The Stock Market Is Getting Dicey -Here’s What I’m Doing About It

Sunday, February 17, 2019

Delray Beach, FL.-The US stock market gave investors a good scare late last year, with the DOW dropping from a high of 26,562 on September 24 to a low of 22,445 on December 18. The newspapers were full of good reasons. On the top of the list were rising interest rates and the fear of a trade war with China.

But by the end of the year, it had climbed to 23,327, ending the year with a loss of 5.63%.

Thousands of investors abandoned stocks during that last quarter. Dominick and I did not. Our investment philosophy is long-term, big-cap, and value-based, so we look at price drops as buying opportunities. And we took advantage of the drop to buy some additional shares (of PG, IBM, BUD, MSFT, GOOG, AMZN, AAPL, MMM, ORCL) with the cash I’d accumulated from dividends in 2018.

Of course, ending the year with a loss never feels good. And that was especially true for us since my portfolio had made a ton of money in 2017 and good profits consistently since setting it up in 2012 (even in 2015, when the DOW closed down 2.23%).

This year, the DOW is up about 9%, as is the Legacy Portfolio. So you’d think I’d be feeling good about staying in the market. But I don’t feel good. I feel nervous.

There are lots of reasons to be concerned about not just another dip but a crash. And not just an ordinary crash but one that could last for a long time.

One reason: Half of all investment-grade debt is “teetering on the edge of becoming junk,” a colleague pointed out recently. “And more of these risky loans are being owned by mutual funds than ever before.”

Worst of all, he said, “They’re being held mostly by your average mom and pop investor. When these risky companies become unable to pay their debt obligations, it will send shockwaves throughout the debt market, then the stock market. And it will be disastrous for most individual investors.”

And then, of course, there’s that ever-growing elephant in the room: the national debt. In 2,000, it stood at $5.6 trillion. Today, it’s estimated to be $22.7 trillion.

But those aren’t the scariest numbers. The scariest numbers are ratios – the debt as a percentage of our country’s gross domestic product. (Think of it in terms of personal debt compared to personal income.) In 2000, that $5.6 trillion in debt represented 55% of our GDP. Today’s $22.7 trillion represents 108% of our GDP.

And it’s not expected to get better.

Younger investors today tend to be optimistic because they haven’t had the benefit of living through a period of high inflation. And their only experience with a serious recession was in 2009, which has been followed by this long bull market.

Young investors may, therefore, keep investing.

Older investors may take the opposite course. They may get out of the market in part or in whole and wait for good weather.

I’m nervous because I feel like we are in for a drop and possibly a sustained drop. But I’m not going to change my investing strategy because it was designed for the long-term and because I can wait it out.

I can wait it out because (1) I never fully retired (i.e., gave up my active income), (2) I have multiple passive streams of income from different asset classes, and (3) my stock portfolio represents only about 20% of my net worth. So if the DOW drops by, say, 50% for 10 years, I’ll be okay.

I’m not saying this to boast, but to explain that the only way you can possibly avoid being devastated by a stock market crash and a long recovery is to take a comprehensive approach to wealth building – one that includes multiple streams of income, stores of wealth in at least a half-dozen asset classes, and “plan B” strategies for limiting losses.

Advice From J. Paul Getty on “How to Be Rich”

Monday, February 11, 2019

Delray Beach, FL.- “Contrary to popular modern belief, it is still quite possible for the successful individual to make his million – and more.”

Paul Getty wrote these words in 1986 in his book How to Be Rich. I read it first more than 10 years ago and liked it very much. I’ve read it again recently and was equally inspired. It is a quick and easy read. (It was written as a series of essays for Playboy magazine.) But it is loaded with practical advice for anyone that wants to build wealth: business owners, professionals, even superstar employees.

Getty was a very rich man. I’ve heard it said that in today’s dollars, his wealth was greater than Bill Gates’s and Warren Buffett’s put together.

He made his fortune by buying up oil businesses at bargain prices just after the Great Depression. A small portion of the book is devoted to telling this story. The rest of it presents his thesis: that the best way to become rich is to own or work for a growing business, and that business growth is dependent on following a dozen or so commonsense strategies.

