Tuesday, January 31, 2017

Hedge Against Inflation? Does That Mean Anything?

People like to toss around the phrase "hedge against inflation" without knowing what it means or if indeed, it means anything.

People love to say things that sound really smart.  We all do it.   When I was a drone working in a factory, the other drones would blather on about "cash-flow" and "write-off" as if somehow these terms applied to someone punching a clock.  They don't.   To a consumer, cash-flow is just spending money and not an economic term.   Write-offs are not some way to make money - although most of the people in the factory seemed to think so. "Well, they'll just write that off and make money on their taxes!" they would say, not understanding that you cannot deduct your way to wealth.

A lot of these phrases or mantras are used by sales people to dazzle customers into doing things against their own best interests.  "Lease this new car!" they crow, "and improve your cash-flow!" - as if somehow spending money equated to increased wealth.

If that didn't work, they would toss in "opportunity cost" arguments, saying that the money "saved" by leasing (and no money is saved, let's be clear about that - more money is spent) could be "invested" by the consumer - as if Joe Consumer leasing a new Oldsmobile is going to put all his big bucks into high-falutin' investments, because he is a "player".

Joe Consumer is going out and buying more beer and a jet ski.  He isn't "investing" - so the argument is just silly.   If you are comparing investment to investment, then opportunity costs arguments make sense.  Comparing spending to investment is apples and oranges.   You come out ahead spending less not spending more.   Joe Consumer is better off keeping his existing car or looking for a nice used car, if his present ride is worn-out.

Another phrase folks like to talk about is "hedge against inflation" which is one of those phrases which makes no sense when you think about it.   I used to hear this phrase and nod, not bothering to ask what it meant, as after all, if I asked, I would appear to be a dummy, and back then, I cared what even strangers thought about me

But I've learned over time that if you don't understand something, often it isn't you are stupid, but that someone is trying to pull the wool over your eyes, using mantras and phrases you don't understand and then implying you are an idiot if you don't "get it."   It is an effective marketing tool, too, as you can turn utter bullshit into gold, just by intimidating people who point out the flaws in your thinking.

If you attend a time-share seminar and start asking pointed questions, they will talk down to you and mock you in front of the other suckers as an example of someone who doesn't get it and is stupid.  During the coffee break, they will usher you out quietly and tell the other suckers that you were too dumb to appreciate what a bargain buying a perpetual financial obligation is.  And the same is true for cults of all sorts as well.

But getting back to our topic, what does "hedge against inflation" really mean?   Whatever you want it to mean, or more precisely, whatever it is you are selling to the sucker standing in front of you.   Want to sell a house?  A car?  Gold?  Bitcoin?  Hedge Fund?  Stocks? Treasury Bonds?   No matter what you are selling, you can call it a "hedge against inflation" and no one can call you out on that, as the phrase is meaningless.

Generally, people try to sell perception-based investments as inflation hedges.  Things like investment real estate (commercial, for example) or gold or even oil or natural gas.   The problem with all of these commodities is that they can vary drastically in price over time.  The end up being less a hedge than just a shitty investment.

During the real estate bust of 1989, commercial real estate got hammered due to overbuilding in many markets.  Like giant dominoes, office buildings in the DC market went bust and tipped over onto the next building, as I explained before.  It turned out not to be a "hedge against inflation" but instead a series of shitty investments - where supply exceeded demand.  People lost their shirts.

Speaking of supply and demand, we've seen firsthand how the supply of oil and natural gas has increased dramatically in the USA thanks to fracking.  The price of natural gas is at an all-time low and many coal plants have converted to gas and show no signs of converting back, ever, even if Trump wants to tout "clean coal".  I bought an investment in natural gas leases, and it went bust when the price of gas went through the floor.  So much for a hedge.

Gold we need not address again.  Yes, it can go up.  Yes, it can go down.  The supply is not finite.  But as I noted in my previous posting, if you look at the price of gold over time, it doesn't even keep up with inflation.

The deal is, if you look at prices of anything during an inflationary period, they tend to go up.  Prices of goods go up, so people demand more wages.  Interest rates rise, so corporations have to pay higher dividends to attract investors.  Even during the hyper-inflationary period of the early 1980's, companies continued to make profits and paid dividends and share prices went up.   If you bought Exxon stock in 1979 for $1.50 a share, it would be worth about $85 today.  Compare that to "inflation hedges" such as gold, which when from $250 an ounce to $1200 today.  Which was a better hedge against inflation?  The one that went up over 50 times in value, or the one that went up five times in value?  Which paid dividends like clockwork for 40 years?

So what does "hedge against inflation" mean?   ABSOLUTELY FUCKING NOTHING.  And let me be clear about that.  It is just a phrase bandied about by people trying to sell you things who have no real argument to make, but hope you will be bamboozled by the phrase and feel too stupid to ask what it means or how it works.

Inflation today is at all-time lows, which means the phrase is doubly idiotic.   Why bother to "hedge" against something that largely doesn't exist today?   Back in the days of 10% inflation, such as 1980, yes, people bought gold as a "hedge".  If they sold out in 1981 they did well.  If they missed the peak and waited until 1982, well, they would have done better with money stuffed under a mattress.

Leave the mantras to the gurus - and let them drink their own Kool-Aid!

Start Points and End Points

Any investment can be made out to be a good deal, if you carefully select the start points and end points of your graph.

I have received a number of messages from people who have some gold in their portfolio, arguing it is a good way to hedge against inflation (I am not sure what that phrase means or how it works, but it sounds like a good mantra) or to diversify their portfolio.   With regard to the latter, I guess that is a valid argument, if you have maybe 10% invested in inanimate objects.  Myself, I am investing heavily in zinc, as it makes about as much sense.

