Love it or hate it, demographics matter for an investor (Part 1)


This is a two-part article that addresses economic and investment implications of demographic trends. Today, I look at what happens when we ignore demographics. In tomorrow’s column, I look at some investment opportunities supported by population and demand trends.

I still remember presenting David Foot’s book Boom, Bust, and Echo in my high school economics class. It was the first time I was exposed to the idea. It was clear, succinct, and for me, absolutely mind-blowing (I was 17, ok?). Its sociological, marketing, economic and political implications kept me engaged and excited for weeks leading up to my talk. I still remember feeling exasperated at not being able to present the explanatory power of this concept within an hour of allotted time. This was before Powerpoint came along to provide structural assistance and graphics entertainment. So God bless my fellow classmates for sitting through the hour of what must’ve been an excruciatingly boring experience: me, with questionable level of articulateness, wildly gesticulating with my right hand, while waving pages of notes with my left.

It’s been a while since high school, and the over-use and abuse of the term has since left me disillusioned with its clairvoyance. The rest of the world must have discovered the magical potential of a concept that is always readily available to provide digestible explanations for, well, everything.

When I worked in the oil boom town of Calgary in western Canada, any high school drop-out rig worker or administrative assistant, when asked about the sustainability of sky-rocket crude prices, would shrug their shoulders and say: it’s China and India, they need oil, it’s all about demographics. The same line of reasoning was used to explain the rise of food prices last year: developing countries are getting richer and eating better, there’s an increase in demand, again, it’s demographics. The same explanation sufficed for the bio-tech and pharmaceutical stock rally every few years: the baby boomers, they’re getting older and need medication, it’s demographics!

Then the oil boom ended, the food crisis abated, and has anyone heard anything about the explosive growth of the pharmaceutical industry lately? For a while, demographics became a mere pop-cultural sound bite: a convenient simplification of complex problems. The flagrant abuse of the term, combined with its questionable predictive powers, led me to more or less abandon my earlier enthusiasm.

Lately, the idea of demographics has returned in a slightly different incarnation. As frivolous as some broad-brush generalizations of this concept can be, I found numerous instances of past disaster and future opportunities off the backs of demographics. I’m now convinced that demographics is still a credible tool, but only when paired with common sense. Here’s an example of what happens when we desert demographics and common sense.

Demographics and housing prices

One school of thought that addresses the “irrational exuberance” of the property bubble is this. There was no underlying demographic trend that supported the astronomical rise in housing prices. The population demographics signaled no spike or increase in the demand for real estate.

What’s a reporter to do?


Jon Stewart tore CNBC a new one this week, sending ripples throughout mainstream media and blogosphere. “CNBC hating is mainstream!” Screams one headline. Then came the slew of media pundits, rushing to defend CNBC and by proxy, itself. This one in particular is especially lengthy and defensive. Below are some of the author’s grievances in face of much critique of financial reporting, and my thoughts on them.

We were ignored, then we were cut

It’s been a lousy decade or so for print publishing, and it’s getting worse. Budgets have been cut, newsrooms slashed. Business reporting in most cities is pretty bad, often an adjunct of local chambers of commerce. In other media, there’s been a turmoil of business models, as the Web crowded in, bringing with it a different style and lots of new bodies. Roles have changed. Anyone with a clue (many without) now writes a column or a blog. The business seems full of younger folks (a function of advancing age perhaps); the era when every newsroom had a cranky wise man with a cigar that had seen it all is sadly over. This is particularly a problem in financial journalism, which demands historical perspective and expertise. To make matters worse, finance has grown dramatically more complex, opaque, global over the past few decades. And despite that complexity, the rise of financial television and financial blogging has simplified coverage to an equity horse race, with an omnipresent pressure to predict. Besides, since when has most journalism at any given time been all that stellar? Who correctly called the Great Depression anyway?

Whoa, easy there with the gripings! The newspaper industry did suffer from a drop in readership (some were made up on the web), and a significant drop in advertising revenue from some of its now-bankrupt clients. But the article failed to mention that the largest contributor newspaper failures are the massive debts incurred between 2006 and 2007. For example, had the Tribune Company not triple its debt in one single transaction in a deal to take LA Times and Chicago Tribune private, they would still be able to report earnings in the 10-20% range of their revenues. But the burden of debt changed all that.

