Last week I tweeted:  Professional investors would be sad if retail left the mkt. Lucy would feel the same if Charlie Brown gave up trying to kick the football.

Now, I don’t like being cynical, but there is smart money and dumb money.  Some of the smart money is retail.  My mother and my late Father-in-law would qualify as “smart money.”  Most retail investors do not qualify as smart money.

Alice Schroeder spoke to the Baltimore CFA Society last week, on 11/7, and talked about Warren Buffett and his thought processes on investing, and the degree of focus he brings to his work.

No, average people can’t do what Buffett does.  99.9%+ of people can’t do what Buffett does.  Buffett leads the league in terms of the number of dollars of excess return he has created.

Most retail investors would be better off outsourcing to an investment advisor running separately managed accounts, which is more tax-efficient than mutual funds, and letting them brave the vicissitudes of the markets.

It is not that the investment advisor will beat the averages, but if he has a long enough time horizon and does not give in to panic and greed as most retail investors do, he will provide value to his clients.  He protects them from human nature.

That said, many investment advisors are subject to the same pressures, because they fear the reactions of their clients, if they underperform.

You might argue, “But I can buy index funds, lower my expenses, and live with modest underperformance, rather than greater underperformance on average from active managers.”  If you can do that, and control your emotions, good.  Most can’t.  They sell in a panic at the bottom, and allocate more near the top.  People can argue over rebalancing, but it does help people make better investment decisions, on average.

Though I am not fully happy with my performance for my clients, I have not changed my methods that worked so well for me in the past.  My methods that have worked well will work well again.

What I can say is that toward the end of a fiscal year, I sell one significant loser.  My clients gain the tax benefit of a long-term capital loss.  I may buy it back after the wash sale rules expire.  If I buy it back, it will be after significant study.  I don’t fall in love with stocks, though I usually hold them for three years on average.

As it is, whatever my clients get, I get.  I am the the single largest investor in my ideas, and clients get a clone of my portfolios, whether stocks or bonds.

Those who invest with me get my slowness to act.  My portfolio turnover is around 30%/year, versus 120% for most mutual funds.  Most investment decisions take time to work out, and retail investors leave before the workout occurs, and after disappointment.

I am not asking you to invest with me.  I am encouraging you to think more long term with your investments, and also consider how you can incorporate a margin of safety in your investing.

Aim for “pretty good” investing, and you might succeed.  Aim for “best” investing, and you will likely fail.  That’s the way of the market, on average.

And if I were Charlie Brown (who reminds me of my father) I would say to Lucy, “Okay, hold it there!”  And then, I would walk home, hug Snoopy and Sally, and get a good night’s rest in bed, and let Lucy suffer from holding the ball.