I am not "against" gold or other metals or commodities, I just fail to see the difference between them.  Gold is not special anymore than aluminum is, and aluminum is a good example of the perils of investing in metals. 

As you know from school - or should know - aluminum was once one of the rarest metals on Earth.  The tip of the Washington Monument is made of 100 ounces of aluminum - then the largest single piece in the world  Before it was installed it was displayed at Tiffany's in New York, so that people could ooh and aah over this very rare piece of metal!   Napoleon dined with aluminum flatware, while his generals made do with lesser metals, like gold, silver, and platinum.   Aluminum was once a very rare and expensive metal!

Think about that the next time you toss an aluminum can in the trash.  If you could travel back in time with a six-pack of beer, you'd be the richest man in town, provided the beer was in cans and not bottles.

All that changed suddenly when cheaper ways were found to extract aluminum from the ore bauxite, which is as common as dirt - literally.   And we see the same thing with other minerals as well.   I was told when I was at GMI that by the year 2000 the world's supply of oil would be exhausted.   Yet new reserves are still being found, and the price of oil has dropped to new low levels never dreamed of back in 1979.   By the way, 1979 was about the time gold last peaked, and then crashed hard and stayed crashed for fifteen years.   Gold can be a gamble.

And yes, part of the problem is goldbuggery.   People hype the price of gold saying weird things like it has an "inherent value" or idiots in the media interview someone whose "logical" argument for gold is that is valuable because it is:
Jim Grant, a "respected Wall Street Publisher" (interesting credential) noted that  the argument for gold begins with its role as the original money.  From NPR:
"People recognize it as such. You don't need a Ph.D. in economics to have it explained to you. Gold is sort of the Muhammad Ali of monetary substances; the world over, you look at it, you know what it is," Grant says. 
Pegging the dollar to gold would limit inflation, he says, and force greater fiscal constraints on governments because they couldn't simply print money to pay their debts or bail out bankers. 
And, he says, it would bring the kind of stability to the monetary system that it had a hundred years ago.
Read that last sentence again, and when after you fall out of your chair from laughing, you may understand why Ron Paul followers are total losers.
And like clockwork, people bought gold and bid up the price to $1800 an ounce.  Now it is down to $1200, which was entirely predictable if you went through this before in life, as I have.  Now some folks are saying, "Well, wait for it, it will go back up!" and it will, over time, like anything else.  But it could be a long wait, as folks who bought at $500 an ounce in 1980 found out.

The problem is, other investments have done better over time than gold.  But it all depends on what time frame you use to compare investments.  If you look at the time frame from 2009 to today, the stock market trounces gold.   If you look at time frames from 2011 to today, stocks went way up, while gold lost 1/3 of its value.   It all depends on your start points and end points.

When someone uses very short time periods to sell an investment, perhaps you should be careful before investing.   Moreover, a chart of a stock price or gold prices really isn't very useful information, and it is one way I got burned when I started investing.   I would look at these charts and try to divine what is going on with the stock price, rather than looking at the company financials and try to figure out what is going on with the company.  Guess which is a better way to invest?

Trends in charts are just that, trends.  And trends can suddenly reverse.  If a stock or commodity price is going up, up, up, guess which direction it is most likely to go next?  Yup, down.   That's why I sold out of the Real Estate market when I did - I saw a correction was coming.  But my decision was based more on the underlying business model - when a house costs more to own than to rent, why bother owning it?   And eventually, people figured this out and stopped buying and the rest is history - which will repeat itself in short order.

The same is true of stocks.  The robust market today makes me happy that I am doing well - but nervous that it could reverse very suddenly.  Something stupid like a tariff war could cause this - although I think the GOP in the Senate and House would not vote for this - let's hope anyway.   So far, most of the dividend-paying stocks and conservative mutual funds I am in are doing well, as the underlying fundamentals of the companies are sound - they still make products, people buy them, and they make a profit.   Of course, that can all change in a hurry, as we well know today.

With gold, you can look at historical trends and see that people have been burned before - as we shall see below.  But looking at the chart, you cannot tell the future price of gold.   However, by reading about the gold industry, and how it is expanding rapidly to keep up with demand, you might start to realize that supply is not finite.  And when the cost of extraction is about $500 an ounce, you might wonder why it is selling for twice that.   But that is real analysis, not just looking at Disco Stu's record sales chart and projecting upward. 

But getting back to start and end points, people like to tout Bitcoin as an "investment" when again, it is little more than a way to launder drug money.  If I decided to leave Trump's America and move to Panama or something, I might use Bitcoin to move my money overseas and avoid a lot of hassle with banks, which get antsy when you try to transfer money overseas.   But as a place to "invest"?   Invest in what?   The perception of others?

Bitcoin buggers like to tout the price of Bitcoin as "evidence" that it is such a great investment.  But frankly, I think these are people who want to hype the price of Bitcoin because they are invested in it, so they set up trollbots to go on Reddit and hype the snot out of it.  But like gold, it has no intrinsic value - well Gold has some value for electronics and jewelry.  Bitcoin is just an idea - as all money is.

By carefully choosing your start and endpoints, you can make any "investment" look swell, to the plebes.  For example, look how great Bitcoin is doing today:

 Wow!  It's really gone up!  Click to enlarge.

Of course, I am being deceitful here, as the chart is for one day only and the y-axis starts at 920 and is in $10 increments.  If we look at a larger picture, you see this "rapid rise" is really background noise, and not an indicator of anything.   If we expand the chart to 2016, we get a better idea of what is going on with the price, but not a complete idea:

 Still a good long-term investment, right?  Click to enlarge.

And this is the sort of chart people selling Bitcoin, gold, or stocks would like to use to sell you on the idea that it is a good investment.   But again, we are using a selected time-base of one year, and the y-axis doesn't start at zero, but 400, with increments of 200.
If you expand the x-axis to all-time and the y-axis to start at zero, well, it doesn't look so great:

 Um, this looks like a volatile currency to me.  Click to enlarge.

