tech punditry and investment advice

I am obviously not a daily reader of MG Siegler's ParisLemon as I am commenting on something that was posted last week, which in mobile years might as well be last century. Anyway, the particular post is nerdspasm worthy - if you just so happen to be into both tech and finance.

Conveniently, I am.

Siegler links to Chris Dixon posting Warren Buffett's annual shareholder letter as CEO of Berkshire Hathaway (more specifically, the parts that are purposefully released PR-style for public consumption; the full letter is more detailed). Siegler's commentary reads (mostly)

Ask anyone why gold is so valuable and they’ll immediately tell you that it’s a rare commodity. And that’s true. But beyond its decorative value, which is minimal at best, what value does it actually produce? Very little.

Well, very little beyond selling it to the next fool who will pay more for it.

I don't know whether Siegler is casually interested or follows this more closely, but Buffett's letters are always fun fodder for the investment world and in particular the 2011 letter is quite remarkable. Indeed, this letter is darn near infamous.

First, Buffett yet again exemplifies that being a billionaire does not cause stupidity; it really is possible to be rich and maintain some touch with reality. Specifically, he acknowledges in the letter that he was wrong on housing finding a bottom. Contrast that kind of directness with how Manhattan financial firms operate, like Goldman Sachs Chief Financial Officer David Viniar giving his incoherent explanation of 25 standard deviation moves. Actually, don't contrast them. It will just make you cry (whether over math or the failing of our institutions, is in your hands). It's not that Buffett is always right, but that he puts his thoughts out there.

Second, Buffett has thrown himself in the midst of what has to be one of the greatest not-really-that-important controversies in the history of the internet. Except that if it's not important, why mention it?

And therein lies the rub. Warren Buffett is in the business of profiting off of information asymmetries. He wants to buy undervalued shares and sell overvalued shares. Warren Buffett, in other words, practices the art of the greater fool theory. He believes that fools exist at both ends, in fact! People dumb enough to sell him shares at below real value and people dumb enough to buy shares at higher than real value.

Once you see that Buffett is talking his book, in fact specifically referencing holdings like Coke and See's, the particular commentary on gold becomes even more fascinating. He needs people to put their money in financial assets because that's where he has leverage - political access, business contacts, legal resources, etc. Precious metals are a huge threat to that power base, not because they realize a return, but because they're not in the business of generating returns. Investing is incredibly risky. Saving is an entirely different endeavor - the whole point is to transport today's capital in a form accepted tomorrow, not to generate additional capital tomorrow. There are basically three types of precious metals investors: 1) conspiracy theorists/doomsday preppers, 2) savers, and 3) speculators. Note that while we colloquially use the word investing to describe this, none of these three types of activities are actually investing in the financial sense of the word. What's really dangerous is when people end up investing when they think that they are saving*.

(I of course do not give official financial advice, legal advice, tax advice, marriage advice, cooking advice...but personally, I am a big believer in investing in stocks. That is in no way inconsistent in also believing in saving in much safer vehicles that have nothing to do with equities, nor is it inconsistent with also believing in the value of diversity over concentration.)

It's the relationship between value and price that determines whether 'something' is a good investment or not. The utility of that something for some other purpose is irrelevant*. After all, if Buffett was simply a buy and hold forever investor, how come he sold all that Exxon Mobil stock he's so interested in talking about? If he is so focused on productive assets, why does he invest in companies that are so unproductive that they require government bailouts just to stay afloat?

So Siegler, if you really think gold has minimal decorative value, why is it so valued in jewelry? It rivals diamonds in popularity and global ubiquity even though the gold market lacks the monopoly equivalent of De Beers backing it.

And I would love to know where I can get a list of the companies that are going to be productive over the next decade. If this was known, if there were no risk, it wouldn't be investing. But perhaps most plainly, the greater fools theory simply doesn't make sense. If you bought something, that means you're the fool. The natural conclusion of this advice is to steer clear of the entire (secondary) equities markets.

