Possible Implications of Statistical Traps

Many years ago, as junior analyst at a brokerage house, I was assigned the role of writing the firm’s daily market letter. I was determined that I would avoid the tired clichés found in other letters; I would have something valuable to say. My recollection is that my spark of originality was extinguished in ten or less days. In a similar fashion, this Blog challenges me each week to develop some independent thinking that will raise questions as you reach your own thoughts and occasional actions. In preparations for my Sunday afternoon blank page, I read all that I can from various sources. This week I am going to focus on two elements from the Weekly Advisor Alert by US Global Investors of San Antonio, Texas.

One of the preferred ways of analysts and particularly strategists, is to ascertain today’s value, then to determine if today’s prices properly discount future earnings. They use this projection as the denominator of the price/earnings ratio in order to calculate a P/E on future earnings. Once that number is derived it is compared with historic ratios and other current relative choices. The conceit in this calculation is the concept of “normalized” earnings. In this case, normalized earnings are calculated by extrapolating the latest five years of a cyclical expansion and picking the midpoint in the time series, then applying those earnings to today’s prices. On the basis of this analysis, the leading sector within the S&P 500 is Information Technology, with a “normalized P/E of 17.1 times. The second highest is the Materials sector, at 16.8x. The two sectors with lowest aggregate P/Es are Financials, at 11.4x; and Energy at 11.6x. Under this approach, one could argue that those fields where imagination and specific management skills are most valued tend to have higher market valuations than those sectors characterized by cyclical patterns of changing prices (interest rate spreads) where management plays a less determinate role.

The trap in this approach is that it marches forward by looking backwards.

While markets will continue their time series into the future, I believe these series will be marked with footnotes about the severe differences from the past. In many respects, I believe we are passing through dramatic turning points as significant as those experienced in the late 1920s, the 1930s all the way up to1942. The turning points will be found in technology, demographics, psychographics, politics, financial technology and market structure around the world. (Wendell Willkie was correct about global inter-dependencies in his book One World). Disclosure: Mr. Willkie once employed my mother in his political activities.)

Some strategists are raising appropriate questions as to what the “new normal” is. I would like to contribute to their thinking, but my guess is that the best I can do is to sport mutual fund and hedge fund portfolios that look quite different than those of the past, and to position them to creatively participate in the future. Bottom line, Dorothy: We are not back in Kansas.

The second trap is the use of so-called industries in the S&P 500 to make discreet judgments. There are at least four remaining single-stock industries, Heath Care Facilities (Tenet Healthcare), Commercial Printing (RR Donnelly), Building Products (Masco), and Forest Products (Weyerhaeuser). The first two have higher price/earnings ratios than the last two. Most investors would say the rank order of their P/Es is a function of their chosen products, thus if one can find similar companies (either smaller or overseas), these similar companies should have similar P/Es. I would argue that the nature of both their managements and balance sheets may have much to do with their relative ranking. In all four cases, the spreads between the selling prices and the cost of materials these companies buy are large determinants of what they earn. If we go into a period of the “new normal,” the favorable price trends could reverse, with the lower P/E stocks doing materially better than the high ones.

The main messages from today’s blog are:

First, understand how data is put together to support any financial discussion.

Second, be aware that extrapolation may lose to a “new normal” definition when it appears.

Third, recognize that those who have publishing deadlines have their limits; in terms of imagination, willingness to have different views, and the pure inability to predict the future accurately or even interestingly.

Setting Investment Goals ProperlyThrough the Use of Science and Art

When developing optimum investment plans for individual families, non-profit organizations, retirement plans and similar clients, one must recognize the murky junction of mathematics and art, or if you will, comfort.

The key to properly setting realistic investment goals is coming to grips with the uncertain future. Gains from most investment portfolios are not the sole goal of the portfolio, but rather as a source of future spending. At the end of the primary investment period, which could be as short as a month or as long as a grantors’ life, there is a desired minimum spending plan. To fund the spending, a minimum capital level needs to be in place. To reach the capital goal compared with today’s resources and future net contributions, if any, a calculation to the rate of capital growth is needed. For example, take the selection of a desired minimum annual return, 4%, 8%, 12%, 16%., etc. The critical question that remains is, how quickly can the capital base for the spending be put into place? There is a helpful tool available. An old arithmetic “rule” holds that the number of years needed to double your money is to divide the rate into 72. Thus at a 4% rate, it would take 18 years (which might be acceptable for an early college savings plan or a conservative after-tax and inflation retirement plan). An 8% return (a rate many retirement plans used prior to 2008) would produce the capital required in only 9 years. In the past, after prolonged market declines, 12%-16% gains have been achieved, reaching their mathematical goals unadjusted for taxes and most importantly, inflation, in 6 and 4 ½ years respectively.

