Of dollars and sense.

Looking back on my childhood, it’s pretty obvious that parts of it were (for lack of a better word) exceptional. I think around the age of 12 or so, my parents gave me a checkbook, a couple hundred bucks allowance a month, and charged me with budgeting all my expenses, sans health insurance and basic (in-house) food. (Such budgeted items included the school tuition, tithing, clothing, shoes, gifts, school supplies, etc...) And this made me an excellent budgeter and money manager. But it didn’t really make me an excellent financial planner. I knew nothing about proper insurance coverage or how to establish a 5 or 10 year fiscal plan. Give me the numbers, and I could budget. Set me loose in the wild, and I was left to “traditional wisdom.” And it’s been my experience that traditional wisdom is generally wrong. Who’s the jack-ass that says that your mortgage should be up to 1/3 of your pre-tax income? Yeah--it could, if one doesn’t want to live life. Yet--I believed it, “bought” this damned albatross around my neck with a 30 year commitment. Dumb, dumb stupid tax. Looking back, I wish we would have picked up a more modest home in the country, with (at the most) a 15 year that was no more than 25% of our take-home. Had we done this, we'd be living life feeling like the Donald. But asi es la vida.

What I’m trying to say is that as I got older (until this past year), I was still captivated by the math of it all. According to my calculations, if we assume *this* and *that*, then *this other* would be a good investment. What I’ve since learned is that: (1) life doesn’t work like a textbook (2) textbooks and conventional wisdom usually felt wrong to me after implemented, and (3) the notion of trying to predict income and expenses based on theory is just goofy. Only after 12 months of actually living into it did I ever really have a clue.

And growing up, I also learned a bit from watching my father and others in my family. I saw people go from investing approach to investing approach, theory to theory, program to program... with no real success. If anything, they lost money; and sometimes, a substantial amount of it. Sure all these approaches worked perfectly in “back testing”, but what I realized while in PhD is that the notion of “back testing” investment strategies totally disregards the variable of time. I tried telling this to others, but no one listened. Now, nobody’s doing these cooky investment schemes--so I’m thinking that whether they know it or not, they now believe me. Point being is that we, the little people, will never get “insider” or “breaking” information. By the time it filters down to us plebeians, it’s old news--and the profit taking has long gone. People in our position are never going to be able to “beat the system”. Any attempt to do so will ultimately result in a fiscal loss; the house always wins. (The film Wall Street seems as true today as it was 20 years ago.) That doesn’t mean that we still can’t make good investments, but our good investments are based on our own personal expertise and common sense. Example: I knew in 1997 that Ebay was going to be huge. I told my father, he didn’t believe me. When I got my Apple G5 Tower (PowerMac?) back at Gallaudet, I knew that Apple was going to explode (in 2003, the price was $10 at the time). I knew that the Vonage IPO was going to tank, and that one could have made money by buying “puts” (i.e., betting that the stock price would fall). And now, I am utterly convinced that (based on the global markets) the US dollar will continue to slide; this is based on common sense. We produce nothing, we’re less and less a free market capitalist society. And my theory is--always bet on the capitalists. South Korea. India. Even Red china is more capitalistic than we are in many ways. This is where the money is. Those of us who keep our money in the US bank are functionally losing buying power. (Yet, I continue to do so--because I don’t know of any other liquid foreign currency options.)

So Scott--I don’t really know the books or investors that you referred to. The CNBC TV guy annoys the heck out of me; I’ve never watched him for more than 10 seconds. Never heard of the other guy. I don’t really follow anyone’s investing advice or strategy. And this is because I’ve never seen anyone’s advice or strategy work for others, so why will it work for me? Any investments that I do is based in the long term (5 years+) and on my own common sense.

My other thing is that investing in stocks really does have a fair amount of risk in it. Where gambling stops and investing begins--I’m not sure. But there’s soooo many variables that can affect any one company’s stock price (made up or legitimate), that it’s a game that I just don’t play anymore. I stopped playing the market in that regard back in 2003. I have a low tolerance for risk, and the risk was just too high. Maybe if I did nothing but invest--but I have a job, and subsequently cannot. (Or choose not to, rather.)

Dave Ramsey has his “7 Baby Steps”, which is what we’re currently doing. We’re currently on step 6. Again--his investing principles appear to be straight from the scripture. He comes off as hyper-conservative--and at first, that turned me off. But after a year of hearing the guy--his points are beginning to make sense. Listen to Dave’s podcast; he has a (free) downloadable hour every day via iTunes. I’m sure he’s on the radio in your market as well.

Funny story--some investment guy analyzed our current assets, and he was quite amazed; said that he hadn’t seen but one other portfolio as strong (per our age) in his life. He then told me that trying to buy off our house early was a bad idea, because we could “do better” in the market. Later in the discussion, he let it be known that he’s leasing a car. Sorry bud, game over. If I’m doing so well, and you’re leasing a car--why the heck should I listen to you? This is what I’m talking about; taking the advice of others (without a fundamental knowledge, understanding, and belief in the approach) seems to have a very high chance of failure.