Cato Institute Monetary Policy Conference


  • @ToddSullivan Good conference, videos will b posted here: & Plosser’s talk will b here: #CMC30 $$ Nov 16, 2012
  • Plosser: “Such an exit depends on the Fed’s ability to be systematic and transparent about its policy decisions.” $$ #CMC30 Nov 15, 2012
  • Plosser: ” Avoiding these risks is dependent on the Fed executing a graceful exit from this period of extraordinary accommodation” #CMC30 $$ Nov 15, 2012
  • Plosser: “The fourth principle is to strive to ensure central bank independence.” $$ #CMC30 Nov 15, 2012
  • Plosser: “The third principle is to be clear and transparent in communicating to the public the policy actions that are taken.” #CMC30 $$ Nov 15, 2012
  • Plosser: ” One way to do this is for the central bank to articulate a reaction function or rule that will guide policy decisions.” #CMC30 $$ Nov 15, 2012
  • Plosser: “…by describing how they will conduct policy in a way that is consistent with those goals. ” $$ #CMC30 Nov 15, 2012
  • Plosser: “The second principle is for policymakers to make a credible commitment to their goals…” #CMC30 $$ Nov 15, 2012
  • Plosser: “And in so doing, policymakers must acknowledge what policy can and cannot achieve.” $$ #CMC30 Nov 15, 2012
  • Plosser: “The first principle is to be clear and explicit about the goals and objectives of policy.” #CMC30 $$ Nov 15, 2012
  • Plosser: “I believe sound and effective central banking should focus on 4 guiding principles.” $$ #CMC30 Nov 15, 2012
  • Plosser: “Moreover, it is unlikely that regulatory reform as embodied in Dodd-Frank has substantially addressed the TBTF problem.” #CMC30 $$ Nov 15, 2012
  • Plosser: “The ability of monetary policy to influence employment has long been recognized as tenuous at best.” $$ #CMC30 Nov 15, 2012
  • Plosser: “It is very hard to quantify the risks associated with our unconventional policies. But they are real.” $$ #CMC30 Nov 15, 2012
  • Plosser: Blurring the boundaries between monetary & fiscal policies can pose institutional risks 4the central bank & its independence #CMC30 Nov 15, 2012
  • Plosser: “Moreover, it is difficult to identify the appropriate moment to begin tightening policy, even in the best of times.” #CMC30 $$ Nov 15, 2012
  • Plosser: “Yet, history tells us that central banks tend to find it easier to lower interest rates than to raise them.” #CMC30 $$ Nov 15, 2012
  • RT @PhilFedComDev: Read Plosser’s speech: “Good Intentions in the Short Term with Risky Consequences for the Long Term.” #CMC30 http://t … Nov 15, 2012
  • Chen: “Rise of the individual in China.” McDonald’s in China originated “I’m loving it.” #CMC30 $$ Nov 15, 2012
  • Huang: Being a reserve currency lowers trading costs, lends prestige. Serves as a “Trojan Horse” for reform in China. Seiniorage. #CMC30 $$ Nov 15, 2012
  • Huang: 400 years ago, China was a reserve currency with 30% share of Gross World Product. $$ #CMC30 Nov 15, 2012
  • Schwartz: Monetary must be rules-based because we don’t really understand what monetary policy does in the intermediate-term #CMC30 $$ Nov 15, 2012
  • Schwartz: Debt Intolerance: Debt> 90% GDP in developed countries. 60% in emerging markets. Spain at 90%+ in 2013. #CMC30 $$ Nov 15, 2012
  • Schwartz: Quasi-gold standard — ECB was supposed to be independent. No exploiting money illusion. No devaluation. No excessive debt. #CMC30 Nov 15, 2012
  • Wolfgang Münchau: Fundamental problem of Eurozone: No bailout, no default, no exit (inconsistent). #CMC30 $$ Nov 15, 2012
  • Stark: Crisis policies not well thought out, ad hoc, reactive, leaves too much to the ECB to do, too little done by govts #CMC30 $$ Nov 15, 2012
  • Stark: Countries did not get the practical impacts of sharing a currency. $$ #CMC30 Nov 15, 2012
