The Aleph Blog – Page 52 – Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control

Like a Cardinal, The Price Action Will Be Red

Posted on 21 January 201521 January 2015 by David Merkel

Okay, let’s roll the promoted stocks scoreboard:

Ticker	Date of Article	Price @ Article	Price @ 1/20/15	Decline	Annualized	Dead?
GTXO	5/27/2008	2.45	0.011	-99.6%	-55.6%
BONZ	10/22/2009	0.35	0.000	-99.9%	-72.5%
BONU	10/22/2009	0.89	0.000	-100.0%	-82.3%
UTOG	3/30/2011	1.55	0.000	-100.0%	-92.0%	Dead
OBJE	4/29/2011	116.00	0.069	-99.9%	-86.3%	Dead
LSTG	10/5/2011	1.12	0.004	-99.7%	-82.5%
AERN	10/5/2011	0.0770	0.0000	-100.0%	-93.4%	Dead
IRYS	3/15/2012	0.261	0.000	-100.0%	-100.0%	Dead
RCGP	3/22/2012	1.47	0.003	-99.8%	-89.5%
STVF	3/28/2012	3.24	0.360	-88.9%	-54.2%
CRCL	5/1/2012	2.22	0.004	-99.8%	-90.2%
ORYN	5/30/2012	0.93	0.013	-98.6%	-80.1%
BRFH	5/30/2012	1.16	0.466	-59.8%	-29.2%
LUXR	6/12/2012	1.59	0.002	-99.9%	-92.3%
IMSC	7/9/2012	1.5	0.910	-39.3%	-17.9%
DIDG	7/18/2012	0.65	0.003	-99.6%	-89.1%
GRPH	11/30/2012	0.8715	0.021	-97.6%	-82.5%
IMNG	12/4/2012	0.76	0.010	-98.7%	-86.9%
ECAU	1/24/2013	1.42	0.000	-100.0%	-98.4%
DPHS	6/3/2013	0.59	0.003	-99.5%	-96.0%
POLR	6/10/2013	5.75	0.001	-100.0%	-99.5%
NORX	6/11/2013	0.91	0.008	-99.1%	-94.7%
ARTH	7/11/2013	1.24	0.200	-83.9%	-69.7%
NAMG	7/25/2013	0.85	0.013	-98.5%	-94.1%
MDDD	12/9/2013	0.79	0.022	-97.2%	-95.9%
TGRO	12/30/2013	1.2	0.056	-95.3%	-94.5%
VEND	2/4/2014	4.34	0.655	-84.9%	-86.1%
HTPG	3/18/2014	0.72	0.008	-98.9%	-99.5%
WSTI	6/27/2014	1.35	0.150	-88.9%	-97.9%
APPG	8/1/2014	1.52	0.035	-97.7%	-100.0%

	1/20/2015		Median	-99.3%	-89.8%

It is truly amazing how predictable the losses are from promoted stocks, and that is why you should never buy them. Today’s loser-in-waiting is Cardinal Resources [CDNL]. ?The promoters purport that this company will provide cheap clean fresh water to the world, and will make a fortune off of that. ?Now let’s look at some facts:

What commends this stock to you? ?Is it:

That it has never earned any money?
That the firm has had a negative net worth for the last four years?
That their auditors doubted on the last 10-K that this company would be a “going concern?”
That the company 12 months ago was known as JH Designs, which was in?the “home staging and interior design services business?”
That the writers of the promotion got paid $30,000 to write the speculative fiction of the promotion?
That affiliated shareholders of CDNL paid another $670,000 to publish speculative fiction about the company to unwitting people in an effort to raise the stock price, so that they can sell their shares?

Here, have a look at part of the disclaimer written in five-point type on the glossy ad they sent me in the mail:

Resources Kingdom Limited was paid by non-affiliate shareholders who fully intend to sell their shares without notice into this Advertisement/market awareness campaign, including selling into increased volume and share price that may result from this Advertisement/market awareness campaign. The non-affiliate shareholders may also purchase shares without notice at any time before, during or after this Advertisement/market awareness campaign. Non-affiliate shareholders acted as advisors to Resources Kingdom Limited in this Advertisement and market awareness campaign, including providing outside research, materials, and information to outside writers to compile written materials as part of this market awareness campaign.

