Author Archives: SMS

Diversification

Reading Time: 2 minutes

There’s been volumes written on the topic of diversification.  The pros, the cons.  What diversification really means?  How many positions one needs to hold to be diversified?  

Here are some good quotes. I doubt I could add anything useful if I tried. However, I mostly agree with the below statement.

“Being truly diversified means that there almost always will be a part of your portfolio that is sucking wind. (Big note: if every piece of your portfolio is working really well, it means one of two things: you’re incredibly lucky or you are not actually diversified. I would assume the latter.)” – De Thomas Wealth Management

Here’s what the holdings look like in my account where I attempt to deploy a broad, diversified, ETF strategy.

Not too much pain here…

I assure you this is a broad mix of ETFs representing equities, fixed income, real estate across U.S., international, emerging markets, etc.  Most would call this a well diversified portfolio.

The fact that almost every fund is pegged up against its 52 week high makes me more than nervous.  The issue is not that these aren’t funds holding diversified assets.  The issue is almost every asset is moving up together and correlations among asset classes are increasing. 

“He notes that the correlation between the yield on the Barclays Global Aggregate Bond index and global stocks currently sits at 0.24—a correlation of 1 means two assets move in lockstep—and has been fairly steady since the market stabilized after the coronavirus meltdown. If the correlation turns negative, which would mean that stocks and bonds move in opposite directions, it could be bad news for equities. “ – Barrons

When did stocks and bonds start moving in the same direction? It used to be, they didn’t.

So how do you diversify when correlations are increasing? 

Well, if most asset classes are going up, then you probably don’t care about diversification as much or the fact that correlations are increasing. Higher correlations mean assets are moving in the same direction. If that direction is up, then I guess higher correlations are good.

However, you will probably start to care about diversification and correlations more if the wheels start coming off. I’ve found this chart helpful in thinking through that problem historically.

Although as the chart says, past performance is not an indication of future performance.

Mask Wearing Point System

Reading Time: < 1 minute

The purpose of a mask is to cover the airways to the lungs.  

Parts of the human body that part of the respiratory system and are airways to the lungs include:

  1. Nose  +5 Points
  2. Mouth +5 Points

A total of ten points is available.

For the avoidance of doubt, here is a list of things that are not airways to your lungs:

  1. Feet
  2. Ears
  3. Hands
  4. Elbows
  5. Knees
  6. Belly Buttons
  7. Arm Pits
  8. Chins
  9. Pets
  10. Other Inanimate Objects

There is no extra credit for covering any of these items. 

Additional points are deducted (-5 points) for covering these items in lieu of the either or both the nose or mouth.  Additional points (-100 points) are deducted for being a leader of this country and not knowing this.

Influential Reads – January 2021

Reading Time: 2 minutes

January 2021

Well, that month is over.  It went about as well as expected.

Updated stats through January:

ArticlesBooks
January654
February
March
April
May
June
July
August
September
October
November
December
Total654

Here are my most influential reads – in no particular order:

  1. Stocks Are Allowed To Be Expensive Since Bonds Yields Are Low…Right? – “Many are just willing to clickautoinvest into stocks at any valuation level.”
  2. The office as we know it is over—and that’s a good thing – “According to a recent study by FlexJobs, 65% of newly remote workers don’t want to go back to the office.”
  3. Lessons From the Tech Bubble – “Unfortunately, the quip “it’s not a bubble if everyone says it is” just isn’t true. Investors were comparing the internet sector to tulip mania as early as mid-98. Bernstein held an entire conference on it in June 99!”
  4. Lunik: Inside the CIA’s audacious plot to steal a Soviet satellite – “The boastful Soviets had sent their Luna rockets on a world tour.”
  5. This Year I’m Not Setting Goals: I’m Creating Practices – “They are activities you choose to dedicate time to every single day or with a set frequency of your choice.”
  6. Bronte Capital Ganymede Fund Partner Letter December 2020 – “But “sold to naïve investors” is a basic tell.  This tell has not worked in 2020. Indeed, it is a way to lose considerable money as a shortseller.”
  7. You Should Be Recruiting Different Types of Leaders for Remote Teams – “Instead of valuing confidence and charisma, remote teams value leaders who are organised, productive and facilitate connections between colleagues.”
  8. A New Year is a Beautiful Fresh Start – “Start at One — this is one of my mantras this year.”
  9. Even the Best Investors Stink at Selling Stocks – “People who buy and sell stocks for a living aren’t just unskilled when it comes to selling—they’re the inverse of skilled.”
  10. A simple 2 x 2 for choices – “It’s useful to have a portfolio of projects, because not all of them are going to work.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Gaming It

Reading Time: < 1 minute

Looks like Q discovered the stock market.  Some recent comments on Reddit related to GameStop (GME):

“HOLD!”

