Monday, May 16, 2005

Help Us, Please....

Could people possibly be any more confused about "good" investment strategies?

Here is an idiotic story in the LA Times "proving" that the government needs to manage peoples' investments.

An excerpt:

Douglass C. North, an economist at Washington University in St. Louis, won the Nobel Prize in 1993 for work on the importance of institutions in fostering growth. However, in deciding how to invest his prize money, he trusted his gut rather than institutions. He concluded that the stock market had peaked, and poured the money into low-interest municipal bonds. When stocks confounded his predictions by doubling in value, he said, "my wife spent years berating me."

Still, he hung onto the bonds, and stock prices eventually reversed course. Chief among the rewards he said he collected: "My wife quit berating me."

That's a fib. I know Elizabeth Case pretty well, and she just quit berating Doug North about that one subject. All the other subjects he deserves to be berated about...she is still after him on those.

Seriously, North didn't throw the money away, he chose a low risk, high after-tax yield investment instrument. Suppose that North had invested the entire amount on the winning number of the New Jersey Lottery, a dollar at a time, every day since 1993. He would have earned trillions of dollars. Now, North is a fine man, but he is as greedy as the rest of us. If he had known the winning lottery number, he would have invested in it.

Just like if he had known that stocks would rise so dramatically, he would have invested in it.

Comparing a solid investment strategy to the one high-risk strategy that happened to maximize returns, ex post, and then saying the sensible strategy is wrong....well, it shows that you don't understand anything about markets, and the efficient capitalization of information. Criticizing someone for not buying the winning lottery ticket....doesn't make sense. And one certainly can't conclude that lotteries are good investments from the fact that ONE person won big.

So, my proposal is this: the government should take over the investments, and all other aspects of the lives, of those who know least about markets: the reporters, editors, and staff of the LA Times. Leave the rest of us alone.

I am confident that North's investments, and those of the other Nobelists, outperformed the anemic return on Social Security, even with their inherently conservative investment strategies.

(Nod to Craig N, who also has a most excellent rant on this subject. Craig includes reporters for the Boston Globe among those who are too stupid to live on their own. I would restrict this service to actual bipeds. But to each his own.)