In Search of the Perfect Investment

People are spooked by news. Right now, the news is spookey, especially from Europe. It’s spookey because there is no simple, obvious, easy outcome.

+ It begins: The Greeks can’t make July’s interest payment on their debt.

+ They could “default,” which means not pay all or part of  it. But that would hurt all the English, French and German banks that lent them hte money. Some might fail. That’s the BIg Fear.

+ Hence the banks are pressuring anyone and everyone (including the EU and the IMF) to bail out Greece, which means bailing out the English, French and banks, and saving their stupidity from having leant Greece too much money.

+ As a condition, the IMF wants Greece to cut government spending.

+ This austerity program is not popular with the Greek people who are in the streets.

+ Austerity is not voter-pleasing behavior. Greek politicians are scared.

+ If Greece  defaults, other contries — like Portugal, Ireland, Italy and Spain — may also default on their government bonds. That would annoy the English, French and German banks.

+ Some argue that this could cause a worldwide financial calamity. I don’t think so. But the uncertainty is sitting heavily on equity stockmarkets — which are not a good place to be at present.

Dani Rodrik is a professor of international political economy at Harvard’s Kennedy School of Government, and the author of “The Globalization Paradox: Democracy and the Future of the World Economy.” He just wrote this on a New York Times blog:

When Argentina defaulted on its debt a decade ago, the country became a pariah in the eyes of foreign bankers and bondholders and was shut off from international financial markets. Yet its economy recovered quickly and experienced rapid growth thanks to a large boost in external competitiveness provided by a vastly depreciated currency. The lesson is that default can be the better option when the alternative is years of continued austerity.

In the case of Greece, this scenario is greatly complicated by the country’s membership in the euro zone. Greece would have to exit the euro zone to be able to engineer a currency depreciation. Since this is something for which euro zone rules do not make any allowance, a unilateral exit will unleash huge uncertainty about the rules of the game. And a Greek default will almost certainly be considered a hostile act by Greece’s European partners – never mind that German and other euro zone banks were equally at fault for having over-lent to the Greek government.

Unfortunately, the current strategy seems destined to force Greece to this outcome. It is predicated on protecting German and other European creditors and bondholders while Greek workers, retirees and taxpayer pay the bill. This makes no sense economically, and will not work politically.

One way or another, Germany, France and other euro zone creditor countries are on the hook. If Greece eventually defaults, they will have to pay for their banks’ mistakes. It would be far better for them — and for the future of the euro zone — if this reality were recognized quickly. A coordinated, agreed-upon reworking of the rules will not be easy. But it will do less damage than insisting on politically unsustainable levels of austerity and having default and exit from the euro zone forced on the Greek government by protests on the streets.

Good words: Laszlo Birinyi, the veteran market strategist, cites what he calls “The Cyrano Principle”: “If the problem is as obvious as the nose on your face, the chances are that everyone else knows it, too.” The markets, he said, are very good at digesting this news and adapting to it. Sooner or later, he says, “unless there is some truly dramatic surprise — and not just something the market is well aware of” — stocks will resume what he expects to be a long run higher.

Some day.

7 life lessons from the very wealthy. Barry Ritholtz,  author and money manager published this piece on June 18. His seven points are smack on:

In my day job, I come into contact with very high-net-worth individuals. These include young technologists with modest portfolios to families that measure their wealth in nine and 10 figures. For the math-averse, that’s hundreds of millions to billions of dollars. Over the years, I have had some fascinating conversations with people who have hospitals and graduate schools named after them. I’d like to share some of the things I have learned from these folks.

1. Having money is better than not having money.

Sure, this may be obvious, but let’s get it out of the way upfront. Money may not buy you happiness, but it buys many other important things. Like financial security, excellent health care, education, travel and a comfortable retirement. In a word: freedom.

2. Don’t become “cash rich” and “time poor.”

Devoting all of your waking hours to making money is a problem, especially in professions with a partnership fast track. Lawyers, doctors, bankers and accountants can get so caught up in the competitive nature of their jobs that they lose touch with their family. Any semblance of a normal personal life disappears, and a very unhealthy balance between work and home can develop.

Work is the process of exchanging your time for money. Remember: What you do with your time is far more meaningful than the goods you accumulate with your money. If you are working so much to become rich but you ignore your spouse and miss seeing your kids grow up, you are actually poorer than you realize.

3. Memories are better than material objects.

You may be surprised to learn that among the monied set, expensive cars, yachts, houses, jewelry and watches come at the end of the list.

Their priorities? Memories and accomplishments. This was especially true when it came to family. Toys matter less than good times.

The rule of diminishing returns is a harsh mistress with luxury goods. Do you really think $100,000 audio speakers sound 20 times better than a pair of $5,000 speakers? (They don’t). Is a $250,000 sports car five times faster than a $50,000? (It is not). These days, you can buy quite a lovely home for $1,000,000 (and much less in the country’s interior). Those $10,000,000 manses are not 10 times roomier. Anyone who has owned a $10,000 Rolex will tell you that a $39 Casio keeps better time.

When discussing the benefits of wealth, I have heard again and again about amazing experiences, family get-togethers, vacations, shows, sporting events, weddings and other events as these people’s most important life experiences. While these things cost money, nearly every family can afford reasonable versions of them.

4. Watch your “lifestyle leverage,” especially early in your career.

Those partnership-track careers? The dirty little secret: Those firms love to get their young employees leveraged up. They will even help you get that way, co-signing mortgages for big houses or even directly lending you the cash on favorable terms.

They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

Isn’t that nice of them?

Not really. The big banks, investment shops, law firms and accountants have learned how profitable it is to have “golden handcuffs” on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.

