The New York Times Takes on CBD

Nearly everyone I know is taking some form of CBD. Jiu Jitsu athletes are rubbing it on their muscles before training to reduce soreness and accelerate heating. Executives are eating it during the day to calm themselves. Insomniacs are taking it to fall asleep. My coevals are using it in to ease arthritic joints. And my therapist is selling vials of it to her patients to cure whatever ails them.

So when I saw the cover of a recent issue of The New York Times Magazine promising to reveal the truth about this new miracle substance, I was interested. From what I’ve seen of its coverage, the NYT doesn’t jump on new health stories. It tends to wait 5 or 10 years until the story is practically a cliché. Then it features a long essay on it.

But here we were, just a year or so into the early findings, and CBD was on the cover. And it got the cover right. The headline: The ABCs of CBD by Moises Velasquez-Manoff. Below that: an image of a gummy bear surrounded by the claims being made for CBD, including…

  • lowers blood sugar
  • lessens arthritis pain
  • prevents anxiety
  • reverses depression
  • slows Parkinson’s
  • curbs anger
  • treats Crohn’s disease
  • promotes recovery from opioid addiction
  • calms dogs

The question is: Which, if any, of these claims are true?

In the cover story, Velasquez-Manoff, pointed out that we are years away from answering that. The problem is the scarcity of scientific research. And the reason for the scarcity is that CBD comes from the same plant (cannabis) that produces marijuana (a class I drug). As such, the medical community has been largely prohibited from studying it scientifically.

The best proof so far that CBD may actually be helpful in treating disease relates to childhood epilepsy. As for the rest of the claims, there’s been little more than anecdotal evidence.

I want to believe that CBD works. But my own experience with it has been disappointing. I’ve taken it orally in two forms (oil and gummy bears) without any noticeable effects. And I’ve been rubbing a cream into my thumbs, again without any sign that it works.

Maybe it’s because the products I’m using aren’t good quality. This is apparently a real possibility, with thousands of vendors reselling hundreds of wholesale products, some of which are made in China.)

So I’m still hopeful. I haven’t entirely given up on it. I’m going to try some other brands and see if they work any better. If they do, I’ll let you know.

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Walking: Fast and Slow

K and I share many of the same interests. But moving, biped style, from one destination to another isn’t one of them. We can’t walk very well together because — despite her shorter gait — she outpaces me by about a foot every 30 seconds. So after just a few minutes, she is several yards ahead of me. She continues talking. I can’t hear a word she says. If she looks back at me, I nod as if I can.

Walking in the wilderness is even worse. It’s not just her natural speed. It’s the fact that she views such ambulatory experiences as a sort of sport, rather than relaxation. On flatlands, I can trail behind happily listening to TED Talks on my iPhone. But when we are in mountainous terrain, I’d get lost if I didn’t push myself. In her last life, she was a mountain goat.

This morning, I stumbled on the following quote from John Muir, the famous naturalist. I sent K a copy — hoping against hope that it will slow her down a little.

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The Last Quarter: a Delicate Conversation to and From a Sculpture Studio

The last quarter of one’s life is a time for – among other things – getting rid of non-productive assets.

When Suzanne and I started Ford Fine Art, I was very much aware of the nature of the business, having dabbled in it twice before. I knew, for example, that selling fine art (as opposed to commercial art) was a matter of developing relationships with a dozen or two wealthy collectors. I also knew that this was difficult because every wealthy collector is usually already “taken” by one or several other fine art dealers.

Still, I wanted to take a stab at it. And I had a secondary motive. In addition to running the business for me, Suzanne would help me develop my personal collection.

With that in mind, I told her that I thought it might take 5 to 10 years to make the business work. If she were up for it, she’d have lots of fun along the way. But if, after 10 years, we were not running profitably, I would shut it down.

Ten years had come and gone since that conversation. We had three galleries in operation and only one of them – a commercial gallery we’d set up at my resort in Nicaragua – was in the black.

My promise of fun had been more than kept. Suzanne had traveled all over the States and Central America – attending and exhibiting at shows, and meeting and befriending all sorts of important artists. But the cost of the enterprise was too much to carry into the future. And my secondary motive, curating my personal collection, had been given little attention.