Thus, we know who is sponsoring and profiting from this scam. ?It is existing shareholders who want to sell. ?I can tell you with certainty that you should not buy this, and that if you own it, you should sell it. ?There is one significant party that implicitly agrees with that assessment — the company itself, which issued shares at a price of ten cents per share in 2014, according to the recent 10-Q, if you look at the balance sheet and cash flow statements.

Avoid this company, and avoid all situations where stocks are promoted. ?They are bad news for all investors. ?Good investments never need promotion.

Relying on the Kindness of Strangers

Posted on 16 January 201516 January 2015 by David Merkel

Photo Credit: Storm Crypt || Ah, to be in Zurich, and enjoy the additional purchasing power of the Franc — Photo Credit: Storm Crypt || Trusting the Swiss National Bank, Really?

Significant currency brokers relied on the Swiss National Bank to keep its currency peg in place. Now some of them are insolvent, and many of their clients also. Should they be surprised? Currency pegs put into place for political reasons rarely hold up, and this has happened in Switzerland in the past.

On thing I learned early in my career is that you never bet the firm. You never allow there to be a single point where a change brings failure.

You don’t rely on the kindness of strangers. In markets, always ask “What are the motives of the other players?” As an example, think of all of the people who lost money on auction rate preferred securities. There was no guarantee that auctions would always succeed, or that if one failed, the sponsor would take up the slack. No, when they failed, those that relied on the implicit idea that “auction rate preferreds are a safe reliable way to earn extra money in the short run” got hosed.

That’s why I say be wary, particularly where politically motivated entities like Central Banks are involved. ?Are you certain that the Fed will tighten this year, and that interest rates will rise? ?Do be so certain; people have been betting on that for some time, and the Fed is more than happy to let things slide until something forces their hand, or they think the risks of a move are minuscule. ?Though we are at record lows for the 30-year Treasury, rates could go lower still.

Who knows? ?Maybe rates go low enough that someone relying on them to remain above a certain level?gets forced to buy into a high market already, and put in the top for prices, and bottom for yields.

On the other hand, there are some that argue that the Fed can’t raise rates because then the US Government would have problems financing its deficit if interest rates rose.? Maybe, but I wouldn’t rely on that, either. ?I’ve been long long Treasuries for quite some time, but we are getting near the points where Hoisington and Schilling have suggested the trade might be over. Add onto that that banks may finally be starting to lend, and maybe indeed, we are near the bottom for interest rates. I just would not rely on it and make a one way bet.

In my next segment on “Learning from the Past,” I’ll go over my first really major loss where I traveled on the coattails of a famous value investor and lost royally. The point is: don’t rely on the kindness of strangers. Analyze where things can go wrong, and where other parties may have a different view than you do. Why are you smarter than they are? If they are in a position of power, what makes you think they will use it in your favor, rather than act in their own interests? As an example, just because the banks were bailed out last time does not mean that it will happen next time. The players and politics could be vastly different, with policymakers finally realizing that they only have to protect depositors, and nothing more.

So be wary. ?More next time, and I should be returning to a more regular blogging schedule once again. ?My extracurricular project nears completion. ?More on that later also.

Living in the Land of Worries, Part 1

Posted on 3 January 20154 January 2015 by David Merkel

There is always a reason to worry, and always enough time to panic.

Look over there, behind that bush: interest rates are rising. In Europe and China, deflation is threatening. The geopolitical situation is in many ways tense over Russia and Middle East issues. Japan is a mess. Emerging markets will get hit when the Fed starts to tighten.

I could go on, and talk about the longer term demographic problems that we face, and other aspects of lousy government policy, but it would get too long. The point is, there are things that you can worry about. But what should you do?

For many people, worry paralyzes. If there are significant potential problems, they won’t invest, or they will keep their investments very simple and safe. They may fall prey to those who scam by offering “safety” though gold, guns, food storage, life insurance products, etc. Is there a better way to avoid worry?

The first way to avoid worry is to realize that more things can go wrong than do go wrong. Many of the things you might worry about will not happen. Second, even when things do go wrong, the market prices often reflect those possibilities, so the markets may not react badly. Third, the markets have endured many crises in the past and have come back from those crises. Fourth, in the worst crises you can imagine, it will not matter what you do if those take place — you will lose a lot, but so will everyone else. If no strategy can work in the worst problems, you should spend your time praying rather than worrying.