I have set a trap for the naïve investor and/or administrator who focus only on the rates of return as shown above. There are at least two other factors that need to be considered. The first is an understanding of the importance of the impacts of terminal dates. In the examples briefly described above, one can see that to some degree, the rate of return is heavily influenced by the starting point. In a market that has a long-term secular upward bias (as has been the case for all of our lives), the lower the market level for stocks and higher the level for interest rates, the more likely investment performance will be good.

Relatively little has been written about the nature of the investment markets at the end of a particular period. I have not seen anything on the probability that, after a period of achieved good performance, poorer performance should be expected from the same portfolio. No one has suggested that if you get 16% over a five or ten year period, go to cash. I do remember one sagacious pension plan that immediately went to 100% cash when they were up 20% in any single year. While the fund had a good year-by-year record, if the 20% gain was achieved early in a year of spectacular gains, it missed out in getting the balance of the gains sufficient to provide a good record in the long run. Considering the operational and financial leverage that is built into the system, a double digit investment record in a period of single digit economic growth will lead to an over-valuation; one should expect periodic declines after periods of large gains.

One can not express often enough that following a high performance period, one is likely to see a market decline or give-back. As if awareness of future declines is not difficult enough, remember that most investment pools are not entirely or even mostly, date dependent. In rare cases, capital pools are used only to meet a specific date obligation, e.g. pay off a bond/mortgage or pay for a new building all at once. When obligations are specific and/or date-defined, a separate portfolio with its own portfolio and investment strategy may be advisable. (See my blog for August 2, 2009).

For the moment go to other extreme and think about the spending rates needed to support an entire family on a multiple generation basis, or an endowment to provide meaningful scholarships and fellowships. There is no terminal date for this portfolio until the money runs out. In this case, relative performance may become important. One investment strategy would be to attempt to keep performance rankings in the middle three quintiles, avoiding too heavy a weight in the lower of the three.

In addition to terminal dates, the second factor that needs to be considered is comfort. The biggest single comfort factor for many is to stay within the bounds of prudence as established by others. This is a concept of being outwardly directed. (Better to go down with others than to rise individually.) Going down is the in the domain of comfort, or more specifically, discomfort. In using an absolute performance filter, the bounces taken along the trajectory of success become very important regardless of expected terminal results. Academics and consultants have developed the use of “Beta” which is a measure of volatility, but has also become critical in providing comfort to nervous investors. There are lots of things wrong with this concept, particularly issues regarding its predictability, the differences between upside and downside beta, and most importantly the choice of the optimum investment vehicle. A valid concern of relying on Beta is that investors will be shepherded into making choices with fewer recorded bounces, reducing the odds of participating with successful managers who make frequent right choices.

When using relative performance and performance ranking within in a universe of peers, the selection of the appropriate peers becomes critical. This task requires a continuous effort to ensure that similar strategies, commitments, fees/expenses and other vital requirements are sufficiently similar. The “comfort factor” also includes numerous soft items, including name recognition and reputation of the manager, availability of the portfolio manager for in-depth conversations, ease of administration among others.

Investors spend too little time thinking about their investment objective settings. For most, there is attention focused on these issues at the beginning of the account and/or a significant change in advisor, consultant or important members of an investment committee. When conditions change, a review is often conducted. Under these circumstances, changes that are made are often reactive, based on extrapolation of the existing conditions rather than forward looking.

Please feel free to comment or to ask me a question on investment goal setting. Click “comments” below this entry, or send me an email reply.

The Art Form of Selection for a Portfolio of Funds

As has been noted on this blog and my book, MONEY WISE, which is about to go into paperback, I believe that each major investment need should have a separate set of investments. The end game for all investing is to produce capital for eventual spending. In many cases, the time frame for charitable institutions and wealthy families is infinite. Investing through mutual funds and hedge funds is not necessarily the best single way to invest, but it is far from the worst. Due to my background of studying funds for the last 50 years or so, funds are the first choice in my investment tool set.

