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Excuse me, are you wealth repellent?
People must balance luck, cynicism and sound judgment if they want to
increase their wealth
'I'd rather be lucky than be smart.' That's the starting and parting
message from my lecturer to us eager beavers in the fund management course.
His point was that we could have used the most sophisticated tools to arrive
at the smartest of investment decisions. But not many people could have
predicted, say, the Iraq war or the 9/11 terorrist attacks.
A smart person may have decided to buy a beach-front property and soon
after have it destroyed in a tsunami. A lucky guy like Forrest Gump could
have bought a 'fruit company called Apple' back in the 70s.
Needless to say, we were all rather disillusioned. But these are the
facts of life. I'm sure those who've been around for some time have come to
a few realisations.
One - who you are, what genes you are born with, is itself dependent on
the luck of the draw. Thus, life is not fair to begin with. Not all people
are born equal. Some are smarter, some richer and some luckier.
Two - working hard and smart in the area which you are are good at, or
have interest in, will improve your chances of success.
Three - between two people with the same attributes, luck is the factor
that decides who makes it.
In our passage through life, there are numerous people we meet and
countless decisions we take. Any one of these could have swung our lives in
a totally different direction. Many of today's tycoons got their first
business idea from a chance encounter, comment or observation.
So, create opportunities for randomness in your life. Do something
differently every day - take a new route to work, visit some place you've
never been before. Be positive and be open to new ideas, new experiences and
contacts. While the first fortune may come from a stroke of luck, it takes
savviness to keep and continue to grow that fortune.
COMMON PITFALL
Yet for some, the downfall comes from greed. You have read of how people
were conned of hundreds of thousands of dollars in Nigerian scams. And a few
years back, you've heard of those who paid thousands basically for a
worthless bag of electronics components. These people are no doubt driven by
greed, and perhaps the naivety that it is their good fortune to come into
contact with bearers of such propositions.
A certain amount of cynicism can save one from heartache later. Always
find out where someone is coming from, whether he or she is trustworthy.
Then, critically evaluate the proposition - what are the chances of it
succeeding, what are the risks, and what is the potential return.
When something is too good to be true, it probably is. And usually,
promises of high returns also comes with high risk. In the mid-90s, many
Singaporeans forked out tens of thousands of dollars to buy properties in
China. Returns of 20 per cent or more a year were promised. The buyers made
their decisions based just on brochures and presentations from marketing
agents. And many subsequently didn't get the dream apartments and the
returns they envisaged they would.
IRRATIONAL FEARS
While cynicism never hurts your pocket, too large a dose can ensure that
your wallet stays thin forever. 'Doubts and cynicism keep most people poor,'
says Robert Kiyosaki, author of Rich Dad, Poor Dad. Perhaps a true cynic
could be exemplified by a believer of efficient market theory in its strong
form. According to the theory, all information is already reflected in the
share price and nobody can beat the market on a consistent basis, not even
corporate insiders.
There is a joke about two efficient market theorists who were walking
down Wall Street one day when they saw a hundred-dollar bill lying on the
sidewalk. Instead of stopping, they kept on going - reasoning that if it
were truly real, someone else would have picked it up already.
So while we need some cynicism to protect us from investment follies, too
much of it can turn us into wealth repellent.
A parallel of cynicism is fear. The fear of losing money can paralyse
many into inaction. For example, in 1998, the Straits Times Index was around
850 points - the same level as it was in 1989. Looking back, it was
irrational to think that the previous 10 years of progress made by Singapore
had come to nought, as the market value was reflecting then. But fear of
prices continuing to fall paralysed many. People then were talking about a
doomsday scenario.
But if we had been more clear-headed, we could have reasoned that had the
financial market actually collapsed, all the money in the bank would be gone
too. You would have ended up no better or worse than the next person. In
which case, short of holding all your cash at home, you might as well have
taken a bet on the market. And if the market came back, you would have been
ahead.
MAKING SENSE OF IT ALL
So how do we reconcile all the dichotomies mentioned?
First, we must do what is humanly possible to ensure that we have, say,
70 per cent probability of success. We can acquire the necessary knowledge,
do the research and due diligence, get to know the right people, and
maintain a clear head. The rest will depend on the roll of the dice.
Second, do what you can to increase your share of good luck. Some believe
that the more generous you are in giving, the more you will receive in
return.
Third, raise your stake on high probability events.
Fourth, never dismiss long shots. Just reduce your bets or the proportion
of your wealth at stake. So even if they fail, you will not be totally or
permanently impaired, wealth-wise. - by Teh Hoong Ling
BT-Citibank Young Investors Forum SINGAPORE
BUSINESS TIMES 27 June 2005
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