I dreaded breaking the news to my partner of now 11 years, and had spent a lot of time thinking about how I could pad the blow. A good opportunity arose while we were driving to West Palm Beach to visit the sculpture studio of Luis Montoya.

I’d seen Montoya’s work at several local parks and museums. We have one of his bronze fruit sculptures in one of our galleries. But I’d also seen images of other stuff he’d done – really interesting stuff. I was looking forward to seeing it in person.

I think Suzanne might have intuited what was on my mind, because on the way there she talked excitedly about all the new ideas she had for finding new clients. I listened patiently, knowing they were too little and too late. In fact, all of them would have meant additional investment into the business on my part. (Suzanne got a share of the profits but was not required to put in a share of capital.)

When she was done, I paused, nodding thoughtfully, and said, “Tell me how you feel about your job.”

“What do you mean?” she asked.

“I mean what you like and don’t like about it.”

She thought a moment.

“I enjoy the art,” she said. “And I enjoy getting to know the artists.”

“You’ve been lucky there,” I said. “You’ve met all the great ones that are still alive and most of the up-and-comers.”

“And I like the fact that I get to meet so many interesting dealers and collectors,” she said. “And good-looking strangers.”

I laughed. “What else?”

“The traveling is fun,” she said. “I’ve always loved Central American culture.”

I nodded.

“And what is it about your job that you do not like so much?”

“Well, I don’t like the fact that we have never made a profit.”

She was on to me. Good.

“I’m glad you said all that,” I said. “Because I have a plan – an idea for how you can continue to do everything you are enjoying without worrying about the profits.”

“I’m all ears,” she said.

We were almost at Montoya’s studio. “Let’s talk about it on the ride home,” I said.

Luis Montoya’s place looked more like a museum than a sculpture studio. The architecture was Brutalism, with huge steel doors hiding the inner courtyard from the parking lot.

We knocked on the door. Nothing. We walked around the building. No other entrance. I fiddled with the chain that passed through an opening on one of the doors. It rattled. Then we heard someone approaching.

Her name was Leslie Ortiz. She told us that she was Montoya’s “partner.” I didn’t know he had a partner – but as he later explained, all the work he’d done since 1994 had been “a collaboration” with her. She was in fact mentioned in the brochures. But he was the headliner. And he might have been her mentor. I didn’t ask.

We’d been invited because I was a known collector and because we had three galleries. In other words, we were there to be sold on his product line.

The studio was enormous. The downstairs consisted of 6 cavernous rooms. The upstairs perhaps 8 to 10 smaller ones. Each one contained dozens of beautiful and inspiring pieces from 5 or 6 distinct periods, starting from back in the 1970s.

We spent several hours looking around, asking questions, and coming to appreciate the breadth and depth of Montoya’s talent.

I made mental notes of the pieces I wanted to buy. We thanked him for his time and promised to stay in touch, which I plan to do.

On the drive home, Suzanne and I talked about my plan.

I started by laying out the details. We would shut down the gallery in Miami, the one that was costing me the most. We would keep the gallery in Nicaragua, since it was profitable. And we would make the principal business, Ford Fine Art, virtual – closing down the gallery itself but continuing to buy and sell art through our website, at auction, and at shows.

I explained that the focus would be different, too. The goal would no longer be to make the business work, but to curate two of my personal collections: one that would stay in my family, and one that would be made into a museum funded by an endowment that I would establish.

As Suzanne knew, my personal collection is overcrowded as it is. Her job would be to lighten it up by selling the mediocre pieces. (There are maybe 500 to 600 of them.) My collection of Mexican and Central American art is about halfway done. She would help me complete it by buying about 200 additional pieces.

This isn’t something that we can do in a year. It is a 10-year project. It will allow her to continue to enjoy doing what she likes doing without worrying about the financial end of running an art gallery. Meanwhile, it will stop the losses I’ve been experiencing and achieve my goal of getting my two core collections ready to pass on to future generations.

