Friday, December 18, 2009

Copenhagen Cop-out.

The Copenhagen climate change conference was a show case for human nature. The conference was rife with blow-hard politicians and self-righteous protesters. The human ego is an amazing thing. And now that they’ve all gone home, what did we learn from this spectacle?

Modern human beings have a strange focus on the grandiose. We love the billion dollar international deals where rich nations give to the poor. We love the massive national targets for emission reduction, the idea of all nations cooperating in a globally united effort. We love this focus on bigness.

But, in problems like this, the devil is in the details. Greenhouse gas problems seem easy to solve.

For starters, an automotive engineer friend tells me that diesel engines use half the fuel that gasoline engines use. It’s easy for a nation like Canada to introduce limits on the numbers of gasoline engines produced in Canada: then the manufacturers would simply build cars with diesel engines instead. The government could easily limit the number of 8 cylinder engines in passenger cars. They’d simply build cars with 6 or 4 cylinder engines. The government could easily regulate the weight of passenger cars: they’d simply manufacture lighter cars. In other words, our government could easily force Canadians to drive the same kind of cars people currently drive in Europe. And the auto manufacturers could easily produce them.

Why won’t elected politicians do these obvious things? Because they are focussed on the grandiose. They are not interested in the boring details of simply getting the job done. It’s human nature.

It’s so easy to see the futility of human nature in others; not so easy to see it in ourselves.

Consider the financial world; are we all focussed on the banking system, the world economy, the automotive bail out? Are we overlooking the obvious simple things we can do to save our own personal financial worlds?

What about your budget? Do you spend responsibly? Do you save money? Are you too far in debt? These things are easy to sort out.

And what about your investments? Are you making money? Or are you losing? Is your investment advisor worth the money you pay them? Do you remember how you felt last year when the stock market dropped 45% in 6 months? Did you wish you had sold out long before? Have you sold out now?

For advice in this matter, I turn to country singer, Kenny Rogers. In his song, The Gambler, he offers this simple advice: “You’ve got to know when to fold ‘em, know when to hold ‘em, know when to walk away, know when to run.”

But most of us have caught the Copenhagen flu: we focus on the grandiose problems of the world and forget all about the simple things we can all do to defend ourselves from future financial loss.

In my book, Beyond the Bull, I write about how your human nature impacts your investing. I encourage readers to focus on their own investment accounts, not on the grandiose world financial markets. Media coverage of the big and the bad can distract us and prevent us from quietly living our lives in a responsible way.

Focus on yourself first.

Ken Norquay, CMT
Financial Philosopher

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Tuesday, December 8, 2009

Country and Folk songs: Financial Wisdom in Disguise.

It’s early December and the days are getting really short. Our native ancestors called this time of year The Season of Dreams: the time of thinking and remembering. In the stock market, we can turn thinking and remembering into money. For this reason, in my book, Beyond the Bull, I encourage investors to be objective in their thinking and objective in their remembrance.

Critics would say, “That’s crazy: we remember what we remember. There’s no ‘objective remembering’ or ‘subjective remembering.’ There’s only remembering and forgetting.”

This is not true. The human brain is not wired that way. We are creatures who seek pleasure and avoid pain. I suggest that your memory is like this. Sometimes we forget those painful times.

Do you remember what the stock market was doing in early December 2008, one year ago? Investors were afraid to open their monthly account statements. There was blood in the financial streets. People’s retirement plans needed to be re-written.

We’d rather remember that, one year ago in December ‘08, the S&P 500 index was around 900 and now it’s around 1100. We’d rather forget that two years ago, in December ‘07 it was around 1500. And we definitely want to forget that ten years ago it was around 1500 in the year 2000.

The days are getting shorter and shorter for those who would have us buy and hold for the long term. It’s just not working any more.

For guidance in this area, I recommend some simple philosophy from country singer Kenny Rogers. In his song, The Gambler, Kenny received the following advice from an old man on a train:

"If you're gonna play the game, boy, ya gotta learn to play it right.
You got to know when to hold 'em, know when to fold 'em,
Know when to walk away and know when to run.
You never count your money when you're sittin' at the table.
There'll be time enough for countin' when the dealin's done.

Ev'ry gambler knows that the secret to survivin'
Is knowin' what to throw away and knowing what to keep.
'Cause ev'ry hand's a winner and ev'ry hand's a loser,
And the best that you can hope for is to die in your sleep."

The problem with today’s investors is they don’t know when to fold ‘em. They think they should always hold ‘em.

Further advice on this topic comes from folk singer Bob Dylan, who sang: “The Times, they are a-changin’.” It appears that the times have changed: buying and holding no longer works. Now we have to know when to fold ‘em too.

As you ponder your dreams in the next few weeks, remember. Your financial dreams are woven in this world of harsh reality: in this world of survival of the fittest. If your dreams of easy wealth in your retirement have vanished, remember that. Remember it objectively. For, when the Season of Dreams ends, it will be time to wake up.

There is real risk in the stock market. It requires offence and defence. It’s not a cake-walk to riches: “You got to know when to hold 'em, know when to fold 'em.”

Ken Norquay, CMT
Chief Market Strategist and Partner
CastleMoore Inc
“Buy, hold and know when to sell.”

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