Stock market drawdowns during retirement…..

A follower wrote in to suggest a stronger assertion of the value of dividend-focused investing for retirees concerned about drawing down their portfolio. He argues that for those investors, the sequence of their returns matters hugely, especially in a market not moving up steadily. (He was responding to my post about the difference between a harvested capital gain vs. a dividend payment.)  He writes: “The argument goes that there’s no difference between an income stream derived from selling stocks or one derived from amassing dividends. But that isn’t true. Selling stocks in a bad year means selling more stocks. Dividends …

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A dollar may be fungible; how it is generated is not.

The recent market sell off has provided investors an opportunity to reconsider a fundamental belief in modern finance and investment. And that is that investors are indifferent between the two forms of return, a harvested capital gain or a cash dividend payment. That notion underpins pretty much all of modern stock market investing, from the calculation of return, to the capital allocation of corporations, to the behavior of investors. In short, it’s a biggie. And in a rising market, it looks like a pretty good assumption, since most of the time the market is up, open and liquid. The belief …

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The Language of Career Transition 2/x

A continuation of a LinkedIn post on career transition: 2/x In retrospect, I liken my career transition mostly to learning a new language.  By language, I mean not high-school French, but language in the broader sense of a means of communication, an agreed-upon set of references, of metaphors and understandings. Music and mathematics are languages in that sense, and recognized as such. Computer coding languages are narrower but the same. Trained in history and having learned Russian, I was completely mute in regard to the language of business, finance, and investing. I don’t want to downplay the technical skills involved …

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Twitter Posts from February 7, 2022 to the present on the geo-political situation in SE Europe

One month in, got some right; got some wrong. Will continue to update, at east for a while. March 20, 2022 A forceful reminder of why, particularly now, we should be engaging Russian culture more, not less. Please read this. As Morson fans already know, Saul is incapable of dull or shallow thinking. https://quillette.com/2022/03/19/putins-russian-and-pushkins-russia/ March 20, 2022 Sadly, the death toll from WW I continues to rise, yes, the First World War. The decisions/treaties/boundaries (Sykes-Picot, Soviet “Union”, etc)/movements associated w/the “Great War” and the years immediately following (1918-1922) are still driving today’s geopolitical and military realities. The tragedies of WW …

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The NBN interview with the editors of The Life Cycle of Russian Things.

This collection of articles, edited by Matthew Romaniello, Alison Smith, and Tricia Starks, takes up the history of material culture over the past several centuries of Russian history. Widely diverse objects such as maps, textiles, building materials, cigarette cases,fish guts (yes…), samovars, samizdat, and even the T-34 tank are viewed in light of their role in Russian society. Hence the collection’s striking and unusual title: The Life Cycle of Russian Things: From Fish Guts to Faberge, 1600 to the Present (Bloomsbury Academic, 2022).   Tune in for my conversation with the authors: the NBN interview

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Episode 23: Paul Schmelzing on the long-term decline in rates

Financial historian Paul Schmelzing takes on many of the assumptions of 20th century financial economics–about risk-free rates, real rates, risk premia–and suggests that they fail the “out of sample” test.  How has he done that? By meticulously creating an 800 year data set that indicates more than six centuries of declining returns. In the process, he takes on Thomas Piketty’s claim that returns on financial assets have consistently exceeded broader economic growth, leading to ever greater economic inequality. Not so says Schmelzing. If you are thinking about asset allocation for the next decade or so when rates are supposed to return …

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Episode 22: Ed McQuarrie on the importance of 19th c data for your 2022 asset allocation.

Consider the shibboleths of our trade, deeply embedded in our risk models, our IPSs, our return expectations: stocks are better than bonds over time, stocks are risk assets, bonds are risk-control assets, a resulting equity risk premium, with real growth from equities.  What if it turns out that these are not exactly true? What if these conclusions are based on incomplete data? That would be a problem, wouldn’t it?  And what about the present time, what’s unusual about it compared to earlier investment periods? These answers and more when  Edward McQuarrie, retired business professor from Santa Clara University, joins me …

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A meditation on trust in finance. Yes, you read that correctly.

I have been wondering about the role of trust in modern finance. To judge by the academic literature and the dominant rules and formulas, it has no role whatsoever. I find that paradoxical, to say the least, because trust is inseparable from participating in modern society. Everyday we make judgments, including economic and financial ones, based primarily if not exclusively on trust, as opposed to a calculation of odds, risks and rewards, costs and benefits. Academics refer to these daily challenges as exercises in “decision making under conditions of uncertainty.” Modern finance tries (and has failed) to quantify that decision-making …

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Leading from the middle: The NBN interview with John Roy Price

History is told, it is said, by the victors. And so it is in regard to Richard Nixon. We all know how his presidency ended. What too few of us recall or bother to learn is how it started. In his new The Last Liberal Republican: An Insider’s Perspective on Nixon’s Surprising Social Policy (UP of Kansas, 2021), John Roy Price details how in Nixon’s first few years in office, the President ardently tried to lead from the middle to eradicate the widespread poverty that had so characterized his own upbringing. It is a view of Nixon and a big-tent, policy-driven Republican Party that …

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Episode 21: Getting perspective, with the brilliant & wide-ranging Will Goetzmann

How does an art historian, TV producer and art museum director end up teaching quantitative finance? I am joined by Will Goetzmann, the Beinecke Professor of Finance at Yale’s School of Management, to discuss the virtues of changing careers, being interdisciplinary, and following your curiosity.  He is one of the most interesting people you are likely to encounter.    

