We’ve constantly been sharing a list of our recent reads in our weekly emails for The Good Investors.
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But since our readership-audience for The Good Investors is wider than our subscriber base, we think sharing the reading list regularly on the blog itself can benefit even more people. The articles we share touch on a wide range of topics, including investing, business, and the world in general.
Here are the articles for the week ending 3 May 2020:
1. 68 Bits of Unsolicited Advice – Kevin Kelly
It’s my birthday. I’m 68. I feel like pulling up a rocking chair and dispensing advice to the young ‘uns. Here are 68 pithy bits of unsolicited advice which I offer as my birthday present to all of you…
…Gratitude will unlock all other virtues and is something you can get better at…
…The more you are interested in others, the more interesting they find you. To be interesting, be interested…
… Perhaps the most counter-intuitive truth of the universe is that the more you give to others, the more you’ll get. Understanding this is the beginning of wisdom…
…Hatred is a curse that does not affect the hated. It only poisons the hater. Release a grudge as if it was a poison…
…Anything real begins with the fiction of what could be. Imagination is therefore the most potent force in the universe, and a skill you can get better at. It’s the one skill in life that benefits from ignoring what everyone else knows….
… Over the long term, the future is decided by optimists. To be an optimist you don’t have to ignore all the many problems we create; you just have to imagine improving our capacity to solve problems.
2. The Simon Abundance Index 2020 – Gale L. Pooley and Marian L. Tupy
The time price denotes the amount of time that a person has to work in order to earn enough money to buy something. To calculate the time price, the nominal money price is divided by nominal hourly income. (We got the former from the World Bank and the International Monetary Fund, and the latter by combining the World Bank’s GDP figures with Conference Board’s estimate of annual hours worked.) The average time price of 50 commodities fell by 74.2 percent. That means that for the same length of time that a person needed to work to earn enough money to buy one unit in our basket of 50 commodities in 1980, he or she could buy 3.87 units in 2019. In other words, the average person saw his or her level of abundance rise by 287.4 percent. That amounts to a compound annual growth rate of 3.63 percent and implies a doubling of abundance every 19.45 years (see Figure 1)…
…Simon’s revolutionary insights with regard to the mutually beneficial interaction between population growth and availability of natural resources, which our research confirms, may be counterintuitive, but they are real. The world’s resources are finite in the same way that the number of piano keys is finite. The instrument has only 88 notes, but those can be played in an infinite variety of ways. The same applies to our planet. The Earth’s atoms may be fixed, but the possible combinations of those atoms are infinite. What matters, then, is not the physical limits of our planet, but human freedom to experiment and reimagine the use of resources that we have.
3. How I Helped to Make Fischer Black Wealthier – Jay R. Ritter
By December of 1983, Donald Keim, Jeremy Siegel, myself, and many other academics (and nonacademics) took long positions in the March Value Line 1984 futures, with a short position in the March 1984 S&P 500 futures (to hedge against market movements) in order to capitalize on the turn-of-the year effect. As usual, the Value Line index outperformed the S&P 500 in early January of 1984, and we made money…
… The rest of the summer, I lost lots of money on the March-December spread as it fell from +1.80 to -1.60, but made up most of it on the September-December spread. In December, I made lots of money when the basis on the March contract was bid up by speculators anticipating the turn-of-the-year effect. But for the year as a whole, 1986 was a bad year. I lost more in the futures market than I made from my academic salary. And I decided that maybe I wasn’t an informed trader after all, but instead was one of those traders who think that they are informed, when in reality they are providing the profits to the truly informed investors.
Years later, I found out who was on the other side of the trades in the summer of 1986. It was Goldman Sachs, with Fischer Black advising the traders, that took me to the cleaners as the market moved from one pricing regime to another.
In the first four years of the Value Line futures contract, the market priced the futures using the wrong formula. After the summer of 1986, the market priced the Value Line futures using the right formula. The September 1986 issue of the Journal of Finance published an article (Eytan and Harpaz, 1986) giving the correct formula for the pricing of the Value Line futures. In the transition from one pricing regime to the other, I was nearly wiped out.
