Wednesday, August 25, 2021

Jason Zweig’s Artfiul Newsletter

Recently signed up for Jason Zweig’s newsletter from the WSJ.  The latest is a winner.

Zweig leads off with the depressing thought that the average performance of active investment managers is one or two percent lower than reported. Reason: survivorship bias. As time passes, the unfortunate returns of funds or managers that drop out of the race vanish from data bases, leaving an average based on better-performing survivors.

 Delightfully, Zweig illustrates his items with everything from ephemera to fine art. Here he uses a Koloman Moser painting that we can imagine as a  collection of deceased funds floating around in other waste matter. 

Guess what happened a few months before Prohibition? Coca Cola went public. Shares were sold on the Curb, Street brokers received orders from clerks who signaled from office windows or ran downstairs to deliver orders. Fights sometimes broke out. Here’s the Curb as shown on a 1919 postcard:  

Can’t promise all of Zweig’s newsletter will be as sprightly as this one, but they are worth a look. 

Wednesday, August 18, 2021

Contrary indicator?

 The New York Times has a nice, well-illustrated analysis of the inflation picture at the moment.

However, I don't trust their conclusion that we don't need to worry about inflation, that it really is transitory.  The general public perceives inflation by what they see at the gas pump and at the grocery store.  Inflationary expectations are as significant as inflation itself.  The fact that the prices of window coverings and men's suits are going down doesn't cut much ice.  Gas prices can only go higher given the new restrictions on building pipelines and fracking.  Note also that President Biden's plea to OPEC to boost production was rebuffed.

What's more, the New York Times has been practicing "agenda journalism" for the past few years, which makes me skeptical of any of their pronouncements.  "No long-term inflation to see here" sounds an awful lot like "Kabul can survive for 90 days" to my ears.  Wishful thinking.

Having said all that, I do find their data presentation and explanations to be interesting, potentially helpful.

Friday, August 13, 2021

Anniversary of a turning point in my Merrill Anderson career

 It was 40 ago today that President Reagan signed the Economic Recovery Tax Act into law.  I helped turn that event into significant profits for the Merrill Anderson Company, co-writing brochures on the benefits of the new law and on IRAs, because they became available to everyone with wages.  I did well enough that the firm's owners began grooming me for future ownership.

Background here:

Wednesday, August 11, 2021

August is the Coolest Month

 Cool in the sense of excellent for stock investors, that is. Instead of fixating on the "January effect", Jason Zwieg's Intelligent Investor newsletter points out, we should focus on the "August effect."

According to Bill Schwert, emeritus professor of finance at the University of Rochester, August has averaged the highest returns of any month, at 1.45%, even better than January -- the month whose supposedly superior results have been touted for years in books, blogs and research papers. 

Zweig also reminds us of what happened 39 years ago on August 12, 1982. Without fanfare the most horrendous stock market decline since the Depression ended.  Investors contrarian enough to start buying equities would have prospered mightily. Stocks rose 229% before Wall Street had its 1987 panic attack. Thereafter stocks rose another 582% percent before the bubble burst. 

Tuesday, August 10, 2021

How Investment Advisers Became ‘Designated Drivers’

When the merely affluent seek investment help, their advisers generally call the shots. High-net-worth investors aren’t so easy to handle. Their peer group has told them what’s “hot,” and they want their advisers to get them in on the action. Result, an expanding category of alternative asset classes, including sneakers.

Bitcoin and other cryptocurrencies are the hottest of the hot. Many advisers dislike these unstable – and sometimes unserious –mediums of exchange, but they nevertheless have to yield to clients’ insistence: “OK, we’ll put one percent in bitcoin.” 

Even Jamie Dimon, CEO of JPMorgan Chase, finds he must curb his mistrust. His bank is launching a bitcoin fund.

 Dimon recently explained his dilemma to the House Financial Services Committee: "My own personal advice to people is: stay away from it. That does not mean the clients don't want it. This goes back to how you have to run a business. I don't smoke marijuana but if you make it nationally legal, I'm not going to stop our people from banking it.”

If the high-net-worth crowd is going to bet on crypto anyway, Dimon figures, at least JPMorgan advisers can help them do it without getting ripped off. They’re the designated drivers. 

Friday, July 30, 2021

Work Six Days, Get Paid for Five?

In some settings a shorter workweek –“work four days, get paid for five” –  draws kudos. Not on Wall Street, where Goldman Sachs and others cherish a tradition of long workdays and only Sundays off.

