The power of the nine items is that they are in the order in which you should do them. That doesn't sound like a big deal, but if you are new to investing, you wouldn't know where to start, and you'd have a hard time finding that answer anywhere else. You would probably end up letting some professional manager handle your money while converting much of your gains into his fees. The nine point list solves that problem.
The other power of the list is that it excludes all of the investment concepts that you shouldn't be messing with. Notice that there are no derivatives, or options, or anything exotic.
Obviously every investor is in a different situation, and I wouldn't expect many people to follow the nine points exactly. But I think it helps to know what the standard model looks like before you decide where to make your own exceptions.
All bets are off for the moment, obviously. The big question this week is which one of your neighbors you should eat first when things get bad. And of course I expect some sort of zombie problem. But in normal times, the nine point list is useful.
Arguably, all of our economic problems stem from too many people not following the nine point investment list.
Astute observers will point out that anyone who had a lot of money in stocks, as the model suggests, would have gotten hammered this year. That's true, but one of the obvious exceptions to the model is that if you think you need to withdraw your money in the next five years, you should reduce your stock holdings to avoid the risk of just such a downturn.
To make it interesting, let's say you believe in the rightness of your own views, and you are talking to someone who firmly believes the opposite. You both have the same information at your disposal, so it is simply a case of different opinions. If you knew you could sway that person with your words, without adding any new information to the mix, would it be ethical to do so?
I encountered this dilemma after learning hypnosis. You can extend the methods of hypnosis into normal conversation, the way a trial lawyer, politician, or top salesperson would. You can't turn anyone into a zombie slave, but obviously a skilled salesperson can close more deals than an unskilled one. Your choice of words has a huge impact on how other people form their so-called opinions. Where do you draw the line between a normal exchange of views and an outright manipulation of another person's brain?
Long time readers of this blog know that I view humans as moist robots who have no free will, and therefore morality is an irrational concept. But most of you disagree with that view, so for you this is a fair question.
Allow me to put it into concrete terms. Suppose I knew that I could use my powers of hypnotic persuasion, in the form of common words in this blog, to cause some portion of you to change your vote in the upcoming election. And suppose I believed I was helping the country by doing so. Would it be ethical to change people's opinions without adding any data to the process?
It makes more sense to turn off the economic spigot to any country that starts to look threatening to its neighbor. Arguably, the United States is already in a war with Iran, but it takes the form of developing alternative fuels. When Iran can no longer find much of a market for its oil, it will have to start being a lot friendlier. The same goes for the United States. The next President of The United States (probably Obama) will be projecting a new humility thanks to a crippled economy.
North Korea has been defeated economically, for all practical purposes. So was the Soviet Union. Venezuela is getting less cocky as the price of oil plummets. China has become zero threat to the U.S. because of economic interests.
Terrorism is still the wild card. But the end of oil will put more of a dent in terrorism than any war could.
In the old days you could make a profit from a good war, thanks to pillaging and slavery. Those days have passed. Switzerland has one of the highest standards of living in the world.
I think the age of big war has passed.
Likewise, the little boys in this country are learning nothing about how to be better future husbands and fathers.
Kids also learn nothing about the importance of a positive outlook, especially how it affects other people. They don't learn about setting goals, or managing risk, or discerning the difference between truth and lies in the media and in person.
You could make your own long list of skills that kids aren't taught during the time they are learning things they will never use. Yes, yes, yes, I understand that some of the subjects taught in school are meant to increase critical thinking and generally expand minds as opposed to teaching useful facts, but isn't there a way to accomplish the same thing with topics that ARE useful?
I'm in the process of building a house. (This is year 3.5 of the process, and ground was broken just yesterday.) While the project is frustrating, it is also intellectually fascinating. I had no idea how many technical disciplines would be involved. There's even an engineer who specializes in knowing how to move the dirt from one part of the property and fill in a hole in another, packing it down in just the right way to make it stable for the foundation.
You could take any tiny portion of the house project and make it an exercise in critical thinking. I can imagine a school curriculum organized around building an imaginary house, advancing from first grade through high school. Kids could learn all sorts of useful skills, from budgeting (math), to calculating loads (science), to learning how couples can decide on the fixtures and furniture. Your geography course could be based on deciding what country to build your house in. Geology would be oriented toward deciding what type of land to build on. Art class would involve interior design and architecture, with a semester on how to identify good art for the walls. Biology would involve understanding your own future garden and plants. Evolution would involve learning why your family dog walks on four legs and you walk on two.
