Tuesday, April 20, 2010

beware of the bogeyman-again

Over the past couple of weeks, I have squeezed in some time for two important tasks. In preparatory fashion, I have cleaned out and organized my golf bag to ready myself for a new season of play. In proactive fashion, I have reallocated funds and changed future contributions within the retirement plans for myself and my wife, as we attempt to keep vigilant, focused and intent on making up ground from the financial horror of 2008.

Doing this has reminded me of a post I originally presented October 31, 2008. In the post I offer a comparative view of how a few poorly scored holes during a round of golf and a few poorly returned annual retirement statements can mean disaster.

And, in light of the extensive news coverage this week, regarding accusations of possible investment fraud at the illustrious Wall Street firm, Goldman Sachs, perhaps some of you may also be thinking about the persistent need to monitor our potential perils.

So, here is the re-run from October 31, 2008.

Besides running, one of my favorite activities is golf. I do not play as often as I desire. I play just frequently enough to maintain the status quo. That is to say, as reflected by my scorecard, I get no better or worse from round to round. Two things are consistent with my rounds of play: I usually score in the low 90's and I usually par 4 or 5 holes. But once in a while, to my bitter consternation, I am forced to pencil in a total in the low 100's back at the clubhouse. How does this happen?

There are a few ways to dissect the missteps. I could site poor course management, wrong club selection, an unbalanced stance, wayward putts and bad tee shots. But the basic reality, more often than not, comes down to having had two bad holes verse four good holes. The rest of the holes can be bogey, double bogey or may I say average for those of you less familiar with the game of golf. Lets say, for example, on my typical day there are 4 holes on which I score pars of 4 each. The total for these 4 holes is 16. If the remaining 14 holes are split between bogey and double bogey I will score 77 on the remaining holes. That makes the round of 4 par holes equaling 16, plus the 14 average holes equaling 77 add up to a total of 93.

The math of the bad round is similar, but with different results. If I have 2 disaster holes of 8 each, that will equal 16. If the balance of 16 holes are average (split again between bogey and double bogey) they will equal 88. That would make this unpleasant outing of 2 holes equaling 16, plus 16 holes equaling 88 add up to a total of 104--yikes!

Bluntly, a couple of bad holes can have a profound effect on the final tally. Rarely occurring, but known to happen, a one hole meltdown can have a powerful effect on a final score as well. Business conventions held at lavish resorts are a good place to witness this malady. I have seen this kind of blow up several times in this past couple of decades. Players at these events tend to be inebriated, unfocused and are often up against a very difficult course with which they are unfamiliar. The most common ingredients to spur this abomination include a par 5 hole on the back nine when fatigue sets in on the unfocused golfer. The hole may start with an errant out of bounds shot from the tee box, then overcompensation of a swing to plunk a ball in the water, a flub(a poorly hit ball that goes nowhere), a swing and a miss, balls getting buried in the lip of a sand trap, more angry miss hits, shank a wedge (a home run when you wanted to bunt), four putts and penalty strokes. All this can harden into a 16 on the scorecard for just one par 5 hole.

What does a 16 on a single hole do to a scorecard? Well, if the rest of the 17 holes are split between 1 and 2 over par they will equal 94. The math then becomes 16 on one hole plus 94 on 17 holes adding up to a total of 110. I call that--double yikes!!

Why do I shine a light on these golf escapades knowing that many of you reading this post may have little in common with these experiences? The answer is because many of you reading this post may be planning for retirement with the help of 401K's, or other market related investments. And I fear that for many people this one investment year of 2008 will be like a 16 on a par 5 hole.

In the past few weeks, people I know and some I barely know have been telling me of their woes of financial loss. I am not referring to wealthy (or now semi-wealthy) individuals who may have lost millions. I regularly hear from middle class people that tell me of their $200,000 dollar to $300,000 dollar losses. Some of theses losses are in retirement plans, some are self picked stocks and commodities and some are day trade accounts. Many pundits say that these are paper losses now and that over time the markets will recover. And for many people this may be true. But, for some investors, their money may be lost forever or at least very difficult to recapture.

Recently, while I was waiting for a business appointment, an anonymous gentleman that I never met before felt the need to share with me his story. He was in his 50's and lives in middle class suburbia. Perhaps because I draw people out or because he had so much to vent, he opened up his laptop to show me his trading account. He told me that he started about 2 years ago with $100,000 dollars. He reached his high of $197,000 dollars midway last year. He didn't stay on that point for more than an instant. He vigorously began to recall the stocks that he thought would be his salvation. Then he told me about his margin account, and about buying stocks on loaned money. As the market began to head south, instead of getting conservative, he saw buying opportunities. He took on more stocks and more margin and more risk. In the few weeks from late September to early October his picks began to plummet and the margin calls came fast. He directed me to the lower left corner of his screen. The balance read $3400 dollars. He kept telling me the same story, repeating items over and over. He could dissect the missteps, point out his mistakes, and acknowledge the occurrence. However, the surrealism of the incident prevented him from feeling anything. In a sort of therapeutic role, I just nodded and listened, as if to transmit that awareness is the first step toward recovery.

Maybe Tiger Woods would be able to come back from a 16 on a par 5 hole to have a respectable round. And maybe Warren Buffett would be able to resuscitate $3400 dollars back to $197,000 dollars in 5 or 10 years. For most of us though, it would seem to be an unlikely prospect. Still, we must try our best. The topography ahead will be rough. Stay sober and focused when handling your money. Choose investments carefully and apply good asset allocation management. Do not make important decisions in haste. When it is needed, ask for advice. And remember, average scores from this point may deliver a final retirement statement inked with the revelations of a double yikes.

If so, you may want to head straight for the clubhouse--others there will be waiting to listen.

© 2010 Christopher’s Views


  1. Lieber Christoph,

    Gern Wieder gelesen, Viel gelernt ..

    Herzlich, Rachel

  2. an interesting comparison but, come to think of it, it makes perfect sense...

  3. Hmmm. I'm not sure I agree with everything there, but it does make sense.

    come visit me.


  4. Wow...16 on a par 5 as an analogy for the financial calamity. Clever, and what a great title for the post!

  5. investing with borrowed money just sounds like gambling to me. though I have a feeling this poor guy didn't see it that way, still wondering how it all went wrong.

  6. Real inside baseball, er golf...

    Aloha from Waikiki

    Comfort Spiral

  7. I'm not really into golf at all.
    I used to live near a putting green when I was a child and my Mother used to give my brother & me money to get out of her way some afternoons and we would put around for ages on that green.

    Nuts in May

  8. Well-written and thoughtful as usual, Christopoher. I could relate, not to the golf, but the financial aspect (who couldn't??) and can say now that the advice you give in the last few paragraphs is what I'm now following.

    By the way, I hope you don't mind that I have tagged you in my post of today. http://temptationofwords.blogspot.com/2010/04/on-happiness.html

  9. http://itistimetothinkformyself.blogspot.com/2010/05/jingles-may-follower-award-week-2.html

    awards for u.
    Happy Tuesday!