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Reminding you of these foolish things. The Times April 01, 2006. TODAY, as you
may ...
Reminding you of these foolish things The Times April 01, 2006
TODAY, as you may now know because you fell for some enormously entertaining prank, is All Fool’s Day. What you may not know is why we celebrate idiocy on April 1. According to most versions of the story it was the Gregorian calendar changes of 1582 that led to today being the day for dunces. In 1582 the world “lost” one week. But some Elizabethans refused to accept the calendar recalibration and continued to celebrate Lady Day (March 25) on April 1. My historical sources suggest that there some people who obstinately refused to accept that March 25 had become April 1. Others, it is said, simply forgot. Today’s financial markets are full of fools, and foolery. Some of the nonsense comes about because people obstinately refuse to accept common sense truths. The rest comes about because of ignorance. If we are honest, we will all be unluckily associated with at least one of the thirteen travesties here mentioned. 1
FOOLS embrace debt with open arms. There is a place for debt. By borrowing money you can make more of limited financial means. But the acid test comes when you set the cost of servicing and repaying debts against the benefits of instant gratification. It is reasonable to buy a house with a mortgage because history suggests that the value of the property will rise further and faster than the cost of the loan taken out to make the purchase. But it is foolish to buy a television with a credit card because the value of the telly depreciates from quite a lot to not very much in little more than the blink of an eye. The debt obligation, however, moves firmly in the opposite direction, upwards. The foolishness of unprincipled borrowing applies equally to companies and governments as to individuals.
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FOOLS fail to understand that the mechanism of the stock market allows individuals to hold the means of production, distribution and exchange in common ownership. Many do this through pension plans. The mechanism may be full of flaws and faults but these reflect poorly on those that staff the system, not the system itself.
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FOOLS think that pensions are a liability, not an asset. As well as being one of the building blocks of national economic stability, they have the capacity to deliver incentives for hard and loyal employment.
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FOOLS think it is bad to pay tax. It is very good to pay tax because it is the surest sign that you are financially successful. What is bad about tax is the collecting of it. That should be kept to a minimum.
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FOOLS fail to see that trade freedom bring gains for everyone while protectionism is impoverishing. Protectionism may insulate some people from the unpleasant challenges of reality. But the cost to the wider community is waste.
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FOOLS behave as if financial accounts represent a record of truth and should be treated with respect of biblical proportions. Financial accounts present readers with only a version of the truth. Examine, say, the profits and loss account, the balance sheet and the cashflow statement and you will enjoy three different views of one good version of corporate history. But the numbers tell nobody everything. By the same token, fools also behave as if accounts are impenetrably complex, which with the exception of those prepared for insurance companies, they are not. There is good information in properly prepared accounts.
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FOOLS do not think for themselves. Fools do not accept responsibility for their own action. Fools believe everything that financial advisers tell them. They obstinately refuse to accept the truth that there is no such thing a free lunch. Or perhaps they forget. Fools rely on the Government or one of its regulatory agencies for protection. Official bodies have important responsibilities. It would be moronic to contend that the state authorities are entirely useless at everything they do. But individuals are their own best watchdogs.
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FOOLS are motivated by money and money alone. The same fools also think that everyone else is motivated by nothing but filthy lucre. Cash rewards for work completed form a central part of why people agree to undertake any task. But excellent work is done because people take pride, and actively want to do whatever it is that is asked of them.
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FOOLS think that not-for-profit entities, such as Network Rail and other new Laboursponsored enterprises, are soundly founded. Profit is not evil. Profit provides the means through which life- enhancing endeavours become self-sustaining.
10 FOOLS are impatient. Fools fail to see that good things come to those that wait. The best investments grow in value steadily and slowly. The best companies are those that seek to generate top and bottom-line growth over decades. Foolish FTSE chief executives are those who believe they must make or break an enterprise in the half dozen or so years they hold the top post. 11 FOOLS suspect and misunderstand the merits of private enterprise. If they appreciated that ownership builds feeling of responsibility, and helps the efficient delivery of goods and services, they may change their tune. Most foolish of all are complaints that the outsourcing of, say, an element of health service provision amounts to privatisation. Well-constructed outsourcing contracts give state authorities greater control over standards and delivery. 12 FOOLS think that investment is about maximising rewards. Wrong. Gambling is the activity than seeks to maximise rewards. Investment is about minimising risk. This is not to say that sound investment policies avoid riskier assets such as shares. Diversified equity investment, for example, serves to neutralise the risk posed by inflation. Reckless conservatism is very foolish. 13 FOOLS assume. There is nothing more dangerous than adopting silly assumptions. It is particularly dangerous because it is also incredibly easy. Wherever possible, one ought to nail down factual answers to sensible questions. That said, it is sometimes necessary to make an assumption about what might happen in the future in order to arrive at sensible financial or investment decisions now. Those who skimp on the research required to arrive at sensible assumptions, and those who go on to use those assumptions as if they were hard facts, really should think again
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