Monday, September 21, 2015

General Radio and the K System

The future is filled with robots and drones and all sorts of people-replacing machines, and one wonders where all the replaced people are going to find work.  A new system is going to be needed - not just a tweeking of the present system but a complete rethinking of everything, from the bottom up.

Melville Eastham, who founded General Radio exactly 100 years ago, wondered about this very question in the early thirties. He and his partner, Henry Shaw, were impressed by the paternalistic philosophy Eastham had seen at a visit to the Carl Zeiss works in Jena, Germany. Ernst Abbe had bought out the Zeiss family in 1888, then gave the entire Company to a foundation with a the following charter:

To cultivate the branches of precise technical industry of Jena (optics and optical glass); to fulfill higher social duties than personal proprietors would permanently guarantee; to take part in organizations and measures designed for the public good; and to provide permanent solicitude for the economic security of the Zeiss Works  and particularly for the further development of the  industrial labor organization  as a source of substance for a large number of people, and to better the personal and economic rights of those people.

Now, neither Eastham nor Shaw was a card-carrying socialist.  Both were capitalists to the core, and so, while they gave a large portion of their equity, Ernst Abbe style, to the Genradco Trust, they designed a salary system that would allow the Company to shrink expenses (this was the 1930s, remember) without shrinking the workforce:  the K System.

The K System was brilliant. The higher-salaried employees, typically engineers and managers, would see their salaries move up and down depending on “K”, a factor that depended on the relationship between sales and orders  to quotas.  K could move in a range between 0.5 and 1.5. (Overages or shortfalls would be banked.) Thus, in bad times, the salaries could be halved, and in fact, K, when launched in 1933, did start at 0.5, but the next month it climbed to 0.6, and it hit 0.95 in January, 1934.

Two refinements were important: First, one was invited, not ordered, to be on “K.” Second, the quota was rigged so that if sales and orders were right on target, K would be 1.1.  Years later, an invitation to be “on K’ would be coupled with admission to the stock-bonus pool.  No one who was invited to be on the K Plan ever declined the offer. 

Amazingly, the Company not only navigated the Great Depression without a single layoff, but, when a local bank failed, it made employees whole, on the basis that the employees were depositors at the bank because the Company banked there.

There is much more to the paternalistic ways of General Radio – medical visits, services provided by the Genradco Trust, Company-paid life insurance (in 1919!), subsidized cafeteria, etc. Of course, the Company had a sound business plan, a stream of MIT engineers to hire, corps of gifted people. The Company lasted 86 years, from its founding in 1915 until it was bought by Teradyne in 2001.

Much more about this remarkable Company can be found in The General Radio Story, a book available from

Wednesday, July 15, 2015

Stock Talk - China's bid for Micron (cont'd)

Yesterday we talked about a Chinese firm's bid for Micron. We've read further on the subject and have concluded that this is not a serious offer but a trial balloon. For one thing, it is much too low, and if the rules of the acquisition game demand a starting low bid, this one is foolish.

Then what does China have in mind? Here's one guess: It's the opening salvo in an attempt to wrest semiconductor technology from the U.S. A lot of this technology is now in Asia, but not enough to tilt the scales. Take semiconductor equipment. Applied Materials is king of the hill, and its attempt to merge with Tokyo Electron was scotched last year because of likely hostility from the U.S. government (on antitrust, not security grounds). Then there's KLA and Teradyne and several other medium-sized companies that possess critical technology.

Let's suppose China made overtures to several of these companies. Then the U.S. would be left with a conundrum: Do we stiff them all, declaring economic warfare on China and inviting retaliation? Or do we succumb meekly? Globalism is a game we're not good at, despite President Obama's efforts in Cuba and Iran.

Watch the stocks of the U.S. semiconductor and equipment companies closely in coming weeks. And watch Advantest, a Japanese equipment company that has been beaten down lately, for signs of buying. If the Chinese are trying to corner the market in semiconductor technology, the equipment manufacturers' stocks are where their fingerprints should be visible.

Of course, the folks in Washington may prefer economic warfare to diplomacy. As the presidential campaign heats up, expect a bitter battle between the hawks and doves. It should make interesting reading - if it weren't so doggone serious.

Tuesday, July 14, 2015

Stock Talk - China's Bid to Buy Micron

A bombshell burst upon the market today, A Chinese company declared its intention to buy Micron, a large U.S. semiconductor manufacturer and one of the world leaders in memories, including flash chips. Of course there will be security hurdles to handle, and this government will presumably object, citing the strategic importance of semiconductor devices. Chances of a successful merger must be regarded as a 50-50 proposition at best.

As a song from Shenandoah goes, "I've heard it all before." Decades ago, it was Japanese companies that were the threat. I was on a industry committee in Washington charged with manning the ramparts. I was also on the Board of Directors of SEMI, a trade organization for the Semiconductor Equipment and Materials industry, and the subject of many meetings in Washington and Silicon Valley was "What do we do to protect our leadership in semiconductors?"