Mary Callahan Erdoes, the CEO of JP Morgan Chase's Asset and Wealth Management division, sees a workweek of six 12-hour days as an aid to speed-learning. New wealth managers, she estimates, can master their trade almost twice as fast as they could with a forty-hour workweek. 

Erdoes probably doesn’t mean to be hard on young Wall Streeters; according to this interview, she herself used to work Sundays as well. 

What do you think? Is she overestimating the ability of young analysts to soak up knowledge at 7 p.m. on Saturday night?

Tuesday, July 27, 2021

Which Kind of Trust Do You Drive?

Steve Parrish, as quoted in a Kiplinger primer on trusts:

 A revocable trust is like the minivan of estate planning. They are multipurpose and used more by the upper-middle class. An irrevocable trust is like a high-performance sports car. 
 As for me . . .

Monday, July 12, 2021

Old School Investing Ain’t Dead Yet

Passive investing rules. Mutual funds have become musty relics. Right? 

Not yet. Not by a long shot 

Index funds tracking the S&P 500 have grown at warp speed. By the end of 2020 they held assets totaling $5.4 trillion. Yet significantly more, over $8 trillion, is invested in actively-managed funds benchmarked to the S&P 500. Investor hopes spring eternal.

As for old-fashioned mutual funds, the WSJ reports  fund assets total some $21 trillion, far exceeding the $6.2 trillion in ETFs.  

In time he old order will indeed give way to the new. Already, early adopters are bypassing ETFs and turning to non-fungible tokens and cryptocurrencies. Reminder: if clients want to wager on crypto, make sure they consult their astrologer.

Monday, June 28, 2021

Yale Shuns (Some) Oil Stocks

Yale University aims to reduce its carbon emissions to zero by 2050. Meanwhile, it has issued a list of oil stocks in which it will not invest. Take that, Exxon! Shove off, Chevron! Bye bye, BP! 

Oh, wait. None of the above appear on Yale’s hit list of over 40 shunned oil stocks. According to the university’s list of guiding principles, “investable” oil companies produce fossil fuels only because no cleaner alternatives are readily available and take visible steps to reduce emissions where possible. Exxon, Chevron and BP apparently get passing grades. 

Determining when alternative energy sources are readily available can  be tricky. As Jim Gust called to my attention, Californians owning electric-powered vehicles probably shouldn’t expect that state's overstressed electric system to power them up this summer. 

Wednesday, June 23, 2021

Revenge of the Verbs

The nouns gift and bequest may be threatening to push their verb forms aside, but venerable verbs are fighting back, as we noticed when Netflix’s deal with Spielberg’s film and TV studio was described as a “good get.” Actually, get and ask used to be commonplace nouns, according to Merriam Webster. They’re just making a comeback. 

Friday, June 18, 2021

JPMorgan Adds Spice to Chase

Nutmeg, the British digital investment service, chose its name because the spice, like wealth and investment management services, was once rare but now is readily available. JPMorgan is acquiring Nutmeg – which it already works with on active ETFs – as it prepares to launch Chase as a digital bank in the UK. 

Nutmeg’s sales pitch:

We’ve got rid of all the aspects that made the wealth management industry unpopular. We don’t charge a premium for the illusion of a personal relationship. We don’t use confusing benchmarks that bear no resemblance to reality. We don’t use technical jargon. We don’t lump all your money together. We don’t charge high fees to pay for our huge sales force. We don’t hit you with sneaky charges. We don’t keep you in the dark over where you’re invested – or how your funds are performing.

 Check out Nutmeg’s admirably clear and accessible website. Well designed and well worded.

Monday, June 14, 2021

Investing's Enormous Generation Gap

From "Your father’s stock market is never coming back,” Fortune’s  readable guide to how the Fidelity-generation’s investing differs from that of Robinhood’s youngsters. (Though not a Fortune subscriber, I was able to access the article here.) 

Jerry [father] spent three decades saving and investing, prudently, and dutifully. He and Nancy have accumulated $1.2 million—for them it’s all the money in the world. Took them their entire lives.

Aiden [son] made $800,000 in the past 12 months, starting with the $25,000 his grandfather left him. He did it from a phone, knowing virtually nothing about the instruments he traded.

 Will this century’s Roaring ‘20s investors see their wealth disappear as dramatically as it did in the last century? Will NFTs really take over from ETFs? 

Thursday, June 03, 2021

The Ivory Tower Tax Act

 I don't care for the name, but I do like the concepts behind Senator Cotton's new tax proposal on certain university endowments.  

Wouldn't it be simpler and more fair to just eliminate nonprofit status for all endowment funds?

Wednesday, May 26, 2021

Who’s Killing Our Verbs?

