To Have and Have a Lot

Youth has never been my cup of tea. During my years as a magazine editor whenever I had the opportunity to interview a “hot young thing” or an icon, no contest. Thus, one balmy afternoon in September I was in a midtown hotel room sitting across from Miss Betty Bacall who was in town promoting a film. Well into her 80s she was more than a little hard of hearing but was remarkably well-behaved and game to answer questions. Her beloved Papillon, who she swore had psychic powers, was nestled in her lap.

Never one for mincing words, Miss Bacall had a few choice ones for the late Frank Sinatra, (a former lover), as well as limo drivers in general, (her backseat manners led both her and her luggage to be left on the sidewalk on more than one occasion by irate chauffeurs.)

Miss Bacall passed away last year and a few weeks ago Bonham’s auctioned her estate. Like that of the late Jacqueline Kennedy Onassis, the Bacall sale reflected variegated tastes and a lifetime of accumulation. (The Yves Saint Laurent/Pierre Bergé sale they were not.)  The lots included sculptures by Robert Graham, (Angelica Huston’s late husband), and Henry Moore, as well as a pair of nut dishes decorated with nibbling squirrels, a brown toga dress from Yves Saint Laurent, and an army of comfy pantsuits.

Judging by the state of Miss Bacall’s apartment in Manhattan’s Dakota building, the lady was less a curator than a pack-rat. And, why not? In most cases she bought things from people she had a personal relationship with and was, no doubt, deeply attached to the pieces.

It’s a little different for investors though. Few of us have “personal relationships” with National Oil Varco or Baker Hughes or any of the other companies in which we may invest. Still, we get attached. These leads us to hang on to our “favorites” long after we should have pressed the ejection button.

When I started investing there were no ETFs and mutual funds came with exorbitant fees. Instead, over the years, I built up a portfolio of individual securities. Each year I find that as the number of securities grows, I wonder if, instead of diversifying, I’m “diworsifying”.

Diversification is an effective way to reduce portfolio risk. By holding securities and asset classes that are negatively correlated with each other, in theory, when one class goes up, the other should do the opposite, thus reducing some of the volatility of returns.

Trouble is we tend to get emotionally attached to our holdings and are reluctant to part with them even when it would be prudent to do so. “Buy-and-Hold” is only one investment strategy and it is by no means a one-size-fits-all. Sometimes it works, other times it don’t.

For me, one advantage of online trading is the relatively low-cost way I can observe my patterns of behavior and attempt to change the unproductive ones. For example, at only a few dollars a trade, I take small positions in promising companies, make small profits (hopefully), and then move on.  This type of dalliance would be much more costly at my full-service brokerage, which is why there, I hew to the “buy-and-hold” philosophy and risk “securities sprawl”.

A bonus of my online trading is it’s making me more disciplined and less emotional when it comes to general portfolio management. I still have my favorites but I’m more inclined to part with them sooner when a better opportunity beckons. As a concession, I keep a watch list with my past holdings, the way someone might keep tabs on a former lover on Facebook. (I wish them well, but not too well!)

In How to Marry a Millionaire, Bacall, Betty Grable and Marilyn Monroe played women who wanted to snag rich husbands. In the end, they married for love. Except that Bacall’s beau was secretly a scion—love & money, honey.

R.I.P. Miss Betty Bacall

Post Taste

One of the most interesting luxury brands is—still—Prada. Unlike the tiresome antics of some other tip-top names like Louis Vuitton, and even Hermes, with their collaborations with artists, Prada is art. Full stop. Love it. Hate it. Can’t afford it. Whatevs.

Next month in Milan Muiccia Prada and her husband and business partner Patrizio Bertelli will launch Fondazione Prada that will focus on contemporary art. The café is designed by American director Wes Anderson, the creator of such indelible and delectable films as The Darjeeling Limited and, recently, The Grand Budapest Hotel. And the opening program will feature Roman Polanski discussing how a Doris Day film influenced the opening of Rosemary’s Baby.

