Getting Rich Quick (is not necessarily good)

Today’s culture glorifies getting rich as quickly as possible.

This is why many people try to take shortcuts and fall for rich-quick scams. Despite the Nigerian type of scams being around since the 18th century (this is where the sender asks you to help them get a very large sum of money out of the country), people still fall for them.

The media also highlight young entrepreneurs who hit it big with the latest startup. It’s easy to see people like Facebook founder Mark Zuckerberg, who became a billionaire at 23, and feel as though we are behind the power curve.

So how long should it take?

According to Tom Corley, author of Rich Habits: The Daily Success Habits of Wealthy Individuals, it took a minimum of 32 years for the average rich person to become rich.

It took the vast majority almost four decades, with 52 percent taking 38 years and 21 percent taking 42 years to become rich.

In fact, only 4 percent became wealthy in less than 27 years!

Becoming wealthy didn’t happen overnight; it required years of discipline, hard work and patience.

Corley states, “The path to riches is a long, lonely one, paved with many potholes and numerous dead ends. Those few who do make it are seasoned veterans in the world of entrepreneurs, deserving of their own, well-deserved catchphrase.”

Many are looking to hit a home run or grand slam to wealth.

While it definitely is more exciting and tends to make front page news, almost all will end up striking out.  Getting rich quickly is a rare phenomenon, and many who do end up worse off than before.

Just look at some lottery winners and professional athletes, who end up bankrupt only a few years after either winning or retiring from their sport.

To use my baseball analogy, being consistent with singles, walks, bunts and maybe the occasional double is far more effective over time in winning the game. You don’t want to count on that grand slam to achieve your goals.

-- David Chang, MidWeek, March 18, 2015

***

According to the U.S. Census Bureau, the median net worth for households under the age of 35 is $6,682. This makes sense, since many in this age group have student loans and are just getting started with their careers. The 70th percentile of those under 35 (meaning their net worth is greater than 70 percent of households their age) is $33,477.

Here is information for the other age brackets. Visit artofthinkingsmart.com/networth for more detailed information!

Age: 35-44
• Median: $35,000
• 70th percentile: $128,430
Age: 45-54
• Median: $84,542
• 70th percentile: $228,708
Age: 55-64
• Median: $144,200
• 70th percentile: $333,750
Age: 65 and up
• Median: $171,135
• 70th percentile: $334,870

The difference between the median and those in the 70th percentile is anywhere from two to four times the median amount. I didn’t include the 90th percentile, but if I did, the difference would be significantly greater.

Why the large disparity? Is it education, inheritance or just plain luck?

There are many theories, but recent research shows that people near the top have different personality traits than people near the bottom. It isn’t just about the ability to save or make more money. Studies show that our psychological makeup and character traits are the reasons for our wealth (or lack thereof), not the result of our wealth.

Here are four common traits those in the higher net worth group have among their peers.

1) Keep track of their finances diligently. This is an obvious one, of course, but more than 60 percent of Americans don’t keep track of their money! Without knowing how much is coming in and out, it is difficult to know how much to save. Also, by not paying attention to where your money goes, it is easy to let your emotions govern your spending habits. Splurging and trying to keep up with the Joneses is one of the reasons why only 18 percent are confident about retirement. Many don’t like to budget, since it can seem tedious. But the goal isn’t necessarily to track every penny, but to make sure you spend less than you make, and then invest the difference.

2) Have a long-term view. One of the top regrets retirees have is not saving enough. You don’t need a significant amount of money to invest, you just need to be consistent and use the magic of compound interest. Time is the most important factor! Sacrificing a little now can reap significant benefits in the future.

3) Are not afraid to take risks. You don’t want to take any risk, but you want to take smart risks. We all have some form of fear when it comes to money, but the key is how you deal with that fear. Some experience “paralysis by analysis” and never take any steps forward. Taking smart risks means to ask for that raise, start a business, change jobs or invest your long-term money in stocks. It is about pushing yourself out of your comfort zone.

4) Have a healthy amount of self-esteem. This isn’t about being arrogant but about believing in themselves. They are confident and not afraid to take that smart risk to make and accumulate more money. They are more optimistic in the decisions they make and despite failures, are able to bounce back even stronger.

david@artofthinkingsmart.com 

Warren Buffett believes in bad food

Warren Buffett knows you are weak. Even if you hit the gym regularly and demonstrate Buffett- esque discipline with your investments, sooner or later you’re going gulp down a sugary soda and put your money into mac-and- cheese with a bright orange hue.

Buffett believes in bad food, both as a consumer and an investor. While there might be no long-term reward in risky eating, there's relatively little risk in buying best-of-breed junk food holdings—at least if Berkshire Hathaway returns are any measure. Omaha has made a mint on artery-based arbitrage.

Let’s take a stroll down Buffett’s bad-for-you buffet:

* 1940: Buffett has been a Coca-Cola investor since he sold the stuff door-to-door in his childhood. At the end of 2014, Berkshire owned 9.2 percent of Coke shares

* 1972: Berkshire Hathaway buys See’s Candies for $25 million

* 1998: Dairy Queen, which had 5,790 outlets at the time, becomes a Berkshire Hathaway holding for $585 million

* 2008: Berkshire Hathaway put up $6.5 billion to help Mars purchase of chewing-gum maker Wm. Wrigley Jr.

* 2013: Buffett pours $12.25 billion into a deal to take ketchup- and-packaged-food giant HJ Heinz private under 3G Capital, a Brazil-based private-equity firm.

* 2014: Berkshire Hathaway provides $3 billion financing for Burger King’s purchase of the Tim Hortons donut empire. It is getting a 9 percent annual return.

Today, of course, Buffett is back at it again, working with 3G to bring together Kraft Foods Group and Heinz. The deal creates the third-largest food and beverage company in North America—a veritable mountain of ketchup, cold cuts, Kool-Aid, and lots and lots of cheese.

While cutting these deals, Buffet was putting his mouth where his money was. His diet consists of Cheetos, licorice and—most often—Utz potato chips as an important source of vegetables. The even investor is known to drink Coke at breakfast, a meal for which the main even is occasionally ice cream.

When asked about his diet, Buffett has said he aims to eat like a 6-year-old because that’s the age at which mortality is least likely. In terms of investing, his junk-food strategy is even more straightforward: People like to indulge. “No business has ever failed with happy customers,” Buffett said at Coke’s annual meeting in 2013.

profiting from rising rates

Following another strong jobs report, the Federal Reserve is widely expected to drop the word "patient" from its monetary policy statement next Wednesday, signaling that a rate hike is likely coming soon. Whether it happens in June or September, higher interest rates appear to be finally coming.

Be prepared before that happens. Because by the time our central bank officially announces it is raising rates, many stocks will already have the move priced in.

There will be clear winners and losers during a rising interest rate environment. Investors looking to profit from a rate hike, or simply avoid significant underperformance, should consider shifting their portfolio now.

Rate Hike Losers
The Fed has stated if the economy continues to improve, rates will rise. After a stellar February jobs report blew away expectations, it's looking very likely that rates could rise sooner rather than later.

It's well known that a rising interest rate environment is bad for bonds overall, as their prices move opposite of rates. This is especially true for long duration, low coupon bonds. However, the impact on stocks will be much more mixed.

