Welcome to the Money Maven's Financial Blog

Money Maven Blog by Sheryl Sutherland, Authorised Financial Adviser and Director of The Financial Strategies Group

Recommended Reading

Recommended Reading by Sheryl Sutherland: Girls Just Want to Have Fund$ - Every Women’s Guide to Financial Independence, Money, Money, Money Ain't it Funny - How to Wire your Brain for Wealth, and Smart Money - How to structure your New Zealand business or investments and pay less tax.

The Financial Strategies Group

We think for ourselves and make unique recommendations. We only recommend investments and insurances that are in the best interest of our clients.

The Financial Strategies Group

Most of us spend 40 years working to secure our financial future; the most important investment you can make is to purchase appropriate financial planning advice.

Contact us for a review of your investments and insurances.

Begin to experience the serenity that accompanies financial responsibility and integrity: email sheryl@strategies.co.nz, call 0800 64MONEY or visit our website http://www.strategies.co.nz

Monday, 3 December 2007

These Markets Aren't Emerging, They're Exploding

Look, it's not that "emerging markets" is a loaded term. In fact, it's a pretty exciting one. You're talking about countries that are transforming themselves in a few short years from being highly dependent on their ability to sell raw materials to the West into dynamic, information-driven economies with burgeoning middle classes and plenty of domestic consumption.

Yes, they're emerging. But that sounds a bit like a butterfly emerging from a chrysalis. This is different. These countries are blowing up.

If you look at the performance of indexes tracking some of the biggest emerging markets, you'll see shapes ranging from mountain-climbing to parabolas to moon launches. China, Brazil, India, Argentina, Vietnam, and Mexico have all seen their stocks markets double, triple, or more in the past three years.

America’s economy is too developed for the kind of explosive growth taking place in much of the developing world.

China, for example is on the move. Not in the way you think, with its ever-expanding external influence. No, China has 200 million people living comfortably and another 1.1 billion who aren't but would like to be. The result is the greatest migration in the history of humankind. Each month, the major Chinese cities receive enough new inhabitants that they need to build the equivalent of Houston - infrastructure and all - to handle them.

India's economy has heated up to the point where the government is trying to build stronger restrictions against foreign money pouring in to invest in the country. Yes, on a per-capita basis, India is poor. But by the same measure, they're turning money away at the borders. Even countries you don't think of immediately, like Vietnam, Argentina, and Malaysia, are enjoying staggering growth rates.

Obviously, you'd like to get involved with markets like these before they take off, so unless you've invested in them already, you've missed some enormous gains. But let me make three points: one historical, one prospective, and one differential.

Point 1
The historical one is this:

In hindsight, was 1987 a bad time to invest? Heck, no, for the very reason that the American economy was still at the beginning of a great transformation. The big fortunes were still ahead. Sell in 1987, and you're kicking yourself for the next 20 years ... and counting.

Point 2
By this same measure, the transformation ongoing in emerging markets worldwide is still in its infancy. It's going to continue -- in fits and spurts -- for decades. The growth prospects in China are still virtually limitless.

Point 3
And finally, the differentiation. While China and India have enjoyed salubrious rises in their share prices, they started at an extremely low base. Many people shun emerging-market investing because of the risks, the lower level of regulation, or the lack of protection. And they're right to be concerned. But things are improving in every country that has companies coveting Western capital, with the possible exception of Russia.

In fact, what I do every day is advise clients on these issues.

Why can we make disastrous decisions in love?

This is your brain on love - more neuroscience!

Her front brain is telling her he's trouble. Look at the facts, it says. He's never made a commitment, he drinks too much, he can't hold down a job.

But her middle brain won't listen. Man, it swoons, he looks great in those jeans, his black hair curls onto his forehead so adorably, and when he drags on a cigarette, he's so bad he's good.

His front brain is lecturing, too: She's flirting with every guy in the place, and she can drink even you under the table, it says. His mid-brain is unresponsive, distracted by her legs, her blouse and her come-hither stare.

Alas, when it comes to choosing mates, smart neurons can make dumb choices. Sure, if the brain's owner is in her 40s and has been around the block a few times, she might grab her bag and scram. If the guy has reached seasoned middle age, he might think twice about that cleavage-baring temptress. Wisdom - at least a little - does come with experience.

But if the objects of desire are in their 20s, all bets are off.

It's a dance that holds many mysteries, to psychologists as well as to the willing participants. Science is just beginning to parse the inner workings of the brain in love, examining the blissful or ruinous fall from a medley of perspectives: neural systems, chemical messengers and the biology of reward.