As for the complaint that the web “crawled” in and somehow stole mainstream media’s spotlight and authority? Thank you and oh please. Anyone who has followed both streams of reporting can attest that first, mainstream reporting is far from disappearing; and two, the blogosphere supplies and supplements what most media outlets cannot provide: on-time, succinct, cut-to-the-chase reports and commentaries. Some are highly opinionated, even agenda-driven. But at least they do not hide behind the pretense of “objectivity”.

Who is worse off than you?


Growing up, whenever I screwed up in a test or assignment in school and had to face my mom, I would always preface my failure by citing more spectacular blow-ups by my classmates. The habit never escaped me.  Now instead of placating my parents, I use it as a self-administered sedative whenever things get bad.  By reminding myself that it could be worse.

It’s easy to fall into a depressing spiral these days.  There’s little voyeuristic pleasure in watching your economy on a high speed race heading for the cliff, especially when your savings and investments are wrapped in the vehicle.

But maybe you can take solace in the fact that we are all in this together.  And whichever corner in the world you might be, there’s some level of financial uncertainty, maybe even serious suffering going on.  But let’s take a break from self-pity today, and indulge ourselves in the guilty knowledge that out there in the big world somewhere, exist those that screwed up (or got screwed) way worse.

1. Iceland. With a population of 300,000, this northern tundra is the size of Kentucky. Inheriting this insular landscape with your large extended family, gifted with little other than thermal geezers and short days, the setting is already rather glum.

Add reckless Icelandic fishermen, stir in some explosive banking capital epitomized by a stock market that multiplied nine times from 2003 to 2007, and we get the tragic climax: a bankrupt country with debt 850% of its GDP.  To put that into perspective, an average of $330,000 is owed by every Icelandic man, woman, and child to its numerous and very angry foreign debtors.

What’s worse, to get out of this mess, the Icelandic has abandoned their currency, and now needs to claw its way up Brussels’ ass to save its economy. To be allowed entrance in the EU, it will most likely have no other choice than accepting reduced fishing grounds in exchange for debt forgiveness. The monumental humiliation of it all will shatter the Icelandic collective confidence for decades to come.

2. Germany. Looking at the astronomical debts of the US, economists and politicians no doubt salivate at the thought of being on the other side of the balance sheet. How sweet it must be: to make things and sell them to the rest of the world, to have a manufacturing driven instead of a consumption driven economy, and to run a budget surplus instead of a deficit. Except grass is almost never greener on the other side: cue Germany.

Germany is the world’s largest exporter. Surprised it’s not China? What’s more, it’s one of the major auto manufacturing countries in the world. One in six jobs in the country is related to the auto industry. When its wealthy European and American customers halted their vehicle orders last quarter, the factories became empty – of workers, not cars.

The unburdened psyche of America


A few weeks ago, I seriously considered buying a Kindle.  After much research on the web, I realized the task was futile.  I live in Europe at the moment, so the Whispernet function would be useless here.  As I am Canadian, with no US address nor credit card, purchasing the device and subsequent ebooks would be impossible.  On a desperate whim, I called up a cousin of mine in Massachusetts, and asked if I could use her card and address to order.  She told me there’s a backorder of those anyway, so why not wait till they get stock?

Then a few days ago, my boyfriend showed me an article from Fast Company that promised a newer and cooler Kindle that might be available worldwide this coming December.  So I abandoned my previous wild goose chase and decided to wait.

Which brings me to this.  The US economy is in disarray and worse news keep coming.  But  there is something to be said about the level of innovation that continuously springs out of the country regardless of the wider macro-economic picture.  Think of some of the best inventions and brands around that provide real value to people everywhere.  Most of them are proudly American creations. It might not be apparent to those of you living there, but for us outsiders, we always have to wait!  The latest services, tech toys, ideas, sometimes they take weeks, if not months, to flow out to the rest of the world.

It’s easy to condemn excessive greed, risk-taking and the resulting hubris at a dire and troubling time like this.  But we should not forget that without some degree of speculation, risk-taking, and ambition, we might not have, say, Amazon.  As a side note, I’m not championing the speculation of paper and inflatable “assets” that so many have resorted to in this crisis, but tangible products or services that provide real value.  Now, this is the very Amazon that some ridiculed for years on end, for not turning a profit.  Ten years ago, amidst our general lament over the disappearance of printed pages, which analyst could have possibly said, yep, Amazon the online book retailer is gonna make reading sexy again?

