I don’t normally write about things not related, directly or indirectly, to investing or business. This time, however, is one of the very few times I  need to write something that may not relate to investing at all.

This has to do with the very existence of this blog which, very recently,  had its worst nightmare: the threat of being defaced, mutilated or destroyed.

But before this story, a little backgrounder is in order.

From the time this blog rolled off the web more than 2 years ago, I never minded any word of precaution from blog pundits regarding the possibility of the site getting hacked.

“Who would bother to hack a harmless blog like this?” That’s what I thought. This, to state the obvious, is a site  not in any way related to the government, and nor is this a commercial site.

I do not sell anything in this blog. I even avoid mentioning specific names of companies in relation to any discussion about any investment principle or idea.

While there are a few “Google” and “Infolinks” ads, they serve more as space fillers, rather than any serious attempt at making money.

I have hardly even made substantial improvements in this blog despite many suggestions I encounter every now and then.

There is not even a Facebook link despite numerous suggestions from friends and readers.

I could not even maintain the originally planned weekly posting of articles since my hands are full with  many other things. Hence, I eventually settled at posting two articles a month.

This is an out-and-out advocacy blog on investment literacy.

And, as I replied to a query from a reader, this is also, just a hobby and, of course, a passion. Needless to say, it is extremely difficult to maintain writing for a sustained period of time, without any monetary reward, without being passionate about what you are doing.

This may sound corny or fanatical, but there is inner satisfaction in writing about thoughts that you feel strongly about, which you think will be helpful to a targeted audience, specifically to OFWs. And the thought that you are being regularly read by a couple of thousands of your targeted audience is a bonus.

And so with the seemingly harmless nature of this blog, I thought I am basically immune from hackers. I thought it is not worth neither the hackers time nor effort to mind something like this. They will not get anything from destroying this site.

Alas, I was terribly wrong.

On March 4, a shock of a lifetime came as this site was hacked by a group of hackers who identified themselves as some sort of “cyber-terrorists,” or something to that effect.

The site was simply gone, and replaced by  a few messages, all in bold and big letters, saying my site has been hacked by an underground group, and identifying who they were and what they stand for.

It was terrifying or nightmarish to say the least, seeing your site being commandeered by people with strange motives.

I tried to comfort myself with the thought that I was not really going to have some kind of monetary loss. Such a thought offered no comfort at all.

And so, I immediately contacted the webhost to do something about it,  repair whatever damage done and restore my site. At the back of my mind, I was starting to condition myself on losing more than two years blogging work.

After a series of  messages back and forth, the site was restored the following day, March 5. The webhost said that I was using an outdated version of the blogging platform WordPress (WP) which made it easier for the hackers to do their thing.

They recommended that I update to the latest WP version and take measures to prevent being hacked by reading articles they suggested.

I felt a sense of relief. The relief however proved too fleeting, as the following day, March 6, the site was again hacked by the same “terrorists”. This time the message looked even more scary or vicious than the first.

I could only sit motionless and close my eyes as a flood of negative hormones came rushing down my spine. It was one hell of a nightmare!

After a moment, I soldiered on to compose my thoughts and conditioned myself on the worst that can possibly happen, i.e., losing my data and starting all over again.

I contacted my webhost again to do whatever they can to restore the site, if ever it still can be restored.

The webhost responded that they will try and asked me again to update to the latest WP version if and when the site gets restored, and then, to take countermeasures to prevent hacking in the future.

And so, to make a long story short, the site, fortunately, got  restored again on March 7. I immediately tried to grope my way to have the site updated to the latest WP version, setting aside everything I do, including sleep, just to get the site updated.

And so, here the site is live and kicking again. The nightmare is over but the fear of being hacked again still lingers.

It’s a big question of course, how supposed computer savvy guys do such a despicable thing, especially to a site as innocuous as this.

What’s in the mind of these guys? Why do they do such a crazy thing?

I can understand those who hack for money, or who want to protest something against the government or some key policies. Or those who have issues against some big businesses and what they do.

But destroying something as  innocent as this site is beyond the comprehension of my small mind.

One day, I may just have to read about the psychology of hackers.

From the time I wrote my last article on gold about a month ago up to this writing, gold price has dropped about 7%, from $1,689 to $1,580 an ounce now. Quite a substantial decline for a short period.

This can easily elicit a knee-jerk reaction to ditch gold and take investment refuge elsewhere in the volatile world of financial markets?

Are we starting to see now the signs of the end of the decade-long gold bull-run? Or is it just a short respite in preparation for another long climb?

Nobody knows exactly, but let us update our gold picture with a few insights:

Global Central Banks continue to accumulate gold

From being either fence sitters or net sellers of gold for  a long time, Central Banks have become net buyers of gold since 2010, according to World Gold Council (WGC) and Gold Fields Mineral Services (GFMS).

Central Banks have been increasing their gold positions, in an understandable effort to  “diversify reserves away from the US dollar”.

From 216 tons in 2010, global Central Banks’ gold purchases more than doubled to 465 tons in 2011. In 2012, Central Banks purchases for the first 9 months amounted to 379 tons, according to WGC, and it has been expected that the whole year 2012 figure will exceed 500 tons.