I remember one meeting when an assistant secretary of defense argued that the fate of the free world depended on our cooperation in depriving the USSR of our test systems.

"They can't even make light bulbs, let alone 64K memories," I said, "because their economic system is so screwed up. You guys should be hoping that they don't catch on to capitalism."

The Chinese, capitalists to their fingernails, have figured it out, and they are coming after us in ways the Russians and the Japanese never learned. What chance has the U.S., with 4% of the world's population, have to compete in the long haul? Information flows instantly, especially via social media, and the days of "keeping secrets" are gone forever.

Let's say the politicians are successful in convincing the Chinese that they would be better off developing their own memory technology and leaving Micron alone. How long do you think it would be before the Chinese find ways of throttling U.S. companies seeking to sell in China?

It's a tough world out there, and our only hope is a dash of what Kissinger called triangular diplomacy. We must make up our minds: Do we want to make nice with Russia or China? With a partnership with either, we have a chance.

As we enter the presidential campaign, the candidates should consider the alternatives.

Monday, July 13, 2015

Stock Talk - New Tech vs Old Tech

One of the more interesting competitions going on these days is the battle being waged for investors' dollars by old-tech companies (Microsoft, Intel, Texas Instruments, etc) and new-tech shooting stars (GoPro, Facebook, Fitbit, etc). It should be obvious that the new companies are almost all in the software or social media area, while "old tech" patrols the corridors of semiconductors and the "things" of technology. There are exceptions, of course, but that will do for a start.

This may be a false competition. If you talk about hardware, you have to talk about China. The other day I had a close-up look at a drone made by a Chinese company, DJI. Considering the technology and (especially) the price, it's hard to see how any U.S. company could compete. But in software, where facility with the English language is often important, U.S. companies are the leaders. Companies that combine hardware and software skills (Apple) are especially powerful.

There was a time when U.S. companies like Digital Equipment, IBM, and Hewlett-Packard were supreme, but those days are gone. Books could be written (and have been) about the causes of their collapse, but where is it written that the U.S., with 4% of the world's population, must have the lion's share of technology?

Back to the old-tech/new-tech competition. It is up to old-tech companies to adapt; that's obvious. Those that pull it off (the new CEO at Microsoft looks promising) will do well. H-P, on the other hand, has not found its way. Certainly the hiring of outsiders as CEOs at H-P is dispiriting.

Semiconductors, the heart of all the gadgets we know and love so well, are a question mark. If one were a betting man, one would say that the equipment to make semiconductors and the chips themselves themselves will move to Asia, and the best the U.S. leaders (Applied Materials, KLA-Tencor, etc) can hope for are partnerships with Asian forms. Of course, that takes political leadership, and if the Washington gurus insist on taking a "muscular" line with both China and Russia, all bets are off.

I will say more about the high-tech market in future posts.

Monday, May 11, 2015

Stock Talk - Acquisitions

If you're looking for a pretty good bearish indicator, consider the company making an expensive (the more expensive, the better) acquisition. This is especially true in the high-tech sector. My boss for many years, a bona fide entrepreneur and CEO, used to say that, in high tech, the odds were 10-to-1 against, and I've never seen any evidence that he was wrong. At the present time, CEOs of companies holding a lot of cash are particularly vulnerable. All that cash is yielding little or nothing, and analysts are always egging them to "do something," because that gets the company's name in the papers and generates lots of commissions for the deal-makers. Moreover, a lot of insiders will get wealthy, because acquisitions are always made at a premium to the market, and a spike in the acquired company's stock price will follow the announcement. So the reaction of analysts is almost always positive, because the M and A (mergers and acquisitions) business is considered exciting.

So there's time to sell or short the stock of the acquiring company - maybe weeks or months. What happens then, all too often, is that (a) the acquired company's key employees move on, (b) the acquiring company finds bugs in the acquired company's profit and loss reports or balance sheet, (c) the owners, once the lock-up period is over, dump their stock, (d) a major customer, for one reason or another, doesn't like the combination, or (e) the synergies that were touted as reasons for the acquisition aren't there. There are other potential problems, but you get the idea: The brokers who were selling the deal were overplaying the benefits and underplaying the pitfalls.

There are some acquisitions that make sense. My friend didn't say the odds were 10-0; he said the odds were 10-1. Every now and then a company will acquire a winner. But in investing, the odds are stacked against acquisitions, once the buzz dies down. Instead, bet on companies that use their money to fund new projects internally

Sunday, April 19, 2015

Stock Talk - Netflix

Netflix stock sells for $571 a share, well over 100 times what analysts expect the Company to earn next year – and over triple what you could have bought it for two years ago.  The Company is valued at over $34 billion today, and some people believe it will go much higher in the coming months.