“WE LIKE THE STOCK”

“DIAMOND HANDS!”

“IF HE’S NOT SELLING, IM NOT SELLING!”

In business school, we had this class that was called Management Game.  We formed management teams for simulated companies.  Each week we made a series of decisions, which were input into a computer simulation.  There were board meetings.  And best of all, there was even a stock market.

Every “player” was given some “game money” to trade.  So, we got to trade with make believe money.  Sort of like the real stock market today.

I remember, I cornered the market in my company’s stock and drove the price way up.  Which was great, as long as I kept buying.  And then I stopped buying….

Turns out I was the only buyer.

It was a good lesson in markets.  The current price is only a reflection of the current marginal buyer and seller.  That’s it.  Don’t read any more into it.

Book Report: Arguing with Zombies

Reading Time: 3 minutes

“One classic example of government doing it better is health insurance.” – Paul Krugman

This is meant to be more of a book report, than a review.  In particular, I want to highlight three lessons from the book, Arguing with Zombies by Paul Krugman, that I found impactful.  This also serves as a way for me to recall influential points in the book.

My mom gave me this book.  Krugman is not an author I have followed closely, although I did read The Return of Depression Economics years ago.  The book is mostly a collection of Krugman articles – organized by topic.  So the chapters are bite size. I think mostly due to timing – the pandemic and election cycle – I found this book a bit depressing.  

However, three topics that did alter my perspective were:

  1. Healthcare Confidential.  

“How does the V.H.A. do it?  The secret of its success is the fact that it’s a universal, integrated system.  Because it covers all veterans, the system doesn’t need to employ legions of administrative staff to check patients’ coverage and demand payment from their insurance companies.  Because it covers all aspects of medical care, it has been able to take the lead in electronic record-keeping and other innovativations that reduce costs, ensure effective treatment, and help prevent medical errors.  Moreover, the V.H.A., as Phillip Longman put it in the Washington Monthly ,”has nearly a lifetime relationship with its patients.”  As a result, it “actually has an incentive to invest in prevention and more effective disease management.”

This just makes so much sense to me – on multiple fronts.  I just do not understand the angst over a universal healthcare insurance coverage option or an integrated, government sponsored healthcare provider.  The incentive system in our current fragmented and disjointed healthcare system which is heavily influenced by private payors is not delivering the results the citizens of this country deserve.  We can better.  I don’t understand the fear around trying to do better.

  1. The Great Center-Right Delusion. 

“What the authors of the piece show is that congressional aides grossly misperceive the views of their bosses’ constituents; this is true in both parties, but more so the Republicans.  What they don’t point out explicitly is that with the exceptoin of the A.C.A. repeal, Democrats err in the same direction as Republican, just less so.  Specifically, both parties believe that the public is to the right of where it really is.”. 

“What I’m suggesting, in other words, is that there’s a shared inside-the-Beltway delusion:  that America is a conservative, or at most center-right nation, a view that isn’t grounded in reality.”

Hey conservatives.  You are in the minority.  Please keep that in mind.  

Should we be surprised that most folks want good healthcare, higher wages, a cleaner environment, better social safety nets, and are not concerned about the taxes on the ultra-wealthy?

The rural bias in the Senate, the electoral college system, and Fox News are distorting the reality of the situation.  And if enough people from California keep moving to Texas, the electoral college won’t matter any longer either.

  1. Transaction Costs and Tethers: Why I’m A Crypto Skeptic. 

“So I thought it might be worth explaining why I’m a cryptocurrency skeptic.  It comes down to two things: transaction costs and the absence of tethers.”

