Last night I watched a very interesting interview on the Daily Show with Harry Markopolos, one of the men who blew the whistle on Bernie Madoff (back in 2000). The interview with the Daily Show is astoundingly frank and entertainingly funny, and at the end of it, incredibly disturbing. The Comedy Network in Canada does not allow me to embed this interview so you’ll need to click to get to it, but it is well worth the hassle. Markopolos’ book No One Would Listen: A True Financial Thriller is an interesting read.
CNBC does have a more serious interview with Markopolos and a former co-worker Frank Casey, which outlines that Madoff’s shenanigans and financial tom-foolery had been noticed, but it seems no one did anything much about it for a long time. The best line is about how you never had to use Madoff’s last name, if you said, “Bernie” everyone knew who you meant.
This has been mentioned by a few bloggers, but I think the topic is a good case study in investing in “growth areas” (or as I would call it speculating on stocks).
When the Olympic Hockey Final tickets went on sale about 2 years ago, they were snapped up very quickly, but were all sold (presumably) at their face value by the Vancouver Olympic Committee. VanOC made their money selling those tickets, and this is much like a company issuing stock or like an IPO (for a newer company). The profits have been made by the issuer.
Now we get into the world of presumed value of the tickets, and what they start being re-sold for.
As the Olympics came closer and closer the value of the tickets rose from their face value, to what folks are willing to pay for this Final Game, and I would assume that they started appreciating in value the day they were sold by VanOC. The appreciation may not have been much, but I am sure you could have made some good money simply “flipping” your tickets as soon as you got them. At this time there is very little “risk” in this investment, because other than the Olympics being cancelled or Team Canada refusing to use NHL players, the tickets are worth at least as much as what they were bought for.
When Team Canada was announced a month or so ago, that is when the value of the tickets might have started going UP and DOWN (i.e fluctuating), with all the Arm Chair GM’s looking at the roster and deciding whether Team Canada could make it to the game.
The big risk now introduced is, if Team Canada does not make it to the game, the tickets value drop significantly (possibly well below face value). This is what now will drive the value of the tickets, Canadians would go watch the game if Team Canada was going to win 100-0 or lose 0-100 (maybe not pay as much) but if there is no Team Canada your investment is going to “tank”.
Team Canada blows Norway out to start the tournament, and Confidence is high, so your ticket value is going up, and you are sitting pretty. No reason to sell right now, right? What about locking in your profits, because remember what happened in 2006? No, you decide to keep your tickets, and keep going!
Team Canada then plays a worrisome game against Switzerland to begin with and now the ticket value could go up or down with “experts” saying there is a chance this team may not “have the stuff” that is needed to get to the Gold Medal. Do you take your profits now, or do you hold on and hope for Team Canada to turn it around? You decide to keep your tickets and pray for the best.
Team USA appears with a hot goaltender and puts a beating on Team Canada that causes a collective PLOTZ in Canada, and the experts are now sure this team does not have what it takes and now some of your implied profit disappears, because now Canada must play Germany and then Russia to get to the Semi-Finals. Your ticket value has now dropped a great deal, and you kick yourself for not selling after the Norway game, when your value must have been at the highest, but you decide to ride this donkey to the end.
Canada knocks off Germany handily, and now your ticket value is increasing again, and that voice in your head asks, “Is it time to sell?”, but you are a gambler, and you know that if you hold on and Team Canada beats Russia (the experts are again saying this is going to be a rough game) your ticket value will rebound, so you hold on.
Holy cow, Canada obliterates Russia, and your ticket prices sore, with the possibility of a re-match between the US and Canada in the finals a real possibility (this would give you the Maximum pay back on your ticket, because not only could you sell to Rich folk from Vancouver you could make Yankee Dollars from Americans there too). You are on Cloud 9, thinking, all Team Canada has to do is knock off the Slovaks, and you will make a fortune, on your simple investment!
Here come the Slovaks and Team Canada is cruising, until that Goal and suddenly the market for your tickets gets a lot more nervous. That second goal and you are again panicking that you should have sold after the Russian game and taken your profits!!! OH NO!!! But, Team Canada pulls it off and you are given the added bonus of the Americans pulverizing the Finns, so here you have the ultimate appreciation of your ticket investment, Team Canada vs. Team USA in the finals, your investment has paid off.
