The stories creating the most fun and mischief are the ones about the captain’s behaviour. The recording of his conversation with the coast guard was the first staggering news, than he fell into the life boat and from what I understand he now says he was told to sail close to the shore to promote the company.

On a completely different note, I was talking to a friend who is the captain on an international airline. Having previously had a private pilots licence, I have a particular interest in flying and always enjoy my chats with him.

On this occasion he was telling me how on his last trip to New York, an aircraft from a fairly minor african airline had taxied onto one of the active runways whilst another aircraft was commencing take off. My response was fairly clichéd in that I immediately thought how unprofessional some of these airlines are.

To my surprise he told me that the air traffic controllers in the US often speak very fast and use jargon. On one occasion he was actually with a very experienced training captain when the air traffic controller gave an instruction speaking very fast and using jargon to the extent that the training captain didn’t understand what he was saying. His response of “negative, say again” was met by a repeated wrapped full of jargon instruction. “Negative, say again” was then met with “for the last time, (and the same instruction again)”.

This is where it got interesting. The training captain said “I will repeat ‘say again’, until I understand your instruction”. The air traffic controller than spoke more slowly and the communication was achieved.

If you were traveling somewhere, which type of captain would you like? Both are qualified, experienced, and under normal situations, quite capable. How would you really know who you have?

It’s no different when it comes to any adviser especially those whose advice and leadership could be “life threatening”. Is the adviser you use strong enough and confident enough to stand up to you if they believe it is necessary? Have you scoped out the exact role you want him or her to play, the profile in terms of personality, experience, qualifications and knowledge that you expect them to have? Are you skimping on fees forcing your adviser to cut corners?

It may be worth doing a detailed profiling and role description exercise and having an in depth discussion with adviser on some of these issues.

SentinelWealth has developed AdviserMatchTM as a tool designed to assist clients to develop detailed profiles and role descriptions, to be used for the selection of financial advisers. For further information, please contact Melissa Oliver on (02) 8908 5300.

We all know how badly they have been beaten in the test series against Australia. And as the old cliché goes, there is no shame in being beaten. The shame however is in the way the Indian team has played and in particular the way the senior players have played.

It was in this light that I noticed something that really struck me in the fourth test. Sachin Tendulkar, the idol of Indian cricket, the man who is beyond criticism, the Nelson Mandela of the cricket world, demonstrated what to me symbolised the state of the Indian cricket team.

There he was batting with one of the younger players, Gautem Gambhir, and with Peter Siddle bowling particularly well, Tendulkar played a wonderful leg glance along the ground to square leg. It was very well hit and looked like four off the bat. The Australian team (only 550 odd runs ahead!) chased it down and only a wonderful dive by Ed Cowan (I think) saved a certain four. The batsman ran two! I was surprised… it looked a certain three.

As the television replays focussed on the dive, I noticed in the background the incredibly sloppy running by the batsmen. Tendulkar hardly made an effort in the first run, let alone the second and they eventually ambled through for a very comfortable two. Any cricket lover would know that the batsman should run hard between the wickets, especially the first run. But here was the world greatest batsman demonstrating to one of the upcoming stars and the rest of the team, that he had forgotten the basics. In cricket like any other sport, when the results are not going your way, you at least do the basics well. These are the things within your control.

It is no wonder that the Indian team has played the way it has on this tour. I am the first to accept that they have caught the Australian team on the rise. The Australian quick bowlers have bowled unbelievably. Much has gone the Aussie’s way and it is completely understandable for the Indian team to feel overwhelmed and out of control. But it is exactly in these conditions that the basics must be done well. Control the controllables.

So what if anything has this to do with finance?

Well at the moment there seems to be a lot of uncertainty and panic about the European crisis. The press is full of the ‘imminent’ collapse of Europe and a number of people are panicking and moving their assets to cash. Battening down the hatches for the coming disaster. At the same time however most often these same people haven’t done their basics very well.

