Cautionary Words in Uncertain Times

So what would you do if you had a pretty good nest egg saved up but your bank was paying you a lousy 1/2% a year and a good friend just told you about how he is getting an 18% annual return with monthly dividends through investments with a good friend? Your first reaction might be, “Wow! That’s a great return.” But then you might ask, “Tell me more about this friend and the investment, because it sounds too good to be true.”

This friend might say, “I’ve known this guy for several years and he’s a good guy that I have great confidence in. I invested some of my cash with him a year ago and he hasn’t ever missed a monthly interest payment. I just recently put all the rest of my savings into his deal and even had my mother put most of her savings with him.”

So, what you would be hearing from this friend is that he’s put virtually all his cash and savings into this “safe investment” and the return is guaranteed. But for all you know, he may even have put a second mortgage on his house at a low interest rate so he could make the difference in the spread. I don’t know what you’d do, but I know I would hold on to my wallet and run like hell.

Sadly, this kind of scenario happens almost every day. It can be particularly bad during a slow economic recovery. After the hard years of the pandemic, people are ready to find something good that can help them recover and build their savings against the next difficult time. I personally have known a number of people that have lost almost every penny to their name because they bought into situations very similar to the one described above. These were not ignorant people. They were really quite smart and educated so you wouldn’t think they would be susceptible, but such good sounding deals can be very tempting.

There is an old saying that goes back to the 16th century: “Tis the part of wise men to keep himself today for tomorrow and not venture all his eggs in one basket.” The other saying that we’ve all heard that we need to drum into our heads is, “If it seems too good to be true, it probably is.”

One of the policies that has driven my investment life is, “If I do choose to put all or most of my eggs in one basket, I must have total control over that basket and I must watch that basket very, very closely.”

I have talked about this before, but with the way things are now, I thought it was time to put out another reminder. Even if you are introduced to someone that a family member or friend says they have total confidence and trust in, just remember where the term “con man” comes from—it comes from the description of people who build up your confidence and trust in them before they strike.

This is not to say that there are not very good investments out there, but just be careful and always check them out very thoroughly. Be sure your investment is backed by solid, verifiable assets and don’t put all your financial eggs in one basket. Not unless you are the one in control of those eggs and can watch that basket very closely!

Blink Moments

To continue last week’s subject on what we can do in the blink of an eye, I’d like to tell you a story about what the great Getty Museum learned from the “blink” that unconsciously happens in our brains.

An art dealer approached the J. Paul Getty Museum in California years ago to sell a rare 7 foot, a statue that was claimed to be thousands of years old. They were asking for $10 million. It was certainly worth that much money, if indeed it was a genuine piece. Getty took the statue on loan and began a thorough investigation. After 14 months of study by experts, Getty was satisfied so they agreed to buy it.

But then, before they closed the deal, two people had their own “blink” moment, feeling something was very wrong. As Malcolm Gladwell writes in his book, Blink, an Italian art historian, who served on the Getty board of trustees, “found himself staring at the sculpture’s fingernails. In a way, he couldn’t immediately articulate why they seemed wrong to him.”

Next to look at it was Evelyn Harrison who was one of the world’s foremost experts on Greek sculpture. In the very first moment when the cloth was taken off the sculpture, what did Harrison see? Gladwell writes, “She didn’t know, but she had a hunch, an instinctive sense that something was amiss. Several others that saw the kouros felt an ‘intuitive repulsion’, and they were absolutely right. In the first two seconds of looking at the work –in a single glance or blink of the eye–they were able to understand more about the essence of the statue than the team at the Getty was to understand after fourteen months.” The statue was proved to be a fake and those people who paid attention to the blink of their “adaptive unconscious” were proved to be totally correct.

We all need to give more credibility and pay attention to those “blinks of our brains” because it can lead us to great success and do it much faster than we can understand. Gladwell writes, “I think we are innately suspicious of this kind of rapid cognition. We live in a world that assumes that the quality of a decision is directly related to the time and effort that went into making it … We really only trust conscious decision making. But there are moments, particularly in times of stress, when haste does not make waste, when our snap judgments and first impression can offer a much better means of making sense of the worth. The first task of Blink is to convince you of a simple fact: decisions made very quickly can be every bit as good as decisions made cautiously and deliberately.”

This is not to say that we shouldn’t do our due diligence or research on an investment or in other parts of our lives, but if your gut reaction is telling you something different, you should pay a lot of attention to that “blink” in your brain.