Some might say to me, “But I don’t want to lose a lot of money! I’m relying on it for my retirement (or whatever).” If that is your problem, the answer is simple — invest less in risk assets. Give up some potential return so that you can sleep at night. That has been my advice to a bunch of pastors who generally don’t understand the markets at all. We offer them blended portfolios of risky and safe assets ranging from low volatility to the volatility level of the stock market. I tell them to look at what the blended portfolios have lost in 2008, and size the risk of their holdings to what they can live with in terms of risk if they had to liquidate at a bad time. If they are still squeamish, I tell them to take the risk level down another notch.

There is a risk to not taking enough risk, and that will be the point of part 2, but it is better for the squeamish to implement a sub-optimal plan than no plan. It is also better for the squeamish to implement a sub-optimal plan than a plan that they can’t maintain, because they get too scared.

Solutions have to be real-world to meet people where they are. After that, maybe we can try to teach people not to worry, but human nature is difficult to change.

PS — for any that might say that they are worried that they aren’t going to earn enough to be able to retire or stay comfortably retired, part 2 will have something to say there as well.

Learning from the Past, Part 2

Posted on 2 January 201516 February 2015 by David Merkel

Happy New Year to all of my readers. May 2015 be an enriching year for you in all ways, not just money.

This is a series on learning about investing, using my past mistakes as grist for the mill. ?I have had my share of mistakes, as you will see. ?The real question is whether you learn from your mistakes, and I can say that I mostly learn from them, but never perfectly.

In the early 90s, I fell in with some newsletter writers that were fairly pessimistic. ?As such, I did not do the one thing that from my past experience that I found I was good at: picking stocks. ?Long before I had money to invest, I thought it was a lot of fun to curl up with Value Line and look for promising companies. ?Usually, I did it well.

But I didn’t do that in that era. ?Instead, I populated my portfolio with international stock and bond funds, commodity trading funds, etc., and almost nothing that was based in?the USA. ?I played around with closed-end funds trying to see if I could eke alpha out of the discounts to NAV. ?(Answer: No.) ?I also tried shorting badly run companies to make a profit. ?(I succeeded minimally, but that was the era, not skill.)

I’ve been using my tax returns from that era to prompt?my memory of what I did, and the kindest thing I can say is that I?didn’t have a consistent strategy, and so my results were poor-to-moderate. ?I made money, just not much money. ?I even manged to buy the Japanese equity market on the day that it peaked, and after many months got out with a less-than-deserved 3% loss in dollar terms because of offsetting currency movements.

One thing I did benefit from was learning about a wide number of investing techniques and instruments, which benefited me professionally, because it taught me about the broader context of investing. ?That said, it cost time, and some of what I learned was marginal.

But not having a good overall strategy largely means you are wasting your time in investing. ?You may succeed for a while with what some call luck, but luck by its nature is not consistent.

Thus, I would encourage all of my readers to adopt an approach that fits their:

Knowledge
Personality
Available time

You have to do something that you truly understand, even if it is hiring an advisor, wealth manager, etc. ?You must be able to understand the outer edges of what they do, or how will you evaluate whether they are serving you well or not? ?Honesty, integrity, and reputation can go a long way here, but it really helps to know the basics.

Picking fund managers is challenging enough. ?How much of their good performance was due to:

their style being in favor
new cash flows in pushing up the prices of the assets that they like to buy
a few good ideas that won’t be repeated
a clever aide that is about to leave to set up his/her own shop
temporary alignment with the macroeconomic environment
or skill?

Personality is another matter — some people don’t learn patience, which cuts off a number of strategies that require time to work out. ?Few things also work right off the bat, so even a good strategy might get discarded by someone expecting immediate results.

Time is another factor which I will take up at a later point in this series. ?The best investment methods out there are no good for you unless you can make them fit into the rest of your life which often contains the far more important things of family, recreation, faith, learning, etc. ?It’s no good to be a wealthy old miser who never learned to appreciate life or the goodness of God’s providence in life.

And so to that end, I say choose wisely. ?My eventual choice was value investing, which isn’t that hard to learn, but requires patience, but can scale to the time that you have. ?For those that work in a business, it has the side-benefit that it is the most businesslike of all investment methods, and can make you more valuable to the firm that you work for, because you can learn to marry business sense with your technical expertise, potentially leading to greater profit.