Leading up to the conversation, I had worried that Suzanne would be very disappointed by my decision. And if I had simply shut down the business, I’m sure that’s what would have happened. But I’ve always believed that if you are flexible in your thinking, you can find win-win solutions when win-lose or lose-lose seem to be the only possibilities.

So Ford Fine Art continues. Suzanne makes the same or better money doing what she most enjoys. And I don’t have to eat financial losses in the future. Win-win!

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Saving Serious Money With Solar Power in Nicaragua

I asked Bismarck, the resident director of FunLimon, our family’s community center in Nicaragua, how that “whacky solar power experiment” was going.

He said the panels and related equipment were installed and that the system had been active for nearly two weeks.

“Do we know how well it’s doing?” I asked. “Like how much of FunLimon’s energy it’s going to be supplying?”

“I just got a report from Alan V,” he replied. (Alan V is Rancho Santana’s chief engineer.) “He said that it will be supplying all of it.”

“All of it? Really?”

My longstanding impression of solar energy was that it was costly and inefficient. I knew that progress was being made. But I never expected that these panels, located on top of the roof that covers the basketball court, would be sufficient to power the classrooms, administration buildings, gymnasium, and irrigation system.

Bismarck and I went over the numbers…

It cost $45,000 to install the solar system, including the panels and the batteries and all the equipment. We’ve been spending about $800 a month on electricity at FunLimon. So if the system does indeed provide all the energy we need, the payback will take about five years. After that, the cost of our power will be de minimus– only what it takes to maintain the equipment.

I contacted Alan directly, and he reminded me that the system he had installed a year earlier was now powering most of our company’s buildings at Rancho Santana, including the hotel, clubhouse, restaurant, and a dozen related structures.

I did more research. And it turns out that solar power has come a long way from its crude beginnings 40-odd years ago. Back then, it was, as is often the case with new technology, not just inefficient but very costly. So costly that many predicted it could never compete with fossil fuels. It took almost 30 years to bring the cost down to $8 per watt in 2010. Today, it’s dropped, on average, to about $3 per watt, with some systems producing energy at half that cost.

This astonishing reduction is the result of making solar panels more efficient while, at the same time, reducing their costs. A parallel advancement was made with the batteries that store the energy produced by solar panels.

I saw a PraegerU presentation recently that argued against the effort towards alternative fuels. Fossil fuels, it said, provide 99% of the energy in the world today, and that percentage will not drop by more than a point or two over the next 50 years.

But based on what we are actually experiencing in Nicaragua, I find that hard to believe. If solar panels can pay for themselves in five years at FunLimon and at Rancho Santana, why can’t they do the same for millions of businesses all over the world?

If you are interested in an explanation of our system, you may find the following edifying:

Memo: 5/8/19
From: Alan
To: Mark and Michael

The attached picture is a screenshot of the solar system application at 9:25 a.m., local time.

As you can see on this picture attached the icon means as below:

1)     The solar panels are producing 6.91 kw at this time and delivering that power to the facility (FunLimon), see the upper left icon at the screen.

2)     The facility is demanding or consuming 10.39 kw of power at this time, see the icon at the center of the screen.

3)     The public power company is supplying 0.05 kw, see the icon at the right side of the screen.

4)     In order to minimize the utility power consumption, the solar system is providing 3.43 kw to the facility from the battery (see the lower left icon at the screen, the battery charge state at this time is 22%) at this time to compensate for the demand, so if we add 6.91 kw from the panels and 3.43 kw from the battery we get 10.34 kw plus 0.05 kw from the utility power company for a total of 10.39 kw (see item 2).

In other words, right now (at the time of the screen shot) FunLimon is only using 0.05 kw out of total power consumption of 10.39 kw from the public grid, that is only 0.48%.  The system is very dynamic and it changes slightly about every 5 seconds as the sun’s intensity and power demand varies….

The protocol is that when the solar panels are producing less than the power demand, the system uses the battery charge to compensate and minimize the use of the public grid.  When the solar panels produce more than the power demand the system takes that excess of power and starts charging the battery.  The idea is that at the end of the day on a normal sunny day the power consumption during the day from the public grid is going to be minimum and the battery state of charge is going to be 100% to be used at night until it gets 90% discharge….

