- April 1, 2013
- What Maslow and Rand Would Tell Investors Today
I have always been fascinated by what motivates people. What motivates Tiger Woods to pursue the goal of being the world’s greatest golfer? What’s the motivation driving Warren Buffett to continue purchasing companies instead of retiring in Tahiti? Or how about the motivation behind the trucks allegedly packed with euros parked in front of the Central Bank in Nicosia?
What is most puzzling is the motivation driving investors to buy or sell their equity positions when research shows that holding an investment over the long-term is more successful than timing the market.
As Business Insider puts it, there’s “proof that [investors] stink at investing.” Its headline is catchy, and the chart shows the evidence, as the average investor has significantly underperformed oil, stocks, gold and bonds in the past 20 years. While, on average, investors returned 2 percent, oil, stocks and gold rose about 8 percent.
After inflation, the average Joe or Jill actually lost money.
You can easily attribute the meager returns to the emotional rollercoaster that drives buying and selling decisions, but to break the pattern of poor performance, it may be better to understand the motivation occurring on a subconscious level.
Anyone who sat in on a psychology course in university is likely familiar with Abraham Maslow’s classic hierarchy of needs driving human motivation. The most fundamental need is shown at the base of the pyramid. Our physiological needs for food, water, shelter and warmth are of the highest priority. Only after those needs are met, we try to meet our need for safety. After that, we can move to belonging, then our own self-esteem and, only until we feel confident that all those needs are met, can we achieve fulfillment or self-actualization.
I have to thank Christine Comaford, the dynamic presenter and global thought leader on corporate culture and performance optimization, for my proverbial light bulb moment when I connected Maslow’s observations from the 1940s to investors’ reactions to global events today.
I love learning about neuroscience and behavioral finance, so I looked forward to her presentation at a global leadership conference for CEOs that I attended in Turkey. But when I walked into the room, I was impressed with how many like-minded executives were interested in her research and insights.
These executives want to understand why customers buy certain products, why investors sell equities to buy bonds, and why their employees don’t seem to have a level of engagement they once had. Also, I believe leaders want to understand why people don’t feel secure or safe these days.
In a recent post in Forbes, Christine stresses how important it is for people to feel safe, to feel as if they belong and to feel as if they matter before they can get to what she calls the “smart state.” This state is when people have access to all parts of the brain and can respond from choice, rather than the “critter brain,” when one simply reacts in one of three ways: fight, flight or freeze.
The needs for people to feel safe, feel like they belong and feel like they matter “are programmed into their subconscious so powerfully that they literally crave them,” she says.
Her discussion particularly resonates with me today, as I believe governments’ actions around the developed world have perpetuated this lack of feeling safe, inhibiting investors from moving up Maslow’s Hierarchy of Needs and preventing their portfolios from achieving the outstanding returns offered by oil, gold and stocks over the past 20 years.
Now, with the most recent drama created by the triangular powers of the Cyprus parliament, the International Monetary Fund and the European Union, news of Cyprus’ bank seizures is sending shock waves rippling across the entire world. How can investors feel safe when governments have the audacity to confiscate their money?
Ayn Rand warned of such actions in her book, “Atlas Shrugged.” Here’s a snippet that is particularly appropriate today:
“Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values.”
And to her, gold was the objective value, “an equivalent of wealth produced,” as paper is only “a mortgage on wealth that does not exist.”
This is precisely why many gold investors were disappointed that the yellow metal didn’t perform well. While gold’s performance in the short term has been counterintuitive, I plan to stick to my own advice. I simply feel safer with a small weighting in gold as insurance.
Past performance does not guarantee future results.
The commentary references the investment theory of an investment as insurance against a separate market event that could negatively affect performance of an investment. The reference does not guarantee performance or a safeguard from loss of principal by investing in that asset. By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.
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- March 28, 2013
- What’s the Best Investment Advice You Received?
