Irish Financial Review

Greece: less game theory strategy and more Higgs Boson chaos

Over the weekend, an article carried in the Wall Street Journal linked the debt negotiations between Greece and its creditors with Game theory.

Can order come from Greek chaos?

Can order come from Greek chaos?


It suggested that Yanis Varoufakis, the economics professor turned Greek finance minister was likely to be deploying Game theory tactics in order to win the best debt deal for Greece and put those pesky creditors in their place.

It was an interesting theory until this evening which makes it seem that Greece is prepared to force the hand of Europe and risk total chaos in a desperate push to reach a debt deal.

Whatever happens now, Greece and Europe have entered unchartered waters. The Greek state or the European project could be the big losers.

The only question now is what will emerge from the looming period of extreme uncertainty; a sidelined state, a sidelined currency or a European integration project finally prepared to fix the mistakes of the politicians that rushed ahead with some grand projects without first taking care of the foundations needed to underpin them.


Personal investing and the one that got away!

In late 1999, I did a little stock trading; I did most of my own research but bought and sold via a friend that worked at Merrill Lynch on Cape Cod.

There were a few industry sectors that I really liked, I found them interesting. Nextel was one of them where I managed to make some decent profits.

Strategy, tactics and patience are key to long term investing success

Strategy, tactics and patience are key to long term investing success

Another was an Israeli company that was involved in ‘internet security stuff’; at least this was how my friend at Merrill Lynch described it.

The company was called CheckPoint and its ticker symbol was CHKP; I still remember it!

Buying in at $20 per share, I was delighted when the stock rose to $30, then $40 and on up to about $48 per share.

But, with events in the wider economy taking hold, the price per share began to dip; I decided to sell out at $43. Once taxes and commissions were settled, I still ended up making a tidy little profit.

I must admit, I was feeling a little happy with myself. I bought low and sold high…Gordon Gekko would be very pleased indeed!

For some reason, even though I no longer owned it, I continued to track the company; there was something that I really liked about its product.

Within weeks, my decision to sell CHKP was proven to be bang on. It fell to $38 per share. To $35, to $30…the fall continued.
But, when the stock fell to $10 and kept on falling, I began to doubt my gut; was this company really as good as I had thought?
The stock continue to fall!

$8…$6…$4, “where would it all end for the Israelis?” I thought.

$3. “Oh, no, they are about to get wiped out” I thought but with no skin in the game, I was just a spectator now.

Alas, at $2.29, the fall ended.

“Did you see that, you gotta buy in” was the advice of my broker.

“Nah, its way too bloody for me” was my response.

And so began my great lesson.

While I really believed in the company, its technology and the future direction of the industry sector, I was emotionally compromised; having watched 94% of the value of the stock get wiped out, I was in no mood for buying in.

As the stock value began to rise, I convinced myself that its value was too risky, too volatile so I remained on the sidelines.

Over the following 18 months, the stock value grew and grew and continued to grow.

In the end, the value of the stock shot up to over $350, which was diluted following a number of stock splits.

For me, the real loss was the lost opportunity. While I had doubled my original investment in CHKP, this fact was lost in the fog of regret.

The numbers of course are sickening; a $1,000 investment could have become $100,000 in a relatively short period of time.

For any investor, key to their long-term financial well being is having a strategy and sticking with it. Time is a major key to long-term financial success.

But, on the odd occasion that a CheckPoint does come along, a careful investment can pay very generous dividends indeed. But, such investments need to be backed up with research and reinforced with conviction and commitment.

When emotion gets the best of rational investment decisions

A number of years ago, I fell into the investors trap. I put reason in the back seat and was guided by a mix of fear and emotion.

Less emotion and more reason needed when it comes to a long-term investment strategy

Less emotion and more reason needed when it comes to a long-term investment strategy

It all centered on an Israeli-based company with a truly innovative technology. What made things worse for me in the long run is that I really believed in the technology but was blinded by emotional reaction when it came to making a really good investment choice.

Investors with a skill in the stock market can still be blinded by irrational emotional behavior. In fact, the majority of investors all say they want the same thing: profits.

But this is where things get interesting. When investors say they want profits, that’s a pretty benign goal. Warren Buffet would use this as a means of creating wealth. In his situation, he uses a formula for taking profits and limiting losses and throughout the years, his general formula has work very well indeed.