[Ser Jing here: The author (Jay R. Ritter) and Jeremy Siegel are both finance professors. Siegel, in particular, is a high-profile finance professor and the author of prominent investment books, including Stocks For The Long Run.]
4. The excess burden of death from coronavirus COVID-19 is closer to a month than to a year – Michael Levitt
The Medium post by David Spiegelhalter from the Winton Center at Cambridge University is well written and reassuring ((see https://medium.com/wintoncentre/how-much-normal-risk-does-covid-represent-4539118e1196 and attached). It concludes that if infected with COVID-19, your risk of dying is the same as the risk of dying for the coming year from natural causes. This is true for all age groups. The article is fine except it is totally wrong. The correct conclusion is that “your risk of dying is the same as the risk for the coming MONTH from natural causes.
5. When You Have No Idea What Happens Next – Morgan Housel
Accepting that forecasts have little use doesn’t mean you become a blind fatalist. When you pay more attention to history than forecasts you pick up on the patterns that guide how people respond to unforeseen events, which – given how stable behavior is over time – is the next best thing to knowing what will happen next.
I don’t know when this recession will end, and I’m not interested in your forecast. But I am interested in the historical observation that progress happens too slowly for people to notice but setbacks happen too quickly to ignore, which causes most people to recognize when a recession ended only with considerable hindsight, which requires maintaining investing optimism even when the economy around you feels broken.
6. The Coffee Can Portfolio – Budget Babe
“The potential impact of this…was brought home to me drastically as the result of an experience with one woman client. Her husband, a lawyer, handled her financial affairs and was our primary contact. I had worked with the client for about 10 years, when her husband suddenly died. She inherited his estate and called us to say that she would be adding his securities to the portfolio under our management.
When we received the list of assets, I was amused to find that he had secretly been piggy-backing our recommendations for his wife’s portfolio. Then, when I looked at the total value of the estate, I was also shocked. The husband had applied a small twist of his own to our advice: He paid no attention whatsoever to the sale recommendations. He simply put about $5,000 in every purchase recommendation. Then he would toss the certificate in his safe-deposit box and forget it.
Needless to say, he had an odd-looking portfolio. He owned a number of small holdings with values of less than $2,000. He had several large holdings with values in excess of $100,000. There was one jumbo holding worth over $800,000 that exceeded the total value of his wife’s portfolio and came from a small commitment in a company called Haloid; this later turned out to be a zillion shares of Xerox.”
7. The U.S. Needs Way More Than a Bailout to Recover From Covid-19 – Barry Ritholtz
When the stock market crashed in 1929, the Federal Reserve was a young institution with limited authority. Reviving the economy was the job of the White House and Congress. Programs such as the Works Progress Administration, in which the federal government hired workers to build more than half a million miles of streets and 10,000 bridges, along with airports, dams, highways, and sanitation systems, helped alleviate mass unemployment. However, the lasting economic gains came not from temporary work programs, but rather from the Reconstruction Finance Corp., a public-private entity better known as the RFC…
… The RFC was an enormous economic multiplier. Start with the Depression-era breakdown of the banking system. That institutional collapse wasn’t caused by a lack of capital; larger national banks such as National City Bank and Bank of America had idle cash. But low potential returns, combined with post-traumatic stress lingering from the stock crash, made bankers so risk-averse they wouldn’t even lend to each other.
The RFC’s solution in 1934 was for private bank employees to work with its subsidiary, the Federal Housing Administration, to create insurance for pools of mortgages. This led to a resurgence of financing for home purchases. Another RFC subsidiary, the Rural Electrification Administration, worked with farm cooperatives and banks to issue low-interest 20-year loans to run thousands of miles of electrical wires to rural farms and ranches—something the private sector had said would be too expensive.
During the years before World War II, the RFC created the Defense Plant Corp., offering loans and tax benefits for the manufacture of tanks, planes, and other weapons used by the Allies to fight the Nazis. The DPC helped add 50% to the country’s manufacturing capacity by the war’s end, according to Hyman. In 1940 it was responsible for 25% of the nation’s entire gross domestic product. Hyman noted that it remade the U.S. aerospace and electronics industries, turning them into some of the largest sectors in the economy.
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