History matters, no less so for your retirement account. Are we in a normal investing environment or is something “not quite right”? The asset bubble doctors are in and will see you now. Join me for a conversation with Will Quinn, co-author along with John Turner, of the new and highly acclaimed, Boom & Bust: A Global History of Financial Bubbles (2020). The NBN podcast can be accessed here.
Uninvestable, due to government overreach…
I was alarmed yesterday to see a sitting US senator assume that the Fed Chairman would naturally prohibit banks from paying dividends (or buybacks) under the new administration. The Fed Chair wisely deflected the question and the assertion behind it. For folks unaware of how the stock market works, and specifically bank accounting, let me say that that was a “doozy” moment. Yes, it is true that the vast majority of quantitative easing and Federal Reserve activity over the past 13 years (since the GFC) has gone into the financial markets rather than the real economy. That is not because …
Do books and articles about financial bubbles mean we are in a bubble?
I’m reading an excellent new academic account of bubbles in the financial markets by two Irish academics, William Quinn and John Turner, Boom and Bust. Their taxonomy of bubbles involves formally identifying them after the fact, though they believe their explanatory model would help forecast as them as well. Still it raises the question, which we all felt in 1999 and some of us feel in 2021, how one identifies a bubble whilst you are in the midst of it. While I was pondering that notion, the latest from the WSJ‘s Streetwise columnist, James Mackintosh, hit my device, “If it …
Episode #8: A conversation with Ron “Everyman”–questions you should ask yourself about retirement planning.
Before you sit down with your retirement planner, or begin doing your own planning, you should ask yourself several critical questions: about how you define risk and return, how much of the decision making you want to do yourself versus having third parties do it on your behalf, among other choices that have to be made. I go through this exercise with Ron “Everyman,” an attorney in his late 50s thinking about how to plan for retirement.
Nav@1ny is a master of modern media, but does it matter?
February 2, 2021 update: It’s not the crime, but the cover up… That’s what they said about Richard Nixon’s downfall. Other similar episodes abound. Given events in Russia over the past two weeks, one might assert a new corollary: It’s not the corruption, but the crackdown. A new allegation of corruption, even one on an unprecedented scale, was unlikely to move Russia. But the government’s excessive response and its treatment of the man behind the video has led to a popular reaction that the video itself did not. When is a show of government force actually a sign of great …
It’s time for a new Centrist party in the spirit and practice of classical liberalism.
The good news is that the Grifter has left the White House. His closest aides and high-profile abettors are scurrying away to avoid the infamy that they so richly deserve. The newly installed President is clearly a moderate fellow, empathetic and conciliatory. And, ironically, he is so old that he can have no other agenda than to fix the current situation. His Vice President is the embodiment of the American dream. While the country remains in severe national security peril during this period of transition, one of the worst political crises in our nation’s history appears to be behind us. …
Episode #7: A conversation with Douglas Skinner on the sixty-year academic debate about dividends.
Douglas Skinner (along with his collaborators, Linda & Harry DeAngelo) is the author of an important framework for understanding why companies pay dividends and investors would seek them out. That stands in stark contrast to the dominant narrative on Wall Street and some of Main Street that is, to a substantial degree, dismissive of the distribution of free cashflow to company owners. Douglas Skinner is Deputy Dean for Faculty and the Eric J. Gleacher Distinguished Service Professor of Accounting at the University of Chicago Booth School of Business. You can find his work here.
Price discovery, Soviet Russia, and artistry
The elevator pitch to a book editor and movie producer that never happened: “the early 1960s Soviet experiment of loosening price controls would make for a great work of historical fiction and a high-end movie drama.” No one in their right mind, right? And yet, it did. Francis Spufford’s Red Plenty came out in 2010. It is simply the best Western work of historical fiction about the post-war Soviet period. Spufford is not a trained Soviet specialist, but every professional historian of the Soviet Union secretly (and not so secretly) wants to have written that book. I know of what …
How different are financial and political “bubbles”? And what ends them?
Depending on your perspective on certain “excited” areas of the market and “extremes” in the political spectrum, we are currently engaged in a real-time exercise regarding what catalysts bring an end to these phenomena. Are the catalysts to end those historical moments different? By day, I have to think about the former; by night, I ponder the latter. And we know the role that social media plays in both of these realms. It’s worth recalling that for one of the past extreme moments, the reign of terror led by Joseph McCarthy, the social media of the day played a key …
Tulips & T$sl@s. Two charts. Just saying….
Defining risk in a high dividend-paying portfolio. It’s not what most people think.
As the manager of a high dividend-paying portfolio, I necessarily take dividend risk. The yields in the portfolio are, as you might expect, much higher than the market’s miserly 1.6%. Individual securities in the portfolio have had, can have, and will have yields that can be in the high single digit range, and even sometimes low double-digit range. Very high yields in a low yielding market is admittedly a sign of dividend risk, but not an assurance of it. And that’s what the goal of the enterprise is: to take an appropriate amount of dividend risk in order to maximize …
At the intersection of the Random Book Project & lockdown: War & Peace.