As you can see, Bitcoin is anything but the stable "haven" the bit-buggers claim it is.  In fact, if you bought at the peak in 2014, you lost your shirt in 2015, and today you are just making your money back.   That is not a stable currency by any means, compared to the pound, the euro, the dollar, or whatever.   Maybe compared to the Venezualan bolĂ­var or Russian ruble, but that's about it.  This chart is the chart the Bit-buggers would rather you didn't see or think about.

And 2014 wasn't that long ago, folks.   Although as I have noted before, the economic memory of people in the USA seems to be about 18 months tops.  By 2011, most people had forgotten about the crash of 2009, or in their minds dismissed it as an anomaly caused by Barack Obama or Bill Clinton.  They didn't want to think it had anything to do with their own poor financial decisions, such as overpaying for houses, re-financing homes, or trying to live beyond their means.

The point is not that gold is a shitty investment or that the Bitcoin is an unstable currency - yes, they both are.  The point is, you can make a lot of investments look great by picking start and end points that are convenient to your narrative.   Charts don't tell you where prices are going, but they can be instructive in seeing where they've been.   And when you see that something has tanked in the past, that is a pretty good indication it may tank in the future.

Motley Fool, during their heyday of the 1990's, would go on television in their Jester hats and say that stocks were the best investment ever, and would use a stock chart that started in 1929 - an interesting start point if there ever was one.   If they started in 1928, however, their chart might not look as good.  During the go-go 1990's buying any stock was a "good investment" as everything went up, up, up, until it didn't.  Then it turned out that some stocks were better than others.  The dot-coms with their foolish notions went bankrupt.  The companies with sound financial footing survived.

Bear in mind that really long time periods can be just as confusing or deceitful.  If you look at a chart of the price of gold over longer periods of time, it appears to be a swell investment, largely going up:

You have to look at this chart carefully to understand why gold is not a good idea.

Now, a gold-bugger might look at this and say, "See, gold is going up, up, up!" but what they are missing is that scaling effects mask the real tragedy of 1980.   As you can see, gold shot up in the late 1970's when Jimmy Carter was President, there were hostages in Iran, and a gas crises meant that gas was available only on alternate days (no, I am not making that up!).   Gold went from $50 an ounce to over $600 an ounce in a very short period of time.  Gold is a fear metal.  Bear in mind that $600 an ounce is about $1800 in today's dollars and now you see why I say I saw this before in my lifetime.

Now look at the chart from 1982 to 2005 - well over a decade - and you can see that gold is flat.   Bear in mind that due to inflation, flat means "losing money" not "parking it" - and yes, the stock and bond markets did well over that time period.   Someone who "parked" their money in treasuries did better than a gold bug.   The guy who bought at the peak in about 1981 or so had to wait nearly 15 years just to make his non-inflation-adjusted dollars back.   And if we adjust for inflation, if he was smart enough to sell at the recent $1800 peak he just about broke even.  The guy with treasury bills came out way ahead over the same time period.

People don't see the gold bubble of 1981 as being significant, as in a chart from 1975 to today, it looks pretty small.   But again, this is just a scaling effect.  That "small" bubble was huge back then, when the dollar was worth more.   In fact, if you scaled the two bubbles - 1981 and today - to adjust for inflation, you would get the same exact shape.

Yes, if you choose your start and end points, you could have doubled your money in gold.  And as soon as I get those time machine parts from Amazon, I can go back in time and do that.  We'll also buy those winning lottery tickets, too.  And I'll buy more than $750 worth of AVIS stock for 74 cents a share.  Sadly, time-machines don't exist.

Could gold go back up?  Sure, maybe.  Over time, it will trend up, but timing it is tricky.  If Trump keeps screwing up, people will get nervous, as they already are, and gold is a fear metal.  But when gold goes up, it never goes up like other investments.  It never pays a dividend.   And when it goes down, boy-howdy does it go down and stay down.

You might as well buy zinc.

Monday, January 30, 2017

What Makes a Car Collectable?

What makes some cars collectible and others just piles of junk?

I mentioned before that collector cars are really just perception-based investments - just stuff you buy hoping someone else will pay more for it down the road.   What makes a car worth money stems from a variety of factors.  But even a car that has all these factors going for it might not be a swell investment, as its value is based entirely on perception.

As I noted before, I recall reading in a Fiat forum an actual formula someone came up with that added up these factors to come up with a collectability score.  The Fiat Spider did OK in categories like fun to drive (convertible) and age, but did poorly in rarity (a lot were made) and desirability (it had a poor reputation).

Here is a list of factors I have come up with to determine the collectability of a vintage car.   Not any one of them is determinative, but if you add them all up, well, you get an idea of what you are looking at.

1.  Number Made:  The coolest sports car or muscle car is never likely to be collectible if a ton of them were made.  Cars that were made in the millions don't tend to become rare collector's items.   A late 1970's Camaro, for example, is not very collectible (despite what some websites say) simply because they made millions of them.  Most production cars will never become rare collectibles, for the simple reason that they made thousands and thousands of them, and many of them survived.  This is not to say they won't appreciate in value, only that they will never be worth much.

Now, some "rare" production cars have indeed crossed the auction block for millions.   Usually these are one of a dozen cars made with a particular option combination - a Hemi Cuda convertible for example.   And some of the reasoning behind the pricing is just plain hype.   Act shocked.

2.  Number Left:  It helps, of course, if only a few of the car in question remain.  Every year, car accidents, garage fires, theft, and just plain wearing out (junking) take away more and more examples of the vehicle in question.

