Investment Kindergarten

Lessons To Be Learned

It is apt that we end with a story… It is a Kindergarten of sorts and stories should be told in them, because they both entertain and teach at the same time. However, I have found that in Latin America that there really isn’t a tradition of story telling to children to instil life lessons. So I will use a story that is well known and simple to illustrate the point we have been trying to convey.

Are you all sitting comfortably? Good! Then I’ll begin… It’s the story of the three little piglets and the wolf. Once upon a time there were three little piglets and each of them built a house. The first deemed a house of straw was sufficient protection and built it quickly, so that he could party with his friends and enjoy himself. The second, a little more seriously decided to built his of wood, but as he watched the first one play and enjoy himself, sitting in the shade, drinking and partying with his friend, finished it quickly, without proper foundations and joined his friends in the shade and all together they teased and taunted the third, who pragmatically and stoically continued building his house of brick in the hot sun. Now the third piglet was “only human” after all and many times his mind would come up with a reason to stop for a break have a refreshing swim in the nearby river and a few drinks in the shade with his friends… or to take a few day holiday from his exertions etc. At those wavering times he would remember his mothers admonishments “Not to leave until tomorrow what he could do today” and he thought about the pleasure he would have soon in inviting his teasing friends into his house which would protect and comfort him and them in all seasons. He knew that the first piglet’s house would fall down after a little time and needed to be rebuilt from scratch. When it rained it would be uncomfortable even for the wooden house built by the second piglet that had no real foundation and, although better built than the first, would still not provide longterm security from the elements. So he would throw a funny reply to his partying friends teasing and return to his task working quickly, yet carefully, to finish his work.

Some weeks later a hungry wolf arrived near the place where the three piglets lived. The wolf following his nose, came to the clearing and saw the three little houses where the piglets lived. The first piglet was playing outside of his straw house and, in seeing the wolf, rushed into his house and, shaking with fear, barred his flimsy door. The wolf circled the house and quietly stated “little pig I shall huff and puff your house down and eat you for Lunch”. He huffed and puffed and indeed the straw house blew away in a cloud of dust. Luckily the little pig was hidden in the cloud and he ran as fast as he could in its cover to his friend’s house and was just able to escape into its wooden sanctuary, inches ahead of the wolf’s teeth. The two piglets crouched in fear, while a now angry and even more hungry wolf prowled around the wooden house making his threats to blow it down and eat them. Neither of them were confident that the quickly erected wooden house would survive the attentions of the wolf and they therefore made a plan. The wolf huffed and puffed and huffed and puffed and huffed and puffed and as the house began to collapse, the piglet acted on their plan and were able to escape, by the skin of their teeth into their friend’s brick house.

A now very annoyed and extremely hungry wolf crying with rage and frustration made the same threat, but no matter how hard he huffed and puffed couldn’t blow the brick walls of the third piglets house down. Eventually he left tired and despondent and the first two piglets wanted to have a party to celebrate. The third piglet agreed but made them promise that tomorrow they would begin to build two brick houses. They agreed, they partied, they built two more strong houses and they lived happily ever after.

THE MORAL

Is the majority of the people we meet professionally similar to the first two piglets in regards to unpreparedness because they ignore reality? Actually no! About 20% most certainly are the first piglet type, prepared to party and hoping that a big deal will occur to alleviate their long term financial problems and certainly not interested in applying the necessary pragmatism. We rarely can help them and sadly a wolf will catch them, metaphorically speaking.

There are others in the same situation but for considerably different reason. We regularly meet with very successful, hardworking intelligent people whom equally are unprepared. This is not because they party, although no doubt they enjoy their Thursday night and weekend revelries, but because they are busy, they never seem to have time to explore their options or more often, have no idea what is available and when they do explore the possibilities, they either find it confusing and complicated or not specific enough for their needs. They are concerned, but can’t find the solutions. They understand the problem, but find themselves nevertheless, living in a Straw hut. We can help them!

The most common scenario we encounter, are those who have built a wooden house and they are split into two distinct varieties. The former are fully aware that their existing situation is inadequate to meet their ongoing financial aspirations and they seek competent help to design a long lasting solution. In truth they don’t know exactly what they need or want, nor do they really understand their options, but they are intelligent enough to recognise a good pragmatic solution when it’s introduced and as such we can help them.

The second variety, are closer to their “wooden hut” neighbours in so far as they too understand they have a need, but they are like their “straw hut” brethren when it come to finding solutions. They often are very poorly invested in totally inadequate programmes which nearly always have unrealistic expectations. They rarely recognise the quality differences between options and will often choose the solutions, which promises the needed outcome but without applying any of the detached critical analysis necessary to ensure that the proposed option is actually viable. They find it hard to admit that a problem exists and that decisions made were more emotional than pragmatic. As such, they are harder to assist, however once convinced they diligently apply the remedies.

The brick house owners are easy to assist, they constantly are alert for new options to improve and maintain their status. They understand the need for periodic reviews of their process and discipline themselves to be alert for early signs of problems. As such they enjoy the fact that they are in control of their financial future and that if a difficult period or an unexpected event occurs, that they are well placed to minimise its affect.

The above is a simple philosophical exercise and as such sometimes too subtle in its message. So take five minutes and one sheet of paper, to pragmatically test where you live.

Imagine that you have received news that you have one week to live. After the initial shock you realise that you must make sure that your loved ones are informed of this fact and what they must do to ensure that their future is less painful going forward. You have always been the primary individual to deal with finances and now you must pass on the details to ensure that their difficult future is as best as possible. After all, they are your loved ones…

With the exception of your primary place of residence… List all assets, insurance and investments you have accumulated and total them. Note beside each your suggestions as to when and how they should be sold to realise the best possible price and the minimum they should take. Who they should trust to assist them and who they should not. Total all debt, loans and borrowings and deduct.

Make a note regarding your children’s future education needs and how it should be paid.

The remaining total should be the mid point of each of the valuations you have made. What is the amount? Divide it by 14. The figure you see is the amount your family will have each year as an income. (IE secured ongoing investment with a 7% annual yield, without touching the capital).

Finally divide it into the amount you expect to earn this year. Look at it! Then assess which house you should be placed. If it’s not “brick” then contact us, we can help. If it is then contact us we can independently inspect and assess it and either confirm its integrity or suggest improvements.

It is the fate of all of us to see a wolf at sometime in our lives, often on many occasions and hopefully at a distance. No reasonable individual wants the experience of a face to face encounter without some protection available. That is a dangerous time to be making decisions.

Therefore build a brick house and live happily ever after!