Sunday, January 29, 2012

Volume 4 Issue 3: Intelligent Investing

Integrity Is Hard To Come By

Ever since I was exposed to the world of investing, I have come across many people who swear by the "secrets" of Suze Orman. Suze Orman is not so much an investment guru, but more of a "savings" coach. She comes up with a bunch of ways to help people achieve financial freedom through saving and not necessarily investing. But that is not why I am writing this issue.

In recent years, Suze Orman had been launching several products that she swears by. No, they are not tricks or gimmicks. Some of these products actually add value and are pretty nifty. I will not go into that as Felix Salmon has already done that.

Since then, Orman has built a name for herself. But with great power, comes great responsibility. Of late, it appears that Orman has been shirking some of that responsibility. Here is Felix Salmon again:
Lying about being ranked by Hulbert Financial Digest is, needless to say, neither ethical nor honest. Which means, on an unsympathetic reading of Suze Orman, that she’s lying too. 
When I spoke to Orman last week, she made it very clear that her relationship with Grimaldi’s newsletter was no different than her relationship with the Approved Card — she’s an owner of both of them, thinks that both of them are very good products, and is proud of them both. (The same goes for her FICO package, too.) 
Orman also told me twice that the newsletter was rated number one — she was adamant about that. And now it turns out that it isn’t. I spoke to Orman on Tuesday; maybe Zweig hadn’t contacted her with his questions yet at that point. But at best Orman is extremely incurious about the “fabulous” newsletter that she is so keen to hawk and defend. And at worst she’s happy lying about it being ranked highly by Hulbert. 
And that’s not the end of the Grimaldi/Orman sins, either.
To get the whole context, you really need to read the full article. But in short, it appears that the way Suze Orman has been peddling her products wreaks of heavy conflicts of interest. It is always difficult to be objective when one recommends one's own products as an "investment".

I have said this time and again about "Sell-side" investment advice. Here is what I wrote back in April 2011:
Raising a flag over a corporate governance issue points towards a sketchy deal but a day later, RHB Research realized that they did not find out the appropriate facts. After Perisai clarified the matter, RHB Research realized that they had made a mistake and published a counter report on the next day, 31 March 2011, and withdrew their previous report.

This clearly shows very careless and irresponsible research on RHB Research's end. They caused a sell-down on Perisai and many people lost money on it. This brings us back to the issue of integrity. So from now on, every time one reads a research report from RHB Research, one would start questioning the quality of its research. "Could it be as bad as the Perisai case?" 
Here is another of Buffett's infamous quotes: 
     "It takes 20 years to build a reputation and five minutes to ruin it" 
To conclude, I would just like to point out that writing research reports is not easy. A lot of care and thought has to be put into it to ensure that lies and irresponsible research is not thrown around as it could have adverse effects on people's lives. This is the level of care, responsibility and integrity that we hope to aspire to at the Mainstreeter.
Good and reliable investment advice is really hard to come by. I have also written about a blooper that was made by a careless CIO. You would think that being a CIO, he would have done better homework before bringing up misleading points during a public presentation.

That is why when anyone gives investment advice, take it with a bowl of salt. A pinch just isn't enough. At the end of the day, the goal is to do your own research. Who better to trust about your money than yourself? Who is going to take care of your money better than yourself? Listen to facts and evidence.

A good technique to practice when obtaining investment advice is the "5 Whys". Simply put, it is a method for asking questions to identify the root of cause-effect relationships. To approach any given "fact", one should ask "why" at least five times. This technique was the brainchild of Sakichi Toyoda, which was used as Toyota's scientific approach which brought Toyota to such great heights (which does not seem so high right now, but that is another story for another day).

Basically, any given investment advice that does not pass the "5 Whys" test is probably not worth listening to. So next time you think of making a quick buck off some coffee shop rumour, test it against the 5 Whys test. Ask yourself if the advice makes sense. I hope that this will help keep your money safer that some of the investment advice that Suze Orman has been peddling.