Wednesday, July 22, 2009

When To Walk Through A Door

Not this door ...
An acquaintance recently approached me about a new business proposition. A venture in affiliate marketing - selling products, creating a network and collecting commissions. The marketing for this venture was slick, the presentation compelling and my acquaintance persistent. The message of financial freedom and personal success did resonate with me but ...

After listening to the pitch and reviewing the "system" I finally made the decision to decline. My friend was perplexed with my decision. After all, what I seek in life was being offered via this venture - so why the reluctance to move forward. Here is the reason why.

I never got excited about this idea. Selling something I don't believe in did not resonate with me. And when I don't believe in something - why should I persist with that idea. Money is important but for me it is not the prime objective. Having a fulfilling, interesting and happy life is my objective. In other words - the driver has to be passion.

Passion for what I do, passion for a cause and passion for my life.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, July 12, 2009

Considerations Before You Depart ...

A little inspiration please ...
Value proposition, market differentiation and exceptional customer service were some of the fancy terms tossed around during a recent meet & greet the new leadership team. Most of the audience, traumatized by the recent layoffs and benefit cuts had no choice but to sit through two hours of uninspiring leadership banter. The level of disengagment and lack of motivation was choking the room but the leaders kept droning on and on ...

Do you give up?
That is the easy choice but not the solution. Give up for what? Unless you are switching industry, career or culture - giving up is paramount to switching your circumstances with the same result.

This too will pass
Sage advice if the situation is temporary. Bad bosses, collegues and assignment are all time bound and if you can stick it out - good (or maybe more reasonable) times will be back.

What do you control?
Do you want to change the world? We all do but are limited by our sphere of influence. You can change what you control or have some sway over. In the corporate environment - it behooves you to ponder what you can realistically influence and then give that your 100%. Rest is gossip and idle meandering.

Make a deliberate change
And finally - if you want out, make it happen. Research, plan, prepare and then execute your exit. Opportunities abound and success awaits those who pursue it.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Wednesday, July 1, 2009

Is the Worst Ahead of Us?

What the #@%$
In my humble opinion - yes.

I am not an economist or an analyst or market guru but have enough sense to see where we are headed. I derive this assessment by looking around me.

Corporate Tightening
The numbers are bad, budgets are being trimmed and layoffs are a reality. I see this everyday at work. There is a sense of foreboding and anxiety. The unemplyment data backs up the dismal state of the economy so it is obviously not a false alarm. The challenges are spreading and it could be a while before we are through this rough patch.

Consumer Tightening
No job or risk of losing a job translates into less spending. The consumer is glum - not only in the US but across the world. Discretionary spending is down and will remain low till the economic environment improves. Less spending by consumers means less corporate profits which means falling equity prices. Can the market fall further - probably!

Housing, Housing, Housing
The root of it all is still a drag. In my neighborhood there are still plenty of homes on the market. The number of MLS listings in my inbox keeps growing with multiple foreclosure listings at attractive prices. Credit is still hard to come by and the buyers just aren't there. It will take some more time and probably some more price reduction to mop up the excess home inventory.

But then again what do I know. The market has rallied from the March lows and if Q2 earnings are decent maybe the worst is behind us.

In any case, hopefully you have an investing strategy and more importantly are sticking with it. Let the earnings begin ...

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, June 21, 2009

So How Long Can You Last?

To the end
A quick exit is beneficial in some aspects of life but generally it is about staying power. When I reflect upon my forays into various ventures – business or personal – successful ventures include intensity, timing and duration. In other words the ability to stick around and make it happen can make all the difference.

At the most trivial level there is the ever-present desire to lose a few pounds. I latch on to fads or gimmicks to help achieve my goal but soon find myself drifting back to old habits. The ability and motivation to sustain a fad is limited. Fads promise a short cut and instant gratification (or maybe it is the marketing), which sucks me in. Predictably the initial enthusiasm fads fast and I am back contemplating my next move.

In a business venture the same concept applies. The draw of quick returns or a slick marketing gimmick gets the ball rolling. You get excited about the venture; invest some time and money to make it happen. You kick off the venture with high expectations and … Slowly but steadily you lose interest, spend less and less time on this venture and shortly it is history. Sound familiar?

But some things stick. You start and continue to invest in it – a vocation, exercise routine, business venture or a lifestyle component. Why are some things sustainable whereas others aren’t?

