The Financial Philosopher

Reflections on Wisdom: The End of the Beginning

"The perfect man uses his mind as a mirror.  It grasps nothing, it rejects nothing.  It receives but does not keep."  ~ Chuang tzu

Please join me for some personal thoughts on life, learning, and moving forward...

Not that I expect any readers to notice, I have evolved, both personally and professionally, over the past few years to the degree that I am convinced that financial success, if defined correctly, has little to do with financial knowledge.  Financial success, and success in any and all areas of our lives, however, has everything to do with self-awareness.  That is why, therefore, I will continue to blog about investing and personal finance but I will place virtue and self-awareness before money because, after all, that is the proper order of things.

I do nothing but go about persuading you all, old and young alike, not to take thought for your persons or your properties, but and chiefly to care about the greatest improvement of the soul.  I tell you that virtue is not given by money, but that from virtue comes money, and every other good of man, public as well as private.  This is my teaching, and if this is the doctrine which corrupts the youth, I am a mischievous person. ~ Socrates, quoted by Plato, 'The Death of Socrates'

On a similar note, I would not necessarily turn away from money and status but they do not even register into my objectives or priorities.  For example, I just received news that I passed the Certified Financial Planner (CFP) board exam.  The CFP may indirectly result in more money and status but I've learned more important lessons from my reading and writing about philosophy over the past 18 months than the six courses and five-thousand pages of CFP material I studied over the same time frame.  Knowledge is power but knowledge is not wisdom.

"Health is the greatest possession.  Contentment is the greatest treasure.  Confidence is the greatest friend.  Non-being is the greatest joy." ~ Lau-tzu   

I am also happier that I passed my annual physical exam this week than the 10-hour CFP board exam I passed last month.  Without our health, who cares about anything else?  Expanding the picture even larger, there are hundreds of thousands of people in Myanmar and China who have lost a loved-one in the past several days.  If that doesn't bring perspective, I don't know what does...

"When the mind is thinking it is talking to itself." ~ Plato

Regarding the blog, I've discovered that my posts are primarily internal conversations  with myself.  In the beginning, I started this blog as a marketing tool to direct traffic to my firm's website.  It slowly evolved as a means to crystallize my thoughts and share these internal conversations with other people.  My objective now is to continue seeking self-awareness and to lead others to know themselves, as well.

"A man only learns in two ways, one by reading, and the other by association with smarter people." ~ Will Rogers

I should also say that I have learned much from the readers whose comments have provided much knowledge and wisdom that has provoked great thought and reflection for me.  Thanks!

On a smaller note, I have stopped the Weekend Wisdom category of posts.  There is no reason to have some kind of catchy phrase in the post titles that only confines the title to a particular time of week.  Also, the posts have evolved to be no different than any other post published at any other time of the week...

"What the caterpillar calls the end of the world, the master calls a butterfly." ~  Richard Bach

Whether you are a new or long-time reader, thank you for being here!  I look forward to enhancing the experience for you and for me as we continue to move forward.  I will continue to leverage timeless wisdom for your financial success, but more importantly, for your path to a meaningful existence...

Thanks for sharing the end of the beginning of The Financial Philosopher.  I have so many ideas to share and plans to grow the blog into an even more effective means to learn more about myself and to help you learn more about you...

Cheers...

   

The Cycle of Greed: A (sub)Prime Example...

"He who is greedy is always in want."  Horace (65BC - 8BC)

I could not help but comment on the The Wall Street Journal (WSJ), June 27, 2007, front-page story, "How Wall street Stoked The Mortgage Mess."  The article illustrates yet another example of, what I have described as, the cycle of greed, which threatens to destroy the same force it has created...

The "Cycle of Greed" as illustrated by WSJ:

   

I selected a few choice paragraphs from the WSJ article and made some strategic edits to illustrate my view:

Twelve years ago, Lehman Brothers Holdings, Inc. sent a vice president to California to check out First Alliance Mortgage Co.  Lehman was thinking about tapping into Alliance's lucrative business of making "subprime" home loans to consumers with sketchy credit.  greed.

The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial "sweat shop" specializing in "high pressure sales to people who are in a weak state." greed. At First Alliance, he said, employees leave their "ethics at the door."

The big Wall Street investment bank decided First Alliance wasn't breaking any laws.  Lehman went on to lend the mortgage company roughly $500 million and helped sell more than $700 million in bonds greed backed by First Alliance customers' loans.  But First Alliance later collapsed.  Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.

