INVESTMENT AND THE EIGHT DUH’s: IT’S NOT THE ECONOMY STUPID!

“It’s only when the tide goes out that you will know who’s been swimming naked.” Warren Buffet


It’s hard being an insurance salesman nowadays, its hard enough making new clients, you also have to pacify the old ones’ as well, more so when the company I’m connected with is right in the midst of it.(AIG-Philamlife) and since I’m into investments, like mutual Funds, the common question is always, “Is it safe?” to which my answer has always been, no, but it’s wise, which obviously puts me in a dilemma. No in a sense that, there is no safe investment (see duh no.5) crisis or no crisis, both answer still applies. Actually now would be a good time to invest (in Mutual Funds) since the value per share is low (as they say in Trading 101:”Buy when everyone else is selling, and Sell when everyone else is buying”) but I’m cautious about recommending this last one, with all these big firms folding up (Lehman Bros.) and some local banks exposure to sub-prime, everyone just wants to get out while their money is still intact. Some are willing to accept loses, while others won’t. ironically what the present crisis has taught us is-there are no new lessons, the same old rule still applies, in the end, the basic fundamental reason and consideration for investing hasn’t change, and once we deviate from its “raison de etre”, that’s when the problem starts, unfortunately, that’s what Wall Street did, (including AIG) or maybe, they’ve never learned at all, and now we’re in this mess. Below are my personal reflections, If there is really a lesson to be learned from all these, it can only be described in one word: “duh”

Meet the eight duh’s:

Duh no. 1) Never invest with a goal of “Getting Rich”.
A common mistake a lot of investors make, or you could simply call it greed (duh) that’s how Wall street got us into this mess in the first place, (and to think most of these guys are Ivy Leaguers). Here in the Philippines it’s the same thing, with some agents, fund managers, analysts and even some financial columnist, saying the same thing. Not surprising, when you consider that, two years ago, the equities market were doing annual rates as high as 72%. And a lot of agents were only too willing to overlook (instead of correct) that impression and happily oblige clients and investors, deviating from the basics: Investments and Savings (for that matter) form a part of financial planning in order to achieve specific financial goals, i.e future education for the kids, health management, retirement, etc. and while you might actually end up getting rich in the process, be specific and realistic about your goals. When you finally decide to make an investment-keep repeating to yourself…”There is only one Warren Buffet”.

2.)Yield is not all that matters.
Going back to no.1, it is always a common reaction, that every time a new investment opportunity comes along, the main question is always the rate of return, maybe it has something to do with coming from a place where it used to be that the only financial options we had were savings accounts and time deposits. Unfortunately in my experience, most of the people who invests solely on the basis of high returns, are the people most likely to fall for double your money schemes and investment scams. Another point to consider is the liquidity, hidden cost, fees and penalties for such instruments. Of what good is the promised high rate of return, when it can easily be offset by the high fees and deductions in the event of an early redemption or if they could even be redeemed at all (lock-in-periods)? And of course, there is the age old adage: “the higher the return, the higher the risk”.

3.)Never invest with the sole purpose to avoid or evade paying taxes.
Fortunately, these do not apply to us: the Hoi Polloi’s, but to High networth individuals (that’s rich to you) There are offshore investments, and there are tax havens. In the Philippines, earnings of Mutual Funds are exempted from withholding Tax, take note however that the purpose of diversifying your portfolio is to spread the risk. And a part of Wealth Management and Asset protection, should be about, helping you pay your taxes, thru savings, insurance and Estate Planning, and not avoid them. (On a personal level): its only proper to pay back what is due to the state, who has guaranteed, and protected our rights and privileges, so you can be where you are right now. (On the financial side) I have yet to hear Warren Buffet (one of the most meticulous financial analysts around) tout the virtues of investing in the Cayman Islands.

4.)Never predict nor foretell the future, with your, (or other people’s) money.
It’s called Financial Planning, not predicting, nor foretelling (hello) and leave the forecasting to fashion, the weatherman, and Actuarians. Last time I checked, they still don’t include “Witchcraft, or Crystal Ball Reading 101” in Financial Planning, Economics, Fundamental or technical Analysis, Management and Accounting. So don’t ever believe when experts tell you (those same experts that got us here) how long this recession will last, because NOBODY KNOWS, and THE END IS NOT YET IN SIGHT!

5.)No Investment, or Savings (for that matter ) is ever risk- free or Bulletproof.
You still hide your cash under the mattress? Then make sure its fireproof,
burglar Proof, ...etc. the list goes on. From the high yielding, (and higher-risk) Hedge Funds and Derivatives, to the more common savings accounts (your local bank’s exposure to Lehman Bros.) there is always a risk involve. Diversifying your portfolio is about spreading and minimizing your risk. If you are risk averse, then be conservative, and include savings plans and Insurances such as
endowments, and participating plans, in your portfolio, if you have considerable
assets, hire a professional financial planner. When it comes to investments,
the truth hurts, and the truth is: “never invest more than you can afford to lose”.

6.)That’s why it’s called “Financial Planning”.
Because, you first must have a specific financial goal in mind, And since there is no such thing as the best all-in-one investment instrument. (more so now). Each instrument should fit a specific goal,-an educational plan for your child’s future education, A pension plan for your retirement, and so on. In the end, it all depends on how much you’ll need, how much you can afford to pay, and how much time you are willing to allot.

7.)It still takes time.
Some things in life are simply that way, usually, the lasting and productive ones-the blooming of flowers, the bearing of fruits, wines and spirits, evolution,
change and most of all, GROWTH, that’s why it’s called MATURITY.

8.)Speculation is the mother of Recession.
With regards to the sub-prime fiasco, the verdict on Wall Street is out, GUILTY. The crime: GREED. Hard to believe, the CEO’s, Investment Bankers, and Fund managers of these companies, were students of economics once. Maybe they thought they were just too smart for the rules. By mobilizing these funds, securities and investments are supposed to help develop the capital markets, to finance the expansion of Industries that produce goods and services, provide employment, promote savings, and an equitable distribution of wealth, and help stabilize the stock market. By deviating from these basic, (tried and tested) fundamentals, they have violated the trust of millions of investors, who have entrusted them with their hard earned money, and of course, created the mess were in right now. It’s not the economy stupid-it’s elementary my dear Watson.

P.S. I normally don’t recommend books, but those of you who love to read good old-fashion novels might want to check out an old bestseller (circa 1977) that I have just read and enjoyed, while it’s a 70’s book, you’d be surprised at the uncanny resemblance to today’s headlines. Entitled: “The Crash of 79” by Paul Erdman. It’s a thriller and international intrigue, in the tradition of Forsyth and Le Carre’. Whose hero is a (lol) Banker.


Investment advice (By Boo Chanco)
If you had purchased $1,000 of Delta Air Lines stocks one year ago, you would have $49 left. With Fannie Mae, you would have $2.50 left of the original $1,000. With AIG, you would have less than $15 left.
But, if you had purchased $1,000 worth of beer one year ago, drunk all of the beer, then turned in the cans for the aluminium recycling REFUND, you would have $214 cash.
Based on the above, the best current investment advice is to drink heavily and recycle.