Some areas of the market are likely to suffer. Here are the areas I would avoid:

• High Yielders: As interest rates march higher, dividend yields will look comparatively less attractive to income investors than the yields on fixed income and money market accounts. Areas like real estate investment trusts (REITs) and utilities meet these criteria, as do Master Limited Partnerships (MLPs) and some stodgy consumers staples. The "reach for yield" trade that drove the valuations of many of these high yielders to record levels is likely coming to an end soon.

• Highly Leveraged Firms: Companies with highly leveraged balance sheets that rely heavily on debt financing are likely to underperform too. That's especially true for firms who are constantly issuing short-term debt to meet their obligations. Higher interest rates means higher interest expenses for these firms, and less profits. Once again, both real estate investment trusts (REITs) and utilities generally fit this description. It should come as no surprise that both areas significantly underperformed the S&P 500 during the second half of 2013 as long-term rates rose amid taper talks.

• Exporters: While our central bank is looking to raise interest rates, much of the rest of the world is trying to lower theirs. This could very likely lead to continued strength in the U.S. dollar, which would make our goods comparatively more expensive overseas. That would create a headwind for large multinational firms that derive a majority of their revenue from outside of the United States.

Rate Hike Winners
However, there are some industries that are clamoring for higher interest rates:

• Insurers: One particular beneficiary of higher rates is the insurance industry. Insurance companies take in premiums from customers, invest them - usually in fixed income securities like bonds - and then pay out claims in the future. Much of their profits are made on the interest income from their investments. When rates rise, they will be able to earn more interest from their investments. While it's true the value of their existing bond holdings would decline when rates rise, insurers with a relatively short duration on their investment portfolios should be relatively immune.

• Brokers: Other companies anxiously waiting for rates to rise are brokerage firms. Brokerages earn interest income on un-invested cash in customer accounts. So when rates rise, they can invest this cash at higher rates. While they will have to pay more interest on those cash balances, the spread between what they earn and what they pay out should widen from where it is today.

• Banks: Banks could also benefit from rising interest rates, as long as long-term rates move up more than short-term rates. Think about a bank's business model: they pay interest on deposits and loan that money out at higher rates. The interest rates on deposits are typically tied to short-term rates while loans are often tied to long-term rates. In other words, banks benefit from a steep yield curve, meaning when the spread between long-term and short-term rates is wide. So if the Fed hikes short-term rates, but long-term rates like the 10-year stay put, this will actually hurt net interest margins.

However, keep in mind that if the Fed raises rates, it will be because the economy is improving and inflation expectations are rising. Both of these conditions typically drive up long-term interest rates too, likely by more than the Fed raises short-term rates (usually in 25 basis point increments). Also, an improving economy means that credit quality is likely improving, which is great for banks' bottom lines as well.

Small cap banks should benefit the most from a steeper yield curve since a larger chunk of their profits come from interest income than large cap banks, which usually have more diversified revenue streams and are less susceptible to the yield curve.

The Bottom Line
If the U.S. economy continues to improve, then expect the Federal Reserve to finally increase interest rates from their rock-bottom levels relatively soon. Be prepared for the rate hike by shifting your portfolio now before it gets fully priced in. While some areas of the stock market are likely to underperform, others are well-positioned to profit. You should be too.

-- Todd Bunton, Weekend Wisdom

rich habits

According to a recent study by Tom Corley, author of Rich Habits: The Daily Success Habits Of Wealthy Individuals, there are few key habits that separate the rich from the poor.

What was one of the “rich” habits? Reading. While both groups read roughly the same amount, the key difference was what they read. The financially successful people read for self-improvement, while the less-successful primarily read for entertainment.

The study found that 85 percent of rich people read two or more books on education, self-improvement or career advancing a month, compared to only 15 percent for the poor; 94 percent of the rich read news-related publications, compared to 11 percent of the poor; and 11 percent of the rich read for entertainment, compared to 79 percent of the poor.

Becoming rich doesn’t happen overnight. But by constantly improving upon your knowledge, experience and skill set, you acquire the expertise needed to become wealthy and, more importantly, stay that way. This is why many athletes, lottery winners and movie stars declare bankruptcy after initially achieving their riches.

Another key habit is having a mentor — 93 percent of the rich who had mentors stated that their mentors were responsible for their wealth. Their mentor’s hindsight became their foresight, avoiding unnecessary mistakes, opening up doors of opportunity and providing the support needed. For those who didn’t have a mentor, Corley writes that they mentored themselves through books, experience and the school of hard knocks.

With the Internet, technology and many professional organizations out there, anyone can have easy access to the books and mentors people should have and need!

-- David Chang, Midweek, March 11, 2015

gold stocks

Since gold peaked around $1900 per ounce in 2011, gold stocks have endured a challenging three years. In 2014, things started promisingly enough as gold stocks began to stage a recovery in the first half of the year. This was before weakness in global currencies, versus the U.S. dollar, and expectations of a Fed rate hike combined to reverse the momentum. And then, towards the end of last year, sentiment tumbled to all-time lows creating a unique opportunity for contrarian investors.

However, while gold declined slightly in USD terms during 2014, it actually posted respectable gains in most foreign currencies.

Gold has historically had an inverse relationship with the US dollar. Because gold is priced in USD, as the greenback strengthens the gold price typically weakens. However, in the first two months of 2015 this hasn’t been the case. Why? Well, a number of factors have driven renewed investor interest in both gold and gold equities. This includes stubbornly low inflation, fears of outright deflation in Europe and Japan, the ongoing conflict in the Ukraine and continued uncertainty surrounding Greece’s future as an EU member nation.

In a bid to stimulate growth, several central banks have enacted negative interest rate policies leading to approximately $2 trillion of government debt globally that has a negative yield. This diminishes the opportunity cost of holding gold at a zero yield.

Increasingly, investors are also growing concerned about the unforeseen consequences of central bank policies. Most recently, the markets were rattled when the Swiss Central Bank abandoned its commitment to peg its currency to the Euro. As a result, investors have begun to return to the sector. For the first time in several years, inflows to gold ETFs have turned positive and gold equities have been strong performers year-to-date.

So, why should investors consider gold stocks? The primary reason is portfolio diversification. Historically, the correlation between gold stocks and traditional stocks is very low. With the S&P 500 and Dow Jones indexes at all-time highs, it could be a good time to consider an asset class that typically does well during stock market corrections.

-- Mitch Zacks, Market Insights, Zacks Investment Management

the Dow of Apple

(Reuters) - Apple Inc (AAPL.O), the largest U.S. company by market value, will join the storied Dow Jones industrial average .DJI, replacing AT&T Inc (T.N), in a change that reflects the dominant position of iPhone maker in the U.S. economy and society.

The decision to nudge aside AT&T, which has been part of the Dow for the better part of a century, is a recognition of the way in which communications and technology have evolved over the last several decades.

The action, by S&P Dow Jones Indices, had been widely expected since Apple split its shares seven-for-one in June 2014.

The Dow industrials is the oldest U.S. stock average, first been published in 1896. Its compact size - just 30 names - and its mission to reflect the U.S. economy mean it has a familiarity for retail investors that other indexes that cover a greater portion of the market's value do not.

