Tag Archives: buying

Old friends, and an investing epiphany

Live long enough, and even the somewhat socially awkward will accumulate a network of old friends with decades of experience in various fields. This is great for getting answers. When I have a question about physical science, I can contact a professor of physical science. Question about U.S. military history? I’m fortunate enough to know someone who teaches it at the collegiate level. Want to understand how a given firearm works? I can choose from multiple enthusiasts, none of whom need any encouragement beyond a hint of interest. Need an antique valued? One of the best men at my wedding has been in the business for thirty years. Question about the workings of a suburban police department? How about the deputy commander of a well-respected suburban police force? Real estate? In addition to agents I’ve worked with in three states, I could also call a friend and past client who made his career in the field. My uncle is a civil engineer, one cousin a retired petroleum chemist, another cousin a speech therapist, and so on.

The question is not whether one can locate the expertise, but whether one may fairly impose upon the friend. I’m not unique in this, nor even above the curve. I have this only because I lived to my mid-fifties without spending it all in a shack somewhere out near Glenallen, Alaska. Everyone else my age, except those who live in shacks near Glenallen, has at least as great a network. Those who got out more than I did probably have far greater networks, but I’m very satisfied with my folks. I wouldn’t trade any of you.

For them, it follows, I’m the old friend who edits. When they begin to consider doing some writing, it is quite natural that they ask me about it. I’m glad, because gods know I’ve bugged all of them often enough about this or that. If it comes to an actual project I’ll charge something, but advice is always free to old friends. Truth told, I don’t mind a bit. It’s rather nice that people would think I could help them understand something.

One old friend of mine is named Randy, and with some admitted contact gaps, we’ve known each other since college. Randy retired as a stockbroker with one of the big brokerages, and while in most people that might not mean as much, I’ve always known him as a maverick immune to peer pressure where he knows he is right. That tends to be true of me as well, so I found it easy to believe that he had knowledge and instincts on behalf of his clients that the average full-commission broker might not have had. Put another way, there aren’t very many such brokers I’d have steered anyone toward, but Randy would be the one.

Not long ago, Randy and I had a long conversation about investing. We agree in substance, especially in matters such as that people should remain within their comfort/knowledge zones. I told him I no longer buy separate issue securities, because while it’s possible I could develop the knowledge to do well at it, I know that I will not, and thus shouldn’t fool myself. I received a precious pearl of approval, which I will have set into a suitable mounting in a place of honor.

Maybe it’ll distract everyone from all the little tombstones representing my dumber investing mistakes.

While schooling me, Randy crystallized a realization that explains so very much: winning vs. losing, and the arithmetic. The instinct and habit is to look at an investing choice as one decision, to get right or wrong. It isn’t. Most investing decisions are based on some stated goal, even one as nebulous as “make money.” There are two decisions to make, and for an investment to meet or exceed expectations, both decisions must be right. There is the decision to buy (when/what/how much), and the decision to sell (when/how much) or hold (some or all). That’s a thing to consider: not to sell is also a decision.

If you are wrong 50% of the time, you will probably like your results 25% of the time because that represents the percentage of the time you will do what in hindsight turned out to be the right thing both times. That means that two times out of four you will likely be disappointed, and once out of four, you’ll probably take a straight-on bath.

If you are right 60% of the time, you will get satisfactory results 36% of the time, same reason. You are taking a hosing. About half the time, you will get one decision or the other wrong, with disappointing results. You’ll go splat big time about one time in six.

If you are right 70% of the time, all other factors being equal, you should be happy 49% of the time. You are still losing, though not by much. Slightly less often, one decision or the other will be wrong enough to disappoint. About once in ten, the disappointment will be great.

You have to be right just over 70% of the time just to be pleased more often than not. If you can arrange to be right 75% of the time, you will get a favorable result about 57% of the time. Not many people are that good. I’m not even close.

In the meantime, of course, the overall market does whatever it does. Goals can vary, as can strategies. This is a rabbit hole of exceptions, and I have felt the need to oversimplify this (yes, I am aware I am doing so), but the key takeaway is that there are two opportunities, not one, to screw up a given investment. A mistake in either case will probably cause disappointment.

Thus: even then, even being right three-quarters of the time, you’re pretty happy just slightly more often than not. Enough to matter, of course; enough to be meritorious, and definitely enough to offer a shot at outperformance over time. Your good decisions should outweigh your bad ones. And I guess if you are confident enough to feel you will be right 75% of the time, you probably should carry that through.

The minority of people who can achieve that success is small indeed. I have learned that I am not one. Many of the rest are more or less playing the slots in a different format. Whenever I find myself tempted, nowadays, I remind myself how much I despise gambling, and ask myself whether those glitzy casinos were built with the money people won. I suppose it’s like a former smoker who, when tempted to lapse, looks at graphic images of cancerous lung tissue: if that helps, go ahead.

And how often does one get to make an analogy between casinos and cancerous tissue? You’re very welcome.

