It seemed like a bad joke. Earlier this year, a Dutch biologist had developed a strain of bird flu that is both deadly and very contagious. We are not sure if this danger was being hyped, as so many flu stories are; but reports were saying this virus could kill half the earth’s population. The concern is that it could find its way into Jihad terrorists’ hands and become a biological murder-suicide weapon. Doesn’t this seem crazy? And – the U.S. government provided financing for the research to develop it! Sit and ponder this for a while: how did this super virus come into existence?
It was intentional. Some person or group of people intended to develop a virus capable of killing half the world’s population. I am certain the American government officials who financed the research and the genius biologists who developed the virus had concocted an excellent-sounding reason to work on such a project. It must be akin to the intention of Albert Einstein when he worked on his nuclear physics project: his discoveries led to the development of the atomic bomb… another case of good intentions gone wrong.
What’s needed here is a committee of Irish philosophers headed by the notorious Mr. Murphy, namesake of that famous law. Their job would be to look at these projects with an eye to Murphy’s Law: if something can go wrong, it will go wrong. Surely these great scientists can envision the impact of their own discoveries on the war-like tribes that currently inhabit this earth! It seems like a bad joke where nobody’s laughing.
But the scientific community isn’t the only one to indulge in extreme naiveté. The financial community has taken us to the edge. In the greed-inspired mortgage fiasco in the first few years of this century, American mortgage lenders blew the brains out of the mortgage and real estate markets in the USA. To make matters worse, greed-inspired investment dealers sold that mortgage paper to banks all over the world. The consequence of this wild irresponsible action was the mortgage crisis of 2007-2008. And the consequence of that mortgage crisis was that many Canadians saw the value of their RRSPs drop by 30 to 40%.
2011 revealed yet another example of financial craziness. This time it was whole nations who went crazy. They call them the Euro pigs: Portugal, Ireland, Italy, Greece and Spain. Their governments borrowed so much money that now they're unable to pay it back. And the European banks who own these nations’ debt instruments are in deep trouble. We've got another banking crisis on our hands. It seems like another bad joke; but once again, no one's laughing.
Do we live in the age of naiveté? Do people not realize the consequence of their own actions?
Our government tells us that Canadians are seriously in debt. Mortgage debt, credit card debt, personal loans: Canadians are in over their heads. On average ordinary Canadians have borrowed way more than they can afford to pay back. My friends in the consumer banking business tell me that the worst offenders are lining up to get even more in debt. Apparently they just don't get it. Apparently the concept of paying back your debts is not a part of their repertoire.
The underlying theme of this financial naiveté is that, when they borrow money, people aren't thinking about paying back their debts. Whether it's American homebuyers, European countries, or Canadian consumers, they all seem to have forgotten that debt has to be repaid. And in doing so they've created a financial super virus.
In my investment book, Beyond the Bull, I talk about having personal investment techniques. An investment technique has two parts: buying and selling. It's just like a loan: the two parts of a loan are borrowing and paying back. In the same way that borrowers sometimes forget about paying back, investors can sometimes forget about selling out.
Selling out is the investment equivalent of a flu shot. You can’t lose money in a stock market decline after you’ve sold your stocks. You become immune. If your investment technique has a provision for selling, there's no need to lose money if the stock market goes down. In the same way, there is no need to miss out on making money when the stock market goes up if your investment technique has a provision for buying. Good investors plan the buying AND the selling.
Good consumers plan the borrowing AND the paying back.
I wonder what good biologists do. Do they plan the sickness AND the cure? It's obviously wiser for them to plan the cure first, then the sickness. That would be like a good investor planning to sell his investments before he buys them. Such wisdom is rare.
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