Or has it? Should you sell the day before the game, or what until the day of the game? How are you going to sell it? Will you sell it to a scalper, or will you stand in front of Hockey Place and try to sell the ticket yourself (risking running afoul of the law enforcement agencies that frown on that kind of free enterprise?)? What happens if you don’t find a buyer who is willing to pay what you want?
Maybe you are a Hockey Fan and you don’t care what anyone offers now, you are going to enjoy what you paid for, and don’t care of how much money you can make (you will however feel smug when the two guys who sit down beside you at the game saying they paid $10,000 each for the tickets, or will you? Will you have non-sellers remorse?).
An interesting case study, what would you have done?
Given most Canadians are caught up in the excitement of the Vancouver Olympics, they hopefully will not forget that it is almost the end of RRSP season and you have until midnight March 1st to make that contribution to count on your current Income Tax submission. Given the lack of activity in most banks, I think most Canadians are more worried about Canada beating Slovakia in Hockey, or whether our Curling teams can bring home Gold (but we can forgive folks, after all there is nothing more Canadian than Hockey and Curling).
After all the excitement of hosting yet another Carnival and having my first ever give-away, let’s see what other Personal Finance Bloggers might have had to say this week:
Go Canada! and remember RRSP season is almost over.
Attention Ottawa-area readers: CBC Ottawa is looking to talk to a regular investor between the ages of 25 and 50, who actively keeps an eye on the stock market and may have lost money during the economic downturn and are changing their investment strategy. If you are interested please contact Sannah Choi at 613-288-6471. You can also reach Sannah via e-mail at Sannah-(dot)-Choi-(at)-cbc-(dot)-ca.
Yes it is that magical time of the year, where banks and institutions beg you to put more money into your RRSP, because it would be a good thing for you when you get older.
Show of hands: Who believes they do this because they are worried about your Golden Years? None? Not surprised.
Banks (and Insurance companies and whomever else sells Mutual Funds) want you to put money into your RRSP now, so that you go and buy their High MER Mutual funds (with the big fat entry fee, and exit fee as well).
How many times have I heard co-workers or friends say, “I just put my money in the Canadian Stock Fund and will move it later”. When I query about the MER for this Canadian Stock Fund usually the buyer is unaware, and what the front or back load is on these funds is a mystery as well. How many folks will move it from this fund at a later date? Don’t know, but my guess would be not many move the funds ever.
I don’t have time to think about this, is another argument folks have given me for buying some very dubious Mutual Funds, which may be true, but why did you spend your money is the answer I give. Would you buy a car, house or even major appliance without knowing that there were hidden fees to buy it and then a yearly “support” fee?
So I shouldn’t buy RRSPs now? No I didn’t write that either, but wherever you invest your money, be sure you understand the costs of investing in this financial device. This doesn’t mean you should blindly go out and buy ETF’s or Index Funds, if you don’t know where (or how) they invest.
Get educated is what I am saying before you go out and buy your RRSP. If you don’t have time to do it right now, then wait until you can figure it out.
Maybe I should just get a Financial Advisor?Caveat Emptor is my response to that idea. The past few months more and more stories are coming out about Financial Advisors, and how they work, so you need to find one that you trust, and ask them, How do you make money? especially if they are offering you their services for “free” (you would be surprised what free really costs). If the advisor suddenly tries to sell you whole life insurance, get up, get your coat and walk out without a single word, and don’t come back.
The hasty or rushed decisions I have made in my life (financially) are rarely the ones I look back on with fond recollections.
I was wandering through yet another Top 10 List, and it struck me just how many Top Ten lists there are out there (not to mention David Letterman’s output of a list every night), so here is:
Here in no real order is my Top 10 list of Financial Top 10 Lists I have seen over the past little while:
Did I miss any? (yes this is what happens when I get stuck in long meetings and my mind wanders)
What with the Interest Rates remaining steady and the CPI only at 1.3% for the year sounds like things are just peachy and rosy in the financial world, but I suspect that the Financial Blogosphere may not completely concur with that statement yet:
Occasionally I’ll jump out of my main role of Personal Finance Guru [sic] and show that my real role in life is technical savant, here are a couple of interesting things to note on the technology side of things:
You can find my post Do you have saving questions? at the Carnival of the Road to Financial Independance.