  • Stark: Some countries were allowed to join the Euro who really were not qualified. Rules were not upheld. #CMC30 $$ Nov 15, 2012
  • Stark: ECB will ride to the rescue of European Governments. This is not a sustainable policy. Adjustments need to take place. #CMC30 $$ Nov 15, 2012
  • O’Grady: Opens by saying that the Euro was started with good intentions. (DM: low praise that it was not designed to fail.) #CMC30 $$ Nov 15, 2012
  • Taylor: Dual mandate came in when monetary policy was way too loose, and inflation high. Leads 2 2 much discretion in monetary policy #CMC30 Nov 15, 2012
  • Taylor: Argues that the policy of promising to hold Fed funds low to 2015 inconsistent with where the Taylor rule would indicate #CMC30 $$ Nov 15, 2012
  • Taylor: Argues that Fed funds were too low for too long 2003-2004, and that regulatory rules were not enforced. Partially blames GSEs #CMC30 Nov 15, 2012
  • Taylor: Last 30 years — 1982-2002 good monetary policy, in his opinion. 2002-2012 bad monetary policy. $$ #CMC30 Nov 15, 2012
  • Warsh: Fed is a price-maker, not a price-taker, affects risk-free rate, & it affects the pricing of all assets, distorting investment #CMC30 Nov 15, 2012
  • Malpass: Capital allocation is getting warped by the Fed, leading to higher prices for gold and corporate bonds, mortgage bonds, etc. #CMC30 Nov 15, 2012
  • Malpass: Fed is sucking duration out of the fixed income markets more rapidly than the Treasury is issuing. $$ #CMC30 Nov 15, 2012
  • Malpass: The Fed is a giant, heavily leveraged SIV, borrowing short and lending long, w/only $55B of equity capital. #CMC30 $$ Nov 15, 2012
  • O’Driscoll: Failure to forecast the Great Recession lessens the legitimacy of the Fed to engage in discretionary policy. #CMC30 $$ Nov 15, 2012
  • Warsh: Price stability should b the main mandate. Maximizing sustainable employment is important, but outside the remit of the Fed #CMC30 $$ Nov 15, 2012
  • Warsh: Communications matter, but they are not everything. What the Fed does is more important than what the Fed says. #CMC30 $$ Nov 15, 2012
  • Warsh: Argues that 2008 was a panic and Fed actions were justified. Today, that’s not so, where monetary policy is weak. #CMC30 $$ Nov 15, 2012
  • Warsh: Diminishing returns to monetary policy. Monetary policy can be really strong at some moments, and very weak in others. #CMC30 $$ Nov 15, 2012
  • Poole: Current economic problems are not monetary in nature. ECB has violated or circumvented many strictures in its charter. #CMC30 $$ Nov 15, 2012
  • Poole: QE2 was a mistake — there were already excess reserves at the banks. $$ #CMC30 Additional reserves will not solve the problem Nov 15, 2012
  • I asked my question on asset-liability mismatch — Hoenig: the answer was the usual that you can’t end maturity transformation #CMC30 $$ Nov 15, 2012
  • @ToddSullivan Hoenig: Misguided, too complex, need simpler regs and more discretion for regulators #CMC30 $$ Nov 15, 2012
  • Hoenig: Unlimited liability would be good, but you will politically never get there. #CMC30 $$ Nov 15, 2012
  • Hoenig: Need to rethink the capital approach. Dump Basel. Simplify, it is too easy to game. Need a simple tangible capital ratio #CMC30 $$ Nov 15, 2012
  • Thomas Hoenig suggests that we are sowing the seeds of the next financial crisis #CMC30 $$ Says we should be skeptical of new regulations Nov 15, 2012
  • Bernanke cut rates 8/2007-9/08 in the midst of a solvency problem as opposed 2a liquidity problem. Cutting rates wld/did not work $$ #CMC30 Nov 15, 2012
  • If incomes do not grow to meet the need to finance incremental debts incurred, you set up a debt financing crisis. #CMC30 $$ Nov 15, 2012
  • Vernon L. Smith, “Leverage cuts far deeper on the downside than on the upside.” #CMC30 $$ At the Cato Institute’s 30th Monetary Policy Conf Nov 15, 2012