Even though professional managers generally benchmark against the S&P 500, additions and removals from the Dow are still seen as a big event. It was last altered in September 2013 when Goldman Sachs Group Inc (GS.N), Visa Inc (V.N) and Nike Inc (NKE.N) were added.

AT&T was added in 1916, the year after the first-ever transcontinental telephone call. It was removed in 2004. After SBC Communications renamed itself AT&T following a 2005 merger, it was reinstated.

"It was a new way of life: telephones, back then 100 years ago, these talking machines," said Howard Silverblatt, chief index analyst at S&P Dow Jones Indices.

In a twist of fate, Apple owes some of its success to its partnership with AT&T over the iPhone, the device that propelled Apple's dominance. The iPhone first hit the market in 2007 with AT&T as its exclusive carrier, a deal that continued for more than three years.

Kevin Landis, chief investment officer of Firsthand Capital Management, a Silicon Valley-based technology-investing specialist with $300 million in assets under management, said he hopes that this is not a sign that Apple is past its prime.

“The Dow Jones is such a backwards-looking list, I cringed when Intel (INTC.O) and Microsoft (MSFT.O) were added," Landis said. "I'm cringing today. Let's hope Apple can defy the forces of history."

Intel and Microsoft joined the average in November 1999, and their performance was weak for years following.

*** [3/11/15]

Another stat/factoid being tossed about for your consideration: Companies added to the Dow outperform the S&P 500 by 3% in the 30 days after the announcement, according to Bernstein Research.

But that outperformance tends to be short-lived. There is a “clear pattern” of good performance leading up to the addition then “bad performance following,” Jason Goepfert, president of Sundial Capital Research, tells Marketwatch.

Goepfert examined the 20 days before and after an addition but recent history suggests the index tends to add stocks when they're peaking, and occasionally before big falls. Notable examples include Intel and Microsoft, added to the Dow in November 1999, and Bank of America, which was added in February 2008. On the flip side, stocks often perform well after being booted from the index, with Hewlett-Packard being the most obvious recent example. (The stock is up about 55% since being dropped from the Dow in September 2013.)

This is by no means a recommendation or a forecast but I can assure you some professional investors are right now looking into a paired trade: Short Apple-Long AT&T. (Update: In 32 of 50 Dow changes from 1928 to 2005, the deleted Dow stock outperformed the added name, and the portfolio of stocks removed gained 19% over next 250 trading days vs. a 3% gain for stocks added, according to this 2005 academic study by economists at Pomona College.)

this fund buys & holds

(Reuters) - Equity investors pursuing a buy-and-hold strategy might want to check out a fund that hasn't made an original stock market bet in 80 years.

The Voya Corporate Leaders Trust Fund, now run by a unit of Voya Financial Inc bought equal amounts of stock in 30 major U.S. corporations in 1935 and hasn't picked a new stock since.

Some of its holdings are unchanged, including DuPont, General Electric, Procter & Gamble and Union Pacific. Others were spun off from or acquired from original components, including Berkshire Hathaway (successor to the Atchison Topeka and Santa Fe Railway); CBS (acquired by Westinghouse Electric and renamed); and Honeywell (which bought Allied Chemical and Dye). Some are just gone, including the Pennsylvania Railroad Co. and American Can. Twenty-one stocks remain in the fund.

The plan is simple, and the results have been good. Light on banks and heavy on industrials and energy, the fund has beaten 98 percent of its peers, known as large value funds, over both the past five and ten years, according to Morningstar.

***

Assuming I have the symbol right, the fund has 21 stock holdings with turnover of 0%.

Nasdaq 5000

Finally! The Nasdaq topped the 5,000 level Monday for the first time since March 2000.

The Nasdaq closed at 5,008. It is only the third time it has ever finished above 5,000. Believe it or not, the Nasdaq is now just 2.4% from the all-time peak of 5,132.52 it notched during the Dot-com bubble. 

A lot of people have concerns that this might be a warning sign that stocks are back at lofty levels again, but much is different now versus the Dot-com era. Many of the companies leading the charge this time are well established and have a lot of cash on hand.

Apple has more than $175 billion in cash, for example. And the stock is only trading at about 15 times earnings estimates for this fiscal year. In 2000, some leading tech companies were valued at more than 100 times profit forecasts.

History lesson: Tech stocks plummeted in 2000 as prices for technology companies, particularly relatively new Internet firms, got way too high in a relatively quick fashion. It was a classic bubble.

Several Internet stocks went out of business because they spent too much and did not have solid business plans. Who could forget the likes of Pets.com and its sock puppet in a Super Bowl ad?

The plunge was breathtaking. By October 2002, the Nasdaq had fallen to around 1,108 -- nearly 80% below its all-time high.

 But tech stocks have come roaring back since the broader market bottomed nearly six years ago during the Great Recession.

The mobile and social media revolutions have helped lead the way as Apple, Google and Facebook (FB, Tech30) have all emerged as some of the leading tech companies in the world.

Deja vu all over again? Still, there are some eerie comparisons to15 years ago. Apple is now worth more than $750 billion and some experts are predicting that the company will one day top the $1 trillion market value level.

Back in 2000, many were saying the same thing about Cisco Systems (CSCO, Tech30). That didn't happen. Cisco is no slouch. It's even in the Dow. But its stock has not gotten back to 2000 levels. Its market value is $150 billion.

 Even though a lot of the leading publicly traded tech companies are trading at reasonable valuations, the same can't be said for all firms.

Twitter (TWTR, Tech30) and Netflix (NFLX, Tech30) trade for more than 125 times earnings estimates for 2015. Electric car maker Tesla (TSLA) is valued at about 200 times this year's profit forecasts.

lending money

Many of us may have been in a situation where a family member or friend has asked to borrow money. In 2011, 7 percent of homebuyers borrowed from a relative or friend to help purchase a house, and 14 percent of business owners also borrowed from family and friends to help cover costs. Lending money can help someone in need and create goodwill. But lending money also can be cause for harm in a relationship or lifestyle.

Here are some tips on how to lend money and still keep the relationship on track:

1) Don’t lend money you can’t afford. If you are struggling with your finances, lending money to another person struggling with finances will not only hurt the relationship if it is not paid back but also will set you back financially, resulting in a double whammy. Make sure you prioritize your personal finances so the money will not adversely affect your living situation.

2) Consider it a gift. If you can afford to lend it, it is safe to assume that the money will not be paid back. If the person borrowing doesn’t pay it back, you will not be disappointed and it will not affect the relationship. If you are willing to take the risk, the gift can be seen as a nice gesture to help someone in need. Relationships are more important than money, so if you do end up getting paid back, it will be a nice surprise.

4) Know when to say no. Consider why the person needs the money. If you feel the person is borrowing to fund their lifestyle as opposed to paying for emergencies, you are only supporting their habits. Saying no may force them to re-evaluate their own financial situation. In the long run you will be helping them out.

***

and more

[4/14/15] The first rule of loaning money to friends.

oil prices?

After falling by more than half since last June, oil prices are not likely to recover to previous highs for a long time and the energy sector may remain under pressure for an extended period, possibly years, says Shinwoo Kim, a T. Rowe Price energy analyst.

Mr. Kim says a recovery in oil prices, which declined from over $100 per barrel last summer to the mid-$40s in January—"could take longer than people think. What's clear is that we're not going back to $100 oil. I think the new range will be around $50 to $70 a barrel."

