About That Marijuana Referendum.....

When higher life forms finally emerge from their pods or arrive in their spaceships and take a close look at us Earthlings, there's a lot they will not understand about what our civilization allows.  Things like SuperPACs, or Tim Tebow as an NFL quarterback.  But one of those things will surely be how hypocritical we are in regulating some mind altering substances, while not regulating others.

However, after Washington and Colorado voted last week to legalize (sort of) recreational marijuana, we may have a little less for which to be ashamed.  (How is it that Oregon voted against this?)

Finally, we have agreement, within certain territorial boundaries, that pot is no more regulatory-worthy than alcohol.  Both can be destructive, but both can clearly have therapeutic value within reason.

Unfortunately for now, federal law still considers marijuana possession to be illegal.  And more unfortunately, there are still 48 other states that aren't enlightened on this issue, most not even enlightened enough to allow medicinal pot.

In the meantime, every state allows adults to possess, sell, and consume unregulated amounts of alcohol, often with grave consequences even to those who do not consume it.  Oh, and also, the U.S. spends millions on drug enforcement, and jails fill up with people who are not threats to society.

I've written too often about the benefits of decriminalizing pot in America.  [Search the label 'marijuana' in this blog.]  But no matter how often, the conclusion remains:  There is no intellegent life down here.

About That Presidential Election.....

Many years ago I attended a meeting where an economist was the keynote speaker. His opening line was, "I'm not a member of a major political party.  I'm a Republican."

Never has that line cut deeper than this week.  After all of the campaigning, the SuperPAC money, the advertisements, the blustery predictions, etc., the Rs have gone in reverse.

Their presidential candidate, Mitt Romney, seemed like he was qualified enough to be president.  Certainly qualified enough to defeat an economically-weakened Barack Obama.  So how did this happen?  Let a lifetime independent voter tell you.

If you listen to the Rs, they've got all sorts of reasons why they lost the presidency plus some senate seats.  The only correct reason is that the Rs don't have a big enough tent.  It's comprised of a declining base - whites, males, married females, social conservatives, and, um, that's about it.

Look at America.  It's becoming less white, less dependent female, less socially conservative.  Rs have to start appealing to those constituencies, or at least stop pissing them off.

But what are the conservative pundits framing as their next strategy?  To go even farther right!  They seem to believe that if they simply do a better job promoting their anti-secular, anti-immigration, anti-environment ideals, that we 'moderates' will be more likely to join them.

So, the Rs analysis of the problem is correct, but their solution is exactly wrong.  They think we independent voters don't understand them?  The problem is we understand them perfectly, and we don't like it.  Newsflash to Rs: We aren't going to like more of what we already don't like.

The crazy thing is, the Rs really weren't/aren't so far away from taking power.  Most independent voters are like America - socially liberal, but still fiscally conservative.  If the Rs would spend more time on the fiscally conservative message, and a lot less on the social issues, they'd be fine.

[This is a good time to note and give kudos to the states of Colorado and Washington for legalizing marijuana.  Talk about your trending social liberalism.  By the way folks, it's no big deal - they already have legalized alcohol, a more abusive and dangerous drug.  More about this in a future blog.]

There is plenty to dislike about the other non-major political party, a/k/a Democrats. As an independent, I think they're wrong on union support, wrong on expanded government, wrong on tax policy.  I matured (such as it is) in the 80s, during the Reagan revolution, and I actually believe in supply-side economics.

To a political independent like me, however, the other stuff matters more now.  It's encouraging to see WOITH politicians like Michele Bachmann, Steve King, and especially Bob Vander Plaats struggle so much (and in the latter case, outright lose) this election cycle.  Their message of hate, masquerading as social conservatism, has become the  millstone around their necks.

If they and the rest of the Rs want to appeal to today's independent voter, they need to go farther left, not farther right.

R.I.P. MLB

The Major League Baseball season ended this week, with the crowning of the World Series champion.  Oh, you didn't know?  That's because only a few people in America care about baseball after late August, and most of the rest of them stop caring after September, much less late October.

How is this possible?  Because as I've previously written, baseball sucks, and it has been sucking for a while.  The games are too long, the season is too long, the players are too forgettable, the teams have too much disparity between them.  What other reasons do we need to not be interested?

This is all exacerbated by America's love affair with college and pro football.  When Labor Day rolls around, we care about football a lot more than we do baseball.

You'd think baseball would figure all of this out someday.  Maybe invoke some type of salary cap like the other pro sports, so every franchise feels like it could be a contender.  And/or maybe end the season earlier rather than later.  Instead, they watch as the ratings for the World Series go down the tubes.

Nice job, baseball.  You suck.

How To Run A Marathon - Or Not

The Des Moines Marathon (and half-marathon) was held last weekend, in Des Moines, Iowa, of all places.  My wife ran in the half-marathon, so I attended as a supporter, but also as an observer.

Both my spouse and I were terrific in our respective roles of runner and supporter. I now write this in my role as observer:

There are many different ways one might tell by sight whether a runner is doing a half-marathon (13.1 miles) or the full marathon (26.2 miles).  These include runner pace, runner weight (the fatties are definitely NOT doing the full), and perhaps most obviously, runner apparel.  The marathoners had all the gear - the Lycra, the designer running shoes, the expensive running watch, even the personal masseuse at the finish.  In the meantime, many of the half-marathoners wore costumes.