People, what’s not to love?

Michael Rock, author of Pradasphere, writes about the ‘Prada Vision’ and how the brand plays with issues of gender, power, taste, luxury, beauty, vanity and embellishment. But why stop there? The Prada ‘experiment’ could apply to investing.

Referring to their total freedom in creating and running the foundation, Bertelli says, “Looking for consensus is a form of mediocrity, and that is one of the worst of human weaknesses.”

I suppose one could say that the rise in popularity of index-based ETFs represents our human need to cling to the median. There are many fine arguments for investing in index-based ETFs but, obviously, outperforming the index, (or standing out from the crowd), is not one of them.

You see this herd mentality play out on the investing blogs too. (I confess that I spend way too much time lurking on stockhouse.com.) This blog is full of ‘pumpers’ and ‘bashers’ and it seems to take no time at all for posters to clump around a trending narrative for what are typically small, highly speculative companies on the Canadian Venture (or, as some call it, Vulture) exchange. The value of these postings is mediocre at best because outliers, some no doubt with interesting views, are reluctant to be the object of other bloggers’ wrath.

Which brings us to the subject of clashes and conflicts. For me, one of the delights of Prada is the constant friction in the designs. The clothes and accessories are gorgeous. Or are they? They’re beautiful except when they’re ugly. They’re sexy and then not at all. They look expensive and cheap too. It’s all a crazy mash-up, not terribly unlike the markets.

Though there’s a subversive snobbery inherent in Prada, I appreciate the Prada wink. Take it seriously, or don’t. Next season there’s a whole new storyline. Gliding this idea into the markets, one can think of large caps stocks as head-to-toe Chanel. Expensive, good liquidity, universally understood, easy-to-price. Lovely, valuable, yet somewhat predictable. It takes no guts to wear a a quilted 2.55 Chanel on your arm. Good taste, absolutely.

The small caps, or micro-caps. Now that’s a different story. Good taste? Hmmm. Bad taste? Maybe. Post taste? Definitely. Investing in micro-caps is like dressing like Miuccia Prada: lime-green printed dress, short, black ankle socks, masculine shoes, no make-up, and emeralds the size of duck eggs. “What interests me, profoundly, are not certainties but doubts, clashes, and conflicts,” she has said. There is nothing patrician about micro-cap investing. It is the lime-green printed dress worn with black ankle socks—and, if you choose your ponies poorly, forget about the duck egg-sized emeralds.

Many investors cling to one group or another and in doing so miss out on potential gains (and losses too, of course.) The large cap people often hold their noses at the micro-cap types, for example. Yet small cap stocks can be terrific performers and be used to create satellite, high-growth portfolios within a more conservative framework.

Prada makes a case—fashion and otherwise—for mixing high-and-low. For the artists it means showing the rest of us where the world is going. And for investors it means making money, sometimes in “exquisite” taste, other times in “bad” taste.

Welcome to the Pradasphere!

Art Shop

 

Courtesy of qthomasbower

Celebrities and social climbers collect Warhol but what did Warhol collect?

“Keep the coffee tins—aluminum might go up!”

“Keep the batteries—copper might go up!”

According to Bob Colacello who worked with Warhol as the editor of Interview magazine and as his unofficial sales agent, “Warhol was not a collector; he was a hoarder.”

Back then a Warhol portrait started at $25,000. The key was to lure socialites to commission them. Trouble was, Warhol was not a social success. Cue Colacello who was a right charmer. “Pretty society women wanted their portraits done but it was their stockbroker/private equity husbands who were going to pay, so Andy would tell me to play up my Republican side,” says Colacello.

It was society “walker” Jerome Zipkin who amped Warhol’s fortunes. He gave subscriptions to Interview to all of his ladies—party circuit regulars like Betsey Bloomingdale, Nan Kempner, and Carolyn Roehm. The magazine had switched from covering film criticism to doing Q&As with famous people. Society types tripped over each other to land on the magazine’s cover. Colacello pocketed a small commission for each portrait he sold. Once, when a client paid for her’s with a large, uncut Colombian emerald, instead of cash, Warhol offered Colacello his own portrait. “He told me he knocked $3,000 of the price,” says Colacello.

