TAKING A STAND

     In the movies, taking a stand is always framed as fighting for what is right, fighting the oppressors, and eventually achieving justice before we all leave the theater to return to our own daily struggles.  We side with the hero because the movie allows us to see the origins, the decision points, and the injustice we root for the actors to overcome.
     Yet, real life doesn't normally workout as neatly as a two-hour script.  The great majority of citizens never choose to stand up for what they believe is right, and if they do, many times they only experience the struggle and scorn, and not the victorious reward.  This is real life.
     But, this week I want to shake you from your fear and complacency, and urge you take a stand.  The honor is not only in the hoped-for victory, but, more importantly, in the struggle for what you believe is right, your principles.  In "Man's Search For Meaning," Nazi death camp survivor Viktor Frankl attempted to teach us that even during a man's worst experiences, there is meaning in the struggle, honor in the battle, regardless of the outcome.  In your life, you hopefully will never experience something as horrific as Viktor Frankl, but if you have the guts to start your own company, build you own charity, and advance your mission and cause, at some point you will be faced with a monumental challenge which will require you to "go along," or to accept defeat, or to take a stand.
     This week the newspapers announced President Trump's pardon of Conrad Black.  I read Conrad's book which he wrote in prison a few years back, and I am friends with one of Conrad's previous "cellies."  Conrad founded the National Post in Canada and Hollinger International, which formed a media empire that included Britain's Daily telegraph, the Chicago Sun-Times, the Jerusalem Post and hundreds of others.
     In 2003, a few Hollinger shareholders and political opponents demanded investigations into the multitude of financial transactions and, not surprisingly, concluded that Mr. Black had stolen hundreds of millions to support "the personal lifestyle Black and his wife had chosen to lead."  U.S. prosecutors (including the corrupt Patrick Fitzgerald who also railroaded Scooter Libby) indicted Mr. Black on 17 counts and accused him of stealing $80 million from shareholders.  Conrad then decided to be the 1% who takes a stand and reject the fictional plea agreements.  He chose to go to trial and defend what he believed to be the truth, while risking a tremendous net worth, lifestyle and reputation.  The Chicago jury acquitted Conrad on 9 counts, the government abandoned 4 other counts, and he was convicted on the ubiquitous counts of mail fraud and obstruction.  He was sentenced to federal prison, but he continued to fight his battle, reduced his sentence, a judge then added more time, and he was finally released after three years incarceration.
     The Wall Street Journal wrote, "Mr. Black endured public humiliation in three countries: his 2014 removal from the Order of Canada, his longtime business partner's betrayal and testimony, and demands that he resign from Britain's House of Lords.  Mr. Black even had to watch the people who defenestrated him drive Hollinger into bankruptcy."  The shareholders and investigators killed their own golden goose, like Baltimore residents burning down their own neighborhoods.  Nothing different.
     We don't know if Conrad's decision to take a stand was the correct decision, but he felt it was the right thing for him to do, even in the face of so much loss.  He swore in his book in 2011, "Whatever happens, this will not be the end of my modest story."  Now, he is pardoned, the investigators have "paid Mr. Black the largest-ever Canadian libel settlement," and the Wall Street Journal recently published, "Lord Black spent more than three years in federal prison, where he tutored fellow prisoners, wrote admirable books, and comported himself with remarkable dignity under the circumstances."
     If you succumb to all of my weekly harassments to start your own company, forge your own mission, and do something remarkable, you will always have a target on your back.  If you choose to build successful businesses and create wealth from nothing, you will be faced with difficult challenges, but also at least once in your life you will be faced with a monumental choice which will hold tremendous consequences for everything you hold dear.
     You will be presented with a multitude of excuses and justifications of why you must give in and go along, with your own brain providing endless more rationalizations.  In "Braveheart," Lord Robert Bruce urged his father to join the fight for Scotland's freedom from England.  "This Wallace, he doesn't even have a knighthood, but he fights with passion.  He inspires!  Maybe it's time!"  But, his father told him, "Your the 17th Robert Bruce because the 16 before you received land and title because they didn't charge in.  Uncompromising men are easy to admire, but it is the ability to compromise that makes a man noble".  Lord Bruce then gave up Wallace to be executed by the English in order to receive more land for himself.
     In "Jerry Maguire," agent Jerry finally has the honest argument with his football player client Rod Tidwell.  "I'll tell you why you don't' have your $10 million yet, because right now you are a paycheck player.  You play with your head, not your heart.  Personal life, heart, but when you get on the field its all about what you didn't get, whose to blame, who under threw the pass, whose got a contract you don't, whose not giving you your love, and that is not what inspires people.  That is not what inspires people!  Just shut up, play the game, play the game from your heart and I will show you the 'Kwan.'  That's the truth man, that's the truth!  Can you handle it?"
     Life bring us great challenges, but I believe this was the whole point in coming down here this time around.  You can't make me believe it was to finish our schoolwork, work hard in a job for 50 years, produce 2.3 children (now 1.8), and make sure you catch the Alaska cruise in retirement.  Can't be!
     You came down here to inspire yourself, inspire others, overcome fear, and do amazing things until your last gasp, which could be your next one!  You are going to have to decide, most likely at one of the most difficult points in your life, to take a stand, or to not.  It is not my place to ever judge you, or for you to judge me, but I just want you to know that you are stronger than you have ever imagined.
     If you decide to stand, eventually everything is going to be okay, and maybe like with Job, God and the Universe will bring you even double the success and prosperity you knew before.  Do what you believe is right, simply because it is the right thing to do.  And, if you never do achieve that final victory, you will achieve great honor in your struggle.  Don't stay in the middle of the flock.  Your place is not among them.