It was only in 2000 that two London scientists selected 70 people, all in the early sizzle of love, and rolled them into the giant cylinder of a functional magnetic resonance imaging scanner, or FMRI. The images they got are thought to be science's first pictures of the brain in love.

The pictures were a revelation, and others have followed, showing that romantic love is a lot like addiction to alcohol or drugs. The brain is playing a trick, necessary for evolution, by associating something that just happened with pleasure and attributing the feeling to that magnificent specimen right before your eyes.

Somehow, it all comes together, for better or for worse, the sum total of what's found in the mating dance of the ancient reptilian brain, the passion of the limbic brain and the logic of the neocortex; and, if you want to know how this translates into your money behaviour read 'Money, Money, Money Ain't it Funny.'


A recent McKinsey survey asked men and women executives to define the event that has had the most significant impact on their careers. Both men & women report that work factors have more influence than those from home. Women were more likely to say they had role models and mentors.

The top three career changing moments were:

  • Realisation you were not leading the life you wanted.
  • Difficulties balancing work and private life.
  • Change in marital status.
  • Women ranked the first in two more highly than change in marital status which rather surprised me.

Another notable difference was that 27% of the women surveyed but just 7% of men say they have experienced discrimination and are also somewhat more likely than men to say they have difficulty balancing work and private life.

Overall, when both sexes were asked who, inside or outside the workplace provided substantial help they offer very similar answers.

The top three were; spouse, friends then colleagues or friends at work.

It’s good to see similarities between the male and female experiences in the workplace – with, of course, the exception of discrimination!

Who's counting?

The UN estimates that the cost to end world hunger completely along with diseases related to hunger and poverty is about $195 billion a year.

Twenty two countries have joined together to raise this money by each contributing 0.7% (less than 1% of national income).

Now let’s think about US foreign policy dominated by its military budget. The US will spend about $800 billion on security compared with less than $20 billion for economic development.

Take Pakistan as a case in point, it faces huge problems of poverty, population, and environment but 75% of the $10 billion in aid has gone to the Pakistan military. Another 16% went straight to the Pakistani government, no questions asked. That left less than 10% for development and humanitarian assistance. Annual US aid for education in Pakistan has amounted to just $64 million, or $US1.16 per school aged child.

None of this spending helps address the underlying problems of poverty, child mortality, water scarcity in places like Pakistan, Sudan’s Darfur or Somalia.

Everyday Money

Everyday we pay tax – in fact work for months to fill the government’s coffers before we get our share of our earnings. Most of us understand that we have to fund the services we enjoy, but the surplus the government has now is something else entirely – and the speciousness of those in charge in regards to this is incredible. Finance Minister Michael Cullen told a select committee last year that anyone advocating large tax cuts because large surpluses “should be taken out and quietly drowned.” Prime Minister Helen Clark has said “Tax cuts are a path to inequality…the promises of visionless and intellectually bankrupt people.”

You will be interested to know that in fact Treasury told Cullen in 2003 that “This healthy fiscal portion presents the government with scope to cut taxes, increase expenditure, and build up financial assets.”

Now with National snapping at their heels Labour have done an about face. Quite possibly too little too late methinks. I would like to see a one off tax refund to each taxpayer (it is our money after all) and a reversion to flat tax rates with possibly a moratorium for very low earners but I doubt we will see anything of the sort. And….while I am on the job no GST on fruit, vegetables, fish, meat, milk and bread!

I have decided to apply for the position of All Blacks coach

I have decided to apply for the position of All Blacks coach. I feel I have superb qualifications;

Teamwork; - I never have an issue with teamwork as long as everyone does what I say.

Fieldwork; - I have a lovely garden so don’t see how I can fail to be creative in a field.

Rotations; I have rotated a few men in my time and it has not been wildly successful. Based on those experiences I firmly believe that no rotation would benefit the AB’s.

Uniform Colour; - as every fashionista knows black is the new…..black so no pansy pink shirts for the boys.

Footnote: Great Minds think alike. I see Beck Eleven (a Christchurch Press reporter) has done the same and has not even been shortlisted!

Thursday, 15 November 2007

Finance and investments

Many people don’t begin their retirement savings until they are about 40- the mile stone that I refer to as “the age of reason”. It’s when you finally stick your head over the parapet, and, whether you’re male or female, think, ‘My god, 20 years have gone by and what have I done with my money? Not very much’ not surprisingly it’s at that point that people start thinking quite seriously about doing some saving.

