American Fatwa

From all indications, someone or some group is killing scientist associated with the Iranian nuclear program. At least four have been murdered, the most recent by a bomb attached to the victim's car by a motorcyclist; the killer escaped. These attacks seem sophisticated and one can only wonder at their genesis.

There are a number of implications if the source of the attacks is a nation. Wars do not discriminate, usually, and collateral damage always occurs. But there is no war and these are private citizens being murdered here. Nor are they being murdered for an ideology; they presumably are being murdered for their talents. This is a true advance in society.

Most fictional accounts of time travel describe a hero trying to right a wrong in history, usually by deflecting or eliminating the actions of an antagonist to some perceived good. Sometimes there are competing perceived "good"s, like "End of Eternity" by Asimov. But rarely is the enemy in history a talented individual in a talented chain.

One might argue that these scientists are part of a dangerous movement in Iran. But so, theoretically, is their grocer. Does this really mean that nations can legitimately target any and, presumably, every participant in an opposition political movement? What about their theorist, their spokesmen? What about their thinkers? What about their artists?

Why Investing is so Hard #3

"A man alone has no goddamn chance" said Hemingway (or words to that effect.) Actually, in the world of investing, a man alone has some advantages:

*No arbitrary benchmark to meet (quarterly or monthly or in-house), so you can have longer-term time horizons and different goals
*You can enter or exit a position without impacting markets unless, of course, you are really, really rich.
*There is no public scrutiny of your holdings and no disclosures required--other than your immediate family-- so you don’t have to worry about someone taking your ideas or justify yourself to a boss or a shareholder.
*You don’t have to limit yourself to just the largest stocks or worry about position size (this is huge).
*Cost structure, fees, and taxes are within your control.
*You can reverse errors without professional consequences – you don’t get fired for admitting a mistake.
*You can have longer-term time horizons and different goals--a huge advantage.
*You know they're lying and can act appropriately.
*You can enter the start-up/angel market (although it's tricky because, of course, it's restricted)

Jack Bogle, a man from the fire who developed Vanguard, has developed a strong following. (He recently even said some positive things about the Occupy movement.) He has a rather cynical approach to investing. His followers are legion and usually well informed. In fairness, there are a lot of approaches to investing and his is popular because it opposes the "business of investing".
Generally his philosophy is this:
Develop a simple workable plan
Invest early and often
Never bear too much or too little risk
Never try to time the market
Use index funds when possible.
Keep costs low
Diversify
Minimize taxes.
Beware of people trying to sell you something.
Stay the course.

Why Investing is so Hard #2

There have been a lot of assessments of investing, a lot of evaluations and conclusions.

Remember Jeremy Seigle's book? "Stocks for the Long Haul'" compiled a lot of data from the last 200 years (the last decade excepted.) Since 1871 the annual return corrected for inflation has been: stocks 6.5-7.0%, bonds 2.8%. Generally Seigle felt that any 10 year period would show growth in value of the stock market. This is the basis for "buy and hold", the notion that markets rise in a ten year period if you just wait and not panic. Stocks were better than bonds and eventually the inherent value would be recognized in any ten year period.

BUT!
In 1982 the Japanese stock market was around 8,000 yen. In 1990 it rose to almost 40,000. This month it is about 8000. If you had bought into the Japanese anywhere in the last 20 years, you would have been slaughtered by your losses. Similarly, if you had bought at the low of 8,000 in 1982, you would be slaughtered by your stagnation and inflation.

The U.S. Dow was 11,722 in 2000 and is 12,418 now, 12 years later. That's 5.6 % increased over 12 years. That's an annualized return of 0.47%.

These are really terrible returns. Are things different? Are we in some new entity, some new paradigm? In Holland, the price of tulip bulbs is still far below what it was back in 1637, failing to come even close to recovery, after well over 350 years.

Maybe it's the same old thing, just seen with a wider lens.

