Archive for November, 2009

Yes, you’re an athlete! (The Financial Athlete #136)

November 30, 2009

We are all athletes. It’s just that most people don’t know it. If a sedentary woman changed her lifestyle into a physically active one, she will be amazed at her level of fitness and how good she looks within only 1 year. Anyone who is not catastrophically ill can be reasonably fit. The first step to fitness is realizing your inherent, athletic potential. The second step is to set the goal to move toward your athletic potential. The third step is to execute.

So if you’re an athlete but didn’t know it, can you also be an investor and not know it? Yes, for those who have defined benefits in a pension plan. These people tend to be government employees. For example, a military officer with a monthly income of $6,000 retires after 20 years. In retirement he receives 50% of his monthly salary ($3,000 monthly or $36,000 per year plus cost of living adjustments). That’s the equivalent of someone who had saved $1,000,000 and receives an annual interest return of 3.6% interest plus inflation protection! In addition, the retired military officer benefits from government subsidized health care. In exchange for this, let’s not forget the officer served his country and put his life at stake.

“What keeps me going is goals.” — Mohammad Ali

(Click here for source of image.)

Advertisements

Walk Barefoot (The Financial Athlete #135)

November 27, 2009

“Walk barefoot,” advised my Balinese healer, who I had visited for back pain relief. His English girlfriend was translating Indonesian into English. “Gently press your toes into the earth with each step. Your toes are like the prongs of a power cord that plug into an electrical socket. Be sure to plug the full length of your toes into the earth.”

In circles I walked barefoot, bringing consciousness into my toes.

“How does it feel?”

I did not have to stop to reflect upon the sensation. “I feel more integrated with the earth.”

“Good. Now stand still. Relax. Again, gently press your toes into the earth.”

“How does it feel?” he asked again.

“I feel a more solid foundation.”

He nodded his head, “The whole body is integrated. Proper body alignment begins with the foundation of the body — the feet — which will help support the spine.”

In the same vein, align investing with your core values, which is your foundation. The integration begins with bringing awareness of your core values with every investment opportunity.

“My feet ain’t got nothing to do with my nickname, but when folks get it in their heads that a feller’s got big feet, soon the feet start looking big.” – Satchel Paige

Energy Flow (The Financial Athlete #134)

November 20, 2009

An old woman sat squatted before the village gate. A traveler stopped to speak to her, “I am weary from a very long journey. Tell me what are the people like in your village.”

The old woman replied, “Tell me first where you are from and what the people are like from your village?”

“I am from Bukah. The people there are rude and selfish. They lie, cheat, argue, push and shove. It is a very unfriendly place.”

“Well then, you should not enter my village,” said the old woman. “Here the people are rude and selfish, too. They lie and cheat and argue constantly about nothing of importance. They are especially mean to strangers. I sit here alone breathing the dust because they pushed and shoved my frail and old body outside the gate.”

Stunned, the traveler said, “Then this is no place for me! Although I am weary I will continue on in my journey.” And he left without setting foot past the village gate.

Only a few hours later, another traveler stopped to speak to the old woman. “Excuse me. I have traveled a very long journey from my village called Bukah. What are the people like in this village?”

The old woman rubbed the palms of her hands and replied, “First tell me what the people of Bukah are like?”

“The people of Bukah are kind and loving. They are honest and trustworthy and encourage one another. It is a very friendly place. I miss it already.”

The old woman smiled. “Well then, you will love my village. Here, too, the people are kind, loving, honest, and trustworthy.” Now she stood up and hugged the traveler to welcome him just before he happily entered the village gate.

———————————————————————

Consciously or unconsciously, you bring energy into every activity. If a competitive athlete in an individual sport is overwhelmed with negative energy, chances are high she will lose the game. Likewise, if an investor is overwhelmed with negative energy, chances are high he will lose on the investment. This simply manifests the Law of Attraction.

Stop and feel the energy within you. Is it negative or positive? Negative energy consists of greed, or anxiety, or cynicism, or anger, or any combination thereof. Positive energy consists of joy, or stillness of mind, or patience, or openness, or any combination thereof.

Beware of excess positive energy. An excess of joy turns into irrational, over exuberance. An excess of openness turns into not thinking for yourself. Under either form of excess, losses are likely to result.

Always bring awareness to the energy you carry within before investing. If the energy is negative, do not invest no matter how sensible the opportunity seems. Positive energy must be in balance and aligned with rational thinking. Only then are you are truly ready to invest.

* The above story I heard in Bali, Indonesia. As usual, I have added my own embellishments, including calling the town “Bukah”, which means open in Indonesian.

Process Oriented vs. Goal Oriented (The Financial Athlete #133)

November 16, 2009

“Just play. Have fun. Enjoy the game.” – Michael Jordan

Teaching tennis during the summer to two beginner level girls was fun. The girls learned how to volley with control, ground stroke with top spin, serve without a push, and basic game strategy for doubles…enough to do fine for high school tennis. I was proud of their work ethic, progress, and above all, their love for the game.

I watched them play their last match. They were given no time to warm-up, but neither were their opponents. The top of the net obstructed most of balls the girls hit with top spin. Their volleys were rushed and forceful. They tried for too many winning point shots, while their opponents kept the ball in play. (To keep the ball in play is a strategy to win by allowing your opponents to beat themselves with unforced errors.) Unnerved with falling behind in score, the girls I had trained reverted to old and ineffective habits such as hitting most ground strokes with flat strokes. Their confidence waned, sinking into a sea of disappointment. Abandoning the process based on skills, they inadvertently abandoned playing in a balanced state of mind.

The root problem lied in that they were too goal oriented, not process oriented. The increasingly elusive goal of victory reflected in their sluggish body language, as though their bodies were slowly melting into the earth. Ironically, had they focused on the process of playing skillfully rather than on winning, they may have come back from far behind to win the match.

To be fair, being process oriented is not an easy feat when things go against your favor. Being process oriented is a skill that takes conscious effort to cultivate. First, you must trust the effective process. In trusting the process, your mind and muscles are not bound by unnecessary tension. Your mind remains in relaxed state, regardless of the circumstances. Secondly, you must have the discipline to stick with the process. Knowing the process but abandoning it is as useless as not knowing it at all.

Do not confuse being process oriented with being intransigent. Being process oriented allows for adjustments. It includes contingency plans and is continuously refined. If you are process oriented, you are fully present to make the proper adjustments.

An investor should stick to the process of adhering to sound investing principles with at least 90% of his wealth. The remaining 10%, call it “play money”, can be used on an “experimental basis”.

Magnitude of Risk (The Financial Athlete #132)

November 10, 2009

Playing a high impact sport with an injury risks worsening it to a chronic one. Caught in the heat of the moment during an exciting game, it can be difficult for the athlete to consider the magnitude of this risk. Likewise, the investor must consider the magnitude of risk.

Take, for example, the following simple scenario.

Initial investment: $1000
60% probability of 3 x return = $1,800
10% probability of 10% loss = ($10)
30% probability of 100% loss = ($300)

Expected outcome: $1,490

This investment may be tempting. Who doesn’t want to make an investment with a expected return of 49%. Now let’s suppose someone were to invest 80% of their net worth on this one “promising investment” and the outcome turned out to be the worst case scenario of 100% loss. The loss could be devastating, especially if the investor were nearing retirement age. Hence, the magnitude of risk for this investment is too high if overweight on it.

Always pair up an analysis of probability with magnitude of risk to determine how much should be invested. Too many investors fail to consider the magnitude of risk. This dumbs down the process of investing.

“Things should be made as simple as possible, but not simpler.”
— Albert Einstein