Saturday, October 14, 2017

Dartmouth 14.6, Yale 11.3 – But Not Exactly

Dartmouth's football team beat Yale, 28-27. Dartmouth's endowment has won more convincingly. For the fiscal year ending last June, Dartmouth achieved an investment return of 14.6%. Yale lagged at 11.3%.

In reality, there's less to all those numbers than meets the eye. Yale's one-point football loss resulted from an erroneous out-of-bounds
 ruling on an end-zone catch that video showed to have been a touchdown. As for the endowment returns, their precision is partly the result of accounting fiction, as Yale School of Management's Roger Ibbotson has pointed out:

"When you have private equity and venture capital assets that are not priced every day, it is difficult to know exactly what the real performance is. I don’t really like ranking the endowments annually because there’s such a significant measurement error."

Long term, the investment performance of Yale's endowment remains remarkable: an average of 12.1% per annum over the last 20 years.  The endowment's domestic equities returned 12.2%,  trouncing the benchmark return of 7.5%. Makes you wonder why David Swensen allocates only 4% of Yale's endowment to shares in U.S. companies.

Friday, October 13, 2017

“Death Cleaning”

From the WSJ ($), here's an idea executors and heirs should applaud:
If your family doesn’t want your stuff when you’re alive, they sure won’t want it when you’re dead. 
That’s the blunt assessment of yet another self-help author from abroad who is trying to get Americans, who have an addiction to collecting and storage units, to clean up their acts.

The latest volley in the decluttering business comes from Stockholm, where 80-ish artist Margareta Magnusson has just published a slim yet sage volume, “The Gentle Art of Swedish Death Cleaning.” The book will be published in America in January.
In Sweden, it seems, custom requires senior citizens to declutter before they pass on. Splendid idea, but wicked difficult to execute. Although your obedient blogger knows he's reached decluttering age, progress comes hard. Soon as you get rid of some stuff, more stuff shows up.

Out in our garage, we still store containers of miscellaneous nails, miscellaneous screws and miscellaneous odd bits of metal that my thrifty father figured might come in handy some day.

Throw them out? How can I? They might come in handy.

Thursday, October 05, 2017

A death tax cloud over family businesses clears

The IRS has promised to revoke the Section 2704 valuation rules, proposed last year, after getting 28,000 negative comments on them.

The rules were projected to raise taxes on family business by $18 billion over ten years, a massive and targeted tax increase.  Why them?  Why was that a good idea?  Why single out family business for punishment?

That revenue projection was from the Obama administration, so I'd take it with a grain of salt. I can't imagine that valuation adjustments to family businesses come to over $3 billion every year (roughly the amount needed to generate $1.8 billion in annual tax savings). Still, it was an obviously terrible idea, one that galvanized small business owners around the country.

Sunday, October 01, 2017

When Deficits Meant Tax Hikes, Not Cuts

From half a century ago, August, 1967, comes this Life magazine editorial. 

"The case for a tax increase…is a persuasive one." Although the U.S. had run deficits in nine of the previous 10 years, "the sheer size of the one now confronting the nation is fearsome."

Current deficits run bigger, in terms of GDP, than they did half a century ago. Can you imagine our president or any member of Congress proposing a tax increase? 

Life also mentions the need to restrain high inflation? How high? Three percent, a level today's fiscal engineers seek to promote.

You're right, Dorothy. We're not in the 20th century any more. 

Thursday, September 28, 2017

Tax Legislation, Anyone?

Last spring the Trump administration came up with a vague, one-page proposal for revising the Internal Revenue Code. After months of reportedly serious effort, a six-man task force has expanded  the proposal to a vague, nine-page plan.

But "it's not really a plan," as Catherine Rampell points out in The Washington Post:
At best it’s an outline, offering barely more detail than the bullet points the Trump administration released in April. It doesn’t even specify the thresholds for the individual income-tax rates it proposes. It also doesn’t identify a single individual tax preference it would kill, despite claiming to simplify the code and close lots of “loopholes.” Even the state and local tax deduction, which administration officials have talked about eliminating, isn’t explicitly mentioned.
While we wait for Congressional Republicans to come up with an actual tax bill, there's plenty to wonder and worry about. How can abuse of the proposed 25% tax rate on income "passed through" businesses such as partnerships  be prevented? What if repeal of the estate tax (which affects almost nobody) exposes millions of Americans to capital gains tax on inherited assets?

Thursday, September 21, 2017

Wealth Management Clients Should Be Careful with Their Checks

Frank Abagnale Jr. ("Catch Me If You Can") in a WSJ interview:
Think about this: You go into a convenience store today and write a check for $9. You have to hand the clerk the check with your name and address, phone number, your bank’s name and address, your account number at your bank, the routing number into your account. That’s your wiring instructions. Your signature that’s on the signature card at your bank. And then the clerk has written down your state driver’s license number on the front and your date of birth. You don’t get the check back. You can get an image of the check; the physical check goes to [the store’s] warehouse, where eventually, six months from now, they will destroy it. 
In the meantime, anyone who would see the face of that check—from the clerk who took it at the counter to the one that made the night deposit—could draft on your bank account tomorrow, would have all the drafting instructions. Or they could go online [and order checks] that look exactly like your checks, but put their name on it and put your account number on it. So every check they write gets debited against your account. It’s so simple to do. 
It’s amazing to me that people are writing $9 checks from their wealth-management account, their private banking account, and giving them to some stranger in a store.

