Friday, September 04, 2015

Will the Mouse of Wall Street Find More Cheese?

"The stock market is all about fear and anxiety, best shown in how a mouse reacts to a cat." So reasoned Dutch cartoonist Joost Swarte, creator of this week's New Yorker cover,"The Mouse of Wall Street."

Swarte's analysis was incomplete. A Facebook comment offers the necessary addition: "Fear, anxiety and greed."

Can the mouse still expect greed to be rewarded, despite the market correction? The New Yorker's James Surowiecki offers room for hope. Surowiecki points out that the economy looks better than the market. With obvious exceptions like Apple, China's woes shouldn't do significant harm to American companies.

Yale's Robert Shiller sees the mouse in peril. CAPE, the modified p/e ratio he helped to develop, continues to run dangerously high. 
It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S.&P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.
What do you think? Will the mouse find more cheese, or will the Dow collapse?

Saturday, August 29, 2015

Wall Street's Best Euphemism

What marketing genius thought of correction as the term for a stock market drop of less than bear-market proportions?

Correction leads investors to look on the bright side and stop worrying. Stock prices went wrong ("Did you really buy Exxon at $100?") but now they're corrected. Aren't you glad?

Old line wealth managers wondered if our latest correction would panic clients of online investment services. Betterment's Dan Egan thought not

“The vast majority of our … customers are normal people going on with their lives. We are not going to be the ones who force our clients to pay attention to the stock market since we know that is not good behavior.”

Nevertheless, Egan took the precaution of posting What to Do After a Market Drop. The contents nicely mirror what non-robotic advisers were telling their clients. 

Your obedient blogger is not on Ric Edelman's email list, but for some reason Ric sent along this revealing chart – a good way to demonstrate that stock prices go up a lot more than they go down. 

Ironic, isn't it? Except in the very short term, the stock prices reset by a correction almost always prove to be pessimistic, and therefore incorrect.

The Trust Officer and the Orphan

This week's fiduciary feel-good story, spanning almost half a century, from Ron Lieber in The New York Times.

Thursday, August 20, 2015

Police Officer Loses Job and Webber Inheritance

The Webber case, involving an elderly woman who was leaving more than $2 million mostly to charities until she met a young police officer, is decided at last. The officer, already fired from the force, loses his inheritance as well.

The court found Aaron Goodwin exerted undue influence over Geraldine Webber, who was in her 90s when she made a new will leaving Goodwin her waterfront home and other assets.

The Portsmouth Herald, our local paper, covered the Webber case like a blanket, spotlighting local attorneys who had refused – or in one case agreed – to draft her new will and questioning the actions or inactions of the police department and its commissioners.

How much of the more than $2 million is left to distribute, under Webber's earlier will, has yet to be reported.

Postscript: Morning paper just arrived. Can't accuse them of downplaying the story.

Wednesday, August 19, 2015

Retirement Investing: Plan B?

"We shall fight on the beaches, we shall fight on the landing grounds…." Oh, wait! That was Winston Churchill in 1940, not opponents of the Labor Department's proposed fiduciary standard for investment advice.  Nevertheless, they showed their fighting spirit at last week's hearings.

Requiring fiduciary-quality advice would not reduce costs, representatives of the investment-products industry contended. They repeated their warning in TV commercials. Workers seeking fiduciary guidance would have to pay up, shelling out the same one percent annually as richer folks. And the industry's fierce resistance ("We shall never surrender!") would send compliance costs through the roof.

Perhaps some sort of fiduciary standard for investment advisers to 401(k) plan investors may yet emerge. But the pale, anemic regulation probably won't be worth much. 

So it's time for Plan B: If sellers of investment products can't be turned into fiduciaries, perhaps they can be sidelined.

Plan B proponents advocate drastic steps to simplify retirement investing. They would replace today's  jungle of retirement plans and accounts with just one vehicle. John N. Friedman calls it the Universal Retirement Savings Account. Investment choices ideally would be limited to low-expense index funds or life-cycle funds. 

