investment

De-mystifying the Divinity of Money (1)

The Politics of Trust (2010)

The past many months of monetary shambles and pecuniary machinations seem to be over, the news, earlier unremitting and unfailingly dismal, is brighter; the spending is up and people are buying, buying, buying – most evident in the property market in Singapore, an explosion, a growth, flips, profits, government curbs, higher prices, and now, disenchantment amongst many as the options both diminish and become incrementally expensive.

It is both bewildering and incomprehensible and the Sunday papers overwhelm the financial neophyte with relentless investment advice and case studies; should it be gold, real estate, bonds, mutual funds, hedge funds, insurance, stocks or cash under the mattress ?

Six years ago, I had a series of conversations around money with a maverick financier friend based in Mumbai; the why’s and wherefore’s of money and investment, why we do what we do – and as a player of people and money – how did he interpret the interplay between expectations, the pursuit of wealth, happiness, life  … and so on and so forth.

Let’s call him PK, this investor, this armchair fund manager, who has never owned a car and has just recently begun wearing shoes. He runs a paperless business, moving and making millions (if he is to be believed), trust being the currency of his commerce.

The business of money, explain it to me, I requested then, and as always, he was happy to oblige. We had many long telephone conversations and now, six years later, when I recall those rambling talks on the metaphysics of plenitude and refer to my notes, his words are prescient, almost visionary, given the events between 2004 and 2010.

This is the first of a three part series on random thoughts regarding wealth and its creation and pursuit; a stream of consciousness from a financial free spirit who used to sport a beard and khadi (homespun Indian cotton).

We’ll toss a few ideas back and forth, he suggested, and you give it a bit of a think and we’ll talk again.

It has been his amused (and alarming) discovery, said PK as a broker speculating with other people’s money, that individual investors (seeking more money) rarely understood that they were willing (and mostly ignorant) participants in the process, artlessly trusting financial ‘professionals’ when they should have been educating themselves first.

Have you ever wondered, he began, nattily, chattily cheerful, about the individual’s role in the bacchanalia of wealth building and greed ? People don’t realize that it is always a collective reckoning of responsibility and blame. Every single individual in the pursuit of wealth contributes to a situation.

Due diligence, due diligence, due diligence (he said)

An investor needs to educate himself before he approaches a specialist, said PK, because the fact of the matter is that investments are no longer the domain of banks or individuals with the supposed ‘expertise’. Complex financial institutions make huge investments in developing an image of being totally safe. But, he asked, are you sure your money is safe ? If a thousand people tell you that a bank is safe, it is not necessarily true. The ‘safe as a bank’ myth is nothing but a myth.

With cross-border investments and global markets, an investor needs to understand how to invest money in a different country and still remain protected, because the first rule of international law is that there is no international law. Laws are enforced within countries, not across borders. I hope, he remarked, his wry smile traveling down the telephone line, an international law will evolve based on natural law and a sense of justice, but then, that’s just me, I am an optimist.

The reality of globalization is that it is not possible to have all the information. The nuances are too complex and too many. There is no international governance that controls the flow of information. What it does offer, though, are opportunities, opportunities that can be realized if there is a global network of people who trust each other, and a free flow of information shared between peoples and nations with the understanding that everybody benefits.

In essence, considered, thought out investments, based on information, because information lays the groundwork for trust.

Documentation is a record, not ‘protection’

Anyone, remarked PK, who wants to invest meets a functionary. A representative. Not the person making the decisions. Not the people directly handling their money. These functionaries are people who may be there one day, gone the next, to join another organization. That’s why bank rates on investments are so low, because vast amounts of money are spent in guarantees and counter guarantees. People don’t know each other, legal agreements are drawn up, everyone gets charged. Only a handful of people in any organization are fully cognizant of exactly what is happening, he said, it’s a club, or a jungle, depending on your point of view.

Legal documentation is not protection.  A smart lawyer can bury you in paperwork, in layers and layers of legalese, loopholes and delays. It costs money. You go to court. It costs more money. It may take thirty-five years to resolve the case. Not worth the effort.

I can give you all the documents saying all the right things, he offered. But what it ultimately boils down to is trust, which develops from your due diligence and understanding of the investment and the person or institution you are giving your money to. Remember, he repeated, documents are merely a record. They are not protection. Financial institutions, while building credit history through a lot of paperwork, are just agents collecting fees.

How does A link to B and to X ?

The point is to understand the process. Statutory authorities, in PK’s opinion, are always ten steps behind the guys making money because it’s the old adage – those who can, do, and those who can’t, legislate. No single person can turn a market. We are part of a larger collective where everybody is doing the same thing. I introduce change, it works, and I am hailed as a market builder, a hero. I don’t court change, I follow a pattern set by others, because the rest of the market is doing it and the risk increases exponentially as more people get swept into the current.

We are a culture that requires heroes and scapegoats – our Buffets and Madoffs – icons we can laud and blame or emulate and believe in, because no one is entirely sure and trust, information and prescience are in short supply. This is the reality we need to comprehend and acknowledge before we make our investment decisions because what remains fundamental and true is that trust is built on knowledge and while information is global, the laws are not.

To be continued.

Pictures googled off the Net: from themanual.org, blogs.voices.com, favim.com and cutcaster.com.

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