Wednesday, September 13, 2017

Ray Dalio's “Slightly Better” Returns

Now that real life has blended with reality TV, you can't blame the Main Stream Media for stressing out. Still, this lengthy NY Times piece on Ray Dalio, who runs Bridgewater, world's biggest hedge fund firm, seems a bit snarky. For instance:
Since it began, Pure Alpha has made investors an annual average return after fees of 11.9 percent, slightly better than the 9.5 percent average yearly return for the Standard & Poor’s 500.
Slightly better? Any stock picker who can beat the S&P by one percentage point over long periods is
Bridgewater's Westport, CT headquarters
exceptional. Two percentage points? Almost miraculous. With Pure Alpha Dalio has done better by 2.4 percentage points. Compare:

At the S&P's 9.5% average annual return, in ten years a $100,000 investment grows to 247,823.

At Pure Alpha's 11.9%, in ten years a $100,000 investment grows by an additional $60,000, to $307,823.

Over extended periods, that "slightly better" return will make you seriously richer.

Monday, September 11, 2017

Should We Tax Gifts the British Way?

(English Wikipedia)
Bruce Forsyth, the British TV icon who died last month, disliked the 40% U.K. inheritance tax. So he left everything to his wife tax free, thanks to the U.K. equivalent of our unlimited marital deduction. Wilnelia, his widow, will have the task of distributing some or most of Forsyth's £17-million estate to his numerous children and grandchildren.

And a quick glance at the U.K. inheritance tax rules suggests she can do it at little or no tax cost.

Instead of taxing gifts when made, the U.K. requires lifetime gifts to be added back into the estate taxable at the donor's death. Thanks to Forsyth's unused inheritance tax exemption and her own, Wilnelia can give or bequeath £650,000 without tax.

But she should be able to do better. Much better. The U.K. counts lifetime gifts as part of the donor's estate only if they are made within seven years of death. As a relatively young widow, Wilnelia presumably has time to parcel out millions of pounds tax free to Forsyth's descendants.

Even if Wilnelia should die within seven years of fulfilling Forsyth's estate plan, some tax might be saved. "Taper relief" reduces the tax rate on gifts made more than three years of death.

Should the U.S. adopt the British approach to taxing lifetime transfers of wealth? Or would it unduly favor those wealthy enough to give millions tax free?

Wednesday, August 30, 2017

Fifty Years Ago, Married Women Got a Charge Card

Those "Her reaction is Chemical" ads we showed you "might have a place in Ms. magazine's hall of shame," Jim Gust suggests. Actually, the idea of a woman hiring her own investment adviser probably raised a few eyebrows among old-school males.

Here's a better candidate for the Ms. hall of shame. This 1967 Carte Blanche ad assures the traveling man with a wife back home he'll be glad "to have someone with influence looking after her while they're away."

But remember the context of the times. Married women were routinely denied credit because it was assumed they had no income. Carte Blanche comes to the rescue by offering them a card of their own, though surely backed by their husbands' credit – and it's pink!

Monday, August 28, 2017

The Little Woman and the Tire Guy

 Kathleen Thomas heads a successful advisory firm that holds our securities for us. Heightwise, you might describe Kathleen as a little woman. (And you might be surprised to learn she's run in seven Boston Marathons.) While on vacation recently, she took a damaged tire to be repaired, and the tire guy . . . well, read her story for yourself.

Tire guys prey on men, too, but the complaints I've heard have come from women.

And it's not just tire guys, of course. Male financial advisers have been known to condescend to "the little woman." Perhaps that's one reason Kathleen and her mostly female staff are doing well.

Saturday, August 26, 2017

Men, Women and Investing in 1967

How do men and women differ? As a Google engineer discovered recently, that topic may be too hot to handle. Yet financial marketers have long believed in the need for sex-specific messages.

Here are examples from Chemical Bank's ads fifty years ago. 

The ad agency's perception: Men care about process: an investment adviser who works hard. 

Women care about results: investment peace of mind.

Wednesday, August 16, 2017

Popular Books on Investing

Had time to kill the other day. Dropped by Barnes & Noble to check out new books for investors.  As always there was a fresh crop of informational guides, but the two featured volumes were venerable classics: the latest revised editions of Benjamin Graham's The Intelligent Investor and Andrew Tobias's The Only Investment Guide You'll Ever Need.'s masterwork, which advises us to buy stocks offering a margin of safety, also ranks third at the moment on Amazon's list of best-sellers on investing.

Amazon's number one, interestingly, deals with psychology rather than p/e ratios. In Mindset, the New Psychology of Success, Carol W. Dweck argues that some people have fixed mindsets while luckier people have growth mindsets. The fixed mindsets fear failure. The growth mindsets see failure as a learning experience.

Is your fund lagging its benchmark? Cheer up. You're not failing, you're getting educated.