“Set against this history, the enthusiasm for cryptocurrencies seems very odd, because it goes exactly in the opposite of the long-run trend.  Instead of near-frictionless transactions, we have high costs of doing business, because transferring a Bitcoin or other cryptocurrency unit requires providing a complete history of past transactions.”

“Cryptocurrencies, by contrast, have no backstop, no tether to reality.  Their value depends entirely on self-fulfilling expectations – which means that total collapse is real possibility.”

I am not sure why but my interest in cryptocurrencies is zero.  But this was an interesting take on why cryptocurrencies are not about to replace real currencies any time soon.

Influential Reads – December 2020

Reading Time: 2 minutes

Sedition is overt conduct, such as speech and organisation, that tends toward rebellion against the established order. Sedition often includes subversion of a constitution and incitement of discontent toward, or rebellion against, established authority.” – Wikipedia

The election season started a vicious cycle of checking the daily news multiple times a day.  So I am going to be making a concerted effort to get out of the daily news cycle and spend more time reading longer form reads and books.  Hopefully, those results can be seen in the coming months. However, I am still pretty pleased with reading twenty five books this year – even if a fair number were the result of binge reading Carl Hiaasen books as an antidote to current events.

Updated stats through December:

ArticlesBooks
January654
February
March
April
May
June
July
August
September
October
November
December
Total654

Here are my most influential reads – in no particular order:

  1. Dave Barry’s Year in Review 2020 – “On Nov. 12 the nation pauses to observe the 50th anniversary of the date that the Oregon state highway department attempted to dispose of an eight-ton dead whale on a beach by detonating a thousand pounds of dynamite under the carcass…”
  2. Newsmax issues sweeping ‘clarification’ debunking its own coverage of election misinformation – “Newsmax, which is attempting to outflank Fox News from the political right, posted a notice on its website Sunday night and then had a host read the full two-minute statement on the air Monday.”  Stephen here:  I still hope they get their pants sued off.
  3. How Offshore Oddsmakers Made a Killing off Gullible Trump Supporters – “The online bookmakers that fielded bets on the election saw their largest single-event windfall ever. To understand why, you need to understand election betting and Donald Trump supporters.”
  4. Supercharging Your Financial Bullshit Detector – “In what is eponymously known as Sturgeon’s Law, science fiction writer Ted Sturgeon posited that 90% of everything is crap.”
  5. North Carolina GOP lawmaker urges Trump to suspend civil liberties to keep power – “Steinburg on Tuesday said he would support Trump if he suspended civil rights protections to detain his political enemies and change the election result.”
  6. 3Q 2020 GMO Quarterly Letter – “very odd and speculative things have been going on.”
  7. The Art of Asking Good Questions with The Language Compass – “The worst distance between two people is misunderstanding.”
  8. Why You Should Quit the News – “The goal of the news is to motivate you to keep consuming news.”
  9. Hanlon’s Razor: Relax, Not Everything is Out to Get You – “Never attribute to malice that which can be adequately explained by neglect.”
  10. How to Build Self-Esteem – “The mark of true self-esteem is not feeling like you lack nothing—it’s being comfortable with what you lack.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Influential Reads – November 2020

Reading Time: 2 minutes

”And then…depression set in” – John Winger, Stripes.

Oh man.  What a month.  I am worn out.  Will you just go away, man?

Finally finished Arguing with Zombies; a few thoughts forthcoming…

Updated stats through November:

ArticlesBooks
January654
February
March
April
May
June
July
August
September
October
November
December
Total654

Here are my most influential reads – in no particular order:

