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?