Despite Warhol’s tightfistedness, Colacello managed to amass a small collection of his work. “I wish I hadn’t sold because it kept going up in value. Still, it did buy a place in East Hampton.”

Today, buying a Warhol is like buying shares in Microsoft. Solid, not sexy. But that’s where the similarities end. Art investing is a high-stakes game. Many people think they can clean up but survivorship bias distorts market returns. For every Frank Auerbach painting bought for $1.1 million in 2005 and sold for $2.3 million in 2006, there are hundreds of artists whose careers die a silent death. We only ever hear about the winners.

Unlike the major stock markets, the art market is insular and lacks transparency. Amazon and eBay may sell fancy pictures but the real deals are made privately. Price manipulation is the name of the game because dealers are expected to nurture artists’ careers. To do so, collectors are discouraged from selling works in the open market, and if they do so, gallery owners will bid up prices to keep the mystique alive. Because buying art is aspirational, not selling at auction could be career-ending for an artist.

Liquidity is another issue. Even more than in real estate, sometimes there’s absolutely no demand for a work of art. Like other ‘alternative’ investments such as hedge funds, returns from art are all over the map. However, due to high transaction and commission costs, realistic net returns over a 5-year holding period hover between 1%-5%. Not great shakes.

So why invest in art? Well, it’s pretty. What you lose in financial return you potentially gain in everyday pleasure. It’s doubtful that gazing at your investment statement provides the same spiritual uplift. Being an art collector also raises your social capital. There are art openings, cocktail parties, meet-the-artist powwows and so forth. It’s a special club—particularly at the upper echelons—that provides a global passport to hobnobbing.

But if the art market is a little too rich for you, then follow Warhol and invest in physical commodities. Aluminum, copper, iron…demand is bound to pick up one day.

All good

Having just returned from a lovely holiday in St. Lucia, it was time to get down to business: catching up on Better Call Saul. The spin-off and prequel to the series Breaking Bad explores the story of Saul Goodman—from layabout to underworld lawyer.

“Hey man, I didn’t catch your name,” says his new buddy as they stumble out of a bar.

“‘saul good, man.” (Laughter)

They walk down a dark, creepy alley. There’s a wallet on the ground. The mark picks it up. It’s fat with C-notes. Nearby, there’s a man’s body laying among the trash cans. Saul relieves the man of his gold “Rolex”. His pal takes exception to the division of spoils. He gives Saul the stolen cash and tops it with his own in exchange for the timepiece and takes off. Saul and his accomplice split the cash. A garden variety scam. Small beer.

(Where am I going with this…?)

Right. So, I’m also catching up on my financial newspapers. And it comes as a shock to learn that, according to a recent article in The Globe and Mail, the average Canadian needs to save around $4.5 million in order to generate the median income of approximately $74,000 in retirement. The investment portfolio would be split 50-50, stocks and fixed income.

Well, you can imagine the uproar! But before everyone twists her knickers in knots, let’s all take a deep breath. Unless you’re Gwyneth Paltrow and need a solid-gold juicer for power cleanses and a steady supply of snake venom to keep those frownies at bay, most of us will do fine with a lot less. (Also, let’s remember there are company and government pensions.)

I believe what the writer was getting across was, in this low-yield environment, if you want to hum along like the late Dowager Duchess of Devonshire tending to your prize chickens and begonias and not to market gyrations, then, yeah, you need a lot of scratch to sleep tight.

However who says we can’t tap the capital during our lifetimes? Listen, I’m sure there are some very fine people who plan to leave substantial estates to dear family and charities. I doff my hat to them. But there’s no shame in spending your hard-earned, or easily-earned, or not-in-the-least-bit earned money while you still can.

