Why Read This Site?
I am starting this blog to offer a forum for discussing long-term strategies for managing our personal finances. Most people fall into two categories about managing their money: either they are confused and do not want to learn about finance or they are overly active managers. Both can be very dangerous!
It is a huge mistake to not learn the basics of managing money. Even if someone else is managing your money (be it a spouse, investment advisor, or broker) it is extremely beneficial to know the basics so you can make sure you are getting value from your advisor.
Probably more dangerous are the over-confident traders that put their family’s future at risk betting on the next new thing — whether that be China, India, Google, Taser, Netflix, etc. It’s not that the trends don’t exist but that the story of the growth inebriates to the point of forgetting about valuation.
I hope that this blog helps people avoid some common pitfalls in managing their finances — pitfalls that are often encouraged by people’s regular sources. Most people get their news — be it investing or other — from regular media outlets and trusted advisors. However, most of our traditional sources for financial information are fraught with problems:
1) Our investment advisors or brokers are often compensated based on how much revenue they bring in to the firm (i.e. how much they can raise your expenses). Not only is their comp based on revenues but as their revenue increases, the percent of the revenue they receive can increase — further exacerbating their adverse interest. (For more, see Edward P. Mahaffy, Brokers in Sheep’s Clothing, Barron’s 8/22/2005; subscription required)
2) Even if we just leave our spouse in charge of the finances, often our spouses can make errors that will effect our well being.
3) Even supposedly impartial articles by reputable news sources are not intended to be unbiased — they are intended to sell the publication. Who would tune in to see someone talk about long-term prospects of a company? What would they talk about tomorrow? There is a natural bias toward short-term trading and telling stories of huge growth potential, rather than talking about valuation. Although valuation may seem dull and uninteresting, and rarely fits into a 30-second sound bite, it is the foundation for understanding your personal finances.
4) Both traditional media and brokers/advisors want to complicate the facts so you believe you can’t understand finance without their expertise.
5) Many brokers/advisors have very little knowledge of finance as they are usually little more than salespeople.
With all these biased sources of information, it’s no surprise that many people avoid finance or don’t understand how to create long-term value for their portfolio. Hopefully, this blog will help us avoid common pitfalls and help us all create long-term value.
