Sunday, September 11, 2011

Personal Finance talk

There has been a lot of discussion of personal finances in the blogsphere this weekend, and several really good points have been made. I want to comment on the cool stuff at Worthwhile Canadian Initiative, but first let us consider two interesting posts by Karl Smith. One is on Apple:

Let’s add up how much of the iMac, iPod, iPhone, iBook and iPad profts have been paid out to the owners of Apple. Well lets think. . . oh yes I have it now, ZERO DOLLARS! Not one single penny.

So far is this really different from what Allen Stanford did? I hear some of his investors actually got redemptions. But, I am sure Apple investors will get their money some day, right.

They have the value of their share of the company, but that might very well be spent on other things before any dividends are paid. It's scary to consider.

Even worse is his discussion of Sir Alan Sanford:

You can do whatever you want to Allen Stanford. He is now broke. He got beat up in prison. He may very well spend the rest of his life there. But, he’s 61 years old now. These experience were his life. You can’t take that away.

Once you realize that, you realize the fundamental vulnerability that everyone has in handing over your assets to someone else. There is just no recourse against the other person consuming them.

You have to trust and that’s at the heart of what call The Big Externality.

That is a lot more scary. It really makes the idea of a government sponsored pension program way more appealing. And it definitely makes one skeptical about the ability of a typical investor to manage their assets. After all, I would not have seen Apple as an atypical investment vehicle, mostly because I like and consume their products. But if they are not paying dividends, then the idea behind getting money out of them is entirely to sell shares to somebody else.

But why would they want to buy them if they do not produce returns?

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