Some of the  biggest buyers are Russia, Mexico, Brazil, Korea, and Thailand.

Gold appetite of giants  India and China remains strong

The gold appetite of traditional leaders India and China remains strong, and together, they continue to lead  global purchases, accounting for about half of global purchases of the precious metal.

Despite a noted drop in demand (7% in 2011 and 12% in 2012), India remains the largest consumer of gold in the world, with purchases of 864 tons in 2012, according to WGC.

Analysts attribute the decline mainly to high gold prices, the weakness of Indian rupee, and the rise in import duty, as the country seeks to deter gold imports which are reported to be one of the key contributors to its deficits.

Despite the reported drop, demand still remains high in the country where gold is regarded as a “symbol of wealth” to be worn everyday.

China, the second largest consumer of gold in the world, posted a growth in demand of 22% (to 811 tons in 2011) but the growth gave way to a flat demand for the year 2012, as the Asian giant grappled with an economic slowdown.

China is currently one of the most active buyers of gold in the open market, and the general belief is that Chinese gold purchases largely explain why dips in the price of gold have been relatively short-lived.

World supply of gold is dwindling while mining issues are mounting

Market analysts and gold industry insiders are increasingly concerned of the dwindling supply of the yellow metal. The current deposits of gold being mined are depleting fast and is being compared with the drying up of  oil deposits.

The issues facing miners are coming to the fore: the depletion of existing mines, lower grades of ore, and new discoveries getting fewer and fewer.

This fact alone can lead to an increasing scarcity of supply for gold worldwide which, in turn, can only lead to rising prices for gold.

The world’s biggest gold mining company, Barrick Gold, reports that the entire gold mining industry is having great difficulty finding new gold deposits.

Barrick CEO Jamie Sokalsky says that, since gold production is inelastic (meaning, insensitive to price changes), there will be a limited increase in supply from gold miners, even if gold prices rise sharply.

Moreover, there are the usual issues like demands from workers for higher pay, and increasing calls for nationalization in some countries.

More importantly, environmental issues are a big concern.

In the Philippine setting, the most recent spill in mine tailings in Benguet by Philex Mining resulted in a double whammy for the company: its share prices took a hit, and the government imposed fines for environmental damage to the tune of P1.034 billion.

Events like these have made local communities and environmental advocates more and more assertive and vocal in their opposition to large scale mining.

In the huge $5.9 billion Tampakan copper-gold project in South Cotabato (touted as the biggest undeveloped copper-gold deposit in Southeast Asia with estimated 15.8 million ounces of gold and 13.5 million tons of copper), the Department of Environment and Natural Resources (DENR)  has recently issued, after a long delay, an Environmental Clearance Certificate (ECC).

The local government of South Cotabato, together with local folks and environmental advocates have remained adamant and firm in their opposition to the miner (Sagitarius Mines) planned open pit mining operations which, according to them, “will destroy watersheds, pollute the environment and destroy life in southern Mindanao”.

Expected squeeze in available supply as China increasingly corners gold supply sources

China’s gold consumption is second only to India, and as per WGC estimates, it will overtake India soon.

China is also now the world’s biggest gold producer, overtaking South Africa a couple of years back. Unlike most other countries, however, China’s production does not reach and is not available to world markets, since China does not export gold.

According to precious metals analyst Jeff Clark of Casey Research, global gold production is lower if China gold production is excluded.

Clark says that if we back out China production and adjust for Chinese gold imports, “gold supply for countries outside China has actually been falling since 2009.”

While China is known for its voracious appetite for gold, it is buying not just the metal itself but the sources of the metal, wherever they are. China has been on the prowl for gold deposits and mines.

Hence, China, through its various state-owned mining companies, has been purchasing gold mines left and right. For 2012 alone, Chinese mining companies purchased a dozen or so major interests on gold mines, from Canada to Latin America, and from Australia to Africa.

All these developments simply means that, while China’s share of world supply is increasing, the supply available for the rest of the world is decreasing.

Thus, if you still harbor the idea that the gold bull market is ending, better think again.

I originally thought of writing something about gold, but since today is Chinese New Year, and for the last few days there has been a barrage of talks about “lucky charms” and attracting good luck in this “Year of the Water Snake,” I thought it may be a better idea to talk instead, about good luck and how to attract it.

Not that I have suddenly become adept at the art or practice of attracting good luck, or any of those  esoteric pursuits (Chinese feng shui, astrology, geomancy, etc.), although I’m certainly  not averse to reading about them,  if I find time.

My main interest  here is  about whether there is anything, short of delving into the esoteric, that may help us in attracting good luck into our  lives.

Is there such a thing as a charm that can attract good luck? Is there a magical tool or a secret that can entice good luck and/or avert bad luck or avoid negative outcomes in our business or investment pursuits?

If there is such a thing, then it should make our journey in the road to financial freedom much smoother, and less bumpy than it currently is, for most of us.

Well, if there is a good luck charm that we can hang in the frontage of our shops to attract people and help us focus on our customers, there should be no harm. As long it does not cost us an arm and a leg.