"This one time our house was overrun by partisan border guards, dozens of them.  My father was beaten, my mother was beaten.  This man, my father's friend, he was beaten, and I watched this man.  Every time they hit him he stood back up again, so they hit him harder.  Still he got to his feet.  I think because of this they stopped the beating, and they let him live.  'Stoikiy muzhik!'  I remember them saying it.  'Stoikiy muzhik!'  It sort of means, like uh, 'Standing Man!' 'Standing Man!'" -  Colonel Abel, Bridge of Spies

** Thank you very much to the WSJ, Forbes, and Fortune for the above quotations and statistics.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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DO THE OPPOSITE OF WHAT FEELS GOOD (THIS IS NOT THE 60'S!)

     With the turmoil in the stock market this week, I want to pass along some sage advice I received decades ago at The Bistro from the enigmatic Bob Vukovich.  One evening while the boisterous crowd complained of the latest setback in stock prices, Bob looked at me over the rim of his icy martini and asserted, "Always do opposite of what feels good, and always do opposite of what all of your friends are doing at the time."  He held my eyes with one of his steely glares which told me he was conveying one of his financial pearls.
     Years later, through numerous setbacks, crashes, and missed opportunities, I have held this advice as the most important investing axiom, with almost everything else counted as "in the noise."  For two decades I spoke at conferences, seminars, and country club dinners about basically one central theme: We as humans are genetically-designed to make the exact wrong investment decisions at the worst possible times.  It's not our fault!  It must be the chemicals or the DNA helix, but rest assured that every, and I mean every, human has this affliction.
     I have always shown our audiences Morningstar's mutual funds study which detailed how over a 10-year period the average mutual fund had produced a +10% annual return, but the average investor, in those same exact funds, actually lost 2% per year!  People yell out reasons - "Fees!" "Taxes!" - but the unfortunate, sad answer is actually "buying high and selling low."  We all do it!  The market is hot, that sector is hot, and everyone at the cocktail party is making money, except us!  So, we buy.  The next day it starts to fall, slowly, painfully.  We are furious, but we hold on, death by a thousand cuts.  Finally after 14 months of pain, we lose all patience and hope, and we sell.  What happens the next day?  Of course, it starts to go back up!  The great majority of us real people never accumulate long-term wealth, even when truly trying to do the right thing.  It's not our fault!

