In Search of the Perfect Investment

My logic is very simple: Take your risk in your day job or day business. Accumulate your rewards in muni bonds.

If you have a serious day job, you don’t have the time to mess with stocks.

Muni bonds offer safety — especially revenue bonds. They offer an effective before-tax yield that will rise as taxes skyrocket in coming years.

Muni bonds offer income. If interest rates rise — they will eventually — your bonds will drop in value. But hold them to maturity, and it won’t matter.

Post some comments below. We’ll keep this discussion going.

Stock Market Performance Has Absolutely Nothing To Do With The Economy.

Says Clusterstock:

It’s True, Stock Market Performance Has Absolutely Nothing To Do With The Economy.

A study by Crestmont Research lays bare the disconnect between the stock market’s performance and the performance of the economy.

As shown above, some of the best decades for U.S. economic growth were some of the worst decades for stock market performance. In turn, some of the best decades for stock market performance actually happened after economic growth slowed. Just look at the 1910’s vs. the 1920’s, or the 1970’s vs. the 1990’s.

Stock market performance is in blue, while economic performance is in purple. All data is based on nominal values for either the Dow Jones Industrial Average or GDP.

See Clusterstock’s post and sign up for their daily emailed newsletter, which I find, if not always useful, usually entertaining.

Sweating Your Way to Success. From the New York Times, By PETER ORSZAG

The most important book I’ve read over the past six months is Matthew Syed’s “Bounce.” Teddy Roosevelt once said that “in this life we get nothing save by effort.” Syed shows how trenchant Roosevelt was.

Syed is a two-time Olympian in table tennis. His book is impressive for two reasons. First, he takes empirical evidence on the science of success seriously (and in the areas where I know the literature to some degree, his depiction is quite accurate). Second, he shows how that evidence shatters widespread myths about what leads to better performance in any complex undertaking (including, for example, chess, tennis and math).

Basically, we’ve bought into several misconceptions about excellence, which are not only wrong but affirmatively counterproductive.

Let me focus today on the core one. Too many of us believe in the “talent” myth — that top performers are born, rather than built. But Syed shows that in almost every arena in which tasks are complex, top performers excel not because of innate ability but because of dedicated practice.

In effect, the stars among us have practiced so much that they are better at what psychologists call “chunking.” Imagine trying to remember 41 letters or numbers. Most of us couldn’t come close to doing that. Now imagine trying to remember a sentence with 47 letters or numbers, like: “Imagine trying to remember 41 letters or numbers.” Most of us can do that with little difficulty, because we are chunking the letters and numbers. We remember the words, and we know the letters in each word.

Syed shows that most better performers have practiced so intensely that they chunk better at their tasks than normal people. So we see impressive performance and think someone is naturally skilled, whereas the reality is that person has simply practiced for longer and more intensely than others.

Perhaps the most dramatic example is from chess. A 1973 study took one group of chess masters and another group of novices. When presented with chess pieces as they would be arranged in a chess game, the masters were stunningly better than the novices at recalling each piece’s position.

But here’s the catch: when the pieces were set up randomly, in a manner that would never occur in a real game of chess, the masters were no better than novices at remembering where the pieces were. So much for chess masters being born with special powers of memory or concentration. Instead, the explanation is that they’ve played so many games of chess that they are more adept at recognizing patterns on the chess board (at least, when those patterns could arise in a game of chess).

Success in most arenas of life is thus not a reflection of innate skill but rather devoted effort. And Syed demonstrates why it is not just effort, but purposeful effort that is key — if you’re going to get better at chunking, you can’t just go through the motions and punch time on the clock. You need to put your heart into it. More on that later this week.

Communism isn’t working in Cuba. Surprise. Surprise. But what is the surprise is that Castro knows it. He tells the Altantic Monthly, “Cuban Model Doesn’t Even Work For Us Anymore.” Click here.

Obama isn’t a socialist. I’ve had difficulty relating to that.  What really peeves me is that he’s hurting the country’s competitive edge by favoring unions and government workers. He’s showered them with bailout largesse. You now earn far more working for the government (any government in the U.S.) than you do with a private company. Yet it’s private companies that create real jobs and real growth in the economy. Talk this over with your friends.

The Little Racket That Changed Tennis
Using a Thin Grip and Light Frame, Rafael Nadal Generates Speed and Spin Like He Has a Ping-Pong Paddle.