“Although there are no sure-fire formulas for achieving success in business,” Getty says, “there are some fundamental rules to the game, which, if followed, tip the odds of success very much in the business man’s favor.”

Those rules include:

  • The best way to make a fortune is to own your own business.
  • The central aim of every business is to produce more and better goods (or more and better services) to more people at a lower cost.
  • A sense of thrift is essential for success in business.
  • Legitimate opportunities for expansion should not be overlooked.
  • The business owner must run his own business. He cannot expect employees to run it for him.
  • The business owner must be constantly alert for new ways to improve his products and services and increase his production and sales.
  • Nothing builds confidence and volume faster than a reputation for standing behind one’s product.

One chapter talks about real estate. Getty was a big believer in real estate as a secondary investment and made millions that way. He also talks about investing in fine art. In the course of his business life, he acquired one of the greatest private collections in his time. He left much of that collection to various museums, including the Getty Museum in California.

In discussing employee compensation, Getty’s ideas belied his reputation for being a penny pincher. He was a believer in paying his employees well – as well as or better than the competition. He also believed in treating his key employees as partners, by giving them incentive-based bonuses and, in some cases, shares of profits. More than a few of his key employees became rich as a result. I was delighted to note that Getty disputed the notion that entrepreneurs should “think big and take big chances.” His success, he says, came from “thinking small” (i.e., paying attention to details) and avoiding risk at every juncture.

Why “Best Books” Lists Are Sort of Silly… and My “Best Books” List for 2018

Wednesday, January 30, 2019

Los Angeles, CA.- When I first read Sapiens: A Brief History of Humankind by Yuval Noah Harari, I read it quickly. It was the selection of the month for my November book club – and by the time I got to it, I had less than two days to go through it.

No problem. I arrived at the Cigar Club, book in hand, with plenty to say. And most of that was a mixture of admiration and dismissal. Among other things, I said that it was “the best-written book that told me things I already knew.”

Two weeks later, I listened to it on Audiobooks, and I loved it. And now I’m reading it again…  and I’m thinking it may be one of the best books I’ve ever read!

Each chapter is a book in itself. And each section of every chapter contains at least one idea that feels big and new and important. This is a book that I will read over and over again.

I felt the same way about Pride and Prejudice when I first read it, which was 12 or 15 years ago. I’ve read it twice since then, and I’d be happy to read it again today.

But had I read  Pride and Prejudice as an undergraduate, I might have dismissed it as superficial and melodramatic. I know I felt that way about Henry James’s Portrait of a Lady and The Ambassadors when I read them for Dr. Powers at the University of Michigan. I pretended to admire them because he did, but they felt insignificant to me then. (“Brilliant writing about trivial human affairs,” is what I said in my journal.)

I don’t feel that way about those two novels now that I’m older and less cynical. Quite the contrary, I think they are brilliant and deep.

And that’s one of the problems with lists of the “best” books. The pleasure we get from books depends greatly on the level of intellectual and emotional sophistication we have when we read them. On the one hand, a book that strikes us as luculent in our youth might seem dim or even dimwitted decades later. On the other hand, a book that bores us in high school might thrill us in our middle age.

The same can be said of almost any aesthetic object. That painting of the young girl with the huge brown eyes that swept us away when we first saw one in Woolworth’s when we were nine years old now looks like the intentionally bathetic work of a commercial panderer.

I’m not suggesting that there is no such thing as bad, better, and great books. I’ve made the point elsewhere that I believe very strongly that the potential pleasure and elucidation we get from a book depends primarily on its intrinsic qualities. As a general rule, books that are broader and deeper and also subtler tend to get better the more you read them because they are better. They are better because they have complexity, depth, and subtlety, qualities that are enhanced by rather than diminished by repeated exposure.

What I’m saying is that best-books lists should be seen as what they are: the temporary feelings of one person – the list maker – at a particular time.