US Politics


  • Changing the Conventional Wisdom on Wall Street Ideas 4 tough leaders 4the SEC. 2 more: @ritholtz & @reformedbroker $$ Nov 17, 2012
  • Obama Said to Reject Request to Ease Corn-Based Ethanol Law Increases pollution too. Ag states win again $$ Nov 16, 2012
  • What the New President Should Consider Paul Volcker tells us that we need to balance the budget & grow the economy $$ Nov 16, 2012
  • Why Hispanics are Natural Democrats and what the GOP can do about it IMO the GOP can’t do much about it at all $$ Nov 14, 2012
  • Receivership Does NOT End GSEs The current law forbids the receiver 2 “revoke, annul, or terminate the charter” $$ Nov 14, 2012
  • 10 Leadership Lessons from Simpson Bowles 11. Everything must be on the table. Everything. Including Medicare & SS $$ Nov 14, 2012
  • Series on economic “cliffs” in the world today. If US cliff only costs 1% of GDP, might b worth doing 2 balance bdgt $$ Nov 14, 2012


Credit Markets


  • Do Junk-Bond Investors Have Garbage for Brains? Financial repression tempts investors 2 take underpriced risks $$ Nov 16, 2012
  • ‘Junk’ Bonds Sing Postelection Blues Room 2b constructive here, cash flow is adequate 2 service most HY now $$ Nov 16, 2012
  • BlackRock’s Junk-Bond ETF Has Record Withdrawals as Rally Fades Poster child 4 the current risky debt panic $$ Nov 14, 2012
  • Credit-Fueled U.S. Car Sales May Need Help From Incomes Been here b4; can incomes cover debt pmts w/room 4 error? $$ Nov 14, 2012







  • Pettis on Spain: “Given how rapidly the political environment is deteriorating, I have little doubt it will leave the euro.” $$ Nov 16, 2012
  • Multinationals Find Loopholes Galore in Europe Wonder when the developed countries reconcile corporate tax policy? $$ Nov 16, 2012
  • Europe Gives Greece 2 More Years to Reach Deficit Targets Extend & pretend, no way Greek Debt/GDP gets below 120% $$ Nov 13, 2012
  • Ex-Goldman Bankers See Crisis Opportunity in Greek Insurance There may be value scouring the PIIGS for investments $$ Nov 13, 2012
  • Rajoy Aims to Stem Evictions as Suicide Darkens Crisis Spain has it tough. Not much the government can do though $$ Nov 13, 2012
  • EU budget talks collapse Austerity works when the problems are small; when problems are big, inflation is the cure $$ Nov 13, 2012


Rest of the World|


  • Funds Bet Against Japan Inc. Hedge funds buy protection on the CDS of large Japanese companies, timing a problem $$ Nov 16, 2012
  • Jordanians Protest Fuel-Subsidy Cut, Demand King’s Ouster When conditions r poor, even small changes lead 2 panic $$ Nov 16, 2012
  • Japan Megabanks’ $6.7 Billion Stock Losses May Spur Selloff Losses will b taken; banks disentangling from industry $$ Nov 15, 2012
  • Canadians Aren’t Heeding Debt Warnings Debts grow as low rates lead to overleverage in the Canadian economy $$ Nov 14, 2012
  • US Conference Board fears Brics miracle over as world faces decade-long slump Overindebted world growth soggy $$ Nov 14, 2012
  • Hedging China risks, Japanese firms turn to booming Southeast Asia Japan spreads its manufacturing risk 2 new places $$ Nov 14, 2012
  • How are debt levels in Israel? Are they catching the disease creeping up on Australia, Canada, & Sweden? $$ Nov 14, 2012
  • Brazilian Stocks Squeezed by Rousseff as Valuations Increase This is why I have sold my Brazil holdings: Dilma $$ Nov 13, 2012




  • SandRidge Investor Revolt Mounts Over ‘Critical Failures’ $SD mgmt bets natgas prices will rise relative 2 crude $$ Nov 16, 2012
  • Twinkie Maker Hostess to Shut Down After Strike Delivers a sweet loss 2 all stakeholders, but Twinkies will return $$ Nov 16, 2012
  • Amazon and the art of evasion You have to understand, at its heart, $AMZN is a nonprofit enterprise, killing many $$ Nov 15, 2012
  • Goldman Using Technology to Become Wal-Mart of Wall Street Low cost wins in commoditized space, but machines err 2 Nov 14, 2012




  • Too many neoclassical economists. They didn’t foresee the last crisis; how will they do better next time? $$ Nov 14, 2012
  • Wrong: 6 Ways to Profit from the “New Saudi Arabia of Energy” One stray misunderstood “fact” can do a lot of harm $$ Nov 13, 2012
  • Wrong: Is the Insurance Industry Doing Enough to Address Climate Change? Climate always changes; nothing has changed $$ Nov 13, 2012
  • Wrong: ‘Baby Berkshire’ Leucadia matures with Jefferies deal $LUK does not have the cheap finance of $BRK.B $$ Nov 13, 2012