Real-time spending could take many forms: personal spending for amusement and delight, heartfelt bequests, garden-variety charity etc. The point is many people think ‘small beer’ even when they don’t have to. They shortchange themselves of a wealth of pleasurable experiences that will never come again. Is it because they really prefer to live modestly, or in some fantasy realm of “One day I’ll…”; or is it that they mistakenly conflate frugality with moral virtue?

It ain’t that hard to live well. The key is to know how much money you’ve got and where it goes. Then do a rough estimate of your expected lifespan, throw in another 10 years for insurance. Invest conservatively. Don’t be a Nervous Nelly and constantly tweak and second-guess your investments.

Going back to the newspaper article, if you had $4.5 million at 65 and expected to live another 30 years, and if you could get a modest 5% return annually, you could spend approximately $292,731 every year. Lose the beer, order the burgundy.

‘saul good.

 

 

 

 

 

A Matter of Luck

Many years ago, on a blustery December morning, I headed downtown to return some rented videos, (I told you it was long, long time ago!), but got waylaid by a shoe sale. I popped in just long enough to have my knapsack stolen.

As I went to find the mall police to report the theft, I made a mental list of what was missing, in order of importance: Chanel lipstick and face powder, wallet, bus fare, apartment keys… videos! I told the policeman how it happened. “What was in your knapsack?” he asked. “Well, my wallet, keys, bus fare, cosmetics…and some videos.”

His ears perked up. “What kind of videos?” he asked. “Beverly Hillbillies Christmas Special and Petticoat Junction Holiday Special,” I replied. At which point you could tell that he wondered, how amazing it was that I had made it even this far in life. I explained that the videos were rentals and that I was on my way to return them. He took my phone number and said he would call if anything turned up.

At the video store I shared my tale of woe. “Which videos were they?” asked the young man. “We don’t get a lot of requests for those. Just let us know if they turn up.” (Guess what, about 2 years later they did turn up, along with my purple knapsack and wallet. By then the video store had gone out of business and was now Lululemon.)

Well, imagine my surprise when, after all these years, Jed Clampett’s name, patriarch of the Beverly Hillbillies clan, turns up.

CEOs are unlikely to admit their successes are due to luck. But that is exactly what Harold G. Hamm, CEO of Continental Resources, has done. He’s using the ‘Jed Clampett’ divorce defense to argue that only 10-percent of his enormous wealth ($18B) is due to his skill and effort.

Hamm and his wife are in the midst of a divorce battle and he hopes to use the Clampett defense to shield his wealth by saying that the majority of it was due to passive appreciation, e.g. high oil prices beyond his control, and should not be part of divisible assets. This, of course, runs contrary to the idea that CEOs deserve the outsize salaries, options, expense accounts, and other sundries they receive in exchange for services rendered.

Like many people, I, too, believed that those with mighty titles were not like the rest of us toiling in the shadows. However, since moving up the corporate ladder myself and having numerous opportunities to watch these folks up-close-and-personal-like, I’ve come to realize that, while some of them are exceptionally talented, most are average of skill, above-average of luck.

Confirmation bias is the trick of mind that leads us astray. We look for information that confirms what we already believe. So, for example, if we believe that a CEO has above-average skills, we look for signs to confirm it. Excessive pay and benefits are one way we confirm this belief.

I worked in a high-tech company during the big software boom. After a hugely successful IPO the founders became instant multi-millionaires. During a general staff meeting I glanced over at one of the co-founders who also happened to be a senior vice-president of something. She sat on the floor with an unfocused gaze absent-mindedly picking at her bare feet. I figured she must be some kind of genius—her eccentric behavior together with her big job title and wealth assured me of it.

Years later, after the mea culpa cheques had been sent off to the SEC, the now-disgraced founders went their separate ways. The smart ones, including the toe-picking VP, realized that luck, in the form of the software boom, had graced them and that it might only strike once— like the oil that gushed out of Jed Clampett’s yard. Instead of attempting another home-run, she moved to Chianti, Italy and parlayed her creativity and effort into baking and cooking and running a highly-praised hotel, an investment that appears to have paid off handsomely.