There’s a reason for that nosebleed-high valuation. Netflix is revolutionizing the way we watch television. It is run by a bona fide visionary, Reed Hastings, and it is growing by leaps and bounds, especially overseas. Every hour I stream a movie or TV series on Netflix is an hour I do not watch conventional TV – and on many evenings I don’t watch cable TV or the networks at all.  These are the evenings I settle back for a good movie like Shirley Valentine or The First Position or Quartet or an episode of two of a TV series, courtesy of Netflix. 

The old guard is aware of what’s happening. A few days ago Verizon announced that it will soon unbundle channels for its FIOS customers.  Comcast and Time-Warner Cable, which have been milking their bundles for years, see the writing on the wall. And there will be more revolutionaries to come, as companies like Amazon and Apple are not likely to let Netflix have the disruptive technology without competition.

Still, first movers have an edge, and Netflix is running fast. The Company’s catalog of movies and in-house miniseries is growing fast, and I marvel at how much Netflix’s “content” has grown in quantity and quality.

Still, the valuation is now very high by any standards. If you think Netflix will continue its march on the living rooms of the world, you may want to buy a few shares. But for conservative investors like this one, I will continue to watch from the sidelines

Thursday, April 02, 2015

Stock Talk - 8

This is the time when annual reports fill up your mailboxes. Almost all of them wind up in the waste basket without being read, the ballots along with them. This is a mistake. I say this not because I wrote more than 30 of them, but because they say so much about the company and its business, probably more of value than you will find anywhere else. Long gone are the days when the CEO simply boasted about being "well positioned for the future" - and little else. Today, the company lawyers and accountants sweat over every word, making sure that every syllable is accurate to a fault. We live in the age of transparency - and lawsuits.

So, the next time you receive an annual report, junk the ballot if you must, but read the President's letter, and read every word of what is said about the organizational changes, the competitive landscape, and especially the profit and loss statement and balance sheet, comparing them with the year-earlier numbers. If you have time, you might scan the biographies of the nominees for the directors, but these are not essential, nor are the compensation tables. The state of business is what you should be most interested in, and you should be able to get a clear picture of this with less than a hour's reading. It helps if the company is in a business you know something about (e.g., retail food or clothing).

If your portfolio is not worth an hour of your time, you should put your money in the bank or in good mutual funds, and leave the reading to professional analysts.

Monday, March 30, 2015

Stock Talk - 7

A long time ago, I was mentored by a wonderful man at General Radio. Like most of the executives at GR, he had a engineering degree from MIT, and he was a very literary, very well read gentleman. He was active in the stock market, and I listened carefully to the pearls of wisdom he would cast. He had two portfolios, one designed to generate dividends, one designed to generate capital gains. And he noticed a curious thing: The dividend portfolio regularly outperformed the trading portfolio, even without considering the dividends! Of course, that may have been a sign of the times (the fifties), but dividend-paying companies tend to be stronger financially, and these are times that try one's balance sheets.

These days I have two portfolios, one designed for trading, one designed for current yield, and they exhibit the same results that my mentor found in the fifties. Of course that may be because I'm a lousy trader, but I think there's something more basic going on.

Lately, oil stocks have been plummeting, and that hurts returns from these stocks, which are heavy dividend payers. But there's an offset: Utilities tend to use lots of oil, and these stocks, also heavy dividend payers, benefit. Besides, the year is early, and it's too soon to declare dividend-payers a loser.

Focusing on dividend-paying stocks needn't mean giving up excitement. Even Apple pays a dividend. It's only 1.5 percent, but that's a lot more than you'll get on a CD from your local bank, and Apple is, to put it mildly, solvent. And Apple may well raise the dividend in the future.

So my thought for the day is this: Favor dividend payers. Check the dividend, and then look at the consensus estimate for earnings in the coming year. The lower the dividend as a percentage of the consensus, the better.

Tuesday, January 20, 2015

The State of the Union

President Obama has just finished his 2015 State of the Union address, and here are my reactions:
We have in Barack Obama the best orator since FDR.  He's a masterful speech-giver and also an expert speech-writer, for it is obvious to me that he at least guided and probably wrote much of the speech. (I know whereof I speak, since I have written and delivered dozens of speeches.) There was precious little to complain about. It was a trifle long, and the barbs at Russia and China did not go well with the over-all pacifist spirit of the speech. And the reference to the person in the balcony (a "typical" person who just happens to illustrate his point) has become a staple of SOTU speeches in recent years, and it is getting a bit tired.

Of course, the President made only passing reference to the "loopholes" he would close to pay for all the goodies he was promising. And the percentage of the world's wealth controlled by the top one percent of the world's population (a subtext of the rhetoric these days) neglects to mention that the world's population includes billions of people who live in Asia and Africa - people beyond the reach of the President's policies (and who need the jobs President Obama wants to bring back to the U.S.).

But these are minor quibbles. Let's give President Obama his due: He gives a helluva speech. There is no one in either major party who is in his league.

Thursday, December 18, 2014

A Party of Hawks?

