Leveling the Playing Field—Part I

ABILITY TO TRUST

Many of you will recall that when Ronald Reagan uttered the phrase “Trust, but verify” at the signing of the INF Treaty with Russia in 1987, most everyone in the audience was laughing. Just as the Seinfeld show was a series of episodes about ‘nothing’, the maxim of Reagan’s words evoked a laugh because it is true.

With the uncertainty that prevails in today’s economic, social, and political realms, with the media blasting stories that cause us to wonder if our best times are behind us, no wonder many investors have given up and become savers, trying to preserve what wealth they have. Here is a quote that summarizes this mindset very well:

“The average American family has lost 9% of their household net worth in just the last 3 months of 2008 – the fastest disintegration of wealth in more than 7 decades. In fact, the majority of families were reporting a drop of 25% in their household worth in the past year alone. Pretty pessimistic stuff…our national confidence is in pieces, our personal expectations shattered. TRUST HAS COLLAPSED. We have little tolerance now for promises and pledges. We don’t trust anyone anymore.” - Dr. Frank Luntz – What Americans Really Want: Truth About our Hopes, Dreams, and Fears.

So, with that as our backdrop, how do you know when it is okay to trust what someone has told you? After independent verification, of course. The thing about human beings is that we are human; able to make judgments, opinions, statements, even without knowing both sides of the argument. The search for truth is elusive, but should be on everyone’s agenda when you make a decision that can affect not only yourself, but also many others. As my father told me many years ago, “you have been given the ability to make up your own mind, but doing so without independent research is merely espousing someone else’s opinion.”

Here is an excerpt of a newsletter article I wrote early in 2011:

One big problem now is uncertainty. With the earth shifting beneath our feet because of government intervention (regulations, incentive programs, monetary policy, changes in accounting standards, etc.), no wonder businesses are reluctant to invest for their future as the game may change. I have always said that ‘if you change the rules of the game, you change the game’. It is difficult to predict the outcome of change and its overall impact on various industries. This ‘collateral damage’ should be quantified as much as possible and not create a systemic breakdown of our financial system.

So, with all the recent changes, how’s that working out for you?

Is your portfolio performing to your expectations?

If you are lucky enough to be the recipient of a pension, is it safe? Are you enjoying the volatility? Well, it seems the only time when markets are not volatile is when they are closed. Headline risk, fast trading, and lower volume are all reasons for higher than normal volatility. The market is trading on rumors and that is not a good thing. Don’t get caught up in that. Sometimes it is better to be out of the market or have downside protection strategies in place to preserve your wealth.

I believe that most would choose to not be poor than to be rich, and I am not just speaking about money.