Showtime

In my misspent youth of taking everything way too seriously, I finally cracked and spent one fabulous summer studying acting in New York. A lark to be sure, yet to this day, those six short weeks of training at The Neighborhood Playhouse eclipse any formal schooling I ever got.

In another world, one in which successful actors could be home-bodies and shuffle around in t-shirts, sweat pants and thick woolen socks, drink way too much hot milky tea, and call it a night by 10pm, then, yeah, I would take a shot.

One thing I learned is, acting is a lot harder than it looks. It’s relatively easy to ACT. Think of the great over-actors like Jack Nicolson or Al Pacino chewing up the scenery. Watching their films today, it’s like, ech, that’s a bucketful of acting there fellas.

At The Playhouse we studied the Sandy Meisner technique. This involved sitting across from another student in the middle of the room and repeating the same words to each other.

“I’m hungry.”

“I’m hungry?”

“I’M hungry.”

“I’m HUNgry!”

Trust me, it’s as crazy-making as it sounds. But it’s a great technique for deep listening, and for building something—word-by-word— out of nothing.

Last week, The New York Times ran a Q&A with Emma Stone and Eddie Redmayne, both Academy Award nominees. Stone recalled working on a scene with the Australian actress Toni Colette some years’ back. After an hour, Colette asked Stone to take a look at the playback. What Stone saw gave her a shock. She suddenly realized why she was not getting film work. She was flat-out, googly-eyed ACTING. The best acting advice she got was, “teaspoons, not buckets.”

“Teaspoons, not buckets.” That’s damn fine counsel for just about any endeavor, not just acting. So often we go for the max, not realizing that the extra effort doesn’t translate into greater returns; it may even diminish them.

This “buckets” approach is prevalent in investing. Most retail investors, and even a few professionals, want to make a big kill. This is reflected in macho investment lingo. There are doubles, and ten-baggers. No one ever talks about the twenty-five-percenters. But, I mean, if you got a twenty-five-percent return on your investment, wouldn’t that be great? By comparison, official inflation is running at around two-percent, and long-term equity returns come in around seven-percent.

I think the average investor should take the teaspoon, not buckets approach to their portfolios. Instead of sticking their necks out, either by taking on outsize risks in highly speculative investments, or by holding on to winners too long, hoping for that last bit of price increase, they can miss out on the impact of teaspoons of positive returns.

You may have noticed that investment analysts are quick to advise what to buy. They are less forthcoming on what, and especially, when to sell. They leave that important part up to you because they don’t want to publicly diss a company and risk being cut-off from the juicy commissions that come with financing deals. Keeping the “teaspoons, not buckets” approach in mind, will give you the discipline to not be so greedy and to crystallize profits before they vaporize.

You don’t have to play to the back of the room. Just hit your marks by picking your exit price before you buy.

And the winner is…

Match Point

It’s an open secret that Lord Grantham married Cora for her money. Those great British houses, Downton Abbey in this case, are big and drafty and burn through cash like nobody’s business. When you’re unskilled, with no job history, and not the sharpest tool in the shed, (Lord Grantham nearly blew the family fortune on a Canadian railway stock), bartering title for cash seems perfectly reasonable.

This month’s Town & Country has a feature story on another love match also involving a vast fortune. J. Seward Johnson Sr., heir to the Johnson & Johnson pharmaceutical dynasty, fell hard for Basia, a Polish art history student-cum-cook-cum-maid-cum-wife. Roundly accused of being a gold-digger—taking in their amorous behavior on a corporate jet, a J&J executive remarked, “The screwing that he’s getting now is nothing compared to the screwing he’s gonna get”—it was a love match that lasted 12 happy years until Seward succumbed to prostate cancer.