To accomplish the goal of providing for future spending needs, one is essentially dependent on the current spending rate and the growth of capital as they pass through the filters of inflation and taxes. Like most all other investors, I am predisposed to the term “growth.” One of the ways to grow capital is to invest in growth stocks, often found in growth funds.

As someone who has probably created more fund classifications than any other individual, I recognize that turning fund classifications into investment objectives was never designed primarily to help in fund selection. The beneficiaries of classifying funds into peer groups include fund portfolio managers, independent directors of fund groups, owners of fund management organizations and the fund marketing systems. In essence, fund classification produces bragging rights. Particularly in the developed world’s competitive focus, ranking against peers becomes the title requirement for ownership of bragging rights. This is exactly where a dichotomy lies between the needs of a fund investor and the above-mentioned beneficiaries of fund classifications’ bragging rights.

To keep the reward game honest, a set of rules are needed which should be based on empirical evidence. For example, my old organization, now known as Lipper, Inc., defines a growth fund as a fund that has a price/earnings ratio greater than the S&P 500, and a three year average growth rate of sales per share that is above the same broad market indicator. Others use some variation of high price sensitivity and historic trend analysis. Note that all of these measures are backward looking because they are known and are usually not adjusted for post-period recognitions of material differences.

One of the sound arguments against using any broad market securities index is that you are paying for past successes. Remember the SEC requirement that is meant to go with any performance advertising: that past performance is no guaranty of future performance. As a matter of fact, after prolonged periods of specific progress, the mathematical pull of regression to the mean becomes overpowering. Leaders give up the performance leadership and often become laggards, while laggards become leaders. Usually at some point in a sales pitch for a fund, reliance is placed on the fund classification bragging rights mentioned above.

Extrapolation is easy, particularly if one sees no imminent signs of major reversals. Instead, I am addicted to anticipation. I think about the uncertain future. I have a preference for managers who are also searching the future to find stocks that do not represent an extrapolation of the past. This is much more difficult. In the mid- 1960’s a very good analyst caught the shift from a cyclical valuation to an expected growth valuation for a, now much smaller, company named General Motors. His market call worked for a while until it became accepted word near its cyclical peak. Think about IBM, which started life with more water in its balance sheet than assets. For many years, IBM was considered a growth company; then it became an income stock and now is a consulting services company. Imagine the problems of keeping IBM within any giving index as a predictor of future price behavior.

After a long period of declining prices, the best relative performances are held by those funds that exert a tight price discipline and/or have used cash as a significant investment. Many of the best, well known, investors have used this type of “value” oriented approach. For investment needs where the spending rate is high relative to the earnings rate, these price disciplined investments should play a major role. However for some needs (particularly in the early stages of many portfolios), the growth of the long term capital is of greater importance than the annual total return generation. Growth of capital is also a primary driver for many wealthy families, who believe the current level of capital is insufficient to meet future generational and /or philanthropical needs.

By dividing one’s resources into need-focused portfolios, one may have the best of both worlds (value + growth). Periodic rebalancing between the portfolios should be driven by the changing levels of needs. As the late Sir John Templeton would direct, changes to the individual portfolios should be made on the basis of focusing on better bargains. These bargains can be in future growth stocks or funds.

The successful selection of future growers is difficult, at best. In my case it is achieved by listening to smart managers that have different points of view based on their own research methods. As noted previously, I am willing to own funds that have different, and in some cases conflicting points of view.

Do you agree?

I have met the enemy which has trained us.

The great modern philosopher of our age, Pogo, describes the nature of the failure of the human condition by intoning, “I have met the enemy, and the enemy is us.” In essence, what he is saying is that, individually and collectively, we cause our own problems. How can this be? Aren’t we the most brilliant people with the best education and the greatest media support the world has ever seen? And we seem to make the same mistakes as our ancient ancestors. I would suggest that the primary reason for our failure to develop a higher percentage of winning bets is that we have limited our learning capacity.

Our first fundamental mistake, as mentioned in last week’s blog, is a lack of full understanding of Newton’s Third Law of Motion, that every action creates an and equal and opposite reaction: You kill me, my son or brother will kill you, etc. As a “certified bright person,” I may perceive buying something as cheap, while the seller, equally bright and perhaps with more or different information considers the sale as off-loading an expensive piece of merchandise. If a government restricts a profitable trade for someone, a willing buyer and seller will find other ways to transact, even if trading costs are higher.

