Friday, April 08, 2016

Turns out money can buy happiness!

We all know that money can’t buy you happiness, right?  As it turns out, this is not exactly true.

A recent study by University of Michigan economists Betsey Stevenson and Justin Wolfers, examining data from more than 150 countries using World Bank data, has shed new light on the interaction between happiness and the size of your bank account.  Their first conclusion: the more money you have, the happier you tend to be, regardless of where you are on the income spectrum.  They concluded that multi-millionaires don’t think of themselves as “rich.”

However, there do seem to be income levels where a person’s happiness can be increased faster than others.  Princeton University economist Angus Deaton has found that peoples’ day-to-day happiness level rises until they reach about $75,000 in income—a point where a person can comfortably afford the basic necessities of life without worrying where his or her next meal is going to come from.  After that, this type of happiness levels off. 

In fact, a report in Psychological Science magazine found that the wealthier people were, the less likely they were to savor positive experiences in their lives.  Another study found that lottery winners tended to be less impressed by life’s simple pleasures than people who experienced no windfall.  Once you’ve had a chance to drink the finest French wines, fly in a private jet and watch the Super Bowl from a box seat, then a sunny day after a week of rain doesn’t produce quite the same jolt of happiness it used to.  The additional money tended to have a cancelling effect on day-to-day happiness.

It’s another kind of happiness, which focuses on something the researchers call “life assessment,” that continues to rise at all levels of wealth.  The more money people have, the more they feel like they have a better life, possibly (Deaton hypothesizes) because they feel like they’re outcompeting their peers. 
Is there any way to more efficiently buy happiness with money?  A study by the Chicago Booth School of Business found that people experienced more happiness if they spent money on others than when the money was spent on themselves.  Treating someone else—or, more broadly, charitable activities—are among the most powerful financial enhancements to personal happiness.

Other research has shown that you get more happiness for your buck if you buy experiences rather than things.  An epic trip to Paris, or a weekend at a bead and breakfast near the cost, can be more enduringly pleasure-inducing than buying a new watch or necklace.  The watch of necklace quickly become a routine part of your environment, contributing nothing to happiness.  But your travel experience can be shared with others and reminisced about.

Finally, you can buy time with money—decreasing your daily commute by moving closer to work, hiring somebody to help around the house, hiring an assistant to clear your desk—all giving you more leisure time to pursue your interests.  With the free time, take music lessons or learn to dance—and you’ll be happier than somebody with millions more than you have.

Monday, January 04, 2016

Sleep Like a Superstar

Have you ever wondered how successful people get it all done?  Apparently, they don’t stint on their sleep in order to find extra hours in the day.  But they do seem to get up earlier than the rest of us, giving some credence to Ben Franklin’s saying: Early to bed and early to rise makes a man healthy, wealthy and wise.

Forbes magazine looked at the sleep habits of 21 people that most of us would consider successful—including Franklin himself, who routinely went to bed at 10:00 PM and awoke promptly at 5:00 AM.  The word “routinely” is important; virtually everyone on the list was consistent about bedtime and awakening time.  Some sleep seven hours like Franklin, including Winston Churchill (3:00 AM to 8:00 AM), Bill Gates (midnight to 7:00 AM), Apple CEO Tim Cook (9:30 PM to 4:30 AM), Huffington Post founder Arianna Huffington (10:00 PM to 5:00 AM), Twitter co-founder Jack Dorsey (10:30 PM to 5:30 AM), and founder Jeff Bezos (10:00 PM to 5:00 AM).

People who sleep six hours a night include U.S. President Barack Obama (1:00 AM to 7:00 AM), Yahoo! President Marissa Mayer (midnight to 6:00 AM, but sometimes up by 4:00 AM), AOL CEO Tim Armstrong (11:00 PM to 5:00 AM), Newton Investment Management CEO Helena Morrissey (11:00 PM to 5:00 AM), and Tesla Motors CEO Elon Musk (1:00 AM to 7:00 AM).

Others sleep or slept only five hours, among them Richard Branson (midnight to 5:00 AM), PepsiCo CEO Indra Nooyi (11:00 PM to 4:00 AM), and inventor Thomas Edison (11:00 PM to 4:00 AM).

If you sleep eight hours a night, you’re still in good company.  That list includes Virgin Money CEO Jayne-Anne Gadhia (10:30 PM to 6:30 AM), MediaCom UK CEO Karen Blacklett (11:30 PM to 7:30 AM), software-as-a-service company Mor founder Rand Fishkin (1:00 AM to 9:00 AM), digital networking guru Neil Patel (11:00 PM to 7:00 AM); Ellen DeGeneres (11:00 PM to 7:00 AM) and Buffer Software co-founder Leo Widrich (1:00 AM to 9:00 AM).