Or if there is something, a purse of lucky coins or  crystals, that we can carry in our pockets so that its sound or just the mere “feel” of it, always reminds us of our objective of accumulating rather than dissipating cash, then we should try it.

If our possession of such lucky charms help us maintain focus on the bottom-line or the big picture on what we are investing or being in business for, then by all means, let us have those charms and hang them where they should be. Or carry  them in our pockets.

But it is a terrible mistake to ditch hard work and discipline or to relax or loosen our guard because we have such good luck charms hanging prominently in our shops or homes, or dangling in our pockets.

Whether you have a lucky charm in your pocket or not, if you are investing in stocks, or more particularly if you are in business, you cannot skip hard work.

In fact, as we mentioned in previous posts, being in business is like “swimming upstream” or, as a friend Jun Bantugan says, it’s like “going into war”.

The internet now swarms with supposed methods of making money, some of them swear their method is the easy or lazy way of making it.

Most of these, of course, are either outright lies, or just overhyped babblings which gloss over the tons of hard work one has to do in the beginning, before one even attains a modicum of success in the field.

Hard work does not guarantee success, but it considerably increases the chance  of success, in business or in any endeavor for that matter.

This leads us back to the issue of whether there is such a thing as a charm that really attracts good luck.

Well, as far as I’m concerned, the closest thing to a good luck charm that really works is good old-fashioned hard work.

Take it from Thomas Jefferson, the principal author of the Declaration of Independence and third President of the US.

Jefferson said, “I am a firm believer in luck, and I’ve found that the harder I work, the luckier I get.”

Or take it from Mark Twain, Samuel Goldwyn, Thomas Edison, Lee Iacocca, Gary Player and a host of other highly successful men.

They said almost exactly the same thing.

Kung Hei Fat Choi, everyone!!!

Related Posts:
Going Into Business Is Like Swimming Upstream or Going Into War
Are You Willing to Work Long Late Hours and Forgo Much of Your Social Life

As I wrote this post, I was actually in a bind whether to write more about gold or more about pawnshops. You see, nowadays, gold is getting increasingly inseparable with pawnshops.

Pawnshops seem to attract gold  better than kerosene lamps attract moths. Or more aptly, people with gold jewelry get drawn to pawnshops much like moths gravitate around kerosene lamps.

Oftentimes moths plunge and get roasted in flame, much like gold owners who frequent pawnshops. After a spirited attempt to hold on to their gold by paying some monthly interest, they eventually surrender and part with their gold.

Lucky for  the pawnshops,  unlucky and sad for the gold owner.

Much as people love gold, the  pawnshops love gold even more, they instantly lend you money without questions,  if you have gold.

No wonder, everywhere you go in this country, pawnshops are sprouting like mushrooms. You can hardly  find any  commercial area however small  without a pawnshop.

The pattern of events are familiar and similar. First, there’s a neighborhood with a few shops, perhaps with a bakery or two and a water-refilling outlet.

Then there comes one pawnshop with a foreign-sounding name. Even before the neon signs get lighted, a second pawnshop comes along,  one having  a similar foreign-sounding name  you may wonder if they belong to one and the same owner. Then a third one comes along and so on.

Pawnshops appear to multiply so fast you may wonder if there’s a gold rush you consistently miss everywhere.

I remember in my high school days (please don’t ask when), one pawnshop company  had only three units in downtown Cebu City. Now, the same pawnshop company has more than a thousand units throughout the archipelago and is currently touted as the biggest  pawnshop chain in the country.

One or two other pawnshops with presumably related owners are not far behind in numbers.

You can’t help but ask: Is this business so lucrative, so profitable?

Of course it is! It’s practically a no-brainer to figure this out.

Consider just the lending side. A pawnshop charges a minimum interest of 3% a month (some charge up to 5%  a month) for a loan usually secured by a pawned gold jewelry. This simply means an annual gross interest income of 36% for every loan extended.

Where can you find such a very high interest income rate at this regime of artificial low interest rates worldwide? Where time deposit gets you a measly two to three  percent per annum -  not even enough to cover the inflation rate, so that just leaving your money in the bank actually gets you poorer.

Aha, except of course, in the case of credit card issuers who charge an unconscionable 3.5% interest per month (or 42% per annum) on your  unpaid credit card balance. But that’s another story I have  touched many times in this blog.

Back to pawnshops, we have just touched  the lending side; how about the “rematado” side or the side of unredeemed pawned securities?

Nobody knows exactly how many people don’t redeem their pawned jewelry. I would speculate however, that the figure is at least 33%, or at least one out of every three pawners (or whatever you call them) don’t redeem their pawned jewelry.

In fact, from my own observations with friends and relatives, whether OFWs, OFW-dependents or non-OFWs, there have been overwhelmingly more un-redeemers than redeemers. Worse, many un-redeemers tried in the beginning to  pay the interest charges monthly, only to abandon the effort in midstream.

A friend who is a top executive of one of the biggest pawnshops in the country once confided to me they have so much inventory of “rematado” jewelry they have increasing difficulty disposing them. At one time they tried commissioning jewelry-making factories to melt their rematado jewelry to be turned into gold bars.