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Competing for Eyeballs: An Alternative to Shock Tactics

The cover story of last week’s The New York Times Magazine featured this headline: “My Cousin Was My Hero. Until the Day He Tried to Kill Me.”

Catchy, for sure. But it’s a headline you’d expect to see in a tabloid, not The New York Times.  Was this an anomaly?

I don’t think so. The language of the most respected brands of mainstream media has been changing in recent years. It’s getting bolder. More sensationalistic. And more prone to exaggeration.

It happened first in the various supplemental services that so many newspapers and magazines offer online. In that arena, they have to compete with the alternative press for attention. And often the best way to get that attention is by posting sensational headlines.

Once they entered the competition, it was only a matter of time before their standards would adjust from traditional notions of propriety to “whatever works.”

I’m very aware of this pressure. As a consultant to the alternative media (which makes its money by subscription and not advertising), I’ve seen countless test results proving that provocative subjects and alarming and tantalizing headlines will beat the hell out of sober issues and sensible headlines every day of the week.

As a copywriter I know once said in an interview about his own sensationalistic copy: “At one point, I came to the conclusion that what I was doing was slightly manipulative. And yet it was working so well and making me so much money. I had a choice: Change the copy or change my ethics. I decided to change my ethics.”

Is this a bad thing?

I don’t know. On the one hand, I like the idea of having standards – for the sake of the writers as well as the readers. It has a civilizing effect. On the other hand, once the advantages of monopoly disappear and a publisher must compete in an open market, it’s going to be very difficult to stay profitable unless you are able to use the same techniques and strategies as your competition.

In the long run, I don’t think it will do much harm. Writers will become more pragmatic in choosing the topics they want to write about. (They will move to what’s hot, topical, and controversial.) At the same time, they will get more skillful at writing headlines. As a result, readers will become accustomed to hyperbole and sensationalism and thus become less responsive to it. When that happens, perhaps there will be a growing market for serious topics and sober headlines.

Perhaps.

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How NOT to Do an Interview

If you have any ambitions of doing a podcast, you will eventually need to learn how to do a good interview.

Of the many skills involved in podcasting, you’d think interviewing was the least difficult:

  1. Pick a topic (question/argument/myth) your audience cares about.
  2. Invite an expert on that subject to talk with you.
  3. Ask him questions.
  4. Publish the podcast.

If your goal is to publish ordinary interviews that are pretty much guaranteed to bore your audience, this formula is sufficient. But if you want to use the podcast to grow not only your immediate audience but your brand in the industry, there is one more step you must take: You must learn how to conduct a GOOD interview.

Think about all the podcast interviews you’ve listened to over the years. What percent of them were really good? A third? A quarter? My answer: less than 10%.

Recently, I was copied on an exchange between Master Copywriter Bob Bly and JB (an entrepreneur whom I don’t know). The subject was a series of interviews Bob had conducted as part of the Gene Schwartz Graduate Course on Marketing.

JB said:

I loved the course and I think a big reason was the way you conducted the interviews. 

I’m used to modern podcasts where the hosts ask uninteresting questions and then butt in right when the guest is about to say something interesting. You were the exact opposite. You asked interesting questions, let the guests speak when they had something good to say, and followed up when there was more for them to say.

So I wanted to say thank you. This was a great course, and you helped make it happen.

JB is right about Bob Bly. He’s an expert interviewer. And as an expert, he does indeed ask interesting questions and let his guests speak.

But what, exactly, is an interesting question? I’m sure that all of those mediocre podcasters out there think their questions are interesting. How are Bob’s different? And better?

And what about this idea of letting your guests speak? Who doesn’t do that?

This isn’t going to be a full lesson on how to conduct a great interview. Nor am I going to answer those questions fully. But I’d like to give you a few of my thoughts on this topic that may be helpful if and when you have the opportunity to interview someone for publication.

Don’t Be Stupid!

Whenever I mentor writers, I give them a little speech about “the three deadly sins of creativity.” These are three common human frailties that, when given into, make otherwise good writing mediocre crap.