Throughout my years in the financial industry, I’ve been fortunate to meet many wonderful people who helped shape my philosophies about life, business and investing. One such role model has been Seymour Schulich. While some may have never heard of the Canadian entrepreneur, those who meet him, don’t forget him and his straightforward approach to the resources industry. He’s one significant person who continues to be an inspiration to me.
Football Coach Vince Lombardi is another person who inspires me. In my essay printed in Liz Claman’s book, The Best Investment Advice I Ever Received, I share the evergreen importance of Lombardi’s famous line, “Practice does not make perfect. Only perfect practice makes perfect.”
All great money managers are intellectually competitive, similar to the way athletes are fiercely competitive. What they both have in common is that they never experience the perfect day when the conditions for winning are just right. Markets are seemingly random, so to be successful in investing, money managers need to be skilled in the art of “perfect practice.” That way, no matter what obstacle comes their way, the focus on the long-term goal of building wealth remains in play.
Liz Claman, currently an anchor with FOX Business Network, put together an extensive list of top moneymakers who offer their humble words of wisdom. I believe this book can inspire you to be a better investor. Check out the book with investment advice from Warren Buffett, Jim Cramer and Steve Forbes and more here.
What’s the best investment advice you’ve ever been given? Email U.S. Global at email@example.com to share your story.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content.
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- March 25, 2013
- In Gold, Not Cyprus, We Trust
Global investors had to muster the courage to keep calm as news of Cyprus’ proposed partial theft of all bank deposits took Wall Street by surprise, closed the country’s banks and drove the price of gold higher.
The thoughtless idea was intended to capture a portion of the $31 billion in bank assets held by Russians. According to the Financial Times, Cyprus has developed a “well-earned reputation for being a haven for dirty money from Russia.”
Although Cyprus’ government came to its senses and blocked the proposed seizure, the damage has been done. To many people around the world, raising income taxes may be one thing, but changing the rules to steal hard-earned savings from all citizens rattles their confidence. What Adrian Ash of BullionVault says is “most amazing” about this situation is that “small savers are no longer sacred.”
It’s remarkable to see the response from Cypriots, as they protested in the streets, with “NO” stamped on their palms, demanding the government take its hands off their money. In the photo, you can see their pushback to sanity.
How did this tiny island make it into the European Union (EU) in the first place? The Financial Times gave an insightful background:
“Many EU leaders had been deeply reluctant to admit Cyprus into the union in 2004, without a peace settlement that reunified the island. But Greece had threatened to veto the entire enlargement of the EU—blocking Poland, the Czech Republic and the rest—unless Cyprus was admitted. Reluctantly, EU leaders succumbed to this act of blackmail.”
Five years later, we are seeing the fallout of Cyprus due to Greece’s financial woes. Many accuse Greece of cooking the books to get into the EU, and then the country proceeded to blackmail the EU at the expense of other European countries.
Crooks get punished, but what about others who unfairly change the rules or break them? Think back to the anger generated by the Ponzi scheme run by Bernie Madoff, who lost $20 billion in cash. In addition, $65 billion in paper wealth vanished. He’s serving 150 years in prison, his son committed suicide, and he’ll forever be known as a thief and a rat.
In Gold We Trust
Since the global financial crisis began, there’s been a rash of poor economic decisions from socialist policymakers scrambling to bring in more revenue to cover their overspending. Rather than streamline regulations to facilitate trade and flow of funds or cut back on welfare programs, they’d rather maintain the status quo and increase taxes.
In Greece, tough cost-cutting austerity measures were shot down after organized unionized workers were rioting in the streets. France’s socialist president, Francois Hollande, has been trying unsuccessfully to increase the top income tax rate to 75 percent in an attempt to “squeeze fat cats and hit the mega-rich, making them bear the brunt of ‘sacrifices’ needed to fix public finances,” according to The Guardian last summer.
In Hungary and Italy, we have seen the unintended consequences of envy policies after implementing a financial transaction tax.
