Whatever happened to privacy? During the initial days of the internet, anonymity was all the rage. A favorite cartoon pictured two Basset Hounds typing away on their PCs. The caption read, “On the internet, no one knows you’re a dog.” How quaint those days seem. Today reputations get destroyed by “private” online chats. Now the internet is helping retailers market to us. Our banks know our real spending patterns: where and when we buy our morning Joe; where we shop for clothes; what we [...]

Poe wrote the original Pit and Pendulum. And it has lessons for investors today. Poe set his story during the Spanish Inquisition. The narrator doesn’t explain why he’s there. He is sentenced to death and undergoes elaborate tortures. At the moment he falls into the dreaded pit he is pulled to safety by French invaders who have just taken the city. It is a study of the effect of fear. The narrator communicates his fear quite well, for all the fact that we already [...]

Tim Geithner spoke at Dartmouth over the weekend. What did we learn? For one thing, we learned that he is pretty sanguine about the debt-ceiling negotiations. “You’re going to see political theater,” he noted. “There will be six episodes of failure before people do the right thing.” Considering that a default on the debt would be a disaster, that’s good to here. He noted that no responsible person believes that the US can default its way back to fiscal stability, and that Congressional leaders [...]

You can’t make this stuff up. Yesterday I discussed how institutional investors are being forced to take risks they’d rather not take because of the ultra-low interest rate environment we’re in. It’s no news that pension funds are under a lot of pressure to achieve significant returns over the next 10 years. The financial meltdown did a lot of damage. Now those funds need to make up their losses. The problem is, global growth has downshifted. Instead of 3% real GDP growth in the [...]

What’s the key to investment success? Many people have pointed to many different things. Some say it’s diversification, which reduces risk. Some say it’s having a long-term perspective, which enables you to be patient through the ups and downs of the market. Still others point to flexibility, or organization, or having appropriate expectations. These are all part of the total picture. But the one factor that really stands out—if I can summarize it in one word—is “cheapness.” Buying a security at a low price [...]

If you cut it, they will come. That seems to be the mantra of both parties in Washington these days. Like the mystical voice that whispered to Kevin Costner in the movie “Field of Dreams,” they seem to think that if they cut the budget deficit by trillions, the resulting savings will sprinkle confidence pixie dust on the economy. Corporations will start spending, and a thousand flowers will bloom. It’s a nice story, but it runs into a few problems. Corporations are already spending. [...]

In the history of Western Civilization, five cities stand out: Jerusalem, Athens, Rome, London, and Philadelphia. Those five cities are proxies for the ideals of law, democracy, stability, commerce, and constitutional democracy. These ideals have become dominant around the world, and form the foundation of our current economic structure. Today, five cities are still critical to global growth. They are: Beijing, Jerusalem, Athens, Frankfurt, and Washington. Beijing stands for the hopes of more than a 1/6th of the world’s population; Jerusalem is the key [...]

That’s what some people think. Because the housing market boomed and then busted, they claim that market efficiency has been disproven. “Economists believe that the market perfectly discounts future cash flows. How was the housing market perfect?” But efficient markets aren’t perfect; they’re just hard to beat. Careful practitioners know this. They know that the market can get it wrong. But they don’t think that the alternative to “the market got it wrong” is “the government can put it right.” If investors are occasionally [...]

Investments are based on numbers. But can we trust the numbers? Ten years ago the investment world was rocked by the Enron scandal, when one of the largest companies in America turned out to be based on an elaborate accounting fraud. A few months later the failure of Worldcom and Adelphia raised serious questions as to whether any accounting could be trusted. Congress’s response was the Sarbanes-Oxley Act of 2002. The Act did many things, but one thing it did not do was mandate [...]

Is the current economic slowdown temporary? Recently the data has been mixed. Only 54 thousand payroll jobs were added in May, auto sales slowed, manufacturing growth slowed, housing prices are declining again, and retail sales declined for the first time in 10 months. One economist raised the probability of a “double dip” recession to 20%. To be sure, much of the recent weakness is related to the tragic events in Japan that started with the earthquake and tsunami on March 11th. Manufacturing supply chains [...]