I don’t pretend to be a political expert, but it occurs to me that Marco Rubio took himself out of the presidential sweepstakes when he angrily attacked President Obama for his decision to normalize relations with Cuba. And those Republicans who fulminate against the Administration for the decision to support the Congressional report on Enhanced Interrogation Techniques (read torture) may effectively brand their party the Party of Hawks and seal their defeat in 2016.

Now, I am an unabashed conservative, one who instinctively opposes most of the economic tendencies of President Obama. I am convinced that he is no friend of business, and the more successful a business, the less likely it will find favor at the White House. But on Cuba and on foreign policy, the President, it seems to me, is on the right side of history – and of the American electorate.

The hawkish wing of the Republican Party, which is in control of their party, argues for a “more muscular” foreign policy, especially in the Middle East, and they have enough supporters to persuade them that their position is popular. Dick Cheney has famously supported torture, and Marco Rubio has a position paper in today’s Journal attacking the thawing of relations with Cuba. Both receive standing ovations from what they see as their base.

They should be careful.  If they are successful in derailing the normalization of relations with Cuba and in promoting American boots on the ground in the Middle East, they will be setting up a Democratic landslide in 2016. Most Americans are war-weary, and the reaction of most of my friends on Cuba is “about time.”  Of course, I could be wrong, and Americans could be spoiling for a fight.  Time will tell.

Monday, November 24, 2014

Stock Talk - 6

Your greatest risk in playing the market is the black swan, the geopolitical event that can send the market down 500 points in a heartbeat.  If you understand that and have limited your exposure accordingly, fine. But a lot of people overlook that risk and keep betting 50 or 60 percent of their wealth on a continuation of the bull market.  So far, they have done well.

The talking heads on CNBC keep reminding us that over the long term stocks outperform bonds. They are talking their book. People on CNBC - and the station itself - make money by promoting the stock market. One should never forget that fact.

We are about 5 percent of the world’s population.  A lot of the other 95% don’t like us, and the number of haters has risen in the past decades and continues to rise.  Some of this is the result of My Lai or Abu Ghraib or, more generally, Iraq and Afghanistan, some is because we are conspicuously wealthy and successful; the point here is not to argue philosophy, but to factor in risk. 

The degree of risk you can tolerate depends partly on your age; if you are too old to recoup a major loss (as I am), you may want to limit your market stake to 10 or 15 percent.  The black swan doesn’t have to be a repeat of 9-11; anything that induces sudden, mass fear will do.  And a sudden spike in hysteria will motivate people to pull money out of the market and into Treasury bonds. Some of that is already apparent in the low interest rates available in the bond market.

The fact that the U.S. is an open society is both our strength and – increasingly – our weakness. With social media available to everyone, including potential terrorists, the question is not if but when.  So what is an investor to do?  Consider well-protected yield, which include short-term Treasuries but is not limited to them. Tax-advantaged municipals are attractive, but one has to consider the municipalities. In the battle between pensioners and investors, the pensioners will win in many states. It’s better to shun municipals in those states – which may include your own. It’s better to pay state income tax than to risk principal.

It’s possible that terrorists will never attack the U.S. I hope so. But meanwhile, I’m avoiding the momentum (“mo-mo”) stocks, like Netflix, Facebook, Tesla, Keurig Green Mountain Coffee, and Amazon. Let the risk-takers make the profits, while they can.

Thursday, October 23, 2014

Stock Talk - 5

A new reality has come to the stock market:  The founders and leaders of the flashiest companies listed on the stock market don’t give a damn what their stock does.  This may be good or it may be bad, but them’s the facts, and you should be aware of them.

Amazon reported disappointing earnings today, and the stock promptly tanked 10 percent. Do you think Jeff Bezos cares? Do you think the founders of Google or Facebook or Alibaba really care if they or their key employees are worth a few hundred million less than they were a week ago?  They do not, and, as I say, that may be a good thing – as long as you understand the fact.

Years ago, when I was serenading Wall Street, it used to be different. People left big companies to join start-ups on the promise of wealth that would eventually be realized via stock options. Today, a hot company goes public and  - wham! – dozens of new millionaires or billionaires are minted overnight, and if years later the stock drops 10 percent in a day, Jeff Bezos, Mark Zuckerberg, and Larry Page and their top lieutenants are still very, very wealthy.

Given that reality, how should you invest?  Personally, I don’t invest in Amazon or Google or Facebook or Alibaba, though for many investors they have been great investments. It’s just that I like my companies’ leaders to have skin in the game.  Mind you, I don’t expect the CEO to be a pauper; that would be unrealistic. But I do want him or her to care what the stock does, just as I care.

I have nothing against great wealth. God bless Bill Gates and the others on the Fortune list.  The opportunity to make unlimited wealth is one of the qualities that has made the United States the most powerful nation on the planet. I devoutly hope that the CEOs of the companies I invest in will make billions and billions. But by then I will be long gone, looking for the next batch of billionaire wannabes.

