Opinion

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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…


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…


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…


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…


Product or client first

This Weekend’s Fiduciary Test

The first phase of the Department of Labor’s fiduciary rule went into effect on Friday.  This is the rule that mandates that your financial advisor must act in your best interest.  The whole thing doesn’t go live until 2018, but it will be interesting to see who makes what kinds of changes in the meantime.  Some have rushed to comply.  Others are banking on the Trump administration to overturn it. The Test I was particularly interested to hear whether the local AM station’s annuity salesman would change up his schtick this weekend.  He has an hour on Sundays to make his pitch in his non-threatening monotone.  The focus is on potential returns of the annuity (really the change in income the annuity would pay – very different from change in total value).  There’s always some sort of bonus and guarantee that you can’t lose money.  What’s not in focus is…