With a handful of exceptions, few of these successful people are staying up late to catch the Late Show, Saturday Night Live or the end of the NFL Monday Night Football game on the East Coast.  And few are sleeping past the delivery of the morning paper—which means they’re getting a jump on the rest of the world.

Wednesday, December 16, 2015

Here comes a Rip Your Face Off-Type Rally

I suspect much of this year’s first-half-December weakness was the result of heavier than usual tax-loss-selling pressure and Fed rate jitters.
Raymond James chief investment strategist Jeffrey Saut said that “the market has the potential for a rip your face off-type rally! It’s human nature to read into negativity, what happened last Friday, but it really doesn’t deconstruct the bullish case right here. You’ve got massively oversold conditions in the equity markets. You’ve got a December’s option expiration in the trillion plus dollars that everybody is worried about – it typically has a bullish tilt to it…. The setup is pretty good for a rally to the upside that's going to surprise a lot of people. I think you could make new highs by the end of the year – new all-time highs.
Typical first-half-of-December weakness was a bit magnified this year. The lackluster performance of the stock market this year, Fed-rate-hike handicapping, new lows in crude, and a mini-run on junk bonds all exacerbate normal yearend tax-loss selling. But this appears to be setting the market up for a yearend Santa Claus Rally.
The Santa Claus Rally is a very important signal as to what to expect in 2016. Yale Hirsch defined the Santa Claus Rally in 1972 as a seven-trading-day period that spans the last 5 trading days of the year and the first two of the New Year. If the Santa Claus Rally does not happen stock markets are usually negative, flat or suffered a bear market.
The other reason the Santa Claus Rally is so important is that it helps drive up beaten down bargain stocks.
Investors tend to get rid of their losers near year-end for tax purposes, often hammering these stocks down to bargain levels. And this year is a pretty good example. Over the years the NYSE stocks selling at their lows on December 15 will usually outperform the market by February 15 of the following year.
If it does not transpire it is not a great sign for 2016. Stay tuned!

Saturday, December 05, 2015

This weeks wild stock market swings:

The U.S. stock market gained 2.05% on Friday, the biggest one-day gain for the S&P 500 index since early September.  Of course, this comes after the same index was down 1.1% (Wednesday) and 1.4% (Thursday).

What’s going on?

Of course, no person alive knows exactly what drives the psychology of millions of investors, despite the confident analyses you read in the papers and see on cable financial news channels.   Yes, on Wednesday and Thursday, some investors may have been disappointed that the European Central Bank provided only the stimulus to the European economies that it had promised—when everybody seemed to be expecting more.  Analysts said that the rally on Friday was due to the encouraging jobs report issued by the Labor Department, which told us that 211,000 net jobs had been created in November, rather than the 200,000 that had been forecast. 

But does any of this make sense?  Stimulating the European economy means more potential buyers for American goods and potentially more euros to buy them with.  Shouldn’t that cause American stocks to be MORE valuable than they were before?  The jobs data, meanwhile, means there will be more competition for workers, which often leads to higher wages and correspondingly diminished corporate profits.  Above and beyond that, the reassuring employment picture means that the Federal Reserve Board is now nearly certain to allow short-term interest rates to rise on December 16.  Shouldn’t that cause stocks to be less valuable?

The truth is that none of these events causes stocks to change their real intrinsic value in the least, and you should be skeptical every time you hear journalists draw links between headlines and stock movements.  The magnitude of the shifts should be a clue; how can a company—let alone a basket of 500 companies—be worth 2% more one day than it was yesterday?  Did they all win the lottery?  Did they all get caught making significant accounting errors that understated their earnings?  How much more likely is it that investors have to make guesses—sometimes wild ones—as to the value of companies, getting it more or less right over time, but constantly over- and under-shooting in their daily guesses?  If you follow this line of reasoning, it is helpful to note that the value of U.S. stocks, despite all this back and forth action, was essentially unmoved for the week, and pretty much unmoved for the year.

The markets may go back down on Monday, or they might soar.  This year may or may not end with a net gain.  None of that matters to your portfolio, which is slowly increasing in value to the extent that the companies you own are building value in ways that have nothing to do with the headlines.  If the world comes to an end, that will have an impact on the markets that we can measure with some precision.  Short of that, short-term market movements, and particularly the explanations that writers and pundits attach to them, are entertainment—and not especially entertaining at that.

Our recommendation?  Go watch a movie instead.

Friday, December 04, 2015

Mark Zuckerberg Fool or Genius?

