Musings and Amusings

Don’t Lean In. Opt Out

Manifestoes for working women, much like working women themselves, are often held to an impossibly high standard. Sheryl Sandberg’s Lean In was a best-seller, but critics – male and female – tore it apart because it asked women alone to fix their broken work environment. The criticism is valid; Sandberg has since admitted that it would be hard for a single mother to follow her advice. And yet male-authored advice books hardly get torn apart for failing to address intersectionality, privilege, and structural racism and sexism along with tips on how to climb the corporate ladder.

Sallie Krawcheck wants us to know, even before we open Own It: The Power of Women at Work, that she excels in the face of such impossible standards – in heels, no less. The cover features Krawcheck, the co-founder and chief executive officer of Ellevest, an online investment service for women, perched atop a stepladder in black stilettos. Krawcheck gets how difficult it is for women to break into the executive class. She worked her way up in the banking industry, only to be let go from C-suite jobs at Citigroup and Merrill Lynch. 

Reflecting on her tenure at Citigroup, which ended about nine years ago, she says she believes gender played a major role in the tensions she experienced. The final straw, Krawcheck writes, came when she made an unpopular suggestion that she believed was in the company’s best interest: reimbursing some Citigroup customers for losses they’d suffered in the early days of the 2008 financial crisis.

Given how she frames her experiences, you wouldn’t expect Krawcheck to write that “being a woman in the business world is not a liability: it’s power.” The liability, she says, manifests primarily when women try to affect a masculine demeanor around the office: when women speak up, as she did, they’re judged more negatively than men. Women who negotiate the way men do are considered too pushy. So throughout the book, Krawcheck scatters tips on how to successfully leverage feminine traits. In a chapter titled “The Obligatory Ask-for-the-Raise and How-to-Negotiate Chapter (With a Twist),” she suggests that women pretend during salary negotiations that they’re at a PTA meeting. Research shows that women perform better when they’re fighting on behalf of someone else, such as their kids.

Her approach makes sense, but does it work? Here, Krawcheck runs into some trouble. She argues that companies resistant to women-friendly policies and practices will fail – but they haven’t, even as inhospitality remains the norm. The pay gap persists. The US Equal Employment Opportunity Commission got almost 13,000 complaints of sexual harassment in 2015, a number that’s held steady since 2011. Women enter corporate America at near-parity with men but occupy only 19% of C-suite positions, according to a recent survey by McKinsey and LeanIn.org. Sandberg’s nonprofit. In another recent survey, by MWW Public Relations and Wakefield Research, three-quarters of respondents said they believe women are worse at delivering financial returns for companies. The opposite is true: Numerous studies say that organisations with female managers perform better on average than those led by men. Whatever Krawcheck’s hopes, women tend to get penalised no matter how they act on their way to the top. Those who get there are often set up for failure, tapped to lead only in moments of crisis, when the odds of succeeding are slim to none, a phenomenon known as the glass cliff.

Ultimately, Krawcheck argues, there may be no way for women to work within the system and win, no matter how often they transform perceived liabilities into assets. Her most useful – and radical – advice comes in chapters that urge women to opt out. In “Literally Own It: Start Your Own Thing,” she encourages women to start businesses. When that happens, “there’s no playing by the boys’ club rules,” she writes. “No asking permission.” Since the system isn’t working for us, it’s time for us to build our own.

Source: Bloomberg.com

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Finance and Investments

I am amazed at the number of investors who are pouring money into two of the worst investments in the last 50 years; cash and bonds. If you are thinking of pulling out of the share market I beg you, reconsider.

Sure we don’t know about the markets future but this last period, and currently, is the best buying opportunity I have seen in the last 25 years. The media headlines, as usual, do not reflect this reality.

So don’t stick your money in a sock if you truly believe the end of the world is nigh you are best to use it to buy bottled water, tinned goods, seeds, fortify your home and lock the door.

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Why?

Well actually I would say why not? Why not invest in equities? Yes, in hindsight the best place you could have kept your money over the last year is in the bank, and the volatility of the markets combined with the media reports of the worst financial crisis ever make you feel intimidated, fearful. You want to wait until "everything is stabilised." That is sheer foolishness. There is one certainty that has stood the test of time. By leaving all your money in cash assets you will never reach your financial goals.

One simple way to get started without causing too much angst is to buy into unit trusts on a monthly basis. If you use a good wrap account you can even split your monthly investments. I recommend Europe, Asia and Emerging Markets.