The problem is, you can make almost any part of a car.  Ford sells entire '65 Mustang bodies, and engines are not hard to find.  If you have the title and data plate (and there are places that make that, too) you can build a whole car.  And once auction prices climb, people find it profitable to create original "numbers matching" cars from scratch, including original window stickers and build sheets (yes, there are places that make those, as well!).

3.  Age:  Older is better.  Few, if any people are going to collect a car under 20 years old, and really it isn't until 30, 40, or even 50 years that a car starts to acquire that funky patina that makes it desirable for collectors.

I mentioned before a neighbor bought an "anniversary" Mustang in the 1980s and parked it in his garage for a decade.   He hauled it out 10 years later and offered it for sale - less than 100 miles on the odometer and "the top has never been down!".   I had to explain to him that at this point it was just a low mileage used car and that it would not be even worth what he paid for it for more than 20 years or so.   He was not pleased.

One reason newer cars don't appreciate is often they are still making them, or the manufacturer is making newer versions that are better.   In the 1970's, the quality and horsepower of cars went downhill, which lead to the rise of the legend of '60's muscle cars, which appeared better by comparison.  The reality is, of course, the cars from the 1960's were crap, just not as crappy as 1970's cars.  By the 1980's, quality and horsepower started to increase, and today, we make far better cars than back then.

Today, car makers are offering better and better cars, with better comfort, handling, safety features, and horsepower.   My 1999 M Roadster is not a "collectible" just yet only because you can buy a 2017 M Roadster with more power and a retractable hard top.  So it is very rare that a newer car increases in value.  If it does, you should be skeptical.

4.  Funk Factor:  Funky cars are always more desirable, whether it is because of the esoteric styling, or some other unique factor of the vehicle.   Old station wagons were hardly collectible, at least for a while, until people started to appreciate their funkiness.   Since they are often rarer than even convertibles, their value has shot up.   Funky adds value, but sometimes not a lot.   A BMW Isetta, for example, is funky, but still not many people really want one to drive around.

5.  Fun Factor:  Cars that are fast and handle well are more fun to drive than, say, a Yugo.  So they will always be worth more.  Coupes and Convertibles will trump four-door sedans, and usually station wagons, in the early years - although those have come up in value due to rarity (most were junked) and the Funk factor above.

The fun factor thing is a huge consideration.   It is so huge that many restorers are taking older Mustang hard tops and sawing the tops off to make them into collectible ragtops.  Correctly done, few could tell the difference.   The same is true for four-door cars - some people "convert" them into coupes with major body work, as a coupe is worth some coin, but a sedan languishes at auction.

6.  Driveability:  Closely related is the ability to actually drive the car.  This may sound silly, but older cars, particularly from the brass-lamp era, are often difficult to drive on modern roads.  Even getting proper fuel for such old cars is tough.

A neighbor on the next island has a model-T Ford for sale.  Not a convertible, sadly, but a windowed doctor's coupe.   The problem is, it only goes about 45 miles an hour with the pedal to the metal, and of course has no air conditioning.  It is a car you can look at, but driving it is somewhat awkward, uncomfortable, and just not fun.

7. Status:   Cheap cars are rarely collectible.   No one will ever covet an old Chevette or Chevy Geo.   Taking aside that millions were made, very few exist today and thus are arguably "rare".  But rarity and collectability do not always go hand in hand.  People would rather collect a loaded Chevy Impala than a stripped Biscayne.  So the further up the food chain you go, generally the more collectible a car is.

8.  Star Power:  A car that has a song named after it will be more collectible.  The Beach Boys saved many a 409 from the wrecker and Ronnie & The Daytonas created the whole Pontiac GTO mystique.   Cars that star in movies, such as Steve McQueen's Bullit Mustang can end up as priceless artifacts - but also provide a halo effect for that make and model.   Celebrity provenance in terms of ownership or better yet, racing history, is also always a selling point.

9.  Popularity:  Oddly enough, the more rare a car is, sometimes the less it is collectible.   For years, people salivated after "muscle cars" from the 1960's, provided they were from Ford, GM, or Chrysler.   AMC's venture into this market (e.g., the Marlin or "Rebel Machine") were roundly ignored by collectors, and often AMCs would languish at auctions.   Only today are values starting to rise, as people realize the rarity of these cars.  But most collectors would rather have a vintage Mustang convertible rather than a vintage AMC Rambler American Convertible.

10.  Nostalgia:  Many people - particularly men of a certain age - pine for the cars of their youth.   A friend of mine has two 1955 Imperials (not "Chrysler" Imperials) in his garage, one in mint original condition.  As a youth, he lusted after this car, and now he has one.   To me, it is a neat car, but I would go for the later, more outlandish '57-'60 models, as they have more funk factor.   The car does not resonate for me as nostalgic.   On the other hand, I had a set of 60's Chevies ('66, '67, '68 - all rust-buckets) and a '65 Mustang in High School.   Those cars have more nostalgia value for me than 50's models.

On the other hand, some cars are just hated.   No one will feel nostalgic about most late '70's cars because they were pieces of crap.   Few will restore a 1992 Corolla, even if it was their first car in High School.   This gets back to the fun and funk factors, which are inter-related with nostalgia.

11.  Hysteria: Often, some models of cars are subject to bubbles.  We saw this in the 1990's with the dot-com boom.   Silicon Valley millionaires went out and bought vintage Ferraris to show off their wealth.  Pretty soon, the price of Ferraris shot through the roof.   People started paying ridiculous prices for old 308 models and even Testarossas, which were made in large quantities and hardly rare or old enough to be coveted.

When the dot-com boom collapsed, the value of these cars - particularly the later model cars - plummeted.   These were like the Condos of collectible cars - shooting up in value more rapidly than houses, and then plummeting just as fast.

