In Search of the Perfect Investment

When I call my broker these days, I get a recording,

“Sorry about that. But the stockmarket goes up and down — faster than a whore’s drawers. You’ll be OK.  Have faith.”

This was last week:

It’s not difficult to manage the madness. First, you know you can’t predict. So, don’t try. Second, if losing money on some days drives you nuts, the stockmarket is not for you. Concentrate on something you have an advantage — your own business, for example. Or stick your money in Harry’s Mattress Bank.

There are as many predictions around that the market will rise in the next 12 months as there are predictions around that it will fall. Someone will be right. Most will be wrong. Meantime, my strategy is to monitor the stocks I like — see list on right. I like their “stories,” some more than others. I tend to monitor them for “disasters” and for big price falls. If the stock falls 10% to 15% I’m out. I let them drop more if I like their stories long-term — e.g. Apple, Google, Nike, etc.

I have a collection of “speculations” — AGIO (up 21% one day last week, ATK (up 93% since purchase), GPRO (up 20% since purchase), ISIS (down 5% since purchase), Gilead (up 57%) and Mobileye (MBLY, down 2%).

I like some financials, e.g. LADR (up 12%, but going higher),  NLY, (up 18%), both MasterCard (down 5.4%) and Visa (down 5%), but I own more of V because I like it better. I think Apple Pay will help V (and AAPL). I don’t like their volatility. For that I own Berkshire Hathaway, some Vanguard index funds and IVV, the iShares S&P 500 Index ETF.

I don’t think stockpicking is especially satisfying.

Which brings me to weekend reading. A guy called Jeff Madrick wrote a book called “SEVEN BAD IDEAS. How mainstream economists have damaged America and the world.”

I’m very interested because the economists are meant to protect us from booms and busts, like the sub-prime mortgage disaster of 2007, which led to the horrible stockmarket crash of 2008. The reality is that economists like Greenspan, Bernanke and Yellen have zero idea when we’re in a  bubble and even fewer ideas when it’s about to bust, like 2008. Or what to do about lessening the pain for us and the world.

If they can’t predict anything, clearly lesser mortals like you and me can’t. Hence I need an investment “strategy” which insulates me from the volatility. Sadly, I don’t think there is such a strategy — despite Wall Street’s heavy marketing of “non-correlated” investments. When things go awry, everything seems to go awry. The sub-prime mortgage crisis of 2007-2008 halved the value of commercial real estate in places as widespread as Portland, Oregon, Salt Lake City, Utah and Boston, Massachusetts, for example.

Paul Krugman reviewed the book. Let me start with some excerpts from his review:

The economics profession has not, to say the least, covered itself in glory these past six years. Hardly any economists predicted the 2008 crisis — and the handful who did tended to be people who also predicted crises that didn’t happen. More significant, many and arguably most economists were claiming, right up to the moment of collapse, that nothing like this could even happen.

Furthermore, once crisis struck economists seemed unable to agree on a response. They’d had 75 years since the Great Depression to figure out what to do if something similar happened again, but the profession was utterly divided when the moment of truth arrived.

In “Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World,” Jeff Madrick — a contributing editor at Harper’s Magazine and a frequent writer on matters economic — argues that the professional failures since 2008 didn’t come out of the blue but were rooted in decades of intellectual malfeasance. …

Matters are even worse when it comes to the performance of financial markets. Here the proposition that markets should get it right — that major speculative bubbles can’t happen (bad idea No. 5) — doesn’t just depend on conditions that clearly don’t hold in practice, but is directly contradicted by evidence on herd behavior and excess volatility. Yet “efficient markets theory” has maintained its academic dominance. Eugene Fama of the University of Chicago, the father of efficient markets, still denies that financial bubbles even exist — and last year he shared a Nobel in economic science.

Still, all of these failings of mainstream economics were obvious long before the 2008 crisis. What has really come as news is the seeming inability of economists to agree on a policy response to mass unemployment. And here is where my quibbles with Madrick get louder.

No. 2 on Madrick’s bad idea list is Say’s Law, which states that savings are automatically invested, so that there cannot be an overall shortfall in demand. A further implication of Say’s Law is that government stimulus can never do any good, because deficit spending by the public sector will always crowd out an equal amount of private spending.

But is this “mainstream economics”? Madrick cites two University of Chicago professors, Casey Mulligan and John Cochrane, who did indeed echo Say’s Law when arguing against the Obama stimulus. But these economists were outliers within the profession. Chicago’s own business school regularly polls a representative sample of influential economists for their views on policy issues; when it asked whether the Obama stimulus had reduced the unemployment rate, 92 percent of the respondents said that it had. Madrick is able to claim that Say’s Law is pervasive in mainstream economics only by lumping it together with a number of other concepts that, correct or not, are actually quite different.

Now, it’s true that the relative handful of economists claiming that stimulus can’t possibly work, or that slashing government spending is actually expansionary, have a much higher profile than their numbers or their influence within the profession warrants. Why? Partly, the answer is that the news media — especially but not only partisan media like The Wall Street Journal’s editorial page — have promoted the views of economists they like for political reasons. Partly, also, it’s because politicians listen to economists who tell them what they want to hear. I’m not saying that mainstream economists bear none of the blame; the decades-long retreat from Keynes has undoubtedly allowed old fallacies to make a comeback. But austerity mania has to a large extent spread despite mainstream economics, not because of it.

I’d make a further observation here: Academic economists have much less influence in Europe than they do in America. Yet the policy response to the crisis, while poor on this side of the Atlantic, has been much worse on the other. Politicians don’t need bad advice from economists in order to go off the rails.

Such quibbles aside, “Seven Bad Ideas” tells us an important and broadly accurate story about what went wrong. Economists presented as reality an idealized vision of free markets, dressed up in fancy math that gave it a false appearance of rigor. As a result, the world was unprepared when markets went bad. Economic ideas, declared John Maynard Keynes, are “dangerous for good or evil.” And in recent years, sad to say, evil has had the upper hand.

You can read the entire Krudgman review. Click here.

This  is a scam. If I “view my payment details,” my computer will be loaded with all sorts of nasties. Before you click, think. Check the “from” address. Check the words. 

The Jewish Marriage
A Jewish woman goes to see her Rabbi and asks, “Yankele and Yosele are both in love with me, who will be the lucky one?”

The wise old Rabbi answers, “Yankele will marry you. Yosele will be the lucky one.”

The Muslim marriage
A Muslim wife complains to her husband that all the romance had gone out of their marriage.

“Remember when you used to carry me up to bed?” she asked.

Yeah,” he replied, “But be fair, you were only eleven at the time.”

Harry Newton who’s digging for Muslim “jokes.” Not easy to find.