I agree with a recent report done by the New Zealand institute of Economic Research which found little evidence of a savings problem among New Zealand households. The savings problem is not as bad as it’s been painted. The truth of the matter is that it’s where we are saving that is the real issue. Most of our savings these days are going into highly geared investments like property. We tend to run as a herd, and going against it, like not buying rental property is hard.

In my latest book-Money, Money, Money, Ain’t it Funny I highlight the difference between economic theory, where people make rational financial choices and practice, where spending is influenced by taste, whim, peer pressure, pride, envy and other considerations. Most people don’t save enough money; most of us have counterproductive financial habits which mean that ultimately most people are in fact broke when they retire.

How you save and how you invest is up to you. Brent Wheeler, a respected economist believes that investing in equities is the best choice for people planning for retirement. “I’m telling them to invest as much as they possibly can in equities, and to do it for seven years-plus. For retirement savings, that’s actually not a long time frame. There have been many complicated mathematical studies done which prove that historically, over a longer period, equities will outperform all markets, and that includes the property market.”

Whether you are biased towards property, cash deposits, shares or bonds, financial advisors say that getting educated, and in particular seeking out people with good track records in investing and investment advice are the keys to making good decisions in the current market.

Wheeler believes that if kiwis knew even a fraction as much about investment as they do about home renovation, many would be much better off. “To restore an Edwardian villa to some semblance of a nice trade off between what it was, and what we expect today, while reflecting what has happened to it over 100 years, is 90 times more demanding and involves a heap of more difficult judgments than saying, ‘Is it a good idea to leave this money in the bank?’ and ‘Why am I shifting it?’ or any other investment question. And that’s how people should be attacking investment-not trying to do anything too smart.”

Wheeler favours investment offshore. Homeowners have sufficient exposure to both the property market and New Zealand’s small economy, he says. “As individuals, we have huge exposure to this tiny economy sitting on a rock at the bottom of the world. We are heavily invested in New Zealand, which doesn’t spread our risk very much at all. After your house, your next investment should not be in New Zealand.”

I agree with Brent, the best returns will come to those who make the most of their investments in equities’ that are offshore. The New Zealand market has been doing well, but it’s not even two percent of the world market. A lot of the sectors where we expect growth are either not available here, or if they are they are in quite a small way.

Read more in Money, Money, Money, Ain't it Funny (Longacre Press, $29.99)

And check out www.brentwheeler.com


Why do we treat money differently depending on its source? A dollar is a dollar after all. I heard a story yesterday in my nail salon, the technician had a client text her to say she had won $1000. Forty minutes later another text arrived reporting on the loss. It reminded me of an apocryphal tale which does the rounds in that gambling capital Las Vegas.

The legend of the man in the green bathrobe.

By the third day of their honeymoon in Las Vegas the newlyweds had lost their $1,000 gambling allowance. That night the groom noticed a glowing object on the dresser. Upon closer inspection he realised it was a $5 chip they had saved as a souvenir. The number 17 was flashing on the chip’s face. Taking this as an omen, he put on his green bathrobe and rushed down to the roulette table where, not surprisingly, he bet on number 17. He let his winnings ride and eventually he was worth $7.5 million. Unfortunately the floor manager intervened, claiming the casino didn’t have the money to pay should 17 win again. Not to be deterred, the groom caught a taxi to another casino where he bet all on 17 again, when it hit it was worth $262 million. Needless to say, with such luck he bet again, only to lose it all when the ball fell on 18. Broke and dejected, the groom walked the several miles back to his hotel. ‘Where were you?’ asked his wife. ‘Playing roulette!’ he replied. ‘How did you do?’ ‘Not bad, I lost $5.’The groom felt that his winnings were not real money, and so the losses were not real losses. This tale told in some parts of Nevada as gospel truth demonstrates one of the most common and costly money mistakes: our tendency to value some dollars less than others and to waste them. After people have experienced a gain or a profit they are willing to take more risks. Gamblers refer to this feeling as playing with the house money.

How do you treat your money?


“In a society where the rights and potential of women are constrained, no man can be truly free. He may have power, but he will not have freedom”

Mary Robinson, Ireland’s first woman president.

There has been a slew of reports and commentaries of working women; why the women in the workplace figures are different, women as working parents (Why do men as working parents never get a mention?) and the glass ceiling.

It appears that unemployment is down by 2000, but 12,000 full time jobs held by women have vanished-the assumption is that these positions have morphed into part time positions. The new Women’s affairs minister Steve Chadwick, claims that women will really only get equality when we have really “good childcare arrangements”

What a load of rubbish. The only way we will achieve “equality” is through equal sharing of power. Economic power comes from full acceptance in the workplace; that means a change in culture. The changes may be overt- no longer rewarding aggressive workplace behaviour or covert, utilising feminine or generic powers. We need to see more women on boards in government, both national and local. And lastly we need to promote ourselves and our work; we are far too willing to stay in the background.