Unfortunately, history shows Plan B is a bad bet. Government efforts at simplification almost always fail– look at the Internal Revenue Code. Restricting investment choices to a few simple, inexpensive products is equally difficult. If this is a free country, shouldn't investors be free to buy pricey investment products without interference from the Nanny State?

Anybody got a Plan C?

Monday, August 17, 2015

Needed: Post-Death Media

The British may now make "pre-death" videos (h/t to Gerry Beyer's blog for calling attention to this item). Yes, and generations ago, people wrote pre-death letters. We're still waiting for real news, like post-death Facebook posts.

Friday, August 14, 2015

“America in Circulation” is Worth a Visit

The Museum of American Finance offers an online historical survey consisting of American paper money. Prepare to be amazed by the variety of bills and notes, some dating back to colonial times.

State bank notes often paid tribute to local enterprises. Stonington on the Connecticut shore once thrived as a whaling port.


This legal tender note was issued about a century after the Lewis and Clark expedition.

Sunday, August 09, 2015

Genuine Stock Picks, Fake News . . . or Vice Versa

In The New York Times, Joe Nocera recalls when Jon Stewart, late of The Daily Show, took on Wall Street. Most famously, "the Cramer takedown."

Officially, Jim Cramer was an authentic stock analyst and Jon Stewart hosted a fake news program.  In reality, many a millennial looked to The Daily Show, not the networks, for news, and Cramer himself acknowledged his CNBC role as an entertainer.

Confusing? Not really. As George Burns might have said, "Authenticity - if you can fake that, you've got it made."

Monday, August 03, 2015

Don't Spend the Kids' Inheritance

Milllennials could need all the windfalls they can get. Steve Ratner in his NY Times column shows how 18- to 34- year olds are financially disadvantaged compared to their counterparts in previous generations.  Most of them won't inherit much, but every little bit will  help.

Postscript: Picked up my Monday NY Times this morning and noticed the print edition was light as a
feather. The paper's future resides online, and the transition is already noticeable. For instance, the print version of Ratner's column was accompanied by only one chart. The online version is graphically enriched.
One of the added graphics shows millennials are poorer than their age-group used to be. Another displays a major reason why.


Tuesday, July 28, 2015

Wealth Management, Swiss Style

Finding investment banking profits hard to come by, major Swiss banks are emphasizing the more lucrative business of wealth management, the NY Times reports.

Skill in stock picking is not required, judging from a survey of brokerage accounts at one large Swiss bank. Clients who followed their advisers' advice when buying stocks did worse than those who selected stocks on their own.

U.S. wealth managers who have lost clients to "more sophisticated" Swiss institutions are entitled to smirk.

Monday, July 27, 2015

Divorce Settlement Saves Estate Tax, But . . .

1978: Jimmy Carter was in the White House and an Illinois businessman seems to have been in love, although not with his wife. He divorced her, agreeing in a settlement agreement to leave their three daughters and one son half his estate in equal shares when he died.

He remarried the following year. By the time he made a new will and created a trust he must have forgotten the divorce agreement, for he left the children less than 34% of his estate.

The businessman, Warren Billhartz, died in 2006. The following year his widow must have staged a coup, convincing her stepchildren to waive their rights under the divorce agreement. A federal appeals court summarizes:
According to the Marital Separation Agreement, the four children were to receive 50% of Billhartz’s “estate” (an undefined term), divided evenly. In the end, though, they cumulatively ended up with less than 34% of Billhartz’s assets, divided unevenly. None theless, after receiving notice of this discrepancy, all four children executed an agreement (the “2007 Waiver Agreement”), in which they accepted the lesser shares set out for them in the trust and waived all potential claims they may have been able to assert against either the Estate or the trust. The payments to the children totaled approximately $20 million; each daughter received about $3.5 million, while Ward received $9.5 million.
 How do federal courts enter the story? Even though the divorce agreement was not honored, it was used to claim that $3.5 million per child was a deductible payment of indebtedness rather than an estate-taxable transfer. The IRS objected but ultimately agreed to allow an estate-tax deduction for slightly more than half the payments.

Moneywise, that was good news. Familywise, it was explosive. The children finally realized what they had signed away when they agreed to accept no more than their father had left them by trust.