One factor that may prolong the recovery is the surge in U.S. shale oil production from horizontal drilling and hydraulic fracturing, or fracking, as well as the slowdown in global economic growth, particularly in China.

"The productivity in U.S. production has really been surprising people massively on the upside," Mr. Kim says. "The U.S. has become the swing producer in global oil, more so than Saudi Arabia, which gave up that role when it decided not to cut production and to leave it up to the market to work it out.

"The Saudi decision was really the catalyst for lower oil prices," he adds. "It accelerated the oil price deflation, which was already in the works and would have happened over time."

Mr. Kim notes that U.S. oil production, after a multi-decade period of decline, has boomed in recent years to about 12 million barrels per day now, placing it among the world's largest oil producers, along with Saudi Arabia and Russia.

"Now, the problem is the U.S. will also respond to lower prices, so we won't grow at the same rate that we have, and that will be part of the natural correction mechanism. But I think the productivity gains that are still fairly early on in the U.S. will continue, and so oil prices will sort of be capped in the near term."

While cheaper oil prices have benefited the overall economy, they have posed a huge challenge for energy stocks, particularly oil and gas exploration and production (E&P) companies. The overall energy sector in the S&P 500 Index plunged about 18% over the second half of 2014 and almost 5% in January 2015.

Mr. Kim says it could take years before the sector fully recovers. "Some expect a sort of V-shaped recovery into the second half of this year," he says. "I think it will take much longer because we have a supply problem with oil, not just a demand problem. If it was just demand, we've seen cycles where the recoveries have been very quick. Oversupply takes much longer to fix."

As a result, Mr. Kim expects earnings of energy companies to be even worse than analysts have forecast. "Because it's a supply problem, I expect to see multiple levels of cuts," he says. "The service companies will probably get hit a little harder than the E&P companies, but I think we're just seeing the start of earnings revisions. I don't think we're done yet."

Irving Kahn

*** [2/26/15]

(Bloomberg) -- Irving Kahn, the Manhattan money manager whose astounding longevity enabled him to carry firsthand lessons from the Great Depression well into the 21st century, has died. He was 109.

He died on Feb. 24 at his apartment in Manhattan, his grandson, Andrew Kahn, said Thursday.

A studious, patient investor from a family whose durability drew the attention of scientists, Kahn was co-founder and chairman of Kahn Brothers Group Inc., a broker-dealer and investment adviser with about $1 billion under management.

Last year, at 108, he was still working three days a week, commuting one mile from his Upper East Side apartment to the firm’s midtown office. There, he shared his thoughts on investment positions with his son, Thomas Kahn, the firm’s president, and grandson Andrew, vice president and research analyst. The cold New York City winter kept Kahn away from the office the past several months, his grandson said.

“I prefer to be slow and steady,” Kahn said in a 2014 interview with the U.K. Telegraph. “I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”

Kahn worked to stay mentally agile, reading three newspapers daily and watching C-SPAN, according to a 2011 article in New York magazine.

Among the memories he filed away was his work with Benjamin Graham, the stock picker and Columbia Business School professor whose belief in value investing influenced a generation of traders including Warren Buffett. Graham, who died in 1976, distinguished between investors, to whom he addressed his advice, with mere “speculators.”

Kahn assisted Graham and his co-author, David Dodd, in the research for “Security Analysis,” their seminal work on finding undervalued stocks and bonds, which was first published in 1934. In the book’s second edition, published in 1940, the authors credited Kahn for guiding a study on the significance of a stock’s relative price and earnings.

Irving Kahn was born in Manhattan on Dec. 19, 1905, to Saul Kahn, a salesman of electric fixtures, and his wife, Mamie. He graduated from DeWitt Clinton High School in the Bronx and attended City College for two years before dropping out to go into business.

In 1928, working as a clerk at the Wall Street brokerage Kuhn, Loeb & Co., Kahn heard about a trader named Graham who seemed to know how to outperform the market. Kahn visited Graham’s office at the New York Cotton Exchange, and an alliance was born.

“I learned from Ben Graham that one could study financial statements to find stocks that were a ‘dollar selling for 50 cents,’” Kahn told the Telegraph. “He called this the ‘margin of safety’ and it’s still the most important concept related to risk.”

In June 1929, Kahn sold short 50 shares of Magma Copper, betting $300 -- more than $4,000 in today’s dollars -- that the price would fall. Four months later, on Oct. 29, 1929, the market crashed. Kahn’s $300 investment would triple in value.

He had counted on a downturn, he later explained, because he was watching traders bid the price of stocks higher and higher.

“I wasn’t smart,” he said in a 2006 interview with National Public Radio, now known as NPR. “But even a dumb young kid could see these guys were gambling. They were all borrowing money and having a good time and being right for a few months, and after that, you know what happened.”

After trading closed for the day, he would ride the subway with Graham to Columbia and sit in on Graham’s investing classes. He became Graham’s part-time teaching assistant.

He scouted potential investments for Graham’s partnership, Graham-Newman, and worked on Graham’s “The Intelligent Investor” (1949).

When Graham retired from his investment partnership in 1956, he recommended Kahn to clients seeking a new adviser. By then Kahn was a partner at Abraham & Co., which was later bought by Lehman Brothers. With sons Alan and Thomas, he parted with Lehman in 1978 to open Kahn Brothers.

*** [12/17/05]

Who's Irving Kahn?

Irving Kahn works 8 hours a day, 5 days a week, at his Madison Avenue investment advisory firm. This would hardly be noteworthy, except for his age: 99 [now 100]. When scientists gave him a mental fitness exam two years ago, Kahn showed no signs of cognitive decline. "I don't seem to have that problem," Kahn says.

Kahn, the chairman of Kahn Brothers, a low-profile New York investment firm, might be Wall Street's oldest active investor. He's in the office every business day, reading scientific periodicals, annual reports and newspapers in search of undervalued stocks in the tradition of his friend and mentor, Benjamin Graham, widely considered the father of value investing.

***

[11/24/11] Except for the occasional doctor’s appointment or bad cold, Irving Kahn hasn’t skipped a day of work in more years than he can remember. And he can remember plenty of them: He’s 105.

It helps that he is wealthy enough to have full-time attendants. Also, perhaps, that he has always been a “low liver,” without flamboyant tastes, as his brown, pointy-collared shirt and brown patterned tie attest. He goes to bed at eight, gets up at seven, takes vitamins because his attendants tell him to. (He drew the line at Lipitor, though, when a doctor suggested it a few years back.) He wastes few gestures; as we speak, his hands remain elegantly folded on his desk.

Still, a man who at 105—he’ll be 106 on December 19—has never had a life-threatening disease, who takes no cholesterol or blood-pressure medications and can give himself a clean shave each morning (not to mention a “serious sponge bath with vigorous rubbing all around”), invites certain questions. Is there something about his habits that predisposed a long and healthy life? (He smoked for years.) Is there something about his attitude? (He thinks maybe.) Is there something about his genes? (He thinks not.) And here he cuts me off. He’s not interested in his longevity.

But scientists are.

*** [9/2/14 via trbaby]

Three days a week, Irving Kahn takes a taxi from his flat in Manhattan for the short ride to the offices of his investment firm, Kahn Brothers.

