Tuesday, June 30, 2009

Feel Sorry for Harvard and Yale?

The endowments of Harvard and Yale are expected to report declines of 25% to 30% for their fiscal years, which end today. Many a smaller endowment has done better, the WSJ reports, mainly because smaller endowments invest more in bonds and little or nothing in "alternative" investments.

Don't feel sorry for the Ivies. As of a year ago, Yale had achieved a 20-year average annual return of 15.9%. Say Yale's return for fiscal 2009 is -30%. That still gives the Elis an average return of 13.15% over 21 years. And that's one reason Yale's endowment is still so large.


At a nice, conservative 6%, in 21 years $100 will grow to about $340.

At 13.15% , in 21 years $100 will grow to well over $1,300.

Monday, June 29, 2009

Prudent Men Shouldn't Try to Time the Market

A googling of "Earl S. MacNeill," (see below) revealed this July 1951 item from Time.
New York State last year passed the "prudent man" rule. It allows trustees to buy common stocks, up to 35% of the trust's value, which a prudent man might buy for his own investment. Last week Irving Trust Co. Vice President Earl S. MacNeill reported that of $350 to $400 million eligible for such purchases in New York, trustees had invested not much more than half in common stocks. Reason: trustees think that stock prices are too high, are waiting to buy when they drop.
Not even prudent, professional corporate fiduciaries can time the market, it seems, As the chart below shows, buying stocks in 1951 would have been a cool move. But the Great Depression had cast a long shadow over equities.

Revenge of the Defrauded Widow

U.S.Judge Danny Chin, who today sentenced Bernie Madoff to 150 years in prison, noted that he received no letters from Madoff's family or friends requesting leniency. But he got plenty of other letters:
Chin recounted one letter that strongly affected him. It told the story of a Madoff investor who had died of a heart attack. Madoff, presumably at the man's funeral, put his arm around the widow and said, "Your money is safe." The widow then gave Madoff more money, all of which is gone.

Long-Term Care Insurance

"Why is long-term care insurance like a yacht?

"Because if you have to ask the cost, you can't afford it."

Now that we have that over-used jibe out of the way, see Walecia Konrad's column in the NYT. Shoppers for LTC insurance (at least those as ignorant on the subject as I am) and their advisers should find it useful.

Sunday, June 28, 2009

News From 1930

We've mentioned this blog before, but News From 1930 is such a cool way to gain investment perspective that I'll plug it again. Warren Buffet has recalled how fascinated he was to come across a trove of papers from 1929. This daily dose of items from the Wall Street Journals of 1930 has the same attraction.

See also Why this blog, which includes a reminder that the Great Crash of '29 was a piece of cake compared with what followed:
What's not as commonly known about 1929 is that the Great Crash was followed by a nice rally with the Dow almost hitting 300 again in April 1930, and, at the point where we begin this blog in June 1930, still hovering in the 270's - not that far off where it was at the start of 1929. The real damage was done in the following two years when, following a spectacular series of further declines and rallies, the Dow bottomed out at 42 - almost 90% off its peak.
For a broader look at The Crash and what led up to it, see Frederick Lewis Allen's Only Yesterday. UVa has kindly put this most readable book online. To go directly to the chapter on The Crash, click here.

And don't worry about reliving the 1930's. Allen tells us that we can be sure of one thing – decades do not repeat themselves. "The stream of time often doubles on its course, but always it makes for itself a new channel."

Saturday, June 27, 2009

We're Not a Fashion Blog, But . . .

The preppy look is back, reports the NYT, thanks in part to the Japanese. (They loved the look enough to buy J. Press.)

To our regular readers, that's old news.

Thursday, June 25, 2009

Seniors As Entrepreneurs

Business Week sees a surge in senior-run businesses. Here on the New England coast, anecdotal evidence supports that view. For those ending long-term business or professional careers, "retirement" often means the start of something new. Some seniors pursue a long-nurtured Great Business Idea. Others seek to turn a hobby into a source of retirement income. A significant number start business ventures in partnership with sons or daughters, hoping to give the younger generation a leg up.