The difference between Mr. Buffet and the rest of us is that large groups of investors have a lot at stake and get overwhelmed by fear and other emotions which often leads to rational people to make irrational investment choices.

Take the case of “making that profit”. In truth, most investors are not simply chasing a profit, rather, they chasing the maximum profit. Yes, maximum being the operative word.

“What’s the difference” I hear you ask.

A lot!

Here is what generally happens.

Investors purchase a stock (this could also be a mutual fund). Money goes in and now the waiting game begins.

As the stock (or fund) increases in value, there is what I call the intoxication-of-wealth-growth which takes over the investor’s rational mind. Suddenly, that Euro 10,000 has become Euro 12,000 and now, the sky really could be the limit. And, while that stock is in profit, there is a low investor appetite to cash out their gains.

As the growth of the original investment continues, the disconnect between the rational action of taking some of the gains and the irrational choice of staying in and ‘maximizing the profit potential’ rises as values rise. You get the drift. In the case of this investment and return, the investor abandoned their original goal of generating a profit and decided mid-stream to go ‘all out’.

The same is true when prices begin to fall, in fact, it’s probably worse because of the pain of financial loss.

Let’s say our investor again puts in Euro 10,000 and the value rises steadily to Euro 13,000. But within a few weeks, events in the market make the stock less attractive and the future less certain. So, the value of the stock falls to Euro 7500. Here, there is the grip of the eternal and hopeful emotional investor. Instead of using the investment tactics employed by Mr. Buffet and limiting their losses, the hold on in the hope that stock will rise again. The signs of turbulence were there all along which the investor knew but chose to ignore. They don’t have to realise their paper losses just yet because that’s all they are (so far) but the fact that the stock value is now so low eats away at them…it really does feel like they lost money…or worse, that it was stolen. They feel a little silly (an emotional reaction) because they knew that the warning signs were there in plain sight but they chose to ignore them. These could have ranged from interest rate moves, an act of war or a patent dispute.

One major problem that a growing number of investors face is how to handle online access to account balances. While a great resource, it can lead to short-term decisions that conflict with the long-term investment strategies of wealth creation.

For example, the urge to constantly buy into and sell out of stocks can give the investor a feeling that they are limiting their losses and maximizing the potential for gains. However, the trading charges along can negate any value realized and add to the overall level of loss. In this instance, the investor may feel like Gordon Gekko, the fictional character in the movie, Wall Street. In reality, the investor may also be living in a fantasy world and the only real world outcome being lots and lots of trading charges.

This is one of the pillars of successful investing. Long-term strategies can work as long as emotion such as fear are parked. The reason is while many people may have a level of market knowledge and a belief that they can out-perform the stock market average rate of return, the reality is that better returns can be generated through placing their investments in index funds as well as other investment classes (not too risky!) and leaving time do the work for them. This is where they may wish to turn off the daily urge to ‘check-in’ to view the balance amount and leave the system do the work for them.

Anyway, back to my situation. I did actually buy that stock at $20 and it rose to $45. When it began to fall, I sold it at $42.

A few months later, that same stock had fallen all the way back to just under $3. When my investment advisor said that he thought it was a ‘great buy’ I listened but kept my cash out. When the stock rose to $10, I thought ‘damn, missed that one’.

It was only when the stock rose again to $30 that I really thought that I had missed the boat. But, when the stock hit $350 per share, I know I had been duped…by my emotions!

Frank Conway is a financial advisor and runs MoneyWhizz, a financial literacy programme for kids 8 – 18.

Staying the course in a fluctuating investing environment

The US dollar is still the global reserve currency. And over the course of the last few weeks, its value has fluctuated by just under 9% and over the course of the last 12 months, the swing has been much greater.

Staying the investment course in choppy waters

Staying the investment course in choppy waters

If you plan to vacation in the US this summer, then this fluctuation will have an immediate impact as prices of everything in the US will appear much more expensive in euro terms. The cost of hiring a car, the cost of staying at a hotel, eating out and buying the odd few bits of clothing will be more expensive.

However, even if you have no plans to take a trip state-side, the fluctuating value of the dollar will have an immediate impact on your financial situation, here’s why.