From the Wall Street Journal:

As a gangly 8-year-old, Rafael Nadal picked up a new racket at the suggestion of Uncle Toni, his coach, and began to swat around a ball. Toni liked what he saw. The Babolat Soft Drive was exactly what he had been searching for: light and easy to maneuver with a tiny grip.

It was originally designed for a woman, which was fine by Toni, because he wanted a racket his young nephew would be able to control easily. A former table-tennis champion turned tennis pro, Toni Nadal liked the feeling of waving his ping-pong paddle back and forth quickly through the air like a magic wand.

This year’s Spanish Armada at the U.S. Open had everyone talking about the level of talent the country brought to the tournament. But all the talk about Spanish players wasn’t just about their game. WSJ’s Beckey Bright reports.

Why, he wondered, couldn’t a tennis player replicate this motion on the court? “It seemed to me that this [new] racket was easier to whip around,” said Toni. “For that same reason I like a small grip.”

As Mr. Nadal continues to cruise through the U.S. Open field this year—he plays countryman Fernando Verdasco in the quarterfinals on Thursday—the impact of his uncle’s small epiphany on professional tennis is hard to underestimate. In fact, it has helped to fundamentally change the way many top pros approach rackets.

When he started using the whippier racket, the young Rafa, who is naturally right-handed, was using two hands on both sides. It wasn’t until he was 10 that he started playing about 20 minutes at a time with a one-handed forehand. “I thought he should be left-handed because he was using his legs like a left-hander,” Toni said. “We started hitting serves with his left arm and then with his other arm and the reality is he wasn’t very good with either,” he added, laughing. “We had to choose and we chose left.”

When he played his first tournament—also at 10—the light racket and small grip helped Rafa make the transition to a one-handed forehand on his nondominant side. But the flimsy frame made it harder for him to get speed on his serve.

Fourteen years later, Mr. Nadal plays with a different Babolat racket—the top-selling black and yellow Aeropro Drive—but the specifications he uses haven’t changed much.

As the topspin-heavy, clay-court style of play that Mr. Nadal has perfected takes over tennis, there has been a shift in how many of the top pros approach rackets. Players like Mr. Nadal and fellow Spaniard Carlos Moya, who stay glued to the baseline with big forehands and double-fisted backhands, have abandoned the heavy, thick-gripped weapons of the past that players such as Pete Sampras and John McEnroe favored.

Novak Djokovic of Serbia serves to Gael Monfils of France during their quarterfinal round match.

Today, thin is in. Skinny grips and lighter frames that carry more weight in the head rather than the shaft help baseliners generate more racket-head speed so they can use their wrists and forearms to roll through their shots. Updated polyester strings only add to the effect, as players finish their swings with their rackets up around their ears to get crazy amounts of spin.

“If you give Nadal a heavy racket with a big grip, it’s impossible to do what he does,” said Roman Prokes, part of the team of U.S. Open stringers handling Mr. Nadal’s sticks.

The world No. 1 is also not a racket diva. Mr. Nadal doesn’t travel with a personal stringer unlike many other top tour players. Nor does he take his frustrations out on his equipment. The only time Toni Nadal saw his nephew break a racket is when he was playing at Roland Garros—he hit his shoe on a serve and cracked the frame. The serve was good.

Aside from treating his rackets kindly, what Mr. Nadal does is put a lot of action on the ball. A maneuverable frame lets him execute his signature lefty forehand: instead of following through over his right shoulder, Mr. Nadal snaps his racket back after hitting the ball. (Kind of like a ping-pong player.) The result is a hyper-rotating spin with the ball jumping high off the court.

Rafa’s racket weighs a flimsy 10.6 ounces unstrung, plus an extra 0.4 ounce he adds to the head, for a total of 11.5 ounces with strings, practically pixie dust in the hands of a 6-foot-1 hulking guy. By contrast, the 5-foot-10, 128-pound Caroline Wozniacki, the U.S. Open’s top seeded woman, plays with the same Babolat Aeropro Drive as Mr. Nadal; her frame is just two ounces lighter than Mr. Nadal’s.

