Let me begin with a quote from the article:

“Some of the world’s sharpest investment thinkers, including Warren Buffett and Nobel laureate economist Eugene Fama, have endorsed the idea that most investors should track the market at the lowest possible cost. ”

Furthermore, the college will not replace the manager when he retires in June. The endowment management is so simplified that the team of volunteers can continue instead of hiring another person. Now that is low cost. Sounds like one example of a real life Occam’s razor.

-Dr. Moore

https://www.bloomberg.com/news/articles/2018-05-04/a-small-college-s-endowment-manager-beat-harvard-with-index-funds

I especially like the cash burn calculator at the end. It tells you how much Tesla spent while reading this particular article.

https://www.bloomberg.com/graphics/2018-tesla-burns-cash/

Perhaps another storm is brewing…

https://www.bloomberg.com/gadfly/articles/2018-04-30/peer-to-peer-lending-s-new-ways-look-a-lot-like-the-old-ones

This is a very interesting perspective and interview of a former active fund company CEO. Since most managers don’t outperform their benchmarks net of fees, one could describe three fund-client arrangements that benefit both client and manager:

1. Cap the amount of dollars a fund can attract and maintain the same fee. If a fund collects too many assets (client dollars) it can’t keep buying the 10 or 15 high-conviction stocks. Thus, it buys more stocks and starts to look like an index. Cap the asset size and you can maintain the high-conviction strategy.

2. Charge a performance-based fee. If a manager does not beat the benchmark, Yee manager is paid no more than a passive management fee. High performing managers survive, low performing managers go out of business.

3. Just buy index funds in the first place. Regardless of the fee structure, passive outperforms active net of fees the majority of the time anyway.

Food for thought…

https://www.bloomberg.com/gadfly/articles/2018-04-22/the-man-who-could-eat-half-the-profit-in-fund-management

I routinely suggest the use of credit unions over large banks to my students. Stories like these add support to that suggestion. However, I am also a shareholder of these large banks via index. Perhaps in the end, Wells Fargo will clean up their act and grow again. What needs cleaning (or is in process)? Let me quote the article:

“The settlement covers issues in Wells Fargo’s auto-lending and mortgage units. The bank revealed last year that it had forced unwanted insurance on customers who took out car loans, prompting investigations by U.S. and California regulators. It was also accused of imposing inappropriate charges for locking in interest rates on new home loans.”

We shall see what the two separate probes of the wealth management side of the business produce…

https://www.bloomberg.com/news/articles/2018-04-20/wells-fargo-said-to-be-fined-1-billion-over-consumer-missteps

Thanks to MW for this find. Now here is an interesting business model: Use the funds from shorting another company’s stock to finance the sale of your own company’s competing goods and services for free.

The article points out an irony in this approach: capital markets are used to destroy value. However, I would argue this is not necessarily anti-capitalism. If one of the goals or hallmarks of capitalism is to efficiently allocate capital, then taking capital away from one company that gouges customers and sending it to another that does not accomplishes efficient capital reallocation. For example, why hasn’t this been vigorously applied to pharmaceuticals?

Enjoy the read,

-Dr. Moore

https://www.bloomberg.com/view/articles/2018-04-16/short-selling-as-a-business-model

Shout out to DL for drawing my attention to this post. So Drew Brees got conned into thinking diamonds would diversify his portfolio. Of course he lost roughly half his investment. I would wager everyone that buys a diamond ring immediately loses more than half. I know, I know, you can take your ring to a jeweler and get it appraised for $20,000. However, I bet if you told the jeweler “That’s great, why don’t you take advantage of me, pay me $10,000 for this ring, and then go double your money?” the jeweler would decline.

Back to diversification, again, people often get into trouble looking for the shortcuts to building and preserving wealth. Ask Bernie Madoff’s clients.

Stick to the fundamentals folks. Students out there: Pay attention to your finance professors.

-Dr. Moore

http://thereformedbroker.com/2018/04/05/yeah-i-said-it-33/

Shout out to F.W. for drawing my attention to this article. Let me begin with a quote from the article:

“One-fifth of 1,000 students polled by The Student Loan Report, a website that reports on debt issues from the perspective of students, said they had used some of the money set aside for their living expenses to invest in cryptocurrencies.”

Cryptocurrency instead of food and books? Sounds like those students hope to find a shortcut to wealth rather than the “narrow path” to understanding (work, buy books, study) that leads to employment. I could quote scripture here as well but let me move on. Hoping to build wealth with bitcoin reminds me of a tee shirt I saw someone wearing a month or so ago “Stop looking for the shortcut and just do the f*****g work.” The intended context of that quote and shirt was physical training. However, I would argue it applies equally well to mental training.

So students that used student loans to buy crypto over the last 4 or 5 months made a grave mistake. For example, the bitcoin “value” decline continues from its near $20,000 peak in December to just $6,756 right now (that’s a –66.22% return). Now those students have debt that can’t be discharged in bankruptcy and bitcoins worth far less than what they paid.