Passion! What sticks, what is lasting and what works for you is predicated by your passion for it. On the interest scale, at one end is curiosity and at the other end is a strong desire. Passion does not have to be an all-consuming desire – it could be a strong interest, which is good enough to make it happen. But a passing curiosity does not have much chance for success.

To separate the big rocks from the pebbles – I spend time analyzing the situation before acting upon it. A little due diligence clarifies for me the reality of success. Is this opportunity aligned with my life goals and personal attributes? Why am I gravitating towards this option? Is this a short cut or a long-term life style change? Is this a long-term sustainable effort?

Nothing wrong in exploring your options, but ultimately success is finding and investing in the options where you can last long enough to reap the benefits.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Tuesday, June 16, 2009

Learning from the past ...

Bear - What Bear?
It is amazing how fast the mood of the market can change. The market in my mind is you, me and the pundits on CNBC. Where you want the market to go is almost like a self-fulfilling prophecy. If you repeat it over and over - you will start to believe that it is real.

The recent run-up in equity prices has been just that - a lot of talk, talk of "green shoots", money on the sidelines, bad but not bad-enough ... The arguments are flimsy but the results belie that fact. Even when the will is not there, the market still inches higher. You start to wonder - what gives!

What gives is human tendency to forget and latch on to the latest rhetoric. Not too long ago we were staring at the imminent collapse of the capital markets. Then the market was dropping every day, we were getting scared some more everyday, the end was near and all was lost. From that dismal assessment we have suddenly morphed into ebullient and eager investors willing to bet all our money on the next bull market.

Moral of the story - it is a roller coaster so figure out when to get on and when to get off rather than just jumping off when scared. And don't believe everything you hear and learn from history.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, June 7, 2009

What Drives You - Fear or Greed?

Love it or hate it?
There may be incentives between these two emotions that motivate you but in my experience it is mostly about fear or greed. Watch any financial infomercial and you cannot ignore the blatant usage of fear tactics (job loss, outsourcing, injury) or greed (never work again, buy a boat) to get you excited. So the question is what works for you?

Fear driven action is every where. Assumed fear (I will lose my job) and actual fear (I have no job) can both compel us to take action. We tend to get into a fearful state either due to unforeseen circumstances or due to poor choices. We can blame circumstances but many facets of our life are determined by our actions or in some cases inaction. Lethargy, comfort-zone syndrome, fear of change and lack of motivation can all contribute to situations which are beyond our control. And then we are gripped by fear and desperation and have no choice but to act.

Greed can also be translated into a desire for a better life, including financial success, business success or personal success. It is a desire to succeed and it compels us to take proactive action to achieve our goals. Getting an education/license to start a new career, starting a business, learning to invest are all examples of actions taken to change your circumstances. There is a certain sense of excitement and enjoyment in this kind of pursuit. I do it because I want to and love doing it.

Given a choice most people would rather pursue what they want to do and enjoy doing instead of being dictated to. So why do we not pursue what we want to? Unfortunately there is no right answer for this question. It is a personal discovery of what makes you tick.

Sometimes we forget what we truly want to do and just go with the flow – we meander. Sometimes we wake up and pursue our calling in life and take proactive action. So the question is – how do you want to navigate your life?

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Monday, June 1, 2009

Why Buy & Hold Works?

Trust me - it works!
Because it is a zero sum game. When you buy, someone has to sell or vise versa. So one wins and the other loses. But what happens at the overall level. The market is a zero sum game. If businesses that participate in that market are making money and growing - the overall market value will appreciate otherwise it may decline. The way I look at this situation is either at the macro or the micro level. At the macro level you buy the market - US, developed, emerging, small cap ... and at the micro level you participate in an individual business by buying individual company stock. In both cases your research and confidence is paramount to making this model work. Why you pick a market or a stock, what is your time horizon, what are the growth prospects, what are the risk factors, what is your diversification strategy are some of the questions worth pondering.