Nothing surprising about that, you might think. But Mr Kahn is 108 years old.

Many professional investors stress the importance of a long-term approach but few are in a position to speak about it with as much authority as Mr Kahn.

“One of my clearest memories is of my first trade, a short sale in a mining company, Magma Copper,” he remembered. “I borrowed money from an in-law who was certain I would lose it but was still kind enough to lend it. He said only a fool would bet against the bull market.” But by the time the Wall Street crash took hold in the autumn, Mr Kahn had nearly doubled his money. “This is a good example of how great enthusiasm in a company or industry is usually a sign of great risk,” he said.

But after Mr Kahn’s early success in the risky business of short-selling, his approach changed to one of finding solid companies that were undervalued by the stock market and then holding on to them. He also turned his back on borrowing money to invest (leverage). “I invested conservatively and tried to avoid leverage. Living a modest lifestyle didn’t hurt, either,” he said.

The catalyst for the change was his collaboration with Benjamin Graham, the inventor of “value investing”.

Mr Kahn said: “In the Thirties Ben Graham and others developed security analysis and the concept of value investing, which has been the focus of my life ever since. Value investing was the blueprint for analytical investing, as opposed to speculation.”

Graham was a lecturer at Columbia University in New York, where his pupils included Warren Buffett, and Mr Kahn was his teaching assistant. “They’d take the subway to Columbia together,” said Tom Kahn, Irving Kahn’s son, who also works for the family investment firm.

He added: “There are always good companies that are overpriced. A disciplined investor avoids them. As Warren Buffett has correctly said, a good investor has the opposite temperament to that prevailing in the market. Throughout all the crashes, sticking to value investing helped me to preserve and grow my capital.

“Investors must remember that their first job is to preserve their capital. After they’ve dealt with that, they can approach the second job, seeking a return on that capital.”

The market today
Mr Kahn said he was finding few bargains in today’s markets, in which America’s benchmark S&P 500 index has hit repeated record highs.

“I try not to pontificate about the market, but I can say that my son and I find very few instances of value when we look at the market today. That is usually a sign of widespread speculation,” he said.

“But no one knows when the tide will turn. Those who are leveraged, trade short-term and have bought at a high prices will be exposed to permanent loss of capital. I prefer to be slow and steady. I study companies and think about what they might return over, say, four or five years. If a stock goes down, I have time to weather the storm, maybe buy more at the lower price. If my arguments for the investment haven’t changed, then I should like the stock even more when it goes down.”

He explained how investment decisions are reached at Kahn Brothers. “Tom runs the firm and my grandson Andrew is one of our analysts. The three of us and our team enjoy debating the merits of companies. Sometimes we have different opinions, which makes it interesting.

“We basically look for value where others have missed it. Our ideas have to be different from the prevailing views of the market. When investors flee, we look for reasonable purchases that will be fruitful over many years. Our goal has always been to seek reasonable returns over a very long period of time. I don’t know why anyone would look at a short time horizon. In my life, I invested over decades. Looking for short-term gains doesn’t aid this process.”

“You must have the discipline and temperament to resist your impulses. Human beings have precisely the wrong instincts when it comes to the markets. If you recognise this, you can resist the urge to buy into a rally and sell into a decline. It’s also helpful to remember the power of compounding. You don’t need to stretch for returns to grow your capital over the course of your life.”

are we headed toward a bubble?

Could the market really be headed toward a bubble?

To find out, Cramer compared the market then versus now to see if the situations are alike. First, there is the market leader, Apple. Cisco was the leader back in in 2000, with a market cap of $550 million. Apple now has a $736 billion market cap.

Yet anyone who follows Cramer knows that he values stocks by looking at their price-to-earnings multiple. While the average stock is trading at just 18 times earnings currently, Apple now sells at approximately 15 times earnings.

In the last bubble, Cramer argues that Cisco sold at about 80 times earnings. That is a huge difference!

Cokeefe

This guy (I assume it's a guy) posted an article on gurufocus boasting 303% performance in the past six years or 25% compounded.  He claims to have beat the S&P 500 by 157% or an average of 22% a year.

	2009	2010	2011	2012	2013	2014
Return	74.22%	58.65%	50.31%	24.62%	43.05%	18.67%
+/- S&P 500	47.76%	43.59%	35.25%	8.66%	10.66%	3.25%

How did he do it?

"I approach investing as an owner of the companies that I am buying. This impacts how I buy and hold stocks.

I evaluate buying marketable equity shares of companies in much the same way I would evaluate a business for acquisition entirely. I want the business to be (a) easy to understand, (b) run by able and honest managers, (c) with an enduring competitive advantage (moat) and favorable long-term prospects, and (d) at an attractive price (discount to its intrinsic value which is the discounted value of the cash that can be taken out of the business during its remaining life).

There is a tremendous advantage of being an individual investor. Portions of outstanding businesses sometimes sell in the securities markets at very large discounts from the prices they would command in negotiated transactions involving selling the entire business. Consequently, bargains in business ownership, which are typically not available directly through corporate acquisition, can be obtained indirectly through stock ownership.

In terms of selling I don't. I want to own these superstar companies as long possible. This also removes the concern over guessing about what is happening, or might happen, with the overall economy. In other words, if you owned 100% of a great company generating incredible returns on invested capital, you would not sell simply because there is an economic problem in Europe. With that said, why sell partial ownership shares of solid companies if there is a problem with the overall economy? The only thing that I worry about, after buying partial ownership of great companies, is whether the aforementioned reasons for buying are preserved. I only sell if the company no longer provides excellent economics or is run by able and honest management.

It took me several years to learn how to properly value a business. You cannot simply go by Earnings per Share (EPS) because the quality and sources of the earnings can be quite different amongst companies. My favorite metric is Return on Invested Capital (ROIC). It measures how much each dollar re-invested can produce in earnings. For example, a 24% ROIC will tell you that for every $1.00 the company re-invests it has produced 24 cents of earnings.

Patience, discipline, and emotional intelligence (self-awareness) are the main factors in investing on your own. Most investors are their own worst enemies – buying and selling too often, ignoring the boundaries of their mental horsepower. Individual investors tend to buy with the herd after prices are already highly inflated and sell in a panic when the market drops. Instead, focus on buying great companies with the aforementioned qualities when the market price is publicly trading at a discount to its intrinsic value. This is where the individual investor has a huge advantage over the professional; most fund managers don’t have the leeway to patiently wait for exceptional opportunities.

***

Sounds good to me, but contributor Dr. Paul Price is skeptical because his return sounds too good to be true.

Call me skeptical.

You have no profile on view and no link(s) to any website or newsletter. This is the first article you have published here on GuruFocus.

There is not a single example of the stocks you own or owned. Your claimed results would have been statistically improbable or impossible to achieve in a diversified portfolio with any substantial size.

If what you detailed is true you likley had a very small starting amount of capital, stayed incredibly concentrated, highly levered or some combination of all those factors. Or... it could all be made up.

Unless you show some supporting data, nobody reading your article has any reason to believe the gains which you claim to have accomplished were real.

***

Cokeefe then supplied a link to a previous (and nearly the same) article which provides more information on his holdings.