In 2013 Basia herself passed leaving a fortune estimated at $3.6 billion. Equally as incompetent with money as Lord Grantham, Basia had the misfortune of lacking the good counsel of friends and family to help her keep the ship on course. She spent money on one folly after another, starting and never finishing most projects and acquiring enmities along the way. There was never any shortage of individuals—from dubious art dealers to minor royals like Prince Albert of Monaco—to relieve her of her funds.

Disillusioned by America and European high-society, toward the end of her life Basia returned to Poland. She was reported to be seen pacing her garden with her small dog and muttering, “What was all this for?”

Indeed, what is it all for?

On the recommendation of Bob Odenkirk, soon to be seen in the spin-off to Breaking Bad, Better Call Saul, (you’re welcome Bob), I’m really digging that hippie classic Das Energi by Paul Williams. The premise being the entire universe, including us, is just a mass of energy. Or something like that.

There are many philosophical systems that work with energy but the one I’m familiar with is medical qi gong. For optimum health one needs to create a balance between purging stale energy and acquiring healthy energy and then circulating it inside and outside the body.

It’s not a big leap to think of money management in similar terms.

In qi gong, one must be grounded before doing anything else. Basia had a a tremendous amount of energy, (her inherited fortune), but she was ungrounded. Lacking perception, she was vulnerable to her own idiosyncrasies, as well as to the unscrupulous individuals drawn to her. She made poor investments and dissipated the money. Would practicing qi gong regularly have helped her? We’ll never know.

But to help answer Basia’s question, “What’s it all for?”, maybe it’s not about some magic number and, instead, it’s about evolving our understanding of energy and then using it, sometimes in the form of money, in meaningful and productive ways? Just an idea.

The Great Escape

Courtesy Tribeca Films

Pleased to see Wes Anderson’s film The Grand Budapest Hotel just received nine Academy Awards nominations. I loved the film, in part, because I love hotels. The grander the better. And better still, staying in one in glorious solitude.

You see it’s very noisy out there. Then it gets noisy inside my head. One thing about top hotels: they’re very quiet. They allow the busy body and mind to exhale.

It’s been estimated that each day we’re exposed to the equivalent of 174 newspapers’ worth of information. This has increased five-fold since 1986. Every sixty minutes, there are 5,999 new hours of video posted. (Yes those kittens and puppies are adorable but…) We’ve become so unaccustomed to being alone with our thoughts that it’s a novelty—and for many, an unwelcome one.

Perhaps by temperament writers seem to have a higher tolerance and need for solitude than other folk. When I recently read Andrew O’Hagan’s ode to his 48-hour staycation at Claridges in London in T Magazine, and then followed it up with Ann Patchett’s encomiums to the Hotel Bel Air in Los Angeles in This is the Story of a Happy Marriage, I felt a yearning that some women feel about babies: “I want one.”

Still, those who seek refuge from the jibber-jabber are in the minority. A recent study in the journal Science, shows that most of us make a great effort to avoid introspection. After reviewing 11 different experiments involving more than 700 people, the researchers concluded that the average person finds it depressing and unpleasant to be alone with their thoughts for more than 6 minutes. In one experiment, 64-percent of men, (compared to 15-percent of women), self-administered electric shocks to distract themselves. The comedian Louis C.K. does a great riff about driving and texting, saying that we would rather risk lives than be alone with our thoughts for a few minutes.

All of this busy work has serious implications, not only on the quality of our lives and our relationships—I can’t tell you the number of times I end up speaking to the top of someone’s head because their eyes are glazed on their mobile phones—but also on our decision-making abilities.

Nobel prize winning economist Daniel Kahneman wrote about two modes of thinking in his bestseller Thinking Fast and Slow. Type-1 is fast, instinctive and emotional and Type-2 is slow, deliberate and logical. The more we use our minds, the more fatigued our brains become and the more liable we are to use Type-1 shortcuts to making decisions, often with poor outcomes.