Wednesday, August 09, 2017

Death Should Not Be a Taxable Event

The basic argument against the estate tax is moral. It taxes virtue - living frugally and accumulating wealth. It discourages saving and asset accumulation and encourages wasteful spending.
Milton Friedman's 2001 open letter urging the abolishment of the federal estate tax was signed by 276 of his fellow economists. Now, eleven years after Friedman's death, the letter has been revived, signed this time by more than seven hundred economists, including four Nobel Prize winners. 
To whom it may concern: 
Spend your money on riotous living - no tax; leave your money to your children - the tax collector gets paid first. That is the message sent by the estate tax. It is a bad message and the estate tax is a bad tax.
The basic argument against the estate tax is moral. It taxes virtue - living frugally and accumulating wealth. It discourages saving and asset accumulation and encourages wasteful spending. It wastes the talent of able people, both those engaged in enforcing the tax and the probably even greater number engaged in devising arrangements to escape the tax. 
The income used to accumulate the assets left at death was taxed when it was received; the earnings on the assets were taxed year after year; so, the estate tax is a second or third layer of taxation on the same assets. 
The tax raises little direct revenue- partly because the estate planners have been so successful in devising ways to escape the tax. Costs of collection and compliance are high, perhaps of the same order as direct tax receipts. The encouragement of spending reduces national wealth and thereby the flow of aggregate taxable income. These indirect effects mean that eliminating the tax is likely to increase rather than decrease the net revenue yield to the federal government. 
The estate tax is justified as a means of reducing the concentration of wealth. However, the truly wealthy and their estate planners avoid the tax. The low yield of the tax is a testament to the ineffectiveness of the tax as a force for reshaping the distribution of wealth. 
The primary defense made for the estate tax is that it encourages charity. If so, there are better and less costly ways to encourage charity. Eliminating the estate tax will lead to higher economic growth, which is the most important variable in determining the level of charitable giving. 
Death should not be a taxable event. The estate tax should be repealed. 

Sunday, August 06, 2017

Trumping Death and Taxes

President Trump, in his WSJ interview:
When George Steinbrenner died, like with the estate taxes, the estate paid nothing. And if he would have died like two weeks later, they would have paid 50 percent of the Yankees. That would have been the end of the team, right?
Nope. Steinbrenner died on July 13, 2010. Had he died on July 27 (or even December 27) his estate would have escaped federal estate tax.

And even if Steinbrenner had died in 2011, when the estate tax reappeared, most likely the Yankees would still be around to trail the Red Sox.

Fact-checkers tend to label Trump talk fibbing. He prefers hyperbole.

Thursday, July 27, 2017

Could the Ideal Estate Tax Rate be 100%?

If the Republicans ever agree on a tax bill (dream on!) the federal estate tax may die for longer than it did in 2010. But the urge to tax inherited wealth never dies – especially, it seems, in the U.K.

Yes, the desire to pass on property to your descendants may be natural – but why should we be slaves to our biology? Social progress has frequently depended on our ability to transcend individualistic urges and work together for the common good.
Cultural norms teach us that the inheritance of private property is the default and any expropriation of this wealth must be justified. It should be the other way round.
A 100% estate tax (perhaps with a small allowance for objects of sentimental value) isn’t a policy we can expect to see in a party manifesto any time soon. It’s well outside the current spectrum of mainstream political opinion. Questioning the status quo is always going to be a somewhat uncomfortable process, though, and all kinds of major social changes seemed impossible until suddenly they weren’t.
The crack about "slaves to our biology" is interesting. Would adopted children still get inheritances?

Confiscation of wealth at death would promote every possible method of lifetime transfer. With lifespans lengthening, that might not be such a bad idea. Why should someone age 70 still be waiting for his parents to part with their worldly goods?

Thursday, July 13, 2017

Johnny Depp's Lost MIllions

In Brewster's Millions, a movie I remember fondly, the hero receives good news and bad news.

The good news: His uncle has left him $8 million.

The bad news: He must spend the first million in two months, without keeping any assets, or lose the entire inheritance. Back in 1945, when the movie was made, spending a whole million quickly wasn't that easy.

If Hollywood plans a new remake, Johnny Depp deserves the starring role. Over the years the gifted actor has made $650 million. But his gifts as a spender – and perhaps his disinterest in wealth management – have left him in a financial crisis.

Wednesday, July 05, 2017

Chase Manhattan's Recycled Nest Eggs

From late 1966, here's what appears to be one of the last of Chase Manhattan's iconic nest egg ads.

But the ad agency must have had a couple of photos left over. Rejects, perhaps – shots never used because they looked too proletarian.  (Real wealth-holders had gardeners.) 

So here are the leftovers, recycled in the spring of 1967 to promote … savings accounts!

Weird, isn't it? For all those years Chase promoted the idea that wealth is a drag, made tolerable only by the bank's custodial and advisory services. Now Chase wanted ordinary folks to believe that maybe getting richer isn't so bad after all. 

Monday, June 26, 2017

The Stock Market is Disappearing Before Our Eyes

Sometimes you know what's happening but still need reminding that it's HAPPENING. This chart comes from Jason Zweig's WSJ column($), Stock Picking Is Dying Because There Are No More Stocks to Pick.

Zweig's column draws upon a revealing Credit Suisse report. Welcome to a world where mutual funds and accredited investors invest freely in billion-dollar companies without going near the stock market. 

Sunday, June 25, 2017

“Fearless Girl” Wins Fame and Awards

Photo: AP
At the Cannes Lions International Festival of Creativity on the Riviera, where the frozen rosé slushies flow like, well, slushies, State Street Global's "Fearless Girl" has won several awards for confronting Wall Street's bull.