They worry about not having enough cash flow in the future, but continue to waste cash flow now. The only way to control cash flow now is to at least track it in some detail. Know where you are spending your money and what you are paying for everything. Do you have your estate planning sorted out? Another controllable. Will your dependents have sufficient financial resources in the event of your death or disability? Another controllable. Is your debt under control? What rates and costs are you paying for your debt and banking? Another controllable. Are all your important documents copied and indexed? Are the copies stored outside your home? Do you know how much is enough for you to live the life you wish to live? Have you worked out what your required return is so that you don’t take more risk than you absolutely need to take?

All these issues are controllables and many people are focussing on the uncontrollables and making rash decisions. As a minimum it would be important to do a full scan of your entire wealth management so that you clearly understand where you are and what you can easily change. Control the controllables and don’t worry about the uncontrollables. 90% of things that people worry about never happen.

SentinelWealth has built a specific tool to scan a family’s entire wealth management, scoring every element and identifying possible implications and areas of concern. For more information on WealthScanTM please contact Melissa Oliver on (02) 8908 5300.

Only five days later an article in the Financial Review commented that the week had been “the best week on the share market in 3 years”. The market had risen by 5.2%.

Nobody knows what the share markets are going to do at any particular time. There is even research to show that share markets are not directly related to economic criteria, as logical as that would be.

The current extreme volatility plays havoc with investor emotions. For those who are still accumulating assets the question is whether to simply phase in regardless of price, stay out completely or try to time purchases to maximise returns. For those closer to retirement but with an expected investment life of at least 20 years, it’s even more of an emotional roller-coaster.

Why is it such an emotional roller-coaster and how can it be avoided? This is really the big issue.

Investor emotions arise from ‘fear’ and ‘greed’. Fear of not having enough, of running out, of losing status. Greed is the symptom, not the cause. (More of that in another blog).
How to avoid fear?

Identify the risks, come up with a plan to mitigate those risks as much as possible and have a fall-back position in case all else fails. Then evaluate the possible scenarios and test the approach adopted against each to ensure that no matter what happens there’ll be enough. Then write it all down into an Investment Policy Statement. It’s actually quite simple.

To find out more about drafting an Investment Policy Statement please contact Melissa Oliver at SentinelWealth on (02) 8908 5300 or info@sentinelwealth.com.au.

Murdoch’s defence was that in such a big organisation as New International, it is unrealistic to expect the person at the top to know everything that is going on.

The interesting issue for me was that apparently News International was “outperforming” its competitors in the “scoops” it was getting. (We now know the sources of the “scoops” but that is not my point). The point here is that News International was outperforming its competitors by significant margins and apparently nobody (not even the CEO) was asking how.

Bernie Madoff, during the height of his apparent outperformance also had very few questions asked of him. Even highly reputable, highly astute and highly experienced investors were content to accept the apparent truth that Bernie was just superior.

The lesson for all investors is that where one investment or manager is significantly outperforming the benchmark or peer group, surely just as many questions need to be asked. Understanding the “why” is always more important than simply knowing the “what”. Temporary underperformance is acceptable if there’s a good reason. The old adage “if something is too good to be true, it probably is” is apparently not that easy to apply for the beneficiaries of superior performance.

Justin Hooper
Managing Director & Financial Strategist

From what we have been told he was a dangerous and violent dictator who had no human decency and a total self-interest.

From what I have seen in the news media this morning, the west is gleefully welcoming not only the fact that he his no longer a danger but also the way in which he was killed. “He was dragged from a drainpipe, killed and then his body paraded through the streets” is the sort of comment widely used on television channels this morning.

I understand how the locals in Libya would be swept up in the hatred for him especially if they had had personal experiences, but we in the west have had no such experiences and should be in a better position to be objective and apply (or at least comment on) the rule of law. I have not heard one person say “he should have been captured and put on trial to face his crimes and spend the rest of his life contemplating the errors of his ways”.

