Thursday, July 15, 2021

A Tale Of Two Investment Strategies

In the wake of the financial crisis of 2008-09, I accepted Stanford’s Faculty Retirement Incentive Program.  I officially retired on March 15, 2010.  My retirement account is 95% in an S&P index fund.  After taking 11 Minimum Distribution Requirement payments, the balance in my account still increased 240%, or 3.4 times.

In comparison, Stanford’s endowment, after accounting for its slightly 1% higher payouts, increased only 80%. This overstates Stanford’s return because annual gifts contributed additional amounts to the endowment over the past decade. Adjusting for those gifts puts the gain around 65-70%.  So, I’ve done 4 times better than Stanford.

In 2010, Stanford compared its performance against the S&P, which Stanford outperformed.  in 2020, Stanford compared its performance against other universities.

Was I smarter or just lucky?  First, I believe in the American economy. Second, things change.  Stanford’s asset allocation model puts 6% in domestic equities.  Stanford missed the boom in FAANG and similar tech stocks.  Why?  There were no new multibillionaire start up hot shots among the Stanford Management Company’s selection of investment partners or on the supervisory Stanford Trustees Finance Committee.

As if that weren’t bad enough, Stanford advises its retirees to increasingly shift from equities to fixed income bonds as they age. Those who did lost millions.

Will Stanford change its investment strategy in this decade?  Who can tell?  Old people do not have new ideas.  New ideas require new people.

Tuesday, June 15, 2021

The Coming California Dust Bowl

The whole state of California is in drought with predictions of megadrought on the horizon.  Just how bad the situation is can be seen in a display comparing the current level of water storage in the main reservoirs with historical averages.  

Type into your browser  Click on, in succession, Current Conditions in the toolbar, then Reservoir Conditions, and finally, Daily Reservoir Storage Summary, and then gasp at what you see.

The last major dam, the New Melones Dam, was completed in 1979, although it had been authorized by Congress in 1944.  In 2014 voters approved a $7.1 billion water bond issue, but none of the funds could be used for new dam construction.  Six consecutive governors have done nothing to increase water storage

Between 1980 and 2020, the population increased 66.3%, from 23.67 million to 39.37% million.

Conserving water makes sense, but only if there is water to conserve. The environmental lobby has been successful at blocking new dams. But even the most rabid environmentalists will find life difficult when the Central Valley has turned into a vast dustbowl and the cities and towns are strictly rationed. Wells will dry up and new wells will be banned to prevent further decline in the underground water level.

Lots of measures can be taken to better allocate existing water supplies.  It makes no sense to use so much of the state’s water to grow rice and alfalfa.  But historical water rights stand in the way of sensible solutions.

The Oklahoma Dust Bowl of the 1930s, 90 years later, will occur in California.  How ironic that the  great grandchildren of the Oklahoma migrants will be returning to Oklahoma to escape the California Dust Bowl.

Monday, April 5, 2021

Will Biden’s Plan To Increase The Corporate Tax Rate From 21% To 28% Improve Tax Fairness?

In 1985, the Wall Street Journal asked me to interview a panel of tax experts to determine who really pays corporate taxes.  Is it investors in lower returns? Is it workers in lower wages and fewer jobs?  Is it consumers in higher prices?

I published the results of my survey in the Wall Street Journal issue of April 15, 1985.  You can read it on my website at

Click on Articles and Essays on the toolbar.  It is the third article under the subhead Wall Street Journal.

What’s new in the past 36 years?  Not much. The answers are the same, depending on who you ask.  What’s different is that economists today use more complex mathematics and statistics to make their answer.  Left-leaning economists try to show that an increase in corporate taxes will fall on owners of capital, thereby making the tax system fairer. Right-leaning do the same for labor, thereby worsening fairness. Others aren’t sure, especially in the current climate of massive monetary expansion.

Economists who say they know are putting politics first. It boils down to whose side you’re on.

Do read my 1985 article, please.