Cut your losses. Buy books, not bitcoins. Stop looking for the shortcut…

https://www.bostonglobe.com/business/2018/03/22/college-students-are-using-student-loans-invest-bitcoin-yes-really/Syr7mJpgIzDn6iOa6a0g5J/amp.html

College students are using student loans to invest in bitcoin. Yes, really

Andy Rosen
If you were to pick two things that could define the financial future of today’s college students, you could do worse than “bitcoin” and “crippling student loan debt.”

So what happens when you combine the tantalizing prospect of a new global currency with a long future of monthly debt payments? Apparently, some are willing to find out. A new survey found that college kids are using money from their student loans to buy bitcoin and other digital currencies.

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One-fifth of 1,000 students polled by The Student Loan Report, a website that reports on debt issues from the perspective of students, said they had used some of the money set aside for their living expenses to invest in cryptocurrencies. The survey was conducted by Pollfish, which specializes in online polling.

“Younger Americans are certainly the most enthusiastic about cryptocurrency; they are the most active investors and want to get involved in the space in any way possible,” Student Loan Report founder Drew Cloud told the Globe. “However, I truly thought the percentage would be lower. As a college student, your budget is thin and that extra money could be used on rent, groceries, or books.”

Putting aside the wisdom of investing in volatile cryptocurrencies, Boston attorney Adam S. Minsky said it was legally questionable to do so with student-loan money. A specialist in student-loan matters, Minsky said the federal government might question whether such investments are related to students’ education.

“I would err to the side of it not being a kosher thing to do legally, but regardless of that I don’t think it’s a wise thing to do financially,” he said.

So-called cryptocurrencies, developed to facilitate secure online transactions, simultaneously became the hottest and most poorly understood financial instruments of 2017. Bitcoin began last year trading at below $1,000 and at one point were worth close to $20,000.

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Meanwhile, companies issuing alternative cryptocurrencies and tokens have been able to raise billions of dollars from eager buyers.

It’s apparently enough to draw in young investors who only have borrowed money to offer, according to Student Loan Report.

And if cryptocurrency investments looked like a path to free money at one point, they decidedly are not. Bitcoin has fallen back down to about $8,500 in recent months, making big losers of many who bought in late.

In an article discussing the survey, Cloud noted that if students have extra loan proceeds for now, they should consider “stowing that money away in a high-yield savings account that they could later use to chip away at their student debt.”

But, he added, they might be right to take a flier on bitcoin.

“But there is always the chance that there is another period of explosive growth for virtual currency, and these borrowers will be laughing all the way to the bank.”

The survey did not ask any other questions, so it’s not clear how much students were investing.

Christian Catalini, an MIT professor who studies cryptocurrency, said he hopes it wasn’t much.

“People should not invest a single dollar in this that they can’t afford to lose immediately,” Catalini said. “If some of these students have been successful at shortening their loan or something else, I think it’s important to realize that might have been a random, lucky draw.”

However, he said student interest in digital assets marks a generational divide in thinking about finance.

“There is a new generation of consumers that tend to have no faith in traditional financial institutions, and I think they are approaching this asset with curiosity and excitement,” Catalini said.

Remy Kaldawy, president of the investing club at Worcester Polytechnic Institute, said the student group has seen growing interest in the past year as it made cryptocurrency trading a larger focus of its discussions. But Kaldawy said he doesn’t know anybody who has used student-loan money to trade assets he considers “way too risky to trade with borrowed money.”

“I personally think it is a terrible idea to make any leveraged investments at all in cryptocurrency,” he said.

Allow me to begin with a quote from the article regarding an alarming trend in young adults today:

“an increased tendency to see a poor grade as reason to complain rather than as reason to study more, or more effectively.”

It has been some time since I was young undergrad (24 years ago) or an old Ph.D. student (10 years ago). Yes, I too complained about poor teachers. But, those complaints were to myself and other students, never with the audacity of students today in their disrespectful emails directly to professors. I quickly realized that learning the material was my responsibility regardless of professor quality. That meant staying in the library until it closes. I remember thinking of the old Lexus tagline when walking to the library: “The relentless pursuit of perfection.” It was apparent that I was not super smart and I had to be relentless to learn the material.

So here we are today with students unable to cope with failure and take responsibility. The article aptly points out this is a serious problem for universities and students:

“The lack of resilience is interfering with the academic mission of the University and is thwarting the emotional and personal development of students.”

So what can we do? Well, I as a professor, and with even greater vigor now as a tenured professor (slight grin here), maintain standards and remind students that we are training them for a world that does not devote itself to their comfort.

I think teachers at all levels, as well as students and parents, will find the article below very interesting.

-Dr. Moore

https://www.psychologytoday.com/us/blog/freedom-learn/201509/declining-student-resilience-serious-problem-colleges

This article is in the same spirit as what I tell students all the time: don’t panic & sell all, diversify, reduce equity exposure when expensive, and include bonds. An alternative to bonds would be to purchase stocks that act like bonds and cash.

Be patient and move slowly to avoid mistakes.

https://www.forbes.com/sites/simonmoore/2018/03/26/how-to-protect-yourself-in-a-down-market/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix&yptr=yahoo#75166d5169a0