  1. How To Be Positive, Part 2 – “Skepticism: OK Cynicism: Not OK”
  2. Trump challenges cement Biden triumph – “History shows that any leader who constructs a major myth, that is later shown to be false, will eventually fall,” says Harvard science historian and “Merchants of Doubt” author Naomi Oreskes. “The risk is that he takes his country down with him.”
  3. Candidates Share of 2018 Gross Domestic Product (GDP) by County – “The less-than-500 counties won by Joe Biden generated 70 percent of America’s GDP in 2018.  The more-than-2400 counties won by Donald Trump generated 29 percent of America’s GDP in 2018.”
  4. How to Simplify Your Financial Life – “Being cognizant of what you’re paying for a monthly basis can really add up over time.  Saving a few bucks here and there can give you the ability to better allocate those dollars to things you truly care about.”
  5. How to cover a coup — or whatever it is Trump is attempting – “The trickiest part: “Figuring out whether these bogus accusations are actually dangerous to the republic or just the last, lame gasps of a doomed administration.””
  6. How we can be confident that Trump’s voter fraud claims are baloney – “All three states’ results indicate what was to blame for Trump’s defeat: suburban vote slippage.”
  7. The Real Hunter Biden Story Everyone is Missing – “The media is still under some illusion that fairness and balance means devoting equal attention to allegations about, and stories potentially damaging to, both candidates–rather than devoting proportional attention to allegations and stories according to their credibility, scale, scope and importance.”
  8. Make America Boring Again, Fix Its Dated Electoral System – “The Constitution now governs a nation that would be both geographically and demographically unrecognizable to Thomas Jefferson.”  Stephen here: if enough Californians move to Texas, this will be a moot point.
  9. Do you have a one-page plan? – “Humans don’t like to be asked what their goals are, so just guess. Just think about three years from now.”
  10. The Habit Dip – “This dip is something everyone faces when changing habits: we lose motivation, we get discouraged, we encounter difficulty, we lose focus because other things get in the way, we get sidetracked by life.” Stephen here: well, that pretty well sums up November.

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Influential Reads – October 2020

Reading Time: 2 minutes

For some reason, structure and willpower seemed to vanish in September.  No books this month; I have been stuck in Arguing with Zombies by Paul Krugman – mostly because the topics depress me.  

However, I am looking forward to boring, reasonable thoughts, and complete sentences. 

Updated stats through October:

ArticlesBooks
January654
February
March
April
May
June
July
August
September
October
November
December
Total654

Here are my most influential reads – in no particular order:

  1. It’s a Slow-Moving Car Wreck and We’re All In It – “The United States, Fukuyama argues, is in many ways, no longer spiraling up, but beginning to spiral down.”
  2. How to Live Like You’re Already Retired – “As Oliver encourages: give yourself permission to put forth your best effort toward the things that provide happiness and meaning while half-assing the less important stuff in life.”
  3. Useful Hacks – “Career hack: Work harder than is expected of you and be nice to people.”
  4. I called everyone in Jeffrey Epstein’s little black book – This one is full of some great lines.  “This wasn’t some masterful hack into the global aristocracy. It’s what everyone does. It’s what the whole thing is. There is no scam here. It’s grifters grifting grifters all the way down.”
  5. Dear Dad, Please Don’t Vote For Donald Trump This Time – “You demanded better of me in the papers I turned in when I was in middle school.”
  6. Trump Kills Fiscal Stimulus Negotiations – “McConnell has had plenty of opportunity to make a deal, but hasn’t. I suspect that he just isn’t falling in line with Trump. It’s Trump that has to fall in line with McConnell, and McConnell really only wants one more thing from Trump, and that’s the Supreme Court seat.”
  7. The first rule of the game – “All players must agree to not cheat.”
  8. When the Republican Party Was Sane – “That same year, Eisenhower moved against the ultra-right-wing Senator Joseph McCarthy of Wisconsin, who was convinced that the federal government was riddled with actual communists—a precursor to today’s Republican obsession with the “deep state.””
  9. Why I Ride, and Putting Things in Perspective – “I’ll tell you why. It’s simple. Because I love the feeling of asking my body to perform, and having it respond.”
  10. How to Negotiate — Virtually – “For Americans and others from more individualized cultures, evidence suggests that seeing yourself during a video call tends to increase self-consciousness and self-criticism. Particularly if you already have these tendencies, you might want to turn off the self-view when video conferencing.”

Note: This is based on when I read the article, not necessarily when it was first published.  Unfortunately, my backlog of things I would like to read always seems to dwarf the amount of time I can devote to reading.

Why I Run

Reading Time: 2 minutes

I used to be a reasonably competitive distance runner.  Team titles, individual titles, all conference, academic all American, blah blah…  Like decent.  Not world class.  Not national champion.  But generally not somebody you wanted on your shoulder 1,000 meters out.  And running was a really big part of me and my identity.

