Party Pooper

Mao courtesy of Warhol

Every party needs a pooper. On April 21st the People’s Daily in China boomed that the bull market had “just begun”. Two months later share prices on the Shanghai exchange collapsed by one-third, thereby crushing countless small investors who had bought on margin under the mistaken impression that a rising market was practically guaranteed by the State. Now President Xi’s “China Dream” has turned into a global nightmare sending skittish investors running for cover.

China’s robust economy was good news for over 600 million people who were lifted out of poverty after a torrid four decades of growth that saw the country’s GDP rise 26-fold in 37 years). Now China’s fall is bad news for everyone from small investors to commodity exporters, (“hello Canada!), and to every corporation that’s been jonesing for Chinese consumer demand to fill their coffers. To add to China’s economic troubles, a corruption crackdown has ensnared some of the nation’s high-and-mighty, including more than 100,000—no, it’s not a typo— government officials. And there have been recent reports of shadow-finance companies begging for Beijing to bail them out. In other words, don’t look to China to save the world economy any time soon.

But they say every cloud has a silver lining. What’s bad for Shanghai’s speculators might just be good for…Africa’s elephants and rhinos!

Asian demand for ivory trinkets and for herbal concoctions made of powdered rhino horn have led to the slaughter of these animals on a massive scale. More Chinese with more yuan in their pockets have added fuel to the existing demand. Ivory figurines are status symbols in China and Vietnam and medicines made of powdered rhino horn are believed to relieve hangovers, break a fever, cure cancer, and give flaccid ding-dongs a boost. (At best, these medicines give a placebo effect that could be easily replicated with synthetic rhino horn.) Demand has pushed the price of a kilo of rhino horn to over $65,000. And, in case you were wondering, unlike gullible investors, rhinos don’t voluntarily give up their wealth. Poachers have to immobilize them with a tranquilizer, then hack chunks of their faces off to remove the horn. The animals are left to bleed or suffocate to death.

Even though Chinese stocks are mostly held in domestic hands, the country’s problems are now the world’s problems. Given our symbiotic relationship with the Middle Kingdom, why couldn’t the “world” intervene to stop China’s plunder of African wildlife? Developed countries have been too enthralled by China’s growing economic might, omnivorous demand for raw materials, and easily hurt feelings to seriously question its record on their war on African wildlife or, take your pick, human rights abuses, environmental degradation, rampant corruption, unreliable government data, on-going occupation of Tibet…

Beijing’s policy makers are working hard to smooth out China’s market volatility and to “save face” internationally. On the rhino front, a South African firm called the Rhino Rescue Project has devised a way to save rhinos’ faces. The animal is sedated and then two holes are drilled into its horn which is then filled with a toxic cocktail. Since the horn is dead matter, this does not harm the animal. However, should the horn be consumed by humans it will cause side effects ranging from migraines, vomiting and diarrhea to permanent nerve damage. Hey-ho.

Chinese investors succumbed to the illusion that Beijing would guarantee ever-rising markets and that it was practically their patriotic duty to dump their life savings into equities. Likewise, their superstition about the healing powers of rhino horn powder which has never been scientifically proven. People of China, mark these words of Jewish Confucious Woody Allen: “What if everything is an illusion and nothing exists? In that case, I definitely overpaid for my carpet.”

China, please leave the elephants and rhinos alone. Thank you and namaste.

Rich Face Folly

photo courtesy of Getty Images

Who remembers the 1973 film Ash Wednesday starring Elizabeth Taylor as a 50-ish housewife who goes to Switzerland for a face-lift to save her marriage? Taylor, draped in furs and marital sorrows, secretly hoofs it to a ritzy clinic in Gstaad, has the surgery, then eats, drinks, gazes at the mountains, flirts with a fashion photographer, has an affair with a hunky German, stares at reflections of her restored beauty, but, alas, never reconciles with her husband, played by Henry Fonda, who’s still boinking a much younger woman. The film is notable in two ways. First, it stars the incomparable Taylor, who is watchable in any old schlock; and, second, it marks the first time that plastic surgery came out of the closet, complete with stomach-turning scenes of an actual surgery.

The film is terribly quaint by today’s standards when practically everyone is getting shot-up with Botox and hyaluronic fillers, or sandblasted with lasers and chemical peels. The latest trend, “richface“, is especially popular with millennials.  It involves extreme dermatological procedures meant to proclaim affluence, if not common sense. Selfies of swollen lips, a la Daffy Duck, puffy cheeks or pneumatic mammaries are posted quick-as-a-bunny for comment and applause.

Far be it for me to frown on the pursuit of beauty through personal grooming. No one would accuse me of being low-maintenance in that department (or any). But hyper-grooming is a risky business subject to the law of diminishing returns. (Exhibits A: Melanie Griffiths, Joan Rivers (RIP), any TV Real Housewife…)

Insecure millennials and reality-show celebrities are not the only ones who would benefit by leaving well-enough, or mediocre-enough, alone. Investors, too, are a restive lot prone to over-grooming, or in this case, excessive trading. This proves costly, both in the short-term (frictional costs of trading and taxes), as well as in the longer-term through poor market timing and weakened compounding benefits.

In his book The Single Best Investment, Lowell Miller makes the distinction between investors and traders. He states that long-term investing is about character, depth of vision and the cultivation of patience. By contrast most “investors” are whipsawed by the drone of economists, stock-pickers and other pontificators who populate the airwaves and provoke the “Three Sirens”: greed, fear, and conformity.  This compels us to constantly tweak our portfolios, jumping from one investment to another. Market liquidity, especially for mid-and-large cap stocks, and ETFs, makes trading as easy as a few keystrokes. This is a different kind of liquidity trap and one that I’ve fallen into more often than I care to admit. It’s also why I found Miller’s book such a welcome relief. It provides a counterpoint to investment industry hysteria.

As a 6th-degree black belt in Aikido, it should come as no surprise that Miller abides by a Spartan code in investing. Hold your ground. Become neither overly excited when your portfolio is up, nor excessively gloomy when it’s down.

Feel your feelings, but don’t feel you need to act on them!

Miller is a strong proponent of investing in high dividend-paying companies, with good cash flow, and growing dividends. You’re unlikely to make a killing with them but, on the other hand, you’re unlikely to get killed. Over time, as the power of compounding takes effect, these investments show their superiority over fixed-income, such as bonds or T-bills.

Alas, time is the friend of the dividend portfolio but not of the human who owns it. Warren Buffett is fond of saying that his holding period is “forever” but he tweaks like everyone else. What’s the sweet spot? Aim to tweak somewhere between Buffett and any one of the Kardashians.