Michael Dell went into the investment advice business in such a famous way that he singlehandedly demonstrated the importance of knowing when people are talking their books. If someone had shorted Apple and gone long Dell a decade and a half ago, they'd be bankrupt today. In fact, they would have gone bankrupt years ago.

*Note, there are huge incentives to confuse people about this, and not just in stocks and precious metals. The housing bubble was encouraged in no small part by the National Association of Realtors and the Federal Reserve pushing people to think of housing - something of value due to its utility as shelter - as somehow synonymous with the returns of investing and the safety of saving.

revisiting the mobile computing paradigm

I've offered my thoughts long-form before about the development of digital computing from mainframes to personal computers to networking to mobile devices. In short, I advocate the perspective that the Wintel duopoly of the 1990s peak of the personal computing era was extremely rare, rather than the norm for technological development, and that we are currently approaching the peak of the mobile era, rather than just entering its initial stages.

This puts me at odds with analysts like Reggie Middleton and Henry Blodget, both of whom subscribe more to the model that technology tends to standardize around one company, and the New Microsoft is Google.

Well for a couple of days I've been thinking about how to approach Blodget's hilarious line of 'iPhone dead' articles. The gist of it is that Apple is doomed because Android phones make up half the US market and growing while iPhone is stuck in second place with only 25% marketshare. I've decided to assemble a little quiz for Blodget and analysts like him.

Enjoy!


1. Fill in the blank: In what year did the Mac’s marketshare fall below 25%?

A: It’s a trick question! Macintosh computers have never accounted for even one quarter of personal computer sales.

2. True or False: Apple was the biggest loser to the IBM PC Compatible / Wintel.

A: False. Remember Radio Shack’s Tandy? Did you know Commodore’s 64 was the best-selling computer of all time? Atari was an iconic brand. Heck, even IBM (the ‘IBM’ of the IBM PC Compatible) and Compaq (the ‘Compatible’ of the IBM PC Compatible) don’t make personal computers anymore.

3. Word Association: In the 1980s, the GUI (graphical user interface) was

An unserious toy not fit for Real Men / The obvious wave of the future

4. Multiple Choice: The company that best navigated the market changes from personal computing to network computing to mobile computing is

a. Amiga
b. Commodore
c. Radio Shack
d. Gateway
e. Compaq
f. Dell
g. Xerox
h. Netscape
i. America OnLine
j. CompuServe
k. Prodigy
l. Lucent
m. Novell
n. Lotus
o. WordPerfect
p. Broderbund
q. Research in Motion
r. Nokia
s. Motorola
t. Palm
u. Napster
v. Real
w. Pets.com
x. GeoCities.com
y. Flooz.com
z. Apple

5. Essay question: In five paragraphs, explain how licensing ‘the Mac’ to Compaq, IBM, Gateway, Dell, HP, or other OEMs would have prevented Microsoft from using bundling and exclusivity deals to guide the transition of IBM PC Compatibles from MS-DOS to Windows, creating the ‘Wintel’ juggernaut of the 1990s.

* Extra Credit: Explain how Apple would be better off today if it had spent the 1990s copying Microsoft's business model instead of investing in technologies like QuickTime and Newton.

ac is working again

$1,200 later...

sigh

crash or business as usual

Today was certainly exciting. I go to lunch and see AG Edwards, er, Wachovia's handy dandy Dow sign down around 11160. Then at lunch Julie's talking about the Merrill buyout. Then I check Yahoo Finance before dinner and the Dow's down 500 points. And oil's under $100.

At times like this it's good to take a second and remember, short term volatility does not affect your investment goals. Odds are, the vast majority of your wealth is tied up in your wages. If you're lucky enough that equities represent a large sum for you, congratulations, you're one of the winners in our economy!

And for those of us that are younger-ish, this is a huge opportunity. With most of our earnings ahead of us, the cheaper assets like stocks and real estate are in the present, the better long-term value they represent.

And PS older folks, we'd be happy to buy your assets from you at prices you find amenable. All you gotta do is pay us wages so we can afford them. At the end of the day, that's what this is all about. It's not a housing crash or a credit crunch that's the root problem. The root problem is your average worker doesn't make as much money as she should.