The current fascination with 1960's muscle cars is about the same.   People with money to spend are bidding these up in price.   But as Jay Leno has noted, a simple economy car today can out-accelerate and out-corner many of the "muscle" cars of the 1960's and early 1970's.   The fascination with those cars could wear off very quickly.  If you want a fast car, the dealers all have 600+ HP cars on the showroom floors today - nearly double the horsepower of the "muscle" cars of that bygone era.

12.  Condition:   This is a tricky one, as it can mean several things.  Lately, the market has started to appreciate "original condition" cars more - ones that are in good shape, have original paint and chrome, and maybe even interiors, but maybe a few repairs to keep them running.   A little patina isn't deemed to take away from cars like this.

Meticulously restored cars, often called "over-restored" are still valued, but they don't have that patina and funk of an original car.  For historic cars (e.g., Steven McQueen racing provenance) restoration may actually decrease the value of the car.   Collectors want a car with his sweat stains on it.

But a car with mechanical or rust problems isn't "patina'ed" but just ratted out.  And rust is the worst of all - very hard and expensive to fix.   And if you see a little, chances are, there is a lot.  A clapped-out old car is just a clapped-out old car, unless it has provenance or is really, really rare.   But even then, it needs restoration whose cost often exceeds the market value of the car.

You spend $100,000 restoring an old car, generally it is worth $50,000 - the "half what you have in it" rule.  Few people make money restoring cars, other than the companies that have people pay them to do this.

13.  Modifications: That rare collectible muscle car might be ruined if some teenager decided to saw a hole in the hood and put a huge fiberglass hood scoop on it.   Generally mods don't hurt too much if they are reversible with a wrench and you kept the old parts.   Mods that improve drive-ability and utility (better brakes, air conditioning) might have neutral or a slightly positive value.

Sadly, most modifications are irreversible and often destroy the value of a car.  I saw online a fellow with a pre-war Packard coupe that was painted two-tone pink and purple, with a 350 Chevy swap and an automatic transmission.  It had a Mustang interior and a Vega steering column.  No doubt more driveable than the stock vehicle, but no longer a collectible car.   Putting it back to original condition - with so many parts missing, including the interior - would be cost-prohibitive.

Most mods like this are made when the car is in that languishing period where it is not quite yet collectible and just another used car.   It is one reason why "original" cars are harder and harder to find.

* * *

You add these all up, and you can see that some add, and some subtract, depending on the type of car you have.  Some cars can be rare, but not very collectible.  An old post-war Panhard, for example, is pretty rare today, as most were rightfully junked.  It is a funky car, but not that interesting to look at or drive, except maybe for someone who grew up with one.

A '57 Chevy is old, but they made an awful lot of them.  In fact, there used to be an urban legend about this - that people were secretly making '57 Chevies after they went out of productionWhat else could explain why there are so many of them?

My neighbor has one - a four-door post sedan in green over green.   It is a nice car, but he rarely drives it.  It is a collectible?  Well, if it was a two-door two-tone, it might be more collectible. If a convertible, even more so.

Collectors are looking more for originality today, so if you yank the old "blue flame" six out of you Chevy and drop in a 383 crate motor, it isn't helping matters any.  If you could find a ragtop with the factory fuel injection (which most people removed, as it was so troublesome) you might be on to something.

As an "investment" though, an old car is not a very good deal.   You might have fun with it, and it might be a nice hobby to have, but you likely won't make money at it.  Most hobbies are this way.

If you look on Autotrader, you see nice '57 Chevies for sale for $30,000 to $89,000, which again are asking prices not sales prices.  According to Hagerty, which has to insure these things, the average value is about $34,000.   That seems like a lot of money, but bear in mind that is less than what you would pay to have one restored.   Even if you restored one yourself, you would likely spend more.

It is hard to tell what such a car cost new, as sites vary and it would depend on models and options, but most sites seem to suggest around $2000 for a new car back thenThat would be worth about $17,000 today, which makes these cars sound like a real bargain!  But that fails to account for the amount of money needed to restore such a car or maintain it over the years, or to pay for storage fees.   And of course, along the way, most of these depreciated down to nothing by the mid-1960's, which is when they were junked.

Collector cars are a great hobby, yes.   But don't kid yourself they are an investment strategy.

And this goes quadruple for the guy with the yard full of moldering rusted out cars.

Media Rankings

What makes something a "top story" and what makes it go to the back page?  The political views of the editor is what.

I have (had) three news apps on my phone, New York Times, NPR, and the BBC.  Of the three, the BBC is the most interesting, as it has more "world news" and the news of the US is from a slightly different and refreshing perspective.

This morning, the world is reeling from another terrorist attack, this time in Quebec. It seems like an unlikely place for a terror attack, and not much is known about it so far.  There are conflicting reports whether the attackers were anti-Muslim or Muslim terrorists themselves (there is more Muslim-on-Muslim violence in this world than Muslim-on-anyone else).

UPDATE:  The young man who committed the crime claimed he was not Islamophobic or a terrorist, but his friends claim he was a big fan of far-right politician and xenophobe, Marie Le Pen.  You can connect the dots - a young man with mental health issues, set off like a windup soldier.  There are so many of these shootings it is hard to keep track of them, and frankly, I had forgotten about this one.  Sad, ain't it?

Regardless of the causes, it is a front-page story.   Or is it?   The BBC certainly thought it was.

The New York Times and NPR, to their shame, thought it was far less important, and decided to run with more rants about Trump - about news that was already days old.

Why was this?

Well, the attacks in Quebec don't fit a liberal narrative, no matter what the eventual cause is determined to be.

Canadians, we are told by NPR all the time, are better people than us.  They don't have guns.  They don't have violence.   As Meryl Streep said, they are the nicest people in the world.