Here were author's 21 holdings:

Visa
Gilead
National Oilwell Varco
Ebix
Fiat Chrysler
Cummins
Syntel
Walgreen
Netease
Microsoft
Illinois Toolworks
American Tower
Apple
HDFC
Blackrock
eBay
Intercontinental Exchange
Intel
Total
Intuitive Surgical
Citigroup

And here's his current portfolio at Morningstar.  The one change is that he sold Fiat Chrysler and bought Biglari Holdings.  Interesting to see a slight variance between the year-by-year performance at the two sites.  That wouldn't make sense unless it adjusts your performance if you bought or sold a holding (which also wouldn't make sense.)  And a wide variance in the 2010 and 2011 returns in the gurufocus article vs. the valuewalk article.

So let's take him at his word and say he never sold any of these stocks (even though he just sold Fiat Chrysler) and bought all of them five years ago (unlikely, but let's just say he did).  Let's see how well they performed.

                                                 2010    2011   2012    2013   2014
Visa (V)                                  -18.93   45.21  50.27   47.82  18.50
Gilead (GILD)                          -16.25   12.94  79.45 104.49  25.51
National Oilwell Varco (NOV)     53.46    1.77    1.25    17.69  -6.32
Ebix (EBIX)                               45.42   -6.46 -26.20   -8.28  17.54
Cummins (CMI)                       141.79 -18.78  25.15   32.18    4.26
Syntel (SYNT)                           27.64  -1.65   19.99   69.59  -1.09
Walgreen (WBA)                        7.80  -13.09  14.97   58.39  34.93
Netease (NTES)                        -3.90   24.07  -5.17    87.16  29.27
Microsoft (MSFT)                     -6.63    -4.55    6.09   43.69  27.24
Illinois Tool Works (ITW)          13.98   -9.91   33.35   40.90  14.78
American Tower (AMT)            19.51   16.89   30.26    4.72   25.60
Apple (AAPL)                           53.07   25.56   32.71    7.64   40.03
Averages                                  26.42    6.00   21.84   42.17  19.19

Reported                                   50.31  33.55   24.62    43.05  17.91
S&P                                          15.06    2.11   16.00    32.39  13.69

I just chose the first twelve stocks because I was lazy but wanted to include AAPL which has had a nice five year run.  And I'll use the valuewalk figures for the reported return instead of the gurufocus figures.

Looking at the results, my first observation is that the averages did indeed beat the S&P 500 every year and by a significant margin.  The second observation is that 2012-2014 averages were in the ballpark of the reported returns, but the 2010 and 2011 averages did not come close.

To reconcile this, one would have to assume that he didn't own all the stocks during those years.  2011 is hard to reconcile though as Visa was the only stock of the twelve I looked at, that beat the reported average.

I suppose his portfolio could possibly be legitimate if one assumes he didn't own very many stocks during 2010 and 2011 and he just happened happened to own the right few stocks during those years (and probably owned some stocks that I didn't include above).

If legitimate, I would think that his portfolio will probably drift more toward the average as time goes on.  But still his philosophy seems sound and he will probably do fine.

300-point days: good or bad?

If you’re bullish on stocks, root against a huge gain in the Dow today.

When the Dow Jones Industrial Average screamed higher by 305 points Tuesday, reclaiming a nice slug of January’s losses, it was the second one-day spurt of more than 300 points in 2015, and the third in two months.

It’s tempting to see these buying frenzies as evidence of underlying market health -- signs of powerful demand for stocks unleashed as soon as unnerving distractions like crashing oil prices or European debt negotiations recede.

Yet such quicksilver jumps aren’t what long-term market optimists should wish to see very often. They tend to appear in a skittish tape in a climate of low investor conviction, and result not from big investors being caught wrong-footed by a stray headline or sudden price blips.

More generally, big gains in the market in a single day are not particularly representative of how strong bull-market advances work. Across all of market history, large single-day moves either up or down tend to be clustered in bear markets, near market bottoms and, to a lesser degree, near market tops.

The meat of a long market advance typically looks like a long upward grid of smallish successive gains and brief, trivial pullbacks, reminiscent of the New England Patriots monotonous attack of disciplined short passes rather than Hail Mary downfield gambits.

The relentless rally of 2013 is an ideal example of the gentle glide path of a well-scripted advance. On the way to a 30% rise in the Standard & Poor’s 500 that year, there were a few month-long stretches when the index failed to move as much as 1% in a day.

$9.8 billion to charity

America's 50 top givers in 2014 donated $9.8 billion to charity, up 27.5 percent from the top 50 gifts in 2013, according to a new report.

Bill Gates was the top giver last year, according to the Philanthropy 50, assembled by the Chronicle of Philanthropy. Gates and his wife, Melinda, made a gift of $1.5 billion in Microsoft stock to the Bill and Melinda Gates Foundation.

[and here I thought he didn't own any more MSFT / no, not yet]

Ranking second was Ralph Wilson, late owner of the Buffalo Bills football team, who made a bequest of $1 billion to the Ralph C. Wilson Foundation in Detroit, which will aid charities in New York and Michigan.

Ranking third was Ted Stanley, founder of collectible company MBI, with a gift of $652.4 million to the Broad Institute and other groups to fund mental-health research.
The report also showed a surge in giving by new tech titans. There were 12 tech donors on the list, twice the number in 2012 and more than the 11 donors from finance.

Among the top tech givers were Jan Koum, the WhatsApp founder who gave $556 million to the Silicon Valley Community Foundation. Facebook billionaire Sean Parker gave $550 million to his own foundation and the Donor Advised Fund at Fidelity.

GoPro founder Nick Woodman and his wife, Jill, gave $500 million to the Silicon Valley Community Foundation, while Google guys Sergey Brin and Larry Page gave $382.8 million and $177.3 million, respectively, to different foundations.

***

Why isn't Buffett on the list?  He gave $2.8 billion to the Gate Foundation last year.

rules of thumb failed in 2014

There are plenty of handy guidelines for playing the stock market based on historical patterns and observed seasonal rhythms.

In 2014, it would have been best to ignore them. Close adherence to the calendar-based wisdom would have caused investors to miss much of the year’s upside and likely would have put them in the wrong kind of stocks for the rally that followed the October low.

The January Indicator

January is packed with supposed clues and patterns worth tracking. The January Indicator says that when stock indexes are down for the first month of the year, the rest of the year tends to be unusually weak.

In 2014, stocks dropped right from the start, with the Standard & Poor’s 500 shedding 3.6% in January. The January Indicator would have suggested the remainder of the year would be a relatively tough stretch. In fact, to date the S&P 500 is up 12.6% since Jan. 31 -- better than even the average year when January rose.

Sell in May and Go Away

This couplet is drawn from the fact that the vast majority of equity-market returns across more than a century were accrued between Nov. 1 and April 30.

Well, this year the S&P rose more than 7% from May through October -- the majority of this year’s upside -- with a maximum loss of 1.1% at the October low.

The Worst Two Months of the Presidential Cycle

Largely overlapping this year with the “sell in May” period, the second and third quarters of a midterm election year have been, over time, the worst of the four-year election/market cycle.

Oh well. This year, the “worst two quarters” had the market up 7%.

Ronald Read

BRATTLEBORO, Vt. (AP) - A man who sometimes held his coat together with safety pins and had a long-time habit of foraging for firewood also had a knack for picking stocks - a talent that became public after his death when he bequeathed $6 million to his local library and hospital.

