Sunday, December 30, 2018

Alas, Poor Bitcoin

Double, double, toil and trouble, 
Bitcoin bust and Blockchain bubble.
Remember when the value of a single bitcoin was expected to hit $100,000?  Nellie Bowles, the NY Times' intrepid California tech reporter, does.
Today the price of Bitcoin — $19,783 last December — is $3,810. Litecoin was $366 a coin; it’s now $30. Ethereum was $1,400 in January; today it’s $130.
The computing power needed to “mine” a Bitcoin or other cryptocurrency is now sometimes costing more than that coin is worth.
Blockchain, the technology developed to help manage Bitcoin, offers vast potential "to transform financial systems," Bowles writes. Inevitably, cockamamie blockchain ventures boiled up.

Even the word itself worked wonders. "When Long Island Iced Tea Company changed its name to Long Blockchain Company, its stock went up 500 percent in a day."

Thursday, December 13, 2018

Guardian Columnist Disses Northern Ad

Today's admeisters stress pinpoint accuracy: Deliver your sales pitch for gold-plated garlic presses only to people who think gold-plated garlic presses are totally cool.

Aspirational advertising spreads a wider net. Generations have learned what to buy when they get rich by leafing through the pages of The New Yorker. (You're unlikely to purchase a Rolex or a Bentley someday if you've never heard of them.)

If Thomas Ricks had recognized the value of aspirational advertising, his Guardian column might have been less grumpy. Northern Trust's "Greater" message draws particular ire:
[T}he full page ad that set me off on this tear came on page 10, when a relatively young man – his bearded thirty-ish face illuminated as he stares off to the side – is shown behind the capitalized headline “GREATER IS ELEVATING THE FAMILY NAME INTO AN ICON.” The text below, from a trust company, explains that, OK, you have your “business ownership and personal wealth”, but now you have to move up to the next step, “build something that lasts”. Not only is being comfortable no longer the goal, being wealthy is no longer enough.
Admittedly, Northern's message encourages greed and egotism:
"How do you feel now that you're taking $50 million out of the company?"  
"I feel great." 
"So why are you moping around like a dog who lost his bone?"
"I want to feel greater."
But greed, Michael Douglas reminded us in "Wall Street," is good. And although audiences were supposed to scorn that sentiment, the film reportedly inspired a good number of young people to seek a Wall Street career.

Saturday, December 08, 2018

The Simon abundance index

There has been a followup on the famous bet between Julian Simon and Paul Ehrlich on whether the costs of resources go down over time. Ehrlich ("The Population Bomb) thought that Reverend Malthus was right, and we were on the brink of mass starvation. The fact that he was entirely wrong has not had any impact on his dire opinions.

Simon and Ehrlich bet on five materials on a ten-year span.  In this followup, 50 items are tracked from 1980 to 2017. Bottom line, as population grows, access to resources grows.  Simon continues to win.

Now I have to figure out how to put this new learning into ITN.

Sunday, December 02, 2018

The High Price of Nice Dinners, Continued

Robert Neubecker's illustration for
"We Went to a Steak Dinner Annuity Pitch."
After an invitation to a gourmet dinner arrived in the mailbox of his 80-year-old aunt, NY Times columnist Ron Lieber decided to go along as her guest. Like other (but not all) nice dinners, Lieber found that this one – promoting equity indexed annuities – was garnished with dubious financial claims.
Almost a decade ago, in “Protecting Older Investors: 2009 Free Lunch Seminar Report,” AARP said 63 percent of the people it had surveyed had received an invitation like the one my aunt found in her mailbox. Among that group, 57 percent had received five or more within the previous three years. The organization figured that 5.9 million people ages 55 or over had attended at least one seminar. 
AARP’s protective instincts were warranted. Two years earlier, the Securities and Exchange Commission, the North American Securities Administrators Association and the Financial Industry Regulatory Authority sent examiners to 110 free-meal seminars.  They found  that 57 percent of the time, the salespeople used materials that “may have been misleading or exaggerated or included seemingly unwarranted claims.”
I genuinely hoped not to encounter any such thing Tuesday night. But I did.
To avoid elder abuse, annuity sales efforts are said to target people no older than 70. But oldsters certainly get dinner invitations. My mother has received several this year. Had she not died in the 1990s, she now would be well over 100.

Sunday, November 25, 2018

As Investors, Women Outperform Men

A Warwick Business School study, covering investment returns over three years, found that the U.K.'s women investors do better than the men.
Analysis of 2,800 investors found that not only did the female investors outperform the FTSE 100 over the last three years but they also outshone their male counterparts.
While annual returns on investments for men were on average a marginal 0.14 per cent above the performance of the FTSE 100, annual returns on the investment portfolios held by women were 1.94 per cent above it. This means returns for women investing outperformed men by 1.8 per cent.
The women did better than the men because they avoided speculative stocks, traded less frequently and were more willing to sell their losers. They were less likely to confuse investing with playing the lottery, more likely to keep calm and carry on.

Friday, November 16, 2018

The “Sewer Rat” and the Misplaced Wil

From the UK, the tale of how a "cavalier and reckless" heir hunter — a company that traces people who may not realize they’re in line for part of a deceased relative’s estate — came perilously close to denying a retired film editor the home his aunt left him in her will.