Well, actually, they can be real jerks just like Americans.   But since there are fewer of them, we tend to notice them less.  And since the French/English divide doesn't make much news across the border, we don't realize there is a simmering and festering hatred among many Canadians for their own fellow citizens.  But for the most part, they are decent folks - like most Americans are, if you strip away the stereotypes.

And while bringing guns into Canada is a pain-in-the-ass, it is possible to do, as least with regard to hunting weapons.  And Canadians do own guns.  I have friends who have brought long weapons into Canada, and provided you fill out the paperwork and procedures, it isn't hard to do.   One friend was turned away, though, when he was asked what he wanted his shotgun for.
"Protection!" he said (he does watch Fox News too much).

"Protection from what, eh?" the border guard said (I added the "eh?" for effect).

"Criminals!" he said.
Wrong answer.  The correct answer was "Bears" and that gets you in.   Remember that the next time you cross the border.

Of course, fully automatic AR-15's are less common in Canada than in the USA - although they are pretty rare here as well.  Semi-auto?  You can buy that at Wal-Mart in the US.  Full Auto?  You need a permit and need to know someone to own one here.

But this story doesn't fit a liberal narrative about Canada on a number of levels.

First, it doesn't fit the narrative about gun control.  Yes, gun control in Canada works - in preventing law abiding citizens from shooting their family members in a fit of rage (the cause of most gun crime in America).  No, it doesn't keep a terrorist from bringing guns in, particularly given the long border between Canada and the US - a border that is largely un-patrolled and about half water.

Second, it doesn't fit the narrative of Canadians being better than us.  If this was a hate-crime carried out by some Quebecois, it shatters the image of Canadians as tolerant people who are free of the base hatred that infects so many Americans.   But reports are emerging that regardless of who carried out this crime, that anti-Muslim feelings are high in Quebec - and other parts of Canada - and that "hate crimes" in the form of arson and leaving pig heads on the doorsteps of mosques - have occurred.

Again, this doesn't fit the narrative.

Third, if it turns out to be Muslim-on-Muslim terrorism (e.g., Sunni v. Shia or whatever) this also doesn't fit the narrative of Islam being a "religion of peace" anymore than the narrative of Christianity being a religion of love (read your history about Catholics v. Protestants).  The narrative the liberal media wants to push is that terrorism among Muslim countries isn't based on religion, but geo-political forces.  This narrative conveniently forgets that Muslims are more than willing to kill each other over perceived differences in religious opinion than others.  A Muslim who doesn't believe as they do is an apostate, and that's worse than being Christian.  Christians are just ignorant of Islam, they are not guilty of believing in the wrong version of it.

So you see, this thing doesn't fit the New York Times masthead three ways from Sunday. It is an awkward incident that brings up a lot of dirty laundry about Canadians, Muslims, and gun control, and of course it happened in another country.  So the outrage about Trump goes to the top of the news pile - an outrage already tempered by the fact that Trump is backing down on his "Muslim Ban" by letting in green-card holders, and after a Judge issued a stay allowing people already in the country with visas to stay.  The Muslim-ban has already backfired on Trump, and really isn't much of a story - compared to what is happening in Quebec.

It is interesting, to say the least, how different news organizations prioritize the news.   Frankly, I am disappointed in both The Times and NPR for putting a days-old story about Trump above a breaking story of people actually being killed, even if it was just across the border.

Of course, the BBC isn't much better, running a piece about transgender people, where one advises a friend how to support her 8-year-old transgender sister.   Eight years old?  Isn't that a little early to be declaring your gender for life?  (I suspect the question was planted by right-wing extremists on purpose).  This sort of stuff is going to backfire....

Using Software Updates to Obsolete Hardware

A software company can "brick" hardware through the use of updates - accidentally or intentionally.

In recent years, we have seen technology plateau for longer periods of time.  In the 1980's, it seemed that every year, your computer was obsolete.   By the 1990's, PC design had largely stabilized, and people were content with what they had.   Companies had to create reasons for people to upgrade.  Windows 95 was one such attempt - that largely failed, as people felt the upgrade - of both hardware and software - was somewhat forced.   Just a few short years after junking their DOS PCs for Windows compatible hardware, they felt put-upon to junk these new machines for a new version of Windows whose advantages were not well explained.

The result was a tech recession, as hardware makers geared up for a major change that didn't occur.  People still upgraded machines - over time, when the old ones wore out.  But the sea change the hardware and software companies envisioned never materialized.

In recent years, it seems they have fixed this problem.   Instead of offering new software (which in turn requires new hardware) they instead decided to use the auto-update feature of most computers and phones to force updates onto machines that would either degrade their performance or turn them into bricks.

Windows 10 was famous for this.  Unless you intentionally disabled updates or manually went into your updates and erased the Windows 10 "auto-upgrade" nagware, your Windows 7 or 8 machine would automatically download and install Windows 10 on your Windows 7 machine, which up until then was working perfectly fine.

The result was mixed.  While a few people reported Windows 10 worked fine on their older machines, a lot more reported problems with drivers, slower performance and software conflicts.  Many folks got frustrated that their older machines that were running Windows 7 flawlessly (and mine is nearly a decade old) were now clunky and hard to use.  They gave up and went out and bought a new computer.

Now whether this was unintentional or deliberate collusion with the hardware makers is for you to decide.  The net result is the same - you have a product that is working fine for you one day, and barely runs the next.  And unless you are adept at using computers, uninstalling Windows 10 and re-installing Windows 7 would be very tricky or costly, particularly if you had to pay someone to do it.