Who's counting?

The myth, the math and the sex.

I was intrigued to see that Kiwi women have more casual sex than any other nationality-and more casual sex than men. This fascinated me as I thought the maths was wrong.

The general consensus seems to be that it is men who are promiscuous by nature-spreading their genes far and wide while women are genetically programmed for monogamy.

One recent US survey concluded that men had a median of seven female sex partners; women four. A British survey said that men had 12.7 and women 6.5. But, bear with me here is the problem. It is logically impossible for heterosexual men to have more partners than heterosexual women. Their survey results cannot be correct. What is going on and what is to be believed?

I have toyed with various scenarios to explain this discrepancy. Firstly, the data is self reported, do men exaggerate and women minimise? Are men having a lot of sex with prostitutes when they travel to other countries?

I guess when we have Big Brother checking our sex lives this conundrum will be resolved-until then the surveys are self fulfilling prophecies-except in New Zealand!

Everyday Money

If you recall my post about the charges against Chris Taylor of The Jones’ organisation you will be pleased to note that the charge was dismissed. I guess Comedy Central, oops the REINZ had an attack of rationality. The good news is that the cowboys are about to be run out of town by Sheriff Clayton Cosgrove, with the introduction of an independent body to oversee licensing complaints, disciplinary and enforcement procedures and give out consumer information.

Does money make the world go round?

We are frequently asked to provide financial help to those less fortunate than ourselves but I sometimes wonder if our generosity is misplaced. I am not keen on labels but I guess I would be classed as an ethical liberal. So what should I do with my financial support?

One economic commentator suggests that we should find somebody who is both poor-not just looking poor in the hope of attracting generosity- but busy doing something productive and useful. Give them the money-thus you can accomplish the most efficient transfer of wealth.

Musings and Amusings

From the Kennels

If you are a dog lover then you know your dog reads your mind and now proof is here in the results of an experiment at Canterbury University. In fact Michelle McGinnity went so far as to suggest that dogs have the ability to draw conclusions from what they observe.

I recently did a poll on www.slynkey.com, as follows:

Who handles the finances in your household?
My Partner
C) The Dog

Thinking that to respond “The Dog” would be ridiculous but....maybe not!

Thursday, 8 November 2007

Money Money Money Ain't it Funny Book Review

Not So Funny – Personal Finance Books and Sheryl Sutherlands “Money, Money, Money...”

Business books are generally amongst the least convincing of literary assets. The genre seems bloated with "try hards", preachers and smart alecs who write as though they never falter in the commercial world. Worse, the two ultimate criticisms are generally bang on - if these people had found any serious secrets they wouldn't be telling the world and, if they were seriously useful performers they wouldn't be writing books.

Perhaps worst of breed are the DIY investment and personal finance books. Cost of production must be low - there are so many of them. At least 75% feature the words "millionaire", "easy", "simple", "quick", "in no time", or "for beginners" in the title.

The styles are as clich├ęd as the titles. The formula, especially as adapted to New Zealand goes something like this:
1. There is a panic and a crisis and very shortly you will not know what has hit you. You and millions like you. Essentially, your incurable profligacy has led to this, and, cumulatively as a nation we are all doomed for the same reason; and,
2. Furthermore because you will be old and incompetent (as you have demonstrated already) it will be tough. Certainly tougher for you than me your competent, rich author.
So that's good for several chapters, then we have a few standard solutions which are equally illuminating:
3. Here are a couple of dozen ways to be more of a miser involving the remains of toothpaste tubes, very short showers and holidays with your in laws; coupled with,
4. Here is a list of things you can stop doing right now, places you need never visit again plus a series of minor household assets you can sell immediately on Trademe.
Right - you are feeling better already? Absolutely.

Here then is the plan. And at this point it typically becomes genuinely pitiful as we learn that some people have made money out of their house (true but we knew that), car ports add value to residential property (ditto), compound interest on savings is "rilly, rilly powerful" (just like sulphuric acid is if you have some), how to be careful picking your advisor because some get commission on products they sell and may be biased (Get away), share prices for good companies often go up so make sure you pick the right ones (if only) but watch it because shares are dangerous especially for someone like you (so is electricity).
In short pretty much what the Americans refer to as a "hill of beans".

