Category Archives: luck

Money Magic

Casino Illustration

courtesy of tumblr

I enjoy games of chance. I’m particularly fond of casino scenes in movies—tuxedos for men, slinky dresses for women, slow-burning cigarettes, and dry martinis all-around. In real life, casinos are about as alluring as a mud bath. In Europe, for example, you’ll find a casino in every sleepy spa town—massages and “water cures” are meant to give a virtuous sheen to otherwise seedy places. Not a Daniel Craig—or even a  David Niven in sight.

The luck factor is probably one of the reasons I’m interested in stock markets too. There are many other things I’d rather do than actually work for money.  Just pick a winner and off to the races we go! (Of course, it never quite works out that way—darn gravity.)

Sleight-of-hand is not only found in Monte Carlo casinos though. It’s alive and well in many corporations. This past week, quarterly results have started to trickle in. You can get an eyeful of some pretty nifty accounting in their filing reports.

I’ll admit that I’ve tortured myself in many ways: self-doubt, bikini waxes, watching two episodes of Vinyl…but I have yet to savor what is sure to be the retina-frying experience of exhuming a financial statement. When the quarterlies arrive at the door, I immediately deposit them straight into the recycling bin. Warren Buffett may have the patience to pick through financial statements with his mental tweezers; I would rather watch Casino Royale, or paint dry.

Here are a few common sleights-of-hand:

Share buybacks. When corporations buy their own shares it reduces the number of shares outstanding and it makes metrics such as cash-flow-per-share and earnings-per-share look much better than they otherwise would.

Extraordinary items. The “footnotes” section of the annual report is a dumping ground for all kinds of juicy expenses, some of which may be on-going. Items such as restructuring, acquisition, severance, write-downs of impaired assets, and data breaches all have an impact on profitability but are often shooed-away, (“don’t worry your pretty head about these darling”), as non-material.

Lower tax rates. While this is not accounting trickery, per se, by moving a company’s domicile to a low-tax country, such as Ireland, a corporation pays less overall tax. This gives their earnings a rosy hue. But these better looking numbers may have nothing to do with improved earnings through actual growth.

So, how good are today’s corporate earnings for reals?

Some investment brainiacs say that deflation is not out of the question. So, unless you’re James Bond, here’s a hot tip: don’t throw all your chips in.

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Prince

Screen Shot 2016-04-23 at 1.20.24 PMA few months ago, Prince performed for two nights in my home town. It had been decades since I had seen him in concert. My heart did an extra bump. “I should get tickets!”  And then I did nothing about it. “It’s probably already sold out; scalpers tickets would be a fortune; I’ll skip it this time.” He came and went.

Little did I or anyone else know that there would be no more “next times”. Prince had taught me many important lessons. One of them was to “party like it’s 1999”. I had forgotten that one, and many others, as time passed and  I grew more serious.

When his film Purple Rain came out, I went to see it without any big expectations. Two hours later, when I walked out of the theatre, it felt like my DNA had been rearranged. (The other two times this happened was when I first saw Cher on television and when I heard Queen’s album Night at the Opera or Day at the Races, can’t remember which but instantly fell under Freddie Mercury’s spell. That white unitard, c’mon! Yes, I am secretly a gay man.)

Fortunately I look good in purple. Because, after watching Purple Rain and then buying up all Prince’s albums, I wore a lot of it for the next decade. When I wasn’t dancing myself into a sexed-up sweat to his music, I studied his lyrics for wisdom, (“If the de-elevator gets you down, punch a higher floor”). And, yes, I imagined making love to Prince under the barn roof, the horses wondering who we were, thunder drowning out what the lightening sees and feeling like a movie star. (By the way, another one who died too young,  Warren Zevon, did a stellar version of Raspberry Beret.)

Prince came into my life at just the right time. He offered up a heady mix of spirituality and sexuality and a joyful but not too innocent embrace of life. Just what a young, frisky, and a little bit soulful girl wants to hear.

Like any passionate love affair, this one was programmed to burn out. His music still moved me but I no longer sought it out. My purple wardrobe—satin jacket, suede ankle boots, sequin scarf, rabbit hair fedora, and sparkly pantyhose—had long ago been disbursed to vintage shops and charity drives. Whenever I remembered some of my fashion get-ups from that time, I had to shake my head. Did I really walk around all pimped out like that? Prince and I were exactly the same height, (actually I’m half-an-inch taller), but whereas he looked cool with his sleek black pompadour, I probably looked ridiculous with my frizzy red hair and rosacea cheeks.

