When Did We Lose Our Moral Compass?

I would love to have feedback on the words I am about to write. Our country has never had totally pure motives when dealing with other countries or even our own citizens. However, I have always been able to rationalize our actions by telling myself, at least our “code of morality” is no worse than that of any other country, but I am starting to have serious doubts and it’s very troubling.

You are no doubt familiar with the drone attack, ordered by President Obama, to take out Anwar al-Awlaki in Yemen. Al-Awlaki was an American citizen who had moved to Yemen and was advocating terrorist attacks on the U.S. and U.S. citizens. Being a threat to America, his voice was silenced once and for all with the drone attack.

When this attack was reported in the news, the debate began over whether or not the President had the Constitutional authority to order the execution of a U.S. citizen without any “due process” as required by law. That debate continues but it is likely that nothing will come of it. I am not a lawyer and feel unqualified to question the legality of the President’s action against a self-described enemy of this country. But debating the legality of this attack is missing a bigger issue regarding what our government did in Yemen.

Al-Awlaki’s 16 year-old son, an American citizen, who had moved from Denver to Yemen to live with his cousins was targeted two weeks later and killed along with four of his relatives while having dinner 250 miles away. Why? Roger Gibbs, former White House Press Secretary, suggested the boy would not have been murdered if he had a more responsible father.

For me, this is not a “constitutional issue” but a “moral issue.” Evidently the President expressed regret about what happened to the son, but no one is being held accountable. You might think that as the world’s only super power we would have the opportunity to show not just our military might, but to also show moral leadership. Unfortunately we seem to be headed in the opposite direction.


Filed under Life, Politics

“Fire Drill”

It’s times like this that make being an investor, and an Investment Advisor, so much fun, especially for those who “stayed the course” when the “Chicken Littles” of the world were running for cover. The pain of 2008/2009 is a fading memory, if not already forgotten, but therein lies the seeds of a problem, a false sense of security going forward.

Those of you who remained disciplined and continued to invest in 2008 and 2009 are the real heros. You advisors earned your fees many times over and you investors have reaped a huge reward that makes your financial future a lot brighter. Those who did not, well, you paid the price and hopefully you have learned a valuable lesson.

In the past, when speaking with advisors, I would encourage them to periodically have a conversation with their clients about the unpredictability of the market. I always called it the “investors fire drill.” We all experienced fire drills at school as children and at work as adults. The purpose, of course, was to learn what to do in the event of a real fire. It wasn’t for an expected fire but was intended to teach us how to survive and avoid serious injury if, by chance, there was a fire.

The market provides lots of material for this conversation and a serious “walk down memory lane” can be very useful. Ask clients to recall their emotions when the market was headed down with no end in sight. Calculate the lost economic value they may have sufferred with no discipline. And prepare them for the “this time it’s different” feelings they will experience if the market does head south. Point out to younger investors the long term benefit of contuing to invest when equity prices are lower. Give them examples of the cost of sitting on the sidelines when prices decline.

This “talk” with investors should in no way be considered a forecast, just as a fire drill is not a forecast of a coming fire. But having this talk today is so much better than having it when the market is off 30%. And if we have another 2008/2009 market you can immediately refer back to the “talk” you had with your clients and how they were going to deal with all their negative emotions.

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General Mattis-“It’s Fun to Shoot People”

A buddy of mine recently sent me a link a to story regarding Marine General James Mattis who, during a speaking engagement back in 2005, claimed it was fun to shoot people and fun being shot at (and missed). I had never seen the story and my buddy was inquiring as to whether or not I had ever met this “bad ass” Marine during my time in the Corps. The answer was no. I served from 1967-1970 and General Mattis joined the Corps in 1972.

I don’t recall ever enjoying being shot at, watching my colleagues die or seeing them maimed for life. Though I felt no guilt about the killing of NVA soldiers, their death was not something to be celebrated.

The General’s comments made it seem as if combat is like a big bar brawl, calling himself a “brawler”. To me this sounded like the boast of a man who had never seen combat up close and personal. So I went to Wikipedia to review his career.

He joined the Corps too late to see combat in Vietnam and by the time of the Gulf War he was already a Senior Officer. And, as anyone who has ever served in the Marine Corps will tell you, senior officers rarely get shot at or actually kill anyone. It’s the field officers, (Captains and Lieutenants) and the enlisted men (from the Gunnery Sergeant on down) who do the actual fighting.