Monday, October 06, 2014

Stock Talk - 4

The total stock-market valuation of Netflix, Amazon, and Facebook is about $400 billion, or about the GNP of Sweden. Amazon stock sells for hundreds of times earnings, Netflix sells for over 100 times earnings, and Facebook sells for "only" 80 times earnings. Now, it's true that if you bought the three stocks a year or two ago, you'd have made a pile of money. And I missed the boat on all three. But nosebleed territory is not for me, because as soon as I bought Amazon at $320 a share, it would drop 20 percent, as it did from its high of about $400 a share. Life's too short to spend it throwing dice.

The financial news today is that Hewlett-Packard has decided to split into two companies. Now, I happen to know H-P well, because I spent a lot of time competing against them. As a matter of fact, in 1956 I remarked to the then Chairman of the Company I worked for, "H-P has just passed us in sales." His answer: "They'll pass us on the way down, too."

It never happened, and H-P went on to become a Goliath in electronics, before it lost its way, while being run by Carly Fiorina, Mark Hurd, Leo Apotheker, and now Meg Whitman. You know what all of these people have in common? They were all outsiders. Think of it: The Company was saying to its 300,000-plus employees, "We don't think any of you is capable of running this Company, so we're bringing in someone who hasn't worked for H-P for a day." This is not a knock on any of the chosen CEOs; I happen to think Meg Whitman is a very savvy manager. But really, doesn't it prove that at H-P leadership succession hasn't been a priority since Dave Packard and Bill Hewlett departed? So H-P is not on my stock-market shopping list.

Some trends are well established, and you would be a fool to ignore them. So you will probably not invest in newspapers and magazines. But if you dig down a bit further, you will find other trends worth noting. Shopping malls are likely to become dinosaurs, although it might take a while. So will movie theaters, as home screens get larger and cinema screens get smaller. It may take years for these trends to play out, but do you want to invest your hard-earned money in endangered species?

The price of oil has been tanking (pun intended) lately, and so the oil stocks have been falling. But this is not a long-term trend. There are just too many cars and factories dependent on oil. So if a dividend-paying oil stock is falling, that means the yield is increasing, despite the turmoil at OPEC. So not all collapses are bad, and though I am happy to see the pump price at $3.30, I am too much of a realist to sell my oil stocks.

Tuesday, September 30, 2014

Stock Talk - 3

President Obama doesn’t like Wall Street. That much is clear from his comments about “fat cats,” “homes in the Hamptons,” and the like. That much is clear and permissible. He was elected President by a majority of voters in 2008 and reelected in 2012. But you should be aware of the fact when you are investing.  He and his Administration think (correctly) that big companies spend a lot of time and talent trying to minimize their tax bite, and he and his associates especially hate the practice of “inversion,” in which a U.S. company merges with a foreign company and reincorporates in the more tax-friendly nation, which is never the U.S.  But they’re not the only targets. Financial institutions have been repeatedly fined for various transgressions, and the fines can be huge.

That being so, you have to ask yourself, when investing, “Do I really want to bet my money against the President of the United States?” The question doesn’t just involve financial institutions. The prevailing attitude in the political world is that small businesses are good and big business is bad. In this political season, how often do you hear candidates taking that line?

(The other day President Obama, explaining the quick rise of ISIS in Iraq, said that the U.S. had given Prime Minister Al-Maliki a functioning government, but that Maliki was too intent on building up his political base among Shiites and thus squandered his legacy, As I read this, I thought the same might be said of President Obama, who was too concerned with strengthening his base among Democrats and thus contributed to the divisive climate that characterizes Washington.)

Although the odds are that President Obama will lose the Senate in November, the divisiveness will probable continue through 2016. Question: How does one tailor his stock portfolio given this situation?

Favor medium-size companies. Big companies like Wal-Mart and Amazon are inviting targets for politicians, and small companies (those with annual sales of less than $1 billion) are too vulnerable to economic crosswinds. The ideal company is one with sales of a few billion and in a business that is out of the headlines. A dividend is a plus but not essential. 

International exposure used to be a plus. No more.  The geopolitical situation is volatile, and companies that are seen as surrogates for Uncle Sam are probably going to attract unfriendly attention.

There are many sizable, profitable, growing, U.S.-based companies that are worth considering. Many of them are companies you probably have never heard of.  I’ll give you some hints in future blog posts.

Saturday, September 27, 2014

Stock Talk - 2

Since there’s no way to tell whether a given stock will rise or fall tomorrow, it makes sense to invest in stocks with a long-term objective in mind. Not too long term, because stocks with a five-year gestation period could wear out your patience.  So you look for a stock that will prove itself in a year or two.

3-D printing and package delivery by drones are examples of concepts that probably will take too long to pay off.  If you happen to believe that shopping malls and newspapers are in for a long period of decline, you avoid stocks in those sectors – or even short them.