     Here's a few tips and insights to help us at least make less mistakes than our neighbors:

1.  If everyone at the cocktail party is buying "Uber stock," pass on what has already become the flavor of the month.

2.  When all of your friends, the dumb money (sorry, obnoxious industry term), are making tons of money in the market, take that opportunity to take a few chips off the table, or at least rebalance.

3.  When all of your friends are taking a blood bath and becoming suicidal, have a couple Glenlivets and add to your positions even though CNN says the world is coming to an end.  For this, you must keep some powder dry for Black Swans.

4.  You, and every computer on Earth, will never pick market tops or bottoms, so hit singles and doubles which compound into an incredible long-term career.

5.  Balance, and rebalance, your investing so that your up and down swings are muted and do not cross your emotional thresholds.  We always ensure our clients carry at least 13 different "slices of the pie."

6.  Realize that all of your friends at the cocktail party lie, especially the men.  They tell you about the one stock that tripled, but not the nine losers.  Stay the course.

7.  Understand sunk cost, the phenomenon which controls human investing psychology.  The price you paid for a stock or a house or a company has nothing to do with today's analysis of whether you should sell, or buy more.

8.  The stock market went down today because "there were more sellers than buyers."  That is all.  The explanations from 1,000 pundits mean nothing, and are most certainly wrong.

9.  If you can find someone who can truly help you, which is rare, pay them 1% a year to stop you from costing yourself 5-10% less return a year (see Morningstar).  You don't need them when times are easy, only when rough, so make sure they are strong enough to stand up to you and to not let you hurt yourself.

10. If you must fiddle with your retirement account, sell the "good ones" and buy more of the "bad ones."  You will outperform the entire office if you have the fortitude to do what feels "bad."  Better yet, don't fiddle.

     This week Benjamin Graham, the father of value investing (buying undervalued "boring" stocks and holding on) would have been 125 years old, so let's look at this simple growth versus value dilemma for real people.  Over the last 5 years, the S&P 500 Growth Index (Amazon, Alphabet, "sexy") has averaged a 14.2% return annually.  The S&P500 Value Index (JPMorgan, AT&T, "boring") has only gained 8.7% annually.  All of your co-workers are right now following the guy in the office kitchen whose telling them to sell their value funds and add to their growth funds in the 401k plan.  But, back in 2000-2002, growth stocks and funds were crushed, so investors over the next 10 years sold these funds (after crushed), pulling out $273 billion and then loading up on the value funds, which of course then have now underperformed (see Morningstar).  See how it works?  Get off that rollercoaster.
     Fund fees of 1% or .5% or 0% have almost no bearing on the eventual real life return of real people.  This is the industry making you believe this should be your focus.  John Bogle and Vanguard have both been brilliant, but that is a totally separate subject, with separate impacts.  All of that noise doesn't matter when you factor in real life emotions and needs of families, retirements, college, medical issues, egos, fear, greed, you name it.  Do you get it?
     The noise is deafening out there, and you are constantly bombarded with misinformation.  Just this week I read about Uber's, Lyft's, and WeWork's "new accounting."  I remember that phrase worked in 1999 until it didn't.  Losses don't matter, until they do.  Well, I know it's a confusing world out there, but I wanted to hopefully help simplify the big picture just a little for you, as successful long-term investing periodically demands courage to not follow the crowd, and to stick to your discipline.  This week do the opposite of what feels good!

"Investing is so much simpler than people make it to be, yet so much harder to actually do."  - Bob Vukovich, "Just One More"

** Thank you very much to the WSJ, Forbes, Fortune and Jason Zweig's Intelligent Investor column for the above quotations and statistics.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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BEHAVIORAL ECONOMICS AND NUDGING