#6: Leo Tolstoy, War & Peace, in two volumes. (Leningrad: Lenizdat, 1984, originally published in 1865). Marked 3 rubles, 70 kopeeks, but with a Beriozka sticker indicating 5.55. Exchange rate at the time was $1.26 per 1.00 ruble so the set cost $7.00 How did I get it? Bought it when I spent a semester in Moscow my junior year in 1984. Others went to London or Florence. For reasons that still elude me, I went to the Soviet Union. Who does that? Why? While the book is timeless, my copy of it is not. The mass produced, acid-paper Soviet …
Putting S&P 500 Index “dividend growth” in context….
For those of you keeping score, the S&P 500 Index managed to eke out in 2020 a small increase in the index dividend, 0.07%, over 2019. $58.24 went to $58.28. That’s pretty impressive given the economic circumstances and the reality that dividend-focused products had a tough time in 2020 actually collecting their dividends. The economic downturn affected the Old-Economy dividend payers more than the New-Economy work-from-home companies. So bully for the S&P 500 Index. But it is important to put that achievement in context. Growing the dividend off such a low base isn’t really much of an achevement. The S&P …
The dividend chorus is getting louder. Will it make a difference?
Blackrock is jumping on the dividend bandwagon. According to a recent Bloomberg article, Blackrock is calling for strong dividend payers to benefit in 2021 from the paucity of income generated in the bond market. Their argument is more in regard to fixed income securities than it is versus other equities, but they are still highlighting the attractiveness of higher-dividend paying equities in a yield-starved market. Blackrock joins a lengthening list of market participants and commentators making the same call. Will it make a difference? Interest rates have been low and declining for years without a major rotation into dividend stocks …
“Dividends will have their day again,” says the WSJ. So will business investors.
Happy to have this Dividends will have their day again call out from the Wall Street Journal, but it is worth filling out the story a bit. Distributable profits are the most natural, logical way of generating return for minority shareholders in an on-going, for-profit enterprise. If that enterprise happens to be publicly traded they are called dividends. It is a form of business ownership. Successful businesses that do not distribute their excess cashflow to company owners can be owned as stocks, and stocks only. Their only cash return comes from going into the market place and selling a stake–hopefully at a …
Floating above history….
Nearly forty years after encountering The Education of Henry Adams in a college classroom, I was recently treated to a summary as to why the work was and remains so fascinating. Dan Chiasson’s New Yorker review reminds readers of how Adams floated over history as much as he lived in it and wrote about it. Adam’s wonder at the new technology at the turn of the 20th century is as fresh today as when it was written over a century ago.
NBN Interview with Paul Donovan: Profit & Prejudice
Prejudice is bad for business. That’s the long and short of it. Paul Donovan amply documents this in his recent work of Shiller narrative economics, Profit and Prejudice: The Luddites of the Fourth Industrial Revolution (Routledge, 2020). With that out in the open, shouldn’t prejudice in business cease? Well, that’s a tall order. Not every business person is a profit maximizing Fisherian with an MBA from the University of Chicago. Pointing out to prejudiced business people that they are leaving money on the table is, on its own, unlikely to put an end to their discriminatory practices. Culture matters, as …
Markets are everywhere, even where they are strictly forbidden….
Markets are everywhere, including where they strictly forbidden. This excellent research by Jim Heinzen on the Soviet second economy just came out in Slavic Review. The full article is behind a paywall but should be accessible via universities and libraries. Link is here. Below is the abstract from the Slavic Review site. Soviet Entrepreneurs in the Late Socialist Shadow Economy: The Case of the Kyrgyz Affair James Heinzen Supported by new archival material, this article delves deeply into one landmark criminal case to explore key aspects of the social, economic, and cultural history of illegal production and markets in the …
December’s real-time test of market efficiency.
We have this month both a test of and an immediate HBS case study in market efficiency. A highly innovative electronic vehicle company is about to enter the major market index. Is that a problem for the many investors in the index funds and ETFs based on the S&P 500 Index, or are things as they should be in an efficient market? Market efficiency is presumed to be greatest in large-cap, liquid, well-researched companies. The EV company clears all three thresholds easily, with a market cap of over a half trillion (!) dollars, plenty of trading volume, and 36 separate …
What if we counted differently……
Saijel Kishan’s recent Bloomberg article, provocatively titled, How Wrong was Milton Friedman is intriguing on many levels. It summarizes the work of George Serafeim, an HBS professor who wants to change how we measure company success and failure. Specifically, he wants to reward and punish companies on the income statement based on ESG impacts. That is, he proposes to put a dollar value on diversity or lack thereof, on polluting or not, etc. And then have those companies report profit and loss after consideration of their social impact. It’s an ambitious plan, and some would say just a natural extension …
Dividend tax rates….
