Jack Bogle's Stock Allocation Advice

Matt Ridley's Hayek Prize Lecture at the Manhattan Institute

"The crowd-sourced, wikinomic cloud is the new, new thing that all management consultants are now telling their clients to embrace. Yet the cloud is not a new thing at all. It has been the source of human invention all along. Human technological advancement depends not on individual intelligence but on collective idea sharing, and it has done so for tens of thousands of years. Human progress waxes and wanes according to how much people connect and exchange.

When the Mediterranean was socially networked by the trading ships of Phoenicians, Greeks, Arabs or Venetians, culture and prosperity advanced. When the network collapsed because of pirates at the end of the second millennium B.C., or in the Dark Ages, or in the 16th century under the Barbary and Ottoman corsairs, culture and prosperity stagnated. When Ming China, or Shogun Japan, or Nehru’s India, or Albania or North Korea turned inward and cut themselves off from the world, the consequence was relative, even absolute decline.

Knowledge is dispersed and shared. Friedrich Hayek was the first to point out, in his famous 1945 essay “The Use of Knowledge in Society,” that central planning cannot work because it is trying to substitute an individual all-knowing intelligence for a distributed and fragmented system of localized but connected knowledge.

So dispersed is knowledge, that, as Leonard Read famously observed in his 1958 essay “I, Pencil,” nobody on the planet knows how to make a pencil. The knowledge is dispersed among many thousands of graphite miners, lumberjacks, assembly line workers, ferrule designers, salesmen and so on. This is true of everything that I use in my everyday life, from my laptop to my shirt to my city. Nobody knows how to make it or to run it. Only the cloud knows."

~ Matt Ridley

Markets in Everything: Drainage Pipe Hotel Rooms

From Bit Rebels:

The space we occupy in this physical world is getting ever smaller while the space we take up virtually is getting ever larger. It’s quite interesting really how we’re migrating into the virtual world one step at a time. I am guessing in 50 years the world will look a lot different than it looks today. Japan is one of the leaders when it comes to compact living, and pretty much every week they announce some new “pod” for us to live in that has pretty much everything we could ever need. It’s also interesting to notice that the price for real estate, or rather the land that houses or buildings stand on, is getting higher while the real estate in the virtual world is getting cheaper.

Some people in the hotel industry have taken to their imaginations to come up with something to lure new customers and to get noticed in the flood of new buildings, hotels and apartment complexes. It is also something that will give us a new experience. Tubehotel is a company that truly knows how to come up with crazy ideas that just might work. It’s basically about drainage tubes converted into a bunch of hotel rooms in which you can get a whole new traveling experience to add to your collection.

They cost $50 per night, and even though there are rooms to choose from (on the bottom or on the top), they are pretty much the same size all around. It’s a brilliant conversion, and a fast one as well, by the looks of it. All you really need to do is add a few boards in the tube, and you have yourself a bed. There is no putting furniture together or even securing them to the wall. They are just stuck in place wherever you put them. And to top it all off… you will even have WiFi in your tube! It’s perfect for a weekend with your geek girlfriend. Hopefully these tubes were not recycled though… if you know what I mean.

Grouch: I don't think I'll be staying in one of these places on any business trips I take. Maybe as a novelty on a personal trip..... just to say I've done it, and who knows it may turn out to be a pleasant experience.... so where's the shower? Do they have room service?

Robert Shiller: Are Stocks Cheap?

The Law of Diminishing Government Competence

As a government consumes more of a country's GDP and supplements its citizens' personal responsibilities with government programs that government will become increasing less able to meet the demands for those very goods and services it has promised its citizens.

Quote of the Day: Anthony de Jasay, in Praise of Dogs

Did you know that your dog owns your house, or rather some portion of it? If this is not immediately obvious to you, you will find it helpful to consider some aspects of the ethics and economics of redistribution.

Your dog is alert, plucky and a fearsome guardian of your property. For all we know, without his services, you would have been burgled over and over again. Your belongings would be depleted and the utility you derived from your home would be much reduced. The difference between the actual value of your home and its unguarded value is the contribution of your dog, and so is the difference between the respective utilities or satisfactions you derive from it. We do not know the exact figure, but the main thing is that there is one.

~ Anthony de Jasay, from Your Dog Owns Your House

Grouch: We recently had to put our dog to sleep because of her deteriorating health, and miss her dearly. I don't think there is another dog in our future, at least not in the short term, but she was fiercely loyal and without question would have protected us had she believed we were in danger. For her companionship, we were willing to put up with her smell, her drool, her general sloppiness, her fur all over the house. There is no better pet than a dog who loves you back as much as you love them, and more.

How Have the Market Titans Fared This Year?

Anyone thinking about investment geniuses of the past 15, 20 or 25 years would readily offer up the names Bill Gross, Ken "Bigfoot" Heebner, Bruce Berkowitz, and Bill Miller. Each is known for long-term market beating results so we aren't talking about flashes in the pan here. But how have these market titans fared this year compared to the indexes? As of the close of the market yesterday their year to date results lagged the indexes:

Heebner and Berkowitz run very concentrated funds and their performance can often greatly exceed the market when their bets pay off. They and Miller have bet heavily on financials, a bet that might yet pay off but they were obviously early taking their position. In the bond market, Gross decided to bet against US Treasuries even as the Fed was actively trying to drive down show term interest rates to near zero (I can sympathize with his thinking because sooner of later the Treasury bond bubble is going to burst). Even the best and the brightest in the investment world are subject to underperformance for stretches of time-- whether it's due to poor security selections, asset bloat, reversion to the mean, or hubris. Whether these titans performance will return to legendary levels, only time will tell. In the meantime, investors could have beaten their recent performance simply by investing in index funds. Who'd have thunk that?

Quote of the Day: Barack Obama on Billionaires and Janitors

If asking a billionaire to pay the same tax rate as a ... janitor makes me a warrior for the working class, I wear that with a badge of honor. I have no problem with that.

~ Barack Obama

Grouch: Last week we looked at the average tax rates by income levels according to IRS data collected in 2009 (see Omaha Hokum: IRS Data Contradicts Premise for the Buffett Rule). If we assume the average janitor makes $75K (which probably means they work for the Feds, the state or a municipality, but not the private sector), then on average they pay 11.3% of their income in federal taxes. My question on the President's statement above is does he mean that billionaires should have their average tax rate reduced from approximately 26.3% to 11.3%, or does he mean that janitors should have their taxes raised from 11.3% to 26.3%? Everyone knows the government is starved for revenue to keep up with spending, but there is much more revenue to be gotten from one choice than the other.