Things Are Not Always What They Seem

Things aren’t always as they appear.  Even less often are they what we want them to be.

Apply this to investing.  When making investment decisions, it is common to consult the annual reports of the companies under consideration.  Unfortunately, in the recent past, annual reports aren’t always as accurate as you expect them to be.  (Think Enron and Tyco)  The once vaunted, irreproachable accounting firms upon whose unqualified audit opinions we relied are now scrambling.  While they shore up their accounting practices and corporate images, we investors are left standing in the rain without an umbrella.

Even more recently, ordinary folk and sophisticated investors alike have been scandalized.  Some investment advisors and firms marketed their products as providing above average returns with very little risk.  Their positioning was just subtle enough to sound plausible, but we now know in hindsight that their offers were too good to be true.  We are left wondering where we can turn for trustworthy information and help.

How about industry standard, long established brokerage firms and investment companies like mutual funds?  These companies interests are aligned with their customers and they have the resources to always provide best-in-class solutions, right?

While generally true, unfortunately we can now see how firms get caught up in trading schemes that jeopardize the viability of the company and so their ability to serve you, their client.  Think of the mutual fund accounting irregularities in the early 2000s and more recently Lehman Brothers, Merrill Lynch and others.

No More Stocks
Okay then, to heck with the stock market.  How about investing in government bonds?  Why not just sidestep the shenanigans and settle for a reasonable interest rate guaranteed by the government?

Yes, but…  It is true that FNMA and FHLMC (Fannie Mae and Freddie Mac) are government sponsored agencies, and so have special privileges with the Treasury Department to ensure their bond holders receive timely payment of interest and principal.  But recently, their accounting systems have had glitches that are causing these agencies to restate their earnings.  At the very least, the credibility of their information is in question.   And now we have to wonder what their roll, if any, was in applying overly aggressive pressure for issuing sub-prime mortgages.

What’s an investor to do?  Throw up your hands, give up, walk away and put your money in a mattress?  Settle for 2% at the bank?  Buy gold and dig a hole to bury it in the ground?  Maybe yes, yes and yes, but remember the lazy steward in Matthew 25 before running and hiding in fear.  Before you throw the baby out with the bath water, consider what prudent investment strategy demands.

Okay.  Okay.  But what am I to do?
Ask yourself these questions:  Why are you investing?  What is it that you are trying to accomplish?  And, what amount of risk are you willing and able to endure to meet your goals?

Abraham Lincoln once said, “I cannot understand why men should be so eager after money.  Wealth is simply a superfluity of what we don’t need.”

So again, why are you investing?  Are you striving to accumulate wealth for wealth’s sake?  If so, is that causing you to stretch to a level of risk you would otherwise avoid?  And after this past year’s investment results, is that striving really worth the aggravation?

Be proper and prudent in your stewardship of financial resources.  Remember the fundamentals of diversify, diversify, diversify.  And seek the guidance of a trusted financial professional.  While we can’t promise avoidance of turbulence caused by unforeseen and uncontrollable outside influences, we can promise diligence and sincererity in keeping you on the straight and narrow path