A collar tug, indeed, but dividend investors have survived a wide variety of tax climates. Main issue is not the rate increase itself, but the differential between div and cap gains rates. Better when they are similar…. harder when they are not. Wall Street Journal opinion piece: The Dividend Tax Canary – WSJ
NBN Interview with Vadim Shneyder: Russia’s Capitalist Realism
Vadim Shneyder’s new book, Russia’s Capitalist Realism: Tolstoy, Dostoevsky, and Chekhov (Northwestern, 2020) examines how the literary tradition that produced the great works of Leo Tolstoy, Fyodor Dostoevsky, and Anton Chekhov responded to the dangers and possibilities posed by Russia’s industrial revolution. During Russia’s first tumultuous transition to capitalism, social problems became issues of literary form for writers trying to make sense of economic change. The new environments created by industry, such as giant factories and mills, demanded some kind of response from writers but defied all existing forms of language. Prepare yourself for an innovative perspective on Anna Karenina, The Idiot and other 19th-century …
At the intersection of the Random Book Project and our current predicament.
#5: Guido de Ruggiero, The History of European Liberalism (Boston: Beacon Press, 1961, reprint of OUP original from 1927). No price. How did I get it: Been carrying it around with me since graduate school. Why: Rereading this classic account of “the experiment” in classical liberalism, to remind me how we got here, and how easy it is/would be to foul it up, and end “the experiment.” De Ruggiero’s work was published as a rebuff to the fascism which had taken over Italy at the time. Relevant conclusion: classical liberalism cannot be assumed. It has to be worked at by each …
GM’s Alfred Sloane on dividends (1935).
Alfred Sloane was the legendary, long-time leader of General Motors. In 1935, he shared his views on GM’s dividend policy in the New York Times. The point is that the company that dominated an industry for over a half century felt completely comfortable paying robust dividends while investing in its business. Any answer from the Fab 15? (Google, Amazon, FB, etc) Pdf of the column in the attachment, courtesy of the NYT. Sloan 1935
The “non-cash” charge and the business investor.
An investment philosophy that considers stock market investing as simply another form of business investment will necessarily focus on the basics of business investing, such as cashflows. That is often at ends with how the stock market works. Case in point is the infamous “non-cash” charge…… Wall Street brokerages and too many investors are delighted to ignore non-cash charges because, well, they are non-cash. It’s worth reminding investors what every business owner knows: that those non-cash impairments more often than not started out as cash outflows, usually for acquisitions. A non-cash impairment of goodwill or asset write down is the …
NBN Interview with Jonathan Schneer: The Lockhart Plot
History in the making can be messy. As a tale told years later by historians, it is usually a clean narrative, with a beginning, a middle, and a mostly logical and foreordained end. Much of that messiness gets lost. Not in Jonathan Schneer’s new book, The Lockhart Plot: Love Betrayal, Assassination and Counter-Revolution in Lenin’s Russia (Oxford UP, 2020). Schneer’s recounts the story of a young British diplomat, Bruce Lockhart, sent to Soviet Russia soon after the October Revolution in 1917. Initially seeking some sort of accommodation with the Bolsheviks, Lockhart ends up plotting to overthrow the regime. The plot–set for …
NBN Interview with JC de Swaan: Seeking Virtue in Finance
JC de Swaan does not shy from a challenge. In his new book, Seeking Virtue in Finance: Contributing to Society in a Conflicted Industry (Cambridge University Press, 2020), de Swaan, argues that it is possible to work in finance and not fall prey to the worst ethical ills of a profit maximizing industry. A lecturer at Princeton and partner in at Wall Street hedge fund, de Swaan spent years chronicling examples of virtuous behavior in finance. He distills his research into four “pillars” of ethical behavior for financial professionals. They include 1. Customers first, 2. Social wealth creation 3. Humanistic leadership and 4. Engaged …
Are vanishing dividends a good idea? Hardly.
Exercising business ownership through the stock market is hard enough. The pressure to be a stock speculator is overwhelming. And it just got a little harder. A Bloomberg Opinion column from October 20, entitled, “Those Vanishing Stock Dividends Should Stay That Way,” took up the case of a junk rated (BB), highly cyclical mining company that cancelled its miniscule dividend in March of this year. The piece trumpeted that the stock’s share price rallied sharply off the bottom of the market that month. The author wrote that “shareholders appeared to send the message that they would prefer [the company] put …
A thoughtful dissent from the ruling investing orthodoxy…..
Aswath Damodaran’s recent Musing on Markets blogpost (from Sept 21) offers a thoughtful dissent from the ruling orthodoxy on ESG investing. He highlights how the current “hype” (his word) leaves critical analytical questions “unanswered or answered sloppily.” For example, he asks, “Do companies perform better because they are socially conscious (good) companies, or do companies that are doing well find it easier to do good?” If the latter, “researchers will find that ESG and performance move together, but it is not ESG that is causing good performance, but good performance which is allowing companies to be socially good.” He points …
Episode #5: Truth vs. Clarity in Investing
This episode of Keep Calm and Carry On Investing focuses on achieving Polonius’s advice in Hamlet: “to thine own self be true.” In regard to investing, that turns out to be harder than one might imagine.