Just for the News Junkies

A couple of weeks ago I wrote about how I've decided to refocus the blog on exploring ideas and topics related to finance and investing. To do this, I've farmed out some of the alternative purposes to other platforms like Twitter, Posterous and Chart.ly.

I've had a couple of folks ask about bringing back the "I Read the News Today" features, though, and I understand the value of curation. In fact, that's pretty much been the foundation for the growth of my Twitter following but because this still doesn't fit my idea of what the blog should be used for I setup another platform to do this over at paper.li.

All the links I share/curate on Twitter will be aggregated here on a daily basis and it looks something like this:

What Your Financial "Adviser" Doesn't Want You to Know

Yesterday I posted a rant I shared on twitter over the weekend. The focus of the rant was an annuity that was offered to a client of mine. Essentially, it paid the investor $5,500 per year (1.1% on $500,000) for ten years with a $50,000 early withdrawal penalty. It paid the selling "adviser" a $32,500 commission and nowhere in the contract did it disclose these terms (only by contacting the company can you learn them).

Clearly, this product is not in the best interests of the investor. There are better ways to earn 1% if that's what you're looking for. BUT that's one hell of a commission, isn't it? This is precisely why brokers have been fighting to avoid the burden of "fiduciary duty."

Holding brokers to this standard would legally obligate them to put their customer's best interests above their own, a standard only "investment advisers" (like yours truly) are currently held to. In short, it would make selling the aforementioned product illegal for stock brokers.

What's more confusing is many brokers call themselves "financial advisers" though they are not technically "investment advisers" and thus aren't held to the higher standard of professional ethics.

Personally, I think it's fine if brokers want to avoid "fiduciary duty." We don't expect this of salesmen in any other field. However, they shouldn't then be allowed to use the term "adviser" or any derivative of the word. If you're not going to do the right thing by your customer then let's at least "call a spade a bloody shovel."

Rant

Looking at a fixed-indexed annuity presented to a client from another "adviser." Just blown away these things are legal. #caveatemptor

— Jesse Felder (@jessefelder) January 21, 2012

Pays 1.1% on $500k "investment" and money is locked up for 10 yrs with 10% early withdrawal penalty-Pays selling "advisor" $32,500 on day 1

— Jesse Felder (@jessefelder) January 21, 2012

Rates of return and "adviser" commission stated nowhere in the contract.

— Jesse Felder (@jessefelder) January 21, 2012

Just amazed these things are legal. Educate yourselves, folks: cnnmon.ie/zhblNb and don't buy this shit.

— Jesse Felder (@jessefelder) January 21, 2012

Noise

One of the biggest challenges for investors is determining what's valuable to your investment process and what's noise. I would guess that at least 95% of what I read and a huge chunk of the research I do is worthless to mine. Making that determination, however, is not nearly as easy as it seems.

Getting caught in the quicksand of macroeconomic theses, debatable technical formations, and both touts and short-sellers with unspoken agendas can happen in a split second. The hardest part is some of this stuff can be very valuable, too, but it can also very quickly lead you astray - to focus on a few trees and miss the forest, as they say.

I think this is why Warren Buffett has said that there were times in his career where he wished he had just gone to the movies instead of to the office. It's so hard to tune some of this stuff out. You feel like you're going to miss something when the bigger risk may, in fact, be that it sucks you in. You become too risk averse at the wrong time or take too big a risk in the wrong opportunity.

When in doubt just turn the volume down or off completely and refocus. Sometimes it helps to just stare at forest for a while without even noticing the individual trees.

Perfection Is Overrated

My biggest problem with modern music is that technology can now make anyone sound perfectly in tune regardless of their true skill or talent. I know I'm not alone in hearing a song on the radio and immediately feeling conned somehow. Human beings are not capable of perfection and when we're presented with the pretense of perfection we should feel deceived.

I could argue that what made the Beatles so great was how close they came to perfection without actually attaining it. While it's very difficult to quantify greatness, it's relatively easy to quantify flaws. Hence one of the things that made the Beatles so great was how relatively minor or insignificant their musical flaws were relative to the rest of the bands or musicians that ever recorded a single note.

In fact, I could take it a step further and argue that their flaws are precisely what endear us to bands, musicians, actors, comedians, friends and lovers. Flaws are what make people real. Perfection, in contrast, is inanimate, lifeless. And artificial perfection is even less appealing.

Beware financial advisers who don't readily disclose what they can't do for you or the conflicts of interest inherent in their compensation or even their personal shortcomings. Your ideal adviser is flawed but open and candid about those flaws. Remember that Bernie Madoff, like much of modern music, pretended to be perfect.

Gold

A few months ago I was getting asked a lot about gold. I guess it's a good sign I was getting "asked" and not "told." I was "told" a lot about real estate back in 2005.


I can understand gold's use as an alternative to the fiat currencies of the world but, personally, I can't find any investment merits in the metal at all. I just don't know how to value it and I readily admit that may be a shortcoming of mine.


Ultimately, I think Warren Buffett does the best job of quantifying the argument:

You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?

This is not to say gold is not a good vehicle for speculative activities. It just doesn't make any sense as an investment, a distinction that is imperative to acknowledge.

Focus

I read this post today over at Seth Godin's blog and it made me realize just how little time people spend on strategy as opposed to just performing tasks. Actually, I've been spending some time thinking about this because at times I'm as guilty as the next guy.

We spend the vast majority of our time on our "to do" list, in meetings, reading and replying to email, making phone calls, etc. How effective are these at meeting our goals? Do we even have a big picture strategy in mind during the course of performing these functions?

My guess is for most people these actions are actually counterproductive to their goals. Emails, meetings, assigned tasks, etc. actually push and pull us in so many directions we forget which way is up.

What I believe sets the successful apart from the average is simply focus. Relentless focus on the goal even in the midst of performing the seemingly menial.