Monday, December 8, 2008

The Demise of Truth: A Worthless Commodity?



Truth! There are times when it frightens me that just how rare this commodity truly is in this world. Even though the concept of Ethics, Integrity and Morality are lauded, praised and adorn the mission statements of corporations and governments alike, are they truly being practiced? In a world driven by money, greed and profits, do you think that Truth even permeates the world of corporations and governments?

Instead of analyzing this at a global level, let’s bring this concept down to the ground level. Let’s assume that I run a financial advisory firm. What would be the ideal approach to convince them to invest with me?

1. Liar’s Approach (Skim Cepat Kaya)
2. The Machiavellian Approach (Lies Intertwined with Truth)
3. The Truth (Are you Crazy???)

1. A Liar’s Approach
The Liar’s Approach is the simplest way to make money. Come in a flashy car all dressed up in designer clothes adorned with jewelry and accessories. Speak in pseudo mumble jumble and sell… ‘50% returns in two months. No risk, profits guaranteed. Don’t miss this once in a lifetime opportunity’. Of course, as more and more of your customers make handsome profits; more and more investors decide to invest without reading the fine print. Come to think about it, could this be what happened with the US Sub-prime Crisis?

2. The Machiavellian Approach
These days, people are becoming savvier. The majority of people can smell the liar’s approach a mile off. Some of them still get burned because they are blinded by greed. Most of them would walk away. Well, if that’s the case, the second approach would be to ‘massage’ the truth. Instead of a hard sell, you now have Chartered Financial Planners (CFPs) asking you for your hard earned money. They then start flashing you fancy charts, graphs and analyst reports. Since some of the investment vehicles they are asking you to invest is being offered by regulated financial institutions, the information presented is mostly true. However, I am sure it has been massaged to show fantastic returns, of course. Now, let me ask you: Does your CFP tell you how much commissions they are earning by selling you these products? Do they tell you the potential risk to your capital during times of recession? Do they tell you the fees charged by the financial institutions in managing the unit trusts?

3. The Truth
The Truth is plain and simple. No matter who runs the financial advisory firm, you can be ABSOLUTELY CERTAIN that no one can make profits all the time. Heck, if I were that good, why would I want you to invest with me? I’d borrow from the banks at a fixed interest rate of, say 10% per annum. Using that money, if I were able to generate returns in excess of 10% per annum, I would be filthy rich. Investing in stock markets these days are risky. Why? It’s because it’s a Big Boy’s game. They are privy to information that you and I do not have. They have the resources to move markets and share prices with a snap of a finger. So, if you invest with me, there are no guarantees of making a profit at all. There’s a very real risk of losing your capital. There’s a very real risk that I’m investing based on imperfect or false information. There’s a very real risk that the impending recession will wipe out the stock market and take decades to recover. I’m telling you now that the mantra of investing today is ‘High Risk, Low Gain’.

So, assuming that my competence and knowledge level remains the same, as a potential investor, which approach would you prefer to hear? Errr… do I hear a B? Truth be told, most Corporations don’t tell the Truth because it makes good business sense. Most consumers don’t want to be told the Truth because they just can’t be bothered with it. Telling the Truth will just drive your customers to your competitors.

What’s the morale of the story?
If something is too good to be true, it usually is. Educate yourself and remember ‘Trust but Verify’.

This series of posts labeled the ‘Age of Illusions’ are subjective, introspective in nature and based on my observations in life. My aim is merely to put to words the niggling sense of unease that all is not right with this world. It is an attempt to make sense of the NONsense that is this world.

7 comments:

Damien Tan

If one operates under the radar, all the operator and the client needs is a sweet promise of hope. Grab all you can while the feeding frenzy is high and get out of town at the first hint of trouble. I hear that's the standard operating procedure of most cons.

If you are legit, your freedom to tell a lie is curtailed by regulation but you can always paint a sweet story and then blame the client for "misunderstanding" your charts when they lose their life savings. You can also blame the fine print.

When clients are gripped by greed and desperation, truth gets in the way of hope. People know the odds of them winning the sweepstakes are 1 in 5 million but they still buy a ticket anyway. Reality never gets in the way of hope. (My theory is that a pauper with hope has more reason to live than a rich man without hope. That's how compelling hope is in our lives).

The reality is that in trading markets, there are heaps more retail players than analysts. So trading is more emotional than rational and markets are driven on sentiment than fair value. Even "rational" forecasting is based on faith, as any sales department can tell you. Trust and verify is a good guideline. The average uncle and auntie has to learn to wrap their heads around understanding fundamentals and not argue that that's what they pay their broker for, which is what I hear all the time.

On why a profitable venture would want you to invest with them, the professional ones will say upfront its to spread the risk around because its better to have 50% of something than 100% of nothing. The dodgy ones will tell you, "We want you to join us because we know you are struggling and we want to help you succeed." I can't believe how loads of people still fall for this ruse at this day and age.

Avatar

Dear Damien,

Very good points indeed.

As to the fine print and laws, tell me about it! These days, corporations and banks try to disclaim just about anything and everything under the sun whilst trying to place all sorts of onus and responsibilities on the consumer.

We don't need so many of these laws. What we need is more common sense and few more good people.

Sigh!

Keong

the "truth"? i have something to tell oso but really dunno how to confess?

Avatar

Dear Keong,

The fact that you've commented here probably means you feel uncomfortable about not being completely frank about something.

Just contemplate about it and see whether the best way forward is to be truthful about it. Although being truthful hardly seems to be best way forward, most of the times, it usually is.

Rgds

Damien Tan

I've learnt that the truth can get me into trouble, especially when it comes to my school grades. ^_^

Anyway this is off-topic. Akismet is blocking your comments again. Spam karma suggests at one time, your email addr. may've been associated with a server used by a spammer (probably some blogger) who was blacklisted by antispam organizations like Spamhaus. Once these associations get flagged, its very difficult to reverse without writing to them and going thru some really painful process. Trust me, its easier getting chewing gum out of your hair.

If I may offer an alternative, try using a different e-mail address for your comments and see if it makes it past Akismet.

Avatar

Dear Damien,

Thanks for the tip on Aksimet. My PC was infected with the Zlob Trojan about 2 weeks before I realized what was going on. This redirected my DNS to a spam address. Managed to disinfect it but the damage has been done to my email address.

Rgds

Internet marketing

First You got a great blog .I will be interested in more similar topics. i see you got really very useful topics.

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