That said, here is my list of “best” books that I read (or reread) in 2018:

  1. Sapiens: A Brief History of Humankind by Yuval Noah Harari
  2. The Good Earth by Pearl Buck
  3. Brief Questions to the Big Questions by Stephen Hawking
  4. The Sheltering Sky by Paul Bowles
  5. Beyond the Grave by Jeffrey L. Condon
  6. For Whom the Bell Tolls by Ernest Hemingway
  7. Fox 8 by George Saunders
  8. 21 Lessons for the 21stCentury by Yuval Noah Harari
  9. Dress Her in Indigo by John D. MacDonald
  10. The Soul of America by Jon Meacham

No, You Didn’t Choose It… And, No, You Can’t Change It… So What Are You Going to Do About It?

Saturday, January 26, 2019

Los Angeles, CA.

You didn’t choose and cannot change the locale of your birth.

You didn’t choose and cannot change your ethnicity or your parentage.

You didn’t choose and cannot change the color of your skin.

But you can choose to change almost everything else.

Dwelling on what you didn’t choose and can’t change does you no good.

It doesn’t soothe your pain.

It doesn’t change the past.

It doesn’t lift you up.

It doesn’t give you hope.

And it cannot improve your future.

Feeling victimized by what you didn’t choose and can’t change actually hurts you.

It makes you angry,

Which depletes your energy,

Which makes you weak,

Which makes you less capable of moving ahead.

Ultimately, this way of thinking is a tragic waste of your precious time.

So why do so many supposedly smart and learned people promote it?

Read MoreNo, You Didn’t Choose It… And, No, You Can’t Change It… So What Are You Going to Do About It?

The Pain of Climbing Kilimanjaro and Other Humiliations

Sunday, January 20, 2019

Rancho Santana, Nicaragua.- At 43, Bonner Paddock has already accomplished what, at 68, I have failed to accomplish three times: He has retired.

I was intrigued by his story, So I pressed him for details.

He told me that he had busied himself with “various projects” for several years, and ended up moving to Nicaragua. (He pointed out where his house sits, on the beach directly past Mag Rock.) He’d had a successful career as a marketing executive for a large western US beverage distribution company… and decided, one day, that he had enough money to retire.

I wondered how much “enough” was. As an employee of a brick-and-mortar business, even as superstar marketer, he could not have accumulated, at his age, the sort of money that most people feel comfortable retiring with.

I asked him if he knew of Mr. Money Mustache. He didn’t. I explained how Mr. MM had also quit working at an early age, and then wrote a blog about his ongoing attempt to live well on an income of only $30,000 a year.

Then I told him about my three failed attempts to retire, and how (with my therapist’s help), I had finally gotten to the point where I don’t beat myself up for doing what I obviously want to do.

We were there to talk about working together: FunLimon, my family’s community center in Nicaragua, and his charity, which helps children in developing countries with cerebral palsy and similar disabilities get the therapy and special education they need. (CP, by the way, currently affects more than 500,000 children worldwide.) The idea was that we (meaning FunLimon) were going to provide a facility and equipment for the programs. And he was going to find the people and the equipment to make it happen.

Bismarck and Number Three Son Michael, co-directors of FunLimon, had agreed in principle to the joint venture. I was there because everyone wanted my input.

I won’t get into the details of our discussion. What I liked, and very much, was that Bonner agreed with me on the challenges of charitable giving. He believes, as I do, that charity brings with it a great responsibility.

I asked him how he got involved in his charity. He told me it started when he climbed Mount Kilimanjaro. “No shit!” I exclaimed. “So did I.”

We slapped five. (I know. Don’t say anything.) And I told him my horror story.

“I was miserable, too,” he agreed. “Every step of the way.”

“I wrote an essay about it,” I said. “I’ll send it to you.”

He thanked me and then told me why he did it… which made me feel like an idiot for even mentioning how much I had suffered on the climb. I had done it because… I don’t know why. But he had done it for a reason. He had cerebral palsy, he told me. And he had done it to bring attention to the challenges that are faced every day by people like him. Turns out he was the first person with CP to climb Kilimanjaro unassisted.

Then, rather than offering me an essay on his experience, he promised to send me the documentary movie he’d made about it. And, if I wanted, his NYT bestselling book.