Our second mistake is where we look for guidance and how we receive it. Consider if you were going to have a critical medical operation, or have a major piece of architecture begun, you probably would search for the most knowledgeable expert that was available. In our selection process, experience usually plays a major role. In contrast, I would look for an expert who had some failures (e.g. a patient died, or a building did not meet with its essential critical requirements). Personally, I would have little confidence in an all-knowing arrogant personality, who would be unlikely to quickly identify when something was going wrong and thus less prepared to shift course.

In contrast to the somewhat painful experience searching for medical or architectural experts, when seeking financial advice we rely on 20 second sound bites, 55 minute university lectures and newspaper columns limited to 700 words or less from very thoughtful columnists such as Jason Zweig, in the weekend Wall Street Journal.

As all of us are insecure about making financial and investment decisions, we tend to find comfort in conforming to what other individuals of perceived similar intelligence do with their money. (The prudent man principle is based on this conformity, not on what was actually prudent under the circumstances.) Our decision-making may be compared to a voting machine or a set of scales. Most often the quantity of popular views weighs more heavily in our decisions than the apparent expertise of one or more experienced leaders.

To overcome this quantity over quality trap in building portfolios of funds for wealthy families or institutions, I try to select a few managers who see the market and the world differently than the rest. To me, the greater the arrogance, the greater there is the need to hedge and find different smart views. One way I try to reduce the power of the enemies is to control my own arrogance.

Learn from London and ParisBut Invest Creatively Elsewhere

Ruth and I have just returned from a trip to London and Paris. In addition to accompanying my wife on New Jersey Symphony Orchestra business, one of the reasons for the trip was to gain insights from various financial professionals. I spoke with the leaders of two publicly-traded companies, several portfolio managers, the strategic adviser to a large hedge fund, a successful currency trader and a data provider with an academic orientation. While all of these gentlemen were very intelligent, they did not share similar approaches or views of the future (I should note that I have visited many accomplished professional financial women in prior visits.)

I did notice that many of my discussions relatively quickly evolved into the use of complex derivatives, which represented 30-100% of the net equity of portfolios managed by these professionals. In almost all cases, the derivatives were used in various hedging strategies. While they expressed a generally positive long-term view, they were also using short positions through derivatives to hedge against a sudden, unexpected sharp decline. In almost all cases, the gentlemen relied heavily on their academic training and their experience of survival. To most, the future would be some pale extrapolation of the past. All feared changing regulation that will increase their operating costs, restrict their flexibility, and in the end, hurt the public’s ability to make money. They seem to have good reason not to try future-oriented strategies. Their instincts are similar to many analysts found on this side of the Atlantic. I have often said that if you scratch an analyst, a historian will bleed. There is comfort in knowing how the movie, play, or opera ends.

Investing in China, India, and selected other Asian countries was the source of good performance numbers for a number of the funds based in London and Paris. While some managers conduct research from London, others use Hong Kong and occasionally Singapore. If they do have Tokyo offices, it is to track Japanese, and possibly Korean securities. China is the biggest single bet or actually twin bets. The first investment bet is on product producers for the export markets (largely dollar earners). The second wager is on the growing home market for goods and services. The potential dynamite of rising expectations in a controlled environment is recognized as a difficult situation, and can go wildly wrong at times.

Currencies are viewed as trading vehicles rather than assets of long-term value certainty.

What does this all mean to those of us who manage money for retirement plans, non-profits and families of substantial means? I am still recovering from some jet-lag, thus my current thinking is evolving. First, most European analysts are much more financial statement-oriented than I am. They do not seem to want to understand how a company or a fund actually works. As statement-oriented analysts, they are much more likely to be enthusiastic about “value” than “growth.” They seem to see things in an orderly solar system and will use their intellectual skills to protect themselves against change. I tend to look forward to finding change, and discovering those investments that benefit from change. In America, we use far less leverage than they do in Europe. The fact that many European managers tended to invest in companies that used leverage is one of the reasons that financials often represented 50% of their portfolios. Even for someone who manages a financial services hedge fund, this commitment to financials seems a bit high to me.

The bottom line: While we can expect many new techniques will originate in London and Paris, it will be the United States’ distribution power that will generate the largest share of the profits. To use Peter Lynch’s term, we should be focusing on the creative skill sites of the world for our next “ten bagger.”

