Saturday, July 27, 2019

Earth, Fire, Air, Water . . . and Money?

The four elements are global. Money is national, or, in the case of the euro, multinational. But why? Shouldn't something as basic as a medium of exchange be worldwide?

That heretical thought is prompted by the sputtering of a French official mentioned in this WSJ column. How dare Facebook propose to create a cryptocurrency, the Libra, that could ignore national controls and become as commonplace as air or water?

Realistically, I can't imagine national governments allowing anything like Libra. Still, it's likely that future generations will be highly amused by our provincialism.

Friday, July 26, 2019

Investors, Beware of Financial Weaklings

Back in the Mad Men era, ads offering the trust and investment services of banks stressed "financial strength" and "financial responsibility." The banks wanted to remind readers that while their competitors went bust in the 1930s, they didn't. And they wanted to reassure potential clients: "We'll do our best not to goof up, but if we do, or if our trust officer loots your trust and runs off to Tahiti, we have the financial resources to make good."

Financial strength remains a desirable attribute in an investment adviser. Unfortunately, The Wall Street Journal warns, it's one that many of today's small advisory firms lack.
Many individual investors are using advisers instead of brokers these days, drawn by regulatory and structural changes that favor the advisory-business model of charging steady fees instead of trading commissions. The number of people working as investment advisers has grown 33% since 2008, according to the Financial Industry Regulatory Authority.
 Smaller investment advisers often are thinly capitalized and, in many cases, don’t carry enough insurance to cover a significant legal judgment against them.
Banks and trust companies aren't the sexiest source of investment services, but their capital should enhance their clients' peace of mind. 

Monday, July 15, 2019

Is the Smart Money Dumb?

"Professional investors are prone to the same mistakes as mom-and-pop types," writes Jason Zweig in the WSJ.

For example, they hold stocks too long, past their peak prices. (But that merely shows they aren't clairvoyant.)

The smart money's math skills seem shaky, research suggests. And even the pros may accidentally confuse one stock with another of similar name or stock symbol.

If the smart money suffers from the dumbs, can mom and pop investors do better? Yes, according to Warren Buffet in one of his Berkshire-Hathaway shareholder letters:
By periodically investing in an index fund, the know-nothing investor can actually out-perform investment professionals. Paradoxically, when `dumb' money acknowledges its limitations, it ceases to be dumb.
The smart money doesn't make better decisions, Zweig asserts."They just get paid to make them."