The daughters and the son went to court seeking their full shares of the estate, and the daughters won an additional $1.45 million each. But that meant the agreement with the IRS no longer looked so good. The children wanted it revised to allow a deduction for at least part of the additional payments. The Tax Court said no, and now the Appeals Court agrees.

Trusts and Estates saves us the trouble of spelling out the details of the story here.

Question for Jim Gust: Did Billhartz hit upon a ploy other wealthy individuals could use to do some estate-tax planning when they shed a spouse?

Thursday, July 23, 2015

Proliferating Trusts . . . Bulletproof Trustees

Thanks to Gerry Beyer for calling attention to Adam Hofri-Winogradow's survey of trusts around the world.

"More than ever before," Hofri states, "the trust is now heavily used across most of the globe as a key means for individual and family wealth planning...."

Unsurprisingly, the survey finds that dynasty trusts, designed to last more than a century if not forever, have surged in popularity. But "forever" may prove theoretical. A significant proportion of such trusts may run no longer than conventional generation-skipping arrangements, thanks to children or grandchildren armed with powers of appointment. 

U.S.-based trusts stand out from the global pack in a couple of ways: Greater emphasis on protecting beneficiaries from creditors, and a greater determination on the part of U.S. grantors to keep a degree of control over what they give away.


Until the last generation or two, generally trust beneficiaries could seek legal relief if they suffered losses due to the trustee's negligence. No longer. When the wealthy create trusts they are routinely expected to accept exculpation clauses that shield trustees from liability.  It appears, Hofri-Winogradow finds, "that exculpatory terms, without settlors receiving any quid-pro-quo for their inclusion, are now a conventional, nearly universal standard in donative trusts serviced by professionals. "

(He has enlarged on the theme of vanishing protections for beneficiaries in The Stripping of the Trust.)

Is legislation desirable to roll back the exculpatory tide? Or should the trend be welcomed if it shields trustees from beneficiaries who expect them to adhere to  the Will Rogers Rule of Investing?

You remember the Rule:

Buy stocks that go up. If they don't go up, don't buy them.

Regular Folks Aren’t Hot For Stocks

The ups and downs of the stock market continue to scare savers, judging by this survey from Bankrate. Not so many years ago, real estate proved scary, too. But people don't hear about the daily price fluctuations as they do with the stock market.

Friday, July 17, 2015

Art as Asset Class: the New Gold?

High-priced artworks used to be collectibles. Now they're a red-hot asset class. Is the booming art market a bubble, inflated by speculators flipping paintings, that's about to burst?

Not necessarily, writes Peter Schjeldahl in The New Yorker. He cites an article by J. J. Charlesworth, a British critic who believes the very rich won't panic. Art is merely one of their alternative assets. a minor fraction of their wealth.

Indeed, today's global billionaires may see art not as a speculation but as the new gold.
[T]he most intriguing motive for the rampage of collecting involves a term unfamiliar to me: “store of value,” having nothing to do with a type of retail outlet. It is about liquidity that is vested rather than invested, and it speaks to dread. Besides being something that people buy when they already own everything else, art shares with gold and diamonds the desideratum (lacked by real estate) of being portable. Charlesworth observes that “alongside global prosperity has come a lot more political instability, and it’s in the interests of the social elite to keep their options open as to where they relocate.
Your van Gogh is thus the equivalent of a packed suitcase kept under the bed against the morning of a telltale noise from the street outside.
Stores of value should be durable, like gold. Today's hot artworks? Maybe not so much. Consider the gilded beer carton.

Budweiser carton gilded by Danh Vo.
The carton was recycled and gilded by Danh Vo, an "early blue chip" artist popular with flippers. His unique artwork got pictured in The New York Times because Vo has a dispute with Bert Krenk, a wealthy Dutch collector. Krenk commissioned Vo to create an installation, perhaps along the lines of this one.  Vo provoked a legal battle by instead offering nothing but the Budweiser carton.

Do you think the corrugated paper box will last long enough to become an icon of our new Gilded Age?

Monday, July 13, 2015

Can Gigantic Family Businesses Avoid Estate Tax?