Modified Behavior = Intervention vs. Newton

Recently, The Wall Street Journal surveyed 51 economists as to the need for a second stimulus. In the same survey they asked these learned people about the Obama administration’s plan to overhaul financial regulation. Of the survey respondents, 44% thought that the proposal was acceptable under the current political conditions and 15% believed that proposals will make the financial system safer. Either at least the 15% of those surveyed, and possibly most of the 44%, have absolutely perfect children or they have not taken a course in Physics.

As they say, it takes two to tango. Almost none of the evils were pre-meditated. The problems that have befallen people would not have been possible without both sides agreeing on something. Purchases of homes, cars, securities, and the inherent acceptance of debt (or as we prefer to label it, leverage) would not have been possible without a signature. In almost all instances, the signature was accompanied by a difficult-to-comprehend legal document. In many cases, the obtuse legalese was in documents that were never opened, even to examine their length. What motivated these buyers, some of whom were companies and, in many cases large, publicly-traded corporations, was the desire to own something they could not afford. These loans were packaged in a number of different wrappings and sold to both individual and institutional buyers. Despite the weighty legal documents, the attraction to buyers was a perceived, essentially, riskless, above-average yield (or performance). Many of those who lost their assets in various frauds and Ponzi schemes suffered from the same desire for unrealistic returns.

The very human desire to prevent such tragedies in the future is understandable and even commendable. However, it starts with a fallacy that “they” did it to the unsuspecting public. In the current political environment, “they” is usually a financial intermediary. There is little or no recognition of the culpability of the tango partner, or the sweet music played by the government. I believe that until there is some self-recognition of the initial source of the problem, there will be few solutions achieved.

One of the frightening elements of the Journal’s survey and reporting is that government intervention would make the economy and/or the market “safer.” First of all, it is not the function of government to make all human relations safe. At best a very clever government, continuously monitoring all communications between people, could possibly make disclosure fairer, but that would go up against the legal protections that one or both parties want.

In general there is a lack of appreciation on the part of governments, particularly this one, as to the nature of intervention. Initially, the authors of intervention attempt (almost in a biblical sense) to divide the good from the bad with one quick stoke of His staff. There are lots of problems with this glorious picture. First, the intervener has to gather up all the good people on one side. (Are they always, in every respect going to be the good people?) All the bad guys (no matter how bad), will need to be forced to the other side of this bipolar world. Second, since the beginning of wars and conflicts, some of the participants on each side have traded with the enemy. In turn these trading relationships have blossomed into friendships and even marriages of some type. Third, almost no single intervention, by itself can stand the test of time. Even that most precious of all interventions in the English language, The Declaration of Independence, could not stand alone by itself for long. After much wrangling, the U.S. Constitution, the operating document for our enterprise, was created. Despite that effort, amendments soon became necessary, the first ten resulting in the Bill of Rights. Further, our founding Fathers recognized that the language of the Constitution may not be perfectly understood, and the various states (the political powers of the day), could interpret the document differently. Thus, to bring these concepts into line with their original intent, they created the Supreme Court. The purpose of this very brief history lesson is to show that no single intervention can be, in and of itself, a solution. In biblical terms it could be said the first intervention begat the second intervention which begat the third, etc.

I have two warnings for those who plea for an intervention: First, they will get more than they intended. The second warning is that it will not work as completely intended, no matter who designs it. Why? Get out your Physics book. Sir Isaac Newton’s third Law of Motion states that each action is met with an equal and opposite reaction. With diligence equal to that of the government, clever people will succeed at finding ways around any regulation.

There is even a more important reason why pure intervention won’t work. How many of you, as parents, successfully intervened with your children by just taking away some privilege, which they thought was their absolute right. Did it work? In most cases this pure punishment did not work. What usually worked was to forge some form of behavior modification, so that the child first understood the consequences of an action, and second (and much more importantly), modified their behavior. The solution to preventing future problems is behavior modification, not reliance on intervention.

One of the challenges in working with families of wealth is the desire of the senior member to posthumously intervene in their children’s, grandchildren’s or favorite charity’s lives. There are all sorts of provisos written into wills and trusts that are an attempt to allow the dead to control from the grave. A number of these stipulations withhold funds unless certain things are done, e.g. going to the Alma Mater, getting married, having children, completing a certain task, teaching a particular view, playing only a certain kind of music, etc. There was even one family that we worked with that tied the physical weight loss of the contingent beneficiary with the provision to receive an inheritance. Some of the more difficult situations occur when there is a family business involved, with some members of varying skills working within the business while others are non-working members. In each case, the senior member is desperately trying to make up for failures of the past. My job as the adviser to the senior member is try to get him or her to recognize, like the government, that benefits of intervention may not last, and we need to focus on current behavior modification.