Amongst the shelves and shelves of this dross a genuine stand out is Christchurch based advisor and financial analyst Sheryl Sutherland's "Money. Money, Money: Ain't It Funny" (Longacre 2007). Do not be put off by the slightly cutesy title - this is a serious strong read and what's more you could learn a great deal that is helpful without being beaten up in the process or having to destroy your life and crucify your aspirations.

The book takes a different tack.

The reason is that the author has been reading, studying and trawling the best brains in economics, psychology and sociology, putting it together with her long work experience in the field and distilling the results into language and examples which we can recognise, learn from and do something about.

Sutherland takes on that toughest of tasks - translating theory into useful practice - and shows how the newly emerging discipline of behavioural economics explains a good deal that went unexplained before and how to apply that to our investing. This is far more than simple efficient market bashing (the majority of which is wrong or unsupported by evidence) by dispossessed security analysts and brokers. Much of it is close to home.

She has a great chapter on probability and chance with a table which shows us the actual chances of that $6.00 lucky dip winning over a life time of purchases, the odds on nailing Big Wednesday, the chances of being in a road accident and the like - so that we get some insight into the slippery territory of risk.

Why is this useful? Because human behaviour involves pervasive oddities like becoming attached to certain things (hoarding - the endowment effect) which makes us cash up winning investments and hang on to losers in the hope they will turn around, because whether we are presented with a glass half full or half empty (framing effect) distorts our judgment about good and bad risks and because worrying about spilt milk and what might have been (sunk costs) stops us moving on and accepting that making mistakes is the best way to learn.
Especially useful too, is Sutherland's approach to risk which stresses that being too risk averse (and say abandonning equities) is as calamitous a mistake as betting the entire ranch on commodity futures. Much of what she advocates boils down to taking a measured approach which draws on thinking rather than kneejerk reactions.

The lessons about portfolio theory should be taken to heart. The value here is the stress placed on how people actually behave - concealing from their advisors some of their assets for example, or trying to mentally pigeon hole some assets. I notice this tendency frequently and the all time New Zealand naive diversification has to be the idea of fussing and fiddling with equities and fixed interest investments while we sit with around 80% of our assets in residential real estate - leveraged real estate at that.

There is no promise of easy riches here. But neither is this a visit to the Head Mistresses Office. Instead there are sound explanations, a rational approach to making investment decisions, pointers about how to think, steps to take to be more measured in making decisions, ways to fight overwhelming tendencies and a sharp grip on reality.

My favourite is her letter from a client asking for an idea to earn a riskless 10% - if you don't mind - with the priceless epilogue "P.S. I don't like risk. P.P.S. I don't want to pay commissions." If the book helps reduce the number of such requests then my sometimes faltering but nonetheless genuine belief in the value of education would be somewhat vindicated.

Brent Wheeler

Thursday, 11 October 2007

Finance and investments

Oceans of ink have been used in discussing the current and ongoing dramas surrounding finance companies. Here are some tips for you to consider should you be inclined to invest in these institutions; firstly consider the financial information. Start with key facts and figures-if you are happy with these then you can progress on to examine the company more closely. Ask the following;

- What are the current funds under management? (Size of portfolio)

- What is the reinvestment rate (the percentage of investors who put their money back into the company; this gives you some idea of the level of satisfaction among the current investor

- The current balance of loans.

- The size of average loan.

-The number of loans.

- The average loan to value ratio (usually expressed as LVR, this gives you the value of the loan as opposed to the value of the assets the loan is secured against

Assuming the above is satisfactory; you can then move on to examine the following;

- The loan and deposit growth.

- The companies’ liquidity (this may be expressed in cash and equity)

- The loan and deposit maturity profile (this will inform you that the company can meet its obligations as they fall due.

- The loss/recovery and provisioning as a percentage of loans (even with the best will in the world sometimes loans go into default or “past due”, usually this is a loan which is in arrears greater than 90 days. Has the company made satisfactory provision fort his?)

- Regional and Sector finance portfolios (this will tell you where geographically the loans are made and over what assets. Sectors range from vacant land, to commercial property and residential mortgages, to whiteware or cars. What are you most comfortable with? Provincial for example was over exposed to consumer items like vehicles)

The next consideration is the management and the company’s track record. For example Petricevic, the CEO of Bridgecorp had already been involved in a venture which lost investors millions. Has the management had experience in lending in good and bad markets? Be sure about what you are being offered. An unsecured debenture means that if the company fails you are the last to be repaid-as we know many investors have not had good news on this front. The rates are of course important. The rates however do not always reflect the level of risk a depositor may be taking. Bear in mind also that finance companies do not have to comply with the strict rules which apply to banks.

