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Book Review:

January, 2008

Moneyball

This month’s BOOK OF THE MONTH requires some acknowledgment. Ann and Pierce gave it to me. They just thought I had to read it. They were right.

I met Ann and Pierce long before we met.

That’s not a typo. At St. Olaf, one of my majors was English (when I wasn’t trying to get through chemistry). It turns out Pierce’s dad was the chairman of the English department. So, in a way, he’s responsible for my fractured prose. A good chairman would have steered, right away, to me to “English as a Second Language.”

I, of course, did not know Ann and Pierce at this time.

Pierce, Ann and I met years later through Mary Kay. Ann and Mary Kay went to graduate school together and then went on to be senior executives at a company that was sold in 2000. Ann went on to start another company. Mary Kay and I were seed investors, helped raise funding and served on her board of directors. Ann sold the company last year.

In addition to a ton of money, she was rewarded for her efforts by contracting breast cancer. In the midst of her cancer treatment, she forged on with her family’s planned vacation to Switzerland. While hiking with Pierce, her beloved brother collapsed and died of a heart attack. Life is volatile.

In the midst of all of this, they had time to give me a book to read. It’s called Moneyball by Michael Lewis. At first, this doesn’t strike one as a finance book. It’s about baseball. But, the more I read, the more I realized it was a finance book. It’s about applying analytical rigor to an inefficient market to exploit the inbred conventional wisdom and aversion to failure. This quote from the book ties in perfectly with the Keynes quote that is always on the front page of my letter:

Managers tend to pick a strategy that is least likely to fail rather than pick a strategy that is most efficient. The pain of looking bad is worse than the gain of making the best move.

This book details how the Oakland A’s exploited that inefficiency (despite having one of the lowest payrolls in the major leagues) to make the playoffs every year and, somehow, win a record setting 20 games in a row.

This is the kind inefficiency I’m trying to exploit with the Plumb Performance Portfolio©.

Thanks Ann & Pierce, and best wishes for a happy, healthy and less volatile 2008.

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  • Article Review:

    September, 2011

    Going to the Johns–Mauldin and Hussman

    I’ve mentioned John Mauldin many times in the past and it’s time to do it again.  John publishes a free weekly letter that I never miss.  It requires registration, but I never receive junk mail as a result of having registered.  His latest letter, Preparing for a Credit Crisis, is reason enough to sign up.  In this latest missive, John gives us an up-to-the minute overview of the problems and costs facing Europe, the increasing likelihood of a U.S. (global) recession, the outlook for another 2008-style credit crisis and what the average investor might want to think about doing in the face of all of this. Read more…

  • Book Review:

    May, 2011

    Debts, Deficits and the Demise of the American Economy

    Debts, Deficits and the Demise of the American Economy by Peter Tanous and Jeff Cox is about as close to the book I would write right now as I can imagine.  It explains today’s economic mess and the unfolding financial crisis in straightforward language that doesn’t require a degree in economics.

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  • Video Review:

    January, 2011

    Quantitative Easing Explained

    A number of subscribers forwarded this video to me and it’s making the rounds in financial circles.  If you’re still unclear about the phenomenon I refer to as “Queasing,” this should clear up any questions.  Warning:  After watching this video, you may not be able to hear the name Ben Bernanke without wanting to call him “The Bernank.”  It’s like one of those songs that gets stuck in your head.  If you like the absurd, I think you’ll like “Quantitative Easing Explained.”

Plumb's Guide to Investing

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Over the years, many people have asked me for investment advice. This section is my answer to the question, “Chip, what are you doing with your portfolio?” It details the portfolio I use to implement my investment strategy— the Plumb Performance Portfolio©

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Further details and return history about the Plumb Performance Portfolio.

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  • May, 2011
    Q: Can you comment on building positions within the PPP?
  • June, 2010
    Q: How does the gold/silver ratio impact your allocation?
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    Q: How important is it to adjust my allocations monthly?
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    Q: What about individual TIPS vs. a TIPS fund?
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    Q: Do you see REITs as totally miserable?

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“...an investor who proposes to ignore near-term market fluctuations needs great resources for safety and must not operate on so large a scale, if at all, with borrowed money. Finally, it is the long-term investor, he who promotes the public interest, who will in practice come in for the most criticism, wherever investment funds are managed by committee or boards or banks. For it is the essence of his behavior that he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successful, that will only confirm the general belief in his rashness, and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

– Lord John Maynard Keynes


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©2009 PlumbReport.com

The opinions as to portfolio allocation and specific investment vehicles contained herein are solely the opinions of the author and are not intended to be specific recommendations which would be suitable for every investor. The suitability of any specific investment or recommendation is dependent upon many subjective factors and characteristics of the individual investor including, but not limited to, particular investment objectives, risk tolerance, investment horizon or timeline, net worth, overall portfolio allocation and income needs. Specific investments may be suitable for some investors and yet unsuitable for others due to different needs and objectives. All readers should carefully consider their individual objectives and needs and should consult with their investment and financial advisor as to the suitability of any particular investment. The author specifically disclaims any liability or responsibility for any losses, which may result from any investment or allocation referenced herein.