I’m sorry I didn’t bother to get tickets to see Prince when he was here last. I thought I had all the time in the world. Tomorrow there’s a screening of Purple Rain at my neighborhood rep theatre. More than three decades have passed since I saw it. I’m not that girl anymore. And Prince is gone. I’ll wear a purple flower in my lapel. Thank you Prince. R.I.P.

Ghost Story


lp-haunted-isles-leeds-invertimgThe ghosts of Proust are those brittle couture-clad creatures that haunt the salons of fine hotels where they sip ballet pink Champagne. Perpetually enrobed in an air of melancholy, they climb the spiral staircase to the sacred solitude of their tiny perfect rooms. Drawing the papal purple velvet curtains they turn away from the the noise and the ill-mannered hordes and take to their beds. What else is there to do? As their heavy eyelids close on yet another day, the ghost damask wallpaper shimmers like a spectre.

Oh, the horror of imperfection. If only everyone behaved well and all the flowers were arranged just so life would be so much sweeter. Those who expect perfection and cannot tolerate anything less, suffer.

Take French fashion designer Yves Saint-Laurent. As his lover and business partner Pierre Bergé once said, “Yves was born with a nervous breakdown.”  Saint-Laurent would often retreat to their chateau in Normandy to sketch new collections and to recover from the excesses of Parisian night life. One afternoon Saint-Laurent returned to the chateau and noticed that the housekeeper had placed a bouquet of flowers in the dining room. It pained him to see the uninspired arrangement. He took a pair of nail scissors and painstakingly snipped the tops off each stem, a hundred tiny decapitations. Then he took to his room for the rest of the day.

Just as it’s unrealistic to expect perfection from our housekeepers—and even our fashion designers, after all Saint-Laurent was a great designer but not always a good one—it’s equally juvenile to expect that markets will behave the way we wish them to. As the industry mantra goes: past performance does not predict future returns. Yet many investors mentally latch onto past success and expect history to repeat itself.

After the crash in 2008 it took several years for the markets to regain momentum after which they went on a tear. Investors regularly boasted of 15-percent and up returns. DIY investors felt like geniuses and portfolio managers behaved like kings of the universe. But the wheel turns…These days it’s unlikely our quarterly reports show anything like those stellar returns. Where did all those investing geniuses go, I wonder?

According to John Bogle, the famous value investor and founder of Vanguard, we’ll be facing a tough decade ahead. His math is simple but hard to refute.

He divides total return into investment return and speculative return. Investment return is approximately 2-percent. That is the average dividend yield on U.S. equities. Corporate earnings growth adds another 6-percent for an 8-percent return. Pretty good so far.

Speculative return is how the market values a company’s earnings growth (price/earnings). Right now the P/E ratio is 20 but the historical average is 15. A lower P/E means lower stock prices, unless earnings skyrocket. So, based on Bogle’s back-of-the-napkin calculations, that 8-percent investment return plus a negative speculative return of, say, 3-percent, leaves us with an average return of 5-percent before inflation and before portfolio management fees. Throw in a couple of ghosts-in-the-machine like hedge funds, high-frequency traders and massive short-trades and things can get pretty hairy, pretty fast. (Hello Valeant!)

To mix my holiday metaphors, to avoid a fright upon finding a lump of coal in your retirement stocking, consider factoring a lower real return, somewhere between 1-to-4-percent, into your nest-egg calculations. Many companies today are priced for perfection but they could hit a snag.Don’t let your fantasy of perfect get in the way of a perfectly nice arrangement. Save a bit more, (or spend a bit less), as insurance against a decade of fair-to-middling market returns.

But, darlings, whatever you do, never skimp on pink Champagne.

Ringo, Ringo

Chanel Comet Ring

Chanel Comet Ring

Dear Readers, you may have been wondering where I’ve gotten to. No new posts since the end of August? Come on girl!

Well there’s been this-and-that. Among other busyness, I got my certificate in Advanced Investment Strategies and, yes, it was as thrilling as it sounds.

