Entries Tagged 'Investing' ↓

Normally I don’t write about a the story from a single article in a newspaper, but today there is an article in the London Financial Times that is so outrageous I have to write about it. This article shows the epitome of the craziness going on in the saga of what rich banks and wealthy investors are doing to themselves, this country, and to the world.

Most Americans will never know about this story because it is taking place in Ireland. And that’s unfortunate!

Scylla v. Charybdis

These were my two favorite monsters from Greek literature.  These two sea monsters awaited Odysseus (Ulysses) on his way home from the the battle by the Greeks to retrieve beautiful Helen from her captors in Troy. Scylla was an enormous rock shoal near Sicily. Charybdis was a gigantic whirlpool that was so close to Scylla, ships could not get through the gap. Odysseus had to sail between these two sea monsters in order to get himself and his crew home to Ithaca.

Odysseus was caught “between a rock and a hard place”. He had to choose one. For the “good of the many” as Star Trek puts it, Homer’s story of the ten-year Odyssey back to Greece reveals that Odysseus chose Scylla, the rock. He risked losing a few of his crew, rather than take the “all or nothing” course and risk falling into Charybdis, the whirlpool, and destroying all of his twelve ships and his men.

Today taxpayers are the modern variants of the crew on the Odyssey, and we too are having a hard time surviving. As this Irish tale shows, the reason is that bankers and investors are locked in a destructive battle that threatens to take all of us down underwater. Continue reading →

Taijitu

Let’s apply the Fourfold Problem-Solving technique of last week to an example in the microeconomics level of the economy. Let’s suppose you are part of the lucky 1%.

You manage  a buyout fund. A good opportunity comes your way. There’s a company in trouble, and you have the funds to buy it. Should you?

Here are four aspects of that question:

Buy                  Hold

Walk away        Flip

Villains and heroes

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When you invest, whether it is in mutual funds, ETFs, or stocks, you learn about diversification. It’s a “good thing” they tell you. But what exactly does this word mean? Wikipedia defines diversification as “reducing risk by investing in a variety of assets.”

Words change over time. For example, the little three-letter word “let” once meant “hinder” After a long enough time it turned into its opposite “go ahead”. I’d suggest that “diversification” too has changed into something completely opposite to what it meant in the past.

There’s a reason for that. Beneath the word, “diversification,” there are many new kinds of risk at work. Let’s look at just three of these risks.

Concentration risk

This risk applies to the dangers of putting all your eggs in one basket. Unfortunately, things in the markets have gotten so complicated, you may not realize you’re putting your eggs in one basket when you invest. This is particularly true of investing in ETFs.
Continue reading →