Apple got into the game with its famous update to iOS 9 and iOS 10 - both "bricking" older phones, or phones with unofficial software on them, or phones that had been unlocked.   People downloaded the new iOS or had it set to auto-update and found that their phone was no longer a phone, but a paperweight.   Supposedly, Apple has now "fixed" these problems, but in the interim, people had no phone to use.   So they had no choice but to go out and buy a new one.   And I suspect Apple only "fixed" the problem when they realized that people were not running out to buy new Apple phones, after being treated so shoddily.  Nevertheless, I am sure it sold more than a few new iPhones, particularly for people with Cadillac plans that gave them "free upgrades" to new phones every few years.

Accidental or intentional?  Or merely a happy accident that no one felt compelled to fix?   You do run into this with older software that is no longer supported.   If you want to run obsolete versions of software, you do so at your own risk, and if there is a conflict with some new piece of software, well, too bad for you.

Google Android is in the game now.  As of January of this year, a new "update" to Google Search causes the error message "com.android.systemui has stopped" whenever you try to close an app on the phone.  This is a common error message when something has gone wrong on an Android phone - the smart phone equivalent of a blue screen in Windows.  The phone reboots and you have to log in again, and all your apps are dumped.

In the past, this occurred due to various reasons.  Usually clearing the cache - a tricky procedure that if done wrong, could erase your phone - solved the problem.  But the problem today (January 2017) is a little different.
Today, it is only older phones being affected by a new update to the Google Search app, which is part of Android.  The only way to fix it, that I know of, is to go to the play store, uninstall the "updates" to the Google app (by hitting "uninstall), and then hit the menu button and disable automatic updates for the Google app.

This fixes the problem, but then reverts the phone to the original version of Google Search, which doesn't work as well as the updated version.   In particular, the voice recognition feature seems degraded.

But of course, to the folks at Google, they are less concerned with people using older phones (Like my old Galaxy S4) and the easiest way to "fix" this problem is to go out and buy a brand-spanking-new phone.

Now again, the question:  Is this intentional or accidental?   I am inclined to say the latter, only because I understand a little how technology works.  When these updates and upgrades are tested, testers use the latest equipment in an environment with high-speed internet connections.  As a result, software that works in the lab often doesn't work in the field, where connection speeds are slower, equipment is older, and not everyone has upgraded memory or storage.

But the net effect is the same - it reminds the user, painfully, that their equipment is old and needs to be upgraded.   If you are clever and handy and know something about technology (or can Google the problem, ironically) you can do a work-around to the problem.

And who knows?  Maybe the next update to the Google Search app will patch this issue.   But I am not holding my breath.

What scares me about this sort of thing that is it only a matter of time - if it has not occurred already - that the powers-that-be decide that intentionally bricking phones and computers is a neat way of forcing expensive hardware upgrades onto people.   This is a particularly attractive strategy when technology reaches a plateau, and the new features of newer models are not compelling enough to get people to switch.   Forcing them to switch becomes an attractive option.

And who knows how long it is before they decide to brick other things - your car, your refrigerator, your HVAC system, whatever.   Because anything with a processor in it could be bricked in this manner.

Software updates are a fascinating way of literally programming planned obsolescence into a device!

UPDATE 2020:  The problem only got worse with time, as more and more apps would not function with the Galaxy 4.  Even if I disabled upgrades and updates, the app maker would tell me the app was "no longer supported" and when it is your banking app, well, you have to do something.

So, the outdated Galaxy 4 goes in the trash after years of loyal service, and two new (used) Galaxy 7's are found on eBay for $149 apiece.  The only downside is the batteries are not removable in these new phones, but so far (two years now) the batteries seem robust and likely to outlast the phones, which, like the S4's before them, will go into the trash, working perfectly fine, but outdated.

Such is the nature of electronic technology.   At least I am only paying $149 a pop to upgrade, versus $1000+ for a new iPhone or Galaxy.   Like buying an expensive car, all you are doing is buying more depreciation!

Unlike cars, though, which depreciate 50% every five years, smart phones depreciate about 95% in five years - perhaps more.   You can't give away a Galaxy S4 anymore!  And I am sure the S7 can now be had for well under a hundred bucks.

I suspect in two or three years, I will be looking at two-models-ago Galaxies to buy.   Maybe just one, this time, though.   Like cars, one way to cut costs in half, is to share.

Sunday, January 29, 2017

Create Your Own Mutual Fund?

A mutual fund is just a collection of stocks, bonds, and other investments, which you pay someone else to manage.   It is possible to create your own mutual fund?  Yes, but I would not put all my money into it - it is run by an idiot!

Buying individual stocks, for the small investor, is a problem.  To begin with, most trading houses want at least $7.99 per trade.  So if you only have $100 to invest, you lose 8% when you buy and another 8% when you sell.   And this is a big improvement over the bad old days, when a simple trade could cost you $35 in fees, or more.

But there are two things that make individual stock-trading possible.  First, if you buy and hold solid stocks in non-trendy things, the trading costs can be minimized.   People who constantly "trade" stocks thinking that the buying and selling is how you make money, usually end up broke, anyway.

Second, many firms, such as Merrill Edge, offer free trades, if you invest a certain sum with their firm, such as $100,000 or so.   This means you can buy small amounts of stock - often just hundreds of dollars worth - without paying any sort of penalty for being a small investor.

The question is, should you do this?   And the answer is hard to provide.

When I first started buying and selling stocks, I did very poorly.  One reason was I was buying and selling stocks instead of buying shares in solid, dividend-paying companies, holding them over time, cashing those dividend checks, and watching the stock price go up.

When I started out, I did dumb things like buying Martha Stewart stock, because back then I watched television and some idiot on TeeVee said it was "going places" - not realizing that "in the toilet" was a place.   I bought a lot of stuff based on recommendations I read in the paper or on television.  Most of it tanked.

I started researching and learning more and figuring out what things like "P/E ratio" and "dividend rate" meant.   I started reading more about what the company did or made.   And the more I learned, the less I understood.   Why would someone buy stock in a company that doesn't make profits? I wondered.  Why would someone buy stock in a company that pays no dividends?  Why would someone buy stock in a company with a P/E ratio of over 200?