Some "family businesses" have become humungous. Mars, for instance. Other giant enterprises have sold shares to the public but remain under significant family control, such as Schwab.

At this humungous level, maintaining family ownership or control for another generation may well be socially desirable. Family control counters the short-sightedness typical of businesses that must
please Wall Street analysts. (If Mars Inc. had been a public company for a generation or two, Milky Ways probably would be inedible.)

Estate tax, however, poses a nearly impassable barrier. No wonder, then, that families with humungous businesses fight fiercely to repeal the estate tax. As suggested in this report, their potential tax liabilities are staggering.

Possible alternative: How about borrowing an idea from Paul Newman. Newman's Own, the nearly humungous business the actor founded, devotes its profits to charity. Could we give Mars, Schwab, et al a free pass from estate tax if they agree that 95 percent of profits will be used for the public good?

Saturday, July 04, 2015

Dislike Death Taxes? So Do the Brits

"Inheritance tax is one of Britain's least popular taxes," according to The Economist's Economics blog. "A survey in March by YouGov, a pollster, found that 59% of voters thought the tax unfair, the highest figure for any individual levy."

David Cameron's Conservative government proposes to reduce death-tax pain by exempting the transfer of middle-class homes, effectively raising the total exemption for married couples to about $1.5 million. Compared to an exemption of well over $10 million enjoyed by married couples here in Britain's former colony, that's less than generous. The Economist's blogger, however, seems unsympathetic.

Saturday, June 27, 2015

“An Aberration in the History of Wealth Creation”

"The geeks were not supposed to inherit the Earth," writes Sean Parker,  but they have acquired a good chunk of it, One result: the rise of the hacker philanthropist. 

Friday, June 26, 2015

Will Robo Advisers Have Cyborg Clients?

Within 200 years wealthy humans will have become godlike cyber-organisms. So predicts Yuval Noah Harari, a professor at the Hebrew University of Jerusalem,

Our cyborg descendants, says Harari, "will be as different from today’s humans as chimps are now from us." Presumably their lifespans will become more or less infinite.

Well, there goes the dynasty trust market.

Wednesday, June 24, 2015

Protecting the Elderly: Men Wanted!

Most often, helping the elderly deal with the financial or physical hazards of aging is women's work. Daughters or daughters-in-law pitch in; sons and sons-in-law gratefully stand aside.

One exception: Brooke Astor's grandson Philip Marshall. But if Marshall attended The White House Elder Justice Forum as scheduled, he probably found himself in the minority gender, judging by this photo from the occasion.


To be fair, another photo shows three males. But even on the federal level, protecting the elderly seems to be mainly women's work.

Shouldn't men be feeling guilty?

Even HNWI's Can Be Financially Clueless

Three questions from an oft-cited quick quiz:
■ If $100 earns 2 percent per year, in five years will you have more than $102, less than $102 or $102? 
■ If the interest rate on your savings is 1 percent per year and annual inflation 2 percent, could you buy more, less or the same with your money in a year’s time? 
■ Is it true or false that buying a single company stock usually provides a safer return than the stock of a mutual fund?
As noted in the NY Times, a survey found that only one-third of Americans could come up with correct answers for all three questions.

Financial cluelessness prevails even among High Net Worth Individuals, as Jason Zweig illustrates in his discussion of wealth-management fees. An investor was paying an adviser 1.5% to manage a $5 million account. When asked how much 1.5% of $5 million was, the investor guessed, "7 thousand or 8 thousand?" 

Fortunately (for themselves if not their advisers) many HNWI's have a handle on basic arithmetic. Zweig wonders if fees based on assets under management are on the way out. What do you think?

Could the future bring a split between investment management, handled at low cost by robo advisers, and financial planning for a fee? 

Might financial planners then become quasi-professionals, charging retainers or hourly fees like lawyers and accountants?

Tuesday, June 16, 2015

Brooke Astor's Defenders in the News

Brooke Astor's grandson Philip Marshall and a few friends like David Rockefeller helped rescue her from the clutches of Philip's father, Anthony Marshall. Both grandson and Rockefeller are in the news this month.

Philip was disinherited (no surprise) by his father.