Unfortunately, the gold recovery proved lower than expected, the process turned out to be costly, and hence,  not wise from a business standpoint. So they reverted to selling their rematados in bulk  by auctioning them or selling with deep discount to jewellers.

If the lending side proved so lucrative by itself, the gold sale side proved to be even more lucrative. And it’s almost a no-brainer again, to  figure this out.

From every sale of unredeemed piece of jewelry, pawnshops get a mark up of about 100 percent from the principal amount loaned out. We are just talking here about mark ups, not the rise in gold price.

Gold rose from about $300 an ounce in early 2000s to just a little less than $1,700 (about $1,689) now which simply means a gain of close to 500%.

And, despite the anemic performance of gold in 2012, nobody sees yet the end in the climb of gold price and we’ll discuss further in future posts.

Whichever way you look at it, pawnshops are an extremely lucrative business. The business model is such  that the odds are just so stacked in their favor.

No wonder pawnshops continue to spread like wildfire in the country. They are getting insanely rich.

Well, what then should we, OFWs and ordinary folks do? Should we not join the bandwagon and rush headlong into the pawnshop business too?

Ha-ha, wait a minute, that question deserves another post or two.

Meantime, the best way  for us now is to hold on to our gold like barnacles hold on to the hulls of ships. Pawn your gold jewelry if you must, but just be sure to redeem it every time.

In the ultimate analysis, we may  not  prevent the pawnshops from getting insanely rich (they already are).

But at least, we may prevent ourselves from getting insanely poor, in possessions or in judgment.

Related Posts: Why Gold Is Set to Rise Further Despite Recent Fall;  Investment By Serendipity – How the Housewives Became Good Investors

There are usually three preoccupations people get busy with as a new year starts to roll: New Year’s Resolutions, New Year predictions or recapitulations of important events/thoughts of year just past.

About New Year’s Resolutions, well, they’re something personal and better not talked about. About New Year predictions, my record proved dismal so I would rather leave this field to adepts and fortune tellers.

I would therefore confine myself to the safer preoccupation of recapitulating important  thoughts or lessons of the previous year.

Going back to a total of thirty nine (39) articles I posted in this blog for 2012, I would say the five most important thoughts or lessons are as follows:

1.    Awareness on the Structure of Scams Like Aman

The issue of Aman Futures scam – with reported 15,000 victims and P12 billion in investors’ money going down the drain – easily beats any other issue tackled by this blog in the year just past.

As far as I am concerned, the biggest lesson here is one of awareness that Ponzi scams like Aman have unmistakable structures or forces at work with “impossible earnings” at its core.

Dismissing victims as greedy and dumb would not prove helpful. The fact is that just too many people fall for scams and even a genius like Newton can fall for scams.

There are three very powerful forces at work here: Impossible Earnings Enticement, Influence of Herds, and  Influence of Authority,

Awareness of the three forces at work should prove very beneficial in identifying scams and thereby avoid them.

A review of our posts “Why Fairly Intelligent Men Fall for Scams” and “Impossible Earnings – The Keystone Where Scams Are Built”, should prove useful.

2.    The Risks of Investing in Condo Units

As the building boom continues unabated in the country’s metropolis, the marketing and hyping of condos will continue  to lure simple folks like us to invest in condo units.

A condo unit will certainly prove to be a good home if one finds the all-too-obvious disadvantages acceptable.

As a pure investment, however, I  don’t think condo units make good investment for ordinary folks and OFWs.

There are horrendous risks of investing in condo units and these are: Risk of Under-Investment, Risk of Non-Liquidity,  Business Cycle Risk, and Disaster Risk.

It would be advisable to revisit our post “The Horrendous Risks of Investing in Condo Units.”

3.    Small Losses Turning Into Big

Who can forget the national preoccupation on the 5 months of grueling proceedings capped by sensational (if suicidal) personal testimony, on the impeachment of former Chief Justice Renato Corona?

The good magistrate could have just easily resigned and lost nothing but the post of Chief Justice. It would have really been a small loss; the post was widely perceived as a midnight appointment in any case.

His Statement of Assets, Liabilities and Networth (SALN) could not have been scrutinized. His dollar and peso accounts, and condo units would not have been exposed and put under magnifying lens. And the long-running conflict with relatives could not have been highlighted with its sordid details.

The former Chief Justice, however, chose to slug it out and, in the process, exposed every unpleasant nook and cranny of his life and that of his family. Not to mention the lifetime loss of any chance to be in public service as an offshoot of the guilty verdict.

Along this line it would be helpful to revisit the lesson about small losses turning into big in the post, “The Need to Cut Losses – An Investment Lesson on the Fate of Chief Justice Corona.”

4.    The Bull-Bear Connection in Boxing or Pugilism

Pacquiao’s knockout loss to Marquez reverberates to this day and should easily beat any other sports event as the biggest, if  disheartening, news of the year.

There is a very strong lesson here about how bulls inevitably turn into bears in a boxer’s career through “easy or soft living”, a lesson we picked up in Philip Carret’s 1930 classic, “The Art of Speculation.”

Pacquiao has been piling up one distraction over another. How a top boxer maintains focus and a regimen of hard work in the face of such horrendous distractions is something that should be in the realm of the absurd.