Senior entrepreneurship is not a new trend. Far from it. Here's a mid-twentieth-century example from the annals of The Merrill Anderson Company:

Earl S. MacNeill, senior entrepreneur

in 1958 Earl S. MacNeill – estate attorney, trust executive, author – retired from a fine old trust institution in New York City. Presumably fearing that estate planning and writing wouldn't keep him occupied, he joined Merrill Anderson. He'd already moonlighted a bit for the company, contributing booklet copy and articles for the trust newsletter.

When the eponymous founder retired, Earl MacNeill became Merrill Andersons's principal stockholder. Under his leadership the company morphed from a small ad agency, mainly serving a handful of major clients, to the premier provider of newsletters, presentation materials and other marketing tools to hundreds of trust institutions nationwide. One of Mac's innovations, still going strong today, is Estate Planning Studies and Briefs.

• • •
Mac, as everyone called him, wasn't the sort of highly polished, expensively tailored estate attorney you read about these days. Genial and down to earth, he never lost his unpretentious, upstate New York manner.

Here's the jacket blurb for the first of his two books, published by Harpers in 1957, a year or so before he joined Merrill Anderson full time.

Earl S. MacNeill is Vice-President of the Irving Trust Company of New York. He is the author of numerous articles on tax and trust subjects. He has long been active in the Trust Division of the American Bankers Association, is a member of the Committee on Taxation of Income of Trusts and Estates of the American Bar Association, and is on the faculty of the Graduate School of Banking, Rutgers University.
Mac's books, and what they tell us about the evolution of estate planning, deserve a post of their own. Watch this blog.

That Shot Was Out?

Fascinating tid-bit from The New York Times for Wimbledon watchers: When line calls are disputed, "in" calls usually prove correct. "Out" calls are usually wrong.
Theoretically, line judges should be equally likely to call an out ball in as they are an “in” ball out. But when objects travel faster than humans’ eyes and brains can precisely track them — for example, Andy Roddick’s 150-mile-per-hour serves — they are left having to fill in the gaps in their perception. In doing so, they tend to overshoot the object’s actual location and think it traveled slightly farther than it truly did.
This error in perception must have some relevance to investors and investment management. What is it?

Wednesday, June 24, 2009

The State of State Death Taxes

Do you realize California might be $1 billion per year less broke if it still collected the "pickup" estate tax that most states used to levy? So claims a rant at the Daily Koz.

Before 2005, the federal estate tax offered a credit for state death taxes paid. What the states collected cost the heirs of deceased residents "nothing." If a state didn't take the money, the feds would.

Currently, some states states collect estate taxes anyway. CCH offers a state-by-state guide.

Tuesday, June 23, 2009

Revisiting the Depression

Do comparisons of the present troubles to the Great Depression help to divert investors, or do they make investors more … depressed? Comparisons are inescapable in any case. Here, two economists chart a series of definitely depressing comparisons between then and now. More diverting is News from 1930, a blog that summarizes highlights from The Wall Street Journal on the corresponding date in 1930.

New Yorker subscribers have a cheerier way to revisit the bad old days. A digital archive of every issue, which the magazine used to sell on CD-ROM, is now available online. Except for dowdy fashions and primitive electronics in the ads, New Yorker issues of the 1930 don't look much more dated than those of the 1950s. Aside from occasional jibes about worthless stock certificates, you'd hardly know the Great Depression was occurring.

Certainly this ad from a June 1930 issue manages to sound positive. The global investing pitch wouldn't seem out of place today.

Monday, June 22, 2009

A Case of Premeditated Probate?

Most-visited article relating to the trial of Brooke Astor's son, Anthony Marshall, according to Google: On Sample Tax Form, Mrs. Astor Died Early.

Friday, June 19, 2009

18,500 New Fiduciaries?

Could Smith Barney's 18,500 brokers (a.k.a. "financial advisors") suddenly turn into fiduciaries? The Wall Street Journal reports on the prospect:
Buried in President Obama's proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher "fiduciary" standard that would compel them to place their client's interests ahead of their own.