 David Rockefeller this month celebrates his 100th birthday. The last surviving grandson of John D. led Chase Bank to global prominence and, despite a chronic case of philanthropy, still possesses a few billion.
Inspired by his grandmother's difficulties, Philip Marshall has launched Beyond Brooke, dedicated to the cause of elder justice. Today, according to his calendar, Philip attended the 2015 White House Elder Justice Forum.

Monday, June 15, 2015

No Tax Reform? Blame Twitter!

Congress is in no mood to tackle tax reform this year, and nothing but the election will matter next year. Mitch McConnell sees no chance of action before 2017.

According to Stan Collender at Forbes, that's way too optimistic. The earliest realistic target date for tax reform is 2019. One reason: Twitter.

"Tax reform in the 1980s took three years, and that was long before there was Twitter, LinkedIn, Facebook and all of the other social media sites. *** Members of Congress who in the 1980s had to wait for the evening news to tell voters what they had done now will be tweeting out their remarks while they are being delivered."

In short, Collender believes, the next effort at tax reform will become a social media circus.

Wednesday, June 10, 2015

A Masterful Ad From the Reagan Years

Republican presidential hopefuls agree, CNN reports: the greatest living president is Ronald Reagan.

Although the Great Communicator died 11 years ago, enthusiasm for the Reagan era is real, so here's a notable ad from 1985.

The skillfully crafted copy does a splendid job of selling the services of a trust bank, in this case Morgan Guaranty Trust Company. (By the 1980s, trust companies had begun to seem old hat, hence the alias, "The Morgan Bank.")

The Reagan era was probably the last in which claims of superior investment performance could be made without evoking snickers.


For those of a certain age, the Reagan Era may seem like only yesterday. Techwise, it was long, long ago. In 1985 this was a mobile phone:

Tuesday, June 09, 2015

Bitcoin 2.0: the End of Stock Exchanges?

Whether Bitcoin has a bright future as money is debatable, but perhaps that's beside the point. Maybe the point is innovations such as Medici:
Patrick Byrne, the CEO of Overstock.com and would-be financial revolutionary …wants to use the technology behind Bitcoin to create a securities market that exists not in any one particular place, but as a collection of data distributed across computers anywhere on Earth, with no need for the DTCC, the New York Stock Exchange or any of the other middlemen who oversee the world’s capital markets.
This new system, which he calls Medici, after the banking family that ruled over Renaissance-era Florence, would do something no other stock exchange has ever done. It would skip the centralized clearinghouse entirely, and keep track of trading, clearance, and ownership on everyone’s computers at once. It would transform processes that now depend on centralized institutions for trust, and let people instead transact directly with one another.
Why is Bitcoin's success as a money substitute debatable? Matt O'Brien at Wonkblog believes the cryptocurrency is perceived as too good a store of value:
Bitcoin's finite supply means that its price should go up, and keep going up. So if you have dollars that are losing a little value to inflation every year and Bitcoins that are gaining it, which one are you going to use to buy things with? The question answers itself, and it raises another. Why would this ever change? *** Buying things with Bitcoin would be like cashing out your Apple stock in 1978 to go grocery shopping even though you have plenty of actual cash lying around.
Once upon a time, stockholders felt safe from fraud because they possessed actual stock certificates. Then most certificates moved into depositories. Now they've largely vanished. Will investors be willing to take the next step, into cryptostocks?

Tuesday, June 02, 2015

Do Boomers Need an Efficient-Aging Expert?

Marc Freedman, founder of Encore and a "thought leader," worries about his fellow Boomers.

Some Boomers will be around for another half century. Many will shun retirement. They'll take on new jobs or projects, pursue long-delayed personal ambitions. Freedman doubts they can do it on their own.

In his WSJ column, Freedman suggests new rituals for graduating from the rat race, and new government interventions, such as "preview" Social Security payments.

One idea your obedient blogger finds downright scary: yet another "tax-favored" investment account. This one would provide supplementary income for those leaving big-money jobs for low-paying public service. Just what we need – another few hundred pages of IRS rules and regulations. Can't anybody put money aside in a couple of mutual funds or ETFs without government intervention?
In the 19th century, children went to grammar school, then went to work. In the 20th century, children became teenagers and went on to high school, delaying adulthood. Freedman sees that the 21st century is creating a similar delay in later life. Teenagers still have to figure out how to cope. Perhaps Boomers can be trusted to do the same.