If Mr. Nadal picked up Mr. Sampras’s old racket today, his shots would probably hit the fence. The hefty, unforgiving Pro Staff Original Mr. Sampras used en route to 14 Grand Slam titles is 12.6 ounces unstrung. It was already cumbersome, but Mr. Sampras added lead tape to get more power and control, for a total mass of almost 14 ounces with strings. To manage it, he used a grip with a circumference of 4 5/8 inches.

In a tournament full of close matches, big upsets and total meltdowns, the field is narrowed down to the final four contenders for the WSJ Food Open crown. WSJ’s Jim Chairusmi reports from the food village at Arthur Ashe and tells you what the number one dish was at this year’s U.S. Open.

Mr. Nadal’s svelte handle is but a toothpick in comparison: 4¼ inches around, a size smaller than the grip Ms. Wozniacki and many women use. “A 4 3/8 grip was considered a ladies racket,” said Mr. Prokes, “but now across the board players have gone to small grip sizes, at least one size smaller or more.”

Still, Rafa’s grip size is extreme. “That’s unusual to create that much head speed and the racket not twist in your hand with that grip,” said Nick Bollettieri, coach of 10 No. 1 players. “None of my students use that.”

Before Mr. Nadal came of age, Mr. Moya, his countryman and mentor, was one of the first guys to use a minuscule 4¼ grip. “With heavy topspin, the grips are smaller so the guys can pronate their wrists fast on their forehands,” said Stan Smith, U.S. Open winner in 1971 and former No. 1 player in the world. Mr. Moya uses an even lighter Babolat racket—with most of the weight in the head—than Mr. Nadal does today.

Still, the trend isn’t for everyone. Don’t expect a player like Roger Federer to go all tiny and light. With more of a classic style game, Mr. Federer’s strokes benefit from the old-fashioned heavier frame. “Federer is not that far around on his forehand, so he uses a heavier racket,” said Mr. Smith. “The heavier racket gives you more mass around the ball for power, but you can’t maneuver it around quite as much.”

Mr. Nadal might have the most punishing topspin on tour, but Team Rafa is always looking for equipment tweaks that will help him get more rotation and power. Each November, Babolat CEO Eric Babolat visits Mallorca to talk to the Nadals and test new ideas.

Two years ago Toni and Rafa gave suggestions for developing a string that would give him more topspin with less effort—he had been using the same yellow Babolat Pro Hurricane strings for more than 10 years. The transition wasn’t easy. “Rafael is difficult to change,” said Toni. But a hesitant Rafa liked the feeling: “The ball stays more time on the racket, so is easier to have the control,” he said.

He made the switch at the Australian Open and went on to win the French and Wimbledon with the black strings. Other players took note: three out of the four French Open finalists used them. Four months after the launch, Babolat said it accounts for 10% of its annual string sales.

The question going forward is whether Mr. Nadal can continue to generate enough power. “Each year he is playing he is getting a little less powerful,” Toni Nadal said. “That is normal. The older he gets the more difficult to have the same energy.”

His solution: a heavier racket. “We are thinking at the end of the year we are going to add a little more weight at the head of the racket to get more power on the serve,” said Toni, smiling. “But don’t tell him that.”

The US Open tennis finishes this weekend. The finals will be on CBS. But there’ll be endless replays on ESPN2 and The Tennis Channel. I’m guessing Nadal will play Federer in the finals. I’m guessing Nadal will win.

Why Southwest Airlines has no baby planes.
A mother and her young son were flying Southwest Airlines from Kansas City to Chicago .

The little boy (who had been looking out the window) turned to his mother and asked, ‘If big dogs have baby dogs and big cats have baby cats, why don’t big planes have baby planes?’

The mother (who couldn’t think of an answer) told her son to ask the flight attendant.

So the boy went down the aisle and asked the flight attendant, ‘If big dogs have baby dogs and big cats have baby cats, why don’t big planes have baby planes?’

The busy flight attendant smiled and said, ‘Did your mother tell you to ask me?’

The boy said, ‘Yes, she did.’

‘Well, then, you go and tell your mother that there are no baby planes because Southwest always pulls out on time.  Have your mother explain that to you.

Harry Newton who is increasingly happy he canceled his print subscription to the Wall Street Journal. Rupert has dumbed it down to irrelevance, though I do like the story on The little racquet that could. But why in a business magazine? I’d like some serious business journalism. Companies. Investments. The economy.

If you missed Michael Lewis’ brilliant  piece on messed-up Greece from yesterday,  you must read it this weekend. Click here.