The proverb “Whom the gods wish to destroy, they first make mad,” should now translate to, “Whom the gods wish to destroy, they first led into easy living and horrendous distractions.”

Read again our last post for 2012, “The Black Swan Manny Pacquiao – How Horrendous Distractions Turn Bulls Into Bears.”

Pacquiao should quit now before it’s too late.

5.    The Variable Universal Life or VUL as the Best Development Ever in the Insurance Industry

The insurance industry, a boring, unattractive industry covering the morbid event of death, suddenly looks attractive with the invention of a vehicle called Variable Universal Life or VUL.

In simplest terms, VULS are life insurance and mutual fund investing rolled into one.

At a person’s most productive years (about 30s to 40s), where he has children in grade schools  or high school, his responsibilities are at their peak and this is where his insurance needs are highest.

At his 50s when a person’s children have most likely graduated and have work of their own, his responsibilities are nearing zero but his retirement funding  needs are rising.

There is no instrument that can handle these situations more effectively than VULs.

A review of our series of articles on VULs  notably the post, “For Heaven’s Sake, Get a VUL If You Are an OFW”, should be helpful.

Whether you are an OFW or an ordinary earner with a family, it is highly advisable to get a VUL for you and your family’s sake.

There is no recent sports event that is more  over-discussed and over-analyzed than the recent unexpected  knockout loss of the Philippine boxing icon Manny Pacquiao.

As one tv commentator puts it, everyone has turned into a sports analyst, offering reasons here and there on why Pacquiao lost or what he should have done.

Well, I am not a sports analyst; in fact, I have very little interest in watching sports other than boxing bouts with champions or would-be champions.

My only interest in discussing boxing bouts –whether Pacquiao or otherwise – is to squeeze out whatever investment lessons that can be learned from the event.

For ever since I read Philip Carret’s  classic “The Art of Speculation” (New York: John Wiley and Sons, 1930) and his casual, if thought-provoking, explanation of what causes bear markets, I have been struck by the  uncanny connection of market’s bulls and bears with the rise and fall of a boxer’s career.

As Carret, by way of explanation on what causes bear markets, says:

“As simple and as good an explanation as any other is the inability of a majority of mankind to maintain a regimen of hard work in the face of easy living conditions. Just as in the realm of pugilism a few years of soft living will make a Dempsey (referring to Jack Dempsey)  an easy prey to a Tunney (James Tunney who defeated Dempsey twice for World Heavyweight Championship) so a period of prosperity contains the seeds of its own destruction.”

Take a look at boxing history and see how the fates and fortunes of  pugilists resemble the rising and falling of markets. Except of course with the fact that while markets always rise again, pugilist ex-champions hardly ever rise again.

See how an array of former world boxing champions  refused to quit the sport  in the midst of easy living and mounting distractions.

And see how the inevitable outcome played out – the  ignominy of  once-mighty champions falling and being forced to quit the sport in the thick of an irreversible  bear market in their careers.

For a time, Manny Pacquiao  seemed like an exception, being able to continue a winning streak despite mounting level of distractions.

Hence, this blog tagged Manny Pacquiao as a  “black swan”, a concept popularized by Nassim Taleb in his bestseller  “The Black Swan: The Impact of the Highly Improbable”.

A “black swan” is an unpredictable event  which has a massive impact. Pacquiao’s legendary rise in boxing firmament is indeed, one for the books, a black swan of the first order.

Pacquiao seemed to have defied all odds. He upped the ante, so to speak, in the “easy living” and distractions game, piling up one distraction after another.

He got himself elected as a Congressman, a demanding, full-time preoccupation which he reduced into  part-time. He hosts  a regular daily TV show in a popular  station.

Then he dabbles in Bible-reading and the realm of “preaching” as a Christian pastor  of  sorts, tagging along with him hordes of pastors salivating for his largesse.

Not to mention, of course, the much-gossiped occasional flirtings with starlets or his being in frequent company with men not known for virtuous living.

As if these were not enough, Pacquiao defied clarificatory queries from the Revenue Service for possible tax deficiencies and, as reported, even vowed a fight to the finish with the Service.

How a boxer is able to maintain a “regimen of hard work” in the face of such horrendous distractions is something that defies logic.

Now comes Pacquiao’s astounding  knockout loss to his nemesis Juan Manuel Marquez who claims to have been robbed of victory in the past. The once seemingly-invincible Pacquiao fell flat on his face in the canvass and lay motionless  as fans stood in the shock of a lifetime.

Pacquiao’s unexpected sixth round knockout loss to Marquez seemed to have the making of a “black swan” turned full circle, or one in the reverse order, an unexpected shocking loss with a massive chilling impact for the Filipino as well as non-Filipino fans.

Just as Pacquaio’s ascendancy in the boxing firmament, with either knockouts or point-by-point demolitions of boxing greats one after another, it  looks like the shocking loss is another “ black swan” event in the opposite direction – a reversal of fortune.

No, I don’t think so. As far as I am concerned, the loss was not a “black swan” event. It was not unpredictable or unexpected.

The loss was predictable. The bear market has started since two fights ago with lackluster performances in the 3rd bout with Marquez and in the fight with Timothy Bradley (which Pacquiao lost in controversial decision).