In the investing world, a significant weighting in the make-up of investments, be they equities or bonds are done in US dollars.

So, even if one purchases a particular investment or range of investments, be they included in mutual funds, ETF’s, bonds and so on, chances are they will be heavily weighted in asset classes that are ultimately priced in US dollars.

Over the course of the last number of weeks, watching the value of investment funds rise and fall, the variations are almost universally tied to the swings in the value of the US dollar. Sure, the value of the underlying assets have risen and fallen but it is the US dollar that most closely matches the swing in value.

Today, more than ever, investors need to focus on their investing strategy as opposed to tactics. If they are true believers in the concept of time as a key ingredient of sound investing, then they must begin to develop a very tough skin when it comes to daily and even weekly fund valuations. Otherwise, they risk becoming investment tacticians which can cost them dearly as emotion can trump reason and short-term concerns out-weigh long-term performance.

Over the course of the next few months, a lot of major global events will unfold which have the potential to significantly disrupt fund valuations. Greece is an obvious example but so too is the decision of the US Fed. to increase interest rates. Also, on the margins is the unfolding UK in-out narrative on EU membership, while this is slated to be put to a UK-wide referendum in 2017, the developing narrative will be closely watched and reacted to across the world.

Protecting and growing personal wealth is never easy. But remaining informed along with having a sound strategy that is aligned to one’s long-term, personal financial needs are key ingredients to success.

Frank Conway is a qualified financial advisor and author of Cents & Sensibility – a financial guide for young adults. He also founder of, a financial literacy initiative available across second level schools.


Political pressure on Irish banks as Central Bank warns of dangers

Irish bank bosses have been instructed to make less profit on mortgage lending or else face punitive levies it has been revealed.
Beginning of the end of austerity

Minister for Finance proposed new levies to restrict bank profits

This is despite a chronically low level of residential mortgage lending across the economy as lenders continue to suffer massive losses on boom-time tracker loans. Residential mortgage lending in Ireland has been slowly rising. It fell 90% from peak to trough. In 2014, total mortgage units drawn down were slightly ahead of the levels last seen in 1975, a time when there were almost 40% fewer people living in the Irish state.
Across Ireland today, there are an estimated 400,000 ‘tracker’ mortgage in Ireland with many of those loans charging under 1% over the ECB base rate of lending.
Ireland also continues to experience among the highest rates of mortgage arrears across the OECD but conversely, one of the lowest rates of property foreclosure, largely owning to social and historical pressures. There were also some legal impediments.
Central Bank raises concern on political interference.
Earlier today, the Irish Central Bank issued a warning on the dangers of political interference in the working of the banking sector. In its paper, Influences on Standard Variable Mortgage in Ireland, the Bank warns:
The spread between official ECB interest rates and the standard variable mortgage rate is relatively high in Ireland, both by historical standards and compared to European peers. Three factors are important determinants of this margin.
First, the pricing of loans needs to reflect credit risks. In Ireland these risks are elevated due to high levels of non-performing loans and the lengthy and uncertain process around collateral recovery.
Second, competition is weak. This is not unrelated to credit risks since high credit risk deters new players from entering the market.
Third, bank profitability is still constrained by legacy issues. Profitability is essential to ensure banks build up adequate capital buffers to meet increasing regulatory requirements and to withstand future adverse shocks.
Any policy aimed to address the level of SVR rates must take these factors into account if it is to be effective and constructive. Hasty policy measures to administratively determine interest rates would be likely to have damaging side-effects.
By discouraging entry, innovation and competition, such measures could result in higher spreads and higher exchequer costs over the longer term

Why health planning is as important as retirement planning

It’s no secret that Governments everywhere are concerned about the number of people that actively contribute to their pension. Too few do and with longer and longer life expectancy predicted, this poses a major dilemma for what Governments are to do, especially if they want to avoid a massive number of folks with inadequate financial resources in old age.

Personal Wealth Management Key to Long Term Financial Success

Personal Wealth Management Key to Long Term Financial Success

Unless you are a Bill Gates or a Warren Buffet, you are one illness away from Bankruptcy.