And if that were not enough humiliation, he went on to tell me that he had taken on another challenge to raise money for his charity: to be the first person with CP to complete the Ironman Kona triathlon.

I must admit that when Bismarck first mentioned his name to me, I was dubious. “Who gets to have a power name like Bonner Paddock?” I thought. So just to be sure, I googled him. And sure enough, he is the real thing.

So I am inspired and motivated to make our partnership work. And confident that Michael and Bismarck will work with him to make it everything it can be.

But I’m also simultaneously inspired and humiliated by how Bonner Paddock has thrice outdone me in a lifespan that is 25 years shorter than mine!

Horse Ears

Friday, January 18, 2019

Rancho Santana, Nicaragua.-“Do you know how horses communicate?” Beverly asked at the beginning of our riding lesson.

My mind trotted back (it cannot race anymore) to the last time I heard Beverly ask this question. I was sitting on this same bench in the Rancho Santana stables a year ago. Or was it two years?

Trot. Trot. Trot. Just as I was pulling open memory’s file, she answered her own question: “With their ears.”

“When your horse is feeling comfortable and happy, his ears are upright,” she explained, using her cupped hands to demonstrate. “And when they are not happy, what do you suppose they do?”

“They are pulled back!” I nearly shouted, responding like the eager school child her style of pedagogy implied.

“And when their ears point forward?” Andy asked.

“Good question!” she said. “When their ears are pointing forward it means that they are no longer paying attention to you. Their ears are pointing towards what they are interested in or what they’re about to do.”

Rancho Santana, as the name suggests, has always been a ranch. Long before we bought the property 20+ years ago, horses were stabled here, along with cattle and occasionally goats.

The stable we were in is the third one in my time. The first was essentially a covered corral near the beach. The second we built a year or so after we bought the land. It housed six horses and was replaced by the current one, which is about three times larger and way nicer.

Today, the stable and surrounding paddocks are home to 15 or 20 horses. And the ranch itself frequently hosts a dozen more that somehow get onto the property and graze on its fields – free food, basically – then make their way back to their owners’ casitas at night.

I’ve never been a much of a caballero. I like the idea of riding a horse and the way a body looks sitting upright in the saddle. But I’ve never enjoyed the riding itself. When the horse is walking, it feels clunky and slow. When the horse is trotting, it’s uncomfortable. (Horse people say otherwise. I don’t believe them.) And when the horse is galloping, it’s frightening. And dangerous!

Still, I feel some sort of obligation to “use” the stables when I’m at the ranch. So I usually book one ride per stay.

Cecily, Andy, and I arrived at the stables at four in the afternoon. We figured that would give us 90 minutes of daylight in the cooler part of the afternoon. And after Beverly’s lesson (which we did enjoy), we saddled up and she tested us on the basics: going forward, backing up, and turning.

Since these horses are accustomed to amateur riders, they are very responsive. We all passed muster, so Beverly turned us over to Lorenzo, chief horse master or whatever, and his two sons. (Apparently, she felt we each needed a handler.)

Lorenzo asked me which of the half-dozen routes I wanted to take. I told him I had another idea. He looked concerned. I said I wanted to ride all the way to Los Perros, at the southern end of the ranch.

“But that will take more than an hour,” he said. “It’s not good for you to be riding back in the dark.”

I told him that my plan was to get there just before sunset and enjoy cocktails as the sun dropped behind the horizon. “You and your boys can take our horses back.”

He seemed okay with the plan, so that’s what we did.

Lorenzo was at the lead, followed by Cecily and Andy, followed by Giovanni, Lorenzo’s youngest son, followed by me, and with Lorenzo Junior at the tail.

The trip took just about an hour. It was mostly walking, with the occasional 50-yard trot. But there were steep ups and downs that tested our leg muscles. Along the way, I paid close attention to my steed’s ears – which were, I am proud to report, generally in the upright position. She labored well, up and down those hills, carrying me, at 210 pounds, on her back. By the time we arrived at Los Perros, I’d had my fill of riding for the day, and I believe my horse was happy to have me dismount. Walking stiffly to the beachside cantina, Cecily, Andy, and I agreed that it had been a good idea to make the ride one-way.