     JAM VIEWS regularly attempts to take what politicians and academics claim to be complex and sophisticated economic issues and distill these subjects down to the simplistic, understandable concepts which they truly are.  Or, as my father, Don Martinovich, always professed to me, "Don't bullshit a bullshitter!" (Am I allowed to say that?)
     For our members to run their organizations effectively, to vote intelligently, and to maximize their personal success, we must consistently explain how self-interests and behavioral economics are the entire game.  Nothing else matters.  Save the ridiculous policies that claim everyone will work for the greater good of mankind to the crazies promoting the New Green Deal, or whatever the socialism flavor of the month.  These are the ideas that have failed throughout history.
     Therefore, this week I want to explain behavioral economics a little further, in order that our members have a foundation of these principles to counter cousin Susie's silly opinions on Memorial Day after a few glasses of sangria.
     People will always act in their own self-interests (along with a small, unfortunately small, percentage of time to philanthropic and public causes),  People will not act rationally.  People's filters will generate disparate responses based upon their different lives and experiences.  Behavior economists categorize these issues into Heuristics (making decisions based on "rules of thumb"), Framing (using your filter), and Market Inefficiencies (mis-pricing and irrational trends).
     In 2002, psychologist Daniel Kahneman, whom we have referenced before, was awarded the Nobel Memorial Prize in Economic Sciences for integrating psychology into economic science, and in 2017 economist Richard Thaler was also awarded this honor for "establishing that people are predictably irrational in ways that defy economic theory."  In other words, if we desire to be great business leaders, leaders of humans, we must understand people's feelings and motivations in order to design incentives which point people toward our strategic goals.  Make sense?
     John is only going to spend all weekend on your sales report if he truly understands and believes how it will promote his own career.  The blind-side offensive tackle is only going to train all summer protecting the quarterback if he has deep-down instilled the cause and effects which reward him personally.  Humans, through kinetic energy, will remain on a path until a force acts upon them, and all data prove that positive influences on those self-interests are radically more effective than negative influences (fear and control).
     These positive influences are called "nudges," as formulated in Cybernetics by James Wilk in 1995, and having gained prominence in 2008 in Richard Thaler and Cass Sustein's book, "Nudge: Improving Decisions About Health, Wealth, and Happiness."  These studies refer to influencing behavior without coercion as "libertarian paternalism" and the influencers are named "architects."  A nudge may alter people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives.  To count as a nudge, the intervention must be easy and cheap to avoid.

     Some examples of Nudges are:

1.  Companies which have employees automatically "opted in" to the 401k plan to save for their retirement, as opposed to having to make a phone call.  They may easily make the phone call to "opt out."

2.  Having fruit at eye level and potato chips at the lower level which require the shopper to bend down.

3.  Healthy snacks at the checkout counter instead of candy bars for impulsive purchases.

     Some examples which are not Nudges, but Big Brother decisions (which they believe benefit us):

1.  NYC Mayor Michael Bloomberg banning Big Gulps and trans fats in New York (Krispy Kreme left!).

2.  Philadelphia imposing a large tax on sodas (Eagles fans drove to New Jersey to get Pepsi!).

3.  Health care for all with a single provider (I thought he said we could keep our doctor?!).

     As with all academics, behavioral economists use a thousand terms which over-complicate these theories, but this week we simply want to reiterate that we must design our organizations, and our country, to support free people and free markets.  This is how everyone wins.  Great CEO's incentivize and reward their employees to think like owners, not clock-punchers.  They help their customers truly understand why using their product or service greatly benefits the customer.  Great government leaders, like Ronald Reagan the Great Communicator, help people understand how specific policies benefit their own economic and security interests.  This is all behavioral economics.
     Train yourself to always "put yourself in their shoes."  Don' ask people to stay late, run in the charity 5k, or backup their teammates until you first build a culture and understanding in which they realize how this benefits themselves, and their families.  Don't fall for ridiculous government policies and programs which redistribute people's money or opportunities by force or coercion (IRS).  Support the local business startup which provides fifty new jobs instead of taxing high-income earners to give money to inefficient government programs.
     People are "predictably irrational" and operate on feelings and beliefs, not classic mathematical models of supply and demand.  Great leaders have always understood this.  Economically incentivize everyone, even nudge them if you like, vote for government policies which create economic incentives - not redistributions - and don't worry about cousin Susie's silly opinions.  Nod politely, smile, and refill her sangria.  Have a great week!

