January 7th, 2009 
Tushar Mathur
And another one gone, another one gone, another one bites the dust.
The funk-rock song by the British group Queen seems to have struck a familiar chord as we witness the unravelling of the global financial system with one venerable institution after another being bought over, bailed out or bankrupted. Our faith has been shaken, our confidence shattered. Fear is the dominant emotion. Rewind to January 2008 when we were enveloped in euphoria. It has been steadily downhill since. How did it all fall apart, so rapidly and mercilessly?
It seems individuals and institutions had in the last few years got so carried away by the power of their imagination to create complex products that they paid little heed to risk or the world’s capacity to absorb the shocks of default. While governments and regulators slept, the prince turned into a frog. It has been the most deadly kiss of death of the financial system as we know it, wiping away hundreds of billions of dollars in financial assets and causing an unprecedented credit crisis. What is it about money that makes some of the smartest people take the most stupid risks? Is it greed or hubris?
It’s not that financial excesses have not been witnessed before but never on this scale. For those with long memories, the 1980s were an era of get-go, footloose financial whiz kids, their high jinks documented in a string of book and movies. It may seem Wall Street is all doom and gloom, boom and bust. The reality is different. In fact, the buy and hold investment philosophy of Warren Buffett has multiplied his net worth to a colossal $62 billion at the start of this year to make him the richest man on earth.
Why is Buffett venerated on Wall Street? It is how he puts his money to work¾for the long-term in companies that are available at a discount to their real valuation. Buffett, also known as the Sage of Omaha, is a visionary whose words and deeds are worth their weight in dollars. His views on the current crisis and his selective investments in US financial institutions bear out his confidence that the world will survive this crisis.
For all his wealth, Buffett lives the simple life in the same Omaha house that he bought in 1958. Over 80 per cent of his personal fortune has been pledged to a charitable foundation. He once said, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.”
Is Buffett an exception that proves the rule?
It’s not only institutions but also individuals who have a complex relationship with money. Let’s face it. We all want to be rich and quick. E=MC2 is the concept of energy and matter that we learnt in high school. But the conventional formula has been turned on its head in the adult world. There are other matters that consume more energy. In this day and age E=MC2, that is, Existence = Money in Crores to the second power.
There is no escaping the talk of money or the power of money. We slog all day to make a decent living. How can we not have an attitude towards money? Money is primarily about needs and wants. There are a few dreams that we hope to realize, only if we have, not a little, as the song goes, but a lot of money.
In this financial mayhem, is there a lesson for all of us or any need for mid-course correction? It’s unlikely that we need to do anything different or drastic except touch base with the basics¾be proactive, focused, disciplined and smart to ensure that we are financially healthy and wise. Let us resolve to do things right this time and every time so that no global meltdown can shake our financial foundation.
The Ten Commandments
* I will calibrate my ambition and moderate my aggression
* I will think and act long term in all areas of life
* I will not be swayed by greed or constrained by fear
* I will define my priorities and set realistic targets to meet my goals
* I will transform my income into assets
* I will optimize my asset allocation to minimize risk and volatility
* I will insure adequately and spend wisely
* I will invest systematically and not spontaneously
* I will allow the magic of compounding to work for my money
* I will become an informed, intelligent and empowered investor
This is a good time as any to look within. Take a little time out to discover your relationship with money. Choose to be comfortable, well off, rich or wealthy. Make money your ally not your adversary. Let it not become an obsession or a source of anxiety. Learn to live and enjoy life today. Tomorrow is another day.
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