But just remember, no matter your age, don't bet your lunch money in the stock market. Even iconic companies fail.

Au revoir Lehman and Merrill.

highs and lows

Sometimes politics and economics are related, but these two things really have nothing to do with each other except that they've both happened recently and are worth commenting on.

Last year, I took a second to mention the Dow's breaking the 14,000 barrier in July. So I suppose at this time it is worthwhile to emphasize the other half of that message. It's ok for long term investors if stocks perform poorly in the short term. Don't panic! In fact, when in a period of decline, that's the best time to dump additional money for the long haul into equities. Just make sure it's really for next decade, not next week. Your emergency fund should never leave your savings account.

How much has the market (or more accurately, several markets) crashed? From breaking 14,000 last July, we're back under 13,000 now, almost below 12,000. In fact, what's happened the last few weeks is the largest decline in the history of the DJIA. By comparison, the crash of 1987 was less than a thousand points. Since then, the Dow has risen by almost exactly 10,000. In other words, a hypothetical investment in the 30 companies would have sextupled in the 20 years from Black Monday to LameduckW. Okay, LameduckW may not be the word historians ultimately use for the markets under Bush, but until they come up with a better name for this crash, that's what I'm calling it. But what if you bought the day before Black Monday? Well, then you'll have to console yourself with only a quadrupling of your money from 1987 to now (unless you got emotional and sold your investment, in which case you had quite the loss).

All of this, if you're like me, screams buy! If a Democratic president enters the White House come January 2009, we are primed for some impressive gains the next few years. Youngun's especially, take advantage.


And one side note. The National Association of Realtors, the lovely lobbying organization designed to market buying and selling houses (as opposed to making sure everyone has housing) and ensuring one of our most regressive tax breaks stays in place, the mortgage interest expense deduction, is running ads advertising a rather misleading website. They make some ridiculous claims about the historical appreciation of houses, and of course, the data they cite is their own historical series survey that you have to buy from them. Obviously, the reason they don't cite the data is because it's based upon the height of the housing bubble, not the long-term historical record that shows houses appreciating about half a percent a year above the inflation rate, much less than the doubling every 10 years they claim (which requires over a 7% annual gain). Plus, of course, these are all gross figures; they are not net of the costs of homeownership. Homeownership is valuable mostly because people like owning their home. Few people treat their homes in the emotionless, rational state necessary to count as an investment.

But what really is offensive about the website is the use of statistics about the distribution of wealth. They accurately point out that homeowners as a group have a much higher net worth than renters. Having a net worth of "46 times that of a renter" is most definitely not a benefit of home ownership, though. It's a benefit of higher wages and a longer working career. In fact, their observation is precisely why we should eliminate the tax breaks for homeowners. People who earn money to buy and sell property obviously want you to think that owning a house is more valuable than renting one. But that doesn't mean it actually is, and it certainly should rouse suspicion and scrutiny when a lobbying organization is making such blatantly misleading statements at a time when the market it represents is in the bust phase of its bubble.

(P) I hadn't originally intended that little disgust with the NAR as a segue from the market's ups and downs to Senator Edwards' ups and downs, but it seems pretty appropriate. I was very excited yesterday to go see John speak at the Carpenter's District Council building. For one thing, I'd driven past it a hundred times, but I'd never been there. It's interesting living in a town that actually still has a union presence. It was also a reminder, that I say only half-jokingly, that lots of white people live in the city, too. It was almost unbelievable, I'd say 3/4 of the people who packed into that meeting hall were older than 40 and white. They still exist!

I really liked his stump speech, and that was really the first time I've been around a large gathering of Edwards supporters. Mostly it's been smaller groups, like what we did at Earth day or greeting him at the National Urban League conference. In my mind, Edwards is saying the right things and has the right approach.

