Women Mean Business - March 2013

Posted by Jill Kerby on March 01 2013 @ 09:00



“I think I need to make some real money this year,” my friend said over our first New Year cup of coffee. “We’ve got €20,000 in savings sitting in the bank and we’ve got two kids who we hope will go to university some day. It isn’t going to be enough.”

Timing is everything, and that is certainly true for ambitious parents and children who end up short of both cash and time. 

Unfortunately, that sense of urgency has been the cause of so many people actually losing their money. (Especially if they leave education and pension planning too late.)

The investment industry knows this too and they take advantage of this failing by convincing desperate people that they have magic insights in order to get them to sign over their money and then, hey presto, reap the whirlwind of cash from their trading genius.

It’s easy to say and promise anything when you are trading other people’s money in the knowledge that no matter how the investment performs, you will still maximise your own remuneration by way of frequent and generous commissions and fees.

The financial markets are ruthlessly manipulated by just about everyone associated with them, something that ordinary punters are finally cottoning onto: existing regulation and the lack thereof, allows for the most appalling misselling of unsuitable products and services, the payment of huge opaque fees and charges. In Ireland, regulations even protect bad practise by imposing a six year statute of limitations on official complaints about products to the regulator: in other words, the bad guys get off scot free unless you can afford to take them to court.

The ultimate manipulator of the financial markets – and much business activity now – are governments and their creatures, the central banks which have a monopoly on the control, flow and price of the money that fuels all these distorted markets. When it is the state, and not a free market that ends up setting the price of anything, how can anyone tell if it is genuine good value or not?

The economic crash has exposed both the shortcomings of the markets – they are neither free nor fair – and the insider institutions that facilitate and uphold those shortcomings. (Like huge global institutions avoiding corporate income tax.) It’s hardly a secret anymore that nearly five years of monetary, fiscal and political interventions to save private banks, the cost to individual taxpayers burdened by their debts has been nothing short of catastrophic.

Nevertheless the profits, pay and bonuses being reported in the financial service industries at the end of 2012 now exceed the obscene payments that they collected before the great crash. It certainly confirms the old adage, if you want to make money from Wall Street, get a job on Wall Street.

Of course it shouldn’t be this way. All commerce, all financial and social interaction, should amount to noting more than two willing participants – a buyer and a seller – coming together to agree an honest price. You want the bread that I baked. I want the pair of shoes that you made.  How much bread/footwear can we offer each other to reach a fair and satisfactory deal?

If only it were so easy. 

My friend was right to think that she has to start thinking differently about wealth creation, if she has any chance of beating the system. It was a long cup of coffee, but here was the bullet point list of do’s and don’ts I suggest she consider in order to both make the most of that €20,000 education fund: 

1)    Making money requires knowledge.  Get educated.  This means finding out how stock markets and investment asset options work and then decide which route is suitable for you.  Start with Rory Gillen’s new book, 3 Steps to Investment Success.

2)    The investment route you take should be determined by the time frame in question; the target growth you want; the amount of risk you are prepared to take, the fees, charges and taxes that must be paid.  If you only have five or six years before you need the money, and you need it to double in value, you can’t leave it in deposit account. Realistically, money earning a 7% (!) net return will only double in value after 10 years. 

3)    Be realistic. There’s no quick or easy way to achieve high returns unless you are incredibly knowledgeable, lucky and/or you are an insider who makes the rules and have first go at ‘stimulus’ funds printed by the government or taxpayer’s money. (The tourist industry, says the government are the biggest recipients of the 0.6% of pension savings it confiscates every year from private sector workers.)

4)     Don’t travel with the herd, which is exactly what the financial industry count on in order for it to make their eyewatering fees and commissions. The herd is offered the lowest common denominator – pooled investment funds that are designed first, to make them lots of money, and hopefully not leave you with only losses. The idea of sharing losses with clients is unheard of and small retail clients are so used to poor returns that they are ridiculously grateful if they at least get their original money back when a fund matures.

5)    Follow the money.  Successful professional investors seldom invest their own money in pooled mutual funds targeted at the masses. They identify high quality assets, whether individual shares or large collections of shares (pooled in low cost Exchange Traded Fund vehicles, for example), and at beaten down prices.  They often have a personal ‘style’ of investing: they may be contrarians, attracted to unloved shares (with good track records, lots of cash on hand, low debt) that have fallen out of public favour.  Or they are trend followers – buying and selling shares based on their real-time performance.  Others only buy shares or funds of shares they understand, ignoring the market ‘noise’ about how wonderful this exciting new business or sector may appear to be. (Remember the dot.coms?)

6)    Speculating is not a dirty word. It isn’t ‘investing’ in the conventional sense of buying a quality asset to keep forever for its dividends or capital growth. (The Warren Buffet method, except that Buffet gets special purchase deals no ordinary buyer could ever achieve.)

Speculating isn’t the same as gambling – speculators learn to anticipate events (like massive money printing causing the price of gold to go up for 12 straight years) and to take advantage of all the poor or dodgy regulatory decisions and special tax treatments that favour certain industries to the inevitable disadvantage of others. These ‘edges’ give those companies competitive advantages and they make more money.  The speculators make money too.

7)    Learn how and when to take profits.


“So much for a straightforward answer,” my friend laughed.

“Sorry, but making money is never simple,” I replied.  “You asked what you could do to try and beat the unprofitable returns that deposits offer. This is how you do it. But there are no guarantees of success. Losses are a possibility.”

Unfortunately, my friend is not an entrepreneur. She positively blanched when I suggested that one of other way to make her €20,000 outperform a deposit account is to start a business and not automatically hand over 33%-36% of any interest or dividend to the state. (37%-40% from 2014 when a 4% PRSI charge is added)

I left her with this idea:  “You can take a risk and hand this €20,000 to a fund manager – a perfect stranger – in the hope that they’ll grow and return your money over the next decade, after they and the state take their cut first.

“Or you can go out and find a real person who you can meet and get to know who is already building a good company and would sell you a little share of it for your €20,000.  Every great company started exactly this way, raising capital from friends and family, many of whom became very wealthy indeed.”

Small acorns. Big trees.  Maybe even a doctor in the family some day. 

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