Thursday, June 18, 2009

Wealth Advisers vs. the Wealthy

Robert Frank's post on how differently investors and their advisers evaluate adviser performance drew a number of comments, mostly serving to accentuate the gap in viewpoints. Maybe we should call it a standoff.

You're right, angry investor: "I paid … a lot of fees last year to lose 30% of my assets. Can someone explain to me why I should PAY someone to lose money, when I can lose that money for free?"

You're right, too, former wealth manager: "Clients want no risk and 20% returns. They want maximum liquidity and no fees.
They want everything except the truth that investments fluctuate."

“There's More to Managing . . . ”

Cambridge Trust, one of the few venerable New England financial institutions still around, clearly shares our belief that now's the time to step up advertising and marketing. All those investors shaken loose from their advisers by the bear market need new financial homes.

You've probably noticed Cambridge Trust ads on line. Among other marketing efforts, around Boston they're running radio spots. I do wonder about their tag line on the commercials:

"There's more to managing your wealth than just managing your assets."

Oh? Like managing your liabilities … especially if you've been Madoffed or otherwise ripped off?

O.K. I know what Cambridge Trust means: stuff like advanced estate planning and heirship camp for the kids. Do you think most listeners get it?

Wednesday, June 17, 2009

Nursery Rhyme for Bad Times

From the November 1929 issue of Trust Companies, the predecessor to Trusts and Estates:

The Mother Who Would Not Die

Irene Prusik died in 2003 at the age of 73. But with the help of her son, she collected Social Security and rent subsidies for another six years. See Brooklyn man impersonates dead mother.

Tuesday, June 16, 2009

Top “Wealth Manager Brands”

Courtesy of Bessemer Trust, here's the Luxury Institute's 2009 survey of top wealth manager brands.

"Brand." When that term stops being overused, the marketing of financial services to the well-endowed will be better off. Meanwhile, note that BofA's US Trust "brand" is fading but still ranks higher than BofA's Merrill Lynch "brand."

Monday, June 15, 2009

Two Financially Fallen Women

Were you too busy enjoying the weekend to check the Sunday papers? By design or coincidence, the Sunday New York Times offered detailed glimpses into the lives of two women once considered super rich.

See Checkmate at the Yellowstone Club for a visit with Edra Blixeth. She and her former husband founded the Yellowstone Club, where even Bill Gates and his family can ski in privacy. After Mr. Blixeth mortgaged the club to the hilt in hopes of financing new resorts, it went bankrupt.

The loneliest woman in New York describes the circumscribed circumstances in which Ruth Madoff, Bernie's wife, now lives. Does she share Bernie's guilt? Even her hairdressing salon doesn't know for sure, but it's not taking any chances.

Another Big Bank Fails, Virtually

You can't make this stuff up:
Uh-oh! Another big bank is the subject of a depositor run amid charges its chairman has run off with customers’ money. Thankfully, this scandal is taking place in Eve Online, a space-age virtual reality created by CCP, a games developer and Iceland’s coolest company. But these troubles in the ether may offer some valuable lessons for earthly banking and regulation.

Sunday, June 14, 2009

A Flag Week Quiz

Today is the 60th Flag Day, first proclaimed by President Truman. This year President Obama has proclaimed a whole Flag Week.

Quick Quiz:

1. How many stars in the U.S. flag when The Merrill Anderson Company opened in 1934?

2. When was another star added?

3. When was the 50th star added, creating the current Stars and Stripes?

For a timeline of U.S. flags, click here.

Quiz answers:
1. 48
2. 1959, when Alaska joined the Union.
3. 1960, representing Hawaii.

Thursday, June 11, 2009

The Peasant Prince

Last year we mentioned the will of Thaddeus Kosciuszko, the great Polish-American patriot, and his unfaithful executor, Thomas Jefferson. Alex Storozynski has written a new biography of Kosciuszko, The Peasant Prince. Judging from Storozynski's appearance on the Diane Rehm show this morning, he spins a fascinating story of the man who believed everyone, including American slaves and European serfs, should live free.