Bottomline - in most cases stay away from trying to time the market or stock - either yourself of thru middlemen. Middlemen in my mind are the players who buy and sell for you to capture that elusive 'home run'. What you end up doing is shaving off potential benefits in the form of commissions, fees and bad timing. Here is an excerpt from a recent interview John Bogle did and explained why "buy & hold" still works.
"I read all the time that investors need to move beyond a buy-and-hold strategy,
but this strikes me as being a dumb idea. What is the advantage of swapping
stock with other people? The stock market system is based on the idea of pitting
the interests of one investor against another, knowing that only one will win.
People say it's a stock-pickers market but, if your stock picker is good, then
mine is bad. It's all a gimmick. Of course buy and hold is the thing to do. A
genius like Jim Cramer hasn't gone anywhere for 10-14 years and few [managed]
mutual funds have beaten the market indices during the same period. It's just
market timing, and your good market timing is my bad market timing. [We invest
within] a totally illogical system where we move money around and the
middlemen--or what Warren Buffet calls the "helpers"--are the only ones getting

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Monday, May 25, 2009

Remembering To Smell The Roses

Where are the roses?
What makes life interesting are the small pleasures of life. An event here and an incident there. A winning trade, a good work meeting, a good game of squash, a chat with a friend, barbecue with the family ... These are moments to cherish and enjoy. Maybe small moments but these make life worth it.

The big moments - financial freedom, the promotion, the new car ... are destinations which can be misleading. Nothing wrong in striving for the bigger moments but it is the small moments which lead to the big events. Let's not forget to enjoy the journey in pursuit of what we deem big.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, May 17, 2009

V, U or W - What Letter Do You Prefer?

Green shoot or yellow weed?
Is the worst behind us? Are green shoots taking root and will form the basis of another bull run? Is it time to get back in the market? Or is this a bogus sucker's rally? Is the worst still ahead of us?

V, U and W signify the type of recovery economist and market analyst are predicting. So why is this speculation important? Although none of us can accurately predict the future - we can form some reasonable opinions about the future. Probablity is high that the world will not fall off a cliff tomorrow. Probability is also high that emerging markets will emerge and developed markets will develop some more. Probability is also high that innovators will innovate and consumers will spend.

So at the end of the day you have to ask yourself - what macro level assumptions are you willing to make? Obviously these assumptions should be based on sound fundamental due diligence and research. Ultimately your investment strategy will align with your short/long term perspective of where the world is headed.

So what is it gonna be - V, U, W or something else?

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Friday, May 8, 2009

Can you sell it?

I got what you want ...
The more I pitch my services as a real estate agent the more I realize the importance and true nature of selling. This is not a new revelation. I have consistently stumbled upon this core requirement across all my recent endeavors. You can create the fanciest product or offer the best service but if you cannot market it – you are toast. Getting the word out is paramount.

I have been hustling trying to get the word out by advertising, meeting/greeting, networking and just being visible. And still no leads. You push yourself – out of your comfort zone, into unknown territory and you expect results. But results are fleeting and sporadic. It is disappointing and discouraging.

A saying in the real estate industry is “it is not about whom you know but who knows you”. This is a fundamental rule of selling. Do people remember your product or you when the time arises? Was your offering and pitch effective in leaving a lasting impression? Have you sold the prospective customer so when he decides to buy he will think of you? If people are not calling back – you have to revisit your offering, your pitch and your marketing strategy. Listen to the feedback and tweak your strategy to make it work.

We are probably hard-wired to think about our benefit before we give others consideration. You could say we are inherently selfish – seeking the best for ourselves. For a salesman this means thinking like the customer. The customer does not care about the agent’s issues – the customer wants … I usually have a win when I have something to offer that someone needs. When a customer has a need and I can support that need – there are possibilities. In other words – helping people achieve their objectives is what effective salespeople do.

I don’t want to forget a key life component – “The journey is the destination”. In our pursuit of the result we often forget that what matters eventually is the journey. We live the journey – the result if just the culmination of the journey.

When I get discouraged I remind myself that sticking with the plan is part of living the dream. I am pursuing what I enjoy and although challenging at times – that is what makes the journey worth it. If I stick with it - it will happen.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Saturday, May 2, 2009

Monkeys pick bottoms!

What do I do now ...
Do you live in a tree? If the answer is no – then you probably don’t spend most of your time picking bottoms. If you don’t live in a tree but still spend most of your time picking bottoms – there may be a problem.

The problem is that we cannot predict the future. It is a fashionable habit to predict but ultimately it is just talk. Talk that can lead us to make irrational or bad decisions.