With that  4th bout with Marquez, Pacquiao’s bear market has  been  in full swing.

Pacquiao will likely lose again in the next fight. If ever he wins again, he will lose again in the next after that. He will lose again…and again.

Until he gets the message and hangs up his gloves for good. By that time, most of the  the goodwill, the pride, the sense of achievement will  have been turned to shreds.

A popular anonymous ancient proverb says that: ”Whom the gods wish to destroy, they first make mad.”

In the context of  boxing or pugilism, we can rephrase this proverb  into:

“Whom the gods wish to destroy, they first led into easy living and horrendous distractions.”

Another bout with Marquez (Pacquiao-Marquez V) is in the offing. Poor Pacquiao … like many ex-champions of yore, he still harbors the illusion that he still has it.

Going by the terribly shocking knockout of the last bout, his health and physical well-being is as much at stake now as his reputation.

The lessons of the “bull-bear connection”  in pugilism are hardly controvertible. It has been said that “Those who ignore  history are doomed to repeat it.”

Well, now it’s not too late yet  for Pacquiap to quit and preserve   much of the honor , the goodwill and the fortune he has built.

Dionisia and those around Manny Pacquiao should pester him to quit before it’s too late.

Related Posts:
Pacquiao’s 16th Jinx and His Biggest Battleground
The Bull-Bear Connection – An Unsolicited Advice to the Black Swan Manny Pacquiao
The Black Swan That Is Pacquiao and What Lesson Can Be Learned

After dissecting scams from a product structure viewpoint in the last post, “Impossible Earnings – The Keystone Where Scams Are Built,” it is time we shift viewpoints. This time we look at it from the point-of view of the victims.

Why do so many people fall for scams like Aman Futures?

Is it because of greed or stupidity, as many opinion writers say?

Can we just say that the 15,000 Aman Futures victims were simply inflicted with such pig-like greed they indeed deserved the slaughter of their wallets? And that they acted  much like the  proverbial stupid ass that they deserve the lashing of their pockets?

Well,  15,000 or so victims look just  too large a number to dismiss as greedy pigs and/or stupid asses.

How about the 2 million or so victims in the Albanian episode of the Ponzi scam in 1997? Surely, we cannot just  sweepingly dismiss the 2 million also as being greedy and dumb?

Or, how about the case of the genius Sir Isaac Newton who,  along with thousands of 18th century Britons,  lost  bundles in the one of the biggest stock market scams of all time – the “South Sea Bubble”?

The loss proved so shocking and so remarkable that the genius Newton uttered what can probably go down as one of the most ironic and amusingly famous (or infamous) lines in investment history:

”I can calculate the movement of the stars but not the madness of men.”

The simple fact is that it is not just ordinary folks who fall for scams. Fairly intelligent men and sometimes, even a genius like Newton fall for scam “madness”.

That is why dismissing the scam phenomenon as owing to greed and stupidity will take us nowhere in understanding the phenomenon.

Are there some strong or seemingly irresistible forces at work here? Some kind of magical forces that mesmerize people, deprive them of reason and make them throw caution to the wind and jump in the fools bandwagon straight to the cliff?

Well, forget the greedy and stupid stereotype.  I volunteer  three (3) reasons why fairly intelligent men fall for scams like Aman:

1.   The “Impossible Earnings” Enticement

At the base of scams is an enticement of “impossible earnings,” which we defined in the last post as a scheme where a prospective victim is offered a fixed return, interest or opportunity to earn far more than what the financial world or market forces offer.

This enticement of “impossible earnings” triggers the “sucker tendency” in humans, the appetite for quick riches.

This enticement is what triggers  the “greed” that everybody is talking about. And this is a default set up – a weakness in humans probably  similar to the propensity to splurge.

2.  The Influence of Herds

If “impossible earnings” by itself, is a powerful inducer, there is another force equally or even more powerful – the influence of herds.

“My friends and relatives have joined Aman Futures and looked well on the way to get rick quick. I  must join too.” That’s how the thinking goes.

As we said time and again in this blog, herd mentality is so powerful it trashes reason hands down. Engulfed with the powerful influence of herds, men easily get reduced from thinking humans to unthinking cattle, sheep or worse, lemmings.

And as I said further, the ultimate destination of herds have long been a settled issue in nature, i.e., to the slaughterhouse,  to the cliff or straight into the sea.

Herd mentality is a template of nature and this is where the uninitiated easily gets parted with his money.

3.  The Influence of Authority

Herds usually number hundreds but probably seldom tens of thousands, let alone millions. If the victims number tens of thousands or millions, there must be a powerful additional force at work.

That is where the “Influence of Authority” comes in.

In 1984, the eminent psychologist Robert Cialdini, PhD, wrote a seminal book on influence and persuasion based on thirty five years of research. The bestselling book, “Influence: The Psychology of Persuasion” (New York, Harper Collins, 1984) practically became the de-facto Bible of marketers and persuaders since then.

Of the six basic principles or “weapons of influence” which Dr. Cialdini cites as having been used by expert persuaders through generations, I should say there is one which is hands down the most dominant force in big Ponzi scams – the influence of authority.

