Wednesday, June 22, 2011


The AIG School Of Finance
I like to read the column in the weekend version of our local paper that highlights the funniest jokes from a variety of late night comedians.  It is always good for a laugh.  There is something else that always makes me laugh.  It is the assertion by financial analysts when they say the market just has to be headed higher since we only had the last market bottom as recently as 2009!  Sounds to me like these people went to the AIG school of finance.

That is like saying you have only had one car accident in your whole life, and since it was just last year it is impossible for you to have another one this year!  That was the sort of logic employed by the actuaries at AIG.  The U.S. housing market had trended higher for decades.  A drop in the housing market was all but impossible since it had not happened for so long.  Such an event was an outlier, a black swan event that couldn't be predicted.  

Cause and Effect
But, guess what?  If we don't solve the economic issues that caused our problem the last time around, it is not just likely to happen again, it is guaranteed to happen again.  It reminds me of the very definition of insanity - doing the same thing over and over again, each time expecting a different result!  Despite the level of denial, actions do have consequences.  The markets are no different.  Sometimes sooner, sometimes later, mismanagement, just like corruption, takes it's toll and growth becomes stunted.

Clearly, these are the same people who think the markets are some random event.  To them there is no trend, or pattern.  They see no discernible cause and effect.  There is no logical explanation for what happens.  After all, if everything is random, then clearly, there is no accountability.  Sounds like the case, or lack of it, for global warming.  We can't hold industry and consumers accountable and demand they change their ways since the disappearance of the ice cap at the north pole is merely some random event.

Actions and Consequences
To think that our problems were not of our own doing does not change the fact we actually do have to do something to fix the situation.  The idea that if we ignore it long enough, it will just go away, is irresponsible and just plain wrong.  I raised my own children to understand that actions have consequences.  I know the rich and powerful have grown to believe they are above the law, and therefore beyond any consequences stemming from their actions.  Those would be dangerous assumptions.  I believe that if I do wrong by someone, the consequences I later face may not necessarily directly involve the person whom I had wronged.

Be careful who you trust with your money - especially your life savings.  Stupid excuses, denial, lack of accountability, failure to learn from mistakes, unwillingness to face consequences - clearly this is an industry, one even supported by our politicians, that should be asking itself why anybody in their right mind would want to have anything to do with any part of it.  I don`t find it surprising so many people want nothing to do with the stock markets.  They are voting with their feet, and vowing never to return.

A Better Method
Myself, I think that is a little extreme.  Instead, we need to make people accountable.  Together, we need to work on new win-win solutions in place of the old win-lose approaches.  We need education to replace misinformation, but when I hear that we can't be headed into a recession because we just had one, it makes me stop and say, "Really!?!"

Have you heard any financial/economic stories in the media that were so ridiculous they made you laugh?     


  1. This is an interesting blog Ian !

    Just one question, do you follow the 200 day moving average technique you talk about on this blog? What is the advanced model version?


  2. @Anonymous:

    Thanks for the question. I suggest the 200-day moving average technique for people who want to spend a minimum amount of time on their portfolio and still outperform the market longer term. Myself, I would never hold an equity which is below it's 200-day moving average. The advanced method is the one I use for my own portfolio which uses technical signals, leverage, and inverse Exchange Traded Funds (ETF's) to take advantage of price corrections in addition to what would typically be classified as Growth At A Reasonable Price (GAARP).


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