The first deadly sin is ignorance – writing on a subject about which you know very little. You might understand it superficially, from the outside. But the most important aspects of anything worth studying are usually internal things hidden from superficial analysis.

When it comes to conducting interviews, writers often act like ignorance is perfectly okay. “I may know very little about this person or what they do,” they think. “But that’s okay. In fact, it’s good, because I’ll be able to get clarification on everything simply by asking questions.

We all know what happens when a writer conducts that sort of interview. She asks the most obvious questions and gets the most obvious answers. After two or three Q&As, the reader senses that he’s hearing nothing new and stops reading.

To ask the sort of “interesting” questions JB was talking about above, the writer must have a fairly wide and deep understanding of both the interviewee and the subject matter before he turns on the microphone.

How does he do that?

Don’t Be Lazy!

The second deadly sin is related to the first. It is the sin of laziness. It is probably the most common sin of not just all writers but all creative workers in every field. It’s the deadly sin I’m most guilty of. And it’s the most common deficiency I see in the writers I coach.

When it comes to interviewing, being lazy is about research and preparation. When preparing for an interview, for example, it’s not enough to speed-read the interviewee’s latest book and a few online critiques. You have to read other books and research her biography and speak to a few friends and colleagues.

To put a number on it, you should be prepared to put in about five minutes of research for every minute of the interview. And unless the interview is live, you should spend two to three minutes talking for every minute of the final product. Lazy writers won’t do this. If they are smart and quick thinkers, they can sometimes get away with their lack of preparation. They are able to produce B-level products by being clever and avoiding the obvious questions. Natural intellectual gifts can get you a passing grade in life, but if you want excellence, they are inefficient.

Don’t Be Prideful!

The third deadly sin for writers is pride.

Thomas Merton, one of my favorite poets, said that pride makes us “artificial” and that humility makes us “real.” When I first read that, I didn’t understand what he meant. Now I think I do.

Being proud of what you have or what you’ve accomplished seems like a perfectly natural and even healthy emotion. But life teaches us that these possessions and accomplishments are ephemeral. Standing on your pride may provide some temporary feeling of self-worth. But when pride takes its fall, and it always does, self-worth crashes down along with it.

The purpose of an interview is to discover secrets, stories, and life lessons from a conversation with the interviewee. To get beyond the surface and be able not only to ask interesting questions but to get honest and interesting answers, the interviewer must do three things.

First, he must demonstrate to his interlocutor that he has done his homework in terms of researching his background and his accomplishments. This signals that the interviewer cares enough about the subject to put in that work.

Second, the interviewer must spend some time thinking seriously about the subject’s background and accomplishments. His thinking must be focused on trying to understand the subject’s particular genius and his ethics – what he thinks is important.

Third, the interviewer must find something in his research that he genuinely admires about the subject. And he must tell the subject that – genuinely – in the beginning of the interview.

The combination of doing all three things demonstrates, quite clearly, that the interviewer appreciates the interviewer’s background and his accomplishments. The interviewer indicates that he is a sympathetic listener.

All of this amounts to one thing: In preparing for and conducting the interview, the interviewer must put himself below the interviewee. He does not have to artificially pretend he’s a fan if he is not. But he must be wiling to subsume his pride. To humble himself. To be able to ask the sort of questions that will make the subject feel he is at least understood and appreciated, if not admired.

One very popular podcaster is virtuous in regards to ignorance and laziness. He knows his subjects and their work and it’s clear that he’s done his homework. But when it comes to the third deadly sin, he fails. He seems unable to ask a simple question. He must pose it two or three different ways, as if he thinks his audience enjoys hearing him say the same thing over and over again. The other thing he does is interrupt the subject constantly. As if, again, he feels like his audience is more interested in his ideas than the subject’s. I actually find myself embarrassed as I listen to him. “I don’t care how smart you are,” I find myself thinking. “I want to know how smart the subject is!”

So these are some quick thoughts on how to prepare for and conduct good interviews. Put in the work needed to understand the subject’s background and his accomplishments at a reasonably deep level. Spend some time thinking about what matters to him. And all the while, and especially during the interview, keep in mind that it’s not you that the audience has come to learn about, but the subject.