Now back to the present. An article in the New York Times on the crisis of Japan from yesterday really resonated with me.  On the current state of the Japanese economy, the author said:

But what most people don’t recognize is that our crisis is not political, but psychological. After our aggression — and subsequent defeat — in World War II, safety and predictability became society’s goals. Bureaucrats rose to control the details of everyday life. We became a nation with lifetime employment, a corporate system based on stable cross-holdings of shares, and a large middle-class population in which people are equal and alike.

What the forgotten food crisis means for your investment


Do you remember what the most attention-grabbing headline was a year ago?  Before the US decided to embrace the “change” administration, before the credit bubble burst, before the cracks in the financial system started to appear for all to see, the Olympic was still in the future, and Michael Phelps and Bernard Madoff were yet to become household names .  Yes, that time.  Do you remember what dominated the headlines then?

The global food crisis.

That, along with a general global resource shortage, seemed to be what was on most people’s mind.  It was hard not to notice.  All around the world, the grocery bill, along with the gasoline prices, seem to follow an unwavering upward trajectory.

The media loved the story.  Theories of “the perfect storm” emerged to explain the rise: population growth, change in diets, irregular weather affecting harvest, higher transportation costs, and the drive towards bio-fuels.

Then the global financial crisis hit, and we suddenly had bigger problems to worry about, i.e., our pension plans and investment portfolio cut by half.  Commodity prices started to fall, including agricultural food prices, the grocery bill’s upward march is temporarily stalled.

Then just like that, the food crisis front went quiet.

Has the global food crisis gone away? Has the hand of the market somehow corrected the excessive rise of grain prices, and we no longer have a supply problem?

No, of course not. The fundamental factors that drove prices up last year has changed little.  The demand from the increasingly hungry consumers from the emerging markets still remains, albeit the growth of demand may have slowed slightly as a result of the financial sector snafu.

Yet with tight money all over, we are faced with an increasingly dire supply situation.  Reduced international aids and banking lending could cause farmers to cut back on their plantings, which may lead to reduced harvests in some major exporting countries.  Lower food prices on the international market can make farming a losing proposition in certain parts of the world, further reducing the crop output.  And the sheer volatility of food prices, as demonstrated in the last two years, are making it increasingly difficult for farmers to plan and invest.

The last short-lived food crisis was driven by a strong surge in demand that caught the suppliers off-guard.  The brewing crisis that will inevitably hit us in the near future, I believe, will be driven mostly by a lack of supply.  When met with a steady growth of demand, we will find ourselves in a position where the lack of credit and thus ongoing investment, neglect of farming infrastructure, and the volatile oscillation of agricultural prices, have all but stagnated, if not outright damaged the farming industry.

Mirror mirror on the wall, who’s the gloomiest of them all?

expert predictions 2009

Thank you to The Penny Daily for including this article as its “Editor’s Pick” in Carnival of Everything Money #5.

We set out to see what the experts are saying about 2009.  What we didn’t realize was how the art of providing financial outlook has become a game of “one down-manship.”  How else would you explain the boom in competition for the title of Dr Doom?

So it would seem that the Rapture is upon us, are you ready?  Yeah, we feel the same way.

Here’s our survey of what some of the bigwigs in the investment industry have said about 2009 in recent months.  In our mock* roster, we have Warren Buffet the sage; Nouriel Roubini aka Dr Boom/perma-bear, or our favourite, the playboy Professor; Nassim Taleb aka Black Swan; Peter Schiff who’s-laughing-now; Jim Rogers my-kids-speak-Chinese-and-that-is-my-investment-hedge; Marc Faber the original-Dr-Doom; Don Coxe via Basic Points; and John Embry the Canadian goldbug.

Outlook for 2009

Investoralist: So how bad is 2009 looking?  Don’t hold back now, give it to us straight-up!

Warren Buffet: We have lived in one way in one type of economy. And we’re now deleveraging that economy. We’re gonna have to live without the same impetus from credit expansion that really helped propel the economic engine for a long period of time. That wind will not be at our back.

The economy will be in shambles throughout 2009, and, for that matter, probably well beyond, but that conclusion does not tell us whether the stock market will rise or fall.

Nouriel Roubini: The worst is yet to come.  I don’t want to name names, but many [banks], given the housing bust, will become insolvent. Their losses are mounting because they have written down only their subprime loans so far. They haven’t started writing down most of their consumer-credit losses, and reserves for losses are much less than they should have been. The banks are playing all sorts of accounting gimmicks not to recognize them. There are hundreds of millions of dollars outstanding in home-equity loans that eventually could be worth zero, too.