State Street commissioned the sculpture to nudge publicly-traded companies toward enlisting more women for their boards of directors. 

In these contentious times, State Street's ploy was sure to draw critics. They're outnumbered by "Fearless Girl" fans. Even the bull, who has been hanging around since the 20th century, is probably happy to have company. 

Friday, June 23, 2017

We hate taxes. The Internal Revenue Code is our punishment

Every four years. it seems, a fringe presidential candidate jumps on the same populist platform: “Abolish the IRS!”

We Americans hate and despise taxes. Yet we know we can’t get rid of them. So we dream of doing away with the tax collector.

The punishment for our tax hatred? An incredibly convoluted Internal Revenue Code. Thousands and thousands of rules and sub-rules and exceptions and exceptions to the exceptions. Our federal income tax is infinitely more complicated than it ought to be.

Instead of a rational system, we have a tax code made monstrous by Congress. Yet every time Congress adds another complication it is merely doing our bidding, as summed up by Russell Long: ‘Don’t tax you, don’t tax me. Tax that other fellow behind the tree.”

Could we have a less hateful tax code? Yes. In A Fine Mess T. R. Reid points out that fiscal engineers around the world have determined the most tolerable tax system: BBLR. Broad base, low rate. Some describe the ideal as a modest tax on income, broadly defined, plus a consumption tax such as a VAT.

Whoa! If you think Americans hate the income tax, try mentioning a Value Added Tax. The levy offers no escape. If the purchase of a Tesla is subject to a VAT, every Tesla buyer has to pay it – you, me, the fellow behind the tree, the neighborhood drug dealer, everybody!

Yet a VAT could be almost likable in terms of fairness. And a simple, broad-based income tax would make filing tax returns child’s play.

Within living memory, Congress has attempted serious tax reform only once, in 1986. Even that effort produced nothing like a truly simple BBLR system. Could our hatred of our current tax mess ever lead to full-fledged reform? Seems like an impossible dream.

As Theodore Roosevelt once observed, “Americans learn only from catastrophe and not from experience."

Monday, June 12, 2017

What $150 Million Will Buy

Roy Lichtenstein’s “Masterpiece” (1962)
To raise money for a philanthropic fund aimed at shrinking the alarmingly high percentage of Americans who spend time in prison, the president emerita of the Museum of Modern Art has sold her prized Lichtenstein for $150 million ($165 million including fees).

The buyer: Steven A. Cohen, the once-and-future hedge fund tycoon. After scraping past insider-trading charges but being temporarily sidelined from the hedge fund business, Cohen's next masterpiece will be a new, $20-billion hedge fund to be launched next year.

Wednesday, May 31, 2017

Art as an Investment Class? It's Tricky

This Basquiat painting of a skull just sold at Sotheby's for over $110 million. Wow! Maybe investors really should regard art as an asset class, along with junk bonds, private equity and such.

But as White House advisers Jared Kushner and Ivanka Trump have learned, the notion of art as a serious wealth component can have unintended consequences. The other day they got criticized for failing to declare their art collection as a financial asset on the disclosure forms required for government work.

Conservative investors and their advisers may prefer to follow Northern Trust's advice and think of art collections as more akin to a second home or a yacht-charter business. Adam Lindemann. a prominent collector, blames the "art as investment asset" movement on the proliferation of art advisers: "There are almost as many of them as yoga instructors."

Lindemann's advice to investors? Buy art for art's sake.
Back in 2005, I asked Larry Gagosian if he believed art was an investment. He answered laconically: “Art is an investment, but that doesn’t make it a good investment.” At the time I thought his response was genius, but I’ve now changed my view, because investing requires cold analysis and objective thinking, and there’s no art in that. Art collecting is a different thing, it requires interest, patience and hopefully some passion, or at least intellectual curiosity.
What do you think? Will somebody ever be willing to invest more than $110 million in that skull? 

Tuesday, May 30, 2017

Tax Reform – The Impossible Dream?

To dream the impossible dream
To fight the unbeatable foe
To bear with unbearable sorrow
To run where the brave dare not go

                * * *
This is my quest, to follow that star,
No matter how hopeless, no matter how far. . . .
– Joe Darion, "The Impossible Dream (The Quest)"

Those in the know say the chances of meaningful tax reform this year are none to negative. Worst case: a tax bill that leaves the complexities and lowers the tax rate for regular income that's filtered through Limited Liability Companies and other "pass throughs." (The president is reported to have hundreds of LLC's.)

Yet the need to prune and simplify the Internal Revenue Code persists. Even if meaningful tax reform remains a dream, it's worth pursuing.

Start by joining me in reading T. R. Reid's A Fine Mess. The Washington Post reporter explores how other countries handle taxation. Sometimes they goof; more often they manage to separate taxpayers from their money in simpler, friendlier fashion than we do.

Monday, May 22, 2017

Stock Picking, Fifty Years Ago and Now

"Some facts will not come to us," reports this 1967 Merrill Anderson ad for U.S. Trust. "We hunt them out and bring them back – alive."

Today, stock pickers need not hit the road. The digital revolution offers access to zillions of facts in the form of big data, and quants use algorithms to massage the data and generate investment decisions.