Wednesday, November 14, 2018

Time to Retire “Retirement”?

In financial marketing circles you don't hear much about personal investing. It's "retirement investing." Personal financial planning? It's mostly "retirement planning."

Out in the real world, that's a problem. Many, perhaps most working people aren't actually retiring. Some can't afford to retire; others prefer not to. The vast majority of "retirees" working part time say it's by choice, not necessity.

The meaning of "retirement" gets even murkier as young people aspire to retire early. Movements such as FIRE urge them to spend almost nothing, save and invest almost everything.

Alas, spending almost nothing is not a meaningful life plan. Suze Orman interrupted her own retirement to assert that somebody retiring at 40 would need $5 million to live on. Maybe $10 million. She later recanted, after learning that the  potential "retirees" realized they would have to keep working for a living. They simply wanted to stop "working for The Man" and start doing something they enjoyed or found fulfilling.

"Retirement," whatever it means, is not a useful financial goal. The goal should be financial independence. Canadian writer  Jonathan Chevreau calls it findependence.
[W]hen you’re financially independent, you work because you want to, not because you have to. “Findependence is necessary for retirement,” he says. “You can be findependent and not retired, but you can’t be retired without being findependent.”
The FIRE movement (Financial Independence, Retire Early) should become simply the FI movement. Calculators could help Millennials check their FI progress like they check their FICA scores.

Former Marines should love this approach. "Semper FI, guys. Semper FI."

Saturday, November 10, 2018

Thoughts on Wealth

Do you know the only thing that gives me pleasure? It is to see my dividends coming in.
– John D. Rockefeller

The only way not to think about money is to have a great deal of it.
– Edith Wharton

It isn't necessary to be rich and famous to be happy. It's only necessary to be rich.
– Alan Alda

Tuesday, October 30, 2018

The High Price of Nice Dinners

After enjoying a free dinner, the WSJ tells us, a retiring tour bus driver bought an annuity. Several years later, after another nice dinner, she paid a heavy penalty to ditch her annuity and invest in a portfolio, including other annuities, pitched by another retirement "adviser."

The DOL effort to impose a fiduciary rule dampened annuity sales for a time. Now the rule is gone, and sales of annuities – some paying 6% commissions – are booming.

Sunday, October 28, 2018

The Wealthy Person's Eternal Dilemma

From Fred Schwed's Where are the Customers' Yachts? published over 75 years ago and still timely.

The underlying principle of the genuine investment counsel seems to be sound and important. It is a mundane one, i.e., it has to do with how the counselors are paid off. They receive a stated fee for giving advice; they do not get their pay in commissions or profits on trades, as most brokers and dealers do. Nor are they tempted to sell the client some security which they own and which, by a mischance, no one else at the moment seems to care to buy. Thus a wealthy person may at least feel sure that the advice he gets from investment counsel is sincere, and unbiased by hope of gain of fear of loss. This reduces the wealthy person's problems to two:

(l) Is there such a thing as consistently useful financial advice?

(2) If there is, which investment counselor can supply it?

Tuesday, October 23, 2018

Five Reasons for a Trust

Estate planning is about more than taxes. Steve Hartnett at the American Academy of Estate Planning Attorneys offers a concise summary of five planning needs that call for a trust.

Friday, October 19, 2018

How Can a Merger Go Wrong? Let Us Count the Ways

Linde AG is combining with Praxair, a merger that should create a worldwide powerhouse in the field of industrial gases and such. Nothing is certain, however, and some unlucky young lawyer must have been tasked with listing all the ways things could go wrong. "And boil it down to one sentence for the press release, OK?"

Here is the sentence:
Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: the expected timing and likelihood of the completion of the contemplated business combination, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the contemplated business combination that could reduce anticipated benefits or cause the parties to abandon the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the business combination agreement; the ability to successfully complete the proposed business combination and the exchange offer; regulatory or other limitations imposed as a result of the proposed business combination; the success of the business following the proposed business combination; the ability to successfully integrate the Praxair and Linde businesses; risks related to disruption of management time from ongoing business operations due to the proposed business combination; the risk that the announcement or consummation of the proposed business combination could have adverse effects on the market price of Linde’s or Praxair’s common stock or the ability of Linde and Praxair to retain customers, retain or hire key personnel, maintain relationships with their respective suppliers and customers, and on their operating results and businesses generally; the risk that Linde plc may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; state, provincial, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters the industrial gas, engineering and healthcare industries; outcomes of litigation and regulatory investigations, proceedings or inquiries; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for industrial gas, engineering and healthcare and related services; potential effects arising from terrorist attacks and any consequential or other hostilities; changes in environmental, safety and other laws and regulations; the development of alternative energy resources; results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions; increases in the cost of goods and services required to complete capital projects; the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; conditions of the debt and capital markets; market acceptance of and continued demand for Linde’s and Praxair’s products and services; changes in tax laws, regulations or interpretations that could increase Praxair’s, Linde’s or Linde plc’s consolidated tax liabilities; and such other factors as are set forth in Linde’s annual and interim financial reports made publicly available and Praxair’s and Linde plc’s public filings made with the SEC from time to time, including but not limited to those described under the headings “Risk Factors” and “Forward-Looking Statements” in Praxair’s Form 10-K for the fiscal year ended December 31, 2017, which are available via the SEC’s Web site at 
"The foregoing list of risk factors," the press release warns, "is not exhaustive."