A sort of cousin to finance company investment is a bond. Bonds are debt instruments issued usually for a period of longer than a year with the purpose of raising capital borrowing from the public (us). Bonds are issued by governments, banks, companies and utility companies.

As with finance companies you must understand the risk and return ratio some companies follow: Returns need to compensate for risk.

Credit ratings can be useful here as a guide but you still need to be wary, Enron was rated investment grade right up until it imploded. A credit rating chart follows thanks to Brent Wheeler- check him out at http://www.brentwheeler.com/

Relying on ratings he says is a fatal delusion-and I agree- you still need to do your homework. Read Brent’s take on the language a prospectus should utilize.

It should be:

- Clear and simple
- Appropriate to the audience
- Direct and personal
- Favouring informal language, when appropriate
- Drawing on common, everyday language

- Accessible to a wide audience
- Explaining technical words in simple language

- Attempts to interest readers and hold their attention
- Rely heavily on simple sentence structures
- Generally avoids passive voice

- Respectful of the reader.

Any attempt to improve regulation has to look at the most important aspects of plain English. This would be simple to do if we could climb down from our awful pomposity and ego preserving traditions of writing in late Dickensian English, confusing volume of text with clarity of communication and strive to write short, sharp, simple truths.

The following terms very likely mean utterly nothing to the average investor and are grossly misleading:

- "1st ranking". First this is simply incorrect. The receivers get their fee long before they get their man or give money back to anyone. Then there is the IRD and employees both of whom commonly feature before debenture holders. Don't use the term.

What I think is meant or ought to be meant is "several people have claims on the cash the company has. It’s like a queue. Your place in the queue is, by law certainly ahead of the owners of the business and some other borrowers but you only get what is left after everyone ahead of you in the queue gets their money. If the company fails or goes into receivership there is a good chance that will be less than what you invested.

- "secured". Another misleading expression. Like a super tanker, if the wharf you are secured to is built on quicksand, the security is worth nothing in a storm.

I think what is meant, or ought to be meant is "If borrowers stop paying off their loans and we start to run out of cash we can sell the borrowers houses or cars or other assets and that should be enough to cover what you have invested so long as their assets are still worth something."

- "liquidity" and all related terms such as "liquidity carried" or "liquidity ratio". This is high jargon which means little.

I think what is, or ought to be meant, is "enough cash in the bank to be able to cover at the very least (1) the companies bills as they become due and (2) to be able to pay back investors as their investments mature, and (3) some left over for the unexpected."

- "equity" and all related terms such as "equity ratio breach", "in excess of the required equity ratio" and so on. More confusion - especially since a number of people think the term "equity" has something to do with "fairness".

I think what is, or ought to be meant is "a spare reserve of cash or assets which can be very quickly sold for cash which we can rely on to protect your investment if borrowers stop paying their loans off".

- "related party transaction". Another hopeless term. In recent cases the real problem has been that money has been invested in things and places which investors did not think it would be. Who is related t
o who simply obscures the fact that people raising money should be truthful about what they are going to do with it, stick to their promise and if they want to change that, go back and ask.

In plain English "We will invest your money in a, b and c. We will not invest it in anything else. In particular we will not invest in x, y, and z. If we want to change these plans we will ask you first and you may say "no" should you wish to."

If this all seems to hard or you want to discuss any aspect of this paper please email me at sheryl@strategies.co.nz, or call me on: 0800 64 MONEY (0800 646 6639)

Tuesday, 9 October 2007


I have just read a disturbing and poorly researched article by Sarah Catherall published in the Dominion and here in the Press on the 2nd of October. There is no denying the statistics she quotes, but as always the figures are historical and as usual can make a case depending on how they are framed (For more on framing read Money, Money, Money..Aint it funny)

The article would have had better balance if she had examined the trends relating to women and investment, or women and purchasing power. Like many other women I am tired of the slew of reports which paint me as brainless and financially illiterate. We are the decision makers for over 80% of consumer purchases. Some examples are: New homes 91%, Holidays 92%, Cars (Yes!) 60%, and, what about the realms of finances, say insurances and money? Women select new bank accounts nearly 90% of the time.

In the States two thirds of working women and over 50% of working wives earn more than half of the families income, write 80% of the cheques, pay 61% of all bills and own 53% of all shares. As at the start of 2000, six out of every ten new web users were women and of those women 83% were primary decision makers in the matters of finance, healthcare and education. It seems unlikely to me that New Zealand women are any different!

