Mailvox: you talking to me?

DP doesn’t sweat the details:

For someone who loves to periodically crow about how brilliant he is, and who usually demonstrates the truth of that, today’s column on measuring the stock market based on indices was amazingly naive and stupid. Anyone who would invest in the group of stocks making up the Dow in 1965 and never make any trades, which is what your analysis assumes, would have to be dumber than your column. The same is true for anyone who would invest in the mix of stocks making up the pre-2000 NASDAQ and never make changes. No one ever does that. The way most people invest is through mutual funds. The most common way of tracking performance of any fund is by comparing it to the index which most closely mirrors the fund’s investment objective, and that comparison includes the changes in the appropriate index. Many funds perform better than their comparable index, even with its changes in composition (the composition of the fund is also constantly changing–that’s why there is a fund manager), and when the fund’s performance is significantly less than the index, it experiences a mass exodus of assets.

DP somehow manages to completely miss the point while inserting his foot in his mouth, which is that historical analysis by index is misleading because investors BUY INDIVIDUAL STOCKS, not because they occupy themselves constructing their own little index-matching funds. Furthermore, around 88 percent of mutual funds underperform their index of comparison, and while 12 percent may be “many” it is certainly not “most”.

Theory is a fine place to begin, but one has to learn to abandon it in the face of actual evidence.

Two thumbs up

PS sees a little Fonz action going on:

I think you may have ‘jumped the shark.’ I read everything and agree with the vast majority of what you write, but subverting the private ownership of retirement accounts (something you would be presumably be in favor of ideologically) on the basis of your dislike for its proponent (and his overall political philosophy) does not seem to me to have been done out of a desire on your part to function as a paragon of enlightenment and virtue.

Your argument was set up very nicely rhetorically, but your desire to see such an initiative fail seems a bit petty to me: “But this does not mean that the Bush administration’s plan to allow a modicum of private investment in the stock market is necessarily a winner or even an expansion of individual freedom in America.” How about substantiating this assertion instead of proceeding to do something analogous to a Democratic ‘scare the old people’ scam?

This made me think of a story from an Ann Coulter column a number of years ago . . . with you cast in the role of the Russian, I’m sorry to say: “There’s a joke about a Frenchman, an Englishman and a Russian who are told they have only one day until the end of the world. The Frenchman says he will spend his last day with a bottle of Bordeaux and a beautiful woman. The Englishman says he will take his favorite sheepdog for a walk across the moors. The Russian says he will burn down his neighbor’s house. I’m with the Russian.”

I’ve enjoyed your columns for a long time . . . but think this one appears to me to be going down a new and different road.

Yes, and many people thought NAFTA was actually about free trade too. Not so many believe that now. I have no objection whatsoever to people controlling their financial assets or making money in the market, but the Bush plan is MANIFESTLY not about returning freedom, (not to mention money), to America’s workers, but is intended instead to shore up a failing government program. You’ll notice that the emphasis is on fixing and funding Social Security, not eliminating it so that people can keep their 15 percent and do whatever they want to do with it.

I don’t hope the Bush plan will fail if enacted. I don’t have to. I know it will. My opposition to the plan is not based on it being proposed by Bush – I predicted that Social Security money would be moved into the markets back in 1998 – but because it is a overt measure to use government force to inject more money into the stock markets.

My position is the same as it was when I was on the board of a company being acquired by a public company. The CEO, who was staying on with the new owners and was acting as their sock puppet, argued vociferously for accepting a stock deal, because “the investors want to be invested in industry X”. I won the rest of the board over by pointing out the obvious – that in accepting a cash deal, every single investor who wanted to be invested in industry X could do so by using their cash to buy the publicly traded stock of the new owners.

None of this is to say that the Bush plan is worse than the existing Ponzi scheme. It isn’t. But don’t pretend that it is a massive blow for freedom and the individual investor either. It’s not intended to be.

The dogs of the Dow and NDX

It’s interesting to see how the removal of a company from an index is, counterintuitively, perhaps one of the better ways to anticipate future performance – unless it goes bankrupt, of course. For example, Sears was removed from the Dow in favor of Microsoft in 1999, but whereas one would have lost 39 percent over the last five years by investing in Microsoft, Sears stock is up 81 percent.

I haven’t completed my analyses of dropped vs added stocks yet, but it appears that stocks almost always experience their best run prior to being invited to join an index, which would appear to indicate that either the market makers are investing ahead of time and then cashing in by distributing shares to an unsuspecting public once the stock hits the index, or they’re making the same mistake that most people make in assuming that past performance is an indicator of future performance.

Since the stocks are already tradeable and the whole point of the exercise is to make the index look prettier – in other words, go up – I’m assuming the latter.