A word about shorting:  Shorting means selling borrowed stock, on the hope that you will buy it back (and close out the position) at a lower price and thus make a profit. Shorting is dangerous, because the loss is theoretically infinite, but having a small part of your stock-market portfolio short is not a bad idea – if the shorts are in sectors that are in long-term downtrends.  Risk-tolerance comes into play here; the shorts in my own portfolio are about 20 percent of the total.

Day trading – buying a stock in the morning and selling it in the afternoon – is something you should not even consider. Especially now, with the geopolitical situation so volatile, you can lose money for reasons that have nothing to do with your stock.  The popularity of day trading probably has something to do with the rock-bottom commissions brokerages are charging.

It pays to be well informed. My own tastes center on the New York Times, the Wall Street Journal, and The Economist.  There are others, but that’s all I have time for. I watch CNBC during the day – but very skeptically, because most of the people on that channel are “talking their book” – touting positions that enhance their own portfolios.  That’s also true of the writers at the Times and the Journal, but they are more subtle about it.

As we saw in a previous blog on the subject, dividend yields are all-important. My trading portfolio is smaller than my yield portfolio, and the yield portfolio has done better for years. There is little mystery to this; we have been in a bull market for bonds for decades, but most people have been sure that runaway interest rates are around the corner – and most people have been wrong.  Low-interest rates shift wealth from rich people (the lenders) to poor people (the borrowers), and that fits nicely into the Administration’s objective. As long as President Obama is in office and has a compliant Fed, the bull market in bonds will continue.

Thursday, September 25, 2014

Stock Talk

--> -->A friend recently asked why I didn’t write more about the stock market, since this is the field I worked in for most of my career – and, presumably, that I know best.  I answered that I didn’t want to play the role of investment advisor, but on reflection, that was a cop-out. So here goes.

Stocks are risky. No matter how much you think you know about a company, there are people who know more, and these are the people who want your money. Forget the rules that say if you plug your age into a formula, you will know what percent of your wealth should be in stocks and what percent should be in bonds. The risk is the same whether you’re 35 or 75.

A friend of mine (and my mentor in the 50s) told me that he had two stock portfolios, one specializing in stocks designed to generate capital gains, the other investing in stocks that paid high dividends. And – funny thing – the yield-oriented portfolio had a consistently higher total return!  Moral: Stocks that pay a dividend are almost always better, and the results are even better if the dividend is well protected (i.e., a smaller percentage of estimated earnings).

Of course, one can always point to exceptions. You could have made a killing if you bought some Netflix a year or two ago, and Apple (a dividend payer, now) has been a good long-term investment. I have a small percentage of my investments in such speculations. I read all the business papers and am reasonably well informed, but you know what? The yield portfolio out-returns the trading portfolio, just as it did for my mentor in the 50s. Some things just don’t change.

So my initial advice is this: Look for a well-protected yield. That’s especially timely now, when bank yields are so low. Second, use the low-cost, on-line brokerages. You can buy or sell a stock for $8 a trade or less, which is a small fraction of what I paid 20 or 30 years ago.

Now that I’ve broken the ice, I will indulge in more “stock talk” in future blogs.



Thursday, September 11, 2014

I've Heard It All Before

As I listened to President Obama last night, I kept thinking, "I've heard it all before." We began the Vietnam War, our longest at the time, by sending in advisors, the first arriving in Saigon by helicopter in 1961. How easy it is to start a war, how hard it is to end one!

Then it was the Domino Theory, the notion that if Vietnam fell, China would have hegemony over all of Southeast Asia. In the case of Iraq, it was Weapons of Mass Destruction. Today it is the threat of ISIL. There's always a threat, sometimes real, often magnified by the hawks or the neocons or, as President Eisenhower had it, the military-industrial complex. There's never a lack of threats, because we live in an imperfect world, and there's never a lack of appetite for violence - unless you are one of the victims.

Although I disagree with President Obama on most issues, I am grateful today that he is our President, and not John McCain, who would surely have us at war with Iran, ISIL, and possibly Russia. Thank God for small favors.

If you missed it, scroll back a couple of blogs and read the lyrics for "I've Heard It All Before," from the musical Shenandoah. It's very timely.

Wednesday, August 13, 2014

The Ministry of Truth

In George Orwell’s world. The Ministry of Truth was the government’s propaganda agency, the unit whose job was to rewrite history according to the government’s wishes. We need a Ministry of Truth in Washington. Or maybe we already have one. Consider the following:

You don’t have to be an archivist to find quotations from Washington in which Prime Minister Maliki in Iraq was hailed as just the kind of leader his country needed, a trustworthy ally of the United States who could be counted on to deliver, whatever the provocations.  The Ministry of Truth is today rewriting history to delete all those quotations.

In similar vein, the United States promoted itself as the world’s leading advocate for democracy, the principle that the people of a nation should be entitled to vote for their leaders. The vote, we said, was the ultimate guarantor of the peoples’ liberties. In Egypt, Ukraine, Syria, and now Iraq, the Ministry of Truth is rewriting history along the following lines: The leaders who are elected can be thrown out when the people show, by mass protests or by polls, that they want someone else.