Sifting through the equivalent of 174 newspapers’ worth of information would tire out even the most robust brain, and that’s not counting the kitten videos,  Facebook updates and all the other inputs that roll up on our doorsteps every minute. And don’t even get me started on the financial press. Keeping up with business and investment news can be a 24/7 job.

Hence, the hotel retreat. It’s the perfect way to unburden yourself. One tiny satchel takes care of it. The hotel supplies the rest, and the rest.  You get to experience lightness of being, instead of relentless doing.

A fluffy robe, chilled Champagne, and an empty diary page. Let the introspection begin.

Water Sign

Courtesy of Habitually Chic

Happy New Year from everyone at Luck& Gravity! We (that’s me) wish you a joyful and prosperous 2015. And what better way to signal a year of plenty than this charming photo of a happy, wealthy couple: Elizabeth Taylor and Mike Todd at La Fiorentina in Saint-Jean-Cap Ferrat.

Some years ago when I was making yet another heartfelt attempt to learn French, I went to a school on the Cote D’Azur. (Bien sûr.) Villefranche-sur-Mer is a low-key little town compared to its flashier neighbors Monaco and Nice. Yet, in its day, it had seen plenty of shambolic goings-on, courtesy of rock stars like Keith Richards, who recorded Exile on Main Street here, as well as from the Euro trash that flock to the Cote D’Azur like crows to leftover canapés.

On week-ends, I took jaunts to nearby towns including the Saint-Jean-Cap Ferrat. Here were palatial villas set behind lush tropical gardens. They could only be glimpsed by pressing oneself against the imposing iron gates—or not at all if the guard dogs were on-patrol. Occupants included newly-minted Russians and, before the great crash of ’08, the lucky Irish. Each week-end I set out for Cap-Ferrat in search of the Queen of the Villas: La Fiorentina.

In 1967 Taylor and Todd rented La Fiorentina for the summer. Every morning Taylor, born under the water sign Pisces, swam lengths in the long pool that overlooked the shimmering Mediterranean. The photo above shows Todd surprising Taylor with a suite of diamond-and-ruby jewelry after one of her swims. I think it was Tuesday. Ain’t love grand?

In astrology, the water sign Pisces is not renowned for financial acumen. (Long story so the short version: Pisces is associated with the 12th house of dissolution and endings, thus is not considered auspicious for wealth accumulation. In Vedic astrology Taylor was an Aquarius, a whole other kettle of fish. But not here.) Yet, there is also wisdom in water as it can be used as a metaphor for navigating through life —and investing.

The following is the New Year’s message from of Ven. Samu Sunim, the founder of the Zen Buddhist Temple. (The italics are mine.)

Water always flows downhill. “Learn humility”.
A common mistake investors make is believing their gains are based more on skill than luck. Learning humility allows us to ask for help when we need it, and be willing to change our habits when they no longer serve us well.

Water always meanders around obstacles. “Learn wisdom.”
Flexibility is necessary to invest well. For example, blindly following a buy-and-hold strategy could cost us greatly if we disregard changes in sector dominance.

Water does not refuse dirty water. “Learn inclusivity.”
Investment wisdom is everywhere—and so is dross, unfortunately. Keep your eyes, ears and mind open to great investing ideas. They can and do come from anywhere.

Water adapts itself to any situation. “Learn adaptability.”
Good times/Bad Times. Always try to keep at least one-and-half years of expense money in a money market fund. This way market gyrations or unexpected setbacks will have less of an effect on your state of mind. If you are retired, this amount should be adjusted upwards to at least 3 years.

Water is patient and endures.”Learn perseverance.”
Once you have made an investment, it rarely pays to get twitchy. Unless there has been a negative material change, you must stick with your plan for several years to benefit. Do not become a victim of volatility. In an accumulating portfolio, use it to your advantage. In a distribution portfolio, see previous note. 

Water is not afraid of throwing itself off a cliff. “Learn grit and courage.”
Investing always involves some risk. If all your money is under the mattress, that is a different kind of risk. What is the optimum level of risk/reward?  When you’re taking risks with your money, ensure that the risk premium is appropriate. In other words, don’t overpay.