"Prognosticators imagined a time when data-driven traders who live by algorithms rather than instincts would become the kings of Wall Street," The Wall Street Journal($) recalls. "That time has arrived." Quantitative hedge funds "are now responsible for 27% of all U.S. stock trades by investors, up from 14% in 2013,"

WSJ subscribers can view the anatomy of an investment algorithm here.

Sunday, May 21, 2017

The Generosity of a Reformed Stockpicker

After trying and failing to pick stock winners himself,” a retired ophthalmologist in Washington, D. C., “made his fortune by investing in the funds in the Standard & Poor's 500-stock index.”

Unmarried and living modestly, the retiree has used the fruits of his investing for philanthropy, dispensing millions to area charities. He agreed to tell his story to The Washington Post “to encourage others to invest wisely, research thoroughly and support those doing good work that will make a difference in peoples’ lives.”

Will the publicity cause the wise indexer to be inundated with requests for handouts? Not likely. He says he would never donate to an institution that approached him first.”

Friday, May 12, 2017

Mother's Day

A wealth manager we'll call Ed just sent a financial-workshop invitation to my mother. The mailing arrived today, May 12, exactly 26 years after my mother died on the eve of her 95th birthday.

A little late, Ed!

Ed's off-the-shelf web site could use more care, too. When boilerplate copy calls for inserting your company name, the text should not still display the place marker "(DBA as)."

Whether breeding dogs or judging horticultural exhibits, my mother was conscientious in her work. Marketers of wealth management do well to follow her lead.

And for Ed's sake, clean up your mailing lists every quarter century!


Thursday, May 04, 2017

Today's Trusts Explained

From a Massachusetts law firm comes Demystifying Trusts, a guide to currently popular trust arrangements. They include revocable living trusts, special needs trusts and trusts designed to maximize Medicaid eligibility for trustors in nursing homes. Also, ILITs.

Wednesday, April 26, 2017

What Percentage of Investment Advisers are Women?

After reading that only 16 percent of brokers are women, one wonders whether the ranks of registered investment advisers are more gender neutral.

The answer seems to be yes, but the data are elusive. This 2014 article indicates 30 percent of RIAs are women, and you would guess the percentage is higher today. 

But counting RIAs proves difficult. Do you include hybrids who work for fees but also collect commissions? What about hedge fund managers? 

Even the fuzzy figures indicate that the hundreds of thousands of brokers (aka financial advisers) vastly outnumber RIAs. 

Monday, April 24, 2017

Google Finance

Now in beta, Google's financial site offers easy access to investment news and basic market data. Special Google twist: Google domestic trends, a feature that charts the rise and fall in the number of searches in various categories, including financial planning.

Sunday, April 23, 2017

Scammed by a Scot

How venture capitalist William Icon, who probably doesn't exist, fleeced international investors.

Saturday, April 22, 2017

Irene in Blue

Irene Heitzman (1938-2017) in client-entertainment mode, at a trust conference in San Diego.

Thursday, April 20, 2017

Irene Heitzman, R.I.P.

Irene Heitzman, the wife of Merrill Anderson's superstar salesman Sam Heitzman (also President and Chairman), died yesterday. Irene worked briefly in our Stratford office, but her major contribution to the firm was as hostess or co-hostess of our customer events at sales conferences.  She and Sam were well matched—outgoing, friendly, well read, insightful, never at a loss to carry a conversation.  A great sales team.

Here is Irene's obituary:

Irene Angi Heitzman resident of Charleston passed away peacefully on April 19, 2017 at St. Francis Hospital in West Ashley.
Irene is preceded in death by her parents William and Priscilla Angi, sister Betty Gabriel, brothers Tom and David Angi, and brother Desi Racz all of Dayton, OH. She is survived by her husband of 58 years Sam (Hud) Heitzman, her son Jordan Heitzman, daughter Darcy Guthrie and her husband Chris Guthrie and triplet grandchildren Ethan, Charlotte and Will Guthrie all of Charleston, SC.
Irene enjoyed her teaching career in Piqua, OH, but longed for the warmer weather in California and South Carolina; she lived in both of these states three times each through the course of her life.
Irene was an avid Duplicate Bridge Player and played regularly in Westlake Village, CA and Hilton Head Island, SC while her husband travelled for work. After Sam retired and they moved to Charleston they became full time duplicate bridge partners. Irene achieved Silver Life Master.
Irene always said she never met a cruise she did not like. She travelled the world on different cruises, but her all-time favorite cruise was taking the triplets along with Darcy and Chris on a cruise.
Irene also enjoyed reading and crossword puzzles. Irene was a beloved wife, mother, grandmother and friend. She never knew a stranger and always had a kind word and a smile for everyone she met.
Services will be private at the request of her family. In lieu of flowers, the family asks that you consider a donation in her memory to the Charleston Bridge Center, 1740 Ashley Hall Rd., Charleston, SC 29407.
Arrangements in care of Charleston Cremation Center And Funeral.
To send flowers or a memorial gift to the family of Irene Angi Heitzman please visit our Sympathy Store.

Click here for more.

Wednesday, April 19, 2017

Massacre of the Stock Pickers

Investors who use index funds to invest in the stock market usually do better than stock pickers. That's become conventional wisdom.
According to new 15-year data in SPIVA's 2016 scorecard of stock fund performance, "usually" should be changed to "almost always."