The investments made by Ronald Read, a former gas station employee and janitor who died in June at age 92, "grew substantially" over the years, said his attorney Laurie Rowell.

Read, who was known for his flannel shirt and baseball cap, gave no hint of the size of his fortune.
"He was unbelievably frugal," Rowell said Wednesday. When Read visited her office, "sometimes he parked so far away so he wouldn't have to pay the meter."

The bequest of $4.8 million to the Brattleboro Memorial Hospital and $1.2 million to the town's Brooks Memorial Library were the largest each institution has ever received. Read also made a number of smaller bequests.

"It's pretty incredible. This is not something that happens on a regular basis," said the hospital's development director, Gina Pattison.

Stepson Phillip Brown, of Somersworth, New Hampshire, told the Brattleboro Reformer he visited Read every few months, more often as Read's health declined. The only indication Brown had of Read's investments was his regular reading of the Wall Street Journal.

"I was tremendously surprised," Brown said of Read's hidden wealth. "He was a hard worker, but I don't think anybody had an idea that he was a multimillionaire."

***

Most of Read's investments were found in a safe deposit box, Read's attorney, Laurie Rowell, told CNBC. Those investments included AT&T, Bank of America, CVS, Deere, GE and General Motors.


"He only invested in what he knew and what paid dividends. That was important to him," she said in an interview with "Closing Bell."

Financial expert Chris Hogan, a strategist with Ramsey Solutions, applauded Read's diligence and believes others can follow his example.




"It's a matter of living a certain way, keeping your lifestyle under control and being committed," he said.

How does Buffett do it?

From November 1976 to the end of 2011, Warren Buffett delivered an average annual return of 19% in excess of the Treasury bill rate, as measured by shares of his publicly traded conglomerate, Berkshire Hathaway (BRK.A, BRK.B), versus a 6.1% average excess return for the stock market. In addition, Berkshire’s Sharpe ratio — a measure of return per unit of risk — is higher than all U.S. stocks that have been traded for more than 30 years from 1926 to 2011, as well as all U.S. mutual funds in existence for more than three decades.

So how does he do it?

If a newly published paper is any guide, the answer is pretty straightforward. According to “Buffett’s Alpha,” authored by AQR Capital Management‘s Andrea Frazzini, David Kabiller, CFA, and Lasse Pedersen, who also teaches finance at the NYU Stern School of Business, Buffett buys low-risk, cheap, and high-quality stocks; he employs modest leverage to magnify returns; and he sticks to his investment discipline even during rough periods in the markets that would force investors with less conviction or capital “into a fire sale or a career shift,” as the authors put it.

[via Warren Buffett International Fan Club]

We The Economy

The lines are blurring when it comes to distribution platforms for film and television, and competition is fierce. There’s Netflix versus HBO versus Amazon versus Hulu, to name a very few. But somehow, despite all of this competition, Morgan Spurlock has managed to get more than fifty digital, cable, television, and mobile platforms (and Landmark theatres) to play nice and work together to launch his latest project, We The Economy: 20 Short Films You Can’t Afford to Miss.

They assembled a group of economic advisors and “brilliant economic minds” to help shape the topics for each segment, which led to films about supply and demand, natural resources, government regulation, and the healthcare system. Then they went out to directors on a “first come, first served” basis, says Spurlock. Catherine Hardwicke, Barbara Kopple, Adrian Grenier, Albert Hughes, and Adam McKay (who helmed an animated film about pastel colored alpacas that explores economic inequality) came on board.

The goal is to begin a larger conversation and education of the general American public, but the project could also serve as an example of yet another way to evolve old-school distribution models.

“The window is gone,” says Spurlock. “The window is out the window.”

Francis Chou

Francis Chou immigrated to Canada in 1976 with $200 to his name. Without a college degree, Chou worked as a telephone repairman for Bell Canada, then formed an investment club with co-workers after reading about Benjamin Graham's teachings. Today, Chou is the fund manager of Chou Mutual Funds. Below are his answers to questions from GuruFocus readers.

Who is your all-time favorite investor – and why?

Benjamin Graham is my favorite investor. His 'margin of safety' principle is so profound that it is applicable everywhere. I have bought equity securities of good and mediocre companies in the United States, Canada, Europe, China, Japan, as well as distressed securities such as junk bonds, and they have worked out really well as long as 1) my valuations are accurate and 2) I bought them at a severely discounted price.

You run a very concentrated portfolio. How do you (from an emotional standpoint) deal with large swings in positions that have such heavy weightings? Do you have any tricks to help deal with becoming emotionally attached to a security?

We only look at intrinsic value and what the ratio of the stock price to intrinsic value is. That's all that matters. Everything else is noise.

How do you know if you have enough information to make a purchase decision?

I will make a purchase when I think the odds are 80% in my favor, given all the information provided. You also ask yourself whether you are willing to put 10% of the assets of your fund in that one stock, and if the answer is 'no,' your subconscious mind is telling you that you have strong doubts about your valuation or the company and therefore you need to take a few days off and then come back and reassess the company and your valuation.

How much research do you do before you have conviction to take a position?

For most stocks, I’ve been following them for 30 years, and when it falls within the range of undervaluation, I may then begin to start thinking about buying it. You should always feel like the odds are at least 80% in your favor before taking a position. Don't commit unless you have high certainty.

Vectorvest forecast for 2015

Apparently from Dr. Bart DiLiddo

[too bad I couldn't copy and paste the text from this video.  So type away..]

The Strategist's average prediction for 2015 was that the S&P 500 Index would close at 2,212, up 5% from today's close of 2.089 [this report apparently was written on 12/26/14].  Thomas Lee, the Strategist who made the highest and closest prediction of 2075 for 2014, also was tied for the highest prediction for 2325 for 2015.  Great, but what does VectorVest say?

Our Watchlist of the S&P 500 shows that GRT, Forecasted Earnings Growth, is currently at 9.0%/yr, the same as last year.  However, the Investment Climate Graph shows that the Earnings Trend Indicator has fallen from 1.13 to 1.11 over the last two months.  This is not a serious change.  Therefore, the VectorVest view is that a Bull Market Scenario will prevail in 2015.  However, we must watch the Earnings Trend Indicator very carefully.  Profits in the oil patch are expected to drop by 16.5% over the coming year.  However, I expect profits in the consumer sectors to increase from oil's decrease.  Once again, the stock market should do well in The Year Ahead.

Forbes vs. Oxfam

It’s hardly news at this point, but a new report from British anti-poverty charity Oxfam predicts that the world’s richest 1 percent will soon enough amass wealth that will be greater than half of the world’s total.  If so, those not among the 1 percent (including this writer) should all be giddy with excitement.

Simply put, when the wealth gap widens, the lifestyle gap shrinks.

What’s unfortunate about the report is that rather than celebrating the rewarding of enterprise on the way to global plenty, Oxfam Executive Director Winnie Byanyima seeks “urgent action” to reduce the inequality.  Adding her voice to a chorus of economists offering evidence-free assertions about inequality being the cause of poverty, Byanyima has said that “Failure to tackle inequality will set the fight against poverty back decades.” She adds that “The poor are hurt twice by rising inequality – they get a smaller share of the economic pie, and because extreme inequality hurts growth, there is less pie to be shared around.”

