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…

News as drama

News As Drama

Children have trouble focusing their attention.  To get my son to turn all his attention to his homework (since when do first graders have homework, anyway?), we often need to mute or turn off the TV.  Handheld screens are completely off the table for him unless we are on a long car ride.  He doesn’t have the discipline to choose substance over sparkle.  YouTube knows that he and his generation love unboxing videos and shoddy animation.  Don’t think the media isn’t targeting you the same way. As an adult, you should be immune to such base manipulation, right?  This is not the case.  Advertisers need to get you to self-diagnose moderate to severe Wandering Toe Syndrome and ask your doctor if Toeproxin™ is right for you.   How do they do that?  The adult version of unboxing videos is drama.  This used to be the domain of prime-time fictional television….

A warning sign to the rest of society.

Walk of Shame

Motivation Most people seem to be operating on the same social frequency.  I can see this, but I am unable to take part without tremendous effort that feels insincere.  Awkward conversation is my forte.  Hoping to improve, I observe and try to understand how people interact with one another.  One thing that has helped me in deciphering social interaction has been to recognize motivation.  Once you find out what drives someone, their behavior becomes easier to understand.  What is the most common motivator that I have seen? People like to feel important.  Everyone is the star of their own movie.  So when an airline looks for volunteers to give up their seats, they’re actually telling their passengers this: “There are four people more important than you who are getting on this flight.  How much do we have to pay you to admit that?” Before boarding, this is a glorified marshmallow test.  Delay…

Cleveland Bridge

Eventful 24 Hours

The last 24 hours have been eventful.  If you need yet another perspective on world events, keep reading.  If not, just skip to Other Stuff where it’s less serious. We launched missiles into Syria. This feels like the typical setup where the world calls on the US to act as the world’s police, our military is deployed, and the world decries our meddling in world affairs.  A dictator is butchering his own people, but no one is willing to do anything about it except us (sternly worded letters don’t count as action).  If we don’t do anything, we’re abandoning the region to nefarious powers.  If we go in guns blazing, we’re warmongers.  Ad hoc missile strikes seem to have minimal political backlash while still accomplishing a mission. If this doesn’t lay to rest the conspiracy theory that Vladimir Putin controls our executive branch, it certainly erodes its credibility. In one…

No Picture

Don’t Buy the Next Amazon

THIS STOCK COULD BE LIKE BUYING AMAZON IN 1997!  So reads the ad disguised as a headline on Yahoo Finance.  Here’s the thing: you don’t want to buy the next Amazon. Clicking on the ad takes you to a wall of text.  The performance is stellar.  The method is so easy an idiot could do it.  Two idiots say as much in quoted testimonials.  This is a no-brainer.  Then comes the catch – just subscribe to the newsletter. Disguising ads as news headlines is what finally pushed me off of Yahoo Finance.  I clicked the ad today (google took me to the site while looking for news on a company) because I’ve seen this same ad for years.  Either there’s a new Amazon every week or maybe, just maybe these guys are full of it. Don’t Buy The Next Amazon Amazon is up 43,000% (for real) since IPO.  Why wouldn’t…

Red Herring, Red Swan

Red Herring With headlines proclaiming the worst day for the stock market in 2017, you might think the market has plummeted in a bout of panic-selling.  This is a red herring.  The S&P 500 hasn’t been down more than 1% in over 100 days.  Of course we’re going to have another 1% down day some time, but the real story is the lack of big down days rather than breaking this streak.  I’m sure some poor souls are reaching out to their brokers to ask what they should do.  CNBC is shaking the tree with the noise around this ridiculous headline and brokers are happy to collect the commissions that fall into their laps. Red Swan The concept of Black Swans has been bastardized almost beyond recognition.  Nicholas Taleb put forth the idea of a Black Swan event being something outside the realm of normal expectation making a significant impact that…


How ‘Bout That Market: 2/13/2017

How ‘Bout That Market?  This is a question I hear at social gatherings often enough that it makes sense to make it a regular entry on this website. The Market How is the market doing?  Before we get to the market today, let’s look at how the market was doing a year ago.  On February 11th, 2016, the market was off to its worst start ever, down over 10%.  This was it.  This was the other shoe to drop.  Except that it wasn’t.  2016 ended up 12% in spite of significant headline risk (Brexit, Trump, Cleveland sports successes, etc). How is the market doing today?  Twelve months after the market bottom, the S&P 500 is up over 27%.  The market continues to climb the wall of worry.  I don’t know when the march upward will end.  The only thing I would take as a sure sign of a market top…