The first verb to go was “give.” Estate planners helped by describing formal transfers of family assets as “gifting” rather than “giving.” 

Now “bequeath” is endangered. See this blog post on dynastic trusts: "Today’s record levels of economic inequality are infecting our future as the top 0.01% bequest vast wealth to their descendants."

Tuesday, May 25, 2021

The End of Cold Calling

Few business people answer phone calls until they’ve been robotically screened, and personal phone conversations have fallen out of fashion. Small wonder, then, that BofA’s Merrill announced its brokers-in-training will no longer be required to make cold calls.  (Attempt to make, that is – fewer than 2 percent of people who are cold called even answer the phone.)

Merrill instead will encourage young advisers to go prospecting on LinkedIn. Brace yourselves, LinkedIn members!

Full disclosure: The other day your obedient blogger actually did receive a cold call, not from a wirehouse but, surprisingly, from Fisher Investments.

Wednesday, May 19, 2021

Cryptocurrency Scams are Surging

 Losses from cryptocurrency-related investment scams increased tenfold over the last 12 months, according to the Federal Trade Commission. The Internet accelerates the losses, warns Michelle Singletary in The Washington Post: 

[C]ryptocurrency enthusiasts have a great command over social media platforms, enabling them to relentlessly plug the investment, which is pushing up prices. Scammers know that many people suffer from “FOMO,” or the fear of missing out. This is the kryptonite for unsophisticated investors.

 Victims tend to be young: Adults 20 to 49 were more than five times more likely than older age groups to report losing money on cryptocurrency investment scams. Because self-directed IRAs are lightly regulated, they’re a popular scam vehicle.

Tuesday, May 18, 2021

Will Bankers Get Back Into Suits?

Upscale men’s fashion, The Wall Street Journal points out, has lately veered toward jogging pants and sneakers. As movers and shakers return to their headquarters, could boardrooms begin to look like Zoom gatherings?

Fashion guru Andrew Weitz sees suits making a comeback, although the pants may have elastic waistbands. Others have doubts. Except for court appearances and campaign speeches, men’s suits may soon be a memory. 

For a sign of the times, check out Jamie Dimon's interview for the WSJ CEO Council Summit – definitely a suit-up occasion, you would think. The WSJ editor wears jacket and tie. Dimon, the nation’s pre-eminent banker, sports a black pullover shirt, designer jeans and elegant loafers. 

You know he’s dressed up because he’s not wearing sneakers.

David Swensen: Successful Old Investors Should Think Young

The late David Swensen realized individual investors would gain nothing but trouble if they tried to imitate the strategies he applied to Yale’s endowment. Instead, he said, they should simply go passive and cut costs. “[T]he most sensible approach is to come up with specific asset allocation targets that you can implement with low-cost, passively managed index funds and rebalance regularly. You'll end up beating the overwhelming majority of participants in the financial markets.

Swensen didn’t think much of paying investment advisers, and he questioned the conventional wisdom that investors must become more  conservative as they age. If elderly investors have ample funds, Swensen argued, they shouldn’t be investing for themselves. They should be investing, fairly boldly, for their young and middle-aged heirs. 

Kiplingers recently offered a  cautious version of the same advice.

Monday, May 10, 2021

Sad news

 David Swenson has died:

He was younger than I am!

Click here for the collection of posts about Mr. Swenson.

Wednesday, May 05, 2021

The Marvelous Multimillionaires’ Tax Loss Machine


The actual components will be fancier than shown above, but you can bet tax practitioners are hard at work on mechanisms to offset tax on substantial capital gains. Early descriptions of president Biden't tax plans include a top income tax rate of over 40 percent, and that rate also would apply to capital gain realized by taxpayers who are income millionaires. Also vulnerable, nonmillionaires who realize once-in-a-lifetime gains that push their income into seven figures. If stepped-up basis is altered so that gains over $l million are taxed at death, inheritances would be diminished by what amounts to a junior-varsity estate tax.

For estates of the genuinely rich, the Tax Foundation estimates  the tax on gains plus the usual federal estate tax would produce a combined tax rate of 61%. The usual reliable sources think such a punishing blow is unlikely to become reality.

Meanwhile, wealth holders seek defensive measures. The Marvelous Multimillionaires Tax Loss Machine should help a lot. A Wharton study estimates the IRS  could receive 90% less revenue than expected from the proposed tax increases.

Tuesday, April 20, 2021

Tasty Taxes

The Old Farmer's Almanac says that in biblical times, people paid their taxes with herbs such as anise, and in medieval Europe, some used honey to pay their taxes. Since I live in New England, I'm sending the IRS a crate of lobster and clam chowder. I'll let you know how it goes.