Financial decisions usually merit some due diligence to get the best possible deal. But in the search for the best possible deal we can get stuck trying to time the market. When is the best time to get back in the market, should I refinance now or wait for rates to fall to below 4%, maybe if I wait another 6 months house prices will fall another 50% …

Finding a good price is always important but it should be considered within the context of the overall situation. The overall situation may merit consideration of other factors like affordability, financial status, need and long-term implications. Do you buy something just because it is on sale or do you buy something because you need it? Is the stress of waiting and evaluating worth the miniscule advantage you may derive if the price drops another percentage point? Will mortgage rates drop much further – probably not? Will mortgage rates go up – probably yes? Will the market in the short term go up – who knows? Will the market in the long term go up – probably yes but contingent of various other factors?

Do your due diligence, understand the overall situation and make price one component of the overall financial decision. When you risk everything for the sake of picking bottoms – it becomes monkey business!

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, April 26, 2009

Refi Boom - Is It Time To Jump In?

Next turn ...
I refinanced my mortgage recently and it was not easy. Too many choices, too many products, too much number crunching and too much flux. But hey - if you can shave $$$ off your monthly payment - maybe it is worth it!

Rates are down to historically low levels and maybe headed lower. Some are predicting 4% by end of the year but most also agree that rates will not remain this low for too long. The mortgage broker I talked to mentioned that he has not seen such volatility in mortgage rates in 20 years.

Choices galore
30 year fixed, 15 year fixed are the easy ones. The ARMs are still available along with some variations and nuances. Are ARMs worth considering instead of a fixed rate mortgage? Difference in rates is the easy answer. A difference of more than a point in some cases can change the numbers dramatically. What you pick is a personal (and business) decision but there are choices when it comes to mortgage products.

Some consideration include - how long you intend to stay in your house, what is the difference in rates, what amount are you refinancing and closing costs associated with the product.

Closing fees do matter
Closing costs can be pretty high. I was quoted up to $3000 in fees. If you add points - the out-of-pocket expense is even higher. Closing costs do matter because what you save via a reduced monthly payment will have to offset your closing cost expense - before your refinancing starts to put money in your pocket.

When to pull the trigger
When rates are fluctuating as much as they are - locking in a rate is tricky. If you have a preferred rate point - get your bank or broker to call you when rates get in that range. You pay extra but you can also float your rate for a period of time which allows you to lock in a lower rate if rates drop.

Who to work with
Brokers offer multiple products from various lenders whereas banks are limited in their choices. Get recommendations from your realtor, who obviously is in this business and knows who is providing good rates and service.

Bottomline - forget about trying to time the market to lock in the lowest interest rate. If you can save money today with a low interest rate or just sleep better knowing that you have a fixed rate mortgage - the time to refinance is now.

(Graph courtesy of

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Friday, April 17, 2009

The Secret to Financial Well Being by Mike Tyson

Every bit counts
"Yachts? Six homes? That’s more luxurious than what most of us get to enjoy, but it’s nothing compared to the spending done by Mike Tyson. He might be the most well-known fighter of his generation, but if there was one thing Tyson was better at than boxing, it was spending money. In 2003, he filed for bankruptcy after his debt reached over $27 million, about half of which was to the IRS. What was he spending all his money on? For starters, two Bengal tigers for $140,000, for which he also had to pay a trainer $125,000 a year. But that was just a drop in the bucket. There was also the $4.5 million he spent on cars, and perhaps the most inane purchase of all, a bathtub for his first wife, Robin Givens, at a cost of $2 million."
Financial advice from athletes

The difference between these numbers and what I (or maybe you) deal with is huge. While I worry about small change, these athletes are squandering away millions. But there are fundamental similarities when you consider the financial playing field.

Lesson #1 - It is not about how much you make.
Millionaries can and do go broke. There is no financial tenure you can achieve which will make you immune from losing some or all of your financial fortune. Making more money allows you to have a wider margin of error but if you make unwise financial decisions like buying a home you cannot afford or buying more homes than you can afford - you lose.

Lesson #2 - What matters is how much you save.
Families with average salaries save enough to lead a comfortable life - so it is doable at most levels of income. You need discipline, a stong will and the desire to be financially independent but consuming less than you are making is the one and only way to build your egg nest.