I suggest you take a deep breath and jump in, contact an advisor.

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Everyday Money

Given the daily media barrage of disaster and crisis in the financial world what can you do to ensure your everyday money is structured to build a secure financial future?

Follow in the footsteps of those who have comprehensive financial plans. A recent study by the US Financial Planning Association reported that nearly half of those surveyed felt extremely confident in their financial future, with 30% fairly confident.

Interestingly, in these troubled times more and more investors are looking to financial planners to help them manage their finances. Only around 30% of Kiwis have a financial plan, so if you are one of the 70% who don’t, get thee to a financial planner

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Finance and Investment

Buffet says ‘Buy.’

Warren Buffett, the world's greatest investor, has a message for people who have become fearful of today's stock market: Buy stocks now!
In an editorial in last week's New York Times, Buffett says, "...fears regarding the long-term prosperity of the nation's many sound companies makes no sense."
The Oracle of Omaha, as he is known, cautions that he is not calling the bottom for stocks. "I haven't the faintest idea whether stocks will be higher or lower a month - or a year - from now."
But he clearly feels the environment of fear has created great opportunities. "A simple rule dictates my buying: Be fearful when people are greedy and be greedy when people are fearful."
History would certainly say Mr Buffett is right. Through two world wars, several recessions, the great depression, and countless other scares in the market, the market has always recovered. Yes, these times we now live in are different, but so are the global economies and the global opportunities.
We likely have not hit the bottom, but for anyone willing to invest for the mid to long term, history would also say that you won't see a better sale for a long time than that the market is offering right now.

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FINANCE AND INVESTMENT

We are at the point in time when we are faced with a particularly fragile global banking system, a weakening global economy, very depressed and nervous equity and capital markets.

As you are undoubtedly aware, not least from the pervasive and extensive media coverage of recent months, it has been a particularly harrowing time in equity and credit markets. For the quarter, the MSCI Global Equity index returned -4.8%, Irish equity index -31.2% and Merrill Lynch Global bond index 4.5% * with almost all of these losses being incurred in September.

The ongoing bear market that commenced almost one year ago continues to have two overriding elements to it:
• The state of the global banking system?-Systemic risk
• The state of the global economy?-Cyclical risk

Whilst both of these ebb and flow in terms of headlines on a daily or weekly basis, there is absolutely no doubt but that the fear of a systemic failure of the global banking system has been THE key issue that has dominated markets thus far.

The Global Banking System:
The origins of the banking crisis over the last few months were in the collapse of the subprime market in the US, with the recent problems coming from the failure of the global financial system to adapt to the new operating environment.

Funding
Historically the basic operations of a bank involved taking in deposits and lending out these funds to trusted clients, carefully vetted by the internal credit department. The amount lent out was determined by the level of deposits taken in, with these items generally in equilibrium. In recent years, banks saw opportunities to earn additional income from interest on credit cards, brokerage commissions and asset management fees. As a result, there was less of a focus on deposit collection and a significant gap opened up between deposits and loans. European banks on average have a loan to deposit ratio of 130% which means that they need to find €1.5tr from non deposit funding sources. This funding has tended to be from the securitisation and interbank markets.

Securitisation is where banks package and sell off a portion of their loan book and earn a fee in return. Due to the collapse of the US sub-prime market, securitisation markets are closed, with no interested buyers for these securities.

The other source of funding is the interbank market, which is simply where banks lend to one another for a specified time period. The collapse of the sub-prime market in the US created a substantial level of write downs for the financial system. As well as being concerned about their own holdings in these high risk assets, banks were even more concerned that other banks to whom they lent (in the interbank market) would have a similar or even larger exposure to this toxic debt. Hence the interbank market simply dried up with banks unwilling to lend to each other due to a fear of the unknown.

As noted above, banks fund their loan book through deposits, securitisation and interbank funding. With securitisation and interbank funding both unavailable, the banks with large funding gaps were left in a perilous situation. The situation was even more perilous for banks who do not have access to any form of retail deposits. This is what created the crisis in the US investment banking sector, where the companies did not have the security of retail deposits, hence the demise of Bear Stearns and Lehman Brothers.

Capital
Capital is the other issue that needs to be discussed. The losses related to the sub-prime crisis led to a dramatic reduction in global bank capital. The losses were large and were taken as a once off hit rather than spread over a number of years. The banks were subsequently forced to raise additional capital to fill this hole and thus far over $440 billion has been raised. Regulators are likely to re-visit capital requirements following the various banking collapses and there will be further rights issues and placings ahead.

