Years ago I was driving along a desert road outside of Las Vegas when I came upon a partially framed but abandoned home. I walked around the property, enjoying the wonderful view of the mountains to the west and the Las Vegas skyline to the East.
The home had the main floor framed including a stairway to where the unfinished second floor would have been. I tried to imagine what the finished home was intended to look like, and how it would have certainly taken advantage of the amazing views. I climbed the stairs and sat on the edge of the upper deck, thinking about the dreams of the owners who had started this project and, for whatever reasons, had given up on it. There was a recession going on at the time so I was sure the two were related.
After my initial walk of the property I tracked down the owner who was thrilled that I was willing to take the property off his hands at a much reduced price. I then quickly obtained a construction loan from a bank excited that someone was willing to borrow from them at such a difficult time. Fast forward a few months and there was a beautiful home sitting on the lot and my family was enjoying the views from that now finished second floor deck. We had been able to build the home in record time due to the constant flow of contractors who came by each day looking for work, and willing to work at almost any price. That abandoned, partially built home in the desert was worth double what I had invested into it just three years later. What appeared to be the worst possible time to take out a construction loan, ended up being the best possible time.
As a CERTIFIED FINANCIAL PLANNER™ professional I have always emphasized the need for creating a plan and sticking with it. I believe in planning. I believe in living an organized life. But at the same time, being a good investor also requires occasional deviations from our plan. It sometimes means turning right when everyone else is turning left, or seeing the positive when everyone else sees only negative. Investors should make long term plans but they need short term flexibility to take advantage of opportunities that arise. The irony, and the challenge, is that in many cases the best investment opportunities often look like disasters when they first appear.
To be very clear, I want to emphasize that a good long term financial plan is a key to financial success, however, every good plan should allow room for deviations. Stick with your plan generally, but also leave room in your plan to stop and look up, at those times when the rest of the world is looking down. Sometimes the best plan of action, is to change your plan.
Thomas Edison said that people will go to great lengths to avoid thinking. My Dad quoted this often and told me that learning to think would give a person a great edge in the world. I have always enjoyed thinking. In fact, it is probably one of my favorite pastimes. As a youth, I spent endless hours lying on the lawn looking at the stars. I wasn’t wearing earbuds, or checking my email, or watching for my smart phone to light up. I just lay there, looking and pondering. I have raised enough kids to know that the younger generation struggles with being able to just sit quietly, without distraction, and think. One told me once they couldn’t do their homework without music playing in their ears. I found myself pondering the implications of that comment.
I have been reading lately about the difficulty young people have that have grown up in a video game, smart phone, Facebook, Instagram, action-packed movie world. They are addicted to non-stop stimulation. One psychologist stated that young people today have lost the ability to deal with boredom. The more I contemplated that idea, the more I realized the value that can come from occasionally doing nothing. There is an old Wall Street saying that sometimes the best thing to do is nothing. Wall Street may be on to something here since anyone who spends time with young people today understands their inability to be still, to be quiet, to just sit and do nothing. How can a generation so addicted to stimulation ever be able to sit quietly without distraction and think through a serious lifetime investment plan?
As we moved into our new office I was one day, with my son Jared, installing speaker wires for our conference room. A friend stopped by and jokingly asked how much money I was making as a sound technician and whether it might be more profitable to hire an audio person to install the speakers. I told my friend that if every decision was about money, I would probably spend every minute in the office and pay someone to do everything else. But I told him it wasn’t always about money, that it was good to mow the lawn, paint the garage and even install speaker wires once in a while. I felt it would do us some good to put away the smart phones and internet for a while and enjoy some quiet time climbing in a dusty attic while thinking and talking about nothing in particular.
I plan to spend more time addressing the investing needs of the rising generation. For a start I will offer the simple advice to practice, once in a while, doing nothing. Learn how to be at peace with boredom. Learn how to ponder. Do something daily that allows you to develop those creative skills that can only be found in silence. In short, be one of the few who learns to enjoy the simple act of thinking.
