2017

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My Favorite Posts This Week

I try to share good posts via Twitter.  A bunch of people were writing solid stuff this week:   A Little Knowledge is Dangerous – Nick Maggiulli – Surprising stat about survival rates for people lost in the wild.  Kids six and under have a surprisingly high survival rate while one of the lowest is for kids seven to twelve.  Younger kids follow their instincts.  Older kids overthink and panic.  This maps over to investing in that knowing a little bit can lead to devastating over-confidence. Is Robert Shiller Right that Passive Investing is Dangerous? – Cullen Roche, Chicken Farmer – This is a sensible layout of one argument in the active/passive debate, pointing out that the sides often aren’t even debating the same points. How to Deal with Market Moving News – Ben Carlson – Binary thinking and single variable analysis are killers to long-term portfolio success. Backtested Strategies:…


Bitcoin Mine

Moar Bitcoin!

After my last post about Bitcoin, I got a lot of, “So… Bitcoin?”  No one has a concrete opinion on this thing except the evangelists, but everyone wants to discuss it.  Skeptics seem more concerned about staying in their lane than dragging down crypto – they don’t understand it, they don’t need it, and maybe it smells a bit fishy to them. I think crypto is an elegant solution in search of a problem and I am constantly reminded of the early internet.  We didn’t see the use of the internet at first, but today it’s a basic utility.  Here’s how I’m looking at Bitcoin right now. What is the Purpose? It’s a way to store wealth.  This is particularly handy if your centralized currency authority is devaluing/confiscating.  With fewer institutions between transacting parties (basically just the network), Bitcoin is a fast and cheap way to send money to someone…


Bitcoin

I Changed My Mind On Bitcoin

I changed my mind on Bitcoin a few weeks ago.  A bunch of smart people had made public comments on it, generating buzz.  I was going to write up a short summary for our investment team with pros and cons, ultimately concluding that Bitcoin was garbage.  But then I did some research. I read this Letter to Jamie Dimon which is the best tutorial on crypto-currencies (maybe more accurately crypto-assets) out there. I got sucked in to Patrick O’Shaughnessy’s Hash Power podcast series and have listened to it twice now. I’m convinced that Bitcoin is a real thing that has value.  Is it worth $7,500?  I have no idea and neither does anyone else.  Crypto-assets are an uncharted territory, basically a new paradigm along the lines of the invention of the internet.  Like the internet’s early days, nobody knows where the value lies yet.  The hip thing to say now…


Congrats

Tone Deaf on ETFs

A couple of major announcements in the Exchange Traded Fund (ETF) world last week: State Street announced that they slashed the expense ratios on a ton of their ETFs and TD Ameritrade added a ton of ETFs to their ‘no-commission’ platform.  At first glance, this is great news.  Cheaper beta is available to more investors.  However, this is actually tone-deaf and a transparent money grab.  Hopefully, investors will show that they know better. Huh? State Street’s fee reductions are late in arriving.  Vanguard and iShares have been eating State Street’s lunch for years, in large part due to lower expenses.  Will investors flock to State Street now that it is the low-cost provider?  Perhaps the dumb ones will.  Investors who have money with Vanguard or iShares likely have huge gains.  Selling these positions to save a couple of basis points would be penny wise and pound foolish. While it is…


Harvard

Update on Everyone’s Favorite $37 Billion Hedge Fund

It’s Harvard.  The $37 billion hedge fund is Harvard. More specifically, I’m referencing Harvard’s endowment.  When Harvard announced yet another management change last year, I was skeptical.  It seemed to me that Jane Mendillo inherited a mess created by an intellectual mercenary (who left his next employer under undesirable circumstances as well).  This began a management carousel ending with N.P. “Narv” Narvekar most recently taking over as CEO of the Harvard Management Company (HMC).  Reading the latest endowment report, I think Narv might be able to turn this thing around.  He is looking to improve HMC’s culture, structure, and incentives. The Changes Culture is difficult to change in any setting, especially after so much turnover in management.  Narvekar wants to build a singular team rather than insular tribes.  Getting buy-in from people who have seen several leaders come and go will not be easy.  Narvekar does have an advantage in…


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…


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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….