Investment Lessons From Harry Houdini

Fred Joseph - Fraud IssuesIn 1926, Harry Houdini proposed a law before a committee of the House of Representatives to make illegal such fortune-telling hustles as palmistry, tea-leaf reading, phrenology, astrology, crystal gazing and other delusional pastimes.  When a Congressman prodded him for his opinion on astrology, popular then as now, Houdini left no doubt, “I do not believe in astrology.  They cannot tell from a chunk of mud mil­lions of miles away what is going to happen to me.”  His proposed law was rejected.  Houdini was especially concerned about occult flimflam.  He published his adventures in the ghost trade in a book.  One of his stories was about a spirit who advised wealthy clients to invest in a fly-by-night stock.  (Source: Escape!  The Story of the Great Houdini by Sid Fleischman).

Today we see investment strategies based upon astrology, gravity, the winner of the Super Bowl, the October Effect, the Chinese Numerology Theory, and many others.

Personally, I would not rely on any of the foregoing investment strat­egies.  However, when you invest, you are trying to increase your income and build the value of your assets.  In their book Investing Es­sentials, Ken and Virginia Morris say that selecting the investments that are right for you depends on your financial goals and time frame.  You are seeking a balance of three things: liquidity, safety, and return.

Liquidity – How accessible is your money?  If your investment money must be available to cover financial emergencies, you’ll be concerned about liquidity, or how easily it can be converted to cash.  Money mar­ket funds are liquid, as are investments with short maturity dates such as bank certificates of deposit and 13-week Treasury Bills.  But if you are investing for longer-term goals, liquidity is not a key issue.  What’s more important is increasing the value of your portfolio so that it can provide future income and perhaps assets to leave to family, friends, or charities.

Safety – What’s the risk involved?  Investing means taking risks.  To many people, the biggest risk is losing money, so they look for invest­ments that they consider safe.  Usually that means putting money into bank accounts and U.S. Treasury’s.

Return – What can you expect back on your investment?  Safe invest­ments often promise a specific, though limited, return.  Those that involve more risk offer the opportunity to make – or lose – more money.

Safety, liquidity and return are key components to any investment strategy and decision-making.  My advice, similar to Houdini’s, is to be wary of dubious investment strategies and stock forecasts. However, if you think that you would like to still embark in that direction, you can borrow my Financial Advisor Magic 8 Ball.  It sits on my office book shelf.  All you have to do is shake it and it gives answers to all of your financial needs.

Fred Joseph can be contacted at fred.joseph@state.co.us or at 303-894-2320.

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