  • Federal deficit hits $120 billion in October; bad start to fiscal year By 2017 Obama might triple debts of 2009 $$ Nov 14, 2012
  • Public pension funds face vast shortfall <- Summary article. Protections 4municipal bens-> $$ Nov 14, 2012
  • Buffett company to close Va. newspaper, cut 105 jobs Small newspaper not far from DC; no reason 4 it to exist $$ Nov 14, 2012
  • $BAC Offers to Buy $MBI Bonds to Block Amendment $300M goes from stockholders to 5.7% bondholders $$ #poof Nov 13, 2012
  • 5 money moves a post-bubble buyer is making now Main idea: buy what is despised now. Don’t take normal risks $$ Nov 13, 2012
  • 10 things 401(k) plans won’t tell you Main point is that average people are not good at managing pension assets $$ Nov 13, 2012
  • New DNA Techniques End Mystery of What Ails Baby Patrick Analyze DNA after an abnormal birth. 2nd order effects? $$ Nov 13, 2012



  • @CJEHunt @euromoney Many thanks, Christopher. Remember that 1 fondly. Remember discussing theses w/ @Steve_Hanke @ Balt CFA mtg ~2000-1 $$ Nov 17, 2012
  • @euromoney Thanks for the #FF . U did an article in 1998 that was prescient about troubles the Euro would have. Could I get a copy of it? Nov 16, 2012
  • @BloombergView don’t know who to send this 2, but big disimprovement on the US bonds page on the BB web: less data $$ Nov 16, 2012
  • ‘ @TheCreditBubble Akre and Hawkshaw Nov 16, 2012
  • @EddyElfenbein But it is not too much if it is a non-profit. After all, an absurd valuation is still absurd at double absurd. $$ Nov 15, 2012
  • @researchpuzzler My mom used to say that 2 me, but positively because her parents were bright Nov 14, 2012
  • . @ctindale @BlackRaven999 Eric Hovde used to say that. We don’t repeat our parents mistakes, we repeat those of our grandfathers $$ Nov 14, 2012
  • @thinkingtrades I remember getting heckled writing pieces at RealMoney on the husing bubble 5/2005 & Subprime RMBS 11/2006 Can b forseen $$ Nov 14, 2012
  • @BlackRaven999 @ctindale U r right that if they had an effective model, steps might b taken 2 avert a crisis. Tough 2 fight a boom though $$ Nov 14, 2012
  • @ctindale @BlackRaven999 Used to work 4 a hedge fund that was predicting the crisis. Problem was we were 2 early. Made $$ at end though Nov 14, 2012
  • @euromoney Yes, that is why in developed mkts. Also, the knock-on effects hit GDP more rapidly from a sell-off in bonds than equities $$ Nov 14, 2012
  • @euromoney I worry about that too. Unintended consequences in the bond markets would b much more severe than in equity markets $$ Nov 14, 2012
  • @felixsalmon & terminated in 12/2008: 10Y Tsy avgd 2.42% then… prob a good move in hindsight, though terminating 1yr earlier/later better Nov 14, 2012
  • @felixsalmon This story says the swaps were put on in 2004: 10Y avgd 4.27% then. Nov 14, 2012
  • @felixsalmon @jennablan They put on the swaps while he was President 2001-6, not enough data, but the 10Y avgd 4.40% over his Presidency $$ Nov 14, 2012
  • @mickwe @BradErvin1 and thanks to both of you — I got 4 notes on this; I appreciate my readers. Nov 14, 2012
  • @mickwe @BradErvin1 Mistake in pasting HTML that left code behind that was invisible in the editor, but visible once published. Fixed now Nov 14, 2012
  • @PlanMaestro Maybe $MBI could offer to sell itself 2 $BAC, or offer a minority stake in the healthy sub in exchange 4 their consent $$ Nov 13, 2012