Lesson #3 - What do you do with your savings?
You have to make your money work for you. Compounding, growth, inflation, returns, risk all go into this segment of financial management but smart choices can put on the fast track to financial freedom. Bad choices are akin to "Go To Jail" card in monopoly - you pay a fine and start again.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Wednesday, April 15, 2009

Are You Leading Your Life?

Ready for the light?
Most of us need an external driver to do something in life. An incentive, a threat, an ultimatum, a desire ... but ultimately a strong reason to initiate something new or different. If you haven't felt the urge to change some aspect of your life recently, I am sure you are aware of someone who has. I just saw this scenario unfold at work. We went through a reorg. If you haven't noticed - reorgs are all the rage these days. So what happened? The usual - some folks got demoted, some got downsized, some had to reapply for their jobs and the rest were kept waiting anxiously about their fate as leadership deliberated.

The interesting observation was not that a reorganization happened (yet again) but what it does to the folks who are affected, both directly or indirectly. In an instant the comfort factor disappears. What you took for granted suddenly becomes very uncertain. Your known world now hangs by a thread. Your future gets decided by entities and criteria you have no idea about. You feel helpless and fragile. At least for a while - till the storm passes and you suddenly find yourself unaffected. You reflect for a moment about your downsized colleagues, resolve to work on your resume and not be in this situation again - and life goes on.

Does this situation sound familiar? Remember the New Year resolutions, the impulsive decision to lose those extra pounds or to reign in spending or to learn about investing or ... Small nudges or events goad us to make halfhearted attempts to correct the course of our lives. Most of these attempts fail because the will to truly make a difference in our lives is lacking. It is a passing fancy, an idle fascination, a stray thought - usually not sustainable. Being creatures of habit - we revert to what we are comfortable with. Intentional change becomes a dream.

And therein lies the difference between living your live or leading a life. The difference is profound. If you lead - you decide and you march to your tune. You seek what you want, when you want and how you want it. You may not control every aspect of your life but you are still in control and make decisions that help you move in the direction you want. When you just meander and let life takes its course - you are at the mercy of external decision makers. You job, your financial well being, you health and your happiness is driven by external events. Events you barely control but that dictate your well being.

Change is inevitable and constant, so finally the question is - do you want to lead your life or be led around? The driver to change is within you, struggling with the lethargy of complacency. Find what you want in life, find your passion, find your drivers and live your life - hopefully at your terms.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Monday, April 6, 2009

How Good Is Your Financial Advisor?

Trust me ...

Using a specialist in any field is usually a smart idea and financial management is no different. But the key to picking the right candidate is understanding what services you are buying and what should you expect in return. If you have an advisor or are planning to hire one – use this checklist to get ready for the interview.

Who pays the advisor?
The answer intuitively is you but that may not be the case. A fee based financial advisor may charge you an hourly fee for consulting versus a broker – who may be paid by the brokerage firm or financial establishment. The key here is understanding – whose interest is paramount in the advisors mind – yours or the entity that pays him.

What is financial management?
Is it the 401(K) or the equity portfolio or the 529 plan or … it is all the above and then some. Unless you specifically seek limited guidance, a financial advisor should review your complete financial history and provide holistic advise across all spectrums of your financial life.

How are we doing?
What is your portfolio’s rate of return? Are you making money? Are you beating the market – consistently? A professional is always looking for trends, insights and lessons learned by evaluating historical records. If you don’t know how you are doing – how will you tweak things to get better?

Where are we headed?
If your advisor is seeking to provide holistic and pertinent financial advice – he or she should understand your life objectives. When do you want to retire, what are upcoming education/college expenses, aspirations for a second career, housing decisions etc. are all facets of your life that will dictate how your financial well being evolves. An advisor should work with you to incorporate life events and milestones into your financial plan.

How smart is your financial planner?
In other words – finance is an evolving field and the people who excel in this field need to keep up with the latest and greatest. The latest assets classes, new ways of investing, hedging strategies, diversification model and use of the latest financial products/technologies are some areas where you seek competency. If you cannot keep up with the latest mumbo-jumbo coming out of Wall Street – that is fine but your financial advisor better be able to track, interpret and include some of these new innovations into your portfolio. Remember – you are looking for a specialist not a generic hold & pray guru.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Tuesday, March 31, 2009

The Short Term And The Long Term

Plot your moves - in advance!