Outlook
Looking into the future, the banking model has undoubtedly changed. Banks will be forced to place an increased emphasis on gathering deposits and lending growth will be curtailed as banks attempt to reduce their reliance on interbank funding and securitisation. Deposit gathering and risk management will recapture their once dominant role in banking activity. The various announcements of public sector support for the financial system should help to restore confidence and over time inter-bank lending will likely recommence. Banks will have to increase the level of capital to support their issue equity capital when markets recover but funding is still the bigger concern at this moment in time. The deteriorating macroeconomic environment will undoubtedly lead to an increased level of bad debts and bankruptcies over the coming years. All the issues discussed above will result in a period of slower loan growth, worsening credit quality and capital raisings and we have seen valuations adjusting to reflect this changed environment.

Market Outlook
• Firstly, we are unquestionably in the midst of THE most uncertain financial environment that has faced the world in many many decades.
• Secondly, it is a time for much disciplined decision making. The volatility and rate of change of material facts is incredible. Take the Irish banking sector’s performance this week alone; despite a 46% fall on Monday, at the time of writing Anglo Irish bank’s stock is up almost 20%!! Global authorities have and are waking up quickly to the challenges currently being faced.
• Thirdly, our key challenge is weighing up the balance between the major uncertainties/risks in the global macro-economic system versus the medium term investment opportunity afforded by assets that are at multi decade lows. At present “risk assets” (equities for example) look cheap, and especially versus cash and government bonds, both of which have attracted safe haven status

Previously outlined events dominating markets:
• The state of the global banking system?-Systemic risk
• The state of the global economy?-Cyclical risk

Over coming months the focus will switch from systemic to cyclical concerns. The two are obviously linked, particularly with the dent to confidence and activity levels that the credit crunch has inflicted on the economy. We are closer and closer to solutions to the systemic banking crisis that should safeguard the system.

Cyclically, the outlook is now most likely for a G7 recession though we will probably avoid a global recession. Cyclical markets and economies are normal and demand lower risk premia than the less frequent systemic crisis scenarios. Our outlook for the next 6 months in that scenario considers:

Negatives:
• The downturn has been led by the banking sector and a deflation of asset prices. Past experience shows that asset deflation cycles take much longer to recover from as deleveraging in itself has very negative dampening affects.
• We face much nastier economic numbers in all western economies. The markets are good leading indicators of what is still to come.
• We face significant earnings downgrades as companies report their earnings and analysts cut their earnings estimates much more than they have so far.
• In a cyclical sense bank funding will remain very difficult to obtain.
• Overall confidence is sapped.
• The levels of uncertainty generally, is causing investors to keep selling equities and demanding higher risk premiums.

Positives:
• Inflation which was a major concern during the early summer as commodity prices soared, is falling quickly.
• Over coming months as in any normal cycle, we expect relatively aggressive interest rate cuts from many central banks including the ECB, BOE and probably the FED.
• Valuations of equities look cheap, even allowing for the poorer earnings outlook. On measures such as dividend yield some of the European equity markets are now yielding more than their equivalent government bonds, which is very unusual and can be argued as very bullish for equities.

In the short term, I believe that the passing of the US bill, depressed levels of fear and sentiment and very oversold technical levels on markets would mean we could see a 10% or so bounce in equities. Beyond that I believe we remain in a cyclical bear market as despite the positives above, the biggest challenge to being positive on equities is to the timing of going positive. I believe we are too early in the cyclical downturn for markets to enter a new bull market as we need time to work through some of the issues outlined above.

Whilst we are not out of the woods yet that we have been through the most difficult and volatile part, and that the next cyclical phase whilst not overly positive is not as depressing as the phase we have come through

Source: KBC Asset Management.
*Source: Merrill Lynch > than 5 year global bond index

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Finance and Investments

The stark truth about managing our money these days is that we are mostly on our own.

Few employers want us around for 40 years, so our income is likely to have ups and downs and could disappear altogether for brief periods between jobs. Saving for retirement is now mostly our responsibility, too. Health insurance, for those of us who have it and manage to keep it, requires increasingly large amounts of money out of our pockets. The list goes on and on.

