Open For Business*

*I'm not actually open for business. yet.

Before I know it I will have graduated and will be legally able to dispense financial advice. I think as a mature student sitting in the front row because my eyesight has already gone I also think about my future clients a lot more than the green uni students that surround me with no real practical experience in the workforce. I think about my future clients often and I have become increasingly aware that in the future I may have none, none that I can help anyway. Here (hopefully) briefly is why:

#1 I don't think like the majority of clients out there.

In Business Finance (Finance101) the lecturer asked rhetorically why we buy a share, the answer being 'for the entitlement to future dividends' which is fair enough, but in a departure from this (and my usual emphasis on practical outcomes rather than semantics) I am considering one day putting in large lettering on my wall a different answer 'we buy shares because we wish to assume the risks of ownership.'
I don't believe in partitioning the mind, my last post looked at how believers could have minds such that they could design a scientific experiment that earned them an A+ in year 12 physics then go and listen to a priest give very specific explanations of the origin of the universe with no scientific evidence whatsoever.
Thus I don't see why I might go and support a sporting team may or may not win, or see a band that may never get signed or buy a zine of a friend that may never get a publishing deal then buy shares in a company I don't want to succeed.

Put simply, for me the question of ownership begins with whether you want the company to succeed or not. Not what its riskyness and expected returns are. Sure you want the business to be good, but first don't you want it's core value to be something you support. Thus I don't give a shit if a bamboo bicycle manufacturer offers more risk and lower returns than a brown coal exporter. I want brown coal to fail and I want bamboo bicycles to succeed.
From there I'd try and pick the best bamboo bicycle company, the most viable, the one likely to beat out its competition in the long run and so fourth, but that is where I begin my thinking not where I end it.

In this regard I'm much like Ben Graham and Warren Buffett - I think of buying a share in a company the same as owning the whole thing, and treat the investment decision as such.

Most clients though, shares are just numbers, and my lecturers teach me thus to reflect the industry practice. We spend hours talking about Beta's, covariances, variances, standard deviations, CAPM, CLM, RFR, Modern Portfolio Theory and almost exactly 0 time talking about companies. We assume that a clients criteria for investing consists of two variables Risk and Return and they don't give a shit how the optimum is achieved.

I give a shit, I don't care how strong BHP is, I don't want to own a penny of it.

#2 I can only help the rich.

I have friends that have the rich gene, they may not actually be rich but they are candidates to be rich. Why? they are willing to back themselves. They are willing to sink money into an uncertain venture and put up with the consequences if everything goes pear shaped. These are a slim minority of my friends that I try to spend the majority of my time with.

These friends one day I hope will be my clients, and I can help them. Most people I can't help.

Thus when I open my doors for business I imagine many of the people who walk through my doors will hear these sweet words from me 'get the fuck out of my office.'

I sort of don't want to touch superannuation money, even if there's a lot of it out there, and it is tax effective. I don't want it because it's money that has been saved for people, not by people. It's passive money in the possession of passive people.

People who think about their destination and not the road they want to take. People that will come to me with their own answers and just want me to tell them they are right.

People who want to buy property.

See I think my lecturers and the industry have got it all wrong. They invest tremendous amounts of energy into calculating risks and devising 'optimal portfolios' that in practice often underperform the market index (or no effort fund.) It costs people money to underperform the market and it is immensely popular.

But my chief concern is that uncertainty is uncertainty, and certainty is certainty and after the event you can be certain that whatever happened happened. That is the odds that something that did occur occured are 1.

Thus pointing out that something has an expected return of 14% with a standard deviation of 6% is a waste of everybodies time. Whether you get 8% or 20% are the consequences to concern yourself with not the odds of either occuring. Can the client deal with getting 8%?

Rich people can, they will give me money to play with they can afford to lose. They will say things like 'did I beat the market? who cares, I earned enough to buy this big house!' where the morons I will throw out of my office will say things like 'You charge 1% and you only achieved returns of 8% but MLC achieved returns of 12% this financial year so what are we paying you for?' and I will say 'I don't know, take your money and get the fuck out of my office. Keep chasing the annual winner because it won't be MLC next year.'

Actually that would be more than I can hope for, most people lacking the rich gene just listen to whatever moron at their dinner group is proud enough in the good times to advertise how well his investments are doing where he will shut his mouth all the times he has done poorly. Most people are concerned with keeping up with the Jones, independant of what the Jones' can buy or how they got there.

That's all I can think of right now, apart from the thought that is dominating my mind which is: it's lunch time.