Friday, October 05, 2018

Portrait of a Tax Audit

Printmaker Warrington Colescott died September 10 at the age of 97. according to his NY Times obituary. Known for his biting etchings, Colescott once experienced a tax audit. His painful descent into IRS hell prompted him to create "Inside IRS."

Thursday, October 04, 2018

Jeff Bezos Realizes an Impossible Dream

"Finally, to my nephew Harold, who ofttimes said, 'A penny saved is a penny earned,' and who also ofttimes said, 'Gee, Uncle Max, it sure pays to own a Volkswagen,' I leave my entire fortune of one hundred billion dollars."

That's the punchline from "Funeral," one of the coolest TV spots in Doyle Dane Bernbach's legendary ad campaign. In the 1960's one hundred billion dollars represented impossible richness, beyond even the most feverish dreams of avarice.

Half a century later, and with help from inflation, Amazon's Jeff Bezos has more than realized the impossible dream. He tops Forbes' 2018 list of richest Americans with a fortune estimated at one hundred sixty billion.

Watch "Funeral" here

Tuesday, October 02, 2018

Fred Trump's Tax-Averse Estate Planning

Fred Trump in 1950
Seemed like a quiet year for estate planners. With the Trump tax cuts old news, the Heckerling Institute resorted to promos on NPR to drum up business.

But now Heckerling attendees will have plenty to talk about. The New York Times has published a virtually endless study, adorned with audio-visuals, of how Fred Trump passed his real estate fortune to his children, and most especially to his celebrity son, Donald. Hidden gifts! A large GRAT valued for little! An overreaching codicil that Donald tried, unsuccessfully, to attach to Fred Trump's will!

Even in the age of fake news, you can't make this stuff up.

Friday, September 14, 2018

Could “Reverse Churning” be Worth a Fee?

When working on commission, brokers have an incentive to make frequent trades in their customers' accounts. Done to excess, such trading becomes improper "churning." Happily, the trend to fee-based accounts removes this incentive.

But . . .ironically, brokers now may face charges of "reverse churning" – that is, loafing. If they make no trades in their customers' accounts, the SEC and FINRA wonder, why should they earn a fee?  Shouldn't they at least be pushing customers into, say,  inverse ETFs?

Maybe not. History suggests that efforts to time the market cost investors dearly. One study found that over 20 years when the S&P 500 produced an annualized return of 9 percent, the average stock fund investor earned 5 percent.

Might reverse churning actually help investors by producing higher returns?

Wednesday, September 12, 2018

When the Rich Lost $10 Trillion

From our archives, a reminder that even the rich became poorer a decade ago.

Wednesday, September 05, 2018

Inheritance Begins at 30

Beneficiaries shouldn't get their inheritances before age 30, according to a majority of respondents to a Financial Times survey of wealthy readers.  And despite the conventional wisdom offered by estate planners, some may not give the same amount to each child.

In reality, inheriting too soon probably isn't the problem. As one respondent commented, rising life expectancy is deferring many inheritances to an age when it is too late enjoy or spend the proceeds.

Sidelight: Respondents did not view their private bankers as an estate planning resource.
When asked whether they had discussed wealth transfers with their advisors, the response was mainly ‘no’, with comments such as: "They don’t have the expertise or experience to help like in the past"; "No point, they just want to sell you inappropriate and expensive “products"; and my personal favourite: "Yes. Some. But they nod out of deference. Silly people."

Monday, September 03, 2018

Why Stocks Are Like Women

This ad ran in The New Yorker 60 years ago, a time when Wall Street men regarded women as a breed apart.

"Stocks are somewhat like women," Merrill Lynch's copywriter asserts. Like stocks, all women are not alike. "For instance, some women move in schools, like fish; others are strictly independent. Some women are busy as waltzing mice; others are languid and lackadaisical. Some are fickle; others are faithful. They come in all shapes, sizes, and temperaments . . . to suit the shapes, sizes and temperaments of men."

The good news: Male copywriters don't write this sort of stuff any more.

The bad news: Wall Street still views women as a breed apart. Women in the financial industry get promoted more slowly and rise to senior positions more rarely, a CNBC-Linkedin survey finds.

Wednesday, August 29, 2018

Wealth Is Just Luck? Two Views

Wealth is just luck? Jim Gust questioned, reacting to a research study. Like most topics these days, the question has become politicized. Liberal Democrats think wealth is just a lottery ticket away; old-line Republicans say you have to work and sweat for it.  Jim leans toward the latter view.

Michael Lewis does not. In his frequently cited 2012 address to graduating Princetonians, the author insisted his wealth and success was luck all the way. At a dinner party he happened to run into people from Salomon Brothers. Salomon Brothers happened to put him to work flogging mortgage-backed securities. And he happened to realize he could write a best seller about grown men manufacturing derivatives.

All luck? Maybe, but his M.A. in economics and his extraordinary talent for turning financial intricacies into ripping good yarns didn't hurt.

Here's a more realistic view of the role of luck, heard on NPR the other day. Read or better yet listen to Sir James Dyson, inventor of the bagless vacuum cleaner.