These types of “envy policies” that would be frowned upon by Moses on Mount Sinai aren’t only happening across the Atlantic. Recently, Gene Epstein from Barron’s compared the U.S. debt situation to that of Greece’s. He writes that national debt could “easily reach 153 percent of economic output by 2035” and unemployment could climb as high as 20 percent, but the solution doesn’t lie in “asking the rich to pay a little more.” He says,
“Barron's calculates that immediately increasing the marginal tax rate to 50% on the top 1% of the country's earners would bring in $500 billion over the next 10 years. This would barely dent the country's debt load, which would then be $20 trillion, and do little to forestall a financial crisis.”
I believe poorly thought out government policies hurt the formation of capital and destroy people’s trust in paper money. Leaders may have good intentions, but some of their actions show disrespect for private property and individualism.
This only reemphasizes gold as an important asset class.
It may be apt timing for investors to become reacquainted with gold, as our oscillator chart shows that the yellow metal appears to be oversold. On a year-over-year basis, gold has fallen more than 2 standard deviations, an event that has rarely occurred over the past 10 years. As I’ve indicated before, following these extreme lows, gold has historically rallied.
It’s only an event like Cyprus to prompt you to make sure your portfolio has a modest weighting of 5 to 10 percent in gold and gold stocks.
Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. By clicking the links above, you will be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. None of U.S. Global Investors Funds held any of the securities mentioned as of 12/31/12.
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- March 22, 2013
- The Importance of Women Leaders: From Margaret Thatcher to Sheryl Sandberg to Park Geun-hye
I have always admired former British Prime Minister Margaret Thatcher, whose strong leadership and perseverance made her one of the most influential and respected political figures in recent history. She once said of her ability to persevere that she has the “woman’s ability to stick to a job and get on with it when everyone else walks off and leaves it.”
She was the first woman to lead a major Western democracy, and now, in 2012, businesses worldwide have more women sitting in board rooms and at executive tables “than at any time since 2010,” reports Grant Thornton. What is fascinating for global investors is to see how countries differ in the proportion of women in senior management.
According to its study, Grant Thornton found that China leads the world, with 51 percent of senior management positions held by women. This is a sharp increase from the previous year, where only 25 percent of women were in senior management. China’s not the only Asian country ahead of the curve. Thailand, Vietnam, Taiwan and Hong Kong also show up on the list below, with 30 percent or more of businesses with senior positions held by women.
Emerging European countries also have “healthy representations of women occupying senior decision-making roles,” says Grant Thornton. Poland is a close second to China, with 48 percent, followed by Latvia, Estonia and Lithuania.
While the growth in women holding senior positions in the U.S. increased in 2012, the country still lags much of the world, with only 20 percent of its senior management held by women. The nation falls to the bottom in the worldwide ranking, alongside Japan (7 percent), United Arab Emirates (11 percent), and several European countries, including Netherlands (11 percent), Switzerland (14 percent), United Kingdom (19 percent), Ireland (21 percent) and Spain (21 percent).
There are many more insightful statistics in Grant Thornton’s 12-page report and you can download a copy at their site here.
From Margaret Thatcher to Facebook’s Sheryl Sandberg to South Korea’s first female president, Park Geun-hye, I believe governments and corporations thrive when they welcome diverse thought-leadership and ideas.
U.S. Global Investors has been at the forefront of this trend, hiring leaders who share our corporate values, including having initiative, a respect for people and teamwork, a focused work ethic and a curiosity to learn and improve. I’m proud that two of three top leadership positions are held by President and General Counsel Susan McGee and Chief Financial Officer Catherine Rademacher. In addition, U.S. Global has several female executives throughout the company who lead departments, including Comptroller Lisa Callicotte, Jennifer Stief in human resources, Susan Filyk, who leads our marketing team, and Laurie Richoux, who heads shareholder services.
By clicking the link above, you will be directed to a third-party website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content.
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- March 18, 2013
- Why China is Tunneling a Mind-Boggling 800 Miles in 2 Years
Would it surprise you to discover that China is planning to add 800 miles to its subway system over the next two years? That’s the distance equivalent to building a network from Dallas to Chicago in less time than the U.S. Congress can resolve a budget!