President Obama lashes out at rich Wall Streeters by telling them they “can keep their homes in the Hamptons.” The President could have said “in the Hamptons or Martha’s Vineyard,” but the Ministry of Truth wouldn’t hear of it.

A terrific Front Line report on PBS recently revealed some of the falsehoods our government tells us in the name of security. It was called “The United States of Secrets.” I thought it was one of the best pieces of investigative journalism I’ve ever seen, and it was fair, affording the NSA chiefs ample opportunities to express their positions. But the take-away was that George Orwell's fantasy was increasingly realistic.

Sunday, August 03, 2014


In 1975, Jill and I took my parents to Boston’s Colonial Theater to see John Cullum in Shenandoah.  It was a very good production of an excellent show, which ran on Broadway for over 1000 performances.  Later, I bought the original-cast LP, which has been sitting unplayed in my basement, along with many other OC LPs, for many years – until now.  A friend told me that he had transferred his LP collection to CDs, and, intrigued, I bought a similar device and have started the long transferral process.

So far, I have burned CDs of many musicals, some brilliant, some not. But Shenandoah made me sit up and take notice. Based on the 1965 movie, it was an anti-war musical about a Virginia family’s Civil War hardships, and it was in sync with the public’s distaste for Vietnam.  Here are the lyrics for one of the memorable songs, sung by Cullum:

Stand and show your colors. Let's all go to war. The Lord will surely bless us.
I've heard it all before. I've heard it all a hundred times. I've heard it all before.

They always have a holy cause to march you off to war.
Tyranny or justice, anarchy or law. We must defend our honor.
I've heard it all before. I've heard it all a hundred times. I've heard it all before.

They always have a holy cause that's worth the dyin' for.
Someone writes a slogan, raises up a flag. Someone finds an enemy to blame.
The trumpet sounds the call to arms to leave the cities and the farms.
And always the ending is the same, the same, the same, the same.

The dream has turned to ashes, the wheat has turned to straw.
And someone asks the question: "What's the dyin' for?"
The living can't remember, the dead no longer care. But next time it won't happen. 
Upon my soul I swear I've heard it all a hundred times. I've heard it all before.

Don't tell me "It's different now." I've heard it all, I've heard it all, I've heard it all before.

The music was by Gary Geld, the lyrics by Peter Udell. 

Shenandoah's Civil War story had two sides, one of which was told by the play. But there is never a shortage of people to tell the other side. These days, with the hawks urging a “more muscular” foreign policy over Ukraine, Syria, Russia, China, Iran, Iraq, Israel, North Korea, Gaza, and God knows where else, we could use a play like Shenandoah today.

Tuesday, May 13, 2014

Bombs Bursting in Air? Not.

What this country needs – oh, does it need – is an issue on which liberals and conservatives can unite and on which the country can voice its approval, loudly and enthusiastically.  Here is such an issue.

It is time we should change our national anthem.  The Star Spangled Banner is hard to sing and is out of step with the national mood, which is less militaristic than it used to be.  The country, according to most polls, is tired of “bombs bursting in air” and is ready for “amber waves of grain” or “the oceans white with foam.”

You like bombs bursting in air? Then the present anthem fails on musical grounds. How many of us, hearing O, Canada sung at the hockey playoffs or the Russian national anthem sung at Sochi, sighed, “I wish we had an anthem like that.” (How many singers have had the same thought?)

If it were put to a popular vote, two candidates would probably emerge: America the Beautiful and God Bless America.  Either one, in my opinion, is better than The Star Spangled Banner.  They are both stirring melodies.  America the Beautiful was written by Samuel Ward, a choirmaster, and Katherine Lee Bates, in 1910.  God Bless America, as everyone knows, was written by Irving Berlin in 1918 and revised by him (for Kate Smith) in 1938.  Both are well known and sung often; in fact, God Bless America has become a surrogate national anthem, sung at the home half of the seventh inning at many major-league baseball games.

For more than 150 years, the United States had no national anthem.  Then, in 1931, President Herbert Hoover signed an act making The Star Spangled Banner the national anthem. It has had a long and distinguished life, but now it is time for a new national anthem, easier to sing and having more inspired lyrics. It is time to move on.  Is there a political leader around who will take up the cause?

Wednesday, May 07, 2014

Buy Stocks in What You Know?

A long time ago, Peter Lynch, the Manager of Fidelity’s Magellan Fund, became a hero of investors by popularizing the idea of buying stocks in companies with which one is personally familiar, either as a customer or as an employee. Enough successful examples of that strategy were around to promote Magellan and Lynch to well deserved cult status, and investors began asking their wives and children which stores and which products they liked – and why.

All that was true then. But does it make sense today? Yes, if one doesn’t confuse notoriety with knowledge. Take, for example, Alibaba, the Chinese e-commerce colossus that is about to go public in what may well be the biggest IPO in history. People are angling to buy stock in Alibaba or in Yahoo, which owns a big stake in the Chinese Company.  Other people are buying “momentum” stocks – stocks such as Tesla or Facebook or Twitter or Netflix. Some of these will make money for their buyers, but many are plunging on the basis, not of personal knowledge, but of hype. There’s a difference.