Nassim Taleb: The problems are still here. People that were in charge, they are still around. The bankers that got us here are still around. And we’re giving them more money. It’s not a regular crisis, the whole system need to be changed. We need to reduce debt. We need to reduce asymmetric pay-offs of the banks. This is just the beginning, we need to de-leverage so massively.

Peter Schiff: I wouldn’t get to enthusiastic about it. I think the lows are not in for the Dow, if you measure Dow in terms of ounces of gold, then US stocks are headed for a lot lower in 2009. Ultimately, everything that Obama is proposing is destructive to our economy.

Have you thought about DIY learning lately?

DIY Education

I’ve felt ambiguous and conflicted about education for a long time, because it inspires while it stifles. But here are two ways it has always resonated with me.

One is learning for learning’s sake. Now looking back, and without sounding nauseatingly cheesy, there is something pure and unadulterated in the joy of soaking in the world.  I was never a science person. But I still remember in Grade 11, the excitement I felt bubbling from my belly, when trying to explain to my mom the idea of atmospheric pressure and rain formation and somehow likening it to the pan on the stove that was steaming our vegetables for dinner.

But I am also diabolically practical. So this form of learning left me feeling somewhat indulgent. Coming from a family where money was never something to be taken for granted, I always felt slightly guilty if what I was putting in my brains was somehow not contributing to the process of attainment that would eventually be responsible for putting food on the table.

The second source of turn-on is the sometimes masochistic pleasure of having to perform under pressure. Yes, I am perfectly aware of what that sentence sounded like. But the truth is, when overwhelmed to just the right degree, education has contributed greatly in honing my “getting-things-done” skills.

For me, education hit the right spot in high school. It was broad enough to sample from, yet challenging in its particularities to stimulate quite a bit of brain activities. But university, not unlike technical colleges, tends to churn out specialists, whether in the fields of art history, chemical engineering, or accountants.

The often repetitive and dogmatic field of business studies made me more cautious, practical, and cynical about the institutional delivery of education. It also iterated the value of an education by continually flashing dollars signs in front of students in the forms of sponsored conferences, prized internships, and the ultimate plushy fruit – a prestigious, high-paying job.

After a couple of years of manipulating spreadsheets, I returned to school and picked up, then subsequently dropped, the utopian study of politics. Slightly disillusioned over the ivory tower dissection of some irksome subjects, I turned to the idea of educating myself.

Needless to say, we live in a time when knowledge dissemination could not be greater and more easily accessible. The only thing required of us is our time and attention. After divesting myself of school, I had all the time in the world. I can safely report that, if you have the time and patience to learn, then there’s someone out there willing to teach you how to do it, most likely for free.

My point here? Learning does not always need to take place in school, nor does the departure from a particular time in our lives signal the end of learning. Unbeknownst to us, when we put our heads down at jobs, our exposure to the world narrows significantly. But learning need not stop there – if not for the selfish reason of keeping ourselves relevant in this ever-changing world.

Believe it or not, the recession has perks

Recession has benefits for Gen X and Y

Thanks to the Skilled Investor for including us in its Carnival of Financial Planning for Mar 7.

Really?  Yes.  And I’m not talking about the less stress, better health, more me and my family-time kind of perks.

Let’s rewind.

For months, we have been pounded in the head over and over again on the evils brought on by the recession.  Let’s recount the havoc wreaked.

  • Retirees have seen their savings significantly reduced or wiped out, some even going back to work to alleviate the cash problem.
  • Baby boomers see their expected retirement date stretched indefinitely into the horizon, investments portfolio reduced, housing worth shattered.
  • Gen X are getting squeezed in the workplace in more ways than one, and feels more insecure in the job market.
  • Gen Y, having just gotten their feet wet in the workplace, feels betrayed by the many promises dangled in front of them.  Demographers have predicted speedy career advancements as a result of baby boomer exits. So much for that.

There has been considerable faults placed on the baby boomers, in their relative easy paths to success in America since the 1950s.  There were no major war nor catastrophic financial turmoil, jobs were easy to come by, properties were cheap, and the infrastructures were there to service their every need.  Many Gen Y and Gen X blame the “selfish” generation for their over-the-top consumption, excessive debts, degradation of the environment, mis-management of the social security and health care systems that will be defunct as soon as they have benefited from it, and falling asleep at the helm when it comes to financial regulation that plunged the nation, and perhaps the world, into the perilous position that we are in now.