Why Investing is so Hard #1

Charles Ellis said when he was overseeing the $15-billion endowment fund at Yale University:
"Watch a pro football game, and it's obvious the guys on the field are far faster, stronger and more willing to bear and inflict pain than you are. Surely you would say, 'I don't want to play against those guys!'
“Well, 90% of stock market volume is done by institutions, and half of that is done by the world's 50 largest investment firms, deeply committed, vastly well prepared – the smartest sons of bitches in the world working their tails off all day long. You know what? I don't want to play against those guys either."

Darwin once said: " Ignorance more frequently begets confidence than does knowledge" This actually has been given a name, The Dunning-Kruger Effect. The worse we are at any specific skill set, the harder it is for us to evaluate our own competency at it. So an investor might be terrible at investing but unable to see it. (There is an old joke where a man losing at football betting bemoans it to his bookie. The bookie suggests baseball and the bettor says "But I don't know anything about baseball".)

So not only is the average guy fighting against knowledgeable pros for a seat at the investment table, he may be very bad at investing and impaired in his self evaluation.

There are countless investing philosophies--all with some evidence of success--and countless ways to invest, not just equity and debt but countless subsets of both with new bright ideas coming all the time.

It gets worse. The business community itself has nothing but disrespect for the little guy and lies to him as often as possible. Investing companies give him annual returns rather than internal returns.(Everyone) Companies themselves lie.(Enron) Trading companies sell you one thing and then short it.(Goldman Sacks) The fee for the sale is more important than what is sold.(Everyone) Short term results are more important than long term.(Everyone) Not to mention the prominence of all the seven deadly sins displayed with confidence and pride. No one should invest a penny until he has read a few books on the dangers. A few suggestions: "When Genius Failed"(Lowenstein), "The Big Short"(Lewis) and "Fooling Some of the People All of the Time" (Einhorn) And everyone should see the HBO movie "Too Big to Fail."

It's a mess. What's a guy to do? There are some options but they are all compromises. The cynic in me looks where the average guy is limited in his ability to invest by law, the areas where the government legislates against him. Two areas stand out: Hedge Funds where the people in the company invest their own money and Start-Ups where the company is accessible from the beginning. If the government has restricted entry, there must be something to it.

Candidate: As in Candid and Candide

A recent NYT editorial summarized their objections to the current Republican agenda and opined that their philosophy was responsible for the current economic crisis. Generally the Republicans were held responsible for stagnation in the minimum wage, budget cuts, lower taxes.They do not explain how the Republicans had such influence over the last 30 years with so little success as public candidates nor do they explain why the Europeans with an opposite economic and political view ended up in the same situation as the Americans.

What seems true is the pervasive myth that the two parties are different, that their agendas are other than self perpetuation and that their public statements are somehow either sincere or misunderstood rather than a disguise, a Trojan horse to get them past the electorate's suspicious defenses.

Sunday Sermon

The readings today contain the famous Samuel story about being called by God in a dream repeatedly and not understanding that the voice was not the neighboring priest (another of the Bible's dramatic and funny episodes of confusion and misunderstanding created for a foolish humanity and scripted by an intergalactic dramatist)and John's recruitment of the early apostles, including Peter. The general story is one of God's inviting people to Him, solicitous and individual. But there is another component: While God is "the closer," the apostles are the interface. The apostles have "sampled" Christ and have gone out the population with their conclusions.

This is a profound notion because none of Christ's claims make any sense without His followers' confirmation.

A Moral Fable

While at dinner at a nice restaurant, I watched a beautiful Porsche pull up and park. An attendant got out, looked like a parking valet, and looked the parking meter over. He put in some coins, left and returned with a well dressed guy who looked like security. The two of them looked the meter over, the well dressed guy explained the meter to the valet and, I suppose, their policy and his advice. He then fed the meter and the two left. Towards desert, a meter maid pulled by, looked the car over, then the meter. She ticketed the car.

I left before the valet returned to pick the car up. I wonder how he handled it.