When Trust Services Included Immortality

 From an April 1959 issue of The New Yorker:

[An old post that seemed worth repeating.]

Sunday, April 18, 2021

Tech Influences Investing

Here in the early 2020’s, social media and apps offering free trades are reshaping the investment scene. Economist Robert Shiller in the Times sees it as deja vu all over again: "Early in the 1920s, people played the market as a grand game, abetted by technological innovation and new mass media.”

The high tech? The stock ticker. "In 1923 the Trans-Lux company came out with the 'movie ticker' — a large illuminated screen showing rapidly changing stock prices.” No longer were stocks dull certificates that rich uncles kept in their safe deposit boxes. Anyone could go to a brokerage and watch stock prices soar and dive in almost real time. The Money Game was on!

The new  media was radio. "The world entered homes electronically, giving people an immediate sense of the possibility of new technologies and access to a global narrative about financial success.”

From September, 1919 to September, 1929, Shiller estimates, stocks returned an inflation-adjusted average of 20 percent a year. After that.... 

With stocks having already returned an average of 12 percent, after inflation, over the ten years ending March 2021, it’s hard to believe investors have six or eight years of 20 percent returns to look forward to.  “We shouldn’t be surprised,” writes Shiller, "if uncomfortable feelings about the market grow to unmanageable proportions."

Monday, April 12, 2021

CEOs Have Lucrative Coattails

 CEOs of the largest US corporations made more than ever last year, The Wall Street Journal estimates. Even corporate chieftains who took salary cuts when the coronavirus erupted tended to make up the difference through growth in the equity portion of their compensation. 

When CEO's do better financially, so do their immediate subordinates. Public corporations must report the compensation of the five most highly compensated executives. These summaries indicate that even those at the bottom of the five-exec totem pole have little cause for complaint.

Last year, to cite a few more or less random examples, number five at Verizon enjoyed total compensation of $7.8 million. At Pfizer, $8.9 million. Citi, $9.4 million.  Compensation for the number ones at those companies ranged from $19 million to $23 million. 

For the top tier of the wealth management business, all this new wealth indicates a bright future. Unless it's too generous to last. The Wall Street Journal notes that shareholders at some companies aren't happy with current compensation levels:

About 1 in 6 companies holding shareholder votes since Sept. 1 have gotten less than 70% support for say-on-pay votes, according to an analysis of S&P 500 companies by Equilar. Among the same companies last year, by contrast, about 1 in 12 had such stiff opposition.

Although only advisory, a poor showing in a say-on-pay vote often prompts boards to restructure pay packages—or more.
If CEO pay gets pressured, so will the compensation of those riding their coattails. 

Monday, March 29, 2021

Is the Stock Market Rigged? Is Rain Wet?

More than 50 percent of U.S. investors believe the stock market is rigged, according to a Bankrate survey. When you look at the wild price swings of a stock like ViacomCBS, exacerbated by massive trades that backfired on a family hedge fund and shook the investment banking world, the obvious question arises:

Why isn’t it 100 percent? 

Saturday, March 13, 2021

How to Raise Taxes?

Here’s The Washington Post’s wish list for revenue-raising tax reform. A number of the comments are enlightening. A few offer comic relief. Like, "Wealthy people who set up Trusts need to be reigned in.” (Not to be confused with Meghan and Harry, who needed to be reigned out.)

Tuesday, March 09, 2021

Maybe the 2020’s Won’t Roar ’til 2024

Energized by hope that COVID 19 vaccines will be plentiful by summer, the exuberant stock market is already looking beyond the pandemic. Too hasty? 

A Yale professor who has studied pandemics believes the end of this one is not yet nigh. "Given what we can learn from history," Dr. Nicholas A. Christakis warns, "I don’t think people should just imagine that we’re going to rapidly and easily return to normal.” 

Even if we achieve herd immunity this year, the good times won’t roll.
If you look all the preceding centuries of epidemics, then it’s clear that we’re going to have an intermediate period in which we come to terms with the pandemic’s psychological, social, and economic toll. I think that will last through 2023, approximately. We need to recover from the terrible shock of this experience. Millions of businesses have closed. Millions of Americans are out of work. Millions of children have missed significant amounts of school. Millions of people have lost family members to the virus. Many will have chronic disabilities from contracting it. We need to come to terms with all of these things, which will take time.
Christakis expects that "sometime in 2024 — the timing isn’t precise — we’ll enter the post-pandemic period. And I think that’s going to feel a little like the Roaring Twenties in the last century.”