Simplistic and over-dramatic? Indeed it is.  But there is no denying that for the younger generations, the foreseeable future is an uphill battle.  The workplace will only become more competitive, property prices are still steep in many parts of the country, health care and social security is broken, and country is bankrupt. Ouch.

But is this recession really the be-all and end-all that a lot of people make it out to be? Of course not.  Is there a silver lining under all these stories of misery? Of course there is, as there always is, during times of unjustifiable pessimism.

Times are bad, and things are difficult.  But as Warren Buffet said, and I’m paraphrasing him here, that in the last a hundred years, the US has seen a flu epidemic, two world wars, a great depression, a dozen recessions and panics, and by the end of the century, an average American was living seven times as well as they did beginning of the century.

Granted, many people lament that this will be the first generation that will not live as well as their parents.  And surely, we have no reason to expect the past to repeat itself indefinitely into the future.  But perhaps this recession will even out the playing ground just a little bit for the disgruntled X and Ys.

Paging common sense, integrity, and accountability?

Accountability and Integrity Needed

Does the name Abby Cohen ring a bell? It does for me, and it broils my blood. Chances are, if you were at all invested during the tech bubble in the early 2000s, you would recognize the name too. Dubbed “perpetual bull“, she championed the rise of tech and telecom stocks all the way to the stratosphere.

At that time, she was the star analyst at Goldman Sachs. The companies she covered loved her (which should’ve been a warning sigh all by itself), the market loved her, as wave after wave of heart-stopping rises made her outrageous bullish calls nothing but prophetic. In fact, in the midst of the March 2000 sell-off, she was still lauding for another bullish run.

So it bugs me to no end that a few weeks ago, the name Abby Cohen popped up on my screen again. It seems like over the last few years, Ms Cohen was back to her old tricks, spreading her never-ending cheery outlook throughout 2007 and 2008 on any media outlet that would have her. Her standing at Goldman was seemingly undiminished till mid-2008 when she was finally replaced (or self-demoted) in her role as the chief strategist. Yet her name still pops up, ready to hypnotize another generation of ill-informed investors, eager for a quick buck in the casino of stock trading.

My question now is this. How could this happen? How can individuals like Abby Cohen not only survive, but thrive as an analyst, with consistently bad calls on the market? If a supermarket stocker routinely make mistakes while stocking, fail to input the right information into the computer and create nothing but inconvenience for the customers, he would be fired, right? So why can’t the same accountability be applied to a stock market analyst when it is her job to be, at least, be more right than wrong?

It might be negligence, ignorance, or outright incompetence. But the media, so keen on scrutinizing every piece of breaking news on its 24-hour network, seems to lack both the will and the ability to call out the inconsistencies.

And I can hardly imagine the conversations that would go on behind closed doors at Goldman (and undoubtedly many others) when it comes to dealing with puppet analysts such as Cohen. The thing is, the stock market can only go two ways, up, or down. So whichever way you call it, you are going to be 50% correct. I wonder if these advisory outfits divide their analysts into two groups, the uppers and the downers, each inextricably bound to their roles as surely as they are to their bonuses. And just like a traveling puppeteer workshop, they would whip one or the other out when the occasion calls.

Perhaps with the impending restructuring of the entire investment/banking industry, some level of scrutiny, accountability and integrity will be injected into the system. These basic human decencies should be demanded of our bankers as much as any service providers we pay for.

Believe this, and you’ll sleep better at night

Market Inefficient Sleep Better at Night

Modern finance has three perspectives on the workings of the stock market. Inefficient, semi-efficient, and perfectly efficient. For the most part, market observers nowadays believe in a semi to perfectly efficient market. That is to say, information regarding a company is priced into its stock almost instantaneously.

Financial statisticians devote years churning out data to prove that the market, for the most part, is extremely efficient in factoring in new information. And stock prices: barring insider information and uncouth accounting manipulation, is an accurate barometer of the intrinsic value of the company.

Except this is hardly the case. The assumption of market rationality can only be taken so far. We have all seen what happened to the market during the tech bubble and the now real estate bubble. Waves of market decline we are witnessing now may very well signal irrational pessimism: there are many businesses now trading well below their intrinsic value.