The other night we saw Ringo Starr and his All-Star Band. Frankly, it could have gone either way but I gotta say, it was a rollicking good time. This man is enjoying himself so much you just have to clap along.

The former Beatle’s life is a good reminder to never underestimate  anyone, including oneself. By any measure his early life was shambolic.  A crummy Dad, poverty, severe ill health, illiteracy,  violence, lousy jobs, and a cold, damp, coal blighted climate with only two seasons: “July and Winter”. And yet, with a little luck and a lot of grit, Ringo crossed the wide chasm from have-not to mega-have.

Given his upbringing it should come as no surprise that Starr has some strong opinions about money and investing. As he told Forbes magazine, “…I always bought the house. I always felt good about that. I mean it took a long time till we made enough  money that I could buy a house. I have a business acquaintance who keeps saying “Cash is king,” and just because of where I come from, I like to have some cash. That’s all. Those are the two sort of rules I have.”

Starr’s a great drummer but what about his investing savvy? Anyone who’s come from a turbulent background will be drawn to the apparent security that owning land provides. As long as you can manage to keep the lights on, there’s no one to toss you and your belongings on the street. And, when all else fails, you can rent or sell it to put a few shillings in your pocket.

Some people consider real estate a kind of bond proxy in that it generates a predictable stream of income in the form of rents paid/saved. And, like a bond, its market value varies depending on interest rates, economic growth, and investor sentiment. But where a bond will mature and pay out its face value, a house never “matures”. You can keep it forever.

There are other differences as well. Like precious metals and other commodities, investing in real estate comes with many additional costs. Gold bars need to be transported, insured and stored, while real estate needs to be maintained and insured. It’s not portable and is heavily influenced by, not only the macro environment but also the micro, in other words, what is going on in the immediate neighborhood. Each gold bar is pretty much like the other, yet each property is unique with its own quirks.

Cash is Starr’s second investment pillar. But cash alone, e.g. stacks of bills hidden under the mattress or in a storage locker à la Walter White in Breaking Bad, is not really a smart move. For one thing, inflation erodes its value. The best way to think about cash is as a market hedge. If the stock market melts, those who have “kept their powder dry” can use it as an opportunity to buy depressed securities. It also provides a cushion during panics; you can live on your cash instead of being forced to sell assets to pay your living expenses. For this reason, in retirement, it’s good to have at least two years’ worth of basic expenses socked away in short-term GICs or actual cash.

Starr doesn’t mention other asset classes like equities, art, hedge funds, private equity etc. Cash and real estate alone are not a well-diversified portfolio for the average person, although if you have enough of each, you’re pretty much bullet proof. With a net worth north of $400 million, Starr’s well able to diversify.

Judging by his recent concert here his biggest assets are not the real estate holdings or the wads of cash—although they help. At 75, Starr is upbeat, funny, whippet-thin, fit, happily in love with his wife, surrounded by great talents and good friends, and is doing exactly what he wants to do whether it’s making music, painting, writing, acting or petting the dog.

Baby, he’s a rich man.

Peace & Love Ringo!

Rich Face Folly

photo courtesy of Getty Images

photo courtesy of Getty Images

Who remembers the 1973 film Ash Wednesday starring Elizabeth Taylor as a 50-ish housewife who goes to Switzerland for a face-lift to save her marriage? Taylor, draped in furs and marital sorrows, secretly hoofs it to a ritzy clinic in Gstaad, has the surgery, then eats, drinks, gazes at the mountains, flirts with a fashion photographer, has an affair with a hunky German, stares at reflections of her restored beauty, but, alas, never reconciles with her husband, played by Henry Fonda, who’s still boinking a much younger woman. The film is notable in two ways. First, it stars the incomparable Taylor, who is watchable in any old schlock; and, second, it marks the first time that plastic surgery came out of the closet, complete with stomach-turning scenes of an actual surgery.

The film is terribly quaint by today’s standards when practically everyone is getting shot-up with Botox and hyaluronic fillers, or sandblasted with lasers and chemical peels. The latest trend, “richface“, is especially popular with millennials.  It involves extreme dermatological procedures meant to proclaim affluence, if not common sense. Selfies of swollen lips, a la Daffy Duck, puffy cheeks or pneumatic mammaries are posted quick-as-a-bunny for comment and applause.

