victoriayhul: personal finance

Photo: Mike Fillion

Many thinkers and motivators throughout history have advised us to “choose our battles.” From Sun Tzu to Dale Carnegie and even Dr. Phil, we are urged not to “sweat the small stuff” and, instead, to channel our energies into things of higher priority. Heeding these words makes sense, given that we have but 24 hours a day and only so much energy to work with.

Just as it is with time and energy, money is a limited resource that we need to manage with care. We just don’t have enough of this resource to go around, in order to address all of our needs, wants and whims! Each significant financial choice we make often means making a sacrifice and careful deliberation. It’s therefore often the case that we ask ourselves “is making this purchase worth it?” How do value a purchase before you go ahead and make it?

This week’s personal finance blogger roundup is all about how we make choices and how we determine whether the things we pay for are worth the money. Then again, there are no right and wrong answers here, because each consumer’s situation is different. What’s important is that we are all able to arrive at our own personal decisions through careful evaluation.

Have you been presented an upsell as you’re faced with a major appliance or electronic purchase? Before falling for it, ask the question: Are Extended Warranties Worth The Money? Explore this extra cost in this article by 50 Plus Finance.

Out Of Your Rut’s New Or Used? Cheap New Cars – Are They Worth the Money? takes a look at Yahoo’s discussion on cheap cars. This post goes through various points that need to be considered by the car buyer. For instance, would you go for a brand new but cheaper car — or a used but pricier car? Weigh all the criteria to arrive at the decision that you’re most comfortable with.

Recently, hybrid cars have been all the rage. Peek under their collective (and figurative) hood before you buy one, by reading WealthPilgrim‘s take on hybrids: 5 Big Disadvantages Of Buying A Hybrid. Just how economical and environmentally friendly are they really?

Let’s move on to international trade and currencies. MoneyVille discusses a credit card and currency issue for Canadians: Is A U.S.-Dollar Credit Card Worth It? Foreigners may wonder whether applying for an American credit card can make sense. If you are Canadian and are considering the possibility of picking up a US Dollar credit card for yourself or for business, then MoneyVille’s article discusses the pros and cons of this decision in-depth.

It’s a good idea to diversify into foreign assets. But one thing that you may not hear about often are certain schemes that are marketed to expatriates. Creveling & Creveling discusses the thorny issues behind offshore investing in the article Five Things to Consider Before Buying Offshore Investment Schemes. It’s an interesting read, and offers us a “buyer beware” warning. While it’s good for our portfolios to have foreign exposure, always be aware of the risks found in different types of schemes, particularly those that involve unconventional investments.

Let’s move on to domestic matters. Some people may find that outsourcing certain jobs is a worthwhile tradeoff between the time they save and the money they spend on these arrangements. DIY or Hiring a Professional: Factors to Consider by Squirrelers.com can give us some points to consider. Which stance will you take for the tasks you need to do — hire someone or do it yourself? Which activities should you delegate to someone else?

Is a TV set worth keeping as a living room accessory? A lot of us are certified couch potatoes, and will say that our indoor entertainment offers us a pretty good value. However, Million Dollar Journey disagrees about this in his post about Living Without A TV. Where do you stand?

A life isn’t well lived if you’re only thinking about saving money and penny pinching. If you work hard, you deserve to treat yourself to an occasional break. If you’re not a traveler, then you may want to Try A Staycation, which is also a budget-friendly way to enjoy a break. This article by The Savvy Life may help you find a creative, frugal way to unwind and de-stress.

Throughout our lives, we expect to face a lot of financial decisions, both large and small. Ultimately, living well involves maintaining the right kind of balance in our lives. The decisions we make should be based on our understanding of the tradeoffs between our time, money and other resources. Any mistakes we end up making in the face of these decisions should be taken as the price we pay for a lesson learned.

Silicon Valley Blogger (SVB) runs The Digerati Life and The Smarter Wallet, where she writes about general personal finance topics such as investing, budgeting, debt management and small business ideas.

The media is abuzz with the news that the former head of McKinsey consulting, Goldman Sachs director and current board member of Proctor & Gamble Rajat Gupta has been charged with insider trading by the Securities and Exchange Commission. He is now the highest-profile individual to be implicated in the widespread investigation driven by U.S. Attorney Preet Bharara that has already ensnared dozens of lower-level traders and Raj Rajaratnam, former head of hedge fund Galleon.