I will always be proud of my service as a Marine and the views of men like James Mattis are not representative of the brave Marines I served with in Vietnam. I wonder what his views would be if he had actually experienced lethal combat.

But thinking about his time of service, it occurred to me that those Marines who had served in Vietnam (and survived) were retired by now. It is doubtful that today’s senior officers in the Marine Corps, just by historical circumstance, have ever seen combat “up close and personal”.

This observation is in no way intended to question their leadership ability, intelligence or courage. I would like to believe, that unlike General Mattis, they understand that combat is not a game (and it is certainly not fun.) Instead it is a duty that requires sacrifice and courage in the service of our country.

The Marines with whom I served had more courage than most people could ever imagine and many of them made the ultimate sacrifice. In my opinion, General Mattis demonstrated nothing but disrespect for them, their wives, mothers and children, who had to greet a Marine at the door delivering the news about their sacrifice.


Filed under Home, Life

The Growing Wealth Gap

Income inequality and the gap between rich and poor are going to be “hot topics” as we move toward the mid-term elections in November and the discussion will become even more heated in 2016 when we elect our next president.  I believe these are serious issues and we need to find solutions.  Unfortunately, most of the proposed solutions we hear are geared to advance political careers with little thought given to the overall impact on our economy.

But before I speak about solutions I would like to point out what has caused a huge increase in the wealth gap over the past 5 years.  The rich, at their end of the spectrum, have investment capital.  The poor, at the other end, have very little if any investment capital.  With the Stock Market (as measured by the S&P 500) up over 125% during this period, it is obvious why the wealth gap grew dramatically.  However, during the prior 2 years the Market lost 50% of its value, and of course this narrowed the wealth gap.  (A market crash that narrows the wealth gap is not a solution to the problem.)

Capitalism will always favor those who have capital to invest, and unless we come up with a solution that encourages or even demands participation in the capitalist system, the wealth gap will only continue to grow.  I also believe that far too many politicians who claim to be advocates for the poor have an ulterior motive.  They benefit from having a constituency that is dependent on the government for their subsistence and that will always vote to keep them in office.

So how do we go about dramatically increasing participation in the capitalist system, with all the inherent benefits, currently enjoyed by those who have the means to participate?

Believe it or not, government can provide the answer.  Here’s how.  Every employer and employee (roughly 93% of the working age population) would be required to contribute to an investment account run by the government.  This capital would be invested in broadly based, low or no cost, passive index type market portfolios.  Employees would not have control over the investment decisions eliminating all the “emotional” mistakes that have severely damaged many retirement plans.

Wall Street would be against such a program because it would take away their ability to earn fees on what would be a very large pool of capital.  (But perhaps those on Wall Street, who believe they can “beat the market,” would be allowed to participate if they guaranteed that any underperformance would be made up out of their own capital.)   Something tells me there would be few, if any, money managers who would accept such a condition.

The amounts contributed, the allocation to equities relative to participant age etc. etc., would have to be determined but I believe that would not be very difficult.  Basically it would be a program that “enfranchises” most workers, allowing them to participate and benefit from our capitalist system.

A simple idea but it has to be a better way to go than simply redistributing income and/or wealth.

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Filed under Advisors, Home, Investments, Investors, Politics

“March Madness”

I love it, all basketball fans love it, and we will all be spending a lot more time on the sofa watching (or hanging out at our local “sports bar”).  College sports has become one of the “crown jewels” of the entertainment industry, creating incredible amounts of wealth for those with the power to direct that wealth into their own pockets.  I am certain the NCAA and the “Big Five” major conferences are having a great time counting their money, but they have to be looking over their collective shoulders at the increasing threats to the monopolistic and exploitive system generating all that wealth.

As a reader of this blog you know I have written about this scandal for the past couple of years.   Public awareness of the injustice of the system is growing rapidly and a “full court press” (no pun intended) on the NCAA and the major conferences is emerging.

In no particular order, here is a short list of current developments that will hopefully put an end to what can only be described as “disgraceful” and a real black eye for our American system of “higher education.”