For me, I can say that it broadened my abilities to think qualitatively, complementing my skills as a mathematician. ?The firms I worked for definitely benefited. ?Maybe it can do the same for you.

Till next time, where I tell you how value investing is *not* supposed to be done. 😉

PS — one more note: it is *very* difficult to make money off of macro insights in equities. ?Maybe there are some guys that can do that well, but I am not one of them. ?Limiting the effect of my insights there has been an aid to doing better in investing, because it forces me to be modest in an area where I know my likely success is less probable.

Learning from the Past, Part 1

Posted on 23 December 2014 by David Merkel

This is another Aleph Blog series of indeterminate length. ?I won’t bleed as much as my friend James Altucher, but I will reveal the?worst investments of my life. ?There have been a lot of them. ?Good investments have more than paid for the losses, but the losses were significant in two ways:

The losses were large enough to hurt.
Each loss taught me something; usually I did not make the same mistake twice.

After I finish this series, I hope that it can serve as a guide on what to avoid in investing for younger folks, so they don’t repeat my errors. ?Okay, older folks can benefit as well… and maybe along the way, I’ll throw in a few colorful stories of investments that weren’t losses, but still taught me something.

Here we go!

=-=-=–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-==-

In the late 1980s, I fell prey to a boiler room scam. ?I was relatively new to investing for myself, though I had paper-traded stocks for years, and was seemingly able to pick good stocks. ?So why did I give in to the slick sales pitch? ?Inexperience, for one, and slack capital for two — in my late 20s?I really did not have a plan for what I wanted to do with my slack capital. ?I had done some investing in the stock market, but made money too quickly, and I feared that the market was once again too high (isn’t it always?).

Regardless, it was pretty dopey, and ended up being a 98% loss. ?A class action suit was created, which after 8 years ended up with nothing for any of the plaintiffs, and as far as I can tell, the lawyers lost money as well, since they were seeking a share of the recovery. ?Somewhat bitter at the end, the law firm closed its last letter saying something to the effect of, “At least we have the satisfaction that all of those that we have sued have lost all of the money that we can find.” ?Cold satisfaction, that.

I can tell you that the experience made me unwilling to transact any personal business over the phone that I did not initiate. ?For long-time readers, this helped lead to my saying,

Don’t buy what someone wants to sell you. ?Instead, research what you need, and buy that.

That’s a good lesson to begin with. ?Till next time.

Out and About with The Aleph Blog

Posted on 20 December 201421 December 2014 by David Merkel

https://www.youtube.com/watch?v=6_MVxmziTos&feature=youtu.be&t=3m44s

1. Recently I appeared on RT Boom/Bust again. ?The interview lasts 6+ minutes. ?Erin Ade and I discussed:

Who benefits from lower energy prices.
The No-Lose Line for owning bonds,
Whether you are compensated for inflation risks in long bonds
How much an average person should invest in stocks with any assets that they have after buying their own house.
The value of economics, or lack thereof, to investors today.

2. Also, I did an “expert interview” for Mint.com. ?I answered the following questions:

What is your most basic advice on investing?
What can you tell young people to help them stay financially secure in their futures?
How can a potential investor go about finding the best investment professional to work with for his or her individual needs?
Please explain how being a good investor and a good businessman go hand in hand.
What is your favorite part of your job?
You clearly do a lot of reading, as seen from your book reviews. What other genres of books do you enjoy?

3. Finally, Aleph Blog was featured in a list of the Top 100 Insurance Blogs at number 29. ?I find it interesting because my blog has maybe 18% of?posts on insurance topics. ?That said, I have a distinctive voice on insurance, because I will talk about consumer issues, and what are companies that might be worth owning.

Enjoy the overly long infographic.