We all accept the need for discipline and structure, but when emotions are running high it’s usually the first casualty.

There are at least three lessons for investors from the overnight events:

1. The need for a rule book – there is a mountain of evidence documenting “the madness of crowds” and in hindsight, the costs are always the result of non-compliance with established structures. Get yourself an investment policy or investment rule book – it will at least give you an objective set of principles and rules to apply when the emotions start running hot.
2. When groups of human beings are emotionally charged (otherwise known as mobs), it never ends well for anyone. “Herd mentality” is common amongst investors. Have a look at the capital flows in and out of the markets and you will see that the “mobs” always do the wrong thing. When the “mob” is excited and positively charged (i.e. the market has done well), they flood it with cash. When the “mob” is negative, they run for cover. Exactly the opposite of what sensible investors do.
3. The need for an independent sounding board – being caught up in the emotion is being human. It’s unavoidable. Making mistakes during a time of high emotions is avoidable and having someone who is free of any conflict or interest to act as a sounding board will usually help to not only stick to the rulebook, but also avoid unnecessary mistakes.

To get an article on how to set your own investment ‘rule’ book, contact Melissa on (02) 8908 5300 or email her at info@sentinelwealth.com.au.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth

As opposed to their normal style of play, the All Blacks have gone about accumulating points at every opportunity in each game they play. (The Springboks with all their so called ‘experience’ clearly forgot this basic point).

What has this to do with investing?

Most people seem to forget that the ultimate purpose of investing is to replace the human capital (ability to generate an income) with financial capital at some future date.

Instead of only taking the risk needed to achieve this objective, many investors put the whole principle at risk. They try to play ‘exciting, attractive rugby’ with their investments. Outguessing the markets, excessive gearing strategies and tax driven schemes have often been the order of the day. Why take any more risk than is necessary to achieve the return required to deliver the financial capital to sustain the desired lifestyle. Once that has been achieved (usually 20 times the desired annual after tax income) then, and only then should more interesting/ fancy strategies be contemplated.

The All Blacks will almost certainly win the World Cup. Much of it will be as a result of the lessons they learned from past mistakes and how they captured those lessons into a changed strategy.
What lessons have you learned from the GFC and have you written them down into an Investment Policy so that you will apply them now and forever.

Contact SentinelWealth to assist you to draft an Investment Policy Statement.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth

In a report in the US published by the General Accountability Office (GAO) in March 2011 entitled ‘Opportunities to reduce potential duplication in government programs, save tax dollars and enhance revenue’ found for example that:

• The US department of Agriculture and Food and Drug Administration are responsible for food safety – but so are 15 different agencies.
• 31 Entities within the department of defense are charged with responding to war fighter urgent needs.
• 18 programs across the government are devoted to economic development.
• 10 agencies across the government and 82 programs deal with teacher effectiveness.

A very interesting finding was that the GAO generates $80 of savings for the government for every $1 it spends. That’s a pretty remarkable return for dollars spent.
Before we criticize the US Government’s inefficiency too much, at least they’re doing the exercise. They are going to have no choice other than to become a lot more efficient with their expenditure and that will probably result in a more optimal outcome.

It makes me think about the efficiency and wastage at a domestic level in Australia. For example, right now there appears to be no shortage of water. However, we know that Australia has historically been a dry continent and is likely to be even more so in the future. But in the short term, who cares – right? Who even knows the price of water? So for a scarce resource, how is it that we don’t know the price? We all know the price of petrol and milk but not water? You can survive without petrol and milk, but not without water!

So it would be a very good time to take a long hard look at our own domestic level of efficiency. With respect to our financial situation, here are some ideas of where to start:

• How much insurance is really required and do you have the optimal amount? Are you paying the optimal premium and in the most appropriate structure?
• What costs are you paying on you superannuation and investment funds?
• What return are you getting for the risk you are taking?
• What banking and debt charges are being levied and are there alternatives?

