Knowing Risk is Essential for Successful Investing

Because I have done financial planning and investment management for decades some people assume I know more than I do.  I try my best to control that mistaken perception by first explaining, I am not an economist, and secondly, I cannot know for sure what will happen in markets.

However, I have been known to make predictions based on market trends I believe have an abnormally high risk. And knowing the inherent risk factor is crucial in determining where and when to invest your money.

For instance, in December of 1999 during an interview with Bill Griffith on CNBC, I suggested people get out of the market, for at least the first 6 months of 2000, in order to play it safe and minimize risk. No one heard me; my advice went unheeded, and investors experienced large losses. 

At that time “tech stuff” was sky high but at the same time “Leverage Investing” was also very high, i.e. investors were borrowing money in the form of loans, securities, capital or other types of assets in order to invest more, which can be very good…………until the return becomes less than the cost of borrowing.

And at that time, my investment territory of mutual funds was also unsustainably high. So, I pulled in my horns and focused on more of a conservative, less risky strategy espoused by value managers like Jean Marie Evielard of First Eagle Investments and Steve Romick of First Pacific Advisors. And both had funds that were up and stable during the crisis as a result.

Looking back, I wasn’t trying to pass myself off as a market guru but simply explaining that I was not, shall we say, immune to knowing when there was trouble brewing on the horizon.

An old saying applies here, “A wise man sees trouble coming from afar and hides himself but the unwise pass on and are punished”

For example, right now I see a lot of trouble brewing.  Case in point; America’s $40 trillion plus debt triggers over a trillion dollars of yearly interest payments, and to me this sends up a red flag. And foreigners don’t want to buy our treasuries like they used to; this also causes great pause in my mind—where does this end for the financial investor over the next few years?  

Now consider that Japan owns more US Debt than any other country—currently $1,078 billion.  And most foreign banks are loading up on Gold. Plus, Social Security is in big trouble; a 25% cut will happen in less than 10 years if our impotent politicians don’t remedy it first. And is that even possible?

Who Owns the $39T US Debt? Top Holders Breakdown (2026)

And then as if that isn’t enough, there’s the current political mess. And what if Trump losses both the House and Senate in the midterms, if so, we won’t see much positive investment news but instead a constant warring against Trump for the last two years of his term.

Then there is the whole question of Artificial Intelligence. It is powerful and that makes it dangerous.  As a result, several unheard-of companies have sprouted up with very little economic sense, much like what happened during the dot com internet crises of 2,000.  If AI is not in a bubble of some kind, it is on a collision course with one. Either way I predict the end result will not be good.

Do I see and feel trouble ahead? YES!  There will be a significant market crash or in more polite terms, an “adjustment”. How much of an adjustment? I don’t know, and I certainly do not know the date, and frankly, no one does. 

However today I am six months from being 90 yrs. old and fairly sure it will happen in my lifetime…….and I am not in great health. So optimistically, let’s say for the record, in the next five to ten years it will be very challenging for investors to make correct decisions investing money, to say the least.

Another old saying comes to mind, “Old warriors know to hold back and wait for the best time to enter the fray…if they enter at all.”

As I write this, my mind goes back to one of my favorite investment guys, Robert Rodriquez.  He was president of First Pacific Advisors for 25 years as well as a fund manager.  He forecast the dot.com crash and the 2008-2009 financial crisis.  He also exposed the bond rating agencies as being inaccurate in the 1990’s. 

He retired in 2016 and got out of the stock market.  He felt the dollar and other currencies were going to get hammered in the next decade, relative to Gold.  He currently has invested 30% in Gold and 85% in hard assets like rare coins and high-end real estate.  Having spent 7,000 to 10,000 hours researching these investment areas and opportunities, Robert has taken a very conservative much less risky approach to investing his money.

All this information is from a December 23, 2018,  published interview by Think Advisor.  I knew Bob personally and was on CNBC with him. Bob Rodriguez: Recent Market Turmoil a ‘Preamble’ to Bigger Crisis  

I can tell you this is a time to be very conservative and follow the principles outlined in my book. Don’t trust until you verify. This requires that you learn the basics of money management and financial investing. Knowing risk is essential for successful investing, and it takes experience to see the risks.

In my book, I’ve broken down what you need to know in 29 short concise chapters, designed to enhance your ability to recall what you’ll need to verify each step in the process. In the end, your trust will be established and grounded firmly in truth.

Priceless.

Go to my “Buy the Book” page, click on the link and choose either the softcover for $12.99, the hardcover for $31.99 or the E-Book for $4.99. No matter where you buy my book, you’ll pay the same price but through iUniverse I receive a significantly higher royalty so please buy, as the expression goes, “In House”.

Thank you.