If so, all investment managers and financial advisers have to do is help wealthholders survive another two years or so. Then, party on!

Thursday, March 04, 2021

Provenance, Provenance, Provenance!

This painting, just sold at Christie's in London, practically gushes provenance. Borrowed from the French, the word serves the art world as a posh term for "a record of ownership of a work of art or an antique, used as a guide to authenticity or quality." 

Though this artist wasn't a big name in the art world, he was a big name. Winston Churchill painted Tower of the Koutoubia Mosque after the 1943 Casablanca Conference and gave it to Franklin D. Roosevelt.  In 2011 Brad Pitt bought the painting from a dealer and gave it to the seller, Angelina Jolie.

Expected to sell for perhaps $3 million, the only painting Churchill created during WWII sold for almost four times as much: $11.5 million.

World War II history, Churchill and Roosevelt, Hollywood stars …what more could the unidentified buyer ask?

We Couldn’t Have Said it Better

The great thing about sustainable investing is it can be whatever you want it to be.

                                     – James Mackintosh in The Wall Street Journal 

Investors had no trouble gliding past the death and economic devastation wrought by the pandemic last year to drive the market to record highs. An increasingly healthy economy is what’s making them panic.

                       – Matt Phillips in The New York Times

Wednesday, February 24, 2021

The Law That Made Everybody’s Tax Info Public

 After the Crash of ’29, tycoons like J. P. Morgan, Jr. had more than enough tax write-offs to reduce their income tax to zero. As this old WSJ item reminds us, the resulting public outrage led Congress to take bipartisan action:

Under the Revenue Act of 1934, anyone who filed a federal tax return would also complete another — pink — form, with his or her name, address, income, deductions and total taxes paid. Everything on the pink slips was public information, available to reporters, nosy neighbors or former spouses alike.

 With the pink slips, the theory went, upper-income toffs would be shamed into paying something. But ordinary taxpayers also would have their earnings and tax payments exposed to public view. What would the neighbors think? What if they looked affluent enough to attract kidnappers? (With the kidnapping of the Lindbergh baby still a fresh memory, the latter worry was real.) 

A Pittsburgh glass heir named Raymond Pitcairn led the effort to repeal pink slips. Using know-how gained while lobbying for the repeal of Prohibition, he quickly won the day. The “pink slip” law was repealed less than a year after it passed.

The Supreme Court recently ordered the release of the income tax records of a wealthy serial nontaxpayer. But these days, living rich and tax free is a feat perhaps more admired than condemned.

Friday, February 12, 2021

Christo’s Estate Sale

Together with his late wife, Jeanne Claude, the artist known as Christo liked to wrap extraordinarily large objects. Christo died last year, but a posthumous work, L'Arc de Triomphe, Wrapped, may appear this fall. 

Meanwhile, Sotheby’s is auctioning off the couple’s arty possessions, including this screenprint they acquired from Damian Hirst. 

You can bid on the print, All You Need is Love, through February 18 online, but be prepared to offer more than 24,000 EUR.

Happy Valentine’s Day!

Thursday, February 04, 2021

More Game Stop winners

 The Financial Times reports that the biggest winners in the Game Stop frenzy may have been the market makers, as trading volume reached record levels.  Trading in options has exploded to record levels as well.

I've never been a day trader, I've bought many stocks but I've never sold one.

So far, so good. 

Tuesday, February 02, 2021

A taint on a trust strategy?

 According to an account posted at TaxProfBlog, Jeffrey Epstein made most of his fortune simply be getting billionaires to execute GRATs to save estate and gift taxes.

I am surprised.

Trading as a Team Sport

The new sport of trading stocks has evolved much faster than expected. A legion of bored amateurs, some armed with government stimulus checks, has driven Gamestop and other stocks shorted by hedge funds to ridiculous highs. Trading, the novices have discovered, can be fun. When you get together and make it a team sport, you can batter hedge funds so badly they need financial transfusions.

Pundits are alarmed. If a financial advisor can ignite a flash mob to shake up Wall Street as easily as former president Trump inspired a crowd to storm the Capitol, who or what is safe? (Hey, are they attacking silver? Could they go after Bitcoin?)

History tells us that participants in speculative binges get their comeuppance. This time it may take a while. According to this Axios bulletin, the short sellers have a deep bench. “[B]ig bets are coming in from hedge funds and institutional investors, meaning that the short squeeze has not even begun."

Wednesday, January 27, 2021

Tulip mania returns

 This time it's GameStop.

When short interest goes above 100% of the shares in the hands of the public, trouble is brewing.