Advice to Pacquiao: Get finance & tax advisers, avoid bad friends

Not he who has much is rich, but he who gives much. —Erich Fromm               

My unsolicited advice to boxing champion Manny Pacquiao is to avoid bad-quality friends and that he should urgently hire honest and competent finance, tax and estate experts as advisers. I also urge our millions of overseas Filipino workers, local artists and athletes, doctors, dentists, real estate brokers and people in other professions to seek finance and investment consultants for the purpose of creating and preserving our incomes.

Thanks to businessman and Philippine STAR reader Robin Tong for sharing with me the inspiring story of National Basketball Association (NBA) athlete Junior Bridgeman. Unlike those cited in a study conducted by Sports Illustrated magazine, a shocking 60 percent of NBA players are completely broke or bankrupt within five years of retiring. In contrast, Bridgeman spent 25 years building a US$400 million fast-food empire of 160 Wendy’s franchises and 120 Chili’s franchises, with 11,000 employees through wise investments, hard work and perseverance; because early on he already knew that money from playing basketball wasn’t going to last forever.

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Early this year, The Wall Street Journal had its reporters Liz Moyer, Jason Zweig, Ryan Wallerson, Liam Pleven, Leslie Scism, Kirsten Grind and David Benoit interview many prominent people who manage, invest, study and write about money to share the single best piece of financial advice they ever received — or gave. Of the 22 investors, I’ve chosen some of the best advice and classified them:

• Keep making your own money. This advice is very useful for women, especially those in the more chauvinistic societies of Asia. Michelle Smith, chief executive of Source Financial Advisors and a specialist in financial planning for wealthy people going through divorce, said, “My great-grandmother taught me: Don’t ever give up your ability to make your own money.”

• Price yourself high; don’t under-price yourself. This advice is very important to artists and professionals, many of whom are too timid or shy to ask a fair or a good price for what they’re really worth. Scott Adams, creator of Dilbert and author of How to Fail at Almost Everything and Still Win Big, said, “The best financial advice I ever got was ‘Price yourself high and see what happens.’ Humans aren’t good at knowing their market value. When I started doing paid speaking engagements I had no idea how to price myself. A mentor told me to quote an absurdly high price. The client accepted it without hesitation and offered to pay my travel expenses as well. I no longer under-price myself.”

• Be straightforward and honest about money. Hal Steinbrenner, co-chairman of the New York Yankees, said, “The one thing about money that my dad always instilled in us was to just be straightforward, upfront and honest. Don’t play games with people’s finances. Some deals are going to happen because of that, and some deals aren’t. It’s a good way to conduct yourself in life in general, really; there are no downsides.”

• If you’re in public service, plan your family’s finances in order to be independent. This advice is so important, and not only for people who want to become judges, justices or politicians in public office, which requires objectivity and independence. Jed Rakoff, US district judge, Southern District of New York, said, “When I turned 43, I confided in one of my mentors, Judah Gribetz (former counsel to New York Gov. Hugh Carey) that I was thinking of pursuing a federal judgeship.” Gribetz advised him to save money first for the college education of his three kids, because he said a judge can’t be truly independent if he’s worrying about finances. He saved up nine years before applying to be a federal judge. 

• Go out and start a business. This advice is for people who think they are predisposed to entrepreneurship. I believe it is good also for people to do well as investors, executives or professionals. Take the plunge and start your business. According to Charles Schwab, chairman of Charles SchwabCorp., “A friend said to me, Chuck, you’re better off being an owner. Go out and start your own business.”

• Read financial statements and don’t depend only on financial advisers. Alexandra Lebenthal, chief executive of Lebenthal Holdings, a money-management firm, said, “Read all your statements and prospectuses closely. Don’t depend on your adviser to do it for you. Everyone has the responsibility to know what they are investing in.”