I heard a young man, age 15, give a speech wherein he commented that he was not yet born when the twin towers were attacked in 2001. With the memory of that day so real to me, it was odd to think there are Americans, about 30% of us now, who were either not born or too young at the time to have any memory of that terrible event. I pursued this thought and calculated that about 55% of Americans have no recollection of the Vietnam war. More significantly, the percentage of Americans who can remember World War 2 is in the single digits.
As a teenager, my dad told me that sometimes there is no substitute for the education that comes with age. He said that age “brings perspective.” As I considered this young man who was speaking I thought a lot about perspective. As time builds distance between us and some of the terrible human caused disasters of the past, we slowly lose some of our perspective.
Perspective is equally valuable in investing. Nearly ten years ago on October 9, 2007, the Dow Jones average hit an all-time high just above 14,000, and then two days later began its collapse to near 6500 just 17 months later. At the time there was panic, frustration and uncertainty. Now, with that same Dow again in record territory having surpassed 22,000, we have a little better perspective. The fear of those days has been swallowed up in nearly 8 full years of market growth.
At a recent financial advisor conference, the presenter asked for a show of hands of all those who had been in the business less than 8 years. Remarkably, a large percentage raised their hands. I suddenly realized that a large number of current financial advisors have never seen what a down market looks like. They have studied it, but have never felt it, or looked a client in the eye who was suffering under it. My own kids who work with me have not, and so I spend a great deal of time trying to help them gain some perspective.
If you are just getting started in investing, I suggest spending some time visiting with someone much older than you are. Ask about inflation and the high interest rates of the early 80’s, or the bond market crash of the 90’s. Get them talking about how great everyone felt in the late 90’s when the markets could do no wrong, and then ask what it was like in 2000 when it all came crashing down. The equity markets have generated great wealth over the years, but like all investments they have their risks. A good way to assist in managing for that risk is to spend some time talking with someone old enough to have lived through a few financial disasters. They may not know all the technical textbook terms, but they can certainly provide perspective and in my experience, that is often much better.
This week I received an email brochure offering for sale a beautiful Cessna Citation Jet. Of course I am not now nor will I ever be in the market for a jet, but they are fun to look at. The brochure showed a gorgeous 1999 model and the asking price was just a fraction of what it sold for originally. In fact, this beautiful jet could be picked up for less than the cost of many single engine piston airplanes.
I showed the brochure to Launa and jokingly asked if she was ready to move up to a jet. She was in disbelief at the low price and wondered what the reason might be. I explained to her what all pilots and plane owners know about planes, and jets in particular, especially 18-year-old ones. It isn’t about the cost to buy, it’s about the cost to own. As jets age, the cost to maintain them grows dramatically until the point where it simply is more cost effective to buy a new one. Airplane magazines are riddled with beautiful older jets that are basically being given away because the owners can no longer justify the maintenance costs. An unsuspecting owner who is taken in by the cheap price tag may be in for a very expensive surprise.
I recently worked with a client who had purchased an investment years ago from an advisor who made a point of emphasizing the low acquisition cost. Unfortunately, the ongoing high cost of ownership had been a serious drag on performance. This individual had failed to account for, or not been properly advised on, these high long term costs.
Investments have costs associated with them. Sometimes these costs come in the form of upfront commissions and sometimes they are charged by the advisor as annual management fees. Many wonder which method of paying for services is better for the client. With each situation I encourage people to consider the overall cost of ownership, and the expectations of the advisor involvement. If an investment is long term and requires little management, an upfront commission may be the most cost effective option. If you are going to want ongoing management and advice, it may be better to consider a fee-based structure that encourages an active relationship with your advisor.
Far too many investors have made the mistake of trying to save a few bucks up front in exchange for getting themselves into a situation with higher ongoing costs. Like the beautiful Cessna Citation in the brochure, the initial price seems very attractive, but failing to take into account the long term high operating costs could doom an unsuspecting buyer. In airplanes and investing, we must always consider not only the cost to buy, but maybe the even more important issue, the long term cost to own.
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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