The BIG lesson of 2012 was you can’t predict. But, Harry, that was the lesson of 2011, 2010 and before. No one can predict. But when they do, they love their prediction and tend to stick with it, irrespective. That’s the lesson from Paul Krugman’s neat piece, When prophecy fails. Click here. There’s more (a lot more) in this book by Nate Silver, the man who got the recent elections right.
Nate reminds us that in 2007 Lehman Brothers had a leverage ratio of 33 to 1, meaning that it had about $1 in capital for every $33 in positions it held. That meant that 3 to 4% decline in the value of those positions (its portfolio) would suddenly mean that Lehman would have a negative equity and could go broke. Which it dutifully did. What’s amazing about this — at least to me — is twofold:
+ It took Lehman years of trading successes to build up to 33.
+ The successes all got wiped out in manner of a few hours.
I’ve nagged about not borrowing to buy things — like stocks — you can’t predict. What distinguished Lehman’s ultra-dumb investment “strategy” was its voracious appetite for mortgage-backed securities. It held $85 billion of these awful things in 2007. Why Lehmann concentrated their holdings — not on these things — but on anything — is beyond my brain.
The message about our collective inability to predict is don’t — stay diversified in things you can’t control — like other peoples’ equities. You can read a review of the book here, but you really should read the entire book. Buy it here.
Meantime one of my larger holdings — and one I’ve pushed in the right-hand column — Stocks We Like –is Vanguard’s high-yield muni bond fund — VWALX, which had a sterling year in 2012, and which I think (i.e. I’m predicting) will continue to do well in coming months.
There’s something about Stevie. Here’s the New York Times’ long story about Steve Cohen, hedge fund billionaire.
The man is an extraordinary stockmarket trader. You won’t learn much about how he makes all his money, except he gets occasional stock tips or mergers and acquisitions. But you will learn about the time his wife bought him an ATM as birthday present and why. Click here.
iPhone 5 quirks:
+ Battery life is too short. Turn off Bluetooth, Wi-Fi and Personal Hotspot.
+ Data won’t download. Turn off Wi-Fi. It’s probably not connecting, for whatever dumb reason. 4G/LTE is often faster than Wi-Fi, especially shared Wi-Fi.
+iCloud storage is too small. Turn off videos. Cut down the photos. They use us voracious space.
Favorite latest New Yorker cartoons
Washington Celebrates Solving Totally Unnecessary Crisis They Created.
WASHINGTON January 1, 2013. (The Borowitz Report)-Official Washington was in celebration mode on New Year’s Day after kind of averting a completely unnecessary crisis that was entirely of its own creation.
“This deal proves that if we all procrastinate long and hard enough, we can semi-solve any self-inflicted problem at the very last minute in a way that satisfies no one,” said Senate Minority Leader Mitch McConnell (R-Kentucky).
But even as Sen. McConnell basked in self-congratulation, he warned Congress against the complacency that could come with having sort of fixed its own completely avoidable mess.
“This is a new year, and much work remains to be done,” he said. “It’s up to us to concoct entirely new optional disasters that we will have to undo at some later date in a more or less half-assed way.”
In a related story, an arsonist received an award for putting out his own fire.
Harry Newton, who
Life expectancy calculator. I’m making it to 91. My friend is making it to 97. The age is less interesting than the questions they ask you. The questions determine your life — unless you get hit by a bus or doored by a taxi — an occupational hazard for bike riders in New York City. Click here.
I’m still assembling my list of Favorite Stocks for 2013. I’ve been singularly unimpressed with the lists I’ve seen from the financial press. Four recent “spec” surprises — SITO, WEN, FXI and FSLR. I’m also watching DDDGY, an English company which just got Nasdaq listing here, but doesn’t seem to have traded yet.
Do people really still read Paul Krugman? Amazing.
Next you’ll tell me they also read the NYTimes. A funny paper without funnies. What will they think of next?
The Life expectancy calculator puts me at 98…then tells me that certain life changes could add to my life expectancy by 3 months…6 months. So, I am going to deprive myself of my one cup of coffee a day just to make it to 98.3 years?
Absolutely. Coffee will kill yo when you’re 98.
It sounds like this lifestyle calculator is way too high. You guys need to find one that’s accurate.
You’re still way too pessimistic and it’s cost you and your readers a lot of money. Just remember: Things are virtually never as dire as the CNBC anchors, and, to a slightly lesser extent, the WSJ, makes them sound. Only a fool falls for that rhetoric. But take solace in the fact you are not alone, as millions of foolish Americans pulled $ out of the market in 2012. CNBC exists to get ratings, has zero social conscience, and will almost always make things sound much scarier than they are. Ditto CNN.
For God’s sake, I’m not an CNBC anchor. Nor am I pessimistic. But I am realistic. The last few years have not been easy, nor cheap. What are your favorite positions at present?
Coal, finance, banks, and any solid company that under-performed in 2012. I’d like Facebook after a significant pullback. Ditto Apple, after a further pullback from here. If there’s a big drop in ’13 – and surely there will be at some point – I’ll load up on APPL, FB, and some banks, assuming they participate in the pullback.
Interesting observation about CNBC and others being to pessimistic. I stopped watching CNBC with any regularity several years ago because I felt they were nothing but cheerleaders with there “happy days are here again” rhetoric … I guess it really depends for all us what color glasses we decide to put on. Because of the race to the bottom regarding world currencies, I continue to invest primarily in precious metals and their respective stocks. FYI – gold has just completed it’s 12th consecutive up year-over-year performance. It’s without a doubt the quietest bull market in our life time. Like anything it won’t last forever, but it still has legs. Best wishes to you and all for a healthy and prosperous New Year !!!
What? You don’t think we can just keep on printing money!
Yes, we’ll definitely keep printing money and at the same time debasing the currency. It’s going on globally.
I got out of gold right after I heard Suze Orman recommend it. Since then gold is down a good 20 percent. She said “Go where the people go” the single worst piece of investing advice in history, with the possible exception of Harry shorting JP Morgan.
Not sure why anyone would listen to her for investing advice, although I like her and her program. Again, gold up 12 years in a row. Tough to argue, still has legs. Currencies world wide, including the dollar, continued to be debased. Precious metals remain a safe haven. All the best !