In 2015, when the infrastructure build-out is complete, China’s subway track alone will be a mind-boggling 1,900 miles, according to JP Morgan.
The Asian giant has been in the midst of constructing the world’s largest transportation system, laying mile after mile of high-speed rail and subway track. According to the World Metro Database, Beijing and Shanghai currently have the longest metro and subway systems, with about 275 miles each. The city of Guangzhou in China also falls in the top 10, with 144 miles of rail, beating Paris’ network length of 135 miles.
This ambitious program is part of the pragmatic solution to help 1.3 billion residents move around the country efficiently and reduce the increasing problem of air pollution due to car emissions in big cities including Beijing.
The circulating reports and photos of Beijing’s smog have recently become a dark cloud hanging over the country’s remarkable achievements, but it’s not a new issue. In the winter, smog conditions can seem much worse. Pollutants tend to linger when the air is heavier and colder compared to lighter, warmer air during the summer. In addition, the city is located near the Gobi Desert and has always been subject to sand and dirt storms, even back in the days when it was called Peking.
The U.S. experienced similar sand storms during the Dust Bowl in the 1930s, which caused catastrophic ecological and agricultural damage to the American prairies and made the economic impact of the Great Depression much worse. Sixty-five percent of the topsoil was blown away and millions of people were left homeless.
Industrialization in Beijing has certainly aggravated the matter, but Beijing is not the first city suffering from its horrible haze. The London smog of 1952 caused 12,000 total deaths, resulting in the Clean Air Act of 1956, and according to the U.S. Environmental Protection Agency, Manhattan suffered particularly poor air quality in the 1960s, affecting the eastern edge of the U.S.
Because of the government’s concerted effort to encourage consumption and help its residents achieve a higher standard of living in previous five-year plans, new cars congested the roads as fast as they were paved. Over the past decade, sales accelerated from less than 5 million vehicles in 2002 to nearly 20 million in 2012. About 114 million automobiles are now registered to Chinese residents, with ownership exceeding 1 million across 17 Chinese cities.
As we’ve discussed many times, the country is also the world’s largest energy consumer, with a huge dependence on fossil fuels, especially coal. You may think that the country’s use of coal would be the single largest factor driving air pollution, but, in Beijing, emissions from vehicles make up a bigger percentage. One-fifth of the fine particulate matter, which is made up of nitrates and sulfates, organic chemicals, metals and dust particles, comes from automobile and truck emissions in the city, according to JP Morgan. Across the entire country, automobiles cough out 27 percent of total nitrogen oxide emissions.
With residents dealing with increasing cancer-causing pollutants and vehicle congestion on roads, public discontent is rising, “adding particular urgency to causes such as environmental protection and public sector reform,” says JP Morgan.
China’s government policies were already addressing air pollution by “requiring thermal power plants to install desulphurization systems and progressively increasing vehicle-emission standards,” according to the research firm. As one recent example, last May, I discussed Beijing’s additional subsidies devoted to energy-efficient products, including fuel efficient cars, LED lighting, and high-efficiency motors.
This year, leaders appear ready to continue these environmental priorities. In comparison to last year’s budget, a larger portion of government spending will go toward environmental programs. While other areas will see a decrease in spending compared with last year, spending on environmental protection is projected to grow nearly 19 percent, says JP Morgan.
With a concrete plan and a budget in place, it all boils down to execution and enforcement. And in March, the once-in-a-decade transfer of power became official, as the National People’s Congress in China elected Li Keqiang as premier and Xi Jinping as president.
Xi now holds the three most powerful titles in elite Chinese politics: the Secretary General of the Party, the Chairman of Military Commission and President of the Nation. This “triple-power strength” positions him as an ideal reformer for China. He may likely have little interference from former leaders, giving him a freer hand to tackle some of the growth challenges in China today, including reforms to improve environmental protection.
We look forward to watching these leaders in action.
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