Work hard to be knowledgeable. Be humble. And you will find that the audience will be truly interested in both your questions and the subject’s answers. Your podcasts will rise above the mediocre. They will be genuinely GOOD.

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Are You Ready for the Next Stock Market Meltdown?

How comfortable do you feel about your stock portfolio?

A few weeks ago, Bill Bonner posted a warning on his blog – an essay titled “We’re Raising the Crash Flag.”

Bill has always understood economics better than I do. He’s intellectually attracted to big ideas and “connecting the dots,” as he puts it. I like to think of myself as his Charlie Munger, but I’m not sure I am. I am familiar with Buffett’s ideas. I have no idea what Charlie thinks.

In any case, my aim in understanding economics is lower than Bill’s. I don’t really care to understand how it works at a deep level. I just want to understand enough to avoid making stupid mistakes.

On a micro level, avoiding mistakes in the market is not that difficult. Buy mostly large, profitable companies that have a long-term history of paying dividends. And don’t speculate.

But on a macro level, avoiding mistakes is a bit more difficult.

When the economy goes bad (and all economies sooner or later go bad), the stock market goes bad too. And it can stay bad for an awfully long time.

So even if you own only good companies, you can see the value of your stock portfolio tank severely every now and then – and in rarer cases, stay down for years and years.

In my lifetime as an investor, I’ve seen several serious bear markets. Had I been able to predict them, I would surely have cashed out my stocks and moved into cash and gold. Which is what Bill does.

But since I’ve never had a crystal ball, I’ve never tried to time the market. And while that was not as profitable as it would have been to correctly play the future, it was, in retrospect, a lot better than pulling out.

There are lots of studies proving just about every imaginable thesis on investing. I’ve looked at enough of them to know that if it were possible to time the markets, it would take someone much smarter than I.

So my strategy has always been to buy great stocks and hold on to them. And when the crashes come, to buy more of them when their prices are, by value standards, historically cheap.

That said, it worries me when Bill puts out a warning about an imminent market crash. If he’s right – and eventually, he certainly will be right – it means that I’m going to see my stock portfolio descend by millions and millions of dollars.

That won’t be a good feeling. And I can understand that if I converted my stocks to cash today and a market collapse occurred next week, I’d feel very good about that decision.

But I don’t know for certain that the market will crash any time soon. So for the time being, my strategy is going to be as follows:

Avoid speculative stocks.

There are all sorts of reasons to a believer that certain speculative stocks might prevail in the coming years – e.g., Uber. But as of right now, the company is unprofitable. And that means, in my simple way of looking at it, that it is a speculation. If I’m going to speculate, I’d rather invest money in a fledgling business in an industry I know (such as direct response marketing) or in a business I can have some control over (as a founder, for example) than in a company like Uber, about which I know only what I read in the financial press.

Hold tight with my buy-up-to parameters.

My rule for buying stock is based on a simple metric: 10- to 20-year historical price-to-earnings ratio. When the stock market is generally overpriced, these ratios are very high. It becomes difficult if not impossible to buy stock in businesses, regardless of how great I think a particular business’s prospects are.

I just met with Dominick, my advisor at Raymond James, to go over the P/E ratios of my core stocks (the Legacy Portfolio), and only a handful were priced “right” according to the formula we follow. I was not disappointed. On the contrary, I was pleased. It meant that the cash I have been accumulating from dividends and from my active income will be put into cash and income-producing real estate, assets that should maintain their value or appreciate even if the market drops by 50%.

Buy gold?

The last time Bill sent out a warning like this (it was prior to the 2008 crash), I started to buy gold. I bought a good deal of it at an average price of less than $500. That was a good contrarian move, and I have Bill to thank for it. But the amount of gold coins I own now is more than sufficient for “survival” purposes. And since gold is not a business and does not produce income, I won’t treat it like an investment. I have enough. I won’t buy more.

Stockpile cash.