Far be it for me to frown on the pursuit of beauty through personal grooming. No one would accuse me of being low-maintenance in that department (or any). But hyper-grooming is a risky business subject to the law of diminishing returns. (Exhibits A: Melanie Griffiths, Joan Rivers (RIP), any TV Real Housewife…)

Insecure millennials and reality-show celebrities are not the only ones who would benefit by leaving well-enough, or mediocre-enough, alone. Investors, too, are a restive lot prone to over-grooming, or in this case, excessive trading. This proves costly, both in the short-term (frictional costs of trading and taxes), as well as in the longer-term through poor market timing and weakened compounding benefits.

In his book The Single Best Investment, Lowell Miller makes the distinction between investors and traders. He states that long-term investing is about character, depth of vision and the cultivation of patience. By contrast most “investors” are whipsawed by the drone of economists, stock-pickers and other pontificators who populate the airwaves and provoke the “Three Sirens”: greed, fear, and conformity.  This compels us to constantly tweak our portfolios, jumping from one investment to another. Market liquidity, especially for mid-and-large cap stocks, and ETFs, makes trading as easy as a few keystrokes. This is a different kind of liquidity trap and one that I’ve fallen into more often than I care to admit. It’s also why I found Miller’s book such a welcome relief. It provides a counterpoint to investment industry hysteria.

As a 6th-degree black belt in Aikido, it should come as no surprise that Miller abides by a Spartan code in investing. Hold your ground. Become neither overly excited when your portfolio is up, nor excessively gloomy when it’s down.

Feel your feelings, but don’t feel you need to act on them!

Miller is a strong proponent of investing in high dividend-paying companies, with good cash flow, and growing dividends. You’re unlikely to make a killing with them but, on the other hand, you’re unlikely to get killed. Over time, as the power of compounding takes effect, these investments show their superiority over fixed-income, such as bonds or T-bills.

Alas, time is the friend of the dividend portfolio but not of the human who owns it. Warren Buffett is fond of saying that his holding period is “forever” but he tweaks like everyone else. What’s the sweet spot? Aim to tweak somewhere between Buffett and any one of the Kardashians.

Luxurious Solitude

Armani and friend

Armani and friend

I’m just old enough to remember when Armani was it. The 1980s. A new luxury mall had just opened up in town with boutiques from most of Italy’s heavy-hitters like Versace, Ungaro, and, of course, Armani who was showing women’s shorts that season. All this and an indoor-skating rink too. It was a flop.

Fast forward.

On my way to Milan to interview Armani, of course I packed my one and only Armani item, a black-and-white satin blazer (Black Label, hello), to be worn with black slacks and white shoes. I suppose it was a small mercy that my luggage got lost at the Milan airport otherwise I would have looked like a waiter. The carousel went round-and-round. By the time I slipped into the back seat of the sleek black limo waiting for me and manned by a former Armani model—my personal driver for the week—I was wearing the only clothes I’d have during the whole trip. What’s that saying, ‘hubris, then nemesis’?

Armani was launching a woman’s fragrance, Sensei, with his new business partner, L’Oreal. They pulled out all the stops. Dinner at Nobu, discounted shopping sprees at Armani boutiques, an free night’s stay at the hotel, and a personal driver to get around Milan or anywhere else the mood might strike. (Lake Como, please and thank-you.) The fragrance was a flop.

I was shadowing make-up artist Pat McGrath backstage as she was prepping the models for the fashion show. Armani would appear and disappear, like a cat. Poof! He would bring a model to Pat, request a change here and there, and then, poof, gone.

Ahead of a group interview, his public relations attaché informed us that Armani had a birthday coming up in a few days’ time and he was in an uncharacteristically good mood. He must have been because one of the Italian journalists started her query with, “Mr. Armani, you’ve obviously had plastic surgery…” The PR-woman went limp. “Now, if I had had surgery, would my nose look like this?” Armani said with a smile. Still, it felt like we were on borrowed time and the interview wrapped up soon after.

By now I had been awake for over 48-hours and still in my original duds. After the fashion show, there was a simple buffet luncheon. I thought if I could just eat a few bites I might be able to keep standing for a few more hours. For insurance, I took my plate and leaned against a pillar. I hoped that when I lost consciousness I could simply glide down the pillar like a petal.  My back touched the cool marble. My eyelids closed. The thrum of the room began to fade.

