses, or follow the plan they have established. Will they act like a professional, or an amateur? Like a pilot in the clouds, the decisions they make in these moments may have dramatic consequences.
With markets up dramatically in recent months, a significant question is, what are the real professionals doing right now?
On March 7 Vickers Stock Research* reported that the buy/sell ratio of corporate insiders surpassed 7 to 1 in the most recent reporting period. This ratio tracks individuals who, because of their access to confidential corporate information, are required to report when they buy or sell stocks. That insiders are currently selling seven times more than they are buying should be of interest to the rest of investors who seem to be on a bit of a buying spree.
To be fair, most corporate execs receive stock options as part of their benefit package so it is normal for them to be regular sellers on about a 2/1 ratio, but according to Vickers, a 7/1 ratio is high and a historical sign of bearishness.
Before you rush now to dump your stocks, keep in mind that if all a person does is take profits off the table after a good market rally, they would effectively become a net seller of stocks. This wouldn’t necessarily mean they no longer liked the markets, but could merely indicate they were adjusting their positions to maintain a proper portfolio balance.
I personally have a positive long term view on the economy. Taking some profits off the table in this rising market does not mean I have changed that opinion, but only that I believe it prudent to follow the plan I laid out for myself during times of less market emotion. It seems the reasonable thing to do, and what I believe many of the experts are doing at this time.
I had a lovely flight home from Southern California this week. Shortly after take-off I activated the autopilot, which, for the next 80 minutes, flew my assigned route back to St. George perfectly. I monitored the airplane’s systems throughout the flight, but also had plenty of time for enjoying the view. As I passed over Vegas, with the family quietly playing video games in the back, and the beautiful city sprawling out below, I could have been very tempted to think that this whole being a pilot thing was getting pretty easy, and on that particular day, it was.
The reality is that most flights in today’s modern airplanes are uneventful, thankfully. Herein lies one of the greatest risks to being a pilot. If years of safe flights lead one to think he has got it all figured out, that is when he becomes a danger to himself and others.
We are in the fifth month of a rising stock market and the longer it lasts, the more concerned I become, not for the markets, but for investors. Investors will remember that the last two major market disasters, 2000 and 2008, were preceded by a period of dramatic growth. The result of those good years was that many investors began to think they had it all figured out. As my dad used to say, “When markets are going up, everyone thinks he is an expert.”
The late 90’s saw the emergence of the day trader who, after seeing several years of strong portfolio gains, thought he had magically become an expert. Setting off on his own to conquer the markets, he began to take risks few true professionals would take and, in the end, most day traders lost money; some lost it all.
The booming real estate markets of the early 21st century gave rise to a phenomenon known as “house-flipping.” Suddenly it seemed everyone was a real estate investment expert. Initially it appeared to be a never ending party, but all parties come to an end and when this one did in 2007, families and fortunes were devastated. Once again, many blamed the markets. I blame the investors.
My business associations give me a sense of investor attitudes and I am starting to see a return to the dangerous ways of the past. Some investors, and even advisors, are beginning to feel like making big money in the markets is suddenly easy again. I am seeing an increasing desire to take risks even the true experts are not willing to take. As making money gets “easy” in investor’s minds, the danger gets greater. I am not worried about the markets. I am worried about the investors.
Whether piloting an airplane or a portfolio, if sunny days lead you to thinking you are suddenly the expert, you have become a danger to yourself and others. Before you rush out to re-open that old trading account, you should know what the real experts are doing in this rising market…(continued next week)
Most people tell me one of their financial goals is to “Leave a little something for my kids.” This is usually followed by some comment about how a couple of their children have always struggled financially. I cringe at these comments, having learned from hundreds of experiences, a sad truth. Financially responsible children do not need their parent’s money, and the irresponsible ones probably should not have it.
On my first day of college the professor began listing his expectations. When he got to grades he said, “Only the top 10% of you will get an A.” I immediately looked around the room trying to determine if I was smarter than 90% of them. In subsequent classes I found other professors grading in a similar manner. I realized the university was not going to measure me solely based on how well I did, but rather how well I did in comparison to everyone else. It is a tough lesson for a young person, but an important one since the same grading system would be used when I entered the real world of business and investing.
The world has changed since I attended school and one such change was evident in a study by the “Teacher’s College Record” that found the most common grade in American Universities today is an A. I wondered how young people could possibly be prepared for life if the schools no longer require them to prove their excellence. The real world will not be so generous with them.
I have spent my career working with retirees from a generation who understood that success meant working hard to get ahead, taking personal responsibility to spend wisely, and saving faithfully to stay ahead. The tough realities of the world that generation grew up in taught them that success is not handed out, but earned.
In our office we work regularly with the younger generations. Sometimes it is because they have inherited our clients’ money, or maybe a concerned parent brought them in to give them a head start. In this effort we are noticing a definite difference in the generations. Generalizing of course, I find the rising generations to be less patient, more willing to take on excessive debt and less willing to consider the need for a long term financial plan. Their grandparents understood that success required time. These younger ones often act as if they have no time. I find myself worrying a lot about their ability to demonstrate the discipline needed for lasting financial success.
So I would like to offer some advice to the parents and grandparents of this “Easy A” generation. If you want to leave “A little something” to your kids, consider leaving them a little of your time, your wisdom and your life’s lessons. Their world is not teaching them what they need to know, especially the financial lessons. If you take some time to prepare them, only then might that bit of money you are leaving them actually do some good.
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, 375 E Riverside Dr, St. George, UT 84790
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