Again in the States (finding figures here is well near impossible) women owned businesses accounted for about 3.5 trillion in revenue- the equivalent of the German GDP. In fact one prediction from no less a journal from Private Banker International claims that by 2010- only three years away, half of all wealth is expected to be in the hands of women.

We have of course always worked, but not always been financially rewarded. It appears however that future economic prosperity is increasingly in our hands. A recent article in the Economist suggests that women’s paid work has not only added more to world wide GDP than that of men, but has also enhanced capital investment-Women’s employment over the last decade has added more to global growth than China.

And it is not just our economic clout- our investment skills are better than those of men. Robust studies such as Boys will be Boys (Boys will be boys:Gender, Overconfidence and Common Stock Investment. Brad M. Barber and Terrance Odean) confirm that male overconfidence and churning of portfolios significantly reduces their investment returns. . Financial planners have a distorted perception of women investors and tend to assume that women are risk averse and subsequently advise on that basis . There is some basis to the view that women are risk averse but we tend to think that 80% of women are where as it is more like 20%. Companies are waking up to the fact that women have money to invest- Citigroup, AXA, Wells Fargo,Merrill Lynch, Charles Schwab, Prudential, Wachovia, when will this happen here? As Tom Peters says in Re-imagine! “Id love to be the CEO of a financial services company for 60 months and redirect its strategy by 179.5 degrees..... In the direction of developing products for, marketing to, and distributing them to women... and then there is the composition of the board..........”


Why do we think that globalisation is our invention? Globalisation is a new word to describe a process as old as the human race. It really began according to Nayan Chanda around 60,000 years ago when our ancestors first walked out of Africa. The motives of the early adventurers were generally selfish- to profit, convert, learn or conquer-the overall effect has been to contract our world and draw us down the path to a “global village”. Humankind followed that on foot, donkeys, camels, container ships and cargo planes.

Mr Chanda points out that in 1455 it took 40 days for the Pope to learn that Constantinople had fallen to the Turks- by contrast we watch in horror as the Twin Towers of the World Trade Centre fall-in real time, online and on television.

The Economist suggests that these examples demonstrate the fragility of our close connections. Today’s threats, like Bird Flu or the war on terrorism can go global faster than in the past, but so can our response.

So is globalisation good or evil? I suggest it is good-as we expand lets examine the aspects that will affect our investments in the future.

1 New financial investments are constantly coming onto the market and investment structures previously available only to the wealthy are now available to average investors. Hedge funds are a case in point. In addition to this, new legal structures will appear and taxation laws will continue to alter.

2 Real-time trading is now available, buying and selling online will continue to become more widespread, so for those who invest directly this will create more uncertainty and will exacerbate uncontrolled biases. Online trading, financial advice and research tools and information have transformed the way traditional services were delivered and offer a vast assortment of new services.

3 An interesting development will be in the creation of neural networks – claims have been made that programs now possess the ability to reason and learn from their mistakes. Can artificial intelligence develop biases?

4 Global influences will become even more pronounced – what happens in Venezuela will affect what happens in Moscow. The butterfly effect.

5 The speed and ease of communication will continue to increase and not only will the news from distant countries reach the market faster but news discrimination will impact more quickly.

6 Global consumption will increase as all nations advance technologically and economically. There will be more demand for industrial commodities, agricultural commodities, money, fuel and so on. This will make more opportunities for investors.

Musings and Amusings

'That mans got balls'

I am not a sports fan at all, but I think that I might give croquet a try.

A male streaker running across the croquet lawn gave members of the Takaro Croquet Club in Palmerston North more than they bargained for at their club day on Sunday morning.

Manawatu Croquet Club publicity officer Rex Oliver said the streaker "appeared, completely nude, at one corner and disappeared in the other. No-one was fast enough to catch him."

The naked young man caused quite a stir and may have given the club a selling point. "I don't think any other croquet clubs have had a streaker, it might help attract the lady members," Oliver said.

"It's not the sort of thing you expect at croquet. Perhaps it was a dry run for something later on. Perhaps he wants to get into the business." Streaker disrupts croquet (The Press 25/09/07)

Word of the moment.......

And thanks to Max Aspinall in a letter to the editor; a new word for the English Language: "clarked"- economic massacre by bureaucracy or taxation.

Who's counting?

It’s not so much who is counting as how we are counting.

Ways ignorance about maths and probability can hurt you.