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Episode 20: The economics of education, with university president David Finegold

Ever wonder about the economics of higher education? Are the people in the classroom, “students” or “customers”? Who is accountable to whom?  Who is in charge? Chatham University President David Finegold joins me to view higher education through the lenses that we often use to examine businesses: value creation, accountability, and future trends. It makes for sober listening.

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If it sounds too good to be true….

If it sounds too good to be true, ….  Big takedown of the Private Equity industry by former PE manager  Jeff Hooke (now of JHU-Carey).  His new The Myth of Private Equity  (Columbia Business School Publishing, 2021) highlights the sky-high costs, poor returns, & very low visibility. And yet, the industry persists… Hooke’s expose is a latter day “Where are the Customers’ Yachts?” The New Books Network interview.

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Seeing the right Navalny.

Everyone has heard of Alexei Navalny, the leader of Russia’s opposition to Putin’s rule. But what do we really know of him? Navalny: Putin’s Nemesis, Russia’s Future? (Oxford, 2021) provides the first detailed political biography of Navalny.  Most importantly, Ben Noble, Morvan Lallouet, and Jan Matti Dollbaum turn the one-dimensional, cartoon-like image of Navalny in the West into a nuanced portrait, properly situated in the context of modern Russian politics.  The New Books Network interview is here.  

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Episode 19: Kristy Ironside, “The Full Value Ruble” & current debates on currency, inflation, & monetary policy.

Thinking about the dollar, crypto, fiat currency, MMT? Get some perspective on the purpose of currency, managing money supply, inflation, wage pressures and all the currently popular financial issues……from a review of how Soviet bureaucrats grappled with similar challenges in the 1950s. Yes, Soviet bureaucrats. Seem remote? Of course, on one obvious level it is. On many other levels, however, the challenges were quite similar. Professor Kristy Ironside from McGill University joins me on the show to discuss her just published Full Value Ruble: The Promise of Prosperity in the Postwar Soviet Union (Harvard University Press, 2021).

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How big is your platform? or “What color is your parachute?” 50 years later.

I recently got this very positive email mail through a professional social media platform: “:) .. your web site is treasure of great insights – I’m in my year two of my MBA journey and more and more I found myself checking historical and geopolitical “whereabouts” when reading the cases the profs. thrown on us .. I think it’s a/THE key  to fully understand what is happening “behind the scenes” of all/most they want us to do (evaluate equities or M&A deals, making recommendations, etc. etc. ) unfortunately it’s mostly omitted…” I was touched. The thing is, nobody goes to …

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Episode 18: Big user of index funds/ETFs? Better look under the hood.

The brilliant Adriana Robertson, professor of law and finance at the University of Toronto, joins me to discuss what’s really going on behind the scenes at “passive” ETFs and index funds. You might be surprised to learn that they are nowhere near as passive as you think.  Investing is about making decisions under conditions of uncertainty. Modern finance, including the mountain of marketing and academic literature behind index products, seems to offer a way around that fundamental human challenge. Not so. Hear why.

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It’s time to retire “Left” and “Right”.

George Orwell’s famous 1946 essay, “Politics and the English Language,” lamented how ideologues were wreaking havoc not only on their societies, but also on the language of politics itself.  He condemned the “staleness of imagery” and the “lack of precision” in the political writing of his day.  During the past 75 years, little has changed. The labels and personalities may be different, but the abuse on and by words is much the same. We can all agree that the United States has become politically polarized, especially so in the past half-dozen years. In better times, Yeat’s middle translated into a …

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NBN Interview with Jon Lukomnik on his Moving Beyond Modern Portfolio Theory

Jon Lukomnik thinks outside the box, specifically the Modern Portfolio Theory box. Rather than trying to pick up a few basis points here or there by operating within a flawed system, Lukomnik argues in favor of looking for factors which affect overall systemic risk and reward.  That is, he looks at what factors will influence the health and levels of the overall capital markets. This is an important work for all market participants. Listen to the NBN interview here.

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Episode 15: The Descent of Growth (with apologies to Charles Darwin)

Where did all the dividends go? In this episode, I explain how dividend-free growth investing became the norm in the US stock market. For dividend-focused investors, how we got to this state of affairs should be of some interest. And they make take some comfort in the realization that cashless investment is to a great extent a historical, and I would argue, a logical anomaly. For growth investors content with the current situation, knowing whence they came serves at least some utility, even if I do not believe that those conditions will persist.

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Episode #14: Jeff Brown the Grocer joins me to discuss how to operate in a very tough business.

Treat your investments like holdings in actual businesses is a common invocation on this podcast. To that end, today I talk to an entrepreneur on the front lines of business ownership. My high school classmate, Jeff Brown, is the owner of 12 grocery stores in Philadelphia. How does he survive in a brutally competitive low-margin environment? How did he respond to the additional challenges of Covid? How does he make being in food deserts work?   It turns out there is an answer, and it’s not on the University of Chicago MBA curriculum: community involvement. Listen to the very end. There …

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