Across the US, bankruptcies due to medical bills increased by nearly 50 percent in a six-year period, from 46 percent in 2001 to 62 percent in 2007, and most of those who filed for bankruptcy were middle-class, well-educated homeowners. (Source: The American Journal of Medicine.)

Obesity levels and diabetes are on the rise here in Ireland, both of which can be major causes of serious illness, including heart attack, stroke and cancer.

Taking action

In the world of personal financial planning, the central focus too often is just on the money side of the equation. While this is the right approach generally, it often also misses a beat, especially when it comes to a truly holistic approach.

The better approach

There are five essential ingredients to thorough and complete personal financial plan. Those are:

1. Establishing one’s relationship with money. Is it a caring one or an abusive one? For some, money is a means of a better financial future while for others, it is a short-lived display of personal wealth. The former is good, the latter is self-defeating.

2. Adequate planning. Setting goals is not going to produce results without adequate planning to reach those goals.

3. Better money knowledge. This is key. Money knowledge is all about knowing the detail of what one actually pays for, this includes the type of health insurance policy they own to the energy efficiency of their home. A few years ago, the author met a corporate executive that hadn’t realised they owned a critical illness policy yet never claimed on it after they suffered a serious illness.

4. A little but of luck. Unfortunately luck does play a key role but with bad luck can be mitigated against with 1, 2, and 3. This would mean having a good rainy day fund built up for that period of poor luck.

5. Health. This is key for long-term financial well-being. While health insurance (public and private) will cover a high level of costs and medical expenses, they do not cover all. Besides, modest levels of daily and weekly exercise are excellent ways to reduce stress and weight, which have a big impact on reducing diabetes and heart disease.

If we are to enjoy post retirement, we all need to take a greater level of care that our health does not become a financial nightmare.

Frank Conway is a Qualified Financial Adviser and founder of, the financial literacy initiative.

Have annuity funds gone sub-prime under accounting alchemy?

Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, or so one dictionary would have you believe.

In fact, when it comes to global insurance, reinsurance and annuities markets, things are working out a lot different.

Way back in the 1860’s, on a visit to London, Elizur Wright was so shocked at the sight of elderly men auctioning off their life policies to speculators that he set out on a mission to establish the foundations of the modern insurance industry.

For so long, insurance was governed with some very important yet straightforward rules; assets should at least cover liabilities. In real terms that insurers sold policies, accepted policy premiums and made sure that they would always have enough funds on hand to pay out policy benefits. And, in order to achieve this, they invested money wisely, in safe investments, including bonds.

But time moved on and many of the original Life insurance companies moved on from being mutual in nature to becoming publicly traded organisations where profits trump prudence.

Across the US, insurance companies are increasingly taking greater risks in how they invest funds; this includes Life insurance as well as annuities which millions of people rely on for retirement income.

Hollow assets and creative accounting

Various state requirements and so-called ‘permitted practices’ are creating more and more shell games and increasingly creative accounting where assets that are supposed to underpin the financial structure of various insurance companies are little more than worthless I.O.U’s, in effect, they are underpinned by hollow assets.

Aside from denying state’s of tax revenue, this creative accounting is also at risk of undermining the very nature of the foundations that Mr. Wright fought for.

Glass-Steagall all over

The repeal of the Glass-Steagall Act is widely cited as the catalyst that eventually led to the financial crisis of 2008. Under Glass-Steagall, banks commercial and investment activities were strictly separated. Some observers, especially those in banking dispute this but overwhelming opinion agrees that the repeal was a disaster. The bottom line was old-fashioned banking was safe banking and reforming a law that had served so many for so long was ever only going to serve a few and hurt many. This is exactly what happened and it has had massive global implications.

Something similar now seems to be taking place in the global insurance markets where ‘black box’ activities, shell games, propping up of balance sheets, hollow assets, permitted practices and financial alchemy are all taking the place of safe investing strategies. And we all know what happens when creative accounting replaces the time-proven practice of safe investing; the tax payer generally ends up paying!

When it comes to investing for the future, reading and interpreting key financial data is key to your investing success. If you cannot read the accounts of companies you invest in then your chances of success will be limited by lack of core information.

Frank Conway is a qualified financial advisor and author of Cents & Sensibility – a financial guide for young adults. He provides corporate financial training and personal investment advice.



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