For the rest of us, it’s buy and hold index ETFs all the way. We will generally not outperform, but we will get the market return less (very bearable) expenses. Even Jason Kelly, a noteworthy author and manager who has an excellent track record with stocks, has shifted entirely to a mechanistic method involving index ETFs. I’ve been running it in two different portfolios now for a couple of years, and I think it stands a good chance of outperforming because it takes the emotion out of the decision. The only free choice one makes is when to add more cash to the plan. From there, the entire course of events can be handled with a pretty simple spreadsheet and two trades per quarter per portfolio. You can learn more from his book on the topic.

Jason’s writing is entertaining and straightforward. My favorite part is the way he begins by politely butchering out the pundits who bray frequent predictions for which they are never held to account. It’s hard to imagine they can even keep writing, much harder to imagine anyone still wasting time on them, after Jason hits them with the literary equivalent of a fire hose loaded with ice water. He calls them “z-vals,” as in “zero validity,” and when he’s done with them they look like Leroy Brown at the end of the famous song.

You want to hate the media? Don’t hate the ones who are trying to tell you what has happened around the country and world. Start with the mainstream financial media, because they have hate coming. They get to tell you what will happen, be wrong on a consistent basis, and never suffer. They don’t even lose readers. Were you able to confront one, he (most of them are men; for some reason, it appears harder to find intellectually dishonest women) would tell you that doing your own research was your problem, and not to blame him. “If you believed me, it’s not my fault you were that big an idiot.”

Even the salesiest full-commission broker at Merrill Lynch has more accountability than that.

As for me, if I have to be right three-quarters of the time in order to do well, maybe I’d better keep my decisions in the comfort zone.


A Craigslist salesbabble and rantbabble glossary

With the large amount of commerce and commentary that emanate from CL of late, some trends of vocabulary have arisen to accompany it. Some already existed, but some are morphing or being invented. Language is dangerous on the propaganda principle, in that when the word is repeated often enough, the human mind inclines to take it more at face value. Glance at a Red Robin menu sometime, for example, and count the uses of ‘zesty,’ ‘hearty’ and ‘tangy.’ None of those really mean anything, except that they’re trying to convince you the food is good. Yet the overall impression you take from the reading is one of energy and strong flavor, simply because of the words they repeated.

Therefore, someone has to step up and translate the CL salesbabble and rantbabble. This is the work of writers, who are supposed to contribute some of their understanding for the common good. Just plug in the real meaning for the term, and read the ad that way, and you are good to go.

!!!!!!!!!!!!!!!!!!!!!!!! or ***** or any other sprayed punctuation: “Mostly hype, move on”

Action figure: “Toy I outgrew.”

Affordable: “Desperate.”

ANYTHING IN ALL CAPS: “Uninteresting; this is my way of trying to get your attention”

As is: “Pretty sure it’s got problems.”

Athletic: “I walked last week from my car to the grocery store. And parked far away!”

BBW: “Really fat.”

Bizop: “Scam.”

Build your brand: “Marketing is all on you.”

Collectible: “No one collects this.”

Cute: “Someone’s wife once liked it.”

Detail ‘orientated’: “Can spell, unlike me.”

Distinctive: “In atrocious taste.”

Flexible hours: “At our beck and call.”

Forever home: “Hoping the crockpot won’t come into play.”

Franklin Mint: “Worthless.”

Full service: “I don’t return phone calls.”

Gorgeous: “Meh.”

‘Grammer natzi’s’: “Literate individuals.”

Great find: “Wasn’t such a great find for me, so I want it gone.”

Great view: “You can see some buildings and a farm.”

Highly collectible: “No one ever did collect this.”

Homebody: “Don’t really like doing anything.”

HP: “Highly Prone…to problems.”

HWP: “Somewhat fat.”

Inkjet: “Money sink.”

Landscaping: “You must pester me if you plan to get me to do actual work and accept your money.”

Limited edition: “Didn’t sell to begin with. Except to me.”

Make offer: “I know it’s worth very little. I hope someone will offer me too much.”

Management trainee: “Powerless toady abused by customers and manager alike.”

McAfee: “I bought a real virus scanner, so I want to dump this useless one on some sucker.”

MLM: “Much Lucre for Me.”

Must see: “Bores most people.”

Needs repair: “In ruins.”

No frame: “Wasn’t even worth framing.”

Nonprofit: “Pay sucks.”

Or best offer: “I’m desperate. Lowball me. I’ll guilt you, then I’ll take it.”

People-oriented: “Must deal well with assholes.”

Price is firm: “I know it’s not worth what I’m asking.”

Rare: “I have no idea how rare it is.”

Runs good: “Has other problems you will discover later.”

Rustic: “Plain.”

Section 8: “Get your concealed weapons permit first.”

Seafood processor: “Trawler slave.”

Shabby chic: “Old junk.”

Socially conscious: “Cheap.”

Spacious: “Will hold all your crap.”

Timeshare: “I can’t believe I fell for that.”

Vintage: “At least twenty years old (for electronics, five years).”

Works great: “Will probably work long enough for you not to sue me in small claims.”

Worth at least twice that: “Worth half that, if even that much.”

‘Your a moran/looser’: “I lack all sense of comic irony.”