When the interviewer asked if he believed in luck, Sir James mentioned hard work and perseverance before mentioning luck. Then he backtracked:
I do believe, though, that you create your own luck. Because luck is around. You know.  
I did long-distance running at school. And you only succeed by doing a huge amount of training and then having great stamina, understanding that other people are also feeling tired. So when you feel tired, you should accelerate. That's when you start winning.
I've learnt that with developing new technology, that when you feel like giving up is precisely the point everybody else gives up. So it's at that point that you must put in extra effort. And you do that, and then success is literally just around the corner. 
Whose view of luck do you favor? Michael Lewis? Sir James Dyson?

Before deciding, you should know that Sir James almost certainly has the larger yacht.

Yacht Nahlin, built in 1930 and restored by Sir James

Saturday, August 25, 2018

Leonard Bernstein's Legacy

Leonard Bernstein
Born one hundred years ago, August 25, 1918, Leonard Bernstein died in 1990, leaving an estate estimated at $5 million and a 20-page will that placed his estate in trust for his three children.

Considering the royalties that West Side Story alone must produce, $5 million was a dubious estimate of his estate's value. For the benefit of those not aged enough to remember Lenny, the Library of Congress provides this description:
Bernstein, arguably the most prominent figure in American classical music of the second half of the twentieth century, made his impact as a conductor, as a composer of classical and theater music, and as an educator through books, conducting students at Tanglewood, and especially through various televised lecture series that helped define the potentials of that medium.
The centennial of his birth is being widely celebrated, especially at Tanglewood, the music center in the Berkshires where Lenny got his start and where he returned to teach and conduct throughout his lifetime. The close bond between Bernstein and Tanglewood can be sensed in John Rockwell's account of his last summer there.

Bradley Cooper
Readers seeking to know more about America's remarkable 20th-century prodigy should consult the Library of Congress collection linked above. In addition to holding materials from Bernstein's estate, the collection, nicely organized for digital viewing, has been enriched by contributions from others.

Or they can wait for the movie – a biopic in which Lenny is to be portrayed by Bradley Cooper.

Wednesday, August 22, 2018

Free webinar on estate planning

Here's a plug for a webinar next week by Marty Shenkman, one of our regular Estate Planning Study contributors, together with Jonathan Blattmachr.  They are very good at these.

Hot Topics for a Hot Summer
Wednesday, August 29th, 12pm EST - Free Webinar
Sponsor: John Hopkins All Children's Foundation.

Speakers: Jonathan Blattmachr and Martin Shenkman. Moderated by Jerome Hesch.

Course Information:  Get information on a variety of hottopics and recent developments in:
·   Estate and Gift Tax Law.
·   Creditor Protection Law.
·   Planning with Irrevocable Trusts.
·   Planning Under New Section 199A.
·   Florida Law Developments.
·   New Strategies and Techniques for Increasing Basis.

·   Much more!

This may constitute attorney advertising.
I've already registered.  This link should take you to the registration page.

Tuesday, August 07, 2018

1924: A Well-Placed Executorship Ad

Location, location, location . . . .

During unrelated research I came across this ad in The New York Times for March 21, 1924, artfully positioned next to the death notices.

Thursday, August 02, 2018

An inspired graphic presentation at the NYTimes

All about Apple surpassing $1 trillion, and the size of companies.

Tuesday, July 31, 2018

Dollars, Doughnuts and Capital Gains

Bought cider doughnuts at the farmers market  last weekend – six bucks for a half dozen. A dollar a doughnut.

"Dollars to doughnuts" was how our forebears described a virtually sure bet. At the dawn of the 20th century a loaf of bread cost a nickel, so doughnuts must have sold for a penny or less. After more than a century of inflation, my doughnuts cost 100 times as much.

Since the Great Recession, inflation has been so muted that the Federal Reserve has wished for more. We sometimes forget how even low inflation keeps dinging the value of a dollar. Savers suffer, and so do investors who may assume they're reaping profits.

Say you bought stock at $100 in 2008 and now sell at $120. A modest profit? Not after paying federal income tax on your capital gain. Thanks to a decade of "low inflation," you need to net more than $117 just to break even.

From time to time Congress has toyed ineffectually with the idea of indexing capital gains to inflation. Could the Treasury do the job for them, perhaps by issuing a regulation redefining capital gain?

Anything's possible, but we'd guess it's a dimes to doughnuts bet.

Friday, July 20, 2018

Work Four Days a Week, Get Paid for Five

Auckland Harbor, New Zealand
If you like working with wills and trusts, head for New Zealand, where you can work four days a week and get paid for five.

A few years ago, Andrew Barnes combined two trustee companies, Perpetual Trust and Guardian Trust, to form Perpetual Guardian. According to its web site, Barnes decided to move the company away from financial advice and wealth management and back to a pure fiduciary services model.

Inspired by a report finding that workers were actually productive less than three hours a day, Barnes also launched a bold experiment: Employees would be paid for a five-day week but would be required to work only four days.

According to The New York Times, the experiment is a success. Employees love the extra day off, of course, and they have found ways to do their full week's work. They work smarter, they don't allow themselves to be distracted by personal stuff, and two-hour meetings now take 30 minutes.