Despite Jefferson's eventual refusal to use Kosciuszko's U.S. estate to fund freedom for slaves, he and Kosciuszko remained friends for life. Guess who gave Jefferson his sable coat.


Thomas Jefferson by Rembrant Peale, 1805

Wednesday, June 10, 2009

Banking is Hard to Explain

Basic banking seems simple, until you try to explain it. Paul Solman tried on yesterday's PBS Newshour:

You see, the bank has money it takes in from depositors. These actual dollars are called the bank's liabilities. The bank gives money to people who promise to pay it back – people do, sometimes – and these hoped-for dollars are called the bank's assets.

Found myself thinking that many a Newshour viewer would be more confused after the explanation than before. Solman shouldn't feel bad. Banking proved just as confusing in the 1950's, as Randy Cassingham demonstrates with this Jumbo Joke.

Tuesday, June 09, 2009

"The Myth of the Rational Market"

Justin Fox's The Myth of the Rational Market reaps favorable reviews, including this one from The Washington Post.

At Bloomberg.com, James Pressley praises Fox, an economics columnist for Time magazine, for showing us "where the bodies are buried among the bell curves."

Sounds like required reading for those marketing active portfolio management.

Monday, June 08, 2009

A New Model For Financial Advisers?

Investors can't be too careful, suggests Ron Lieber in Finding Financial Advice in an Age of Bad Behavior.

"Planners don’t much like my notion of paying for their investment advice but then executing the trades yourself. But I still think it’s a good idea for many people. "

Friday, June 05, 2009

Summer Reading: The Long View

Finding the search for alpha fruitless, hedge-fund managers have been closing shop and complaining about the short-sightedness of investors. Originally, hedge-fund investors were supposed to think long-term. Then they wanted quarterly numbers. Then, weekly numbers! Whatever happened to the long view?

Without historical perspective, Naill Ferguson argues, animal spirits run amok. He assigns part of the blame for the current economic mess to "the failure of most educational institutions to teach financial history."

You'll find history galore, including financial insights, in two books I finally got around to. Each deals with one of the first English settlements in this county. They're both good reads.

Savage Kingdom: The True Story of Jamestown, 1607, and the Settlement of America, by Benjamin Woolley, tells the story in newly researched detail. The Jamestown project was financed by the sort of "gentlemen adventurers" who seldom sailed to the New World. They were (ad)venture capitalists. When The Virginia Company could find no more adventurers with deep pockets, it created a joint stock company. This IPO occurred a century before shares in the South Sea Company began to boil and bubble.

Think pay-to play is a modern practice? The Virginia Company showered astronomical sums upon court influentials as "Christmas gifts."

Woolley includes an account of the Sea Venture's voyage. Bound for Jamestown, the supply ship was blown to Bermuda instead. Compared to Jamestown, the ship's passengers discovered, Bermuda was a lot like heaven.

Mayflower: A Story of Courage, Community, and War, by Nathaniel Philbrick, gains from the author's nautical knowledge and interest in the Indians of New England. Lack of learning isn't Americans' only fault; most of what generations of schoolchildren learned about the Pilgrims isn't true. They were aiming to settle in what is now the New York metropolitan area, not New England. Their first anchorage in the New World was at what is now Provincetown on Cape Cod. Though they eventually decided to settle at Plymouth, they never set foot on that silly rock. Half the passengers on the Mayflower weren't even Pilgrims; to finance the Mayflower's voyage, the Pilgrims had to team up with a commercial (ad)venture.

Perhaps the principal economic lesson from these English settlements emerged in both Jamestown and Plymouth Colony. Land was at first held in common. Working on this publicly-controlled acreage, settlers couldn't get the hang of planting and harvesting enough to live on. When allowed to acquire their own plots of land –a miracle! Farming skills improved dramatically.

Makes you feel a bit queasy about the fate of GM under public ownership, doesn't it?

