These days, you hear more and more to be prudent with your investment decisions. It's also a common investment strategy to diversify your portfolio. They say, "It's the prudent thing to do." If one investment sector goes down, you mitigate your risk by also having investment in other areas which in all likelihood, will go up. They will tell you that this is also an opportunity to invest into more risky endeavors and this is where you can be risky and prudent at the same time. Get it!

As a newcomer into the financial world, I started by getting my information from mainstream media. Makes sense... it's easy access and doesn't cost anything. Besides, you rely on the journalists which broadcast the news because they know their stuff. Also, they are sponsored by highly knowledgeable and responsible entities, which have your interest at heart... or so you would think. When they told me to be prudent with my investment decisions however, I started asking myself what prudent actually was.

As a first step, I used to wake up in the morning and tell myself that I was going to be prudent today. I told my girlfriend what I was setting out to do and she asked me, only after a long, funny look,  what I thought prudent was. I replied that I had no clue, but I was about to find out since that was all the talk on TV. I was on a quest for prudence and somebody had to know.

So, I looked up the word in the dictionary:

            1: the ability to govern and discipline oneself by the use of reason

            2: sagacity or shrewdness in the management of affairs

            3: skill and good judgment in the use of resources

            4: caution or circumspection as to danger or risk

That, I found, was of little help to me.

Further in my quest, I decided to see when the word prudence would occur most frequently in the history of financial markets. I discovered, for example, that the word was barely used during the 1990s, but saw its reappearance around the beginning of the 21st century. Was it a trend, I questioned, a word that would simply vanish for a while and then rise from a long forgotten past? So, there seems to be eras where you have to be more prudent than others!

When I was a kid, I remember being told to be prudent. I would then ask what prudent was and they told me to be careful.

"For what?," I asked.

"For dangerous stuff," I was told.

"Like what?"

"Like an accident."

Since I never have broken anything, I figured that I was prudent. What else could I rely on to tell me if I was doing the right thing? Besides, a simple reply like "OK" seemed to calm all fears and I could go on my merry way. Come to think of it, maybe I was too prudent and I could have had more fun and still be prudent enough!

When I spoke to my banker about investing, he told me about various vehicles that carried various amount of risk. "If you want to be prudent," he said, "you have to go with these ones."

"What makes these a prudent investment as opposed to those other ones?"

"Cause they carry the least amount of risk," he said.

"But then, these other ones performed better."

"Yes, but they are more risky."

"Can’t you guys go in and out at the right moment?"

The banker explained to me that in the end, the customer makes the ultimate decision and that is what he’s getting. I can’t imagine all those financially illiterate folks out there sitting in front of their banker and being left alone with decisions which may seriously affect their lives, having no idea of what they are getting themselves into. In a matter of minutes, a person will choose, with very limited knowledge and with no offer of training or information seminars, to invest a great deal of their life's hard work based on the degree of risk. Now, even if the person selects the investment, which carries the least amount of risk there is, is that prudent?

On the other hand, you can’t necessarily blame the financial industry for what’s going on. When I asked people if they were interested in financial stuff, they told me that they weren’t. They told me it was too complicated, that they already had a job or that someone else was taking care of it. When I asked them about their portfolio performance however, I started to hear teeth grinding. Just to make matters worse, I would tell them that you can make money when stocks go up, but you can also make money when stocks go down. They almost invariably ask me how I do that, but my reply is often, “You told me you weren’t interested, but now you want to know?”

The fact is that prudence has now been thrown out the window. For whatever reason, people feel insecure and helpless with regards to money matters. You just cannot be prudent these days because prudence doesn’t mean anything. It is of utmost importance that we all realize the word “prudence” can only lead to recklessness. Only knowledge can assist you in making sound investment decisions, but we have made it so complicated—almost impenetrable and full of techno babble—that people get scared.

I honestly believe that people want to learn about money and how to manage it and that what’s going on right now borders on conspiracy. We have oversimplified for the masses a subject that we have purposely complexified. We are inviting the masses to enter investment territories that can best be described as jungles and pretending that they are safe in the hands of professionals, based only on a small pamphlet or information sheet.

As professionals, we have it in our ability to make these subjects accessible and interesting. To print stuff that people will want to read. That they have fun reading. Humor may not be the forte of the financial world, but that will have to change… along with many other things. On the other side of the equation, one can question the emergence of investment vehicles such as index funds, S&P futures, hedge funds, derivatives and for that matter, the ability to short stock. Market professionals will tell you that each and every vehicle has its purpose, but in the end they are all designed to handle mostly two things: stocks and bonds. Besides, we know now that many of these instruments are used to suppress markets and hide debt.

We have lost the investment mentality that says that I “invest “ in a company and that dividends are the reward, that I “invest” in a government or a country and that I collect interests and that “cash” is an investment. It’s the decision not to invest and that given certain circumstances, it’s a very wise decision.

Before I finish this article, let me just use the word “prudent” one last time in the sense it is generally accepted.

There is nothing prudent about what’s going on out there. It is a constant hide and seek game where new financial instruments are designed to hide the simple truth. It prevents people from acquiring information that will put them back in the driver's seat and regain control. We don’t want people to be in control. We just want their money.

If you ever hear the word prudence again, and that time is near, get up and leave.

© 2003 Bernard Malouin
Montreal, Quebec, Canada
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