“Bongiorno.” He was standing in front of me. I blinked hard. “Bongiorno,” I replied. Armani immediately switched to French and began to ramble about “Russe” this and “Russe” that. Naturally I assumed he was complimenting me on my red hair. I nodded vigorously and threw in some “Oui!” After a few long minutes, he shuffled off. Dang, if only I had my Armani jacket, that could have done the talking.

So funny to think that this fashion mogul started out as a window dresser but was fired because  his employer thought he was a daydreamer. Armani is one of the shrewdest businessmen on the planet. He owns the buildings that house his boutiques; he has expanded his brand to home decor, cosmetics, luxury hotels, yachts, chocolate, and now that most of it is manufactured in China, his pockets are even more flush. This is one savvy cat.

Armani never looks more miserable than when he’s hobnobbing at the Met Ball—and never happier than at home with his cats, or on his yacht with his cats, or on his island in Pantelleria—with his cats.

You know you’ve made it when you’ve got luxurious solitude. Hold the cats.

Mazl

Diamond-District-New-York-47th-Street-014Good fortune came my way this morning with The Sunday New York Times feature entitled “Kitty With The Gee”, in which two of my favorite subjects— diamonds and Yiddish—intersected.

The diamond district in New York is located on 47th Street between Fifth and Sixth Avenues. It’s literally chock-a-block with sparklers. The endless rows of expertly-cut carbon make privates’ (retail shoppers) eyes bug out, but for those who ply this trade, it’s business as usual. Like all professions, selling loose diamonds has its own codes, in this case heavily influenced by Jewish culture, and Yiddish and Hindi expressions.

I’ve only once visited the Diamond and Jewelry Way, as it’s called. A former boyfriend had bought me a luxury watch and, much like the relationship, despite my best efforts, it was perpetually out-of-sync. My ex had made a tidy sum on a business deal and decided that my trusty Timex needed an upgrade.

“What about this one?” I said, pointing to a simple gold Blancpain watch with a yellow strap.

“Oh, this is a very special watch,” said the salesman. “It’s made in Switzerland. Everything by hand. Exceptional timepiece.”

“So it must be very accurate, then.”

“Actually, because it’s an artisanal watch, it’s always off by a few seconds.”

In my real life I ran for the bus each morning to get to work. But in my fantasy life—where I spent most of my time—there was no running for the bus, or anxiety about being on time. I figured if one was an aristocrat, the “right time” was when one arrived.

The watch never kept time. At first it was slow by a few minutes, which I could work around. But soon the gap grew to over twenty minutes or more, forcing me to do mental calculations, or to ask strangers to tell me the time even though they could plainly see I was wearing a watch.

After the relationship cratered I had even less patience for the watch. But, like Eliza Doolittle, I was now in limbo. I had crossed over and couldn’t go back to the pedestrian Timex; I had to make the Blancpain work.

“Mazl” means good luck in Yiddish. It may be an acronym for the three elements of luck: makom (place), zman (time), and limmud (learning). The Blancpain gave me no mazl.

I happened to be in New York on business and went to a vintage watch boutique on Madison Avenue. The owner looked at the Blancpain and the papers of certification, noted that the gold was scratched and offered me $750.00. When I balked, he suggested I take the watch to the 47th Street and gave me a name. It didn’t take long to locate my guy. In a matter of seconds he appraised the watch and offered me a slightly higher but still uninspiring amount. Defeated, I brought the watch back home.

One day I was reading a New Yorker article about a woman who loved the look of her grandmother’s diamond Cartier watch. After wearing it for years, it has conked out for good and she didn’t know what to do until someone suggested replacing the entire mechanism.

Eureka! This was mazl in action, where place, time and learning converged.

Right Time: It was time to let go of the parts of my life that were no longer working (the emotional attachment to the relationship; the crappy watch).

Right Action: The article in the New Yorker showed me what was possible.

Right Place: Joe, the watch expert in my home town,  was willing to take the Blancpain parts as payment for putting in the Movado movement.

Moral of the story: Like the Blancpain watch, you can’t rush mazl.

Mazl Un Brokhe (Good luck and a blessing)