Posts tagged ‘yachts’

Where are the Economists’ Yachts?

Yachts istock II

“Where Are the Customers’ Yachts?” was a book first published about 75 years ago in 1940 by Fred Schwed, Jr. Before he became an author, Schwed was a professional trader who eventually left Wall Street after losing a significant amount of money during the 1929 stock market crash. The title of Schwed’s book refers to a story about a visitor to New York who admired the yachts of the bankers and brokers. Naively, the visitor asked where all the customers’ yachts were? Of course, none of the customers could afford yachts, even though they obediently followed the advice of their bankers and brokers.

The same principle applies to economists. The broad investing public, including many professionals, blindly hang on to every economist’s word. And why not? Often these renowned economists are quite articulate – they use big words, crafty jargon, and wear fancy clothes. Unfortunately in many (most) cases the predictions are way off base. What’s more, if these economists/strategists/analysts/etc. were so clairvoyant, then how come we do not find any of them on the Forbes 400 list or see them captaining massive yachts?

Recently, the Washington Post highlighted the spotty forecasting track record of the Federal Reserve, as it related to past projections of economic growth. As you can see from the chart below, the Board of Governors were consistently too optimistic about future economic growth prospects.

Source: Washington Post

Source: Washington Post

The Federal Reserve has repeatedly proved it is no slouch when it comes to poor forecasting. The example I often point to is the infamous 1996 “irrational exuberance” speech (see also NASDAQ 5,000 Déjà Vu?) given by then Federal Reserve Chairman Alan Greenspan. In the talk, Greenspan warned of escalated asset values and cautioned about a potential decade-long malaise similar to the one experienced by Japan. At the time, the NASDAQ index stood at 1,300, but despite Greenspan screaming about an overvalued market, three years later, the tech-laden index almost quadrupled in value to 5,132.

There are plenty more errant economist forecasts to reference, but despite the economists’ poor batting averages, there is virtually no accountability of the pathetic predictions by the media outlets. Month after month, and year after year, I see the same buffoons on cable TV making the same faulty predictions with zero culpability.

While I have attempted to keep some of the economists/strategists honest (see The Fed Ate My Homework), credit must be given where credit is due. Barry Ritholtz, the lead Editor of The Big Picture, last year wrote a smart piece on the accountability (or lack therof) in the prediction industry.

In the article Ritholtz described some of the shenanigans going on in the loosely regulated prediction industry. Here’s part of what he had to say:

Pundits are highly incentivized to adhere to the following playbook:

  1. make a brash prediction
  2. if wrong, don’t worry…. no one will remember
  3. if right, selectively tout for self-promotion
  4. repeat cycle

Ritholtz also describes another time-tested strategy I love…The 40% Rule:

“The 40% rule is the perfect way to make a splashy headline and cover your butt at the same time. Forecast that there’s a 40% chance that the Dow Jones Industrial Average clears 12,000 by year end: If it does, you’ll look like a sage, and if it doesn’t, well, you didn’t say it’s the most likely outcome.”

 

Whatever your views are of predictions made by high profile economists and pundits, the media archives are littered with faulty forecasts. It is difficult to dispute that the projection game is a very tough business, and if you don’t share the same opinion, please explain to me…where are the all the economists’ yachts?

Click Here for Other Bad Predictions

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Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own a range of positions in certain exchange traded fund positions, but at the time of publishing SCM had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.

December 6, 2014 at 11:21 am 3 comments

The Porsche-Yacht Indicator

Tiger Woods is not the only person who has realized yacht purchases do not guarantee happiness. In previous articles (Back to Future article #1, article #2, article #3), I showed how magazine covers could be used for identifying tops and bottoms in the market. Now I’m researching yacht and Porsche purchases as a complementary indicators for future performance deterioration with the thanks of Slate.com and Bloomberg.

1)      Bill Miller: After an incredible 15 consecutive years winning streak against the S&P 500 index, Bill Miller (Fund manager of the Legg Mason Value Trust) thought it was a bright idea to add a yacht to his portfolio in 2006. Needless to say, from that point on, his five-star Morningstar rated fund went on a horrific losing streak, landing him in the bottom decile of peers and forced him to relinquish four of his fund rating stars (See Bill Miller Revenge of the Dunce) .

2)      Paul Allen: The jinxing of yacht buying is not limited to fund managers. Paul Allen was the Co-Founder of Microsoft (MSFT) with Bill Gates, Chairman of cable company Charter Communications (CHTRQ), and owner of the Seattle Seahawks football team, and the Portland Trailblazers basketball team.  Ever since buying his 300-foot Tatoosh yacht in 2000 and his 400-foot+ Octopus yacht in 2003, Allen’s cable company, Charter Communications, deteriorated and his company went bankrupt before recently reemerging from Chapter 11.

3)      Dennis Kozlowski: Corruption didn’t slow down Dennis Kozlowski, CEO of Tyco International (TYC), from buying his 130 foot sailing yacht Endeavor. From around the time he purchased the yacht until he resigned based on the charges, Tyco stock collapsed approximately -70%.

4)      Robert Rodriguez: The $1.1 billion FPA Capital Fund has been captained by Bob Rodriguez since 1984 and his 15% average annual return qualifies him as the best manager among diversified U.S. equity funds, according to Morningstar Inc. As a value-based investor his wealthy indulgences are concentrated on driving Porsches. So comfortable is Rodriguez about the performance of the fund, he has decided to take 2010 off traveling. Perhaps he can be my first experimental subject in the testing of my “sabbatical indicator?”

5)      Tiger Woods: With the endless media coverage, Tiger’s 155-foot yacht Privacy unfortunately has not secured him any. The $20 million purchase was made in 2004, but with six wins in golf “Majors” over the last five years, the yacht indicator is less conclusive. In the field of faithfulness, there is a higher correlation.

Obviously, there are many instances in which performance has improved over time, even after luxury asset purchase like yachts. I haven’t placed the order for my 400-foot yacht just quite yet, but I have made notes to myself to avoid bankruptcy, jail, car crashes and one-star performances if I decide to go through with the purchase. I’ll keep you posted on my order…

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper. 

DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients own certain exchange traded funds, but at time of publishing had no direct positions in MSFT, LM, CHTRQ, NKE. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC “Contact” page.

Read Full Yacht Article on Slate.com

Read Full Rodriguez Article on Bloomberg

December 17, 2009 at 2:00 am 2 comments


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