Recently, I was reading an article from my Web hosting provider about the art of research. The article mentioned all of the well-known online search engine tools like Bing, Google and Yahoo, and it introduced a few other tools that were more specific to bloggers. And though the article offered a variety of new and interesting tools for finding various types of information, I found myself asking the question: ‘Is this more information than I really need.’
We are so lucky to live during a time, and in a place, where so much information is readily available to us (talk about Freedom of Information), but oftentimes it can seem a bit overwhelming (Info10). And then there is the question: How can we know if the information we receive is accurate and meaningful? Many times, we can’t! And here’s a good example why we can’t:
DOJ vs. Rating Firms
The government is taking its get-tough-on-Wall-Street stance to the next level with the DOJ’s lawsuit against Standard & Poor’s. The suit alleges that S&P from September 2004 through October 2007 “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors in” CDOs and securities backed by residential mortgages, the WSJ reports at the top of A1 today. The two sides have been discussing a possible settlement for months, but the penalties the DOJ was targeting – more than $1 billion – made S&P squeamish. The firm was also worried that if it admitted wrongdoing, as the DOJ wanted, that could leave it vulnerable to other lawsuits.
S&P and other rating firms have argued in the past that their opinions are protected by the First Amendment — and judges have thrown out dozens of suits based on that argument, the Journal says. This case will test that argument against the Justice Department’s view that the First Amendment wouldn’t protect a ratings firm if it defrauded investors by ignoring its own standards.
Source: The Wall Street Journal |CFO Journal: Tue 2/5/2013 6:58 AM
Unfortunately, more times than not, it can be a matter of intuition or dumb luck that spares us from certain perils. Consequently, all information we receive should be viewed skeptically. And, if anyone ever tells you (especially with a high degree of certainty) that they know how future events will unfold, turn and run the other way. All too often I hear, and read, about future predictions that others have made and, most of the time, they never come true (think December 21st 2012).
When it comes to knowing our surroundings it boils down to a matter of trying to determine those things that are right and wrong (or potentially wrong) with our current environment. For example, if you are going to see a band play at you local watering hole and you learn that there is going to be a fireworks display (especially if it is an old building with a low ceiling), look for the nearest fire escape and position yourself next to it (just incase a fire breaks-out). It’s not a matter of being paranoid, it’s a matter of being prudent!
Lastly, and most importantly, know yourself. Have a good idea of your strengths, weaknesses and limitations. Don’t extend yourself beyond a point with which you feel comfortable (and that goes for anything you do in life). A great athlete will always know his or her limits, and the extent to which he or she can push those limits.
So, what does all of this mean in terms of your investments. Well, put simply: Be smart, be cautious and don’t risk more than you are willing to lose. And, most importantly, don’t put all of your faith and trust into any one person, company or investment (think Bernie Madoff and all of the people who placed their life savings in his hands).
If we look around us, at present day situations, the news is not that good:
Barclays Chief Stresses Ethics
The Barclays CEO said he was “shredding” the bank’s self-serving culture and moving beyond misconduct issues that have cost it billions of pounds.
UBS Reports Loss
The lender said it is making progress in refocusing its investment bank on wealth management, as costs related to settling interest-rate rigging charges pushed it to a fourth-quarter net loss.
Gulf of Mexico Fines Hit BP Profit
BP posted a 72% drop in profit for the fourth quarter, as its production fell on asset sales and it agreed to pay billions of dollars in fines to the U.S. government to settle charges over the Deepwater Horizon oil spill.
Euro-Zone Retail Sales Slump
Retail sales in the 17 countries using the euro fell sharply in December, underscoring domestic weakness in the economy that is likely to hinder a full recovery.
AND, all of the the above headlines were contained in just one e-mail I received recently (WSJ.com Editors: World At a Glance)! Let’s look at a few others:
‘Sequester’ would halve U.S. economy’s growth in 2013: CBO (MarketWatch Bulletin)
Suckers or saviors? Small investors buy up stocks (MarketWatch e-Newsletter)
No, Mr. Bond, I Expect You To Die. (Mauldin Economics)
They certainly don’t instill much confidence or any level of comfort, now do they?
Fortunately (even with all of the gloom and doom in the world today), not all is lost. In my next post, I will talk about a couple of well established funds that can be used as core holdings in you portfolio. For now, the most important thing I wish to impress upon you is the need to remain patient and prudent, and for you to not take any unnecessary risks.