Extra credit: Englishman Henry Hudson discovered the river that bears his name for the Dutch 400 years ago. Read Island at the Center of the World, by Russell Shorto, for the often-ignored story of New Amsterdam.

Below, a detail from a 1651 map. Not long thereafter, in 1653, the rapidly-expanding New Amsterdam felt threatened by invasion from New England. For defense a new road was laid out from shore to shore across the north end of town. This rough pathway was fortified by a palisade of twelve-foot oak logs and a four-foot-high breastwork.

Today, we still call it Wall Street.

Thursday, June 04, 2009

Thought For The Day

“If the Rules of Golf were put on all the boardroom tables in the United States, including on Wall Street, there’d be fewer people go to jail. They’ve got white stakes out here on the golf course, and you’re supposed to play between them, not outside of them.

“Jack Nicklaus, Arnold Palmer, Lee Trevino and Ben Hogan never went to jail.”
– Jackie Burke

Burke, winner of the 1956 Masters and long-time teacher of the game, is an honoree this week at Jack Nicklaus's Memorial Tournament.

Deleveraging In Greenwich

Was it that long ago that experts said the high-end real estate market still looked healthy?

In Greenwich, Connecticut, hedge-funders are pulling out or cutting back. Result: a mansion glut. The asking price for the Helmsley place has dropped $50 million in a year.

Shown below: Mel Gibson's Greenwich estate, where sheep graze. It can now be yours for $29.5 million, down from $39.5 million.

Wednesday, June 03, 2009

Trusts For Minors Get A Plug

In today's WSJ, Stacey L. Bradford explains why parents may want to leave minor children's inheritances in trust.

Hot Investments? Try The “Law Market”

The stock market's probably staging a sucker's rally. Like Warren Buffet, you know bonds eventually will lose ground to inflation. What should a savvy wealth manager advise his clients to do?

How about Investing in lawsuits?

Tuesday, June 02, 2009

Golden Coffins

Could corporate CEOs be worth more dead than alive? Some companies' directors seem to think so. Are golden coffins really a good idea?

Tax Deductions For Gifts To Foreign Charities

Gifts to charity are often income-tax deductible; bequests to charity are usually exempt from federal estate tax. But those tax incentives apply to gifts to U.S. charities. Individuals intending to give or bequeath significant sums to foreign charities need special planning if they hope to gain similar tax benefits. In US tax treatment of gifts to foreign charitable entities, G. Warren Whittaker explores various strategies, including private foundations.

If Mr. Whitaker's name sounds familiar, that's probably because he is the distinguished estate lawyer who succeeded Brooke Astor's longtime lawyer, Henry Christensen III, after Astor's son, Tony Marshall, had Christensen fired.

In his fourth day of testimony at Marshall's trial, Christensen said he distinguished between Mrs. Astor's competency to execute a codicil and her ability to comprehend a whole new will:
After he was fired, Mr. Christensen said, he warned Mr. Marshall that while his mother could follow narrowly focused changes to her will, she was in no condition to seismically alter her estate plans. “I did not believe she was competent to sign an entirely new will,” Mr. Christensen said.

U.S. Supreme Court to address tax patents

From Tax Notes Today ($):
The U.S. Supreme Court on June 1 granted certiorari to hear the appeal of a patent case, Bilski v. Doll, No. 08-964, with possible implications for the future of tax strategy patents.

I don't know of any professional organization that defends the idea of patentable tax strategies (which are argued to fall within the realm of patentable business methods), but Congress has persistently failed to act on legislation to rein them in. Perhaps the top Court will put the idea to rest.

Monday, June 01, 2009

A New Herd For Wall Street

Shout out a welcome to Wall Street's new wire-house colossus, with over 18,000 brokers. Morgan Stanley Smith Barney has been formed sooner than scheduled by Morgan Stanley and Citigroup.

In addition to offering investment products, the joint venture will be "equipped for advanced financial planning," including estate planning. But please heed the footnote:

"Morgan Stanley Smith Barney and its Financial Advisors do not provide tax or legal advice."