At the same time, all sorts of individuals and institutions have smelled opportunity and lined up to peddle their wares, resulting in an explosion of credit cards, bank products and advisers of various stripes. Some of this is helpful because competition has led to lower costs. But in other instances — say, newfangled adjustable-rate mortgages — the result has been painful.

Complicating all of this is the housing downturn, which has affected the largest asset in many portfolios. Rising fuel and food prices along with tougher loan standards do not help.

Given the stakes, it is hard to avoid the persistent low-grade fear that we have made wrong choices or cannot find the right ones, even though they are out there somewhere. There’s no guarantee that the choices will be available, attractive or appropriate for everyone.

Here are five basic guidelines.

INVESTING IS SIMPLE
Boiling down investing; Save regularly. Reallocate infrequently. Diversify.
For most of us, investing— and sticking with it— is the hardest part of the mantra to accept.

The fact is, however, beating the overall market in most investment classes is nearly impossible over long periods of time. Sure, it may be fun to try. But if you enjoy that sort of thing, do it with a tiny piece of your portfolio. And remember to call it what it actually is: gambling.

IT STILL MAY BE WORTH PAYING FOR HELP
Investing is only one small part of your financial life. Mortgages, taxes, savings, insurance and debt are a few of the hugely important tasks we have to figure out.
Perhaps the best thing a versatile professional — whether it is a financial planner, accountant, stockbroker or lawyer — does is provide discipline. It is difficult to get most of this stuff right. And to get it done at the right time. Professionals help make sure it all happens on schedule.
Most of us would rather avoid paying for help but getting the right structure is well worth the cost.

PEERS MAY KNOW MORE THAN PROFESSIONALS
Financial planners may not have all the answers, or the best answers, all of the time. Moreover, they tend to be stronger on core areas of money management like insurance and taxes and less so on day-to-day budget or purchasing consumer goods type financial decisions.

EVERYTHING CAN (AND SHOULD) BE AUTOMATED
One of the great consumer-friendly innovations in the world of money in recent years has been the automation of bill paying.

This has a number of advantages: no stamps, no envelopes, no late fees. Then you can do things that are a lot more fun.

HAVE THE TALK
As fewer people have pensions and more retirees live longer, an increasing number of people may need financial help from their children. The question is whether your parents will be among them.

Trying to pry financial information out of your parents does not make for a pleasant conversation. But the fact is, we are entitled to demand some answers if our parents do not initiate the discussion themselves.

This is not a case for callousness. They took care of us for 20 or so years, and we will take care of them, too, if it comes to that. But it is not fair of them to withhold warnings of deteriorating finances. If we do not know what is coming, we cannot help them plan for it.

Just as we should talk about money with our parents, we should be less reticent about discussing it with others.

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Why?

Why do I continually meet people who live from payday to payday and why do I have to keep parroting the same lines. Financial freedom is not rocket science. Follow these simple steps.

• Spend less than you earn
• Join a subsidised superannuation scheme or KiwiSaver
• If you are in the position of having short term expensive debt pay it off.
• Take out insurance – income protection is essential.
• Set aside an emergency fund.
• Buy a property and focus on paying off the mortgage as soon as you can.
• Set up an investment portfolio.
• Attend to legal issues such as writing a will.

If you can’t do this on your own, get hold of a financial planner to help you. Less than 30% of Kiwi’s have financial plans.

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Finance & Investment

You can't see me but I am wearing a pointy hat, carrying a wand and peering into a crystal ball. Yes folks I am going to make a prediction.

Remember the dot.com bubble? Well here is the next one; the "clean tech" bubble. Consumers are going green - and as Kermit so famously said, "It's not easy being green."

Venture capitalists are pouring cash into environmentally friendly technology. This is a reflection of the hype around smart cars, green buildings, and technologies that use the sun, wind, corn and water to generate power. Combine this with pricier oil and worries about global warming have spurred the search for alternative technologies.

The problem is that there are too many dollars chasing too few deals; one partner at an energy technology venture capital firm said "we are certainly seeing some evidence of overheating...in solar and bio fuels. But it's too early to tell..." In fact over 60% of venture capitalists claim the sector is overvalued but, of course, remain convinced of the sector's long term value. So watch this space - I'll keep you informed.

For more on bubbles read Money, Money, Money Ain't it Funny.

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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 clichéd 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

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Womenomics

I have just read a disturbing and poorly researched article by Sarah Catherall published in the Dominion and here in the Press on the 2^nd 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..........”

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