OK, which U.S. trust company would like to grab a great idea and run with it?

Thursday, July 12, 2018

The Darien Scheme: How Scotland Lost Everything

The Scots invented almost everything. But when they miscalculated, they did so on a grand scale. On this day, July 12, in 1698, a Scottish fleet set sail for the Isthmus of Darien in Panama. It was one of the most disastrous investment ventures ever launched.

The Darien Scheme was born of desperation. Scotland had endured decades of political turmoil followed by famine and the effects of a little ice age. As a last, bet-the-farm hope, the Company of Scotland was formed, funded with about 20-25 percent of all the money Scots possessed.  Its goal: transform Scotland into a great trading nation like England or Spain.

Scotland didn't merely aim to join those countries in making settlements in the New World. The Scots thought bigger. They intended to create a colony, Caledonia, that would straddle Panama, linking the Atlantic and the Pacific and becoming a global trading hub.

The Darien Scheme was a disaster. The site could not support settlers. Disease was rampant, the neighbors were unfriendly and both the English and the Spanish resisted the Scots effort to become a trading nation.Within a year the colony was abandoned. Soon after, in 1707, the Kingdom of Scotland agreed to unite with England and ceased to be an independent nation.

Today the site of Caledonia remains virtually uninhabited. Only a name on the map, "Puerto Escoces" ("Scottish Port") remains to commemorate one of the world's all-time worst investments.

Thursday, June 28, 2018

No Fiduciary Rule? No Big Deal

The Fiduciary Rule, imposed by the Labor Department and limited to retirement accounts (although the resulting switch from brokerage commissions to annual fees was more sweeping) is dead.

Two reasons why the period of mourning can be brief:

1. In the bad old days, high-cost investments sold by brokers were typically cats and dogs – stocks with a high potential for becoming worthless. Today's investors are less likely to lose everything in products sold by non-fiduciaries. Instead, higher expenses will reduce their returns.

2. Although 40 percent of investors are said not to know what they pay in expenses, the shift from commissions to fees has made investment costs more transparent. And today's investors are far more likely to ask  their advisers, "Are you a fiduciary?"

Fiduciaries are easy to find – bank trust units and independent advisory firms are everywhere.  All the prudent investor has to do is hire one.

Wednesday, June 27, 2018

How Joseph Heller Plotted “Catch 22”

To my knowledge, the founder of The Merrill Anderson Company never commented on the copywriting capabilities of Joseph Heller. But Heller's brief stint at our little advertising agency did help him fund his early work on Catch 22. That novel was designed more carefully than the casual reader might realize, as you can see here.

Tuesday, June 19, 2018

Beware the Crypto Jungle

Investment advisers win new clients by raising their hopes of becoming rich. Yet advisers perform their most valuable service when they save a client from becoming poor.

That service was never needed more than now, the age of cryptocurrencies.

Observers who couldn't believe their eyes when Bitcoin's value soared last year turned out to be right. Research suggests that only half the price rise was real – the rest was market manipulation.

Bitcoin mania spawned a swarm of entrepreneurs offering ideas, plausible or not, for cashing in on promise of blockchain. Steve Bannon, former White House adviser and Breitbart leader, reportedly has toyed with the idea of a new cryptocurrency called the "deplorable coin."

Four out of five initial coin offerings have been scams, according to one study. Why are people so eager to believe – and invest in – unlikely ventures? As The New York Times technology columnist observes concerning Bitcoin mania, it involves the willing suspension of disbelief:
[E]ven though the possibility of [Bitcoin] manipulation was mentioned often last year, it took months to put together detailed evidence that it had happened. 
And in that time, the whole world — the financial press, ordinary investors, anyone looking for the next windfall — put more money into Bitcoin. Even though lots of people should have known better — even though we all know the internet is lousy with scams — Bitcoin, we were told, was different. 
Nope, it wasn’t. Scams are everywhere online. Never let your guard down.

Tuesday, June 12, 2018

Women Are Changing the World of Wealth

On Wall Street and elsewhere, the management and deployment of Big Money has traditionally been men's work.  That's changing, as two names in the news remind us:

Catherine Keating has left Commonfund to become CEO of BNY Mellon Wealth Management. In an interview last year she explained why the investment management industry needs diversity.

Laurene Powell Jobs holds an MBA from Stanford and controls billions left by her late husband, Steve Jobs. As described in this feature in The Washington Post, her approach to impact investing and philanthropy is impressive.

P.S. You've got to chuckle  at Silicon Valley's reaction to the name of Powell Jobs' project, Emerson Collective. "Emerson? Emerson? Never heard of him. What was his startup?"

Sunday, June 10, 2018

Are Ponzi Schemes Going Crypto?

In 2016 investors lost over $2 billion in 59 Ponzi schemes. That's just in the U.S. Opportunities to lose a fortune are global.

And now a new world of money-losing opportunities confronts incautious investors online. "Hundreds of technology firms raising money in the fevered market for cryptocurrencies are using deceptive or even fraudulent tactics to lure investors," The Wall Street Journal warns.

For helpful background, see "Cryptocurrencies and Online Marketing: Legitimate Business or Pyramid and Ponzi Schemes?"