Fewer than one large-cap stock fund in ten matched or beat its benchmark over the last fifteen years. More than 92% underperformed. 

Some say indexing itself has dulled the price moves of large caps, making stock pickers' job harder. Perhaps the pickers did better with mid caps? No, they did worse. A whopping 95% of mid-cap funds underperformed. So did 93% of small-cap funds.

Note that some mid-cap and small-cap funds may have beaten the S&P 500 even though they fell short of their more challenging benchmarks.

If actively managed mutual funds can't  beat the market, can highly-compensated hedge fund managers do better? That's the theory Warren Buffett put to his now famous test.  He bet that, over ten years, Vanguard's low-expense S&P-500 index fund would outperform a portfolio of five funds of funds, invested in more than 100 hedge funds. After nine years the results are clear: Another massacre of the active investors.

Buffett observes that the defeat was virtually pre-ordained. Some 60% of the funds-of-funds' gains were paid to the hedge fund managers and fund-of-fund packagers.
As long as "nobody wants to be average," active stock picking will live on. Hope springs eternal, as The Wall Street Journal($) reports: Active Managers Stage a Comeback.

Wednesday, April 12, 2017

Happy Blogiversay!

This blog was started on this day in 2005.

Many thanks to JLM for his persistent erudition.

Thursday, April 06, 2017

An Annual Report Worth Reading

JPMorgan's CEO, Jamie Dimon, offers frank comments on the state of our nation in the company's annual report. American education, for instance, is "a national emergency."

The annual report is also worth skimming as a guide to banking trends. On the wealth management front, JPMorgan Chase plans to offer "inexpensive" automated advice and digital transactions to both retirement and personal investment accounts.

Ordinary investors really need investment help, according to this graphic from the report.

Sunday, April 02, 2017

Cross Selling at Bank of America

Megabanks want customers to use more of their financial products and services. They emphasize cross selling (to a fault, in the case of Wells Fargo).

Why then would a big bank go out of its way to trash its reputation and stink up its brand?

Latest example, Bank of America and a couple who were unfortunate enough to have the bank buy their new mortgage, which they hoped to modify.

For torturing the couple, Bank of America has been fined $45 million by Judge Christopher Klein of the U.S. Bankruptcy Court. His decision begins like this:
Franz Kafka in 1910

Franz Kafka lives. This automatic stay violation case reveals that he works at Bank of America. 
The mirage of promised mortgage modification lured the plaintiff debtors into a kafkaesque nightmare of stay-violation foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder, for all of which Bank of America disclaims responsibility.
The Great Recession triggered the couple's woes. Most likely they'll recover their financial footing and return to prosperity, and one day a Merrill Lynch broker from Bank of America may ask for their wealth management business.

Will they welcome him with open arms?

Or will they pick up sticks and  beat him like a piñata?

Tuesday, March 28, 2017

"Fearless Girl" Faces Down Bull

Photo: Boston Globe
State Street Global Advisers scored big with this one.

Update: Presumably due to overwhelming demand, Fearless Girl's Wall Street gig has been extended to February, 2018.

Sunday, March 26, 2017

Live Long and Prosper: the Tontine

A group of people invest equal amounts in a fund and in turn draw an annuity — an annual payment — until they die. The annual payments of surviving members increase as others die, and the last one standing winds up with the entire dividend. Upon that last investor’s death, the arrangement terminates.

That's a tontine. At the turn of the 20th century, nearly 50 percent of all American households were buying "tontine insurance," a product that split premiums between traditional life insurance policies and an investment pool, with deferred dividends paid out to survivors after 20 years. The pile of tontine money grew so large that crooks swarmed in and killed the golden goose.

Moshe Milevsky, a professor at York University, is a long-time fan of tontines, as we noted here and here. Now he seems to be gaining allies.

Could variations on the tontine be the longevity reward needed to counter longevity risk? Ideas range from the straightforward to the high tech (bitcoin tontines?). Major barrier: the wall of investment, insurance and gambling regulations a tontine product must climb.

David Rockefeller and Brooke Astor

Following the death of David Rockefeller, John D. Rockefeller's last surviving grandson, Tbe New York Times recalls his role as friend and protector of his fellow philanthropist, Brooke Astor.

If you need to refresh your memory of "arguably the most sensational, high-profile case of alleged elder abuse ever to make the tabloids," scroll down our posts on the story.

Tuesday, March 21, 2017

Did a Stock Slump Radicalize Steve Bannon?

Marty Bannon, Steve Bannon’s father, worked fifty years for AT&T, rising from lineman to middle management. Whenever possible he bought AT&T shares, his only investment. When Marty retired, the AT&T represented his retirement fund and, in his eyes, the family fortune.

Then came the Great Recession. In October, 2008, Marty panicked. Apparently fearing AT&T would go to zero, he sold for over $100,000 less than he had paid.

Steve Bannon has enjoyed a more varied career: Goldman Sachs banker, documentary film maker, and now chief strategist in the Trump White House. But his life’s pivotal point, according to The Wall Street Journal, was the loss his father took on that nest egg.
There were many factors that turned Steve Bannon into a divisive political firebrand. But his decision to embrace “economic nationalism” and vehemently oppose the forces and institutions of globalization, he says, stems from his upbringing, his relationship with his father and the meaning those AT&T shares held for the family. 
“Everything since then has come from there,” he says. “All of it.”
Why was Marty able to ride out AT&T's staggering 2000-2001 price drop but not the lesser decline in 2008? A “sell” from TV’s Jim Cramer may have triggered his panic attack.

