My broker pushed me to buy Nation Bank of Greece bond in 2008 telling me that they don’t carry any material risk as they are almost like government bonds. Gold used to be safe haven! Now with the violent moves, it may not be any more. My 2 cents, risk is the fear of loss. It is perception which is kindled by recent experience or deeper traumatic experience. I thought Merrill Lynch was not risky at $95. But, at $6.50 BAC, I think it can go to zero!

What is safe? What is risky? It all depends on your perspective!

People tell me that they are very conservative investor, so they put money in index fund. Go figure! Until they say index down 50%. Is US treasury bond safe? Is Cash safe? Time will tell. I think not. But, I am not sure what to do about that. So many people spend lot of money and effort in doing estate planning etc. Will it work? Will this cash mean anything when your kids grow up?

But, one thing is for sure. I never cared about such things when I had nothing. And, I was still quite happy leading a risk free life. Can you give that to your kids in the ipad generation?

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Does every living being have right of survival? Some may argue yes. But, if every living being does live, how will we provide all the necessary oxygen?

Humans have a very different philosophy. We strive to make every human child live to his or her fullest. What if we succeed?

Does every investor have right to make money? Who gave them that right? How much value does the investor truly bring to wealth creation process which is increasingly becoming skill based process?

Investors as a collection can’t expect their share to be larger than the wealth creation, by definition. Should it be 30%, 40%, 70%, 90%? And why?

We create wealth at the rate of GDP growth. Everything else is zero sum game. Muted or negative GDP growth means wealth destruction.

Again, of that GDP growth, what percentage should belong to the investor?

When banks, fed are providing easy money, what does investor bring to the table?

How many projects have you heard where investors have lost money? Do they come out and say that I am Madoff victim? They are too ashamed to say that. Investing is greed, and not telling others is embarrassment. We have a very large selection bias.

We live in a world where we have lawyers, insurance, and taxation. You pay north of 75% of your upside profit and keep full 100% of your loss. Very bad odds for investment. Does it mean, market is so inefficient in that your odds of success is so high.

You will delegate the wealth creation to the CEO who came from such a stellar resume (but who is as vulnerable as you are when it comes to his own future and his own 5 year old’s college education?)

I argue, that, an average investor is playing a giant casino, and should have a negative expectation of return in exchange for this entertainment and the dream of making it big (just like a lottery).

An average investor is delegating to so many intermediaries who each have to survive and make $150k per person to justify their own eduction. How many people each intermediary will be able to distribute to to keep his/her cost minimal?

I argue that we are bound to lose money if we delegate. We, as investors, need to take matters in our own hands. Investors need to define discipline and demand that. Investors need to manage companies more directly. We need owner’s capitalism not manager’s capitalism. We need smaller companies to facilitate that. Capital markets as an efficient conduit for capital with regulators and board responsible for accountability is not a valid concept when we have such a large cost in lawyers, taxation and risky bet on talent.

I argue for active investing, I argue for active involvement. Investment for the sake of investment is only going to destroy wealth.

If you don’t have time for being active and informed investor, invest in something that makes more sense for you, rather than mutual funds or indices. Best yet, invest in yourself (education, kids or lifestyle). If you have even more capital, it doesn’t hurt to be in cash or low yielding risk free assets. Being in cash is like paying for insurance (inflation is cost of insurance; Don’t you buy insurance?)

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Corollary: Can government create jobs?

For a long time, we have heard that capitalism is the “right” philosophy. Government has no business telling people what to do.

I believe(d) that. Then, why is western world changing? Why is governments trying to create jobs? do they think capitalism failed? Are investors no longer capable of creating jobs?

What is wrong?

What is wrong is, we no longer can endure pain. The western world is too used to getting lifestyle (and resources) as birth right. We even want our survival as a right (no longer, you need to work to survive). Ha!

We are not God (if it exists). We are born to persevere. We are born to learn and achieve freedom by working hard and smart. Nothing is our birth right. Our society provides us the luxury of learning and other freedom and that is why we all have freedom. But that is humanity, not earnt! That is human largesse. That is the only give away we should be reliant upon.

We have to earn the rest.

We create job the hard way. When somebody needs a service, a job can be created. West should leave the capitalism to work and let the jobs be created.

Right now, at least in US, there is a huge overhead of taxes and other entitlements on the job creators that jobs are not being created. (How many of you had spent hours waiting for continental representative to ask simple questions, I would have easily paid some money to be able to do that). Reason: hiring the extra representative is too expensive..

There are needs. There are unemployed. And, that is where the government comes in. Create and enforce rules which provide people certainty in their interactions. The jobs will come.

Current economic meltdow — I am sorry, we (out of imperfection of capitalism) created so many jobs where people are out there to fool others. Their jobs should be eliminated. At least, that is what capitalism is telling. They don’t want to accept that and unfortunately so does their government. Funny thing is that these people are in both main street (people who overstretched), but also on wall street (they seem to have overstretched as well : but, less accepting to coming reality).

Who are the hard working people who can be the answer? I wish I know. I would like to bet on them. But, they are there and will provide us the direction.

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You can “invest” in anything today. You can invest in treasuries (least perishable) to orange juice. Wait! Why should you invest in orange juice? I thought investment is for long term. Does OJ really stay good long term? Have you tried drinking frozen oj? It is disgusting!

You can invest in natural gas. The cost of storing natural gas is almost 10% (including leakages). Do you really expect that it will go up more than 10% a month in your investment horizon.

They invented these funny instruments called double shorts that you can buy in your 401K. So that you can make money when markets go down. Markets did go down, just google on internet and find out who made money.

I bought munis. Great investments. Secure, liquid. But, when I tried to sell them, they told me it is off the run. So, not liquid anymore. Who made the money?

The famous AAA super senior sub-prime CDOs. Who made the money again?

Have you ever bought an insurance which when you needed it, they told you that you didn’t buy insurance with right options.

Do they tell you how much they will get paid from doing the deal with you?

Do you really think you will benefit by investing in mutual funds? Have you looked at how much they make?

Do you really have this nice advisor who buys you 35c donut and 50c coffee so that he can advise you what to do with your money. What does he know that you don’t?

Just ask, who is making the money? And what is their incentive to tell you if a particular transaction is bad for you? And based on your own answer, decide!

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I am confused. If I have lot of “so called” fiat currency, I find that it depreciates fast. So, should I buy gold? What if some enormous amount of gold comes in production? What if everybody loses faith in gold (remember that unthinkable happened in 2007 – when Lehman went bust and even JPM was not too far behind).

May be silver, oil or electricity?

What is wrong with them?

Let us look at electricity. Why would somebody sell you electricity? They would ,only if, they produce that. And, if you don;t use it when it is produced, then… who pays for it?

You get my point. The value is there only if you use it. It is not an asset.

Is potato/wheat/cotton/natural gas an asset?

Is oil/silver/gold or Michael Jackson’s music library an asset?

You decide! But there are enough people who will profit from your beliefs.

Let us go back to basics to understand. Let us go to the barter system.

Accumulation of wealth should be same as accumulation of resources. Investments should be same as an ability to accumulate wealth.

Wealth is “resources” when you need them. So, you care about the resources you need! And, somebody else is willing to part with them in exchange for what you have to offer at the right time.

Too complicated! Education simplifies it.

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