You would learn all the critical thinking you ever needed just trying to design a kitchen that requires the fewest footsteps and fits into a defined space, with a limited budget.
Kids who are gifted would learn more about the math and science behind the engineering of the house. Kids on a more hands-on career path might be learning how to pave the driveway or design the electrical system. Designing and building a house employs almost every useful field of knowledge, excepting maybe history and language.
Maybe we wouldn't be in this economic mess if all kids had to learn about budgeting, mortgage loans, and risk analysis.
Interpretations 1: The United States is doing a poor job educating students in two subjects that are vital to the future of the world.
Interpretation 2: Students in the United States realize they will never need to know that mylonite is a breccieated metamorphic rock frequently found in a fault zone.
If you have kids, you know that most of what they learn in math and science is completely useless. I'm going to go out on a limb and say that kids have figured it out too.
I grant you that it is important for the future of the economy that we produce plenty of scientists and inventors and researchers. But how does it help anyone that a future chef can tell you which critters evolved in which epoch? He just needs to know which ones are good eatin'.
I'm all in favor of benchmarking against other countries for education. But isn't the average grade for math and science the most obviously useless and misleading statistic one could follow?
- The economy stays bad for a another month
- Obama has a clear lead in the polls before election day
- McCain wins anyway. While the real reason for the polling discrepancy will be racism, there will be a widespread belief that the election was rigged. And there will be plenty of real and imagined evidence that it was.
- Riots will break out, partly out of genuine anger, partly to get that new flat screen TV.
We know the country can get past one suspicious Presidential election, because it did exactly that with Gore versus Bush. But two in a row would turn even normal citizens into conspiracy theorists. Given the anxiety over the economy, concerns about abortion rights, and the continuing wars, you have a perfect storm for revolution.
Interestingly, the only person who could stop the riots would be Obama himself.
In my September 17th post about my survey of economists, I said, "We know that kids do best in school when their parents are managing the process right. If either candidate had a plan for educating parents on how to help their kids succeed in school, I think that would be compelling." In Obama's exchange about education he made a point of emphasizing the role of parents in improving the performance of their kids in school. I don't recall hearing that before. And as obvious as that might seem, McCain didn't mention it in his remarks about fixing education.
Obama's comments stopped short of where I think the government needs to be in terms of teaching parents how to coach their kids to be good students. I think parenting is a skill that can be taught, especially in regard to education. Most of the countries that kick the United States' butt in student academic performance spend less per student. That suggests that the biggest point of leverage is at home. And it passes the sniff test, because the top students in any class generally have parents that are actively steering the ship.
Do you think the Dilbert survey of Economists had any impact on Obama's message about education? Or is it just a coincidence?
That's true whether we are talking about the widow, or the pension funds, or the banks, or any other corporate entities that held these exotic mortgage backed securities. If they got in trouble, it is only because they put too many eggs in one basket.
Apparently lots of people bet their corporate and/or corporeal lives on these unfathomable investments. You might be making the same sort of mistake right now, but in a different way.
I know people who use financial advisors to help them spread their money across many different financial investments. This feels like diversification, but it isn't. If the financial advisor is a crook, or incompetent, you put all of your eggs in one rotten basket. In the case of the widow who was convinced by her financial advisor to put a lot of money in these exotic securities, the problem was the advisor more than the securities.
When I first started making serious Dilbert money, I let experts manage half of it, and I managed the rest, as a hedge against both the experts and myself. The experts invested in Enron, Worldcom, and a number of other companies that promptly exploded. The experts reduced their portion of my money by about a third over five years. (The experts work for one of the most respected financial institutions on Earth, by the way.) My own investments did better, precisely because they were more diversified. So now I handle my own investments, probably incompetently.
I didn't own much in the way of stocks for the past several years, thanks to not using professional advisors. A big chunk of my money has been in California Municipal bonds of various types, and all are insured. When I asked my bond advisor what good it would be to have insurance if the entire state of California goes to hell, they advised me emphatically, and obviously incorrectly, that these big insurance companies are ready to take any hit.
In order to diversify more, I started migrating money over to the stock market during this recent plunge. The market could go a lot lower still, but this is either the beginning of the end of the United States as we know it, in which case it doesn't matter how I invested, or it is a once-in-a-lifetime stock buying opportunity. It was an easy decision.