You may have read that Facebook founder, chairman and CEO Mark Zuckerberg has announced plans to gift substantially all of his Facebook stock to a philanthropic entity called the Chan Zuckerberg Initiative, named after himself and his wife Priscilla Chan.  The gift would be worth $45 billion, instantly becoming one of the largest philanthropic pools in the world.

The donation is remarkably tax-efficient.  By making the gift in shares rather than cash, Mr. Zuckerberg will get a charitable contribution deduction on Schedule A of his 1040 form, with the deduction based on the fair market value of the shares.  At the same time, he will completely avoid having to pay capital gains taxes on the appreciation of those shares.  The LLC can then sell the Facebook stock or hold it and dole it out to charitable organizations and pay no tax regardless of how big the gain.  Basically it means that one of the world’s great fortunes will never be taxed, while Mr. Zuckerberg will be able to shelter billions of dollars worth of other income from federal taxation.

Thursday, November 19, 2015

The Paris Attacks

Most of us watched news coverage of the multiple terrorist acts against the city of Paris, France, with a mixture of horror and dread.  The horror was our usual response to terrorism, the feeling that arises when we ask ourselves: how can people think this way?  And when we realize that, somehow, there ARE people who think that way, which is so far from our own reality that the realization triggers deep emotions somewhere far on the opposite end of the spectrum from inspirational. 

The dread, of course, comes from the realization that these attacks could have, and might still, happen here—that is, wherever we happen to be sitting, whatever concert venue or restaurant we might be planning to visit.
Hard on these emotions comes outrage, and that helps illustrate something that is seldom realized about terrorism.  In a recently published book entitled The Better Angels of Our Nature, author Steven Pinker points out that terrorism is far from a new phenomenon.  After the Roman conquest, resistance fighters in Judea—who called themselves zealots—would stab unguarded Roman officials whenever the opportunity arose.  In the 11th century, Shia muslims launched furtive assassinations on officials who practiced a different version of their belief system.  For 200 years, a cult in India strangled tens of thousands of people traveling through their country.  The assassination of President William McKinley was executed by a particularly ugly breed of of terrorist known at the time as anarchists.  Most of us remember days when London and Belfast were routinely rocked by Irish Republican Army terror strikes, and in the U.S., the Weather Underground of the 1960s had a terrible habit of setting off explosives in public places. 

The book lists many other instances of terrorist organizations, but all of them prove a point: eventually, each of these groups will go too far, provoke the consciousness of the general public in the wrong way, and turn sympathy to their cause into outrage.  Pinker cites statistics that show that virtually zero terrorist organizations ever accomplish their aims, and they tend to die out after their most visible credibility-destroying “success.”  One has only to think of the fate of Al Qaeda after 9/11 as an example of a terrorist organization whose relevance declined to near zero in the messy aftermath.

No doubt, the ISIS leaders who planned the attacks on Paris believed that this bloodletting would cause all Western nations to recoil in fear, and back off of their military efforts to contain the new caliphate to placate the caliphate so it wouldn’t strike again.  You and I know that this is pure nonsense.  The inevitable outcome will be a new resolve, a hardening, a coming-together of the Western nations in a display of solidarity with France.  Countries that were inclined not to get involved in the Middle Eastern messiness are now motivated to sign on for an international military campaign that will contain and perhaps completely destroy ISIS.  Leaders who feared that their citizens would revolt at the thought of military intervention can now count on the support of their outraged voters.  The next year or two will almost certainly reveal the ISIS attacks on Paris to have been a fatal mistake for those who dream of an Islamic, Sharia-governed caliphate in Syria and Iraq.

Today, you will see the world’s investment markets open lower, and probably close lower, as the horror of the events in Paris are translated into uncertainty about the world we live in—and, therefore, the safety of our assets, reflected in our stocks.  The markets always respond reflexively and negatively to threats to our safety.

But as the year proceeds through its last few weeks, the smart money always tells us that these downturns are temporary.  Fears that global enterprises are somehow worth less because blood was spilled overseas will prove to be overblown.  More importantly, after the events in Paris, the object of our horror and fear—the terrorist organization known as ISIS—is about to confront an opponent more powerful than its leaders have the ability to imagine: the resolve of the Western nations.  At the same time, it will have to endure the disgust and repudiation of moderate members of the muslim faith, in the Middle East and elsewhere.

The world changed over the weekend, but not in a way that affects the value of your investments.  The change will be felt most powerfully in the failed dreams of a caliphate whose leaders have made a grave and awful miscalculation, who are destined to pay dearly for their malicious stupidity.