Posts Tagged ‘warren buffett’
EUREKONOMICSTM is based on investment principles that are as old as money and as current as the 21st century.
Benjamin Graham, the Dean of Wall Street was Warren Buffett’s mentor. Graham stated this principle in one concise sentence in his classic works, Security Analysis (1934) and The Intelligent Investor (1949)…
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
When look at the meaning of this sentence within the framework of EUREKONOMICSTM you discover that…
- EUREKONOMICSTM relies on the promise of safety of principal as the primary consideration when it comes to investing the money that enters your life
- The EUREKONOMICSTM‘ corollaries to the promise of safety of principal are…
- whatever you think of as a satisfactory return has support that basic premise
- an investment that doesn’t is not really an investment; it’s a speculation-in simpler terms it’s a gamble
Graham’s Promise of Safety of Principal…
The the professionals in the insurance and financial services industry that act on your behalf tend to seek out the wealthiest Americans as clients. That has an unintended consequence. It creates a view of personal economics that applies mostly to the small percentage of the population that have already created family wealth.
That perception pervades the part of the industry that creates products as well, especially among financial businesses that create investment products and insurance products that have an investment component. As a result, many products that are called investments actually fall into the group that Benjamin Graham describes as speculative. They offer neither safety of principal nor a satisfactory return.
There’s another issue. You can project a satisfactory return on an insurance or investment product by using higher than realistic interest or growth assumptions. However, for many of the financial products available in the market today the facts surrounding the real returns of actual investments held by everyday Americans do not support a claim to safety of principal and satisfactory returns.
Take mutual funds as an example. No registered representative would dare promise-as Benjamin Graham’s definition suggests-that an individual mutual fund could promise safety of principal and a satisfactory return. If they did, the regulators at FINRA would likely bring the advisor making such a claim before a disciplinary board to be tarred and feathered-figuratively of course.
However, financial advisors often suggest that hypothetically and “over the long term” this fund or that or some combination of funds assure safety and returns. Based on guidelines from the SEC and FINRA, as long as you complete a suitability form and a risk tolerance questionnaire, which protects the advisor and his or her firm from the overreaching arm of regulators in the event an investment fails, the safety of principal and satisfactory return promise requirement has been met.
Take a look at the performance of these types of investments and the losses Americans have suffered over the past decade. The tremendous American families have experienced have led to only a few disciplinary actions-and those mostly for thieves running ponzi schemes.
The Promise Fulfilled…
Insurance and financial advisors are not in any way irresponsible or engaging in deceptive practices. The problem is that most of the insurance and investment products that are available in the marketplace are designed to serve the needs of investors and speculators that can afford to take risks-and losses. These financial products are not designed to help the vast majority of Americans seeking to attain wealth regardless of what the manufacturers of these products would have us think.
It’s easy to recognize the truth of this assertion. Look at your own financial progress. I’ve been practicing for almost forty years and have met only a handful of people that started out with wealth. Most Americans have gained wealth by struggling for years to…
- educate ourselves about saving, investing, risk management, etc.
- build equity in
- our homes
- our businesses
- our insurance policies and savings accounts
Almost every person and every insurance and financial advisor I have met can relate to this idea. Why then would anyone suggest that everyday Americans follow any other path to wealth? I’ll leave that answer up to each individual to discuss with their insurance and investment advisor.
However, I caution you…conventional wisdom-which is not wisdom at all-will rear its ugly head and suggest that advisors are fools if they rely for wealth creation for themselves and their clients on…
- financial education
- building equity in prosaic things like…
- savings accounts
- whole life insurance policies-especially whole life insurance policies
- a strongly rooted recognition that their clients deserve nothing less
The Final Word
There is no financial product that will make you wealthy.
There is, however, one financial product that guarantees that you will have more money in it at the end of each year than you had at the beginning of the year and that should be the foundation for your successful personal economy.
That product is participating whole life insurance from a mutual insurance company.