The exploits of corporate cowboys Steve Vizard and Rodney Adler are giving the business of investing a bad name.
A TV funny man turned businessman, Steve Vizard misused his position on the Telstra board to buy and sell shares in three companies.
High-flying Rodney Adler crashed back down to earth – and into jail – after being found guilty of four different corporate crimes. Basically, he lied to boost the stock price of HIH, of which he owned millions.
Vizard and Adler used their power and positions to make a quick buck. But here’s the thing: they somehow managed to lose money.
This dodgy duo could learn a thing or two about investing from a couple of toddlers called Angus and Sam.
Vizard’s dodgy deals have come as a shock to many. Personally, I think all we needed to do was to view an episode of David Letterman’s The Late Show followed by a dusty copy of Tonight Live with Vizard. This was not Steve’s first rip-off.
Rodney (Rocket) Adler has been accused of using his children as pawns to work on his “substantial business interests” while doing time in the clink. I’m not sure about you, but if my resume stated that my greatest feat was losing billions of dollars and sending a company bankrupt, I’d probably have a pretty hard time even getting a lawn-mowing franchise.
Life lesson from two toddlers
These men have a number of things in common other than a disregard for the law and getting caught. They were greedy and tried to use their position and power to cut corners and make a quick buck. As amazing as it sounds, both actually lost money in the process. Vizard dropped $335,000, while Adler lost so much the investigators will still be counting when the Beijing Olympics winds up some time in 2008.
While I’m sure nothing is more humiliating for Steve than being given the cold shoulder by the lads at the Toorak pub on Karaoke night, or for Rodney than applying his expertise to scrubbing dunnies in jail, surely they must be a little upset they didn’t even make a profit.
Both men have demonstrated a flawed understanding of investing. Perhaps they need to learn a lesson from two guys who actually made money in the past two years: my twin nephews Angus and Sam.
They are uniquely qualified to dish out the advice, having made honest profits that beat most Australian and international fund managers – while simultaneously tackling potty training. The boys are two years old.
The power of compounding
In 2003 I decided to invest some money on the boys’ behalf. My underlying philosophy on investing, and life for that matter, is that there’s no free lunch. No one can predict share prices day to day, even when you are privy to information the rest of us don’t have, as Steve and Rod have since discovered.
As the twins will attest, the only reliable way to make long-term wealth is via compounding returns. Compound interest is the accumulation of interest on interest, and over time it has a snowball effect.
To exploit the power of compounding, I decided on the boys’ behalf to invest in an index fund that simply tracks the overall performance of the 200 biggest companies in the country, surmising that in 20 years’ time, our standard of living will be better than it is today, and by being a part-owner in the very companies that help us achieve it, the boys will ensure a decent return.
Let’s make magic!
Investors are optimists. You have to be. In its simplest form investing is foregoing spending the money you have today, to profit in the future.
The twins have an investment timeframe that is measured in decades, not days, and thus are able to participate and profit from the slow and steady upward climb of society, and the compounding returns a strategy like this delivers.
In the next 20 years we will no doubt face troubles – terrorism, economic upheaval and the continuation of Australian Idol.
Yet isn’t it also true that each day scientists are making breakthroughs in combating disease? Or that entrepreneurs will continue to compete with each other to create new, cost-effective goods and services that improve our lives immeasurably?
That’s why guys like Vizard and Adler are giving investing a bad name – not just because they were dodgy, but because for all their wealth, power, fame and intellect they haven’t worked out that investing, as in life, is about profiting from creating value for people over the long term.
Tread your own path!