Besides, overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.

You recent graduates: Remember this when you are offered credit on generous terms. Your leverage is your detriment.

5. Having goals is incredibly important.

I have a friend who is a serial entrepreneur. He was a board member in a household-name dot-com from the 1990s. He sold his stock – too early, I warned at the time – for $30 million. (It would have been worth $90 million a few months later.)

But that didn’t matter to him – he planned to use that money for his next company, which he promptly built and sold for $250 million. He rolled that l into his third venture, which he cashed out of for a cool $1 billion. His long-term goal, and the ability to execute that vision, are what led him to incredible success.

He once said something that has stayed with me: “I am always surprised at how many people have no goals. They simply let life’s river flow them downstream.“

There is a Latin phrase associated with military actions: “Amat victoria curam.” It translates as “Victory loves careful preparation.” You would be amazed at what you can accomplish with planning.

6. You must live in the here and now.

Goals are important, but don’t miss out on what is happening today.

This is especially true among entrepreneurs, corporate execs and Type A personalities. Do not let dreams of that mansion on a hill prevent you from enjoying the home you live in.

This is an area that can easily veer into cliche. Rather than risk that, I’ll simply remind you of what John Lennon sang in “Beautiful Boy”: “Life is what happens to you while you’re busy making other plans.”

7. It helps to be incredibly lucky.

I am struck by how many very wealthy people I know – especially tech entrepreneurs – have expressed being grateful for their good luck. Again and again, I have heard the phrase: “Being smart is good, but being lucky is better.”

Rather than leave you with the impression that success is simply a roll of the dice, I am compelled to remind you what the Roman philosopher Seneca the Younger was reputed to have said: “Luck is where preparation meets opportunity.”

I don’t know whether it’s better to be smart or lucky, but I would suggest that making the most of the opportunities takes more than just dumb luck.

Wimbledon Tennis begins today. Live play  is on  ESPN and NBC. Repeat play  is on  The Teniis Channel at 7 PM and 11 PM. (All times Eastern)

Monday, June 20, 7 am – 5 pm, First Round, ESPN2
Tuesday, June 21, 7 am – 5 pm, First Round, ESPN2
Wednesday, June 22, 7 am – 5 pm, Second Round, ESPN2
Thursday, June 23, 7 am – 5 pm, Second Round, ESPN2
Friday, June 24, 7 am – 5pm, Third Round, ESPN2
Saturday, June 25, 7 am – 1 pm, Third Round, ESPN2
Saturday, June 25, 3 pm – 6 pm, Third Round, NBC
Monday, June 27, 7 – 10 am, Fourth Round, ESPN2
Monday, June 27, 10 am – 1 pm, Fourth Round, NBC
Monday, June 27, 1 pm – 6 pm, Fourth Round, ESPN2
Tuesday, June 28, 7 am – 10 am, Women’s Quarterfinals, ESPN2
Tuesday, June 28, 10 am – 1 pm, Women’s Quarterfinals, NBC
Tuesday, June 28, 1 pm – 5 pm, Women’s Quarterfinals, ESPN2
Wednesday, June 29, 7 am – 10 am, Men’s Quarterfinals, ESPN2
Wednesday, June 29, 10 am – 1 pm, Men’s Quarterfinals, NBC
Wednesday, June 29, 1 pm – 7 pm, Men’s Quarterfinals, ESPN2
Thursday, June 30, 7 am – 12 pm, Women’s Semifinals, ESPN2
Thursday, June 30, 12 pm – 5 pm, Women’s Semifinals, NBC
Thursday, June 30, 9 pm – 11 pm, Women’s Semifinals, ESPN2
Friday, July 1, 7 am – 12 pm, Men’s Semifinals, ESPN2
Friday, July 1, 12 pm – 5 pm, Men’s Semifinals, NBC
Friday, July 1, 8 pm – 11 pm, Men’s Semifinals, ESPN2
Saturday, July 2, 9 am – 2 pm, Women’s Final, NBC
Sunday, July 3, 9 am – 3 pm, Men’s Final, NBC

Change your passwords.All of us use the same password for different online services, like our bank and our brokerage accounts. This is not a good idea. Recently big companies like Citigroup got hacked and their accounts and passwords stolen. Hence the thieves, now they have your password, can easily get into your other accounts. One good technique is to use passwords like Harry123, Harry 125, Harry127 and keep an Excel spreadsheet showing which is which. I don’t recommend password manager softwares. I tried them once. They were way too cumbersome.

How to keep your crown. From the weekend’s Economist:

Morocco and Jordan repeated feints at reform since their relatively young kings took power a decade ago. But not much changed the underlying rules. Muhammad VI of Morocco and Abdullah II of Jordan still hire and fire prime ministers, command national armies and tolerate little criticism of themselves, much in the way of their grandfathers.

Morocco’s constitution holds the person of the king, also known as Commander of the Faithful, to be sacred and inviolate.

Latest favorite New Yorker cartoons.

The ultimate eBay deal. Be warned.

A friend bought a “penis enlarger” from eBay for $150.

They sent him a magnifying glass.

Harry Newton who wonders why he didn’t short RIMM (Research in Motion).

I’ve been uncomfortable with RIMM for years. It was a darling of Wall Street for so long. Look what happened in 2008 when it ran up to nearly $150.

But there always seemed to be someone on Wall Street who loved the stock. It would drop and bounce, and drop and bounce. Now no more bouncing.   I’m guessing it will  go lower, perhaps to its level of 10 years ago. Should I touch it at this low level? I’m mulling. I suspect no. Look at this amazing chart: