Saturday, March 20, 2010
Music to children's ears
Over the past couple of years we've introduced our son (now 5) to quite a bit of music. Grateful Dead, Lowest of the Low (Ron Hawkins, Stephen Stanley and their various projects as well), 1980s new wave...even some classic R&B and Funk courtesy of Sirius/XM "The Groove." Music has definitely created a stronger bond between me and my son, and I'm sure the Beautiful Bride would say the same thing (even though we have failed to convince her of the worthiness of Dead tunes, as in "C'mon, Mom...the Grateful Dead are AWESOME!"). Please, please, PLEASE don't forget to introduce your children to as much music as you can...stuff you and yours enjoy, stuff you grew up with...even what your parents liked! My mom played flute professionally back in the day, so I also have a moderate affinity towards classical music. Its calming powers (at least Mozart, Bach and Beethoven, for starters) are very underrated! Even some New Age selections do the trick as well. Hey, if what they play on XM Spa can make the trek on the upper bounds of the New Jersey Turnpike a mellow experience, I'm sold...
Thursday, January 21, 2010
Clinton 2.0 d. Dukakis 2.0, 52-47
What an amazing development this past Tuesday night in our quirky little corner of the United States I sometimes refer to as the Commune of Taxachusetts.
The similarities are quite striking: In this corner, we have an almost-by-default Democratic nominee who fritters away a double-digit lead in the general election with an almost endless string of campaign gaffes. The result: A convincing defeat.
Dukakis 1.0
During the 1988 Presidential campaign, if memory serves me right (yes, I am a big fan of the original Iron Chef...but this was the first Presidential campaign I actually voted in, so my recollection may be a little hazy) Michael Dukakis didn't seem to have a huge battle in the primary. I heard Dukakis was running, heard he was nominated and didn't really hear about much else. The general election was a different story. Per my recollection, he had to fight off Willie Horton, pictures of him in a tank, and his own proclamation that Midwestern farmers should start growing Belgian endive. All the while, people were alleging that his wife Kitty wasn't exactly the most mentally stable individual on the earth (I by no means condone such muckraking, whether true or false…but I’m pretty sure it didn’t help). He exposed his stilted personality to anyone that would listen to him, while Republican nominee George Bush remained relatively in the background and watch his opponent implode.
Dukakis 2.0: Massachusetts Attorney General Martha Coakley
Fast-forward to 2009: Martha Coakley cruises through the primary relatively unscathed. In the final primary debate, her three male opponents bludgeon each other to death, but don't want to appear that they're attacking the female candidate, so she stays calm, cool and collected, waltzing through the rubble to capture the nomination and an initial 30-point lead in the early polls. This lack of battle testing would prove to be fatal to her candidacy when mixed with the stagnant cocktail of entitlement and hubris.
After all, this was Ted Kennedy's seat in the Senate for almost half a century. OF COURSE the Democratic nominee was going to win. Before the primary, the SEIU radio spots read, "Tuesday's the Democratic primary, in which you'll elect the next Senator." As she took the latter part of December off from the campaign trail, her opponent worked feverishly to build his base and tap in to the over 50% of the registered Massachusetts electorate that is "unenrolled." She returned in January to see her opponent shaking hands around Fenway Park, to which she responded something to the effect of, "Well, what am I supposed to do? Stand out THERE in the COLD and SHAKE HANDS WITH PEOPLE?!"
Yes, Martha...that's EXACTLY what you're supposed to do.
She then made one giant leap towards alienation of Red Sox Nation-kind by calling Curt Schilling "another Yankee fan." But not before she proclaimed in the final TV debate that the "terrorists and Taliban in Afghanistan...they're gone." Around the time of that debate, the 30-point lead was down to the single digits. By the time she proclaimed Schill, he of the Bloody Sock, the newest member of the Evil Empire, she was in a statistical dead heat.
On the Sunday before Martin Luther King’s birthday, Coakley tapped the star power of an incumbent President Obama for an emergency relief junket sans necktie to save her and the 60th vote for a teetering health care reform package. All this scurrying about occurred in the Coakley camp while the real relief mission continued in Haiti, with Bill Clinton at the helm...only days after Clinton also interrupted his mission in order to be Shippin’ Up to Boston to save Coakley's hide.
Coakley’s final attempts to rub elbows with the public failed to shed her rigid veneer. TV reports of her weekend visit to the Eire Pub in Dorchester showed her gingerly sipping on a Sam Adams. Anyone want to chime in on whether she finished it or not? One customer refused to shake her hand as she introduced herself. I'm not saying he represented the entire crowd, but it's not often that you see such gaffes in "reading the room" for a Democrat candidate in a Democrat town actually reported. She greeted commuters at North Station Tuesday morning, only a day after her opponent greeted Bruins fans in the same location. To me, her gestures rung hollow as a last-ditch effort to show her human side. Clearly she was in trouble.
Her Tuesday evening ended a little early when, around 9 PM, she called her opponent to concede the election. Her "drinking buddy" at the Eire, Massachusetts Senate President Therese Murray, explained to the disappointed crowd at Coakley headquarters and to the nation watching on TV that Coakley "was smart and understood that it wasn't about a single issue..." once again, taking the tried-and-true tack of essentially calling opposing voters stupid. Thus ends Coakley's 2010 Senate campaign, much as Dukakis' 1988 Presidential campaign ended...in the L column.
And in THIS corner, we have a little-known public servant emerging from the shadows to take on the incumbent party with a well-executed campaign and unassuming, unpretentious hard work to wring out a solid victory over an opponent that, while vulnerable, held distinct advantages in campaign infrastructure and finance.
Clinton 1.0
Now let's recall Bill Clinton's 1992 Presidential campaign. When I first heard that he could emerge from a a stacked & not-quite packed Democratic primary field, my first questions were "Who?" "Arkansas?" "You kiddin' me?" Then he went to work. He worked, he worked and he worked some more. Clinton hustled to meet and greet any voter within eye or earshot and posted a strong showing in the New Hampshire primary. He kept the momentum going through his nomination and the general campaign...a campaign that bore one of my favorite political quips ever...by independent candidate Ross Perot (not-so-verbatim, but close enough for government work): "Now we have Bill Clinton here, who's the Governor of Arkansas and says he wants to run the country. Well, folks, that's like me saying I have a corner store and wanna run Wal-Mart."
Not even the ranking of Clinton's Arkansas in the high 40s and maybe even 50 proper for education on his watch, nor claims of infidelity from Gennifer Flowers (and the resulting notoriety of Stuttering John from Howard Stern show fame), slowed him down. Nor did his wife Hillary, who rubbed some the wrong way because she "could've stayed home and baked cookies and had teas, but...wanted to have a career." Even questionable business deals in Arkansas, which eventually landed at least a couple of Clinton associates in the pokey, didn't stop the momentum. Bill Clinton kept working...and working. As a final gift, Clinton's opponent, incumbent President George Bush, showed up in a supermarket about a week before the election and marveled at this newfangled invention of the grocery scanner...which had been around for quite some time by then...revealing to the world what they already thought: This bloke has no clue what goes on in a supermarket. But Clinton still kept working. By early November his voice was tired, scratchy and horse. However, he'd have the rest of November, all of December and part of January to recover, for he was the President-elect.
Clinton 2.0: Massachusetts State Senator Scott Brown
Pretty much the first thing I knew about Scott Brown was that he was the husband of Gail Huff, the reporter on WCVB Channel 5 in Boston's "EyeOpener," its morning news program. Gail would show up in a blizzard on Route 128, in the pouring rain by the MassPike after a toll hike or in subzero temperatures in the winter at Fenway Park while construction crews built seats atop the Green Monster...always appropriately dressed for the occasion...at 5 in the blessed AM. Now that’s dedication. Gail’s husband Scott was a Republican State Senator, which made him quite an exception in the Democratic-controlled politics of the "Commune." Admittedly, I didn't hear much about his political career at all, as the Republican Party is such a super-minority in Massachusetts government that its voice is essentially stifled and coverage is limited in the various mainstream news outlets. We were happy to hear of the success that Scott and Gail's daughter Ayla had as a contestant on "American Idol." That was pretty much it.
As the candidates from each party assembled after Ted Kennedy's death, there were rumblings that Curt Schilling himself may consider a run for the seat. These were quickly squashed by Schill himself, and Scott Brown threw his hat into the ring. More of a product of his family, he admittedly had the most name recognition of any of the Republican candidates, but in Massachusetts, that and $2.50 gets you a venti bold at Starbucks and not much else. He nabbed over 80 percent of the vote in a barely-contested primary but quickly realized that he was down 30 points against the Democratic machine with little chance to win a seat that had been held by the Kennedy family for over 50 years.
So he went to work.
Brown tirelessly worked to meet as many voters as he could. His campaign went viral in the social networking media of Facebook, Twitter and Google. Before we heard the ubiquitous "this isn't the Kennedy seat, this isn't the Democrat seat, it's the people's seat" during his final debate, we read it on Twitter. Campaign ads showed him in Southie meeting people along East Broadway, driving his ubiquitous truck and even in his own kitchen. What he lacked in star power he made up in sincerity and the sole focus on the issues concerning all citizens of Massachusetts and the nation. He was one of us: “I’m Scott Brown. I’m from Wrentham, I drive a truck and I need your vote.”
His last major campaign rally on the Sunday before the election was a People's Rally in Worcester, which drew a grassroots crowd of about 2,000 in Mechanics Hall (with an overflow crowd of several hundred next door) and working-class local celebrities such as Lenny Clarke, Fred Smerlas, Steve DeOssie, Curt Schilling, Doug Flutie and John Ratzenberger of "Cheers" fame. This outpouring of genuine support created yet another favorable juxtaposition against the flat-lining Coakley campaign and Obama trotting in from the bullpen. Really, the only barely-noticeable slip-up I caught at that People's Rally was his mention that he "was probably only three years old" when Woodstock happened (actually, he would have been closer to ten). No worries, since the only thing the crowd remembered about Ratzenberger's Woodstock discussion was that he suggested any monument to the event consist of a "National Guardsman feeding a crying hippie." Flutie, an undersized Boston College quarterback that defeated the juggernaut University of Miami with his Hail Mary pass, spoke. Schilling, who had a tendon stapled in place when he mowed down the Yankees in Game Six, introduced the candidate. Brown continued to hammer away at his opponent on the issues, noting that “our tax dollars should be spent for the weapons to stop terrorists…not for the lawyers to defend them.”
On Monday's holiday, he shook hands with fans before an afternoon Bruins tilt. This was probably the highlight of any goings-on at "the Gahden" that day for many, as the Bruins were crushed by Ottawa, 5-1. Lucky for Brown, the lackluster effort by the B's wasn't contagious; he was going to play "a full sixty minutes of hockey" and work straight through to the finish.
Brown woke up on Election Day in unfamiliar territory for a Massachusetts Republican. He had the endorsement of the Boston Herald, the State Police, and the Cambridge policeman's union...the same union that listed his opponent's husband as a member. Better yet, he had a slight, albeit within the margin of error, lead in the polls. The day started with snow, which turned to a light frigid rain. After many in the media wondered how the weather would affect turnout, Brown voters came out in full force. In cities and towns carried by Scott Brown, 58 percent of registered voters showed up at the polls, while only 49 percent of registered voters cast ballots in the localities carried by Coakley. Boston residents voted at only a 43 percent clip...even after Obama was brought in to "gin up" the electorate. Springfield and Lawrence, two other cities decidedly in the Coakley camp, had even worse turnout at 32 and 28 percent, respectively. The voter turnout on each side fell in lockstep with each candidate's perceived level of effort. Brown carried the unenrolled vote at around a 2-to-1 clip. 1 in 5 registered DEMOCRATS crossed the aisle to vote for Brown. By late Tuesday evening, FoxNews was rejoicing and MSNBC was whimpering...Scott Brown had pulled off the unthinkable with a nearly-flawless campaign, and had captured the special election to fill the United States Senate seat...The People's Seat...of Massachusetts. The crowd at Park Plaza responded to Ayla Brown's news of her dad's victory with a resounding "Gas up the truck!!!"
The conventional wisdom states that "those who don't learn from history are doomed to repeat it." Martha Coakley and Scott Brown have most likely witnessed hundreds of campaigns during their political careers and taken valuable lessons from each of them. That Coakley unwittingly emulated Michael Dukakis' 1988 presidential campaign, while Brown utilized the lessons of Bill Clinton's infinitely-more-successful 1992 Presidential campaign, is just about all anyone needs to know about the 2010 special election in Massachusetts. It's the kind of lopsided matchup you would set up in Madden football for kicks, and it played out just as you would expect it. The difference is that at the start of the game, nobody expected it.
The similarities are quite striking: In this corner, we have an almost-by-default Democratic nominee who fritters away a double-digit lead in the general election with an almost endless string of campaign gaffes. The result: A convincing defeat.
Dukakis 1.0
During the 1988 Presidential campaign, if memory serves me right (yes, I am a big fan of the original Iron Chef...but this was the first Presidential campaign I actually voted in, so my recollection may be a little hazy) Michael Dukakis didn't seem to have a huge battle in the primary. I heard Dukakis was running, heard he was nominated and didn't really hear about much else. The general election was a different story. Per my recollection, he had to fight off Willie Horton, pictures of him in a tank, and his own proclamation that Midwestern farmers should start growing Belgian endive. All the while, people were alleging that his wife Kitty wasn't exactly the most mentally stable individual on the earth (I by no means condone such muckraking, whether true or false…but I’m pretty sure it didn’t help). He exposed his stilted personality to anyone that would listen to him, while Republican nominee George Bush remained relatively in the background and watch his opponent implode.
Dukakis 2.0: Massachusetts Attorney General Martha Coakley
Fast-forward to 2009: Martha Coakley cruises through the primary relatively unscathed. In the final primary debate, her three male opponents bludgeon each other to death, but don't want to appear that they're attacking the female candidate, so she stays calm, cool and collected, waltzing through the rubble to capture the nomination and an initial 30-point lead in the early polls. This lack of battle testing would prove to be fatal to her candidacy when mixed with the stagnant cocktail of entitlement and hubris.
After all, this was Ted Kennedy's seat in the Senate for almost half a century. OF COURSE the Democratic nominee was going to win. Before the primary, the SEIU radio spots read, "Tuesday's the Democratic primary, in which you'll elect the next Senator." As she took the latter part of December off from the campaign trail, her opponent worked feverishly to build his base and tap in to the over 50% of the registered Massachusetts electorate that is "unenrolled." She returned in January to see her opponent shaking hands around Fenway Park, to which she responded something to the effect of, "Well, what am I supposed to do? Stand out THERE in the COLD and SHAKE HANDS WITH PEOPLE?!"
Yes, Martha...that's EXACTLY what you're supposed to do.
She then made one giant leap towards alienation of Red Sox Nation-kind by calling Curt Schilling "another Yankee fan." But not before she proclaimed in the final TV debate that the "terrorists and Taliban in Afghanistan...they're gone." Around the time of that debate, the 30-point lead was down to the single digits. By the time she proclaimed Schill, he of the Bloody Sock, the newest member of the Evil Empire, she was in a statistical dead heat.
On the Sunday before Martin Luther King’s birthday, Coakley tapped the star power of an incumbent President Obama for an emergency relief junket sans necktie to save her and the 60th vote for a teetering health care reform package. All this scurrying about occurred in the Coakley camp while the real relief mission continued in Haiti, with Bill Clinton at the helm...only days after Clinton also interrupted his mission in order to be Shippin’ Up to Boston to save Coakley's hide.
Coakley’s final attempts to rub elbows with the public failed to shed her rigid veneer. TV reports of her weekend visit to the Eire Pub in Dorchester showed her gingerly sipping on a Sam Adams. Anyone want to chime in on whether she finished it or not? One customer refused to shake her hand as she introduced herself. I'm not saying he represented the entire crowd, but it's not often that you see such gaffes in "reading the room" for a Democrat candidate in a Democrat town actually reported. She greeted commuters at North Station Tuesday morning, only a day after her opponent greeted Bruins fans in the same location. To me, her gestures rung hollow as a last-ditch effort to show her human side. Clearly she was in trouble.
Her Tuesday evening ended a little early when, around 9 PM, she called her opponent to concede the election. Her "drinking buddy" at the Eire, Massachusetts Senate President Therese Murray, explained to the disappointed crowd at Coakley headquarters and to the nation watching on TV that Coakley "was smart and understood that it wasn't about a single issue..." once again, taking the tried-and-true tack of essentially calling opposing voters stupid. Thus ends Coakley's 2010 Senate campaign, much as Dukakis' 1988 Presidential campaign ended...in the L column.
And in THIS corner, we have a little-known public servant emerging from the shadows to take on the incumbent party with a well-executed campaign and unassuming, unpretentious hard work to wring out a solid victory over an opponent that, while vulnerable, held distinct advantages in campaign infrastructure and finance.
Clinton 1.0
Now let's recall Bill Clinton's 1992 Presidential campaign. When I first heard that he could emerge from a a stacked & not-quite packed Democratic primary field, my first questions were "Who?" "Arkansas?" "You kiddin' me?" Then he went to work. He worked, he worked and he worked some more. Clinton hustled to meet and greet any voter within eye or earshot and posted a strong showing in the New Hampshire primary. He kept the momentum going through his nomination and the general campaign...a campaign that bore one of my favorite political quips ever...by independent candidate Ross Perot (not-so-verbatim, but close enough for government work): "Now we have Bill Clinton here, who's the Governor of Arkansas and says he wants to run the country. Well, folks, that's like me saying I have a corner store and wanna run Wal-Mart."
Not even the ranking of Clinton's Arkansas in the high 40s and maybe even 50 proper for education on his watch, nor claims of infidelity from Gennifer Flowers (and the resulting notoriety of Stuttering John from Howard Stern show fame), slowed him down. Nor did his wife Hillary, who rubbed some the wrong way because she "could've stayed home and baked cookies and had teas, but...wanted to have a career." Even questionable business deals in Arkansas, which eventually landed at least a couple of Clinton associates in the pokey, didn't stop the momentum. Bill Clinton kept working...and working. As a final gift, Clinton's opponent, incumbent President George Bush, showed up in a supermarket about a week before the election and marveled at this newfangled invention of the grocery scanner...which had been around for quite some time by then...revealing to the world what they already thought: This bloke has no clue what goes on in a supermarket. But Clinton still kept working. By early November his voice was tired, scratchy and horse. However, he'd have the rest of November, all of December and part of January to recover, for he was the President-elect.
Clinton 2.0: Massachusetts State Senator Scott Brown
Pretty much the first thing I knew about Scott Brown was that he was the husband of Gail Huff, the reporter on WCVB Channel 5 in Boston's "EyeOpener," its morning news program. Gail would show up in a blizzard on Route 128, in the pouring rain by the MassPike after a toll hike or in subzero temperatures in the winter at Fenway Park while construction crews built seats atop the Green Monster...always appropriately dressed for the occasion...at 5 in the blessed AM. Now that’s dedication. Gail’s husband Scott was a Republican State Senator, which made him quite an exception in the Democratic-controlled politics of the "Commune." Admittedly, I didn't hear much about his political career at all, as the Republican Party is such a super-minority in Massachusetts government that its voice is essentially stifled and coverage is limited in the various mainstream news outlets. We were happy to hear of the success that Scott and Gail's daughter Ayla had as a contestant on "American Idol." That was pretty much it.
As the candidates from each party assembled after Ted Kennedy's death, there were rumblings that Curt Schilling himself may consider a run for the seat. These were quickly squashed by Schill himself, and Scott Brown threw his hat into the ring. More of a product of his family, he admittedly had the most name recognition of any of the Republican candidates, but in Massachusetts, that and $2.50 gets you a venti bold at Starbucks and not much else. He nabbed over 80 percent of the vote in a barely-contested primary but quickly realized that he was down 30 points against the Democratic machine with little chance to win a seat that had been held by the Kennedy family for over 50 years.
So he went to work.
Brown tirelessly worked to meet as many voters as he could. His campaign went viral in the social networking media of Facebook, Twitter and Google. Before we heard the ubiquitous "this isn't the Kennedy seat, this isn't the Democrat seat, it's the people's seat" during his final debate, we read it on Twitter. Campaign ads showed him in Southie meeting people along East Broadway, driving his ubiquitous truck and even in his own kitchen. What he lacked in star power he made up in sincerity and the sole focus on the issues concerning all citizens of Massachusetts and the nation. He was one of us: “I’m Scott Brown. I’m from Wrentham, I drive a truck and I need your vote.”
His last major campaign rally on the Sunday before the election was a People's Rally in Worcester, which drew a grassroots crowd of about 2,000 in Mechanics Hall (with an overflow crowd of several hundred next door) and working-class local celebrities such as Lenny Clarke, Fred Smerlas, Steve DeOssie, Curt Schilling, Doug Flutie and John Ratzenberger of "Cheers" fame. This outpouring of genuine support created yet another favorable juxtaposition against the flat-lining Coakley campaign and Obama trotting in from the bullpen. Really, the only barely-noticeable slip-up I caught at that People's Rally was his mention that he "was probably only three years old" when Woodstock happened (actually, he would have been closer to ten). No worries, since the only thing the crowd remembered about Ratzenberger's Woodstock discussion was that he suggested any monument to the event consist of a "National Guardsman feeding a crying hippie." Flutie, an undersized Boston College quarterback that defeated the juggernaut University of Miami with his Hail Mary pass, spoke. Schilling, who had a tendon stapled in place when he mowed down the Yankees in Game Six, introduced the candidate. Brown continued to hammer away at his opponent on the issues, noting that “our tax dollars should be spent for the weapons to stop terrorists…not for the lawyers to defend them.”
On Monday's holiday, he shook hands with fans before an afternoon Bruins tilt. This was probably the highlight of any goings-on at "the Gahden" that day for many, as the Bruins were crushed by Ottawa, 5-1. Lucky for Brown, the lackluster effort by the B's wasn't contagious; he was going to play "a full sixty minutes of hockey" and work straight through to the finish.
Brown woke up on Election Day in unfamiliar territory for a Massachusetts Republican. He had the endorsement of the Boston Herald, the State Police, and the Cambridge policeman's union...the same union that listed his opponent's husband as a member. Better yet, he had a slight, albeit within the margin of error, lead in the polls. The day started with snow, which turned to a light frigid rain. After many in the media wondered how the weather would affect turnout, Brown voters came out in full force. In cities and towns carried by Scott Brown, 58 percent of registered voters showed up at the polls, while only 49 percent of registered voters cast ballots in the localities carried by Coakley. Boston residents voted at only a 43 percent clip...even after Obama was brought in to "gin up" the electorate. Springfield and Lawrence, two other cities decidedly in the Coakley camp, had even worse turnout at 32 and 28 percent, respectively. The voter turnout on each side fell in lockstep with each candidate's perceived level of effort. Brown carried the unenrolled vote at around a 2-to-1 clip. 1 in 5 registered DEMOCRATS crossed the aisle to vote for Brown. By late Tuesday evening, FoxNews was rejoicing and MSNBC was whimpering...Scott Brown had pulled off the unthinkable with a nearly-flawless campaign, and had captured the special election to fill the United States Senate seat...The People's Seat...of Massachusetts. The crowd at Park Plaza responded to Ayla Brown's news of her dad's victory with a resounding "Gas up the truck!!!"
The conventional wisdom states that "those who don't learn from history are doomed to repeat it." Martha Coakley and Scott Brown have most likely witnessed hundreds of campaigns during their political careers and taken valuable lessons from each of them. That Coakley unwittingly emulated Michael Dukakis' 1988 presidential campaign, while Brown utilized the lessons of Bill Clinton's infinitely-more-successful 1992 Presidential campaign, is just about all anyone needs to know about the 2010 special election in Massachusetts. It's the kind of lopsided matchup you would set up in Madden football for kicks, and it played out just as you would expect it. The difference is that at the start of the game, nobody expected it.
Wednesday, January 13, 2010
All I wanted was some real financial news...
If you, in your hearings, have to ask, "what is proprietary trading," then it's a safe bet that you were not the most appropriate nominee to something called "The Financial Crisis Inquiry Commission." I'll leave it at that.
Friday, December 18, 2009
SURPRISE!!! Max Drawdown and real returns
Everyone loves to beat their benchmark. It's a huge component of portfolio managers' incentive compensation. If a US small-cap core manager beats the Russell 2000 by 1,000 basis points, you may as well drive the Lexus with the big ol' shiny red bow into his garage for his newly-licensed 16-year-old to drive...
...but what if the Russell 2000 lost 20% this year?
Truer words never spoken than this often-repeated phrase: "You can't eat relative returns."
When I was in public accounting a few years back, I asked a COO from a brokerage client of mine how the year was going. He said, halfway in jest, "we had a better year this year...we only shot off THREE toes..."
Barring extraordinary circumstances, there will be periods where money is lost. Hopefully they are very short and the losses are extremely shallow and quickly recoverable. For investments with measurable track records (most seasoned publicly-traded vehicles or benchmark indices) it's critical to me to examine the investment's maximum drawdown (alluded to in an earlier post, Deconstructing Risk and the Magic 8-Ball)...the largest drop from a previous high...to see how strong my stomach is. If you're looking at something with an annual return over time of 15 percent, it sounds great...until you realize that its max drawdown (no, not Max Headroom - that's an entirely different unfortunate occurrence) clocks in at around 50 percent. Are you willing to stomach the real possibility of a loss of half of your investment in this case? Some are, but many others aren't. As Lou Mannheim, Hal Holbrook's character in Wall Street, said (just as Bud Fox was about 30 seconds away from being carted off to jail):
Man looks into the Abyss, and there's nothin' staring back at him. At that moment, man finds his character, and that's what keeps him out of the Abyss.
Gross vs. net returns
A not-so-little gnome eating away at your egg: Fees and expenses. That 15% gross return may look pretty solid, but if it's attached to 1.5% in fees and expenses, it's not quite as stellar as you think it is. $100,000 compounded at 15% annually over 10 years will leave you with a tidy $404,556. Nicely done. However, factor in the 1.5% and you're left with merely $347,809...which means that over those 10 years you've paid out $56,747 in fees. Keep this in mind. Different asset classes and different markets reward portfolio managers differently for skill. Domestic small-cap and international (especially emerging markets) vehicles tend to carry heavier fees and expenses than domestic large-cap and core fixed income products...generally because these markets are considered to be less efficient and, accordingly, greater rewards are to be gained from execution of an active investment strategy.
Inflation: An even bigger bite than we think?
Thanks to the wealth of data from the Bureau of Labor Statistics, I'm happy to report that as of July 2008, the year-over-year change in the Producer Price Index (PPI) finished goods/commodities segment was close to 10 percent. Even as of September 2009, the year-over-year change in the Consumer Price Index (CPI) Health Care segment was about 3.5 percent. Sure, the core CPI (year-over-year decline of 1.29 percent as of September 2009) garners most of the headlines with the PPI well-reported but in the background. This will be the first year in a long time in which the Social Security Administration does not provide a cost-of-living adjustment (COLA) to pensioners. However, keep an eye out for health care costs; invariably they're rising (the minimum year-over-year change in CPI Health Care was 1.34 percent...as of August 1950). As health care and its associated costs are top of mind to many people, this is a metric worth searching out. Let's go back to over 15% and factor in not only over 1.5% fee/expense amount but our 3.5% inflation metric from health care costs, which will potentially be a significant expense when we're getting older and wanting to reap the benefits of our 15%: That $404,556 you started out with on a gross basis represented a gain of $304,556 on your initial investment. Once fees and a 3.5% inflation bite are taken out, your "real" ending value after 10 years is $243,564, for a $143,564 increase in purchasing power in constant dollars. In truth, fees and inflation have, over the course of 10 years, wiped out over half your gain.
The risk-free rate and Sharpe ratios...and inflation (again)
I like the Sharpe ratio in theory. It measures ratio of the excess return of an investment in comparison to a "risk-free" interest rate (yield on US 91-day Treasury bills is often used) over the volatility of said investment...commonly measured in terms of annualized standard deviation. Roughly and arithmetically, let's say the risk-free rate is 1 percent and we have our investment that generates a 15 percent annual return with an annualized standard deviation of 28 percent. Arithmetically we derive a Sharpe ratio of (15 - 1)/28 = 0.50. For a single-asset, long-only strategy, that may look pretty good in and of itself. However, with short-term Treasury yields well below historic norms and at a de facto rate of zero, how much do they really mean in this context? Personally, I prefer to use an "inflation-adjusted" Sharpe ratio which measures the ratio of return of an investment NET of 1) fees and 2) the GREATER of a) the risk-free rate (I tend to use the gross return on a Treasury money market fund here, since it's more readily investable for an individual investor) or b) an inflation metric of your choosing to said standard deviation. So in the case of the original investment, our back-of-the-napkin calculations would leave us with an adjusted ratio of (15 - 1 - 3.5)/28 of 0.375, which means that for every additional unit of risk, we expect generate 0.375 or 3/8 of a unit increase in purchasing power. What would we call that...the Real Sharpe ratio? The Flying Taco or Taco Loco ratio? Either way, I like it because it provides a measure of REAL compensation for risk. Certain investments fare better than others in inflationary times; this measure does well to capture such a notion.
These are a couple of concepts I touched on earlier but deserve a bit more mention in detail because of the huge potential impact to a portfolio's real purchasing power. Hopefully they can be helpful to others in evaluating investments and constructing a solid portfolio where expenses and surprises are minimized. Let's face it - I don't like surprises, unless it's my birthday, and maybe not even then. Besides, on 364 days out of the year, it's not my birthday. So let's try to make them as surprise-free as we can.
Remember what Bud Fox told his dad when it comes to investing:
There's no nobility in poverty anymore.
Wednesday, December 16, 2009
Red Sox Offseason: Weird Harold, Bizarro Theo?
I woke up early this morning and caught the replay of MLB Network’s “Hot Stove” program to see if there was any new off-season moves that I didn’t catch earlier in the day. What I got, instead, was Harold Reynolds about 3 days behind in the news cycle. As the other panelists, including Mitch Williams and Matt Vasgersian spoke of the pending John Lackey and Mike Cameron signings by the Red Sox, Reynolds was a little slow in catching up. He wondered aloud where that left Jason Bay in the mix, noting that “the window may be closing for Bay to sign with the Red Sox.”
Ummm…have you been paying attention, Mr. Reynolds? Bay’s agent himself said over the WEEKEND (mind you, this was a Tuesday night broadcast) that Bay was prepared to move on. Toss in an imminent signing for 2 years at $15.5 million to play the same position, and you’re STILL wondering where Bay fits in? It was funny to watch Wild Thing deadpanning his expression in letting Weird Harold (Fat Albert is one of the most underrated cartoons of the 1970s, by the way) know that he probably doesn’t. I won’t speak for anyone but odds are that Mitch was wondering at that exact moment what was in Reynolds’ coffee, and also wondering if he could get some.
The moral of the story: Peter Gammons can’t get to that desk soon enough. I tired of just about everything ESPN over the last few years so I haven’t been able to catch Gammons on TV much at all, so it’ll be good to see him on MLB Network and NESN in the coming months. Sure, he uses his Twitter account to express his political views on an unsolicited basis (@pgammo, I get it. You don’t like Sarah Palin. You live in Massachusetts. That fact alone puts the smart money, sight unseen, on you leaning a little towards the left), but there’s nothing wrong with expressing your opinion. He’ll be a great add to both sets.
Regarding the signings of Cameron and Lackey, as a Sox fan, I don’t really care for them. Unlike many, I am OK with the “bridge year” concept if it involves creating payroll flexibility. A LF manned by a platoon of Jeremy Hermida, Josh Reddick and a non-tender would work fine. Paying almost $8 million/year for TWO years for an aging outfielder seems to be a bit much for the organization. Paying $16.5 million/year for an over-30 pitcher with durability issues and a less-than-stellar record in his new home park seems steep as well. Lackey was the only solid option of the barren free agent starting pitcher class of the 2009-2010 offseason. He was the best house in a bad neighborhood, if you will, and of course he was going to be overpaid. That doesn’t mean Theo Epstein has to be the one overpaying. If I have to guess, this was more Larry Lucchino’s call in a gut reaction to keep pace with The Empire rather than the emergence of Bizarro Theo. I can’t see them keeping Josh Beckett now. Really, I couldn’t see them keeping him before this; the last two years haven’t been stellar for him; he seems to be reverting to fighting himself and trying to Nuke LaLoosh everyone with his heat. That’s not going to work now, and it sure won’t work as age and loss of velocity set in while he toils well into his 30s.
Not sure what’s going on with the Sox tripping over themselves to eat $9 of $12 million for Mike Lowell in 2010. Sure…he was defensively a shell of himself at 3B, displaying range almost as bad as a previous Sox aging infielder (Mark Loretta at 2B c. 2006). He can still hit, though. It’s well-documented that he was annoyed with the ramifications of the Sox pursuit of Mark Teixeira last year. Do his declining range and ill temper over being dangled as bait for 2 years add up to a salary dump? I guess they do. Still, Adrian Beltre is NOT the answer, unless you want to overpay a Scott Boras client for declining production and advanced age, regardless of how solid the glove is, all the while further hampering payroll flexibility. If that’s the case, be my guest…y’all just go on with your bad self. It’s much cheaper to sign a 1B or go with Kotchman and move Kevin Youkilis to 3B than to find a 3B option on the open market. I don’t really like Theo’s track record with free agent signs on the left side of the infield, either. Not since Bill Mueller, anyway.
As for Harold Reynolds, as Marty McFly said in “Back to the Future,” “watch for the changes, and try to keep up, okay?”
Ummm…have you been paying attention, Mr. Reynolds? Bay’s agent himself said over the WEEKEND (mind you, this was a Tuesday night broadcast) that Bay was prepared to move on. Toss in an imminent signing for 2 years at $15.5 million to play the same position, and you’re STILL wondering where Bay fits in? It was funny to watch Wild Thing deadpanning his expression in letting Weird Harold (Fat Albert is one of the most underrated cartoons of the 1970s, by the way) know that he probably doesn’t. I won’t speak for anyone but odds are that Mitch was wondering at that exact moment what was in Reynolds’ coffee, and also wondering if he could get some.
The moral of the story: Peter Gammons can’t get to that desk soon enough. I tired of just about everything ESPN over the last few years so I haven’t been able to catch Gammons on TV much at all, so it’ll be good to see him on MLB Network and NESN in the coming months. Sure, he uses his Twitter account to express his political views on an unsolicited basis (@pgammo, I get it. You don’t like Sarah Palin. You live in Massachusetts. That fact alone puts the smart money, sight unseen, on you leaning a little towards the left), but there’s nothing wrong with expressing your opinion. He’ll be a great add to both sets.
Regarding the signings of Cameron and Lackey, as a Sox fan, I don’t really care for them. Unlike many, I am OK with the “bridge year” concept if it involves creating payroll flexibility. A LF manned by a platoon of Jeremy Hermida, Josh Reddick and a non-tender would work fine. Paying almost $8 million/year for TWO years for an aging outfielder seems to be a bit much for the organization. Paying $16.5 million/year for an over-30 pitcher with durability issues and a less-than-stellar record in his new home park seems steep as well. Lackey was the only solid option of the barren free agent starting pitcher class of the 2009-2010 offseason. He was the best house in a bad neighborhood, if you will, and of course he was going to be overpaid. That doesn’t mean Theo Epstein has to be the one overpaying. If I have to guess, this was more Larry Lucchino’s call in a gut reaction to keep pace with The Empire rather than the emergence of Bizarro Theo. I can’t see them keeping Josh Beckett now. Really, I couldn’t see them keeping him before this; the last two years haven’t been stellar for him; he seems to be reverting to fighting himself and trying to Nuke LaLoosh everyone with his heat. That’s not going to work now, and it sure won’t work as age and loss of velocity set in while he toils well into his 30s.
Not sure what’s going on with the Sox tripping over themselves to eat $9 of $12 million for Mike Lowell in 2010. Sure…he was defensively a shell of himself at 3B, displaying range almost as bad as a previous Sox aging infielder (Mark Loretta at 2B c. 2006). He can still hit, though. It’s well-documented that he was annoyed with the ramifications of the Sox pursuit of Mark Teixeira last year. Do his declining range and ill temper over being dangled as bait for 2 years add up to a salary dump? I guess they do. Still, Adrian Beltre is NOT the answer, unless you want to overpay a Scott Boras client for declining production and advanced age, regardless of how solid the glove is, all the while further hampering payroll flexibility. If that’s the case, be my guest…y’all just go on with your bad self. It’s much cheaper to sign a 1B or go with Kotchman and move Kevin Youkilis to 3B than to find a 3B option on the open market. I don’t really like Theo’s track record with free agent signs on the left side of the infield, either. Not since Bill Mueller, anyway.
As for Harold Reynolds, as Marty McFly said in “Back to the Future,” “watch for the changes, and try to keep up, okay?”
Monday, November 2, 2009
Chowhounds: A simple way to mix it up a little bit
If you’re like me (and on several levels, I strongly advise you to pause at least a moment to thank your personal God that you’re not), you enjoy food a great deal. That’s easy enough. For some, cooking is intuitive and easy. Me, not so much. I was blessed by having two excellent cooks for parents, but I don’t think the genes carried over too well. I am a spastic mess in the kitchen. Klutziness, sloppiness and general ill temper mark my periodic kitchen disasters. Well, at the ripe old age of “a lot more than I feel like I am,” I’m fixin’ to fix all of that. For those of you that share the same gastronome and kitchenphobe profile, here’s what we can do:
New Cookbook Sunday
OK, I know damn well that I’m not the first one to think of something like this; New [blank] Sunday concepts are just about everywhere. But screw it…give it a shot. Enjoying food in the age of information overload means that we have an infinite number of recipes at our disposal via the Internet, cookbooks assembled by an ever-increasing cast of celebrity chefs and more traditional sources indigenous to the 20th century. Maybe you have a slew of cookbooks that you’ve looked at but never really got much out of. We may have 30 or 40 such tomes on our dining room bookshelf, yet only a select few have the true mark of honor – pages that are waterlogged or crusty from ingredients and other friendly fire from use of a few select recipes repeatedly. Let’s tap a different one of these once a week to strengthen our chops and rid us of the kitchen anxiety, no? Every week, reach for a cookbook or similar source that you think has been relatively untapped. Pick out a recipe you’re at least a little comfortable with, discuss with your Beautiful Bride or other significant other, shop for the ingredients and let it rip. Start off slow – I picked out a wicked easy shrimp dish myself – but who cares…we all learned the basics on how to ski on the bunny hill, didn’t we? Next week I’ll go for something a little more challenging. While you’re at it, try working out pairings of wine and/or beer with each of your dishes to complete the experience. You can always spend an extra 15-30 minutes in the gym on Monday to work off your newfound culinary success. Good luck and enjoy!
New Cookbook Sunday
OK, I know damn well that I’m not the first one to think of something like this; New [blank] Sunday concepts are just about everywhere. But screw it…give it a shot. Enjoying food in the age of information overload means that we have an infinite number of recipes at our disposal via the Internet, cookbooks assembled by an ever-increasing cast of celebrity chefs and more traditional sources indigenous to the 20th century. Maybe you have a slew of cookbooks that you’ve looked at but never really got much out of. We may have 30 or 40 such tomes on our dining room bookshelf, yet only a select few have the true mark of honor – pages that are waterlogged or crusty from ingredients and other friendly fire from use of a few select recipes repeatedly. Let’s tap a different one of these once a week to strengthen our chops and rid us of the kitchen anxiety, no? Every week, reach for a cookbook or similar source that you think has been relatively untapped. Pick out a recipe you’re at least a little comfortable with, discuss with your Beautiful Bride or other significant other, shop for the ingredients and let it rip. Start off slow – I picked out a wicked easy shrimp dish myself – but who cares…we all learned the basics on how to ski on the bunny hill, didn’t we? Next week I’ll go for something a little more challenging. While you’re at it, try working out pairings of wine and/or beer with each of your dishes to complete the experience. You can always spend an extra 15-30 minutes in the gym on Monday to work off your newfound culinary success. Good luck and enjoy!
Monday, September 14, 2009
Memo to Dick Jauron from the days of common sense
Dick:
Sure...Leodis McKelvin decided to fight momentum and come out of the end zone. Twice. Once with a tide-changing fumble and again with a time-wasting saunter to the 21 when Standing Hampton would keep you at the 20 with a few extra seconds. Bad. Wicked bad. But Leodis isn't the no-talent-ass-clown that called the D that allowed the Best of the Best to saunter down the field to knock your nostalgic lead from 11 to 5. It's all on you, Yale boy. Your team hit all game and all of a sudden you turn turtle and play prevent. Is this what Ralph's paying for? Crash Davis says, "don't think...it can only hurt the ball club...
Sure...Leodis McKelvin decided to fight momentum and come out of the end zone. Twice. Once with a tide-changing fumble and again with a time-wasting saunter to the 21 when Standing Hampton would keep you at the 20 with a few extra seconds. Bad. Wicked bad. But Leodis isn't the no-talent-ass-clown that called the D that allowed the Best of the Best to saunter down the field to knock your nostalgic lead from 11 to 5. It's all on you, Yale boy. Your team hit all game and all of a sudden you turn turtle and play prevent. Is this what Ralph's paying for? Crash Davis says, "don't think...it can only hurt the ball club...
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