There is a scene in a Simpson’s episode where a psychologist is giving a ‘team talk’. He makes the statement, ‘You are all very good players’. The team members mimic the psychologist, ‘We are all very good players’. Then the psychologist says, ‘You will beat Shelbyville!’. And the team, again in unison, reply, ‘We will beat
Shelbyville!’ By this time the psychologist is raising his voice, and he shouts, ‘You will give 120 per cent!’ But the team, still in unison, reply, ‘But hold on, that’s impossible. No one can give more than 100 per cent. By definition that is the most anyone can give.’

Many of us are not as smart as homer’s team and have problems dealing with maths. Maths anxiety is found in people who find arithmetic stressful and panic about mathematical problems. This can affect people who are perfectly competent – and this can affect many investors. Some of the feelings that prohibit us from feeling comfortable dealing with numbers are quite natural responses to uncertainty, to coincidence, or to misconceptions about the nature and importance of maths.

For example, if we have a bank investment offering us 7 per cent, we still take out tax at 39 per cent, and inflation at 3 per cent. Our real rate of return is … not 7 per cent.

A recent survey to test our level of financial knowledge found specific areas of weakness in mortgages, compound interest and investments:

- 25 per cent of people with home loans did not know that increasing the frequency of repayments from monthly to fortnightly reduced the amount of interest they would pay over the life of the loan.

- Only 30 per cent identified that a range of shares would make more money than fixed interest investments and savings accounts over 18 years.

- When tested on their understanding of compound interest, only 53 per cent correctly identified that they would earn more interest on a one-year term deposit when the interest was paid back quarterly into the term deposit, rather than paid at the end of the term.

-20 per cent thought they could reduce risk by investing only in property.

Compounding: The Eighth Wonder of the World

Imagine you came to work for me. I offer you $1 million for one months work payable on day one of the 30 day period, or $1000 on the first day, doubling everyday.

The first option sounds great but if you took the $1000 and doubled it everyday, at the end of two weeks you would have $8.1 million. At the end of the 30 day period, the figure is in the billions.

Some Lotto Facts

-Ticket purchasers are not interested in small prizes and they purchase at higher levels not worrying about the price hikes which come from larger prizes.

-Charity links mean consumers dont see ticket purchases as gambling

-In the US 25 per cent of the population see the best chance of saving for their retirement is lotteries

What are the odds?

-Being killed by terrorists while traveling: 1 in 650,000

-Royal flush opening hand: 1 in 649,739

-Winning anything on a lotto lucky dip: 1 in 20

-Winning lotto division one on a lucky dip: 1 in 373,838

-Winning on one lotto ticket brought weekly for 5o years: 1 in 150

-That you will keep buying and not win that jackpot after 50 years: 149 in 150 (99.33 per cent)

-Winning Powerball Division One on a power dip: 1 in 3,070,704

-Winning on one Power Dip ticket purchased weekly for 50 years: 1 in 1,250 (99.92 per cent don't win at all in that time)

-Being hit by lightening during your life: 1 in 7500

-Getting cancer sometime in your life: 1 in 9

-Suffering an unprovoked shark attack: 1 in 6,000,000

-Drowning in your bathtub: 1 in 685,000

-Dying in a car crash in New Zealand: 1 in 9000

-Dying from slipping, stumbling or tripping: 1 in 6548

-Dying from fireworks discharge: 1 in 615,488

Obviously the chances of winning lotto are not that high. but people still persist in buying tickets.

Read Money, Money, Money, Ain't it funny...For more information on this.

Finally, a joke

Man: Study here says women talk twice as much as men.

Wife: Of course we do. We have to repeat everything we say

Man: What?

Well it does have some relationship to numbers- women talk twice as much as men....Get it?

Everyday Money

“Bizarre” says Clayton Cozgrove-and that is putting it politely.

Everyday Kiwis buy and sell homes and if you don’t plan to do it yourself, you will use a real estate agent. Now, you've got to wonder what is going on at Agent Central; The Real Estate Institute. A 2003 survey on the REINZ website showed that only 23% of all vendors thought that that agents commissions were reasonable. And its not just the commissions that concern us. In May the agent who was presented with a top industry award omitted to advise the purchasers of a home described as being ‘Out of the hustle And bustle” was next to a site that was earmarked for a large apartment block.

I wonder if any of the 23% of voters were real estate agents. Comedy Central er the REINZ are hearing charges against a hapless Chris Taylor of the Joneses chain, who said that “people are paying too much to sell a house and getting an indifferent service for it”. He charges a flat fee rather than a commission.

The self regulation of the Real Estate industry is a joke. It is to be hoped that the new code of ethics prepared by David Russell will address the issue. My view is that realtors should be registered and aligned to disclosure fully as are other professions.

Update: Mr Taylor was not censured-now there's a surprise.