  1. Northwestern University football players have filed with the National Labor Relations Board to organize as a union.
  2. Ed O’Bannon’s class action lawsuit against the NCAA for the profitable use of player images, without their permission, (and with no compensation being paid), will go to trial June 9.
  3. Pac 12 Commissioner, Larry Scott, came out against the “One and Done” rules stating that the amount of time a scholarship athlete must stay in college should be increased to return to the objective of actually offering an education to those playing the game.  But he also stated that young athletes should not be required to attend college.  They should be allowed to pursue a career in professional sports whether it is in the NBA, the NBA Development League, the NFL, MLB, overseas or anywhere else opportunities arise.  You know, the sort of options and freedom all the rest of us have.
  4. Four college athletes have filed suit against the NCAA and the Big Five conferences alleging that they have created a “cartel” which prevents players from negotiating with individual schools to get the best possible deal in exchange for playing ball.  The prices are all “fixed” and relative to the amount of money being made off the players, the compensation is miniscule, especially for star athletes who bring in the big bucks.

As the NCAA, as we know it today, slowly sinks, maybe the NCAA orchestra will be playing “Nearer, My God, to The” and Kevin Spacey will be cast as Jeffery Immelt in the mini-series, “House of Shame.”

One last note on the hypocrisy embedded in the NCAA rules.  If a player gets a free meal, he or she can be declared ineligible and the school punished.  But if a university, in order to make certain an athlete is eligible, gives athletes credit and a passing grade for fake classes, the NCAA does not consider that a problem.

Huh????  That’s right.  The University of North Carolina admits it was happening for several years but evidently that’s okay with the NCAA.


Filed under Life, Sports

CEO Primer

Question:  What do you do as a CEO when GAAP (generally accepted accounting principles) doesn’t give you the results you need to impress investors?

Answer:  Make up your own standards and report the results both ways.

Question:  What do you do, when you fail to make a profit over the past four years, to keep shareholders happy?

Answer:  Make promises about the profits to come in the future.  The true believers will hang in there until you can unload your shares at a price based on those promises rather than past results.

Question:  How do you support a high price for your stock when investors begin to question the reliability of your promised profitability?

Answer:  You create rumors about a potential takeover from a buyer with very deep pockets.  It reminds me of realtors always claiming there is another offer coming in.

Question:  How do you gain credibility with investors in our wealth and celebrity obsessed culture?

Answer:  Always make certain that the media puts the word “billionaire” before your name in every report about your company.

Question:  How do you learn to develop “celebrity” status in the business world?

Answer:  You watch the “Iron Man” movies and learn from Tony Stark.

I must admit having a little fun writing this but I am also having flashbacks to the late 90’s when we had a plethora of tech related companies trading at huge “multiples” (whoops can’t say that, because there was no P/E when there was no “E”).  I should say “trading at ludicrously high prices.”

The “bigger fool” theory of investing is back and I just want you to keep this in mind and stay diversified.

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Filed under Advisors, Investments, Investors, Life

“Confirmation Bias”

Back in January when I was (once again) on my “soap box” preaching the value of investment discipline, I shared with you a quote from Leo Tolstoy describing how human beings engage in destructive behavior, even in the face of overwhelming evidence that the behavior will be destructive.

Just this weekend I read an article explaining why human beings behave this way.  The article was not about investing but an analysis of why Health Secretary Kathleen Sebelius launched the website for Obama Care knowing full well it was not ready.

Psychologists call such blinkered thinking, “motivated reasoning.”  Human beings are primarily emotional, not rational, so we engage in “confirmation bias”:  We start off with what we want to be true, look for evidence that supports our hopes, and screen out that which does not.  There are an infinite number of high profile examples illustrating the disastrous effects of such reasoning.  The decision Bush made to invade Iraq.  John Kennedy Jr. knowingly flying a single engine aircraft into a foul storm etc., etc.

I have been stating for years that we all, investors and investment advisors alike, have an opinion (forecast) about where the market is headed.  And we listen to those “experts” who support our view of the future while ignoring those who disagree.  Acting on that forecast usually ends up being destructive to our financial health.  Recognizing this, (by looking at our past experiences), should be enough to convince us that emotions have no place in the investment decision process.

As an investor you need to get your emotions out of your investment strategy.  The emotions of fear and greed are very powerful enemies of the successful investor.  If you remain rational, you will see that the evidence supporting a disciplined investment strategy is overwhelming.  But I fear that most investors (and way too many advisors) still have a long way to go before they become rational.  If you can, (and that includes getting you ego out of the process) you will be successful, if not, you will be a “loser.”

If you are an advisor you have an enormous responsibility.  Keeping your clients disciplined is always the biggest challenge you will ever face.  But if you succeed, your value to them is “priceless.”


Filed under Advisors, Investments, Investors