Was "Wall Street" really to blame for allowing Marty to buy high, sell low? Not entirely, and not enough to cause Steve Bannon to go radical, in the view of The New Yorker's Nicholas Lemann.

Bottom line: Retirees like Marty Bannon shouldn’t obsess with market swings. They’re income investors. And incomewise, AT&T investors have little to complain about.

In 2008 AT&T paid $0.40 quarterly, up from $0.355 the year before. Since then, the quarterly dividend has increased by a penny every year: $0.41 in 2009, $0.42 in 2010, and so on. The 2017 quarterly dividend is $0.49.

If Marty Bannon still had his shares, his investment income would have grown by more than 20 percent since 2007.

Monday, March 13, 2017

Caution: Some Investment Products May Be Hazardous to Your Health

John Bogle, from his recent NY Times op-ed on the fiduciary rule:
[Gary] Cohn, most recently the president of Goldman Sachs, called it “a bad rule” and likened it to “putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” Comparing healthy and unhealthy food to healthy and unhealthy investments is an interesting analogy.
Introduction of the Labor Department's fiduciary rule has been delayed, possibly forever. But the losing battle has had positive results. Investment costs are dropping, and more investors understand the difference between registered investment advisers and financial advisers.

Nevertheless, the terminology is designed to confuse. Michael Piwowar, the acting head of the Securities and Exchange Commission, believes a fiduciary rule is a bad idea . But he suggests it might be time to stop calling brokers "financial advisers." 

Got any ideas for an alternative designation?

Wednesday, March 08, 2017

Remember the Arrogant Trustafarian?

"Born Rich," the first documentary from Jamie Johnson, the Arrogant Trustafarian, profiled an assortment of his fellow trust fund babies. Yucky as most of those rich kids appeared, ten years later some had moved on to productive lives.

Just one was an outlier from the start: "down-to-earth, never dissing her family or the privilege she was born into."

Yes, Ivanka Trump.

Friday, March 03, 2017

Very Rich? Deep in Debt? Perhaps It's All the Same

As wealth grows it tends to become more volatile, harder to appraise. "If you can count your money," J. Paul Getty once explained, "you don't have a billion dollars."

Aubrey McClendon (Wikipedia)
Extreme case in point: The pile of debts – or, possibly, the significant wealth – left by Aubrey MeClendon after his death in a car crash a year ago.

McClendon borrowed heavily as he he started over after his ouster from Chesapeake Energy, and the plunge in oil prices may have brought him to financial ruin. Could the dramatic rebound in oil put McClendon's estate back in the black?

Wall Street Journal subscribers can read the story here.

Wednesday, March 01, 2017

How to manage $36 billion

The Wall Street Journal updates the situation of the Harvard endowment (probably behind the paywall).  Half the staff is being let go, so there will be much more reliance on outsiders.

Their new manager, N. P. Narvekar, was recruited from Columbia, after a 14-year stint managing Columbia's money.  His claim to fame was that he succeeded in both up and down markets, and didn't lose much in 2008, when other endowments were crashing.  He did it with singles and doubles, not major bets.

The article provides some insight behind the Harvard endowment's recent lackluster performance, tracing it to the departure of Jack Meyer and his team after a blowup over their compensation.  At the time, Harvard alumni felt that performance bonuses paid for surpassing stated benchmarks were, I don't know, not enough "Harvard-like"?

Narvekar has a three-year contract at $6 million per year.  Doesn't seem like much for managing $36 billion, does it?

Tuesday, February 21, 2017

Habits of Highly Unsuccessful Investors

Why do some older investors lose big while others prosper? An AARP survey suggests a few reasons.

Those who get fleeced tend to be risk takers. They crave home runs, not singles.

Often they trade more frequently.

They're more likely to be drawn to unregulated alternative investments. "Nearly half of fraud victims," the survey finds, "compared with less than a third of general investors, agreed that 'the most profitable financial returns are often found in investments that are not regulated by the government.'”

They're more susceptible to sales pitches.

The losers surveyed were 70 or older, but the same traits can separate anyone from his or her money.

Tuesday, February 14, 2017

When Bombers Trumped Inheritance

From a  Bessemer Trust lawyer's notes on the recent Heckerling Institute on Estate Planning.
Estate tax repeal has been considered by various administrations. One staffer from 1986 has stated that negotiation of the momentous 1986 Tax Reform Act came down to one last item. The legislative staffers told President Reagan that he could get rid of the estate tax but he would have to give up the B-2 bomber. President Reagan replied that he would rather keep the B-2 bomber.

Thursday, February 02, 2017

Forging a Will? Don't Draft It Online

Matt, a roustabout who survived the Deepwater Horizon explosion and received a multi-million-dollar settlement for his injuries, wanted to buy a house in his home town. At a local real estate agency he was introduced to Donna, who found him a property near her own home. Soon Matt, with Donna's encouragement, was dating her teenage daughter, Alex.