Water travels ceaselessly to reach the ocean where it becomes one with the ocean. “Learn the way of the Budhha in ocean Samadhi.”
Money is a manifestation of energy. Like knowledge, it loses its value when hoarded. Use the energy of money wisely to lift yourself and others up. Spend your wealth for good.

P.S. I did eventually find the sign pointing me in the direction of La Fiorentina but the dense foliage around it foiled me from seeing it. (For more photos and a short history of the property, click here.)

Blue Period

Courtesy of Mertim Gokalp

With tax-loss selling behind us, it’s time to contemplate 2015 and what the markets may have in store. Pundits predict a generally robust year, albeit with increased volatility. Despite the blather about the market being rational, it’s as zany and fickle as the people who trade in it. How else to explain seasonal effects like the “Santa Claus Rally”, “January Effect”, and the fact that years ending in a “5” give positive stock markets? (The number 5 was certainly lucky for Coco Chanel who named her first perfume Chanel No. 5. Its financial success has made the brand the juggernaut it is today.)

Despite attempts to explain these effects as expressions of rational behavior, I think it’s best not to overwork the dough, so to speak. Is the January Effect, when stock indices get a bump, the result of investors buying back stocks after December’s tax-loss selling?  I say, when Nature gives you a boon, just say ‘thank you’ and shuffle off before She changes her mind.

Pablo Picasso said, “If I don’t have red, I use blue.” This is great investment advice.

The latter half of the year saw a lot red. When the price of West Texas Intermediate dropped through the floor, the share valuations of many senior, mid-, and junior-oil and gas companies went along for the ride. Of course, some are now in oversold territory and may attract investor interest next year. Others, particularly those with overly-leveraged balance sheets, high production costs, and unhedged contracts, will find the capital markets unobliging, forcing them to slash dividends, put themselves up for sale, or simply close shop. Until sentiment towards this sector changes, best to put down the red brush and pick up the blue.

In 2015, it’ll be blue skies over the country the world loves to hate, America. Lower fuel costs will be a boon for consumers— and Americans do love to spend their way to happiness. Hence small-and mid-cap companies that sell within the domestic economy like Coach, Nordstoms, Home Depot, and TJX Cos., as well as those who typically spend a significant chunk on transportation, like Fed Ex and Amazon, for example, are sure to see fatter margins in 2015 and beyond.

Another ‘blue’ area is luxury products. According to a recent special report in The Economist, shares of public luxury companies have outperformed those of other companies since 2005. Hermes, LVMH, Prada, Burberry, Swatch, Kering, Richemont, and Diageo are doing smashing business. Avid consumers in Asia are more than compensating for lower demand in Europe and North America. But don’t cry for Europe. Its luxury industry sold $726 billion of covetable mercy in 2013 and has 70% of global sales. So, while its citizens have cooled it on luxury spending, the continent is still running the show and reaping the rewards through employment, exports, and increased GDP.

Bernard Arnault, the sharp-eyed LVMH honcho was once asked by the late Steve Jobs for his advice on retailing. “I’m not sure we’re in the same business,” replied Arnault. I don’t know that we will still use Apple products in 25 years, but I am sure we will still be drinking Dom Perígnon.”

So, let’s raise a glass of Dom to next year’s most promising sectors: U.S.consumer goods companies, U.S. financial institutions (the regional ones too), small-and mid-cap U.S. domestic companies, and U.S. pharma and technology companies. Russia is a dud but India is looking interesting, and if monetary policy loosens up in Japan, that region may be worth a gander. Higher interest rates in the U.S. and, by extension, Canada, will put a damper on the allure of high-dividend paying stocks. But don’t be blue because steady growth in the U.S. economy will more than off-set this. And, for those going long, you could do worse than investing in luxury goods. No red ink in sight.

Here’s to good health and good fortune to all in the year that ends in “5”.