It’s not a difficult exercise but may take some time. Start with determining what is most important to you. Knowing this will be a very good filter.

Next track your cash flow as it occurs. An awareness of where your dollars are going will be 90% of the solution. If you knew that you were paying $2,000 per year more on your mortgage insurance or superannuation than you needed to, or that you are spending much more than you thought on clothes, coffees or whatever, surely that would influence your behaviour. At least you would be able to make a conscious choice.

If this makes sense to you and you would like to do a full audit on your finances, contact Melissa Oliver at SentinelWealth and ask for a WealthWatch audit. To have your cash flow tracked for a year, ask for “Cash Tracker”.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth

Flowers and tributes being left at Apple stores all over the world is pretty remarkable. He made a fortune both personally and for his shareholders (I see Apple just made it to be the largest company in the world).

In the context of the protests brewing around the financial industry and in particular the ethics or lack thereof of its participants, it makes the Steve Jobs legacy even more pertinent.

It seems to me, and I’m no expert, that Steve Jobs was driven by the search for quality and innovation to make life easier and to have something he would be proud of. Of course he wanted to be successful along the way but his major drivers seem to be much more than money.

It got me to thinking about the legacy he will leave, and then to the one I may leave (hopefully I still have a while to create one). I doubt that I or many of us for that matter will be as well-known or as successful as Steve Jobs. But that’s not really the point. The point is the “legacy” we leave amongst those who do know us. I hope mine will be something like:

• “He was the best father I could have hoped for”
• “He was a soul mate, exciting and definitely worth spending most of my life with (ok at times he wasn’t the easiest guy in the world)”
• “He cared deeply about his clients and the people he worked with and built a business that added value to the community”

These are the legacies that drive my behaviour and to the extent that money is important, this is why.

What’s your legacy going to be amongst the people who know you and how are you arranging your work and financial life to support it?

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth

We know that there are unprecedented amounts of cash being held by both the corporate world and individuals. It has to be invested at some time and in all likelihood it’s waiting for the right opportunities. We know that the Australian market is at levels significantly (around 40%) below its peak. We know that capitalism will survive. Not necessarily in its current form but there will definitely be some form of additional return for people who take additional risk. As we look at those ready to invest their cash, we know they are doing it because they expect to get a significant premium over the cash return. It’s capitalism at its best.

We know human optimism is fundamental to psychological health and history suggests that even in times far worse than today, human beings are optimists (admittedly there are usually initial periods of confusion).

We also know that the world has become a village. We are all so closely interrelated that the lenders have as much to lose as the borrowers and have as much of an incentive to find a plan to solve the debt problem. As opposed to the great depression where each country withdrew from the rest and tried to focus on themselves, this time everyone is working together to solve the problem. I bet the last thing the Germans would want to do is help the Greeks – but they have no choice.

Another thing we know is that the best time to be buying assets is from those who desperately need liquidity and there’s nothing better for someone who is looking to buy quality assets than someone who is panicking.

So if we put together what we know, capitalism, human optimism, lots of cash and the world working together, it seems that it’s a matter of time until a plan is developed and the slow, long process of resolving the implications from a period of excess will be agreed. As soon as this happens, it’s likely that the markets will not only settle but begin an upward trend.

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth

In the first case the initial shock has quickly subsided and replaced with outrage that anyone would dare to put animal rights ahead of the rights of the industry. I was under the impression that the industry was equally outraged. Not when it comes to money it appears.

In the second case, it seems clear that again money was the driver. Get the story to sell the newspapers no matter what.

In both these cases it reminds me of what Viktor Frankl said “when human beings don’t have meaning in their lives, they revert to power and pleasure”.

And money of course is the fuel of power and pleasure.

I would love to ask the people who drive these decisions what their ultimate purpose is. Once they get the money, what then?

Justin Hooper
Managing Director & Financial Strategist
SentinelWealth