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April 21, 2012


April 23, 2010

By Edmund Lao

A tsunami (translated from the Japanese word for harbor wave) is a series of huge waves that happen after an undersea disturbance such as an earthquake or underwater volcanic eruption. The waves travel in radial directions from the origin of disturbance, similar to the ripples that happen after throwing a rock into the water. The waves may travel as fast as 450 miles per hour and as the waves approach shallow waters along the coast they grow to a great height and smash into the shore. They can be as high as 100 feet. They can cause a lot of destruction on the shore. They are sometimes mistakenly called “tidal waves,” but tsunamis have nothing to do with the tides.

A perfect example is the tsunami that hit Southern Thailand in December 2004. The tsunami was generated from the Indian Ocean earthquake with a 9.0 magnitude, wherein a lot of tourists were caught flatfooted. The tsunami was the worst natural disaster to ever strike Thailand, causing loss of life as well as major damage to property, the environment and the economy.

A more recent one was the quake in Chile which generated tsunami. The created wave has caused serious damage to the sparsely populated Juan Fernandez islands, and has traveled across the ocean at several hundred km per hour. The earthquake was caused by the floor of the Pacific being pushed below South American land mass. This sudden jerking of the sea-floor displaced water and triggered a tsunami, which crossed the ocean at a speed of a jet plane. However, due to the great distance from the origin, the wave was not able to cause damage when it reached the coast of Japan.

In 2008, people around the world were hit with tsunami. This tsunami did not spare everyone, but luckily there were no lives lost, and no properties were damaged. This tsunami was not a natural disaster but was man-made. It is called as a financial tsunami.

The main cause was a financial earthquake in the form of greed. As in the world of finance, greed is always the primary reason why a person loses his investment. The effect of the financial meltdown in America was so great that it resembled the effect of tsunami once it hits the coastline. There is truth to the saying, “When America sneezes, the world catches cold”. America and the rest of the world can be likened to tectonic plates that push each other. Before a tremor occurs, two tectonic plates push at each other. With the push, stress is built and once the energy is released, the result is an earthquake. The financial crisis in America is like an earthquake waiting to be released. And when released, it created a financial tsunami that changed the financial map of the world.

In our personal finance, we also have our tsunami in the form of debt. Like America, we have also become a nation of spenders and debtors. This is more evident in the credit card industry where consumers charge all their expenses, whether these are wants or needs. Credit cards are not bad. In fact, these are very good financial tools only when used properly. Unfortunately, majority views credit cards as extended wallet. Consumers charge to their credit card without minding if their purchase exceeded their income. Then when the billing statement comes, they see the words “minimum amount due”. Without giving a thought, they pay the minimum. When the next month’s statement arrives, they will be shocked to learn that the amount they owe grew by 3,5% a month. By continuously paying the minimum amount due, they unconsciously created friction like that of the earth’s tectonic plate. When credit card debt grows uncontrollably, it will be similar to a great earthquake that produces ripple that gradually becomes a tsunami. They are so deep in debt that no matter what they do, they are drowned in their financial condition. Psalm 37:21 says “the wicked borroweth, and payeth not again.” The minute a person goes into debt, he loses a portion of his freedom. As Proverbs 22:7 says, “The rich ruleth over the poor, and the borrower is servant to the lender.”

Another financial tsunami is in the form of scam. By definition, a scam is a fraudulent business scheme designed to deceive a person of his money. Scammers usually operate by manipulating the emotion of the people by tempting them with a high return. More often than not, people who are lured into investing are the educated, risk averse professionals who gave in to greed.  The scammers use all the tricks like high pressure selling, reverse psychology, insult (or emotional challenge), false motivation just to get you to “invest” your money in them. Usually the prospects fall to the trap laid by the scammers and when they realize the folly of their action, it is too late. The tsunami hit them already. Due to greed and laziness, some give their lifetime savings in the hope of getting a good return. Prov 14:23 spells it out: “In all labour there is profit: but the talk of the lips tendeth only to penury [poverty]” Prov 28:19 says: “He that tilleth his land shall have plenty of bread: but he that followeth after vain persons shall have poverty enough”

I use the word “SLY” as my weapon against scam. Before investing money, always check Stability, Liquidity, and lastly Yield. The reason majority fails against scam is because they think of the yield, yield, and yield. The golden rule is before investing, INVESTigate first. People do not check investment offers, they usually base their decision on the heard and the herd mentality. They just follow what others do, like the rats that died after following the pied piper. What usually happens is people follow what others do and act based on hearsay. Even in real investing, they always go against financial principle and suffer great loss. I use this widely known financial statement to avoid falling for scams, “I am greedy when others are afraid. When others are greedy, I am afraid”.

The key to survival is in any situation is preparation. Always remember the ant principle,for sure a financial tsunami will not affect you. It wasn’t raining when Noah built the ark.

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