Opinion: Good investors not necessarily good at personal finance
Many probably assume that good investors are very good at personal finance. After all, if you know something about financial or economic analysis, you would be good at managing your finances too, right? I don't think so. My view shouldn't be that surprising.
It's kind of like how a good mechanical engineer may have skills to design a car but that doesn't necessarily mean that they have the skills to be a mechanic.
You'll notice what I am saying when you look at blogs. I feel that there is almost two seprate ecosystems: one dealing with investing, and another dealing with personal finance. I rarely see much of an overlap in the participants. The investment-oriented bloggers almost always seem to deal with finance, economics, and capital markets. In contrast, the personal finance bloggers all seem to be passive investors and I see very little work dealing with stockpicking, financial statement analysis, macroeconomic theories, and so forth.
Anyway, the best example of what I am saying is Bill Gross. Many in the investment world hold Bill Gross to be, perhaps, the best bond investor of the last 30 years. I don't have such high regard of him but I'm not in the consensus. In any case, I came across the following situation from his latest commentary:
Imagine if every American had done what Bill Gross did in September of 2008. Every bank in America would have collapsed. Thankfully, the population isn't as panicky as him.
I'm assuming that, given how he is a billionaire (Forbes pegged his net worth at $1.3 billion in 2007), he is way over the $100,000 (at that time) FDIC limit. So it makes sense to liquidate all your cash above $100k.
But the bigger point, though, is, what was he doing with so much money sitting in a bank account? We don't know how much money he had in the bank accounts but given his panicky withdrawls, I am assuming it is a lot of his liquid cash. That, in my eyes, is horrible management of one's personal wealth. It just goes to show how a billionaire, who apparently is a good investor, can be caught off-guard by misallocating his savings.
Since most people who read this blog are investors, I think all of you, including me, should pay more attention to our personal financial matters. A lot of spend an inordinate amount of time on the investing side but I suspect most of us overlook personal finance and are making mistakes.
It's kind of like how a good mechanical engineer may have skills to design a car but that doesn't necessarily mean that they have the skills to be a mechanic.
You'll notice what I am saying when you look at blogs. I feel that there is almost two seprate ecosystems: one dealing with investing, and another dealing with personal finance. I rarely see much of an overlap in the participants. The investment-oriented bloggers almost always seem to deal with finance, economics, and capital markets. In contrast, the personal finance bloggers all seem to be passive investors and I see very little work dealing with stockpicking, financial statement analysis, macroeconomic theories, and so forth.
Anyway, the best example of what I am saying is Bill Gross. Many in the investment world hold Bill Gross to be, perhaps, the best bond investor of the last 30 years. I don't have such high regard of him but I'm not in the consensus. In any case, I came across the following situation from his latest commentary:
Perhaps remarkably, during the week surrounding the Lehman crisis in September of 2008, yours truly frantically called my wife Sue to empty our two local bank accounts into apparently safer Treasury bills.
Imagine if every American had done what Bill Gross did in September of 2008. Every bank in America would have collapsed. Thankfully, the population isn't as panicky as him.
I'm assuming that, given how he is a billionaire (Forbes pegged his net worth at $1.3 billion in 2007), he is way over the $100,000 (at that time) FDIC limit. So it makes sense to liquidate all your cash above $100k.
But the bigger point, though, is, what was he doing with so much money sitting in a bank account? We don't know how much money he had in the bank accounts but given his panicky withdrawls, I am assuming it is a lot of his liquid cash. That, in my eyes, is horrible management of one's personal wealth. It just goes to show how a billionaire, who apparently is a good investor, can be caught off-guard by misallocating his savings.
Since most people who read this blog are investors, I think all of you, including me, should pay more attention to our personal financial matters. A lot of spend an inordinate amount of time on the investing side but I suspect most of us overlook personal finance and are making mistakes.
I don't think you understand Bill Gross much. He is not poor at managing his finances. He practices what he speaks in real life. He runs a firm that only manages debt. There is a reason they have no equity-based product offerings. That is not what the "edge" of his firm is at. Knowing that he has no "edge" in this area, he does with his personal money what he knows to do the best - put it in liquid cash and debt.
ReplyDeleteHow many billionaires do you think leave cash sitting in their bank account and then panic? I'll bet nearly all the wealthy people have personal lawyers, accountants, financial advisors, etc, to handle these matters if they themselves cannot do it.
ReplyDeleteI am sure when he said he panic it probably was making an overstatement. Being a billionaire, he has a very small percentage of his net worth sitting on his savings/checking account. But, I know from reading his book, that he does not invest in equity markets
ReplyDeleteWhat ever happened to Geoff Gannon? He seemed to have a great podcast and fell off the face of the earth again. His website is dead and he doesn't seem to post anymore.
ReplyDeleteListening to his podcast finally helped me determine my investing style and it has paid off handsomely.
K
Yeah... I wonder myself... I hope he is ok... Maybe I'll e-mail him and see how he is doing.
ReplyDeleteYeah, if you find out anything I would love to know if he is all right. The last thing I heard from him in February was that he was having technical difficulties, but planning to return to podcasting. He never did and he hasn't posted anything since February either.
ReplyDeleteAlthough, it looks like you have heard from him since then? So I guess he is laying low?