Clearly, though, Nevada did not go very well yesterday for Edwards. It makes me wonder a bit if they started campaigning elsewhere because they knew that was going to happen. With two third place finishes in a row, it's worth asking what is left to get accomplished. While finishing third in the Republican race any given day isn't a big deal, the Democratic side is a little more consolidated at this point. That itself is quite interesting, since the corporate media likes to talk a lot about fractures in the Democratic party when the GOP is really what is splintered at the moment, but that's a slightly different topic.

What stands out to me is that there's no reason not to keep going. For one thing, Clinton has not been able to stake out a majority position, even as she borrows some of the ideas and language from the Edwards and Obama campaigns. She hasn't won a majority of delegates in any state so far (unless you count Michigan, which is actually embarrassing for how few votes she received), and in fact, Edwards beat her, at least in terms of votes, in the Iowa caucus (you don't really know for months the actual delegates each candidate will get). If Nevada is a sign of things to come, then obviously Edwards isn't stealing votes from Obama. If it was an aberration, then it can't be a reason to ask Edwards to leave the race. The longer he's in, the more he has a chance to shape the dialogue and influence the convention. And of course, he just might win a few states.

That leaves me with the most interesting question I have after this weekend. Why do some people want him to drop out? Do they not like his message? Do they think he's preventing Clinton from getting more votes? Do they think he's preventing Obama from getting more votes? Do they not like having a broader field to choose from? Does Edwards' continued presence allow him to raise uncomfortable questions that people in the media or the party don't want asked? If a majority of voters want Clinton or Obama to be their nominee, then I'll respect that. But what I don't understand is telling a guy he needs to drop out after only three states have voted, in one of which he beat Clinton.

I hope Edwards picks up some states in the next few weeks. But I'm quite sure it would beneficial for him to stay in the race through the convention, even if he doesn't win a single state.

numbers fun

I had a couple different thoughts, but they both involve somewhat rather random numbers which I nonetheless find interesting this afternoon as I settle into the Chiefs game and putting off errands I should have run yesterday.

First, on the topic of football, I think it is becoming increasingly clear that the NFL this season is substantially less interesting than the baseball season was. Now, I’m a big baseball fan, so personally that’s my opinion most years, but I recognize that football is generally perceived as the prime American sport. This year, however, is downright boring. There are good teams and bad teams, and we knew them very early on, and frankly, there’s little anticipation that anything exciting is going to happen. I was checking ESPN’s predictions for this week, where they have eight commentators and one computer calculation choose who they think will win. Of the 16 games playing this weekend, only 5 had a 4/5 or 3/6 split. 9 out of the 16 were unanimous consensus picks – a whopping 56%. I checked last week, and of the 7 unanimous picks, 6 won. Combine that with the fact that there are NFC teams with losing records in the playoff hunt, and you’re just thankful for college football. Wait, scratch that, we’ve known all season Ohio State and USC would meet in the Rose Bowl. That’s what happens when you root for Notre Dame, Michigan travels to Columbus, and you have roommates from Texas and Florida. Oh, did I leave out Arkansas and Boise State? Cry me a river.

The other thing is quite happy. It’s been roughly two years now since I was at DFC (financial services), and my retirement account hit a fun but totally arbitrary milestone. It topped $5K! I suspect that will about buy me a new pair of glasses and lunch at McDonald’s by the time I’m 90, but that’s the point. The principal won’t get you very far; you need lots of investment return to outpace inflation. And spoil the grandkids with fancy new plasma holoscreens. According to Quicken, if I’ve put in all the data correctly, my Roth has netted an annualized 15.6% over the last two years. Not too shabby.

As a general not-so-gentle nudge, if $5,000 sounds like a lot of money, put more money into your retirement account. Now.

It was really eye-opening meeting people and person and after person, a difficult but solvable issue was how to save. A much more difficult issue which many hadn’t even really thought about solving was procrastination. So many people I met knew it was important, and wanted to be saving; they just hadn’t started (there's always next year...). And of course, I’m in the same boat. I had some fun playing around with my car money in college (Ameritrade is great fun), but I didn’t start saving long-term until I was actually working in financial services.

Don’t be a slacker :)