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The first time I ever tried to get a cartoon published, it was a submission to New Yorker magazine, around 1987. New Yorker is considered the most prestigious publication on Earth for a cartoonist. They rejected me with a form letter. But I never released on the goal of getting a comic in that publication. This week I finally achieved my goal. Well, sort of:

http://www.newyorker.com/services/referral?messageKey=ef1f47a74daa0ebb224178d474ae0e40

I never really let go of a goal. That's not always a good thing, since all of my unfulfilled goals gnaw on me from within. But it sure feels delicious when one of them wanders in from the wilderness.

Three and a half years ago, when I lost my voice to spasmodic dysphonia, I set my goal on not just beating this incurable condition but ending up with a voice that was better than it had been before I got the problem. My original voice was a bit nasal, and I had a habit of mumbling. If you're going to have a goal of defeating an incurable condition, you might as well add some extras. I wanted my next voice to be better than it had ever been.

As I have written before, I had surgery in July with Dr. Berke at UCLA, who pioneered a procedure to fix this sort of voice problem. It was supposed to take 3-4 months from the day of the operation before a good voice returned. Sure enough, right on cue, this is the 3.5 month mark, and my voice is about 90% functional for most purposes. (I can't shout yet, and by the end of the day it is a bit hoarse.) Still, it's frickin' amazing.

Over the next year, my voice is expected to improve further. But that's not good enough. I'm going to put some serious work into making my new voice better than it ever was. It might take me twenty years, but I'll get there.

 
In yesterday's post I said that investing in the right basket of 20 or so individual stocks could give you the same performance and diversification as owning an S&P Index fund but without the fees. Many of you thought that was a bad idea. Allow me to acknowledge those criticisms and suggest a modification to the plan that addresses them.

Criticism 1: Exchange Traded Funds (ETFs) mimic the S&P 500 (see ticker symbol SPY), and their fees are trivial, so forget the basket of 20 stocks and invest that way. (Full disclosure: That's mostly how I invest in stocks.)

Answer: If you had $350,000 in stocks, your annual fee for an ETF would be in the range of $1,000 a year. That is small compared to a managed fund which might charge you $5,000 per year, but it is still real money. If you could save $1,000 per year and give up nothing, you would do it.

Criticism 2: Most of the historical gains of the S&P 500 came from a handful of hot stocks, such as Dell. Your basket of 20 stocks has a good chance of missing the hot stocks that make all the difference.

Answer: Good point. Let's modify my plan to say that each time you put money into the market you pick a company from the S&P 500 that meets two criteria:

The stock has one of the highest ratings of the stocks you don't already own, according to a source with no conflict of interest, such as Charles Schwab. This increases your odds of getting a hot stock, since those would be rated high.


The stock improves your diversification compared to the stocks you already own.
 

Criticism 3: If you buy stocks every month, as you earn money to invest, the transaction fees can get expensive.

Answer: That's true, so don't buy stocks every month. Do it once or twice a year. Each stock you buy or sell will cost about $9 once. Or if you have lots of patience and discipline, invest only when the market drops from its high by ten or twenty percent.

Criticism 4: The S&P 500 changes composition over time, weeding out the weaker companies in a crude way. Your basket of 20 stocks wouldn't get that benefit.

Answer: After you own twenty stocks, sell off the lowest rated stock and replace it each time you add money to your investment, once or twice a year. This prunes the laggard stocks in a crude way similar to how an ETF would rebalance its position.

The most important element of this revised investment plan involves ignoring the advice of pundits and columnists, and especially ignoring your own gut feelings about stocks.

I hope it is obvious that you shouldn't get your financial advice from cartoonists. And feel free to tell me why this modified approach is defective. That's always the point of anything you see on this blog.

 
Experts tell us that a small number of carefully selected stocks - fewer than twenty - would nearly mimic the S&P 500 in terms of diversification and performance. That means you could buy just those stocks and never have to pay a fee for fund management.

Avoiding fees is a huge deal when it comes to lifetime earnings. Managed mutual funds have substantial annual fees. Even an index fund has a management fee. So does a SPDR. If you buy your twenty stocks and just sit on them, you avoid all of the fees while enjoying the same performance and diversification as managed index funds.

It wouldn't be hard for experts to tell you which stocks to buy, and how much of each, in order to mimic the S&P 500. But you will have a hard time finding that sort of information because no expert has an incentive to produce it. Perhaps an author of some sort has produced it, but I haven't seen it.

Obviously everyone can't buy the same twenty stocks because they would quickly become overpriced. But there are many combinations of stocks that would give you the same performance and diversification as the S&P 500. All you need is a computer program that randomly spits out a different basket of stocks for each investor, so the buying gets spread around.