Dominick agrees with me that Bill’s thinking, on a macro-economic level, is sound. He gave me reasons why his company believes that we are still in a long-term secular bull market that will endure, with ups and downs, for many years – so long as interest rates stay low. And we both think (as Bill has pointed out) that the Fed is going to do everything it can to keep rates as low as they possibly can.

Of course, Trump’s crazy trade-war strategy is not good for the economy and it is very dangerous for the stock market. If all things were equal, he would settle his dispute with China quickly to bring back a sense of optimism to Wall Street. But I don’t think he cares as much about that as he does getting reelected. And since he’s already been saying that the Fed will be responsible for any future financial collapse, he has something he can talk about if it happens.

Meanwhile, the idiocy of the trade war is beyond the intellectual scope of his core supporters. So he might continue with it through the next elections. And if he does, we might see another collapse of as much as 50%. If that happens, I told Dominick, all of our Legacy Stocks should be trading at prices that are historically super-cheap. And if they get there, I’ll have a stockpile of cash ready for buying.

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18 Things You Absolutely Should Know About Investing in Art

Ah, Gabriela! My middle school crush. Her father, Eric Albreicht, an eminent art critic, had lined every wall of their home with beautiful paintings.

The walls of our house were lined with books. (Books were also piled high on every surface and held up one leg of the dining room table.) My mother, a close friend of Eric’s, was an art lover too. But she could afford only reproductions.

When, some 29 years later, I began to buy art, I bought it for the love of my mother’s intelligence and for the standard of beauty that Gabriela’s father had set for me.

Collecting for love and beauty is a perfectly defensible motive. But as my purchases ran into the hundreds, I began thinking of art as an investment.

I’ve been buying art for more than 40 years. I have owned and run five galleries and have a current collection of more than 1000 pieces. And though I still buy for love and beauty, I temper my enthusiasm by following a set of guidelines I’ve developed along the way. 

  1. Art has no intrinsic value. Its value is determined entirely by the market.
  1. The most important factor in the current value of a work of art is the reputation of the artist among market insiders.
  1. The most important factor in the future value of a work of art is the artist’s prominence in art history books. Next is the importance of the museums that display his/her work. Third is the number of corporations and wealthy individuals that own it.
  1. From a value perspective, when you are buying established dead artists you are buying historical artifacts.
  1. The fine art market has very little resemblance to the financial markets. It is smaller, more controlled, and less regulated. In terms of participants – brokers, buyers, and critics – it is very small. In terms of dollar values, it is quite large. (The most recent figure I found valued the global art market at almost $64 billion!)
  1. Contrary to other assets, diversifying does not increase safety with fine art. Specialization does. It’s better to collect 100 pieces by one artist you admire than one piece by each of 100 different artists.
  1. Evaluating individual pieces of art is easier now that auction records are available online.
  1. The factors that matter most in valuation are: artist, medium, size, rarity, and style/period.
  1. Like most tangible assets, rarity and “quality” affect price appreciation. The “better” pieces typically outpace ordinary pieces by a considerable degree.
  1. As a general rule, oils are more valuable than acrylics… acrylics are more valuable than gouaches… gouaches are more valuable than crayon and ink pieces… crayon and ink pieces are more valuable than ink pieces… and ink pieces are more valuable than pencil sketches.
  1. “Buy what you like” is bad advice for the new investor. That’s because what they like is not typically what they like after they have been in the game for a dozen years.
  1. The touted 10% historic return for fine art is contrived. The actual return for most investors and collectors is probably closer to the rate of inflation.
  1. That said, if you can afford to buy “museum quality” art, it’s quite possible to earn 10% overall. I’ve done as well or better in the last 30 years. (Not so well in the first 10.)
  1. To maximize profit and minimize risk, buy the most representative examples of the best-known artists you can afford.
  1. Start slowly, investing in just one to three artists. Stay with them forever if you want. If you wish to expand your collection horizontally, move slowly.
  1. Constantly upgrade your collection. When you have the chance, sell two or three lower-quality works to purchase a single higher-quality one.
  1. Art has three distinct financial and estate management advantages: It is portable. It is transportable. And for the most part it is non-reportable.
  1. If you don’t take daily aesthetic pleasure in your art, you are missing most of its value. In other words, if you aren’t in it for love and beauty in addition to asset growth, you are better off with stocks.
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My Partner Is Much Richer Than I Am – So Why Don’t I Invest Like He Does?