As the authors point out, ICOs (Initial Coin Offerings) aren't necessarily frauds. Many are crowdfundings by wannabe entrepreneurs, with investors buying tokens as digital stock certificates. Unregulated penny stocks for the digital age!

Could ICOs become a significant threat to the wealth of HNWIs?

Tuesday, June 05, 2018

An unusual obituary

Here it is, as published in the Minneapolis Star-Tribune.  Evidently it was picked up by other papers around the world also.  I won't spoil it for you, but I do recommend the comments as well.

Sunday, May 27, 2018

Should She Neutralize Her Ex's Estate Plan?

Query to The Ethicist in The New York Times magazine:
I am divorced. I recently learned from one of my children that my ex is leaving them uneven shares of his wealth. He’s leaving less to our son, the child he dislikes. His rationale is that this particular child has poor money-management skills 
My will, so far, is divided evenly. As I’ve told my children repeatedly, I love them equally, and I want this love reflected in my will.  
Should I change it to give more to the child disliked by his father, in order that the children come out more or less equal? Would the other child, our daughter, feel slighted and less loved?
Yes, use your will to equalize things, rules The Ethicist, and explain your strategy to your daughter.

As for the son's lack of money-management skills, "you can solve that problem (as your ex-husband could have) by putting the money in a trust."

Wednesday, May 23, 2018

Wealth is just luck?

I was very surprised to read this article in MIT's Technology Review: If you're so smart, why aren't you rich?  Turns out it's just chance.

It's a report on a computer simulation done it Italy that purports to show that luck is more important than intelligence, social skills or talent in acquiring wealth.  The problem with computer "simulations" is that the biases are built into the algorithms at the outset.  As with statistics, you can manipulate your way to any result you wish.  The report is an attempt to put an academic gloss on the left-wing economics the "you didn't build that" crowd is always spouting.

I was thinking of doing an article on it, but I'm afraid it would be too political.  Perhaps I could include it as a "Dangerous Idea" in an article that includes a couple other odd notions? 

I've always understood the definition of "luck" to be when preparation meets opportunity.  I'm confident that the Italians did not define it that way, but as random chance.

Tuesday, May 08, 2018

A big surprise on the revenue front

April was the best month in history for the federal government, according to the CBO.  Revenue exceeding expenses by a record $218 billion.

Could this be attributable to the December tax reform?

Thursday, May 03, 2018

Private Equity: The Bigger They Come...

Theranos and founder Elizabeth Holmes raised $700 million from mostly wealthy investors without ever having to provide financial statements audited by an independent public accounting firm.

Rarely have so many high-profile figures been known to have lost so much money on a single investment.

Investors who lost hugely on Theranos, the company built around a magically simple blood test that didn't work, include the family of Education Secretary Betsy DeVos, Walton heirs, Rupert Murdoch and Mexican tycoon Carlos Slim.

Although Theranos' big-name investors lost plenty – the Walton family had invested $150 million – presumably their standard of living will not be affected. Mere millionaires who jumped at the chance to invest along with the big shots may not shrug off their losses so easily.

Wednesday, May 02, 2018

Should Brits Kill Their Death Tax?

The Resolution Foundation believes the UK inheritance tax should be abolished. Potential heirs should not celebrate. The foundation wants the inheritance tax replaced with a Lifetime Receipts Tax. This levy, to be paid by the receipients of gifts, would be imposed cumulatively on gifts over £3000 at rates of 20 or 30 percent. The first £125,000 a Brit received would be exempt.

The present inheritance tax has a 40 percent rate.

Tuesday, April 24, 2018

“The Last Gentleman on Wall Street”

Spooky coincidence:

On the back of the business section of today's New York Times, a full-page age ad from Brown Brothers Harriman with a clever headline – "Should you talk with your children about your wealth before they Google you?"

Inside, Robert  D. Hershey Jr.'s obituary for one of Brown Brothers most celebrated former employees: Richard Jenrette.

After Harvard Business School, Jenrette "joined Brown Brothers Harriman, the very model of an old-time Wall Street firm, whose oak-paneled ambience included roll-top desks, a large coal-burning fireplace and oil paintings of the founders. He spent two years there as a portfolio manager — one client was Greta Garbo — before leaving at 30 to start his own firm…."

Jenrette's partners were two Yalies he met at B school – Bill Donaldson and Dan Lufkin. Their firm, Donaldson, Lufkin and Jenrette, was "the first Wall Street securities firm started from scratch since the early 1930s." DLJ specialized in smaller growth stocks and in the 1960s that was a road to riches.

Donaldson and Lufkin eventually left the firm. Jenrette sold to Equitable Life and devoted his extremely high net worth to his passion for historic preservation. Several remarkable houses he restored and refurnished are held in a non-profit he founded, Classical American Homes Preservation Trust.

"Gone With the Wind" inspired Jenrette's love of antebellum houses. He must have purchased and preserved more white columns than any other American. Some may be seen on the Roper House in Charleston, South Carolina, where he died.

Roper House

Jenrette never married. His remarkable collection of houses, he said, were like his children. 

Thursday, April 19, 2018

Monday, April 09, 2018

Our Founder in 1942

Eight years after launching the Merrill Anderson Company, our founder was on a roll: he was elected president of the New York Financial Advertisers.
Good looking, wasn't he?

That wasn't Merrill's first appearance in The New York Times. Using Times Machine we found this item in an April 29, 1923 report on an AAU gymnastic meet.

Indian club swinging, popular in Victorian times, was losing favor in the 1920's, but it endured long enough to be a gymnastics event at the 1932 Olympics.

Our founder may not have been a gold medal club swinger, but he was a champion high jumper. And he captained the track team at Amherst.

Wednesday, March 28, 2018

Name a Corporate Trustee – But How Big?

The New York Times' latest Wealth Section includes a welcome column on living trusts (if you ignore the sidebar claiming that revocable trusts must file annual tax returns) as well as a plug for naming a corporate trustee in order to avoid family dissension.

The plug comes with a caution from attorney William D. Zabel: Don't name a local bank.

Why does Zabel think trustors should go big bank? He feels hometown banks, attorneys and accountants are tempted to favor some family members over others. The Times offers as example a situation where an out-of-state son-in-law and his wife have spent years battling "the locals" and her hometown siblings.

Small town trust departments aren't always ideal, but the services of megabanks also have bitter critics. On balance, isn't a capable hometown bank a reasonable choice for nonbillionaires?

Wednesday, March 21, 2018

Some Go Downmarket, Some Go Up

Goldman Sachs has been catering to investors with at least ten million and preferably fifty. Now Goldman is expanding its adviser forces and targeting lesser wealth. Hard to imagine a Goldman robo adviser, but we may see one.

Meanwhile, Merrill Lynch hopes to move up into Goldman's traditional market. Merrill's new effort will include the services of specialists in estate planning and family counseling – areas once associated with Bank of America's U.S. Trust unit.

Which wealth management giant is on the right track? Possibly both. Vast numbers of Boomers are reaching their retirement decade with a million or two or three. At the same time, the relatively small number of the really rich is growing, and becoming really richer.

Competition to serve both groups must be fierce, as I realized when strolling the streets of Portsmouth the other day. Our fair city has scores and scores of restaurants and gift shops for tourists. We also appear to have at least as many wealth management firms, plus assorted hedge funds and socially-conscious institutional investors.

Upmarket condos. full of wealth management prospects,
 have replaced aged warehouses on Portsmouth's waterfront.
Hoping to make money from people with money? You are not alone.

Sunday, March 18, 2018

Should Impact Investors Shun “a Solid Return”?

In his Wealth Matters column, Paul Sullivan defines impact investing as "a movement that aims to force social change by minimizing or eliminating investors’ exposure to companies that harm the world and achieve a solid return."

Impact investors can't be that masochistic. Perhaps Sullivan meant "while still achieving a solid return." (Remember the days when The New York Times had copy editors?) 

Still, the definition is couched in unnecessarily negative terms. Why not call impact investing "a movement that aims to maximize investors' exposure to companies that improve the world"?

As the column suggests, the popular meaning of "impact investing"  has become fuzzy. Narrowly defined, impact investors are those who deploy significant sums to start or back socially desirable projects or efforts. Defined more broadly, as wealth management marketers have been quick to do, impact investors are merely today's equivalent of socially conscious investors. 

The old-timers, however, might shudder at the idea of labeling Exxon an impact investment, even if the oil company does have a diverse board. 

Thursday, March 15, 2018

The Case Against Actively Managed Funds,1953

Sixty-five years ago, as now, there were those who believed that mutual fund managers failed to earn  their keep.

This example comes from a review of Louis Engel's How to Buy Stocks. in the  April 20, 1953 edition of The New York Times:
[F]rom 1937 to 1950, fourteen of the biggest and best known mutual funds whose assets were wholly invested in common stocks showed a net gain on their holdings of only 2.2 per cent…. In contrast, the Standard & Poor’s index for ninety representative stocks showed an increase during this same period of 4.1 per cent.

Wednesday, March 14, 2018

Conservation Easements, Real and Syndicated

Million-dollar houses keep sprouting up in the seaside village your obedient blogger calls home, but remnants of our rural past remain, thanks in part to conservation easements.

With easements, landowners can retain basic ownership while giving up, say, development or subdivision rights. In a hot real estate market such as ours, giving up such rights often leads to a drastic reduction in the property's market value. If the landowner donates the easement to a qualified entity, the reduction in value may be claimed as a charitable deduction.

Yet no good idea, it seems, goes unplundered. The Wall Street Journal reports on "the opaque world of syndicated conservation easements, transactions giving some investors tax breaks worth more than the amount they originally invested in the property."
In a syndicated easement, the organizer recruits investors who buy a piece of a partnership. The organizer identifies property, buys it, makes the donation and then parcels out the deduction. The syndicated deals are particularly popular in the Southeast, and their backers say they efficiently promote conservation by getting tax deductions to people who have the income to use them.
The key, critics say, is often an inflated and unrealistic appraisal and a relatively small network of advisers and charities supporting the transactions. The disclosures identified just 38 appraisers involved in the 552 deals.
According to IRS data, investors in syndicated conservation easements reap tax deductions averaging about 4 times their original investment.  Some do even better.

Too good to last?

Thursday, March 01, 2018

Tomorrow's Wealth Manager?

Amazon's Alexa is the voice that empowers our voices. We can summon news or music, order shampoo or groceries, turn on the lights….