Now we need to separate the true investors from the speculators.

Most market experts are behind the notion that buying low and selling high is the right approach to investing. In other words, a successful investor should consistently buy at the lowest point in the market and sell at the point of irrational exuberance. Considering nobody has a crystal ball and thus very few can consistently “time” the market successfully, the industry of technical trading sneaks its way into the investing world. Jargon like resistance, support, and moving average enter the popular vocabulary.  Many people go for it hook, line, and sinker, then get burned attempting the impossible. The impossible being trying to outsmart everybody by applying the gambling mentality to investing.

And then there’s Warren Buffet and his disciples. First, they separate the notion of using stock prices to measure the value of a business. They distrust the oscillatory swings of the market and the speculative herd that drive it. Buffet views buying stocks or bonds akin to owning a slice of the business. If the business is sound, why worry about fluctuations in price? Secondly, the timing issue is eliminated. Berkshire Hathaway does not seek to enter the market at the lowest price, nor exist at the top. Instead, BH makes a point of exiting the market as soon as the stocks are thought to be overvalued, thus providing its shareholders a fair return on their investment regardless of their chosen time of exit.

What a relief, to take back control instead of beholden to a schizophrenic market.

Which brings us back to you as an individual investor. Sure, it would be hard to own a piece of the business you invest in without Buffet’s capital base. But it does bring the point home that you don’t need, nor want to be an opportunist when it comes to investing. If you do bring the gambling mentality into the investment game, then be prepared to lose it all.

Breaking out of holding pattern and taking steps towards change

Change can happen

Time and time again, I hear tales of friends getting stuck in their lives because there are too many factors outside of their control. There are student loans to pay off, financial responsibilities to meet, expectation from parents to placate. It is a lot to take on. And in the midst of all these, it’s all too easy to feel like a hamster on a wheel, spinning constantly without getting ahead. Right?


If you are in your twenties and early thirties, and yet to be saddled with the responsibilities of children, then what are you whining about? If there is something you don’t like about your life, this is the time to say screw-it, move on, and try something else.

Figure out what you’re unhappy about

Nobody is perfectly happy with their current situation, whatever it may be. But if you feel there is something fundamentally wrong, or missing, then work on it. Many people that I speak with suffer from this form of anxiety that gives off these jittery and fidgety vibes. They all tell me that they are anxious for change, but most can’t not pin down exactly what it is that they want changed in their lives.

I usually rattle off a list of potentially irksome areas:

  • Change in city/country
  • Change of job
  • Change of career
  • Change of friends
  • Change of scenery altogether (all of the above)

The last option is easy to fix. Usually the person packs their bags and the next thing you know, there are pictures of Romania on their Facebook. But travelling does not automatically lead to a gotcha moment, nor does it raise you to a higher level of awareness. For the most part, backpacking trips do not offer many moments to meditate on the meaning of life. It’s always action-packed and thoroughly exhausting for both the physical body and mental faculties.

So then the question begs, what do you need to fix in your life to be happy? It is notoriously difficult to figure out what truly makes us happy, but investing some time to figure out whether your are happy with the 3 Ps: People, Place, and Profession, might be a step in the right direction.

Changes is always difficult and never difficult

Anything that seems challenging now, will only become even more insurmountable as we age. Our cognitive processes witness a steady decline around our thirties, our physical body bump against a similarly plateau. Many also formally cross into adulthood by getting married and starting families. All these added responsibilities and limitations will unfortunately constrain our choices in life further. If change seems an impossible feat now, then it might never come for you.

Who would you trust with your investments, Lindsay Lohan or Meryl Streep?

Streep or Lohan to advice you on investmentPuzzling?

Let me explain.

I am a huge gossip hound, I don’t read People or US Weekly, but I do follow a number of gossip bloggers almost religiously. I love one in particular, not only because she’s highly entertaining AND introduced me to Fight Night Lights, but because her insights allowed an outsider like me glimpse into the cynical workings of the entertainment industry. How else could I have come to understand the dire consequences of plastic surgery addiction, passive-aggressive diatribes of an insecure diva, and the many layers of hidden media manipulation that’s unbeknownst to most of us?

Time and time again, the lesson that I take away from the smut is this. The IT boys and girls come and go, but the Meryl Streeps of the world do their jobs, go home, and wake up to see another decade or two of good works ahead of them.