Some days, those accomplishments seem like they were achieved by a different human. Despite only being ~15 pounds over my racing weight back in college.

Working out regularly and even structured training is still part of the mix.  Even after some time away post college.  I eventually came back to the training and competing.  Because I need it.  That is just who I am.  It is part of me.  Chicken or egg problem.

The bike (or bike trainer) has been a big part of that regime.  But still nothing beats running for me.  Despite the nagging and chronic pain and injuries that began plaguing me late in my college career. And continue still.

As I was recently attempting another come back from my injury (I will call it my injury because it’s been with me for decades), I began reflecting on why I run.  What am I trying to get out of it?

In my days competing, the goal was to be as fast as possible in the races that mattered.  Period.  Everything was focused on enhancing performance.  At the risk of actually not competing in those races, because you broke.  But the risk was worth it.  And necessary.  Everyone else was pretty much doing the same thing.

The motto I trained under was:  Take one day off; you know it.  Take two days off; your coach knows it.  Take three days off; everyone knows.  Each year, I could generally count days without a run on my fingers.  And, I found it easier to track weekly mileage on a plus, minus ten basis.  Just the deltas to ten.  Eight was minus 2; ten was zero; 12 was plus 2, etc.

Now it is different.  I run and train with different goal in mind.  I run today, so I can run tomorrow.  

And that impacts each run and the decision making around each run.  It may lead me to run slower (ok, maybe a lot slower) or shorter or stop at the first twinge of pain or even take days off (gasp).  

Maybe I am just getting old.  But thinking about running and training through this lens has helped.

Book Report: Good To Great

Reading Time: 2 minutes

“Level 5 leaders display a workmanlike diligence – more plow horse than show horse.” – Jim Collins

This is meant to be more of a book report, than a review.  In particular, I want to highlight three lessons from the book, Good to Great by Jim Collins, that I found impactful.  This also serves as a way for me to recall influential points in the book.

I went into this book with few expectations.  I picked up my copy at a second hand shop years ago just because it was a title and author I recognized.  Hardcover books are a weakness of mine. The book was written circa 2001, so some of the material is a tad dated.  Maybe one of the biggest criticisms is one of the “good to great” examples went out of business since then: Circuit City.  However, I still found the main messages mostly timeless.

However, three topics that did alter my perspective were:

  1. First Who…Then What.  

“We expected that good-to-great leaders would begin by setting a new vision and strategy.  We found instead that they first got the right people on the bus, the wrong people off the bus, and the right people in the right seats – and then they figured out where to drive it.”

I have generally hired for horsepower.  A students are generally A students in any setting.  I have worked in a couple businesses that are obsessively focused on only hiring A+ players.  While this message can be a touch self-serving, I will say having the right people on the team makes a huge difference, and having the wrong people is such a drag.  So, spending the time on hiring is extremely important.

  1. A Culture of Discipline. 

“When you have disciplined people, you don’t need hierarchy.  When you have disciplined thought, you don’t need bureaucracy.  When you have disciplined action, you don’t need excessive controls.  When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.”

This is something I wrestle with frequently but thought this was a helpful way of thinking about it.  I generally have found that good people armed with the right goals and information end up generating outsized accomplishments.  My motto has been – hire good people and mostly try not stay out of their way.  And, this seems to be a similar thought process.  Also, I have never seen dictatorial leadership styles as very scalable or robust.  Instead, they tend to generate fear, resentment, and an outsized focus on politics.

  1. Hedgehogs vs. Foxes. 

“The key is to understand what your organization can be the best in the world at, and equally important what it cannot be the best at – no what it “wants” to be the best at.  The Hedgehog Concept is not a goal, strategy, or intention; it is an understanding.”

“Strategy per se did not separate the good-to-great companies from the comparison companies.  Both sets had strategies, and there is no evidence that the good-to-great companies spend more time on strategic planning than the comparison companies.

“No matter how dramatic the end result, the good-to-great transformations never happened in one fell swoop.  There was no single defining action, no grand program, no one killer innovation, no solitary lucky break, no wrenching revolution.”

I thought this was illuminating as well and sort of dovetailed with the first point.  Do not go looking for some silver bullet strategy.  Figure out why you win, and just grind on it.  There are no short cuts.