Wednesday, May 27, 2015

Can Index Fund Managers Police Corporate America?

Most investors own stock indirectly. If your actively-managed fund holds GE shares, you expect the manager to vote the GE shares in the best interest of you and your fellow fundholders.

Can you have the same expectation for managers of your index funds? Should managers of S&P 500 funds, for example, become active defenders of everyday investors at all 500 companies?

Bringing these questions to mind is the news that Vanguard, BlackRock and State Street, three index-fund titans, played a major role in defending DuPont from an assault by Trian.

Maybe passive investing isn't so passive after all.

Tuesday, May 26, 2015

Rise of the Woman Investor

When my bride opens Martha Stewart Living, she expects the first ad to feature bedclothes or kitchen appliances. In the June issue, surprise! Instead of an ad for deluxe domestic items, a two-page spread from US Trust.

Presumably the socially responsible investment service is for her, the art financing for him. (No, Martha, US Trust definitely will not advocate insider trading.)

Even in the Mad Men era, women were beginning to catch the attention of investment managers. Here are two examples from Chase Manhattan. The first is from 1963. The second, more mod, dates from 1966.



Friday, May 22, 2015

Estate Planning Seminar in Mock Mourning

Upstairs at Chicago's Goodman Theater: Women in mourning clothes. Funereal organ music. Ushers in tasteful black, some sporting veils.
The organ music faded…."Good morning friends," [estate attorney Robert] Hamilton said in a warm, tender baritone. "I am brother Hamilton, your minister for today's service, 'In Memoriam of the Estate Tax.'"
***
This was an estate-planning seminar in mourning clothes. (Indeed the federal estate tax itself is not even actually dead, just largely irrelevant to the vast majority of tax payers.) The title was "Outfoxing Uncle Sam: How to Plan Your Estate," and the goal was donations — the kind of large, end-of-life charitable donations that a theater patron might bequest in a will.
Thus does the Chicago Tribune describe estate planning enlivened by a touch of theater. Three-fifths of FUNDS, as my bride learned in her fundraising days, is FUN. Funereal fun, in this case. 

Anyone know of other examples of estate planning seminars imaginatively staged?

Wednesday, May 20, 2015

Dynasty Trusts? The New Money Has Doubts

David G. Klein
Although this WSJ Wealth Adviser column points out several ways to make dynasty trusts flexible, "forever trusts"seem like a hard sell to first-generation wealth:
Financial advisers and estate-planning professionals say many of their clients feel uncertain about the kind of world their heirs will inhabit…. These concerns are making it hard to steer estate-planning conversations beyond simply the next generation to thinking many decades, or even centuries, down the line….
*** 
Add in uncertainty about what the family will look like, and what kind of tax rules and other financial issues they will face…. It can make recommending… handing assets over to a dynasty trust…very tricky.
For those who can predict the estate tax rules that will be in place in 2115, perhaps dynasty trusts make sense. But if all possible flexibility (trust protectors, decanting, powers of appointment, etc.) is built into a trust, hasn't its creator essentially relinquished control over his or her "legacy"?

Because dynasty trusts represent advanced estate planning, they tend to be paired with sophisticated investment strategies. Good idea? Maybe not. Preston McSwain explains why Yale's David Swensen believes family funds should not be invested like a tax-free university endowment.

Thursday, May 14, 2015

My New Executor? Software Code, of Course!

"This is the first time in legal history that the administration of a will is handed over to a non-human. In this case, software code is the executor." So boasts Bockchain Apparatus, a Bitcoin 2.0 startup.
The company says that in the foreseeable future we will have a software/network combination which is the executor of the decedent's last will and testament. Bitcoin 2.0 protocols are used to make actual dispositions and disbursements of the assets in an estate, and are able to do so while taking into consideration many facts which are indeterminate at the time of the will's creation, similar to traditional trust frameworks.
 The software "executor" function is built into a blockchain will, which can be updated and revised.