An infographic by the team at Rebates zone

Redacted Version of the December 2014 FOMC Statement

Posted on 17 December 2014 by David Merkel

Photo Credit: International Monetary Fund

Comments

Pretty much a nothing-burger. Few significant changes, if any.? The only interesting thing is that they have given up on inflation getting anywhere near 2% for now.
Despite lower unemployment levels, labor market conditions are still pretty punk. Much of the unemployment rate improvement comes more from discouraged workers, and part-time workers.? Wage growth is weak also.
Equities flat and long bonds rise. Commodity prices are flat.? The FOMC says that any future change to policy is contingent on almost everything.
Don?t know they keep an optimistic view of GDP growth, especially amid falling monetary velocity.
The FOMC chops some ?dead wood? out of its statement. Brief communication is clear communication.? If a sentence doesn?t change often, remove it.
In the past I have said, ?When [holding down longer-term rates on the highest-quality debt] doesn?t work, what will they do? I have to imagine that they are wondering whether QE works at all, given the recent rise and fall in long rates.? The Fed is playing with forces bigger than themselves, and it isn?t dawning on them yet.
The key variables on Fed Policy are capacity utilization, labor market indicators, inflation trends, and inflation expectations. As a result, the FOMC ain?t moving rates up, absent improvement in labor market indicators, much higher inflation, or a US Dollar crisis.

On Financial Risk Statements, Part 1

Posted on 13 December 2014 by David Merkel

Most formal statements on financial risk are useless to their users. Why?

They are written in a language that average people and many regulators don’t speak.
They often don’t define what they are trying to avoid in any significant way.
They don’t give the time horizon(s) associated with their assessments.
They don’t consider the second-order behavior of parties that are managing assets in areas related to their areas.
They don’t consider whether history might be a poor guide for their estimates.
They don’t consider the conflicting interests and incentives of the parties that?direct the asset managers, and how their own institutional risks affect their willingness to manage the risks that other parties deem important.
They are sometimes based off of a regulatory view of what can/must be stated, rather than an economic view of what should be stated.
Occasionally, approximations are used where better calculations could be used. ?It’s amazing how long some calculations designed for the pencil and paper age hang on when we have computers.
Also, material contract provisions that are hard to model/explain often get ignored, or get some brief mention in a footnote (or its equivalent).
Where complex math is used, there is no simple language to explain the economic sense of it.
They are unwilling to consider how volatile financial processes are, believing that the Great Depression, the German Hyperinflation, or something as severe, could never happen again.

(An aside to readers; this was supposed to be a “little piece” when I started, but the more I wrote, the more I realized it would have to be more comprehensive.)

Let me start with a brief story. ?I used to work as an officer of the Pension Division of Provident Mutual, which was the only place I ever worked where analysis of risks came first, and was core to everything else that we did. ?The mathematical modeling that I did in there was some of the best in the industry for that era, and my models helped keep us out of trouble that many other firms fell into. ?It shaped my view of how to manage a financial business to minimize risks first, and then make money.

But what made us proudest of our efforts was a 40-page document written in plain English that ran through the risks that we faced as a division of our company, and how we dealt with them. ?The initial target audience was regulators analyzing the solvency of Provident Mutual, but we used it to demonstrate the quality of what we were doing to clients, wholesalers, internal auditors, rating agencies, credit analysts, and related parties inside Provident Mutual. ?You can’t believe how many people came to us saying, “I get it.” ?Regulators came to us, saying: “We’ve read hundreds of these; this is the first one that was easy to understand.”

The 40-pager was the brainchild of my boss, who was the most intuitive actuary that I have ever known. ?Me? I was maybe the third lead investment risk modeler he had employed, and I learned more than I probably improved matters.

What we did was required by law, but the way we did it, and how we used it was not. ?It combined the best of both rules and principles, going well beyond the minimum of what was required. ?Rather than considering risk control to be something we did at the end to finagle credit analysts, regulators, etc., we took the economic core of the idea and made it the way we did business.

What I am saying in this piece is that the same ideas should be more actively and fully applied to:

Investment prospectuses and reports, and all investment and insurance marketing literature
Solvency documents provided to regulators, credit raters, and the general public by banks, insurers, derivative counterparties, etc.
Risk disclosures by financial companies, and perhaps non-financials as well, to the degree that financial markets affect their real results.
The reports that sell-side analysts write
The analyses that those that provide asset allocation advice put out
Consumer lending documents, in order to warn people what can happen to them if they aren’t careful
Private pension and employee benefit plans, and their evil twins that governments create.

Looks like this will be a mini-series at Aleph Blog, so stay tuned?for part two, where I will begin going through what needs to be corrected, and then how it needs to be applied.

Have Your Cake, Eat It Too, And End Up With Only Crumbs

Posted on 11 December 201411 December 2014 by David Merkel

Beware when the geniuses show up in finance. “I can make your money work harder!” some may say, and the simple-minded say, “Make the money sweat, man! ?We have retirements to fund, and precious little time to do it!”