It is amazing how in a crisis we focus solely on the short term. The immediate is paramount because survival, continuation or existence comes into play. If you can't make it through the short term, the long term has no relevance. So focusing on the short term is necessary and prudent but ...

The but is there because the astute and smart plan out the long term before they are forced to focus solely on the short term. The winners contemplate the short term in the context of the long term, not by accident but because of planning and preparation. Here are some observations at three levels

National Interest
The current turmoil facing our economy is being dealt with unprecedented and unconventional actions by the government. The argument goes that the immediate need to mitigate "systemic risk" trumps the need to have a long term strategy or roadmap. We are in a crisis and need to act now with scant regard for future consequences. This mode of thinking is concerning. I worry about the immediate impacts of this crisis but I also worry about the long term effects of these policies. I am in this for the long haul and need to be convinced that we are pursuing a viable and sustainable strategy (hint hint - Japan and the lost decade). Did we plan for this situation - no. Should we have considered the scenario and planned for it - absolutely!

Yes - it is easy to say in hindsight that we should have but then again there are government agencies, a system of checks & balances and governance models to have prevented this from happening. Or if it happens we should have had the long-term vision to deal with such a crisis.

Organizational Maturity
Every mature business should plan for a downturn. They should anticipate and prepare for tough times which are inevitable. The ones which prepare will have charted a long-term strategy to deal with both the ups and downs of the business cycle. But when you read about the reaction of most businesses to this crisis - it is clear that many were unprepared - they are clearly reacting. Circuit City decided to trim their top performers because they made too much money, Starbucks can't figure out how to sell $4 coffee in a recession, banks can't get their arms around their balance sheets, some auto makers are clearly clueless, many businesses are hacking off their most valuable assets - their employees just to reduce cost and on and on we go.

The smart business is investing in R&D, retraining their workforce, exploring M&A opportunities and in some sense going on a shopping spree. Obviously these businesses are prepared and their short term reaction is aligned with their long term strategy. Now that is a winning formula.

Individual Focus
Do you have a long term strategy? Financial strategy, career strategy, investing strategy ... living your life strategy. If you do then you have long term focus and a strong sense of where you want to be, how you will get there and how you will manage the ups and downs of life.

When folks react to the current market turmoil by dumping their 401(K) or cashing out of the market - it suggests that they had not thought through their investment strategy. The stock market is not a regular and consistent wealth creator. The 8-11% equity returns we are told about are generated in clinical conditions over long periods of time. To make money investing in real companies requires diligence, commitment and time.

If you are uncomfortable with your financial situation today - do what lets you sleep at night but also invest in having a long term vision. A vision which is realistic, actionable and comprehensive. You cannot predict the future but being unprepared and reactive does not get you very far either.

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Saturday, March 21, 2009

Speculation Makes the World Go Around

Place your bets!
Is it a good time to buy stocks? What about distressed real estate? Blue chips are down and financials are dirt cheap - time to buy?

This is the fun world of speculation. We don't know what the future holds but are willing to place a directional bet. So what is wrong with that notion? Isn't all investing betting at some level? After all who knows what the future holds and what will pay dividends in the long term.

Yes - no one knows the future but you can reduce your risk (and increase your return) by betting on what has a high probability of success. Is the probability high that large corporations like IBM, Caterpillar and GE will still be around in five years and handsomely reward their investors? Is the probability high that you can accurately predict the price of gold five years from now?

In the first case your probability is high that you will come out ahead. Your risk is limited and your reward will be limited to reasonable returns. In the second case the probability of being right is low and thereby your chances of hitting the jackpot are also low. You get lucky and get a big payoff or lose it all.

So the question is are you comfortable with small but predictable return or high but volatile return? Both have a place in your portfolio. Some component of your portfolio may be speculative, directional and/or high risk. And some portion of your portfolio may be more boring but predictable and less risky.

Focus on an allocation that suits your risk appetite, time horizon, financial needs and market savvy. Spread your bets and stick around to play for a while!

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Friday, March 13, 2009

Madoff – Villain or Teacher?

Lesson for the day
Anger is a normal human reaction. Hard-wired to make us react in ways which we believe to be rational. We all struggle with the same conundrum – how to react when ripped off or hurt by another party?