If the number of victims became so large in the case of the Aman Futures scam, it was because of the influence of authority. Local government officials themselves, not just joined, but actively promoted the scam.

Needless to say, whatever doubts the common folks had on the legitimacy of the scheme, these were all dispelled when local government authorities themselves joined and actively  promoted the scam.

Strikingly similar to the Albanian Ponzi episode of 1990’s where government officials themselves, by active participation and promotion of the pyramiding scams, were responsible for making the scams so huge and so widespread.

Hence, the Albanian scams’ number of victims counted more than an incredible two million, dwarfing the 15,000 or so number of victims in Aman Futures scam.

If there is any consolation of sorts in the recent Aman scam, at least there were no riots and only a few lives were lost.

Unlike in the Albanian episode where  desperation and sense of helplessness by victims gave way to widespread   rioting which in turn, gave way to more than 2,000 casualties and the eventual collapse of the government.

That is what the influence of authority can do. It turns a fire into a conflagration,  an infectious disease into a plague  of epic proportions.

If you still harbor the illusion that  local government officials who participate in  scams like Aman are also victims themselves and should bear little or no responsibility, think again.

The influence of authority is the turbo-charger, the rocket booster by which small and medium scams turn into humongous scams.

Related Posts:
From Herd Mentality to Independent Thinking
Herd Mentality – The Number One Don’t in Investment
The Tale of the Oilman and How Herds Trash Reason
The Curse of the Pyramids

Countless opinions have been offered about the  Aman Futures scam, the Ponzi racket that hit the newsreels weeks ago  and which seems even getting hotter as days go by.

The facts appear mind-boggling: about P12.0 billion  or so in hard earned money were bilked from 15,000 or so market vendors, fishermen, teachers, policemen, soldiers and government officials.

Lives have already been lost due to suicide or  murder, and pretty soon, there  most likely will be arson,  as some victims vowed to torch the houses of those involved in the scam. Fearing for their lives, some officers and directors have surrendered but the principal remains at large and is reportedly hiding in Malaysia.

Some say its greed and stupidity at the root, some blame local politicians, some blame the government for inability to protect the simple folks.

Well, this piece is a simple attempt to explain in  investment terms, not just the most recent scam, but the very foundation where scams like this are built.

It is a Ponzi scheme right, fueled by greed and stupidity or inordinate desire to get rich quick. But such general statements do not help us much in explaining  the phenomenon of scams.

We can get lost in the details of the big tree that is Aman Futures. But it would help us immensely to see not just the tree but the forest as well.

In so doing, it would give us a tremendous sense of awareness. Through awareness, we make sure we will not join the long list of the victims of scams in the future.

But what then should, we therefore,  be aware of?

Let us  digress a little bit to prepare the ground.

The word keystone, in architecture,  refers to the wedge-shaped stone of an arch that locks parts together. It can also refer to the central supporting element  of a whole, something necessary to connect or support the whole.

There is one keystone where every scam is built and this keystone is what the ancient Babylonians describe as  “Impossible Earnings”.

“Impossible Earnings”  is simply a scheme where a prospective victim is offered a fixed return, interest or  opportunity to earn far more than what the financial world or market forces offers.

From the time scams first appeared and swindlers and tricksters first walked the  earth in ancient times and up to the present time, the presence of this keystone of “impossible earnings” has been apparent in every case.

This is the foundation where every scam is built, the bait by which every fool gets conned into parting with his money.

The simple fact is that the rates at which money earns money is practically always known in the financial world. There is a norm or standard in returns from fixed income investment. Market forces, as a rule, determine what the norm or standard is.

We cannot depart far from this standard without trudging on dangerous unsustainable grounds of “impossible earnings’.

Just a couple of years back the infamous Legacy group of rural banks offered double your money in 2 years schemes which simply means a return of  36 % per annum.

This, of course, looks like a drop in the bucket when compared with Aman Futures reported 30%-40% for a week or 60%-80% for a month.

Earnings of 30%-40% a week or 60%-80% a month? How in heaven’s name can an undertaking earn something like this?

Not Warren Buffett, not George Soros, not the bond king Bill Gross nor any of the wizardest wizards in Wall Street can earn anything even remotely close to this.

“Impossible Earnings”… impossible dream! We might just as well amuse ourselves and sing “Impossible Dream”, the ever popular theme song from the musical “Man of La Mancha”.

Now, in many cases, it is fairly easy to spot an “impossible earnings” case. A rate of  20% a month  which translates to 240% per annum is definitely a case of “impossible earnings”.

But how about 17% , 18% or 20% per annum, does this fall within the purview of “impossible earnings”? Where should we therefore put the dividing line between what is impossible  and what is realistic?

Well, the great investor and founder of Vanguard Group of Mutual Funds, John C. Bogle,  wittingly or unwittingly, offers us the dividing line when he said something to the effect that:

”Any sustained return beyond 12% to 15% per annum better be considered found money.”

This simply means that anything beyond this rate, you are starting to trudge on dangerous unsustainable grounds. And the higher you go the deeper you are in “impossible earnings” territory.

I am talking of course of fixed income rates; it does not include returns in mutual fund or stock investing.