Bill Bonner (partner/mentor/friend) made a massive fortune by investing 80% of his time and money in a single business. He is a cautious investor. But he’s also – from my perspective – a very courageous and committed investor. He sticks to one thing.

I’ve made my fortune, less impressive than Bill’s, by hedging my bets. I invest 80% of my time but less than half of my investible income on my main business. The rest is in proven, income-producing assets that grow without much prodding from me.

I don’t regret investing the way I do. Had I followed Bill’s path, my net worth might have been only a fraction of what it is today.

It comes down to this: To my mind, the most important factor in investment success has to do with psychology. Not the market’s insane psychology, but my own. That’s what I was thinking while reading an interview with Aswath Damodaran, a finance professor at NYU’s Stern School of Business, in Forbes recently.

I liked this bit particularly:

I tell people that the person you have to understand best to be a good investor is yourself. It’s not enough to understand what Warren Buffett does and [what] Peter Lynch does. It might surprise people, [but] I spend very little time reading investment books…

We live in a Google Search world. People think that if they search long enough, they can [find] answers to their questions, when in fact what they need to do is to stop and think about the questions and think through their answers.

We need to own our own investment philosophies. We need to think through what we think about markets.

If you have a deep understanding of macroeconomics, the investment markets, and you are a courageous and committed investor, you should invest the way Bill does. But if you have only a superficial understanding of those worlds and limited confidence, you may be better taking my approach: Work your ass off, focus on income, favor investments that you understand, and employ the three cardinal rules of investment safety: diversification, position sizing, and stop-loss strategies.

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Career Doubts and Regrets: Here’s How to Eliminate Them

A friend and former protégé, who went off to start his own very successful business, wrote me a while back. He said:

Today I find myself wealthier than ever before. And I suppose freer than ever… yet I find myself terribly unfulfilled. As I look back on these last seven years, I’ve learned and grown a great deal. Yet sometimes I feel I squandered prime years of my life in exchange. 

 I used to do daring things, unique things, (mildly) impressive things. Now I feel mired in a milquetoast existence that slowly rusts my soul away.

 I feel rather like old Ulysses in Tennyson’s poem. Who knew I would be feeling this way at 40 instead of 80.

Then he asked:

When looking back, was there ever a major decision that you wish you would have made differently?

And here’s what I said:

I’m sorry I haven’t gotten back to you on this. I wanted to turn it into an essay, but I did three drafts and didn’t like any of them. So I’m going to make this short and sweet.

I think the question behind the question is whether I think it’s possible to have your cake and eat it too.

Based on my experience, the answer is yes.

When we’re young, we have exciting dreams about the future that affect us deeply. As we settle into relatively mundane careers, we can ignore our youthful fantasies and even forget them. But they are based on strongly held values that eventually come back to haunt us. In your case, it was the desire to be an adventurer. For me, I always wanted to be a writer and a teacher and a Renaissance man. And even though it turned out that the driving force of my adult life was all about making money, I was able to scratch those idealistic itches.

I never gave up my day job, but I did find ways to become a writer (by starting ETR and then using it to write many books) and by using that to teach people what I knew about business and wealth building. I also managed to scrape out time to learn three languages and make three movies and climb Mount Kilimanjaro and stay married and father three children and collect art and develop a real estate portfolio, etc.

I did almost all of those things after I turned 40.

So that’s one answer…

The other answer is that I have, over many years, developed an attitude that is a mix of Stoicism and Existentialism. I believe that I have the freedom to choose my fate. More importantly, I believe that although I had a deep desire to be a writer, teacher, and Renaissance man, those pursuits in themselves had no value except the value I willed to them. Recognizing that they had no intrinsic value was very liberating. It allowed me to forgive myself for falling short on achieving them. (For example, I’ll probably never teach at Harvard.) It also allowed me to willfully value the work I have done as a businessman. And once I began to do that, I was able to truly enjoy and feel fulfilled by it.

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