Madoff is the villain of the day, because yesterday it was Wall Street or John Thain and his $1 million bathroom renovation. Before that we had the greedy subprime lenders (remember the outcry about Mazilo’s VIP loan program) and way before that were the Enron and Worldcom crooks …

There is always someone out there looking to make a quick buck. And when you are on the other side of the transaction – it hurts. It is painful, unfair and financially disastrous. I resented my dot com loses and blamed the broker, the media, regulators and finally myself.

The reality is - I decide what to do with my money, where to invest and who to trust. If I make a bad decision – I face the consequences. I can resent the outcome, blame the whole world and seek revenge but what does that buy me. Some mental solace, a feeling of "getting even" and maybe some closure. In my mind this tendency to dwell on revenge is a waste of time.

So what should one do? First – get over the revenge urge. Vent, punch a bag, meditate … get over it. Then dwell on it. Dwell on the situation. What happened? What went wrong? Why did it go wrong? What were the red flags which were ignored? What due diligence was lacking? Understand the root cause of the problem. If you don’t know what went wrong – how do you intend to improve?

If your stock portfolio is down – you may want to complain about the idiosyncrasies of the market but post that you are better off trying to understand why are you invested in the market, how you are invested and what is working or not working for you. Idle water cooler chit chat on where is the market bottom does not lead to better investment decisions. Deliberate reflection on what you did, why you did and how you can improve is what counts.

And finally – move forward. What is done is done – learn from it and move forward. Therein lays the opportunity to leverage your failures and learning to reap bigger rewards.

“I also have a belief that we need to look forward as opposed to looking
backwards... My orientation is going to be to move forward”
Barrack Obama

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Friday, March 6, 2009

The Tipping Point - What Now?

This is not real!
"Irrational pessimism - a fear that stock prices are headed in only one direction -- lower and lower".

My wife got on my case last night and stated that we should have sold our investments six months ago and bought them back now. I agreed with her that would have been the smart thing to do. The only problem being - what is obvious now is in hindsight. And everyone's a genius in hindsight.

So I quizzed her - what should we do now? Should we sell now and buy back when the Dow hits 4000 or should we stay put because the market is at the bottom? Obviously her response was - I don't know!

I guess no one knows where we are headed. Citibank at $1, GE at $6, unemployment inching towards 10%, foreclosures in two digits and getting worse ... it's getting scary. Scary to the point of panic and all hope is lost. Too much CNBC, too much negative news, too much doom & gloom starts to take its toll. Ironically - now we are overshooting on the negative by seriously contemplating - can the Dow go to zero?

A global recession and bear market has shaken our trust in capitalism to the extent that we are questioning the future of society, economies and even countries. It is bad - OK it is very bad but to wonder if this is it may be a little too fatalistic.

In my view - we are facing a financial crisis, which will abate. It will take time, markets will change, players will change and maybe the rules will change but eventually we will persist. This is the time to entrench, reflect, assess and invest.

“Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so.”
Warren Buffett 2009

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.


Sunday, March 1, 2009

Calling it Quits - Not Just Yet!

Give up? Never!
Occasionally giving up sounds appealing. Especially when you have been struggling, making limited progress and start to question your abilities. When you reach high levels of frustration - giving-up becomes tempting.

Afterall, that is the easy way out. No more struggling, no more being in awakward situations, no more uncertainty, no more unknowns. You can sneak back to the comfort zone. Screw the dreams, ambitions and desire to excel, create and succeed.

As my struggles to succeed continue so does this self-conflict. Should I persist or throw in the towel? A bad day can really push you towards the unthinkable and I have come close to calling it quits. But I have not quit. Not as yet.

No - it is not easy to succeed. And no - it is not impossible either. Human capacity and potential is unlimited and I have faith in my abilities to pull it off. Not today, not tomorrow but someday. Life is short and opportunities unlimited. I can persist, hang in there and make it happen or take the easy way out and quit.

In some sense, when I am trying and struggling I feel more alive. Granted there are bad days but there is also days when it all starts to come together. I am doing what I can do - and that is trying - again and again! I may fail or struggle but I have no regrets. No regrets because I am giving it a shot. And at the end of day that is what keeps me going.

"Persistence isn't using the same tactics over and over. That's just annoying.
Persistence is having the same goal over and over."
Seth Godin

If you enjoyed this post, consider subscribing to a full RSS feed or get regular updates via email.