As a courtesy, I invited Lorenzo and the boys to have drinks and snacks with us. He surprised me by agreeing. We sat at a table overlooking Playa Iguana. The waves were gentle. The sky was turning orange. My Margarita was salty, not sweet, which is the only way to drink it. I asked Lorenzo if he minded taking the horses back in the dark.

 

If I Were in Charge of These Hills

Wednesday, January 16, 2019

Rancho Santana, Nicaragua.-There is an unwritten rule when building your house on top of a hill: Keep the roofline below the treetops. When you violate this rule by setting a two-story structure at the very crest of the hill, you create an ugly and permanent blemish on the profile of that landscape. Any sensitive someone looking at the hill from afar would have his pleasure ruined – the vista’s soft and undulating strata of green interrupted by an ugly man-made block.

We have such violations in Nicaragua, along the Pacific coastline north of Rancho Santana. One of them is a restaurant called Mag Rock (short for Magnificent Rock), a barn-like, three-story structure perched at the top an outcropping of rock that rises above and juts out from the shoreline like a prow heading into the ocean.

Every time I look at it, I get annoyed. What kind of shallow, selfish, and aesthetically demonic person would do this. And stupid. You can get your view, even of both sides, without destroying the tree line. All you have to do is cut the structure into the hilltop. (See illustration below.)

So when Andy and Cecily said how much they enjoyed their lunch at Mag Rock, with its “mag-nificent” view and all, I had to say something.

“I’d like to burn it down,” is what I said.

Cecily decided to ignore me. Andy took me up. I explained my theory about building on hillsides.

“There should be a law,” I said.

“Maybe there is,” he said.

I like to think of myself as a classic Libertarian – i.e., that if forced to choose, I’d choose freedom over other social values. But when it comes to beauty – and let’s be real for a moment, sooner or later nearly every ideological view comes down to deeply held views about beauty – I’m a law-and-order monger.

“Lots of people think the world would be better if they were in charge ofeverything. I just want to be in charge of beauty,” I said.

“A Grand Minister of Aesthetics?” Andy offered.

“Exactly.”

I smiled and thought about it.

“It would be a big job,” I admitted. “I’d need help. Several ministries beneath mine. I’d need a Ministry of Landscape, a Ministry of Architecture…”
“A Ministry of Interior Décor?”

“Certainly. And a Ministry of Attire… and Jewelry… and Watches… and Cars…”

“With you at the helm?”

“Naturally. Someone has to set and approve the standards.”

“And would there be penalties? Fines perhaps?”

“Not tough enough. Corporal punishment. Torture and death.”

Seriously, just think about how much better – i.e., more beautiful – the world would be if we could do away with all the ugly things.

Forget about eliminating war and poverty for a moment. Think about how wonderful it would be to wake up each day to a world devoid of aesthetic abuse.

Think of all the things that would not be. Such as:

* Buildings built upon hilltops

* Brightly lit, quasi-Italian restaurants

* Boca-styled mansions

* Boca Raton itself

* Duck backs and comb-overs

* Gold-plated faucets

* Almost any fixture plated in gold

* Which is to say Trump Tower

* Earth shoes and tube socks

* Plastic furniture coverings

* Renoir reproductions

* Any sort of stretch material on unattractive bodies

The list goes on.

Dinner at Mad Dog Pizzeria

Monday, January 14, 2019

Rancho Santana, Nicaragua.- Dinner last night was at Mad Dog’s, located about 20 minutes west of Rancho Santana on the coastal road by the turnoff to Guasacate.

It sits in the corner of a brand-new shopping mall that is said to have been built by “the Italian guy that owns that huge house with the giant blue dome on the beach.” I find that easy to believe. Both structures are wonders in bad taste.

Partly because it is new, but mostly because tourism in Nicaragua has all but disappeared since the political protests began early in 2018, the mall has only this one tenant. (And three cars in the parking lot last night.)