For the lack of that simple information, and the false believe that managed funds have some magic advantage, investors spend billions each year. Arguably, that makes it the most valuable information in the world.
 
Every now and then you read about a Civil War reenactment where someone gets shot with a live round. I would like to be the sort of person who doesn't find that funny, but some dreams are destined to be unfulfilled. I give you...

http://www.msnbc.msn.com/id/27372438/?GT1=43001


You might wonder how real ammo gets into a Civil War reenactment. The funny part is that there are so many ways it could happen. Allow me to list the first several theories that pop into my head.


  • One of the participants is a Method Actor.
  • In any large group of people, one of them will not know the definition of "reenactment." That person is likely to own ammunition.
  • One of the participants secretly hates Civil War Reenactments.
  • One of the participants is from the South and is a sore loser.
  • Someone had a plan to commit the perfect murder.
  • One word: Taliban

My favorite theory is that some goober spent the entire weekend hunting for turkeys with his Civil War reenactment blanks and didn't realize it. Later, when he discovered what he had done, he didn't want to face the embarrassment of telling his fellow bearded dorks that he used up all of his blanks. So he figured he'd do the reenactment with live rounds and just shoot over the heads of the other actors. No one would be the wiser. It was a good plan until he stepped in a woodchuck hole and accidentally shot some guy in the shoulder.

The wound wasn't fatal, but the Civil War reenactment medics sawed off the victim's legs anyway, just to err on the cautious side.

 
Some folks from The Motley Fool interviewed me recently. You can see their article, along with my generic investment advice here, which I first published several years ago:

http://www.fool.com/investing/high-growth/2008/10/23/9-things-you-should-do-instead-of-buying-stocks.aspx


The power of the nine items is that they are in the order in which you should do them. That doesn't sound like a big deal, but if you are new to investing, you wouldn't know where to start, and you'd have a hard time finding that answer anywhere else. You would probably end up letting some professional manager handle your money while converting much of your gains into his fees. The nine point list solves that problem.


The other power of the list is that it excludes all of the investment concepts that you shouldn't be messing with. Notice that there are no derivatives, or options, or anything exotic.


Obviously every investor is in a different situation, and I wouldn't expect many people to follow the nine points exactly. But I think it helps to know what the standard model looks like before you decide where to make your own exceptions.


All bets are off for the moment, obviously. The big question this week is which one of your neighbors you should eat first when things get bad. And of course I expect some sort of zombie problem. But in normal times, the nine point list is useful.


Arguably, all of our economic problems stem from too many people not following the nine point investment list.


Astute observers will point out that anyone who had a lot of money in stocks, as the model suggests, would have gotten hammered this year. That's true, but one of the obvious exceptions to the model is that if you think you need to withdraw your money in the next five years, you should reduce your stock holdings to avoid the risk of just such a downturn.

 
Suppose you were a skilled hypnotist, and so charismatic that you knew you could change the opinion of an average person simply by your choice of words. Would it be ethical to be that persuasive?

To make it interesting, let's say you believe in the rightness of your own views, and you are talking to someone who firmly believes the opposite. You both have the same information at your disposal, so it is simply a case of different opinions. If you knew you could sway that person with your words, without adding any new information to the mix, would it be ethical to do so?

I encountered this dilemma after learning hypnosis. You can extend the methods of hypnosis into normal conversation, the way a trial lawyer, politician, or top salesperson would. You can't turn anyone into a zombie slave, but obviously a skilled salesperson can close more deals than an unskilled one. Your choice of words has a huge impact on how other people form their so-called opinions. Where do you draw the line between a normal exchange of views and an outright manipulation of another person's brain?

Long time readers of this blog know that I view humans as moist robots who have no free will, and therefore morality is an irrational concept. But most of you disagree with that view, so for you this is a fair question.

Allow me to put it into concrete terms. Suppose I knew that I could use my powers of hypnotic persuasion, in the form of common words in this blog, to cause some portion of you to change your vote in the upcoming election. And suppose I believed I was helping the country by doing so. Would it be ethical to change people's opinions without adding any data to the process?
 
I wonder if economics is making war obsolete, at least for the larger countries. Waging war is just too damned expensive, even if your enemy lives in mud huts. If you're looking for the silver lining to the wars in Iraq and Afghanistan, here it is: They prove once and for all that the occupier doesn't come out ahead even by "winning."