The bottom line is that people eventually win over the dictates of past interventions.

Can We be Independent?

We have just celebrated Independence Day to commemorate that brave band of Americans who have declared their independence from, at that time, the most powerful nation in the world. On late night cable on July 4th the film “1776” was broadcast. The plot centers on the days of wrangling that went on among the delegates to the Continental Congress. Until the final day, there were not enough votes to pass the bill. What is quite clear is that this remarkable group of men chose to lead rather than merely represent the popular will of the people. As investors do we have the wisdom, courage and fortitude to declare our own independence? Just like those earlier patriots we are facing a tyrant. At that time the tyrant was not just the King of England, but the tyranny of experience. The American Revolution had no historic precedent; no people’s revolt had ever created a new nation.

As investors we have suffered mightily from a sharp decline in market prices. More importantly, the world has gone through an economic devastation. The tyranny that we are now facing is the normal reliance on experience. We are looking at the events of the past as just another cyclical series with the thought that we will rise once again to the former heights. I, for one, doubt it. What was quite clear from the American Revolution, was there would be deaths and other casualties to our lives and to the ways that our society and economy worked.

Before we put too much weight on our ability to order the future, we need to remember, as with all wars, the losing side contributed more mistakes than the winning side. Luck was with us in the sense that the storms off Newport, Rhode Island kept the superior British Fleet bottled up, rather than doing battle with the French Fleet. Thus, Cornwallis could not evacuate his losing army from Yorktown and had to surrender to the forces commanded by the indispensable General George Washington. This was the last major battle of The Revolution, but it took two more years before a peace treaty was signed. What Americans in general (and investors in particular) did not appreciate was that the “peace party” in Parliament at the time was gaining the upper hand, and wanted the war ended, for they had better things to do with their resources.

How should we learn from the American Revolution today as investors? First, do not hold up a mirror to the past cycles. Though we can still learn from sound principles from the past in terms of risk management, they will be broader than in the past. Second, look for changes in structure in both the world economy and in the market place. We have seen the rise of sovereign wealth funds and the expansion of central banks, which could be the tyranny of new attempts at central controls. We have already seen the disappearance of floors of securities exchanges in favor of electronic exchanges, which will operate from the ether, domiciled in the least regulated locations. We are finally close to getting some of the derivatives, (e.g. credit default swaps) clearing through a series of central clearing houses. Finally, within a relatively few years, we will see new leaders arise who will be much better equipped to manage themselves, their own activities and perhaps even governments. Just as the leaders of the American Revolution succeeded through the much more difficult task of writing a Constitution and creating a new form of government, we may see new groupings of people, not based on location but rather their own particular interests.

In looking to a brave new and frightening new world, we may have to get rid of old ways of thinking. For instance, the so-called “prudent man rule” has been the foundation for courts and learned investment opinion since it was handed down by a Massachusetts state court in 1830. The case questioned whether Harvard College was managing its endowment properly. Judge Putnam ruled against Harvard, by defining prudence as what other intelligent people did with their own money. (Seems as if Harvard has a slow learning process.) Despite this definition of prudence, we could be entering a period that new and thoroughly thought-out investment policies should be followed. For example, is the legal form of an investment as important as the predictability and terminal value of a security? Thus, we may find that compartmentalizing a portfolio into stocks, bonds, funds, and various forms of illiquid investments is not as important as the variance of future year-by-year returns, expected or tolerated. Another consideration that may come increasingly important is the evolving body of corporate and civil law, e.g. stipulating the priority position of senior secured bond holders or the imposition of “gates” on hedge fund redemptions, etc. Will changes in estate taxes alter the motivations and valuations of various investments in public and private securities? The list of examples is far from complete. The purpose of these radical, perhaps not revolutionary, ideas is to indicate some of the range of changes that should guide us to seek a new way of thinking.

In the end, tyranny of all forms is self-defeating, as it can never for all times be complete. Eventually the unknowns become known, which some people identify early enough to survive, and in some cases prosper.

Be alert, and share with us what we should be seeing.