Now, this is not a gossip blog, and there is a point to be made here, I promise. The thing is, just like an actor, an economist or analyst has a very long working life ahead of them (if they are lucky). And like Hollywood, the waters of Wall Street and the investment industry is just as treacherous. It’s hard to get ahead or get noticed in those ultra-competitive and dog-eat-dog kind of environment.

So when an analyst suddenly gets exposure by mastering some new trading anomaly or has a part of his or her research predictions come true, their status is swiftly elevated. It’s not unlike a starving actor in LA, rejected after years of unsuccessful auditions.  His luck turns, he unexpectedly lands a starring part in some Josh Schwartz hit show. And just like that, he becomes household name in a desirable demographic.

But Wall Street, just like Hollywood, is fickle. The media is always looking for a fresh perspective, much the same way Hollywood paparazzi are always on the look-out for fresh faces to sell pictures. The end motivations are the same: getting people’s attention, whether it comes in the form of a contrarian opinion or drunken debauchery on Rodeo Drive. Media looks for controversy, and there are always willing participants.

They are usually always too happy to be typecast in a role. Whether it’s the perpetual bull, perma-bear, or the new party boys and girls frequenting Il Sole. What they don’t realize yet, is the limited shelf life of their newly minted status, and how quickly the media will tire of them and hold auditions for the next cast when the time comes. It may be a new kind of show the audiences turn to, or it might be the market taking an unexpected turn for the better or worse.

Then, as quick as it came, fame departs, and the IT stars of yesterday will be forgotten. Squeezed dry of their appeal by their handlers, pigeon-holed in their respective niche, they are left fending for their careers by groveling on their knees for scrappy roles, or occasionally getting exposure by pulling stunts that capitalize on their fading fame.

Are you seeing the whole picture when it comes to investing?

See the Whole Picture

Thank you to Penny Daily for including us in its Carnival of Investing Strategies #5.

What makes a successful long-term investor? Is it an exceptional understanding of the market? Is it a Blackberry full of Wall Street contacts that tip you on every insiders’ move? Is it a PhD in quantum-physics or mathematics?

No. Because if that was the case, then most investment funds with their well-paid, well-educated, and well-connected managers would not be walking around with their portfolios 50% lighter.

So what is it about the market that suckers in so many people? How is it that some investors are ruthlessly spit out, and others remain relatively unscathed in the long-run?


But not just business knowledge. What has been taught in business school and other rudimentary business classes do little to improve one’s chances when it comes to investing. Why? Because the knowledge presented in those accounting and finance classes only give you a myopic look at the whole picture.

For example, say you are an accounting maven but know nothing of what’s going on in the mortgage market in 2006. You look at the balance sheet of banks, match up the debit and credit sides, check off the triple-A rated loans, and marvel at how the bank has managed to grow so quickly in the last few years. But any economists looking at the picture would be alarmed at the rate of growth, probe deeper into the loan ratings, gasp at the poor judgment exercised on part of the bankers, and issue a warning. Someone who is schooled in politics would take a hard look at the political contributions made to head of committees that signed off on the predatory lending policies and yell foul! And any Tom, Dick, and Harry, who’s been canvassed by sketchy pseudo-lending institutions would tell you that if it walks like a scam, and quacks like a scam, it is a scam.

So there, it only takes someone who is in touch with reality to smell the foul. If confined to an academic or industry-conformed bubble, it will take someone who is willing to see the whole picture and dare to ask questions to reach the same, sane conclusion.

Here’s another more direct investing example, taken real-time off the happenings of the current market bloodbath.

When the market started going off the deep end beginning of the year, many respectable economists and analysts called for a sharp decline in the US dollar.

Not that the dollar didn’t deserve it. The stock market was abysmal, debts were piling up, inflation was fuelled by the astronomical rise in crude prices, and the gold bugs went nuts.

But the dollar didn’t fall, at least, not in 2008. Contrary to what many expected, the greenback went from strength to strength against the pound, the euro, the Aussie and Canadian dollars. How could they have been wrong? Their analysis made so much sense.

Why cable business news will drive your investments into the ground

Cable News Bad for InvestmentWhere I used to work, we rotated MSNBC, CNBC and CNN Business in the background non-stop. Every market movement relevant to the energy market was followed, analyzed, and regurgitated on those channels. For the oil trading desk I worked next to, every threat of Iranian oil embargo, every possible hijacking off the Somalian coast, every Nigerian riot, would send the trading guys off in a flurry of activities.