Those that have read me for a while will know that I am an advocate for simplicity, and against debt. ?Why? ?The two are related because some of us tend toward overconfidence. ?We often overestimate the good the complexity will bring, while underestimating the illiquidity that it will impose on finances. ?We overestimate the value of the goods or assets that we buy, particularly if funded by debt that has no obligation to make any payments in the short run, but a vague possibility of immediate repayment.

The topic of the evening is margin loans, and is prompted by Josh Brown’s article here. ?Margin loans are a means of borrowing against securities in a brokerage account. ?Margin debt can either be for the purpose of buying more securities, or “non-purpose lending,” where the proceeds of the loan are used to buy assets outside of brokerage accounts, or goods,?or?services. ?Josh’s article was about non-purpose lending; this article is applicable to all margin borrowing.

Margin loans seem less burdensome than other types of borrowing because:

Interest rates are sometimes low.
They are easy to get, if you have liquid securities.
They are a quick way of?getting cash.
There is almost never any scheduled principal repayment or maturity date for the loan.
Interest either quietly accrues, or is paid periodically.
You don’t have to liquidate securities to get the cash you think you need.
There is no taxable event, at least not immediately.
Better than second-lien or unsecured debt in most ways.

But, what does a margin loan say about the borrower?

He?needs money now
He?doesn’t want to liquidate assets
He wants lending terms that are easy in the short run
He doesn’t have a lot of liquidity at present.

So what’s the risk??If the ratio of the value of assets in the portfolio versus accrued loan value falls enough, the broker will ask the borrower to either:

Pay back some of the loan, or
Liquidate some of the assets in the portfolio.

And, if the borrower can’t do that, the broker will liquidate portfolio assets for them to restore the safety of the account for the broker who made the loan.

Now, it’s one thing when there isn’t much margin debt, because the margin debt won’t influence the likelihood or severity of a crisis. ?But when there is a lot of margin debt, that’s a problem. ?As I like to say, markets abhor free riders. ?When there is a lot of liquid/short-dated liabilities financing long-dated assets, it is an unstable situation, inviting, nay, daring the crisis to come. ?And come it will, like a?heat seeking missile.

Before the margin desks must act, some account holders will manage their own risk, bite the bullet, and sell into a falling market, exacerbating the action. ?But when the margin desks act, because asset values have fallen enough, they will mercilessly sell out positions, and force the prices of the assets that they sell lower, lower, lower.

A surfeit of margin debt can turn a low severity crisis into a high severity crisis, both individually and corporately, the same way too much debt applied to housing created the crisis in the housing markets.

I would again encourage you to read Josh’s excellent piece, which includes gems like:

Skeptics from the independent side of the wealth management industry would ask, rhetorically, whether or not most of these loans would be made with such frequency if the advisors themselves were not sharing in the fees. The answer is that, no, of course they wouldn’t.

He is correct that the incentives are perverse for the advisors who receive compensation for encouraging their clients to borrow and take huge risks in the process. ?It’s another reason not to take out those loans.

Remember, Wall Street wants easy profits from margin lending. ?They don’t care if they encourage you to take too much risk, just as they didn’t care if you borrowed too much to buy housing.

The Free Advice that Embraces Humility

Just say no to margin debt. ?Live smaller; enjoy the security of the unlevered life, and be ready for the day when the mass liquidation of margin accounts will offer up the bargains of a lifetime.

If you have margin loans out now, start planning to reduce them (before you have to). ?You’ve had a nice bull market, don’t spoil it by staying levered until the bear market comes to make you return your?assets to their rightful owners.

Wisdom is almost always on the side of humility, so simplify your life and finances while conditions favor doing so. ?If you must borrow, do it in a way where you won’t run much risk of losing control of your finances.

And after all that… enjoy your sleep, even amid crises.

Should Jim Cramer Sell TheStreet or Quit CNBC?

Posted on 4 December 20144 December 2014 by David Merkel

Like my friend Josh Brown does, I often don’t know where I will end when I start writing… I know I have something to say, given my own time writing for RealMoney.com, and now having publicly written on financial matters for over eleven years, with?thanks to Jim Cramer, who gave me my start.