Interestingly enough, the eight stocks dropped from the NDX on December 10, 2004, have significantly outperformed the new additions. The former are up 15 percent on average, the latter are down 3 percent.

It’s too soon to tell and too close to call with the newcomers to the lower-beta Dow Jones industrial average, as the three new additions are up 3 percent in the first three months, while the three dropped are down one percent. But the results of the 1999 “rebalancing” are clearly in favor of those dropped: Sears, Goodyear and Chevron are up 44 percent since being dropped from the Dow 30, (Union Carbide was acquired by Dow in 2001), while 1999 inductees Microsoft, Intel, SBC Communications and Home Depot are down 36 percent since joining the index.

The Law of Unintended Consequences triumphs yet again….

An XP request

For reasons that I will not go into, I am forced to boot into XP on a daily basis. I’m not happy about it, but I have no choice. Unfortunately, I made the mistake of allowing TPAM to use my laptop one day, and he has the execrable habit of copying things to the Desktop.

Hence, I am left with a ghost icon called “fax..” on my desktop. When I try to delete it, I get a “Cannot delete file. Cannot read from the source file or disk.” Going to the DOS shell and running a directory doesn’t even show any file called “fax..” and yes, it has two periods.

Does anyone know how to get rid of this icon? Intelligent suggestions will be appreciated; I already run Fedora Core 2 most of the time and would not even be booting into XP if I had any alternative. Thanks….

‘Ware the newcomers

Paul Hiltemann had already noticed a darkening mood in the Netherlands. He runs an agency for people wanting to emigrate and his client list had surged. But he was still taken aback in November when a Dutch filmmaker was shot and his throat was slit, execution style, on an Amsterdam street. In the weeks that followed, Mr. Hiltemann was inundated by e-mail messages and telephone calls. “There was a big panic,” he said, “a flood of people saying they wanted to leave the country.”

Leave this stable and prosperous corner of Europe? Leave this land with its generous social benefits and ample salaries, a place of fine schools, museums, sports grounds and bicycle paths, all set in a lively democracy?

The answer, increasingly, is yes. This small nation is a magnet for immigrants, but statistics suggest there is a quickening flight of the white middle class. Dutch people pulling up roots said they felt a general pessimism about their small and crowded country and about the social tensions that had grown along with the waves of newcomers, most of them Muslims.

It’s no surprise why emigration from Holland has increased 33 percent in the last five years. Of course, those Dutch folks will probably all move to New Zealand and vote for precisely the same idiotic policies that made them want to leave Holland in the first place. Of all the immigration destinations in the world, only Switzerland seems to grasp this danger. You can move there, you can work there, you can pay taxes there… but you can’t vote.

It’s too bad the Southrons didn’t figure this out before Naples became the Midwest South and Miami became South Manhattan.

I always appreciate a good rant

Skip Bayless whales on Oscar-nominated “Million Dollar Baby”:

I’m probably wrong, but I’ve never heard of a trainer or cut man saving a fight by snapping a fighter’s broken nose back in place so the bleeding would stop.

And I have never, ever heard of a fighter getting sucker punched as he (or she) walks back to her corner after a round, then falling against the stool the trainer has just placed back in the ring and breaking his (or her) neck. That’s what happens to Maggie during her big title fight. I’m not making this up.

Yet in the hospital, Frankie reminds her that, well, she lost. So does her heartless trailer-trash mother. Preposterous. Her opponent would have have been disqualified.

Needless to say, I haven’t seen the movie. Nor did the merest possibility of the thought ever contemplate beginning to cross my mind. But in combination with movies such as “Bull Durham”, another movie I refuse to see, it’s clear that “Million Dollar Baby” confirms a distinct movie genre: the sports-related chick flick.

Heil Sanger!

The HIV infection rate has doubled among blacks in the United States over a decade while holding steady among whites – stark evidence of a widening racial gap in the epidemic, government scientists said Friday…..

Researchers at the Centers for Disease Control and Prevention compared 1988-1994 data with figures from 1999-2002. The surveys look only at young and middle-aged adults who live in households, excluding such groups as soldiers, prisoners and homeless. Thus, health officials believe the numbers probably underestimate true HIV rates in this country.

Still, they show a striking rise in the prevalence of the AIDS virus from 1 percent to 2 percent of blacks. White rates held steady at 0.2 percent. Largely because of the increase among blacks, the overall U.S. rate rose slightly from 0.3 percent to 0.4 percent.

Such progress in only thirty-two years! Between legal, government-funded abortion and the successful derailing of traditional public health measures, we should be able to realize the great Margaret Sanger’s dream of eliminating those filthy, semi-evolved Negroes from sweet white America in time for the start of the 22nd century.

Now, what to do about those Mexicans….