Back in 2007, oil was trending up into infinity and beyond, and everyone was in a great mood. I don’t know about now. But my point here is, these kinds of reporting are great and useful.

For a trader.

But you are not a trader, are you? You don’t trade Forex or options for a living, do you? Because if you are an investor – and I define an investor as someone that holds investing instruments for the medium to long-term, then SHUT OFF the TV. They are worse than useless. They are downright detrimental to your investment portfolio.

The business reporting business, much like the regular media outlet, is like a stage. There is a cast of characters. They play their roles to the T, and they do not improvise. The networks themselves are self-serving media machines that get turned on for one reason and one reason only: to make a profit. Next time you see Maria Bartiromo, Erin Bennett or Becky Quick, you need to realize who’s paying their bills. It’s the advertisers, usually financial service companies that fill up these 10-20 second slots right after they tell you they’ll be “right back”. And who do they return with after the commercial breaks? Oh don’t you know it, it’s the in-house economist/strategist/analyst from those very firms.

Do you see what I see here? I see irreconcilable conflict of interest. I see many of those guests coming on the show with a very clear agenda in promoting a certain investment style, a sector which they are experts (and happen to do business) in. The intentions are not always malicious, but it does place a bit of a gag order on the interviews themselves. After all, should a disagreement arise, how far can an anchor go on challenging their guests’ positions, knowing fully well their counterpart is partially footing her salary.

And then there are those anchors that leave you scratching your head. These are the personalities that would be better off working in the pits of the Chicago Options Exchange. Because they seem to confuse their responsibility in covering useful business and economic analysis, with pulling hourly trading tricks out of the hat. Watch this (especially towards the end) and tell me there’s any integrity in what they are doing here. What’s the obsession with actionable items, are they trying to cure a rash? I don’t know if what they are selling is going to show up on some late-night infomercials, but I ain’t buying.

Why smartness and education do nothing for your investments

Education and smartness do not help investingIt is little exaggeration to say that many people are losing their shirts (if not worse) through the ongoing financial turmoils. A few got caught up in some truly heinous swindles, but for the most of us, the losses came through our previous-thought conservative investments.

What happened? What happened to the smart experts that put out money into hyper drive for a fee, but came back with losses? Are all these letters behind their names truly worth their weight in paper?

In all fairness, in a year where even Warren Buffet’s having a tough time, we can ask for little more than a mere preservation of capital. But for millions of ready-for-retirement boomers, this is no consolation. The S&P Index is back to 1997 lows, the bloodbath continues on Wall Street and Main Street.

Troubled started brewing by the end of 2006, as many forecasted low growth for 2007. Yet the market defied expectations, and the naked emperor marched on.

Now in retrospect, the picture is so clear. The US and a number of European countries were experiencing massive real-estate led credit bubbles. Many banks were leveraged to the hilt on their sub-prime lending. Debts were piling up (residential, commercial and credit cards). But the general consensus, or should we call it wishful thinking, was that there would be a soft landing at worst.

Instead of heeding to a minority of economists and analysts’ pleas to exit the market, more individual and institutional investors poured money in, hoping to ride the ever-rising wave to riches.

The media outlets were of no help. The 24-hour squawk box provided little insights and meaningful discussion to the issue. Eager to fill out its screen time, so-called experts and analysts were brought in, each with their own agendas. The stage was set up for them to further confuse the public and fan the flame of speculation.

At a time when the only thing left to say should have been: we’re in trouble, how do we get out, and by the way, get the hell out of the market right now; the discussion on short-term profiteering and trading opportunities raged on.

As much as on-line discussion over the true state of the economy becomes increasingly evolved, timely, and trustworthy, it pales in comparison to the media machines dominating the airwaves. Is it any surprise that on a day of epic market decline, McCain, a respected political veteran and what we would expect, an informed citizen representative, could utter that he believed that the economy was “fundamentally strong”? I’ll bet I know what show they had on TV while he was waiting backstage for his campaign rally.

On that note, let me address the titular issue of why being smart and educated does nothing for your investment portfolio. This may come across rather old-fashioned, but the basic human virtues of integrity, patience, self-awareness and self-understanding are the qualities that will make you a winner in the game of investing. And the sooner we recognize it, the sooner we start making smart and wise decisions in our investment lives.