O brave new world, that has such computer code in't!

Wednesday, May 13, 2015

Mom and Pop Are Buying ‘Unicorns’

16th Century Unicorn Cup, British Museum
Our younger daughter loves Blue Apron, the online provider of recipes and ingredients that equip you to prepare restaurant-style dinners at home. Fidelity must love Blue Apron, too. The mutual fund giant is reportedly buying shares of the pseudo-private company at a price that puts Blue Apron's value at $2 billion.

Back when our daughter was born, the line between privately-held companies and those with publicly-traded shares seemed bright. A mutual fund would not have bought shares in a private company like Blue Apron. And even if it had wanted to, few start-ups were thought to be worth billions.

Today, writes Andrew Ross Sorkin at Dealbook, shares in high-value tech startups – known as "unicorns" – are finding their way into mutual funds that mom and pop can buy. Indeed, Sorkin points out, mutual fund investors may own a unicorn or two without knowing the creatures are hiding in their funds' portfolios.

Sorkin worries that the market value of unicorn shares is a matter of opinion, rather than being determined by an active stock market.
It’s virtually impossible to know exactly how the mutual funds determine the value of private companies. Not one of the mutual fund companies with which I spoke was willing to fully explain its methodology.
Fortunately, Sorkin points out, even when unicorns are held in a fund, they represent a small fraction of the fund's holding. "So if you’re an investor looking for a lot of exposure to unicorn technology companies, these mutual funds are hardly going to give you a concentrated bet. And that’s probably a good thing."

Tuesday, May 12, 2015

Why Farm and Business Owners Hate Estate Tax (Continued)

Republicans call it the death tax and claim the levy forces the sale of family farms and businesses. Liberals demand evidence of such sales. That's hard to find, as this column demonstrates.

Nevertheless, farm and business owners are right to wish the death tax would go away and stay away. We explained why some years ago. Whether the business or farm owner is paying the last generation's tax on the installment plan or paying insurance premiums to fund the present generation's tax, the annual expense can be a significant drag on operations.

Under the current estate tax, most owners should die tax free. Their advisers may tell them to set aside funds anyway. Better safe than sorry.

Monday, May 11, 2015

Art Investment Sells for $179.57 MIllion.


Picasso's "Les femmes d'Alger (Version 'O')," above, sold at Christie's for a hammer price of $160 million. Christie's fees bring the total cost to $179.57 million, a new record.

In 1997 the painting sold at auction for $31.9 million. In another 18 years, assuming the same rate of appreciation, the Picasso should fetch $800-900 million. In twenty years, maybe a billion!

Will art as an asset class really perform that well? For billionaires, borrowing money to purchase art costs next to nothing these days. Even semi-billionaires may find lenders willing to consider art as collateral. But sooner or later the flow of easy money is likely to slow. What do you think?

Update: Later media reports put the total price at 179.4 million.

It's Not Easy Being Fiduciary

Investment advisers who aspire to the fiduciary life don't have it easy, as Steven G. Blum explains here.

What about online investment services, so-called robo advisers? Are they fiduciaries? Yes, writes Norb Vonnegut. Robo advisers stand on the buy side – that is, the client's side – not the sales side.

But as Vonnegut illustrates, even human fiduciaries can succumb to temptations offered by the sales side. Remember when bank trust officers were criticized for pushing the bank's own products? In Vonnegut's example, the tables are turned: a trust officer puts a client in an outsider's relatively expensive S&P index fund instead of the bank's lower-fee version.
Norb Vonnegut has written novels skewering brokers (Top Producer) and hedgies (Gods of Greenwich). I hereby remake my resolution to read them. 

Sunday, May 10, 2015

The 4% solution

The New York Times discusses the "4% rule" of thumb that says if a retiree uses a 4% withdrawal rate from a retirement portfolio there is no chance of running out of money during retirement—at least based upon the past performance of the financial markets.  The rule has come in for criticism in todays ultra-low interest rate environment.  The article does a nice job of presenting the origins of the rule and recent variations.

I found the comments quite entertaining, ranging from astute to woefully ignorant, as usual.