A Simple Strategy for High Returns?
Morgan Housel presents some interesting data at The Motley Fool but draws the wrong conclusion:
…the single best stock to own from the 1950s to the early 2000s had nothing to do with computers, or technology in even the loosest sense. It was Altria (NYSE: MO ) , the maker of Marlboro cigarettes, which returned nearly 20% a year for 50 years. During a period when new industries transformed the lives of nearly everyone in the developed world, the most money was made in a company that stuffed tobacco into paper tubes the way it had for more than a century.
…Microsoft’s profits have grown 16-fold since 1995. Yet once again, the best stock returns may surprise you. With dividends, Microsoft has returned 511% since mid-year 1995. But Clorox (NYSE: CLX ) returned 560% during that time — so bleach actually bested the last leg of the computer revolution. Colgate-Palmolive (NYSE: CL ) returned 651% over the same period, so toothpaste did, too. As did garlic powder: McCormick returned 642%. Ditto for hamburgers, with McDonald’s (NYSE: MCD ) adding a 540% gain. Hormel Foods produced a 544% gain over the same period, so Spam was actually more profitable than computers during the big boom. Our old friend Altria scored a 1,300% gain, nearly trebling Microsoft’s return.
Admittedly, I’ve cherry-picked the dates to make my point. Back up a year or two, and Microsoft wins. But the fact that any period — a 17-year period no less — can be found during which a company with a virtual monopoly on a booming industry underperforms the dullest of products is extraordinary. It also underlines two important investing lessons…
One lesson Housel draws is that “simple products that rarely change often make better investments than those undergoing breakthroughs.” Rubbish. (Did Housel even compare simple products with breakthrough products? No. He just found some winners over a particular time frame.) The real lesson is that expectations, good and bad, are baked into prices so winners and losers are always unexpected. Unless your name is Warren Buffett, you should index.
Hat tip: Newmark’s Door.
The benefits of learning a second language
Bryan has had a few recent posts criticizing the notion of multilingualism for (most) Americans. As a general advocate of learning foreign languages, I have a few points in response:
1. There is a sizable literature on the cognitive benefits of bilingualism. I get nervous when I see the topic discussed without reference to the main claimed benefits.
2. I believe that good fluency in a second or third language significantly expands one’s ability to see and understand and also articulate other points of view. And most of the very great thinkers of the past were fluent or semi-fluent in multiple languages. By teaching other languages at an early age, we can make our most productive thinkers deeper and more productive.
3. Ideally foreign languages can be taught to individuals when they are young, well before high school, thus very much lowering the opportunity cost of such instruction. Just toss out some of the other material, making sure to keep mathematics and English literacy. Most of Western Europe does this quite well, and I hardly think of those children as miserable. I don’t see why this has to cost anything at all.
4. I am reasonably sympathetic to the “we’re so uncommitted to this notion we’ll never see it through so let’s not bother trying” response to my attitude. (In particular it is harder for Americans to get within-culture reinforcement for language learning in the way that Europeans so often do, either from American popular culture or from crossing a nearby border.) Yet that’s a far cry from believing it would actually be a mistake to invest resources in that direction, if indeed we would see it through.
Here is one stimulating discussion of the topic, in English of course.
*Queen of Versailles*
I enjoyed this movie, although I didn’t think it lived up to its most enthusiastic reviews. It is striking how much economics the film contains. The implicit macro model of the crash emphasizes the credit channel, rather than the monetary channel. Repeated cuts to nominal wages fail to work because credit/liquidity is a complementary factor of production. There is another implicit model of lender asymmetry, namely that your old lenders may try to drive you under, to get the collateral, and competition from new, less informed lenders cannot step in to fill the gap. The fixed costs of bankruptcy are high. The male protagonist in the movie is a Caplanian pro-natalist, and a satire of such at the same time. Habits are formed, and then unformed, and possibly will be formed again. The wealthy are not so different from the rest of us. Someone didn’t read Aristotle, or for that matter Markowitz and Tobin.
Facts about Medicare
I’ve got a modest proposal: You’re not allowed to demand a “serious conversation” over Medicare unless you can answer these three questions:
1) Mitt Romney says that “unlike the current president who has cut Medicare funding by $700 billion. We will preserve and protect Medicare.” What happens to those cuts in the Ryan budget?
2) What is the growth rate of Medicare under the Ryan budget?
3) What is the growth rate of Medicare under the Obama budget?
The answers to these questions are, in order, “it keeps them,” “GDP+0.5%,” and “GDP+0.5%.”
Let’s be very clear on what that means: Ryan’s budget — which Romney has endorsed — keeps Obama’s cuts to Medicare, and both Ryan and Obama envision the same long-term spending path for Medicare. The difference between the two campaigns is not in how much they cut Medicare, but in how they cut Medicare.
That is from Ezra Klein, and here is further comment.
Assorted links
1. How are the Chinese solar companies doing?
3. Duncan Luce passes away at 87.
4. China’s money outflow continues, or in contrast here is Scott Sumner on China.
Old Lady Opposition to Driverless Cars
I think driverless cars will change the design of cities, revolutionize retailing, and greatly change our driving culture, soon for example you will need a license to drive…well, you know what I mean. The scale effects on this technology are tremendous, once it works for one car it works for all. The technology won’t be expensive and it will get better every year. The technology will also get better the more driverless cars their are. Once these cars become common, for example, I expect speed limits for driverless vehicles to be substantially increased.