Lots of people weren't there to run, they were there to walk.  Some were obviously walking for a cause, others were walking for exercise.  Regardless, I don't really get that.  In Des Moines, there is some sort of 5K or 10K walk/run every weekend in the warm weather months.  If someone wants to walk, do it in one of those other races, not at the marathon.  Can we not have one race that's not full of people who never actually exercise?

The after-race accommodations were awesome.  There was the usual race pictures, massages, and music.  But there was a fantastic assortment of food and beverages, which was in an area sectioned off just for the runners.  That not only kept out the spectators and other hangers-on from getting 'free' stuff (for which the runners paid within their $60+ entry fee), but preserved enough room for everyone.

Silver Anniversary Of A Crash

The stock market was down just under 2% today, Friday October 19th.  Not a good day, but relative to 25 years ago, a GREAT day.

I recall October 19, 1987 quite well.  That was the day the Dow Jones Industrial Average dropped over 500 points in one day, which at the time was over 20%.  Think about that - a similar drop today would mean the Dow would fall over 2500 points!

Can you imagine the near and maybe real panic that would cause today, in the U.S. and around the world?  People would be non-functional.  At least the 40+% drop in the stock market in 2008 was more of a cascading crash, since it happened over the course of many weeks/months.

25 years ago, I was less than two years out of college, working an entry-level job setting up 401k plans for employer-customers at Principal Financial Group in Des Moines.  Oh, and I had just found out we were expecting our first child.  But I never felt like I was in danger of losing my job - if anything, there may have been more job security.  Principal needed more help after that, as the 'yuppies' of that generation suddenly concluded they should be saving more money (inside a 401k plan was one way) instead of spending every dime they made.

Looking back, one of the crazy things about that day was we were not in the 24-hour news cycle that we are today.  We weren't following the crash using TVs or the internet (the what?).  We just got periodic updates throughout the day, near the end of which we learned of the 500+ point drop.

One of my favorite stories from that day actually didn't happen until the next day, when we were ushered into a meeting with some Principal executives, who told us to tell employer-customer not to be alarmed, it was 'business as usual' there - except now we weren't going to do this, or this other thing, or that, or that other thing. In other words, it was the opposite of business as usual.  Clueless morons!

In the end, the market and the economy came back stronger than ever, setting up the 90s for another big bull run.  Is that why people think the current recovery seems non-existent - because it isn't happening fast enough?

(Un)conventional Thinking

One of the simplest and most common questions asked of investment advisors is, "What stock should I buy?"  Another frequent request is, "Where do you think the market is going?"

Although these questions ask different things, they share something in common – they are asking someone to make a forecast.  The conventional thinking is, in order to have a successful investment experience, advisors and investment managers should be able to predict the future.  Just pick the investments that will do well, and avoid all the others, right!?

Unfortunately, man versus market isn't a fair fight.  More often than not, the market is going to win.

Identifying investments that have outperformed in the past is easy, but there is no way of determining what will outperform in the future.  While some fund managers are going to ‘beat the market’ from time-to-time, a mountain of academic research tells us it’s no more than you would expect by chance.  In other words, the market always has investments that will do well, but there’s no logical way for man to determine which ones they will be.

So instead of trying to predict the future, I think about this instead:  In the aggregate, investors earn market returns before fees. Since the market reflects the collective holdings of all investors, the value-weighted average investment experience must be the market return after fees.  This is not just a theory; it is a universal truth based on simple arithmetic.

This arithmetic gives me something reliable – rather than a prediction – from which to base investment decisions.  Specifically, if I broadly diversify investments based on client risk tolerance, and keep investment costs to a minimum, I have significantly increased the likelihood of an above-average investment outcome.

Making investment decisions based on this logic certainly isn’t glamorous.  It would be much more exciting to declare which individual stocks I ‘like’ based on a hunch, and then regularly update that list.  Still, I vastly prefer our more reasoned approach.

Investors may never lose the urge to form an opinion about the future, or to ask their advisor for one.  But if those investors ask me, they should expect to hear some unconventional thinking.

The Liars Club

As we enter the heart of election season in presidential election year, so do we enter a time when the rhetoric is at an all-time high.  If only it was just rhetoric.

These days, we don't have rhetoric, which would be fairly defined as persuasive but insincere speech.  Instead, we have intellectual dishonesty, which I would define as a failure to apply a rational standards that one is fully aware of.

(Yes, I got those definitions with the help of the internet, defined as a place from which you can get information to help prove your point.  Also, don't confuse these terms with another one of my favorites, 'truthiness', coined by Stephen Colbert as something people claim to know intuitively because it feels right, in the gut, without regard to the facts.)

Intellectual dishonesty is what political campaigners (and most people) engage in these days.  It's when a person knows but ignores the facts, and says or does something contrary to those facts in an attempt to convince people otherwise.  Let me use it in a sentence: "Every word that comes out of Michele Bachmann's mouth has the smell of intellectually dishonesty."

While this kind of thing obviously happens in politics, but just think about the day-to-day applications.  What workplace doesn't have one or more employees who aren't as sharp as their co-workers, but tries to cover up their shortcomings by skewing the truth, and parsing the blame onto others?  And don't get me started on the so-called 'financial advisors' who spend their days selling products to people who don't need them, in order to get a big commission.

Intellectual dishonesty is the same as lying, and it is currently pervasive in our society.