Look, with any of these momentum stocks, no matter how much you think you know, hundreds of Wall Street’s best and brightest know a thousand times more. They know more and they trade faster. You don’t have to believe the market is rigged, as one author plugged his book by charging. It’s just a fact of life, much more so now than in the golden age of Peter Lynch.

Publicity attracts crowds; that’s the idea, after all. In my stock trading, I scour the table of contents in the Journal and Barron’s, and if I find a company listed in which I am interested in trading, I cross it off my list. It is hard enough making a buck in the market without competing with the sharks. There are plenty of companies, even NYSE-listed companies, that never appear on those tables of contents.

I’m not saying that investing in what you know is a bad idea. I am saying that trading in hyped stocks is a loser. I bought some Apple several years ago because I believed in the Company, and I still own those shares. Score one for Lynch. But I trade other stocks, and those are the stocks where publicity is the kiss of death. Which ones? I’m not going to tell you, because that would be dumb.

Friday, April 25, 2014

Triangular Diplomacy

Politicians, mostly but not entirely Republicans, urge President Obama to adopt a more “muscular” foreign policy. There are headlines to be won with hawkish talk, and members of Congress, especially those who are considered Presidential hopefuls, are not averse to headlines. So there are those who chide the Administration for taking a “wimpish” stance on Syria and Ukraine. At times the President and his Secretary of State seem to be bending with the wind and threatening tougher sanctions against our presumed enemies.

Who are these enemies? Russia heads the list, and seldom a day passes without Obama or Kerry delivering a volley of threats against Putin and his associates. China is not far behind. The President’s trip to Asia this week is designed to reassure Japan and the Philippines that we will back up their territorial disputes with China with our muscle.

It is time for a reality check. There are three major powers in the world: the United States, Russia, and China.  We can out-muscle Russia or China, but we can’t take on both of them. If we threaten both, we will simply drive them to join forces in an attempt to defeat us. In a new Cold War, not just against Russia but against Russia and China combined, we would either (a) lose or (b) win at a cost that would leave the world in shambles.

Henry Kissinger, in his excellent book Diplomacy, outlines the background of Nixon’s “opening to China” in 1969:

Nixon decided to concentrate on the broader issue of China’s attitude toward a dialogue with the United States. Priority was given to determining the scope of the looming Sino-Soviet-American triangle. If we could determine what we suspected – that the Soviet Union and China were more afraid of each other than they were of the United States – an unprecedented opportunity for American diplomacy would come into being.

So it’s time, hawks, to decide whether to make nice with Russia or China.  Threatening both just doesn’t make sense. It’s idiotic. Decide whether some islands in the East China Sea are more important to the United States than Crimea, whether North Korea’s nuclear ambitions are more important than NATO’s interest in extending its reach.

Of course, best of all would be a world in which the United States is friendly with both Russia and China, but that seems highly improbable.

Whatever else one might think of Nixon, his trip to China was a master stroke. In these turbulent times we need more negotiations, less bluster, more give-and-take, less "you do this, or else."  We need triangular diplomacy.


Wednesday, April 23, 2014


A few days ago I talked about the demalling of America.  Today I heard a rebuttal on TV from a booster of shopping malls. She said that on-line shopping is not replacing trips to the mall; it is replacing catalogs.  I am not convinced.

Another transformation that’s happening before our eyes is the slow but inevitable disappearance of the movie multiplexes that, like shopping malls, were overbuilt at the end of the 20th century.  The last few times I went to a movie theater, there were an average of about six people scattered in a space that held about 200. All right, they were afternoon trips, but still…..

Why go to the theater?  Home TVs are getting bigger, while the multiplex screens are getting smaller. At home, you control the environment; at the multiplex, your neighbors may talk, rattle their popcorn bags, or use their cell phones. Then there are the interminable previews and the inane pre-movie quizzes and commercials.  I have it on good authority (my children) that some showings of some movies are packed, but it seems to me that there is a shrinking cohort of people who absolutely, positively, definitely must see the latest Matt Damon or Johnnie Depp movie NOW. 

Then there is the fact that the hours spent on the iPad and the smart phone and the electronic games have to come from somewhere, since no one has figured out how to squeeze more than 24 hours into a day.

Finally, there is the cost of converting the film projectors to digital format, a substantial sum. I read that many theater owners just can’t afford it, but the trend is clear: celluloid is on the way out – and so are movie theaters.

Actually, I think the fade-out of the movie theater is sad.  I remember warmly the nights I used to accompany my parents to the Codman Square Theater (“the Coddy”) to see a Fred Astaire musical, a “B” picture, previews of coming attractions, Movietone News, and a cartoon. They are great memories. But, as they used to say in the movies, “Time Marches On.”