The next step seems inevitable:

Alexa, what's my equities to fixed income ratio today? 

Today your ETF portfolio is 87 percent equities and 13 percent fixed income.

Alexa, rebalance to 80 percent equities, 20 percent fixed.

Rebalancing done. I've sent the trade details to your phone. 

Can Alexa take over the personal investing business without the ability to offer investment advice?  Sure. Millennial passive investors may see that disability as a plus.

Tuesday, February 27, 2018

Bitcoin Explained for Kids (and us Dummies)

From a kids section in last Sunday's New York Times. Can't find the graphic online, so I scanned it. (Click image to enlarge.)

Wednesday, February 21, 2018

School Killer's Trust Fund

Is Nickolas Cruz, the Parkland school shooter, entitled to a public defender? Or is he wealthy enough to hire his own lawyer? The question arises because the teenager's adoptive mother, recently deceased, left him a $800,000 trust fund.

Monday, February 19, 2018

There's Always a Way to Beat the Market

Recent example of market beating: investors boosting their returns with bets that stock prices would keep calm and carry on. Exchange traded products linked to VIX, a volatility index, emerged to make betting on low volatility easier.

Then volatility exploded with a vengeance. Some bettors lost big. Two ETPs quickly folded.

It's just another chapter in the same old story, according to this comment from The 10 Point for February 16:
Jan Rogers Kniffen wrote: “In the early 1980s the strategy of holding a ‘diversified’ portfolio of junk bonds worked well, until the market for junk crashed, people lost fortunes and some went to jail. Then, every pension fund manager (including me) got pitched on ‘portfolio insurance.’ It worked well until the crash of ‘87 when everything cascaded down and funds lost fortunes. Then there was the ‘craze’ for investing in a ‘diversified’ portfolio of mortgage-backed securities. That worked well until the crash of the housing market. Low-vol strategies are the same, they will work well until the market changes—whoops, the market changed.”
The next market beater? Who knows?  But remember the wisdom of Sir John Templeton: "The four most dangerous words in investing are: 'this time it's different.'"

Thursday, February 15, 2018

Website renovation

Every 20 years or so the Merrill Anderson Company overhauls its website. The expiration date on the current site is coming up.  Does anyone have suggestions for how we might improve it?

Saturday, January 27, 2018

UK's First Bitcoin Heist: a Midsomer Mystery

Moulsford, Oxfordshire
The English village of Moulsford, the setting for several Midsomer Murders, just experienced the UK's first Bitcoin robbery. Four hooded men in black broke into a cyber-currency trader's house, tied up his wife, and forced him to transfer "a fortune in Bitcoin" to them.

The Thames Valley Police are investigating, although without the help of Detective Inspector Barnaby. 

Monday, January 15, 2018

The Guys Who Give Tulips a Bad Name

Christian Day, a professor at Syracuse University law school…has written about bubbles and panics. He said that comparing Bitcoin to the tulip craze was unfair to tulips…. 
            – John Schwartz in The New York Times
Those of us who find cryptocurrency mania difficult to fathom can learn from Nellie Bowles' fascinating sketches of the young guys who are busy creating cryptocurrency investment opportunities in San Francisco.  (Not that 20-somethings appear young in that milieu. See Bowles' earlier magazine piece on the city's teenage techies.)

Worried that clients will lose their shirts on Bitcoin or alternative cryptocurrencies? Then suggest they buy a sweater for emergency use. will provide one stitched with the logo of whatever cryptocoinage they're betting on.

Saturday, January 13, 2018

Bring Back the Three Martini Lunch!

OK, full disclosure. Even in his young, Mad Men days your obedient blogger could never do more than one martini. I don't even like martinis. But I'd happily quaff one at a business lunch rather than go with the new flow –  wooing clients at cardio workouts.

Thursday, January 11, 2018

Sorta, Kinda But Maybe Not Really Fiduciary

Some investment advisers are fiduciaries, others sell products. Telling the difference has never been easy.

Leading discount brokers, for instance,  invite investors to talk with representatives who aren't paid commissions. Does that make them fiduciaries? Not in the view of The Wall Street Journal.
Investors who seek advice from discount brokerage firms might assume the counsel they get is impartial, given how these firms have rejected the old Wall Street model of working on commissions.

In fact, advisers at some of the biggest discount brokerage firms make more money if they steer clients toward more-expensive products, according to disclosures from the firms and people who used to work at them. That means customers could end up with investment products and services that are costlier than they need.

Fidelity's reps, for instance, get a small cut (0.04%) when a customer buys ETFs. Their financial incentive is more than twice as great (0.10%) if they sell managed accounts or annuities. Reps especially proficient at directing customers to pricey products get bonuses.

Fidelity, Schwab and TD Ameritrade all pay incentives to representatives for referring clients to registered investment advisers. "These advisers charge clients an annual percentage of their assets, and the discount brokerage firms receive up to 0.25% annually on assets committed to the advisers."

This year, at long last,  the SEC is expected to weigh in on the fiduciary issue. But the emphasis appears to be on disclosure rather than behavior. (Why should brokers call themselves "financial advisers"?) Knut A. Rostad of the Institute for the Fiduciary Standard asks, "Are commercial sales rules increasingly redefining the very meaning of fiduciary advice?"