When Matt died in a crash of his Crossfire (no seat belt!)  his considerable estate presumably passed to his young son. But lo and behold, Donna soon found a copy of a will Matt had made in 2014, leaving almost everything to Alex.

Where was the original? The resourceful Donna found that, too, in front of witnesses, when she opened a safe in Matt's home. The will shortchanged Matt's son so severely that the probate court approved a settlement giving him 15% of the estate.

But the young son may do much better, if the Feds don't decide to keep Matt's assets. Someone has discovered that Matt's will was drafted online, at When? Digital footprints indicate the will was created in 2015, some days after Matt died.

Donna is slated to go on trial for her alleged crimes in April. You can read the whole story here, complete with a few quotes from the Wills, Trusts and Estate Prof.

Or maybe it's not the whole story, Circumstantial evidence hints that Matt did make a will, so far unfound.

Note: The article linked above is now behind a paywall, but here's an update.

Thursday, January 26, 2017

Irrational Exuberance and the Dow

From The New Yorker, January 15, 1966

Little did Hayden Stone or the rest of Wall Street know, but the DJIA's mid 1960's high (1,000!) marked the end of the great post-World-War-II investment boom.

Stocks staggered on through the Go-Go Years, but not until 1982 did the market begin its next great advance. Hayden Stone itself did not survive the 1970's.

In the long run, of course, Hayden Stone was right. Families whose founders invested boldly in 1966 and stayed the course now enjoy the fruits of a DJIA that just hit 20,000.

Evidence that you can't get what you don't pay for

It was just over 16 years ago that the Harvard Management Company and investment chief Jack Meyers parted ways.  Meyers had quintupled Harvard's endowment, growing it from $5 billion to $25 billion.  He was paid a pittance for that performance, by Wall Street standards at the time. Nevertheless, the Harvard alumni were outraged when they learned he was paid $7 million in one year, even though his compensation was tied to beating established benchmarks.   Apparently the alumni were confident that comparable returns could be had for less cost.

It didn't work out that way.

 Today's Wall Street Journal [paywall] reports yet another major shakeup for the Harvard Management Company.  The endowment has annualized gains over the last 10 years of 5.7%, well below Yale's 8.1% and the second lowest in the Ivy League.  Four different heads have tried to meet the return targets over the last decade, with the latest starting last December.

The new plan:  Outsource almost everything, and lay off 230 employees.

The nice thing about this approach is that the alumni never need to know how much the outside managers are being paid.  If they ever get good endowment returns again, they don't have to lose sleep over whether the manager was paid too much for achieving them.

A new spirit of noncompetition at Harvard Management is revealed in the closing paragraph of the WSJ piece:

Remaining staffers will focus on Harvard’s portfolio overall instead of on specific asset classes. Mr. Narvekar plans to tie staffers’ pay to the endowment’s overall performance instead of that of their asset class starting in fiscal year 2018.
We'll be watching to see how that turns out.

Wednesday, January 11, 2017

Is Portfolio Rebalancing a Waste of Time?

Could investment advisers become even more redundant? On average, they can't pick stocks that do better than average. So they settle for allocating assets and periodically rebalancing to maintain the ideal allocation. But what if their clients would be just as well off if their portfolios remained untouched?

Source: The Wall Street Journal

Some investment professionals, the WSJ reports, now believe "rebalancing is no better or worse a strategy than buy-and-hold."

A study mentioned here confirms that belief:
Compare the path of two hypothetical portfolios constructed by T. Rowe Price. Each portfolio starts with $100,000, with 60% in a mix of stocks—including shares of large and small companies, U.S. and foreign firms—and 40% in high-quality U.S. bonds. One portfolio is rebalanced annually over the 20-year period through 2015; the other is left alone. Both portfolios deliver the same returns, with annualized gains of just a bit more than 7%.
Rebalancing did reduce volatility. In theory, lowering volatility by periodic rebalancing should enable a skittish investor to come closer to  the long-term returns enjoyed by a buy-and-hold investor. 

In practice, rebalancing requires the skittish investor to shift money from stocks just when their gains make them look like a great buy and purchase stocks when their prices are scarily depressed. Easier said than done.

Monday, January 09, 2017

The Estate Plan That Amazed Samuel Pepys

Samuel Pepys
Not long after Christmas, three and a half centuries ago, Royal Navy bureaucrat and diarist extraordinary Samuel Pepys paid a call on Lord Crew. There he heard a remarkable story of inheritance.

An old friend had left Lord Crew's brother, Mr. Nathaniel Crew, an estate paying 600-700 pounds per  annum. Surely a worthy income in those days.

But Mr. Crew's good fortune had not come by bequest or devise. The recently deceased friend had left no will.

Nathaniel Crew
Rather, the amazed Pepys reports, the friend "had, above ten years since, made over his estate to this Mr. Crew, to him and his heirs for ever, and given Mr. Crew the keeping of the deeds in his own hand all this time; by which, if he would, he might have taken present possession of the estate…."

"This is as great an act of confident friendship," writes Pepys, "as this latter age, I believe, can shew."

Oddly, in his portrait the trustworthy Nathaniel looks a bit shifty. In reality he went on to become one of the Church of England's longest serving bishops.

Sunday, January 01, 2017

“Does anyone under the age of 30 even know what a check is?”

At year's end your obedient blogger wrote a check. If he lived in Denmark, he'd never write another.