  • Will certainly turn out moist $$ RT @BarbarianCap: Bacon-wrapped Thanksgiving turkey. The American Eater wins again. Nov 16, 2012
  • Both RT @researchpuzzler: Q from @jasonzweigwsj: is it HY investors that are crazy or policymakers? how about both? $$ Nov 16, 2012
  • That tweet just fell on my head. Ow. RT @EddyElfenbein: So Newton was right. $AAPL does obey gravity. Nov 16, 2012
  • Interesting CEF sorter, thanks RT @abnormalreturns: A big jump in the number of CEFs trading at a +15% discount. $$ Nov 16, 2012
  • You can say that again. Yahoo too $$ RT @gilaniali: If that use Gmail they should turn on two factor authentication. Nov 16, 2012
  • Cultural prob $$ RT @niubi: “@ChinaGeeks: NEW 2NON POST: Why Rural Chinese Kids Don’t Go to College the meritocracy… Nov 15, 2012
  • RT @researchpuzzler: RT @DavidSchawel: One of the first days in a LONG time that the credit markets have shown some cracks – will be int … Nov 14, 2012
  • War threats via Twitter. Twitter has arrived $$ RT @kept_simple: Until Obama RTs the IDF, how can we be certain he supports Israel? Nov 14, 2012
  • The central point RT @ctindale: @BlackRaven999 it’s the central differentiator neo classical don’t factor in debt levels Nov 14, 2012
  • Talking about dealer mkts $$ RT @moneyscience: Financial markets going through worst period in decades, says ICAP boss Nov 14, 2012
  • Not surprised $$ RT @kaylatausche: BREAKING: House report released tomorrow to show decisions by Corzine led to #MFGlobal collapse. Nov 14, 2012
  • Last year of 10Y Tsy: RT @felixsalmon: Whoa, when did that happen? RT @jennablan: Oh, wow, 10-year now at 1.60% $$ Nov 14, 2012
  • +1 😉 RT @ReformedBroker: .@LukeRussert doesn’t understand that for Nancy Pelosi to step down, someone from Kansas must drop a house on her Nov 14, 2012
  • $$ Will kill us if Fed Chair RT @pdacosta: Fed’s Yellen says rates may need to stay near zero until early 2016 to forcefully lift employment Nov 13, 2012
  • RT @joshuademasi: @AlephBlog “purpose of studying eco is not to acquire a set of answers to eco ?s, but to learn how to avoid being dece … Nov 14, 2012
  • +1 RT @JonathanProber: @AlephBlog Perhaps many economists would agree we should try to become less reliant on economists in general? Nov 14, 2012
  • RT @prchovanec: Funding of China’s investment-led growth is shifting from bank lending to alternatives promising higher returns on same … Nov 13, 2012



  • “How is $FB counted in this? IPO shares, shares unlocked, or total market cap?” — David_Merkel $$ Nov 16, 2012
  • “Anything that can survive a nuclear war can certainly survive a mere bankruptcy!” — David_Merkel $$ cc: @danprimack Nov 16, 2012
  • Three of my friends had their email accounts hacked today. Anybody else experience something similar? $$ Nov 16, 2012
  • I track 76 13F filings — oddest thing of the qtr is that two of them sold everything down to only one long position. $$ Nov 16, 2012
  • “I think you made the right decision, Tadas. All bloggers have to have sustainable lives, including you” Merkel $$ Nov 15, 2012
  • “You know things are tough in the Middle East when there r groups more extreme than Hamas” — David_Merkel $$ Nov 15, 2012
  • I think Buffett instructs whoever files the 13F for $BRK.B to make it as difficult as possible to import into Excel Nov 14, 2012
  • Professional investors would be sad if retail left the mkt. Lucy would feel the same if Charlie Brown gave up trying to kick the football $$ Nov 14, 2012
  • 13F filings are so much fun; so many ways to obscure the data Nov 14, 2012
  • Carnage among levered CEFs that hold risky debt — many down 3%+ Nov 14, 2012
  • After the hurricanes in 2004-5, ppl said it was global warming, just in time to get 6 low hurricane damage years. 1 storm creates panic $$ Nov 13, 2012
  • “Though you are not new, of bloggers originating since 2009, you are my favorite.” — David_Merkel $$ Nov 13, 2012