Are you diversified?
As I understand it, a bunch of geniuses used something called math to make it seem like a good idea to loan money to people who are unlikely to pay it back. But here's the part I don't understand: Who invested in these risky securities?
According to a recent piece on 60 Minutes, there might be $50 trillion invested in these exotic financial vehicles. So why didn't anyone ever offer those investments to me? And why don't I know anyone else who invested in them? And why haven't I seen a crying widow on TV who wishes she hadn't invested her life savings in them?
As I understand it, banks and mortgage brokers offloaded their crappy mortgages to these investors, thus transferring the risk from the system that makes loans to a bunch of confused people who apparently ran out of regular things to invest in. So why is the banking system in trouble if they moved their worst loans to other people? And who are these other people?
Do you personally know anyone who invested in these exotic securities? And if not, how did we watch so much coverage of the economic crisis without learning such a basic fact?
For the record, I don't believe in ESP or magic. But I do believe our perceptions are interpretations of a reality that is too complex for a human brain to process. And so sometimes when your brain tries to incorporate an inconsistency into its interpretation, the result can look like magic. And if you tell me that isn't just as good as actual magic, we could have a long discussion. It's like the difference between thinking you are happy versus being happy. I call that a tie.
With that context, I feel safe in telling you that I have had regular glimpses of my future throughout my life. If I believed in psychic powers, these experiences would fit that model perfectly. But since I don't, let's agree you can label it selective memory or whatever you like.
I had the first glimpse of my future when I was about eight years old. I saw an article about a cartoonist who was doing okay for himself, a guy named Charles Schulz. I remember looking at his picture and feeling that was my future job. The sensation was different from wanting or hoping. I wanted and hoped for lots of fantastic things, but I have only had one vision of my future career. And as I spent the next 20 or so years working on a more traditional career path, I never shook the feeling that I was supposed to be a cartoonist. It always felt like I was fighting destiny.
One day in my senior year at Hartwick College, in Oneonta New York, I woke up from a sound sleep, sat upright, and saw myself living in San Francisco. This was a seemingly random choice because I had never been to California, didn't know anyone in San Francisco, and didn't know anything about the city.
A few months later, I asked my economics professor what company I should try to join after graduation and he tossed a brochure in front of me for Crocker Bank, headquartered in San Francisco. He explained that they were doing lots of innovative things with technology, and they were the future. That wasn't enough to convince me, and after graduation I went to visit my brother in LA. Meanwhile, an ex-girlfriend had moved to San Francisco and invited me up for the weekend to visit. I went, liked what I saw (of the city), and on Monday morning I walked into a branch of Crocker Bank and got a job as a teller. I've lived in the Bay Area since.
Another college vision (or false memory) involved me standing in front of huge crowds of people, giving some sort of speech. The details were sketchy, but I knew the crowds were there to see me. This vision conflicted somewhat with my vision of becoming a cartoonist. I figured it was either one or the other. You don't draw comics in front of huge crowds.
One day, a few years into my cartooning career, I got a call from an oil consortium in Canada, asking if I would give a speech to their small group of twenty or so members. They offered $5,000 plus travel expenses. I said yes, went and spoke to them for an hour, and cashed my check. But the phone kept ringing and the crowds got bigger. One of the last events I did, before losing my voice, was an audience of about 15,000 people in Vegas. My opening act was a traveling branch of the Cirque du Soleil. I remember standing on stage, spotlights in my eyes, while the opening applause thundered, thinking this is just how I saw it.
People often asked me if I was nervous on stage in front of huge crowds. I wasn't. It felt like I was supposed to be there. Likewise, people ask if it is hard to produce comics on deadline. It isn't. This feels like what I am supposed to be doing.
I was thinking about these things because my book, Dilbert 2.0: Twenty Years of Dilbert is just out. I included in the book the story of how I used affirmations to achieve my goals (not magic). And I included the comics I previously showed only to live audiences during my speaking years. Those are the comics too edgy for publication, plus the ones that got published and got me in trouble. If you know anyone who saw me speak, they can tell you what to expect.
Physically, the book is beautiful. The publisher did a terrific job. It's ten pounds of the best Dilbert comics ever, according to me, with a disk to give you the entire 20 years of Dilbert comics. This is the best product I will ever be associated with. If you have a Dilbert fan in your circle, do him a favor. Here's a link:
