How To Win A Coin Toss

If you were told your odds of investing success were no better than a coin toss, how would you react?

Standard & Poor's recently published an annual year-end scorecard, called the Standard & Poor’s Indices Versus Active (SPIVA) report.  SPIVA compares the performance of active mutual funds versus their respective benchmark indices.  Not surprisingly, the results continue to favor the indices.

For the 5-year period ending December 31, 2012, 79% of actively managed U.S. equity funds failed to beat their benchmark index.  The percentage that failed for international equity and fixed income funds were 66% and 69%, respectively.  Put another way, the odds of picking an active fund that outperformed its benchmark were less than successfully calling a coin toss!

Unfortunately, these results do not fully paint the picture of active management's underperformance.  SPIVA’s return measurements do not take into account significant fees that most active mutual funds charge.  Additional costs include management expenses, commissions, and marketing fees, all of which further reduce returns.

This is another of a multitude of studies that reach the same conclusion:  Investors expose themselves to additional market risk from active managers' attempts to outperform a given benchmark – risk that is not compensated by higher returns.  Further, the higher costs associated with active mutual fund investing make the probability of outperforming the market extremely unlikely.

I have always advocated a different approach to investing, one that acknowledges what SPIVA confirms.  Specifically, allocating and owning a portfolio of passively managed, tax efficient, and low cost funds allow investors to capture the most that capital markets provide year after year.

Investors’ assets should not be left to chance.  By using a passive investing strategy, you can markedly and consistently improve the odds of investing success beyond the toss of a coin.

Best Song Lyrics (Part XII)

In today's world of 'popular' music, it seems the artist is either an individual or a group.  Back in the day, however, a lot of popular music was composed and/or performed by duos.  (Think Everly Brothers, Righteous Brothers, or more recently, Hall and Oates.)

Not many of the individuals who comprise these duos seem to end up with successful solo careers.  I suppose if they were good enough to be on their own, they'd have started out that way.  There is at least one notable exception: Paul Simon of Simon and Garfunkel.

It's well-documented that Simon was the songwriter of this duo, while Garfunkel was known for his vocal ability.  After they broke up in the early 1970s, Simon went on to a great solo recording career, with a some very popular songs mixed in with lots of other interesting vocal/instrumental ones.

But the Simon and Garfunkel era carries some of the best lyrical folk music ever made.  There's no denying the meaning of a song like Bridge Over Troubled Water but I will always prefer Sounds of Silence.  With five verses, and no chorus, it's songwriting at its finest:

Hello darkness, my old friend
I've come to talk with you again
Because a vision softly creeping
Left its seeds while I was sleeping
And the vision that was planted in my brain
Still remains
Within the sound of silence

In restless dreams I walked alone
Narrow streets of cobblestone
'Neath the halo of a street lamp
I turned my collar to the cold and damp
When my eyes were stabbed by the flash of a neon light
That split the night
And touched the sound of silence

And in the naked light I saw
Ten thousand people, maybe more
People talking without speaking
People hearing without listening
People writing songs that voices never share
And no one dared
Disturb the sound of silence

"Fools", said I, "You do not know
Silence like a cancer grows
Hear my words that I might teach you
Take my arms that I might reach you"
But my words, like silent raindrops fell
And echoed
In the wells of silence

And the people bowed and prayed
To the neon god they made
And the sign flashed out its warning
In the words that it was forming
And the sign said, "The words of the prophets are written on the subway walls
And tenement halls"
And whispered in the sounds of silence

Our Unstoppable Social Evolution

In the past week, there were at least 3 major news stories (two national and one local) about same-sex couples and the gay lifestyle.  How can I refuse to write about them?

The two national stories were U.S. Supreme Court cases, heard on back-to-back days.  One case was about the right of gays to marry, the other about gay marriage rights as they relate to the Clinton-era federal Defense Of Marriage Act.

The local story was another attempt by extreme Iowa Republican Party conservatives (I'm not sure there's another kind right now), to remove the governor's name from an anti-bullying conference.  Why?  Because they believe "anti-bullying" is a cover for promoting the gay agenda.  Yes, they actually think this out loud.  Not surprisingly, the effort is being led by WOITH Bob Vander Plaats, who can't be disgraced enough.

Regardless of how any of this turns out in the short term, in the long term it's once again time to remember a basic rule in America:  Society evolves on social issues.  There's no stopping it.

When we recognize something that hurts/helps society, we take action to disallow/allow it, respectively.  It may take years, or decades, but eventually, we get it right. 

It's going to take a while, maybe even another generation, but legislation allowing and expanding same-sex marriage in all states is going to happen.  Take it from someone who lives in a state where gay marriage has been allowed for years now - we've figured out it doesn't hurt us, it only helps us.

And so society evolves.

Literally, It's Figuratively Hyperbole

There's a famous scene in the movie The Godfather, Part III where Don Michael Corleone (Al Pacino) laments not being able to operate his 'business' empire more legitimately by saying, "Just when I thought I was out, they pull me back in!"

Enter this week's latest Whacked Out In The Head moment from Michele Bachmann, who had gone quite some time without making national news for saying something stupid.  Just when I thought she was out, she pulled me back in with this quote, from a speech on the floor of the U.S. House of Representatives about repealing Obamacare:

"That's why we're here.  Because we're saying, let's repeal this failure before it literally kills women, kills children, kills senior citizens."

Literally?  So she believes that a law/regulation, basically words on paper, will somehow animate and act to take a life.  Either she is very stupid about what inanimate objects can do, or very stupid about the definition of the word 'literally'.  (I say both.)

Makes me wonder why extreme conservatives like her even bother with the old, "Guns don't kill people" routine.  Guns literally can kill people, but if paper can do it too, we ought not be wasting time worrying about guns!

The sad thing is, the content of Bachmann's statement is already dumb enough.  How much more time will conservatives like her waste on repealing Obamacare?  Congress passed it, the U.S. Supreme Court upheld it, and voters re-elected the president responsible for it.  But she insisted on going the extra mile to expose herself as being stupid beyond the regular dumb, and used the word 'literally' where it made no sense.

Unfortunately, the incorrect and overuse of the word 'literally' these days is almost offensive.  I frequently correct both family members and strangers on how they use it.  These days, people commonly use it to intensify what they're saying, as opposed to actually using it properly.  In other words, it's being used as hyperbole.  Literally.

So thank you, Michele Bachmann, for allowing me to write about the misuse of the English language, while at the same time ridiculing you again.  Good to have you back.  Figuratively.

Post #200

Since July of 2009, I've been writing random thoughts out in this blog.  This is post #200, so just as I did with post #100, let's review some of what was covered in the last 100 posts, or basically the past two years.....

I spent a little time writing about the importance of certain singers and song lyrics.

I spent some time writing about finance and investing, which is the work I do for a living.

I spent a good deal of time writing about politics, particularly in 2012 as related to the presidential election.

I spent a bunch of time writing about people who are dishonest, how to identify them, and calling them out.

I spent too much time, but will probably spend more, writing about the moral hazards of religion.

I spent a lot of time, and will definitely spend more, writing about how taxpayers are being shafted by people in government who make selfish decisions.

A List

Ever since the USA Today newspaper made bits of information popular, and David Letterman made top ten lists popular, everybody tries to present news in the form of a list.  "Everybody" includes not only media outlets, but other organizations who are paid to create the list (either directly or indirectly through advertising) by the very entities they are listing.

As an example, last week something called the American Institute for Economic Research came out with a list of the best college towns in America.  Who knows what this institute actually does or why it exists - I looked at their web site and still couldn't figure it out.  But I know it creates lists.  It made news here because both Ames (Iowa State University) and Iowa City (University of Iowa) were on the list at number 2 and number 4, respectively.

So I've decided I don't want to be left out.  From time to time I'm going to blog some of my own lists.  Nobody asked me nor paid me for them, but since they are lists, they must have some meaning.

Here's my first one.....

Top Ten U.S. Places I've Never Been To But I Think Would Be Interesting To Visit:
10.  Tucson
9.  Hilton Head
8.  Lake Tahoe
7.  Yellowstone National Park
6.  Anchorage
5.  Augusta (Maine or Georgia)
4.  Portland (Maine or Oregon)
3.  Any city in Hawaii not named Honolulu
2.  New Orleans
1.  Key West

Stupid Is As Stupid Does

There are many iconic phrases given to us by the novel/movie Forrest Gump, e.g. "Run Forrest, run!" or "Life is like a box of chocolates."  The one that I've been pondering the past few days is, "Stupid is as stupid does."

I've never been quite sure what that phrase means, but I can think of at least one recent instance where it fits perfectly.  That is, in the case of last month's fake 'debate' in the Iowa legislature over medical marijuana.  (Yep, this in another blog post on the topic of pot.  Only the enlightened should continue reading.)

A legislative subcommittee just held a hearing on the topic of medical marijuana, which a new Des Moines Register Iowa Poll revealed is supported by a majority of Iowans.  That didn't stop the old white man who chaired the meeting from starting the hearing by saying, "Doing any bill.....that would legalize marijuana would be one of the stupidest bills that's ever been passed by this organization.  There is no reason to legalize medical marijuana."

Stupid is as stupid does, sir.

Before the hearing, I wonder how many legislators or their family members got their day started by taking an anti-depressant, anti-anxiety, or anti-pain medication, or some other kind of mind altering drug?  And after the hearing, I wonder how many legislators went to one of the nightly lobbyist-sponsored receptions and had an alcoholic drink or two?

I'll bet the answer is, "Lots of them."  But please ignore the man behind the curtain, we have an intellectually dishonest argument to make.  Society has determined that legalizing those other mind-altering substances is perfectly fine, even though they may be addictive, routinely abused, and lead to dire consequences for other people.

Stupid is as stupid does, for sure.

So we won't even have a real debate about controlling and legalizing medical marijuana.  We will merrily go along another year in Iowa, not only ignoring the incontrovertible organic health benefits of marijuana for some, but also spending millions on anti-pot enforcement and criminal incarceration for others.  Iowa allows gambling, Iowa allows gay marriage, but somehow the social conservatives here continue to beat back progressives on medical marijuana.

Maybe Forrest Gump's mom can explain this to me, because he also once said, "Mama always had a way of explaining things so I could understand them."

"And that's all I have to say about that."