Recently, a 9% holder of TheStreet sent a letter to Jim, asking him to either sell off TheStreet in an auction or leave CNBC and rebuild the value of TheStreet. ?The Stock rose roughly 7% on the news. ?Personally, I don’t think it should have budged. ?Here’s why:

1)?What is a perpetual money-loser worth? ?TheStreet hasn’t earned significant money since 2007.

2) What is TheStreet worth in an auction? ?The complainant says:

Despite these improvements TST trades at an enterprise value to 2015 estimated revenues of 1.3. This compares to BC Partners Limited?s acquisition of Mergermarket Group at three times revenue. Morningstar Inc. (?MORN? ? $65.97) trades at 3.4 times 2015 consensus revenue estimate. Allegedly, BoardEx competitor Relationship Science recently raised capital at a $300 million valuation compared with its purported $5 million revenue for 2013.

TheStreet is not comparable to these in my opinion. ?I’ll use Morningstar as my example: it is a comprehensive site offering a wide amount of data about investments, and relatively light on opinions. ?Where it speaks, it is authoritative, and it has a relatively sticky following, making their revenues more valuable than that of TheStreet. ?Let’s be real… would you buy TheStreet at the same enterprise value to sales ratio as Morningstar?

3) Selling investment opinions is a very competitive business, with low barriers to entry. ?If a party is any good at marketing it, and wants to sell a newsletter, there are a lot of people who will buy, as noted later by the complainant:

We estimate that 41,500 customers pay roughly $350 per annum ($14.5 million in totum) for your newsletters. This is nothing to scoff at but a fraction of the 400,000 to 500,000 subscribers enjoyed, by (we believe) The Motley Fool Stock Advisor and Stansberry & Associates Investment Research ? two wildly more profitable competitors which charge similar prices. (We estimate that each of these competitors yield $25 to $45 million of pre-tax earnings for their private owners.) Given the strength of your brand, it both amazes and frustrates that subscriptions to your products are so paltry. Were you to de-couple from CNBC (where you are understandably prohibited from promoting PLUS) I would hope, nay expect, that subscriptions of PLUS would treble.

I don’t like market newsletters generally, but I know there are a lot of people who would rather pay for opinions than money management services. ?I often get requests to start a newsletter, but I don’t respect the concept. ?My detailed ideas are for my clients; that’s the business that I am in.

Jim’s newsletter has been out for a long time. ?Of those that buy newsletters, most would be familiar with Cramer, and know that the newsletter?exists. ?Even if Cramer came back to TheStreet full-time, I doubt it would get that much more in subscriptions.

4) Also, auctioning off a Cramer-less TheStreet would likely flop. ?There would be few if any buyers for?a such a company that had lost its main writer.

5) Then there is the complainant’s appeal to Cramer as to his legacy:

You are 59. When you lie upon your deathbed, how will you reflect upon on your legacy? Once a $70 stock, TST is now $2.20. You have done well, but how has the common shareholder done?

I have a little insight here. ?A little less than twelve years ago, I was invited by my Merrill coverage to come to an institutional investor conference where Cramer would be the unscripted keynote speaker. ?It was a great talk, and?at the end of it, as Cramer left, I figured out where I likely needed to be if I wanted a word with him. ?Sure enough, he came my way, and I identified myself to him as the guy who had been writing to him on bonds for the past four years. ?He remembered me and greeted me warmly. ?I told him that I was going to work at a hedge fund. ?He?congratulated me, and said that it was where all the smart guys were going. ?And then he said something to the effect of:

I wish I were still running a hedge fund. ?I really loved that.

And at that point, the crowd caught up, and that was the end of my time with him. ?But when I got home that night, I sent him an e-mail telling him that life is too short, do what you love. ?Go back to the hedge fund and write more occasionally for the rest of us. ?His reply was brief as usual, and if my memory is any good it was something like:

Can’t do that. ?Gotta get the price of theStreet.com over the IPO price.

Even at the time, that made me blink. ?Make the stock rise by more than a factor of 10? ?That would be Herculean at minimum.

But, that gives you an insight into Cramer’s mind at one point. ?He’s already thought along those lines. ?He’s no dummy. ?He knows how difficult it would be — and he has pursued that effort for a number of years. ?My sense is that he has given up, or maybe something close to that. ?The price of TheStreet has been remarkably stable for the past five years, despite all efforts made…

6) But does Cramer have no legacy from TheStreet? ?I would argue he does. ?He enriched the investment writing world in two ways: he created a bunch of young savvy journalists that occupy many places in the broader investment journalism world, and he encouraged a lot of clever investors to write for him.

