Cut The Crap

I am fed up with financial planners and investment touts and CNBC talking heads and newsletters and advisors.  One comes on and says the world is ending, the next says that we are on the verge of a resurgence.  It is all chock full of preconceptions, assumptions, indoctrination, and plain nonsense.  I have instead been taking a 30+year real-world look at how investing works for an average person just like you and me. 

Traditionally, investments are broadly divided into several asset classes: securities (stocks and bonds), hard assets (gold, art, cards), and income producing assets (rental real estate).  These classes are a bit of a Venn diagram: some hard assets can produce income, as would be the case if you owned a copyright on a song and licensed it to a movie production, but for my pedagogic purposes the simpler division works as a frame. 

Here’s the dirty little secret that none of the professionals ever admit: all investments are great and all suck giant donkey balls at various times and even at the same time.  It is all about timing.  Not skill, timing, and I can prove it. 

Let’s start with the asset class with the most bullshit associated with it: securities.  I love to listen to people defend stocks.  “Oh, you have an ownership claim on the business, and if it does well so do you.”  It’s just such bullshit.  A stock purchase is a commitment to a belief system, nothing more.  Think about it: when you buy a stock in a company you are buying…what, exactly?  Control over the assets of the company?  Nope.  A seat on the board that controls the company?  Only if you are spending millions or billions to gain an appreciable percentage of the entire float.  The right to vote on corporate board members?  Who gives a shit about that: you are asked to elect some nominees you don’t know and did not select.  Dividends?  If the company issues them AND if it decides to keep paying them: don’t forget that the board can suspend dividends at will. 

So, what are stocks, really?  A bet that depends on timing, not skill.  Every decade or so, equities crap the money bed.  Just in my Gen X adulthood, we had the dot-com bubble of 2000, the Great Recession of 2007-2008, and whatever this malaise is right now that has tanked the markets since January.  I’m not even counting the COVID pandemic crash since that was truly a black swan event.  Think about this: from 1970-1979, the inflation adjusted return on the S & P 500 was -2.2%. From 2000 to 2009 it was -24.29%!  That’s two full decades where stock investors ate shit.  Yet for other ten-year periods the market was up 5%-10%, and over a lifetime it is net up.  It all depends on timing, specifically your event horizon.  Way different in 2009 at 25 than at 65.    

But surely the many highly paid professional advisors and managers know something?  Yeah, they know how to cash their checks.  A March 2022 study again confirmed what has been proven many times before: less than 25% of actively managed mutual funds beat the S & P 500.  The people who are supposed to know this stuff have been proven again and again to know fuck-all about it.  All the blather over investing on CNBC is a popcorn fart: full of sound and fury but signifying nothing.  It’s fake.  The only people who really ‘know’ what stocks will do are the crooks.  The inside traders like the creeps who pay off mutual fund managers to allow them to place trades after the market closes (Google “Edward Stern Canary Capital” if you want an example).  Retail investors like you and me are the suckers the crooks leave holding the bag.  And don’t get me started on the infected anal fissure that is crypto, though it has been fun watching the arrogant crypto-bros getting gelded this year; the word for the day is “schadenfreude” when it comes to those insufferable dicks.  Suffice it to say that when you have an unregulated market the crooks, cons and swindlers have a field day with the true believers stupid enough to trust them with their money. 

What is wrong with securities sure makes hard assets look good.  Some of my clients who are from ‘the old country’ would never think of buying a stock.  They want something they can touch, like property or gold.  I see their rationale.  You buy an ounce of gold, you hold, you own an ounce of gold.   It’s yours until they pry it from your cold, dead fingers. If the world turns to shit and stocks go to zero, you have that piece of gold.  But if you want to monetize your hard asset at some point, you are 100% absolutely gambling on timing. Southern California real estate has fluctuated over 60% over the last 14 years; if you had to sell in 2009 versus 2021, very different result on the same property.  The inflation-adjusted price of gold was equivalent to over $9,000 an ounce in 1979-1980, at its all-time peak, and several times what it is worth today. My father bought a tube of Krugerrands in the mid-1970s and sold it a few years later for a giant profit. He wasn’t that shrewd.  He had lucky timing.

OK, so not securities and not hard assets.  What about income-producing assets?  Well, that has pleasures and pains all its own.  Income production is really, really dependent on…income production. What the asset is and the degree to which it is subject to outside forces. Take rental real estate. Big asset with literally the longest track record of performance in human history. Perfect until it hits a wall of political resistance, and I’m not talking a “shoot the Czar and his ministers” rebellion.  Just little things, like rent control or eviction controls, or emergency orders like the shelter in place eviction freezes of the COVID pandemic.  Even the non-emergency bankruptcy and eviction laws can be used by a skilled scumbag attorney to keep a deadbeat tenant in place for months rent-free before he can be dug out of the property; I have faced more than a few of those in my career representing landlords. No income for you, Mr. Landlord, and you still pay the carrying costs for the building, still have to maintain it, still pay the taxes, even still have to supply the deadbeat with utilities if they are part of the lease.  If you have a thousand units, you can readily weather a few assholes.  If you have a single building or shopping center, a few nasty deadbeats can wreck your finances.  In the wake of the pandemic, I know of more than one real estate entity facing capital calls due to cash flow issues stemming from losses of tenants and inability to evict deadbeats.  And when the deadbeat finally goes, he usually strips the unit clean of all appliances, fixtures, and anything else that can be taken and sold.  Talk about adding insult to injury.  It is frustrating enough to drive you to drink, or worse.  One slumlord, er, landlord I knew bragged that he had a deal with the local gang set to scare off deadbeat tenants.  He’d send them in to threaten the tenants.  Worked every time, but don’t do that.  If you hire the local gangster to go in and forcibly remove the tenant, odds are you’re gonna spend time in the crossbar hotel with him when he gets caught and flips on you, or you will find yourself on the other end of the stick when he decides to blackmail you for protection.  Another slumlord I knew used to go collect the rent himself.  He was a violent guy with a criminal record.  He went to one of his apartment houses to get paid one month, got into a confrontation with a deadbeat tenant, said a certain magic word to the Black man, and ended up on the receiving end of a housing discrimination lawsuit.  Bet he wished he’d bought some stocks instead. 

I don’t bring this stuff up to scare you off one investment or another, or tout one over the other.  I bring it up to prove that there is no hierarchy of investment merit.  It is all just a way to make some money into more money.  Whether you bet on Enron, Bitcoin, Picasso or 1952 Topps is irrelevant.  They are equivalents, albeit with different infrastructures, regulations, barriers and costs of entry and exit, tax structures and incentives.  All of which we will explore as they pertain to cards.  My struggle, my goal, has been to break down any preconceptions like the one I had 25 years ago about it being better to put away my little IRA contributions instead of buying a nice 1952 Topps Mantle. 

Next time, we talk about one of my favorite subjects: stupid people and the stupid things they do.