2017

hacked

H4ck3d

H4ck3d The big news this morning is the Equifax hack.  One of the handful of companies that compresses your financial life down into a single number got hacked, possibly exposing credit card numbers, social security numbers, names, and birth dates to unsavory characters.  While credit card issuers can just issue new cards, some of the information has no expiration date.  It’s not like you can just log in and change your date of birth or social security number. There are two parts to this story that disturb me beyond the actual hack itself.  First, it seems that Equifax was warned about possible weaknesses in its system and didn’t fix them.  Second, some senior executives sold company stock after the breach, but before it was public knowledge.  This just blows my mind.  I can’t see how these guys avoid jail. This video from CNBC is really informative.  Antiterrorism advisor Morgan Wright…


No Picture

Weekend Reads

Some fun reads and shameless self-promotion I take the L on high yield A discussion of taxing bitcoin.  Isn’t avoiding tax part of the point of an anonymous currency? Bill Nye may have had his face ripped off by Hollywood accounting Shocker: A third of high-end real estate deals may be shady Babylon’s nerds went base 60 – this is super cool The Northeast Ohio PKD walk is coming up soon.  Share my son’s story! Please send thoughts and prayers to those in the path of Hurricane Harvey, too.


take the l

Wrongness and a Strange Animal

Investing is such a strange animal.  You can be wrong and still make money.  You can be right and still lose money. I have been wrong on high yield bonds for the last couple of years.  I didn’t like the energy component of the space.  Oil prices were falling due to the shale revolution and it looked like companies that had sold bonds to make ends meet were overextended.  I feared that just a couple of bankruptcies could spread to the entire high yield space, dragging everything down. That didn’t happen.  Despite some private equity funds over-reaching, the space mostly adapted to low oil prices by cutting costs and developing technology to get oil out of the ground more efficiently.  Investors continued to buy up high yield bonds in a chase for yield. I was wrong, but I’m happy to take the L on my record for this one.  Piling…


Second Grade

For William’s First Day of Second Grade

Today’s post is a departure from the norm of investment news and snark.  I’m going to share a bit about my son, William, and ask you to spend a minute of your day to think about his cause. William was born in 2010 with Autosomal Recessive Polycystic Kidney Disease, or ARPKD.  We spent his first days with him in the neonatal intensive care unit (NICU).  He was in a plastic box and a machine was helping him breathe.  These were critical days.  We couldn’t hold our son.  He was cradled by a tangle of tubes and monitoring cables.  Most of all, the sounds will stick with me.  The beepbeepbeepBOOP alert of his pulsox unit, the inflating of the blood pressure cuff every 15 minutes, and assorted klaxons and pings haunt me.  You wonder if this alert is the big one.  What’s wrong?  And we were powerless to do anything, wondering if…


No is the Secret Sauce

No, the Secret Sauce

“I thought you guys had some sort of insider’s edge and that’s how you get returns for your clients’ investments…?” My friend was grilling up burgers and dogs for his kid’s birthday party while picking my brain about investing.  He was surprised to find out how vanilla our investment philosophy is.  No secret sauce.  No insider tips.  I don’t know a guy who knows a guy.  Just control what you can control.  A sensible asset allocation and a financial plan puts you ahead of most people. He was right, though.  We do have a special investment technique. We say no. We say no to high-cost, low value-add money managers.  No to the absurd, overly-complicated, sketchy, and irrelevant.  It’s not always an easy no, though.  In some cases, we have to work to get to no. In 2012, we were pitched an energy LP.  It was a helluva pitch.  Polished presentation….


Reese is a good dog!

Who is Holding Your Leash?

On PIMCO’s blog, Gene Frieda writes that “markets do not explode every time volatility is low, but volatility has always been extremely low when markets have exploded.”  This reminded me of the variable or intermittent reward system I stumbled upon when researching training techniques for my dog. The idea is that instead of getting a reward every time the dog performs the desired behavior, you reward on a variable schedule.  For example, you’d reward a treat for every 5 times the dog performed the ‘sit’ command properly.  Sometimes you reward after 3 sits, sometimes you reward after 7 sits, but it averages out to every 5 sits.  Here’s the crazy thing: it works on people, too.  Casinos have understood this for a long time.  This is also why your significant other is on social media during dinner.  They are looking for that dopamine hit that social media provides randomly. I…


No Picture

Chasing Risk

  I read the Howard Marks memo last weekend and you should, too, if you haven’t already.  The memo got me to revisit some of my investing viewpoints.  It’s easy to listen to the same investment philosophy on repeat.  My fear is that one day I’ll look up and find that everyone’s streaming their investment philosophy on their phones while I’m listening to a walkman.  So I read everything I can.  Howard Marks is one of the very best.  He’s usually a bit cerebral for me, but the latest memo is perfect.  I ran out of highlighter halfway through my first read. Right off the bat he lays out four conditions that he sees in the market: unusual uncertainties, low prospective returns, high asset prices, and rampant pro-risk behavior.  I don’t agree with him on the first two points, but asset prices do seem high.  I have a man-crush on…


As Seen On TV Asset Allocation

As Seen on TV Asset Allocation

I want to saw a boat in half, then tape it back together and take it out on the water.  I didn’t know I wanted to do this until I saw a commercial that runs during Cleveland Indians games.  The spokesperson could be the dad on any sitcom, straight out of central casting.  This enthusiastic Everyman uses a miracle tape to fix everything from underwater leaks to boats that have been sawed in half.  I have absolutely zero need for this stuff, but I feel compelled to buy some.  Why?  For the same reason we have to talk certain clients out of an As Seen On TV Asset Allocation. Universal Theory of Infomercials My wife has a universal theory of infomercials.  She says the key to a good infomercial is to take something simple and make it look like rocket science.  Sure, your current knife can cut a tomato, but…


Argentina and the Frog

Argentina and the Frog

Like many classic fables, the story of the frog and the scorpion can be traced back to many cultures, each with their own twist.  Aesop’s version is here. A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back. The frog asks, “How do I know you won’t sting me?” The scorpion says, “Because if I do, I will die too.” Argentina was once the rising star of the global economy.  By 1913 it was the world’s 10th wealthiest country per capita owing to abundant natural resources and governance that emphasized economic growth.  After a military takeover in 1930, Argentina experienced constant political change.  From 1930 to 1983, the country averaged a new president every two years.  Argentina defaulted on its international debt in 1956, 1989, 2001, and 2014.  The 2001 default resulted in a highly…


Major Award

It’s a Major Award!

Walk into certain advisors’ offices and you’ll see plaques lining the walls with titles like ‘Chairman’s Roundtable’ .  Have they been honored for their investment prowess?  Perhaps their trustworthy nature?  It certainly sounds important – like a major award.  In reality, it’s a sales award.  That’s not something you’d generally find in a fiduciary’s office.  The same goes for many publicized rankings of advisors.  One of the most widely touted (from a prestigious publisher!) factors in revenue (ie what they were able to sell their clients over the last year) as a measure of advisor skill. Our Own Horn That’s part of what makes it feel so good to be listed on the Financial Times Top 300 Registered Investment Advisors.  The list isn’t an advertisement.  It’s based on assets under management, AUM growth rate, years in existence, compliance record, industry certifications, and online accessibility.  It’s not a ranking and they…