The spin has been predictably excoriating, describing Gupta as yet another Wall Street/business titan warped by greed and hubris who is now witnessing his fall. Though he has not been convicted of anything, he has already been found guilty in the press, and it's safe to say that if the day comes when charges are dropped or he is exonerated, that news will not be on the front page of any paper or grace the home page of any web site. Such is the court of public opinion, which has little sympathy for the masters of finance who so recently contributed to a near-meltdown of the very system that made them so rich.

I have no opinion about the guilt or lack thereof of Gupta or Rajaratnam. Like almost everyone save for a handful involved, I don't know what happened and likely never will. But the nature of this investigation should raise the eyebrows even of those who believe that there is something rotten at the heart of American business.

In essence, this investigation and its prosecutions raise the question of whether we are criminalizing behavior simply because it is deemed immoral and allowing prosecutors too much latitude to pry into personal relationships. Both the left and the right are wary of the potential abuses of government investigatory power, and the United States has nurtured a long and powerful tradition of wariness of the claims of officials to be on the side of the angels in pursuing wrong-doing.

Until 2000, when Regulation FD ("fair disclosure") was created by the SEC to curb the trading abuses of the internet bubble of the 1990s where large institutional investors were seen as having an unfair advantage and access to information compared to the masses who bought and sold shares on-line. Reg FD holds that no employee of a publicly traded company could disclose material non-public information on a selective basis. Give it to one person and you had to give to all people, in order to level the investing playing field.

Fair enough in theory, but much stickier in practice. There's a bright line between someone at Intel sharing what the company's sales are to a friend who trades stocks and having a general conversation about how business is going, but a much fuzzier line between having a general conversation over drinks and complaining that senior management doesn't appreciate some new business trend.

There have been many cases of prosecution of individuals who have crossed the bright line, but ensnaring big fish is often harder, so prosecutors become more creative. In the case of Gupta, he made calls to Rajaratnam just after several important meetings of the Goldman Sachs board, and Galleon then made trades of Goldman stock (or options) just after those calls. So it's hard to deny the appearance that information was exchanged.

But just what information? What if Gupta simply said "It went well." Or "it didn't." That might have been sufficient information to trade on, and it certainly was information that the general public didn't have. But is that insider trading according to the definition? Is it disclosure of material non-public information? Are all forms of communication between insiders and outsiders to be criminalized? And if such communication creates some advantages, are advantages born of personal relationships "unfair" to the point where there should be legal action?

In part, all of this is the fallout of a culture looking for villains for the financial crisis. As Charles Ferguson, director of the documentary Inside Job said in accepting his Academy Award, no financial executive has gone to jail for their role in the financial meltdown, and in his view, that is wrong. But is it? Generals routinely mess up during war, either from incompetence, vanity, arrogance or simply the unexpected. They are recalled and sacked, we hope, but unless it can be shown that they willfully and purposely screwed up, they are in our society rarely see a court-martial. Financial executives were culpable in myriad decisions that led to the financial crisis, but that in itself does not translate into prosecution and jail time.

Finally, prosecutors have extraordinary powers in our society, and it is difficult for them to resist the temptation to use the law to enforce public mores. At any given time, some law on the books can be used to police a wide range of behavior. That's great if you agree with the morality that they are enforcing (no abortions, for instance, or no emissions by chemical companies). But it's not so great when that morality is at odds with yours (no abortions, for instance, or no emissions by chemical companies). We live in a system where trials are supposed to afford the accused a chance to clear their name or face penalty, but in a world where reputations are hard to build and easy to lose, prosecutors have undeniable advantages. It is up to them to use that power judiciously.

I have managed money and still do. Stocks today move for all sorts of reasons, are traded globally and electronically often by programs rather than people, and often based on factors having nothing to do with the company per se. Rarely is one data point sufficient. As a result, insider information is neither worth the risk of obtaining it nor usually worth much even if you do. What is perhaps most striking about this case from that perspective is that Galleon is alleged to have made a grand total of $17 million in profit from this inside information. That is a lot of money in the real world, but for Galleon's bottom line, it hardly rates, and certainly would be worth nowhere near the risk of obtaining it by violating Reg FD.

If the charges are true as alleged, then these individuals destroyed careers and their future not for untold riches but for minimal advantage relative to others who did not flirt with the rules. The narrative may say greed, but in truth, the gain wasn't enough for the risk. Galleon reaped hundreds of millions annually by legitimate means, and Gupta supposedly reaped nothing for his insider troubles. We like the simple narratives, but human motives, those are often far more complicated.

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Saturday, March 5, 2011

personal finance

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