We are all better off as a result of both of these, even if the benefits never went to shareholders. ?It’s a tough business, and even the best enterprises have a hard time making money at it.

7) Perhaps the complainant needs to be reminded of one of Marty Whitman’s principles on value investing: “Something off the top.” ?Control of a company is a valuable thing, and one of the reasons is that a closely-held company does not merely pay the controlling owner dividends, they often receive something off the top. ?That is true of Cramer here, with a salary of $3.5 million/year. ?Why should he relinquish that? ?In his mind, he may think that he has tried to turn it around for years to no avail. ?If the company is not likely to ever get back to a significantly higher price, why should he knock himself out on a hopeless mission that he has already tried?

8?) So, with that, let the complainant contact his fellow shareholders and ask for help. ?I’m not sure they will agree with the prescription, though they might like to see some actions taken. ?Personally, I can’t get excited about it; I would be inclined to pass, and quietly sell my shares into the current strength generated by the complainant.

Full disclosure: no positions in any companies mentioned here, and as they used to say at TheStreet, I am?writing about a microcap stock, so they would typically not allow articles on it without a big warning, if at all. ?To make it plain: don’t buy any TST shares as a result of what I wrote here. ?Thanks.

October 2014	December 2014	Comments
Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace.	Information received since the Federal Open Market Committee met in October suggests that economic activity is expanding at a moderate pace.	No change. This is another overestimate by the FOMC.
Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing.	Labor market conditions improved further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources continues to diminish.	Shades their view of labor use up a little.? More people working some amount of time, but many discouraged workers, part-time workers, lower paid positions, etc.
Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.	Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow.	No change.
Inflation has continued to run below the Committee’s longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.	Inflation has continued to run below the Committee’s longer-run objective, partly reflecting declines in energy prices. Market-based measures of inflation compensation have declined somewhat further; survey-based measures of longer-term inflation expectations have remained stable.	Shades their forward view of inflation down.? TIPS are showing slightly lower inflation expectations since the last meeting. 5y forward 5y inflation implied from TIPS is near 2.07%, down 0.28% from September.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability.	No change. Any time they mention the ?statutory mandate,? it is to excuse bad policy.
The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate.	The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators moving toward levels the Committee judges consistent with its dual mandate.	They are no longer certain that inflation will rise to the levels that they want.
The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.	The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. The Committee expects inflation to rise gradually toward 2 percent as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate. The Committee continues to monitor inflation developments closely.	CPI is at 1.3% now, yoy.? They shade up their view down on inflation?s amount and persistence.
The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program.		Sentence removed.
Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month.		Sentence removed.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.		Moves this sentence lower in the document.
This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.		Moves this sentence lower in the document.
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.	To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.	Highly accommodative monetary policy is gone ? but a super-low Fed funds rate remains.? Policy normalizes, sort of, but no real change.
	Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.	In other words, we?re on hold until something goes ?Boo!?
The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.	The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.	No real change.
However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.	However, if incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.	Tells us what we already knew.
	The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.	Sentences moved from higher in the document.
When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.	When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.	No change.
The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.	The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.	No change.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo.	Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Loretta J. Mester; Jerome H. Powell; and Daniel K. Tarullo.
Voting against the action was	Voting against the action were Richard W. Fisher, who believed that, while the Committee should be patient in beginning to normalize monetary policy, improvement in the U.S. economic performance since October has moved forward, further than the majority of the Committee envisions, the date when it will likely be appropriate to increase the federal funds rate;	Fisher thinks the economy is healthy enough to take some rate hikes.
Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.	Narayana Kocherlakota, who believed that the Committee’s decision, in the context of ongoing low inflation and falling market-based measures of longer-term inflation expectations, created undue downside risk to the credibility of the 2 percent inflation target;	Kocherlakota wants to create another bubble, along with the rest of the doves.
	and Charles I. Plosser, who believed that the statement should not stress the importance of the passage of time as a key element of its forward guidance and, given the improvement in economic conditions, should not emphasize the consistency of the current forward guidance with previous statements.	Plosser wants to say that a shift has happened, when no shift really has happened in policy.? He also thinks they should avoid the idea that the Fed is waiting to do something, suggesting that tightening could come sooner.