The Fifth Law of Gold, enunciated in one of the greatest wealth classics of all time, “The Richest Man in Babylon” says:

“Gold flees the man who would force it to impossible earnings or who followeth the alluring advice of tricksters and schemers or who trusts it to his own romantic desires in investment.”

Double your money in two years? Or Aman Futures, anyone?

Take heed, Mr Ponzi will rise from the grave like Dracula again and again. He will brandish “impossible earnings” to entice you and suck your financial blood out.

Avoid “impossible earnings” like the plague, or your gold will flee and you will break your heart.

Related Posts:
The Tale of the Oilman and How Herds Trash Reason
The Curse of the Pyramids
Caveat OFW – Scammers at the Gates, Part 2
Caveat OFW – Scammers at the Gates, Part 1
The Four Telling Signs of Lack of Investment Literacy

“Come to think of it, if you save a little or you save nothing, then for your family’s sake, you need to get a life insurance before it’s too late.

If you save a lot, then your savings is your insurance cover. Insurance, therefore should be a mere option – something preferred but not required.”

These are among the last few lines in the previous post “To Be or Not to Be Insured, That Is the Question.”

Well, let us carry the idea a little further by substituting “VUL” or “Variable Universal Life Insurance” for the word “insurance” in above lines and  and see how things add up.

Does the whole picture change?

Of course it does. You don’t just have insurance but also “savings and investment” in the picture.

If you have been saving  little or nothing at all, then having a VUL  gets you life insurance cover. This will immediately cover the downside risk of your possible demise – an event the certainty of which is written in stone (literally or figuratively)…it’s only a question of when.

At the same time, you also get to immediately start a mandatory savings and investment plan.

No contest at all. The deal is infinitely better than getting just plain vanilla life insurance. It is a near-perfect example of  hitting two birds with one stone.

If you save a lot or save religiously every months or so, and you have been investing prudently in conservative instruments like time deposits or even retail treasury bonds, then you may or may not need life insurance or VUL.

But VUL would be an ideal reinforcement or fortification for you and your family’s financial well-being. It is like digging a moat around the fortress of your castle. The fortress protects you but the moat around your fortress reinforces your fortifications and enhances your sense of safety and comfort.

And the beauty of having VUL is that it introduces you immediately to the wonderful world of mutual fund investing – a far more interesting and potentially much more rewarding than just sticking to time deposits or just plain savings deposits with interest now hardly surpassing inflation rate.

As far as I am concerned, VUL as an invention of modern finance is heaven sent for practically anybody who raises a family.

Much more so if you are an OFW.

Now, let ‘s get this  straight  why you should grab a VUL if you are an OFW.

1. You do not have security of tenure and are working abroad on borrowed time.

Much as your employer likes you and loves the kind of work you render, you have no security of tenure and can be fired for any reason under the sun, or for no reason at all.

Add the risks of possibly making legal infractions working in a land with a culture far different from yours and where the “don’ts” far exceed the “do’s” – where you can easily end up in jail for being in the wrong place at the wrong time.

Add the harsh climate, a daily diet gorging on red meat with liberal  doses of sugary sweets, plus the lack of outlet for regular physical exercise regimen and/or recreational activities.

Finally, add the burdens and stresses of being away from your family for long periods of time and see if you indeed are not working in a foreign land on borrowed time.

The moment you are out of job and have either no savings or saved only a little, you’re “toast”. Or if ever (God forbids) one of two  “certainties”(the other one being taxes) happens to you, then you’re not just “toast” but “fried” many times over.

2.    Pressures and expectations to splurge are hard to resist.

The pressure to splurge and spend like there is no tomorrow is hard to resist unless you set up a regular savings-investment system or plan. As an OFW, you are beset with all types of pressures and expectations that easily part you from your money.

I remember an amusing actual  conversation I overheard recently between two among many of our seafaring-OFW brethren.

Seaman A, bewailing his being habitually running out of funds, said, “My problem is that after only 5 months from disembarkation, I totally run out of money and have to borrow from loan sharks to be able to embark again. I just can’t resist spending a lot and my wife spends even more than I do.”

Seaman B replied, “Oh, you’re much better. Me, I ran out of money after only two months. I just can’t help it. All  the guys in my home-barangay do not just ask for booze whenever they know I am home on vacation. They  also  ask for money from me or want to borrow money without paying whenever they get drunk.”

3.    It’s one sure way of  paying yourself first.

VUL is one sure way of paying yourself first, a mandatory saving and investment scheme that puts funds away from  temptation of being splurged.

You may splurge to your heart’s desire but the contribution you made in VUL already works for you whether it rains or it shines.

And whatever happens, you have your insurance cover and are assured that your kids continue schooling. You also have, at the same time, the investment portion of your VUL.

You may not have other savings, but having VUL would be a big thing which can take care of your retirement.

If there should be such a financial vehicle which is serendipitously tailor-made and is most ideal for an OFW then this is it – the Variable Universal Life insurance or VUL.

For heaven’s sake, get one as soon as you can.

Related Posts:
“The Best Thing That Ever Happened to the Insurance Industry”
“To Be or Not to Be Insured, That Is the Question”