At first, I thought I was an idiot for not understanding these things, much as I thought when I worked at the odious law firm that did IPO's.  I thought it made no sense they offered the stock for $25 a share and watched investors buy it at the IPO price and sell it the same day for double the money.   It took  me a long time to figure out that IPOs were basically fraud on an enormous scale - designed to allow insiders to "cash out" not to "raise capital" for the company.   A lot of people today still don't get this.  And the media hypes guess what?  IPO's - that's right!

In fact, I didn't get it at the time.  Surely they couldn't just do outright fraud like this and no one would notice?  Worse yet, it seemed the media celebrated this fraud as if it were a bargain.  It was about that time the scales fell from my eyes and I realized so much of what is hyped in life is a shitty deal aimed at us and sold as smart one.  Frequent flyer miles, leasing cars, that sort of shit.  IPOs were just doing it on a massive scale with people's life savings.

But not everything is a con-job.   The problem is, it is hard to distinguish real bargains from the fake ones.

I stared looking around and found that there are a lot of companies you never hear of, or if you do, you don't give them a second thought.   Companies that actually make things day in and day out and make profits and crank out dividend checks without too much fuss.   They don't make headlines unless they go broke.   So the people on TeeVee never mention them on their "financial" programs.  Only companies whose prices shoot up in value or plummet make it to the "news".

So I changed my strategy.  I cashed in a small IRA and decided to try my hand at direct investing, first with e*trade and Ameritrade, and then rolling it over to Merrill as it was free.   The results have been positive, for the most part, but there were a few clunkers.

Not all have done well.   Some went bust, like GM stock, which in retrospect was a gambling buy, not a smart buy.  I bought it because it was trading cheap and I felt it would survive without going bankrupt.   That didn't work out.  I bought shares in a natural gas trust that is now worth about $2.50 from a $1500 investment.  That didn't work out, either.  But in both cases, I didn't bet the bank.  I can afford to lose a grand here and there, if I make more than that elsewhere.

Thus, on the whole, the stuff I bought has done well - many of these stocks going up over 100% in value in less than a decade (which they should do, if money doubles every seven years).   But not only that, most of them cranked out regular dividends that, each quarter, generated thousands in cash in my trading account.

At first, I reinvested dividends - buying more shares of the same stocks.   But I changed that and let the dividends accumulate in my trading account so I could buy more stocks and further diversify my portfolio.   That's how I ended up with a "basket" of about 50 stocks over a decade.

Does this represent the majority of my investments?  Hell, no.  Most is still in mutual funds.   Some mutual funds have done better than my self-traded account, some worse.

To the people on the financial channels, it is a laughably boring portfolio of stocks.  No Facebook, No Twitter, No Apple, no IPOs, no dot-coms.   About as radical and tech-y as I get is HP and Intel, and even those, I am not so sure about.

A few are still "losing" money, such as my buy of GE stock.  It does pay a nice dividend, though, and if I sold it today I would end up buying.... GE stock.   So just because you pay too much for a stock doesn't mean you should dump it, if the stock is a good buy today, and pays a dividend.  Others, like a tanker stock I bought... tanked.  But it was not a huge investment again, so I consider it a cheap lesson.
In a trading account, you can also buy mutual funds, government bonds, corporate bonds, and even foreign stocks.  In fact, you can invest in just about anything.  In addition to the stocks below, I also have a high-yield corporate bond fund, an index fund, and some corporate bonds.  The mutual funds seem to have done OK, although I think I am beating them with the stocks (averaging 75% gain to 51% - and the stocks were held over a shorter period of time!).

Here are some stocks I have bought over the years.  As you can see, it is a pretty conservative list, mostly old companies that have steady businesses and pay regular dividends.  I also have some bonds, in Dell (doing great) and Yum! Brands (not doing great - you stoners need to hit the drive-through at Taco Bell more often!).

The list is widely diversified, and thus if any one sector goes down, it shouldn't take out the entire portfolio.   If the entire market collapses, as it did in February 2009, the best thing you can do is just hang on, which I did, and earned back all my losses within a year or so - while still cashing those dividend checks!

Speaking of which, I have some money sitting idle in this account, so I need to find a new stock, or bond, or mutual fund, to add to the list.

I am not endorsing these stocks or recommending them or hyping them.  They could turn out to be horrible investments, or great ones.  As you can see, though, since I have held most of them for a long time, they have mostly gone up in value.  Like I said, my self-directed mutual fund is being run by an idiot.  

Underperform (B-3-7)
Underperform (A-3-7)
Buy (C-1-7)
Buy (B-1-7)
Buy (B-1-9)
Buy (C-1-7)
Buy (B-1-7)
Buy (B-1-7)

Buy (B-1-7)
Buy (B-1-7)
Buy (B-1-7)
Underperform (B-3-7)
Neutral (A-2-7)
Neutral (C-2-7)
Buy (B-1-7)
Buy (A-1-7)
Buy (B-1-7)
Neutral (B-2-7)
Neutral (A-2-7)
Buy (B-1-7)
Buy (A-1-7)
Buy (C-1-7)
Neutral (C-2-7)
Buy (A-1-7)
Underperform (B-3-7)
Underperform (B-3-7)
Neutral (B-2-7)
Neutral (B-2-7)
Underperform (C-3-8)
Underperform (C-3-7)
Buy (B-1-7)
Underperform (C-3-7)
Buy (B-1-7)
Buy (B-1-7)
Buy (B-1-7)
Buy (B-1-7)
Buy (B-1-7)
Buy (B-1-7)
Buy (A-1-7)
Buy (B-1-7)
Buy (B-1-7)