Today, Lehman is a prime example of how Wall Street's money and expertise have helped transform subprime lending into a major market force in the U.S. financial markets greed.  Lehman says it is proud of its role in helping to provide credit greed to consumers who might not otherwise have been able to buy a home, and proud of the controls it has brought to a sometimes-unruly business.

And the cycle continues...

TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston.  ACI specializes in retirement, investments, and financial planning.

When Will The Spending End?

"Money, you have lots of friends hanging 'round the door.  When it's gone and the spending ends, they don't come no more."  -- Billie Holiday (1915-1959)

After reading an article in The Wall Street Journal (WSJ), I could not resist posting an addendum to my previous post on housing and the American consumer.  The WSJ article of May 3, 2007, MasterCard Posts 70% Profit Gain As Consumer Card-Usage Increases, speaks directly to my comments regarding the American way of spending more than we make and the nearly endless and arguably dangerous capacity to do so.  Notice that I said "nearly endless..."

MasterCard's 70% profit gain attests to a shift in spending vehicles -- not a shift in spending behavior.  The WSJ article comments that "MasterCard's results have been bolstered by strong consumer spending, despite the housing slowdown and high gasoline prices in the U.S."  I believe the article should have said that MasterCard's results have been bolstered because of the housing slowdown not despite a slowdown.  Consumers are simply shifting from the mortgage equity money tap to credit cards.  As housing and Mortgage Equity Withdrawal (MEW), what I call the "money tap," dries up, the American Consumer will not simply change their spending habits.  Americans will vehemently perpetuate their lifestyle with every ounce of energy and spending vehicles available. 

As much respect as I have for (most) economists and (some) financial media pundits, quantitative data does not make up the entire "big picture" of the economy and financial markets.  Consumer spending is primarily a behavioral issue -- a qualitative concern -- not a quantitative one.  As the mortgage equity money tap runs dry, Americans will predictably turn back to credit cards to finance their lifestyle.  And why not?  After all, salaries are on the rise, the stock market is doing well, and we re-financed all of our credit card debt with equity from our homes.  Our credit cards have low or zero balances!  On a personal note, I've noticed a resurgence of zero percent "teaser" rate offers for credit cards filling my mail box.  Most of the offers are for one year -- just long enough to max out those credit limits right around the same time adjustable rate mortgage (ARM) teaser rates "reset" and push mortgage payments significantly higher!

In financial markets, most everything, arguably, begins and ends with the consumer, which partially explains the push forward for stocks. I'll agree that new records for the Dow are difficult to ignore but a long-term investor does not make investment decisions based on economic and market conditions today, tomorrow, or even this year.  While I would not be surprised if the market pushes even higher, perhaps to the 14,000 mark on the Dow Jones, smart investors look to the next economic and market cycle as we slowly and methodically prepare for the end of the current cycle.   A disconnect from reality and investor euphoria are classic signs of the beginning of the end.  We just do not know the precise moment the unfolding begins...

Currently, I believe the "disconnect" exists between economic and market fundamentals and the most recent rise for stocks. The U.S. economy, as measured by Gross Domestic Product (GDP), slowed to 1.3 percent annualized growth in the first quarter of this year (any reading under 2.0 percent is below the Federal Reserve's "comfort zone.") Meanwhile, investors are consistently "shrugging off" bad news and fixating on good news to enthusiastically push stocks even higher.

Long-term investors (those with a logical reason to invest in stocks) should stay invested in this market but not completely invested.   As I've consistently stated in this Blog, market timing is a loser's game while time in the market is prudent.  With that said, smart investors can balance the short-term euphoria with a long-term perspective by slowly shifting assets from the more speculative areas (small-cap stock, emerging markets, "hot" sectors) to less speculative and defensive areas (large-cap stock, multi-sector bond, health care).  At the same time, those things we know with certainty such as our investment objective and time horizon should dictate asset allocation -- not market movements.

Another post in my "Invest Like a Philosopher" series, which will more specifically address asset allocation, is forthcoming.

In the mean time, enjoy the view from the back seat because we're in for a long journey.  Let "the fools" worry over the day-to-day "media noise..."

TFPAuthor, Kent Thune, is the President and Owner of Atlantic Capital Investments, LLC (ACI), a fee-only, registered investment adviser based in Mount Pleasant, SC, near Charleston.  ACI specializes in retirement, investments, and comprehensive financial planning.