Readers can relax.  What Oxfam presumes about inequality is belied by simple history.  What we’ve actually seen is that inequality and the economic growth that lifts all boats go hand in hand.  Of course they do.

Readers can relax.  What Oxfam presumes about inequality is belied by simple history.  What we’ve actually seen is that inequality and the economic growth that lifts all boats go hand in hand.  Of course they do.

The above is true simply because wealth achieved in the capitalist system is more often than not a function of turning obscure luxuries into ubiquitous goods enjoyed by all.  The great Thomas Sowell has written that before John D. Rockefeller came along, evenings were rather bleak.  Sowell has noted that during the 19th century the phrase “the night cometh, when no man can work” was the sad truth.

Rockefeller not only made the kerosene that lit up formerly dark evenings a common, low-priced reality, but he eventually did the same with the fuel that powered automobiles.  Henry Ford got exceedingly rich by virtue to turning the once unimaginable-to-own luxury that was the car into something everyone could buy.

More modernly, Michael Dell earned his billions turning once expensive, slow and bulky computers into pedestrian gadgets that a growing number of people own several of, including ones that fit in our pockets thanks to people like the late Steve Jobs.  Bill Gates became the world’s richest man by virtue of designing software that rendered the computer easy to use, while Amazon’s Jeff Bezos made it possible to order the world’s plenty all with a tap on one’s computer, tablet, phone, and according to rumors, soon enough from the timepiece on one’s wrist.

The above examples are so unrelentingly true that it’s almost shooting fish in a barrel to mention them.  But they cannot be denied no matter one’s ideology, or dislike of achievement.  If Gates, Dell, Jobs and Bezos had been layabouts inequality would no doubt be less, but life would be much less enjoyable, and much more uncomfortable.  Thinking of music alone, Paul McCartney is said to be worth billions, but would the class warriors in our midst return the joy he and the Beatles brought the world just to reduce the wealth gap?

To state what is obvious, to look at the Forbes 400 is to see people who’ve made our lives better, healthier, more interesting, and more abundant. Patrick Soon-Shiong is worth billions for having advanced the search for a cure to cancer, Steven Spielberg is a member for having entertained millions, and possibly billions, while Mark Zuckerberg is on the list for connecting us to friends, ideas and conversations around the globe.

Oxfam presumes the need for “urgent action” to fix what isn’t a problem, but implicit in urgent action is that politicians will act as wealth allocators over the color, class and gender blind markets.  In short, what wealth gap worriers unwittingly seek is wealth destruction by politicians over the provision of always limited resources to the most talented.  Thinking about this yet again, readers need only ask themselves who has done more to better the world: Mitch McConnell, Harry Reid and Silvio Berlusconi, or Jerry Jones, Oprah Winfrey and Sergey Brin?

The answer to the above non-riddle stares us in the face every single day.  Politicians invariably get rich when they redistribute the wealth we create, but in ways that do the opposite of improving our lives.  Conversely, when market forces allocate the economy’s resources the wealth gap surely soars, but we’re all made better off.  Again, can any reader say with a straight face that life would be better if Jones, Winfrey and Brin were on the dole?

What can’t be forgotten is that great, inequality inducing fortunes are made and lives beautifully enhanced (in my upcoming book, Popular Economics, I argue that inequality is beautiful) when meritocratic markets are allocating capital instead of politicians.  In that case, we should cheer loudly assuming Oxfam is right.

Indeed, Oxfam says inequality is set to soar.  If so, this can only mean that the economy’s resources are set to be allocated a great deal more by market forces, and a great deal less by politicians.  Inequality is once again beautiful, and a signal of rising lifestyles for those not rich.

All that’s left is to wonder what the rich of the future will make commonplace for all? It says here private jets, self-driving cars and near-instantaneous recovery from knee injuries will be among the advances.  If so, inequality will soar.  Let’s hope.  It’s when the wealth gap is not increasing that we have reason to worry.

***

Surprisingly, I see only one comment (by Sean Durkin). “Are YOU kidding? Is this really theonion.com? Anyone who swallows this propaganda is an idiot.”

More Forbes articles mentioning Oxfam

an average decade?

The past 10 years brought a credit boom and bust, the most damaging financial crisis in decades and $12 trillion in money creation by desperate central banks – all of which made for a pretty average decade.

Rather average, that is, in terms of the returns produced by big U.S. stocks.

Through Dec. 31, the average annual total return for the Standard & Poor’s 500 stock index was 7.6%, according to FactSet. That’s up sharply from negative 1% five years earlier, when the market was winding up a “lost decade.” This measure of the past decade’s gains is now approaching long-term average yearly return.

Since 1926, big American stocks have delivered just over 10% a year, and Jeremy Siegel’s study on stock performance dating back to 1871 pegged the average at 6.8% after inflation, which is slightly above the pace of the past 10 years.

So the market took a messy, dramatic, sometimes scary and then euphoric path to a respectable, if pedestrian, performance since the end of 2004. It barely nosed above its 2000 peak in late 2007, then was cut in half within 18 months, and since the March 2009 low has surged more than 200%.

The question now -- especially for those who haven’t participated in the past few years’ ascent -- is how much life this bull market might have left in it, both in terms of duration and upside.

A glance at this long-term chart of rolling 10-year stock returns would lead many to the conclusion that this uptrend is really just getting in gear. Throughout history, this gauge has spent far more time at levels well above the current one.

Yet it’s worth noting how rapid the upside progress has been in just the past few years -- and how this 10-year measure will keep rising in coming years even if stocks stall out or merely trudge higher. The S&P 500 has appreciated at an average of more than 17% annually the past six years.

Financial advisor and Yahoo Finance contributor Ben Carlson calculates that if stocks stay right where they are for the next four years, the trailing 10-year return will rise to 9.9%; if stocks shuffle ahead by a modest 5% a year over that time, the 10-year average will jump to more than 12% by the end of 2018.

In those terms, it might appear that the market doesn’t exactly owe investors much in coming years.

Jim Paulsen, strategist at Wells Capital Management, this week noted that beneath the indexes, the typical stock is now about as expensive as it has ever been.

Sure, the S&P 500 as a whole trades at 18-times the past year’s operating profits, and a bit more than 16-times forecast earnings for 2015 – modestly but not alarmingly above the long-term average. But this aggregate multiple is dragged lower by a relative handful of mega-cap stocks that appear quite cheap statistically, such as Apple Inc. (AAPL), Exxon Mobil Corp. (XOM) and Bank of America Corp. (BAC).

Using an academic screen performed each summer of all New York Stock Exchange issues, Paulsen says the median stock P/E ratio is around 20 -- roughly as high as it’s been since 1950 -- which should make big continued gains for the typical stock challenging.

This, in a way, is the reverse of the market at the height of the tech bubble, when the S&P 500 was fabulously overpriced thanks to richly valued blue chips and nearly all big technology stocks, while the median company sported a multiple no higher than the historical norm.

One of the few ways to escape much concern about how these forces sort themselves out is to have at least a couple of decades to work with. The market has never been down over any 20-year period. Indeed Carlson offers the reminder that the worst trailing annual 20-year return after the crisis was 7.7%.

Patience, then, is a comfort as well as a virtue – for those who enjoy the luxury of lots of time before they’ll need to convert a portfolio into living expenses.