It makes more sense to turn off the economic spigot to any country that starts to look threatening to its neighbor. Arguably, the United States is already in a war with Iran, but it takes the form of developing alternative fuels. When Iran can no longer find much of a market for its oil, it will have to start being a lot friendlier. The same goes for the United States. The next President of The United States (probably Obama) will be projecting a new humility thanks to a crippled economy.

North Korea has been defeated economically, for all practical purposes. So was the Soviet Union. Venezuela is getting less cocky as the price of oil plummets. China has become zero threat to the U.S. because of economic interests.

Terrorism is still the wild card. But the end of oil will put more of a dent in terrorism than any war could.

In the old days you could make a profit from a good war, thanks to pillaging and slavery. Those days have passed. Switzerland has one of the highest standards of living in the world.

I think the age of big war has passed.
 
I read somewhere that the number one thing men want from their wives is to be appreciated for what they do right, as opposed to criticized for what they do wrong. I assume that showing appreciation is a learnable skill, just like saying please and thank you. So while the school girls in this country are learning that mylonite is a breccieated metamorphic rock frequently found in a fault zone (to recycle a phrase), they are learning nothing about how to keep their future marriages intact.

Likewise, the little boys in this country are learning nothing about how to be better future husbands and fathers.

Kids also learn nothing about the importance of a positive outlook, especially how it affects other people. They don't learn about setting goals, or managing risk, or discerning the difference between truth and lies in the media and in person.

You could make your own long list of skills that kids aren't taught during the time they are learning things they will never use. Yes, yes, yes, I understand that some of the subjects taught in school are meant to increase critical thinking and generally expand minds as opposed to teaching useful facts, but isn't there a way to accomplish the same thing with topics that ARE useful?

I'm in the process of building a house. (This is year 3.5 of the process, and ground was broken just yesterday.) While the project is frustrating, it is also intellectually fascinating. I had no idea how many technical disciplines would be involved. There's even an engineer who specializes in knowing how to move the dirt from one part of the property and fill in a hole in another, packing it down in just the right way to make it stable for the foundation.

You could take any tiny portion of the house project and make it an exercise in critical thinking. I can imagine a school curriculum organized around building an imaginary house, advancing from first grade through high school. Kids could learn all sorts of useful skills, from budgeting (math), to calculating loads (science), to learning how couples can decide on the fixtures and furniture. Your geography course could be based on deciding what country to build your house in. Geology would be oriented toward deciding what type of land to build on. Art class would involve interior design and architecture, with a semester on how to identify good art for the walls. Biology would involve understanding your own future garden and plants. Evolution would involve learning why your family dog walks on four legs and you walk on two.

You would learn all the critical thinking you ever needed just trying to design a kitchen that requires the fewest footsteps and fits into a defined space, with a limited budget.

Kids who are gifted would learn more about the math and science behind the engineering of the house. Kids on a more hands-on career path might be learning how to pave the driveway or design the electrical system. Designing and building a house employs almost every useful field of knowledge, excepting maybe history and language.

Maybe we wouldn't be in this economic mess if all kids had to learn about budgeting, mortgage loans, and risk analysis.

 
I keep hearing that the United States ranks low in student performance in math and science. This can be interpreted at least two ways.

Interpretations 1: The United States is doing a poor job educating students in two subjects that are vital to the future of the world.

Interpretation 2: Students in the United States realize they will never need to know that mylonite is a breccieated metamorphic rock frequently found in a fault zone.

If you have kids, you know that most of what they learn in math and science is completely useless. I'm going to go out on a limb and say that kids have figured it out too.

I grant you that it is important for the future of the economy that we produce plenty of scientists and inventors and researchers. But how does it help anyone that a future chef can tell you which critters evolved in which epoch? He just needs to know which ones are good eatin'.

I'm all in favor of benchmarking against other countries for education. But isn't the average grade for math and science the most obviously useless and misleading statistic one could follow?
 
I plan to start hoarding supplies soon. There should be some big riots after the election. Here's a sequence of events and conditions that would lead to rioting. Do you see anything on the list that isn't likely?
  1. The economy stays bad for a another month
  2. Obama has a clear lead in the polls before election day
  3. McCain wins anyway. While the real reason for the polling discrepancy will be racism, there will be a widespread belief that the election was rigged. And there will be plenty of real and imagined evidence that it was.
  4. Riots will break out, partly out of genuine anger, partly to get that new flat screen TV.

We know the country can get past one suspicious Presidential election, because it did exactly that with Gore versus Bush. But two in a row would turn even normal citizens into conspiracy theorists. Given the anxiety over the economy, concerns about abortion rights, and the continuing wars, you have a perfect storm for revolution.

Interestingly, the only person who could stop the riots would be Obama himself.

 
 
 
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