• As an investor, think like a business owner and not as a renter. Joe Mansueto, chief executive of financial research firm Morningstar, said, “An investor should think like a business owner, not a renter. Most businesspeople don’t get up in the morning and ask whether they should sell their business that day. If they own a pizza shop, they don’t think about whether what they really should own is a shoe store instead. They show patience and persistence and try to understand their underlying business better so they can earn the greatest return for the longest period of time. So investors are in many ways misled by stock-market volatility. The values of the underlying businesses just don’t change as quickly as stock prices do. You really don’t have to watch those changes hawk-like day after day.”

• In securities markets, diversify, keep costs low, and don’t expect a free lunch. William Sharpe, Nobel laureate in economics (1990) and emeritus finance professor at Stanford University, said, “Best advice I’ve gotten (from Armen Alchian, my mentor at the University of California, Los Angeles, when I was a graduate student): When thinking about markets, assume that prices are set by the interactions of buyers and sellers, each trying to maximize their own welfare. The best advice I’ve given: In securities markets, don’t expect a free lunch; diversify broadly and keep your costs low.”

• Don’t buy a financial product you don’t understand. In order to avoid dangerous “get-rich-quick” schemes or other scams, learn to say “no.” Sallie Krawcheck, owner of 85 Broads, a women’s networking group, and a former senior executive at Bank of America and Citigroup, said, “The best financial advice I ever received was not to buy a financial product that you didn’t understand and not to buy it from a person who couldn’t explain it so that you could understand it.”

• Think of your teammates first, whether they are your clients or your staff. John Rogers, chairman of Ariel Investments, a Chicago-based investment manager, said, “My basketball coach, Pete Carril (head coach at Princeton University from 1967 to 1996), said you have to think about your teammates first. “There’s no excuse for acting selfishly and putting yourself ahead of your teammates.”  Whether for business or non-profit organizations, let us take care of our teammates — our clients as well as our employees.

• Liberate yourself from debt. This is very wise and important advice that many of us should always be reminded of, especially in this era of low interest rates and proliferation of credit cards or other credit promotions that induce us into more debt. Mark Cuban, owner of the Dallas Mavericks, said, “Pay off your debt first. Freedom from debt is worth more than any amount you can earn.”

• To get rich, take concentrated risk; to stay rich, minimize risk and diversify. This advice is very interesting, largely dependent on what financial stage we are in life, whether we’re starting out and aiming for big bucks, or already well-off and trying to preserve wealth. Larry Swedroe, director of research, Buckingham Asset Management, an investment-advisory firm said, “I was taught that the strategy to get rich — take concentrated risk, typically with your labor capital/business — is entirely different than the strategy to stay rich, which is to minimize the risks we take, diversify the ones we take as much as possible, keep costs low, tax efficiency high, and don’t spend too much.”

• Don’t forget to sell; remember, it’s easier to buy than to sell. This is fascinating advice to businesspeople and most especially to investors. Before I went into the real estate business, I started out as a real estate broker (and I still do this up to now) and I’ve seen so many investors or property owners who didn’t want to sell when the market was up or when they had no financial need, often sadly selling at the wrong time or when they badly needed cash.

Seth Klarman, president of the Baupost Group, a Boston-based hedge fund, said, “Wally Carucci (of brokerage firm Carr Securities), a dear friend who passed away this last year, was an amazing mentor to me 30 years ago. The wisdom he gave to me was ‘You have to feed the birdies when they’re hungry.’ There are two ways to interpret that. There’s the superficial meaning: Don’t forget to sell, and always remember that it’s easier to buy than to sell. But what he was really talking about is that liquidity is ephemeral. Wally was best known for his research on very illiquid, thinly traded stocks. What he meant on the deeper level is that when people want to take you out of an asset for a full price, don’t hold out for the last dollar.”

• Think long-term. This is very wise advice and also a culturally Chinese perspective: “Take the long-term view.” Jane Mendillo, chief executive of Harvard Management Co., the university’s endowment, said, “’Take the long-term view’ was the best advice I ever received. If you take the long-term view, you will see things others miss. Nearly everyone thinks about next month, next quarter. Jack Meyer, who ran (the) Harvard endowment for 15 years, taught me that when you think about multiple years or even decades you see opportunities to create value others might not see, and you make different judgments today as a result.”

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