I do worry about lawsuits in the early years. I am not worried, however, about the following attack on driverless cars which appears to be real although it seems like something from the Onion:
One of the reasons I don’t think this will work is that the technology will be offered first as an option, like cruise control, which will appeal most to the safety conscious. The elderly in danger of losing their license, for example, may appreciate a driverless car. Personally, I would like the driverless option for night driving and I would be much happier lending my teenager the car if I could say “but only if you use the Google option!” At first when there is an accident people will ask, “did he have the driverless option on?” But soon they will start to say “if only he had the driverless option on.”
I do think, however, that technologists should change the name to the electronically chauffeured vehicle. Electronically chauffeured vehicles will appeal to the affluent, the influential and the productive.
The ubiquitous Daniel Lippman gets the hat tip.
Will a more expansionary monetary policy give rise to a bubble?
I’ve been seeing a lot of this question in my Twitter feed. Here are a few points:
1. If a more expansionary monetary policy helps an economy recover, yes it may well raise the risk of a later bubble. We should then be cautious, but that is no reason to turn down the prospect of a recovery. Anything leading to recovery could have a similar risk.
2. There are already plenty of reserves in the system and there is plenty of room for credit to expand over its current level. Maybe we don’t know what triggers bubble-inducing investment behavior, but why should raising ngdp expectations and realities raise the risk of a bubble, if not for the factor cited in #1?
3. Arguably a flat yield curve induces a quest for higher returns elsewhere or in more dubious investment areas. Yet the flattening yield curve did not follow quickly from the massive injection of reserves. Rather it evolved slowly as prospects for real recovery deteriorated and the long-run outlook for the advanced economies turned down. Real factors drove the flattening, and if monetary expansion brought a bit of recovery it likely would unflatten that curve a bit. That could well lower the risk of a bubble.
4. I may consider Austrian theory, with regard to this question, in a separate post.
Overall I don’t see this as a reason to reject monetary expansion. #1 is a real risk but again I’ll take the recovery every time and a lot of the other arguments boil down to that trade-off.
Football coach may refuse to punt
San Diego State head coach Rocky Long told Tod Leonard of the San Diego Union-Tribune that he’s considering not punting or kicking on fourth downs in 2012. Instead, Long is considering going for it on fourth downs inside an opponent’s 50-yard line in order to try and pick up a new set of downs every time.
Kevin Kelley, the head coach of Pulaski Academy in Little Rock, Arkansas has developed the strategy over the years. He claims punting is an offensive failure, and is essentially a voluntary turnover.
Here is more, hat tip goes to Mark Buckley, and for previous MR posts on this topic see here and here.
Company to offer its own degrees
A leading business publisher is to become the first FTSE 100 company to award its own degrees.
Pearson, which owns the Edexcel exam board as well as Penguin and the Financial Times, will recruit up to 100 undergraduates from September 2013 for a business and enterprise degree course.
David Willetts, the Universities minister, is trying to encourage private providers to set up their own degree courses.
Pearson will charge £6,500 a year for a basic three-year university course. Students are expected to be eligible for government loans to cover the fees and Pearson will also be offering “performance scholarships” to help its brightest recruits pay their fees.
That is probably not a big deal, just fyi, and here is a bit more.
For the pointer I thank Daniel Lippman.
Morality and dispassionate analysis
A while ago a few people drew a contrast between a more dispassionate style of (blog) analysis and a more explicitly moralizing approach. I would frame it differently. Pluralism reigns and there are many different moral values of import. The moralizing approach tends to leave a writer stuck in emphasizing a single value or a single comparison of values. The so-called dispassionate approach is more likely to lead the writer to see a broader range of values and moral trade-offs. The moralizing approach is most of all impoverished when it comes to…morality.
*The Park Chung Hee Era*
That is a book from last year, edited by Byung-Kook Kim and Ezra F. Vogel, which somehow escaped the notice of much of the broader world. Maybe because it is a collection, as we all know that most edited collections are mediocre. This one is superb, as it offers a very detailed and also fairly comprehensive look at the seminal years for South Korean economic growth. Two-thirds of the essays are excellent and the others are at least pretty good. My favorite was the Paul Hutchcroft comparison between the economic development of South Korea and the Philippines. Not everyone will want 650 pp. on economic (and other) policy under South Korean autocracy, but if you do this is the book for you. I didn’t even mind paying $47.50 for it.
Assorted links
The Great Unraveling continues
The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone.
Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.
Here is more, “Property markets in Spain and Italy close to collapse,” from the FT.
What is the most underrated innovation of the last one hundred years?
That was another question I was asked.
I find it difficult to compare the “ratings” of early 20th century innovations to the ratings of innovations today, since it is often different audiences doing the admiring, or lack thereof.
For the most underrated innovations of the last one hundred years I might pick the insights of Alan Turing, various developments in electrical engineering including better transformers, or the nitrogen-fertilizer connection, noting that in some quarters there is already plenty of recognition for each of these, Turing in particular. But still not enough!
As for contemporary innovations, I see an underrated one as Amazon’s warehousing and shipping practices. It will mean the death of much of retail and transform our suburban physical spaces into something quite…????. Into something, in any case. I am a social networking optimist, and think it has largely beneficial effects on social mores, but I also see it as having peaked at a near-saturation point.