It’s called a pizzeria. And although it does serve pizza, one can see that it’s really a wannabe restaurant, with a menu that includes appetizers and entrees, as well as wines, beers, and desserts.

The layout is unfortunate: one oversize room, heavy on the marble, topped by a ceiling fresco of the sky and ducks (of all things). And the place is lit up like an operating room.

I’ve seen restaurants like this in some of the smaller cities of Italy. Just last year, we had dinner with Peter and Jill at one in Salerno. We would have never thought of entering based on its appearance. But it was recommended confidently (and correctly, as it turned out) by a pretty young woman on the street as having the best pizza in town. But that was Italy. This is Nicaragua.

Andy and Cecily were still on their way, coming back from a day-long adventure that included climbing the Mombacho volcano, visiting a coffee plantation, having a late lunch in Granada (the most perfectly preserved Spanish Colonial city in the Americas, according to UNESCO), and then zip-lining. (“We never got to take the boat tour of the isletas of Lake Granada,” Cecily complained. “We ran out of time.”)

So there were seven of us for dinner at Mad Dog’s, including my sister Gaby, who has lived in Rome for 30 years; Cecily and Andy, who met while working for me 30 years ago; Tommy, my friend of nearly 60 years; and Tommy’s 180-pound, 11-year-old son Billy, who was halfway through a warm-up pizza when we arrived.

The waitress spoke some English, which would have been unheard of 20 years ago when I first came to Nicaragua. She was far from fluent, but she was familiar with such idioms as, “I’ll check it out.” (I wondered about the history of that.)

The menu was odd. Light on salads and vegetables, heavy on pizzas, and featuring six entrees, half of which were not available. I chose the pork belly, which turned out to be a mistake. But everyone else’s meals were reported to be “good” to “very good.” Tommy said his lamb was the best he’ ever had. And “little” Billy finished his pizza and ordered a few tacos to boot.

As near as I can recall, the dinner conversation was mostly about nothing. But there were two discussions that I did enjoy.

One was about the difference between sweet potatoes and yams. (Most yams – and almost all sold in US supermarkets –  are actually a type of sweet potato, softer and more orange than the harder type that retains the name. True yams are entirely different. They come from a plant that is native to Asia and Africa, and are sold only in specialty shops.)

The other one was a brief argument about the meaning of the word “Palladian.” I had come across it during my daily exercise of looking for new or unfamiliar words. The reference I used defined it as somehow related to the goddess Athena – in particular, as “something that gives symbolic protection,” like the many statues of Athena that you see all over the classical world. But Cecily thought it had to do with architecture.

I looked it up – and we were both right. Palladian architecture is a 17thcentury neoclassical style – symmetrical and balanced – that was inspired by the work of the 16thcentury Venetian architect Andrea Palladio (1508-1580).

It looks like this:

Driving back to the ranch in the blackness, the car’s suspension system rattling from the hard dirt and rock road, I thought about how lucky I am to be having ordinary dinners in such extraordinary places with people I’ve known for so many years.

The New Challenge I Give Myself Every Day

Saturday, January 12, 2019

Delray Beach, FL.-I received a note from a former protégé who is using my personal productivity system (my “Goaltending Program”) to accomplish her very demanding schedule as editorial director of a growing publishing company.

I thanked her for the note, congratulated her on her success, and said, “You know, I’ve taught this system to dozens, showed it to thousands… yet you may be the only person besides me that is using it!”

Then I shared with her something that I’ve added to the Goaltending Program.

It’s a new challenge I give myself – four things I try to do in order to enjoy the satisfaction of an intellectually fulfilling day:

  1. Write something worth reading.*
  2. Do something worth writing about.*
  3. Read something worth recommending.
  4. Learn something worth teaching.

This is a quality-of-life challenge. There are no requirements in terms of “how much” or “how long.” For example, “Learn something worth teaching” might be how to adjust one’s side view mirrors so that there are no blind spots. And “Write something worth reading” might include this little journal entry that you are reading right now. (Of course, you are the judge of whether I’ve succeeded.)

*I got the first two from Ben Franklin.