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Keeping it simple; Keeping it Real July 3, 2008

Posted by shaferfinancial in Uncategorized.
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This quote from uber investor guru and index proponent William Bernstein says it all:

“So, one more eternal verity: investing has always been, and will remain, an operation in which wealth is transferred from those without a working knowledge of financial history to those who have one. No matter how elegant the theory, no matter how rigorous the analysis, from time to time things will go totally off the rails. Further, most of the time this will happen in a novel way. Those who take history seriously will need no fancy models to survive; those who rely instead on black boxes should at least factor in a very, very fat tail.”

What does this mean to the average investor?  Perhaps that investing at its core is basic.  It requires no more fancy “black boxes” than the ability to perform basic financial analysis.  As Warren Buffet says, “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”

When evaluating any investment, whether it is stocks, real estate, viaticals, or something else look at the basics.  Is it a product that is needed?  Will the competition drive down the value?  What is the expected cash flow?  What are the tax ramifications?  What is its history?  Can it be made obsolete by a new invention? Do you trust management?  Basic questions that lead to good decisions.

As to that working knowledge of history.  Folks that bought real estate at the peak didn’t.  Folks that bought technology stocks in 1998-2000 didn’t.  Because if they did they would have figured out that a business without profits isn’t worth much, and investment real estate with large negative cash flows can only crash. And of course readers will recognize this one; investors that primarily invest in mutual funds rarely produce wealth enough for an abundant retirement.

Now for the last couple of weeks I have been very hard on mutual fund investing.  My reasoning is two-fold.  First, people are fooling themselves if they think they can fuel an abundant retirement by investing in mutual funds and secondly, I have a sincere belief that I can help them to that abundant retirement at the Shafer Wealth Academy.  I run into only a few rare folks that have figured out the first and done something about it.  Most folks I run into are hiding their heads in the sand about their future retirement.   And here is the one piece of history that should scare us all; 90% of folks are dependent on either the government or family for the majority of their retirement needs.  That means social security can never go away.  That means taxes must be raised to cover social security.  That means, in a better retirement environment than we currently have, 90% of  people failed.

As we celebrate America’s birthday, let us remember this country was founded on the philosophy of individualism, the right to self determination, life, liberty and the pursuit of happiness.  Make the decision today to live up to that philosophy and take control of your financial life!




1. Kam Hubbard - July 5, 2008

Hi David! I enjoy reading your informative blog. Happy 4th of July!

2. shaferfinancial - July 7, 2008

Same to you Kam!
Hope you have a great summer.

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