On one trip, en route to a conference in Australia, Dr. Elwyn B. Berlekamp was asked by a border-control agent whether he was traveling for work or pleasure.  He replied that he had arranged his life "such that there shall be no distinction between the two."

Many thanks to the WSJ, Forbes, & Fortune for the above statistics and quotations.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

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UPDATES: LICENSING SCAMS, INEPT FED, CHARTER BATTLES, & CRONY CAPITALISM

     JAM VIEWS members know that we periodically revisit important topics 1) to ensure we all fully understand the dramatic impact of correct economics and business practices, and 2) to remind us that the fight for free markets and rugged individualism is a never-ending battle against the Looters.
     LICENSING.  Previously we learned that state, city, and county licensing requirements are merely scams to protect the entrenched business interests which are funding the politician's campaigns, and to generate revenue to support the ever-expanding government bureaucracy and entitlement programs on the backs of hardworking small business owners.  Recently, the state of Arizona has freed small business and individuals by passing a law to be the first state to recognize out-of-state occupational licenses, including more than 40 professions from cosmetologists and court reporters to psychologists and surgeons.
     Republican State Sen. Michelle Ugenti-Rita stated, "The reform opens up an appealing job option for low-skilled workers who otherwise would have had to pay between $8,000 and $15,000 for (re)-schooling to do the same work."  This leadership-by-example will have a dramatic impact across many states and release more capitalism than you may imagine.  Also, this is a huge benefit for military spouses whom uproot themselves and their professions to move with their transferred service member.  GOP State Rep. Jeff Weninger declared, "We are open for business, and we're trying to cut back on red tape here."  Congratulations to Arizona!
     STABLE DOLLAR.  Following up on our lessons explaining that the goal is not a strong dollar, nor a weak dollar, but a stable dollar, Judy Shelton, an economist and author of "Money Meltdown: Restoring Order to the Global Currency System," recently released some interesting statistics to support our case.  Judy's book explains that we should question the Federal Reserve's competency, as "no other government institution had more influence over the creation of money and credit in the lead-up to the devastating 2008 global meltdown."  Currently the Fed pays banks to keep their $1.5 trillion in excess reserves (8x what's required) in accounts earning interest instead of making loans to the public to create businesses and spur job creation.
     The Fed has always incorrectly believed that inflation results from job creation.  Judy points out that "inflation results when too much money is chasing too few goods.  It is not caused by real economic growth where wages increase to properly compensate people for their higher levels of output achieved through productivity gains."
     Also, as we keep preaching, the Bank of England's recent report concluded that today's "Fed-controlled" system has performed poorly in comparison to our periods under the gold standard (1870-1913) and the gold-exchange system (1948-1972).  Having the stable gold standard enabled "accelerating labor productivity, falling income inequality and increased workforce participation.  The Obama 2015 Economic Report of the President even suggested that if this same growth had continued once Nixon took us off the gold standard in 1973, that U.S. citizen's "incomes would have been 58% higher in 2013, and "the median household would have had an additional $30,000 in income."
     JAM VIEWS members know we must have a stable currency based on gold (or something else), and that the technocrats the Government keeps trying to tell us are brilliant, are not.
     CHARTER SCHOOLS.  This week we are reminded that bureaucracies and entrenched interests hate the upstarts which greatly outperform their mediocrity, especially in our children's schools.  Ben Chavis, a Lumbee Indian raised by sharecroppers in rural North Carolina and successful businessman-turned-educator, became principal of American Indian Public Charter School (AIPCS) in 2000.  This Oakland, California public school was then the poster-child for failed schools: truancy, drugs, violence, failing test scores, and all the rest.
     By 2004, after Chavis installed discipline, standards, and performance metrics, the middle school students achieved higher math and reading test scores than students at any other public school in Oakland.  After Chavis then opened a high school, this charter in 2008 ranked fourth in the entire state for performance.  To top it off, he also started a second charter middle school which ranked 5th out of 1,300 California schools, and in 2006 was named one of the top 250 schools in the country.
     So how did they reward him?  In 2011 Mr. Chavis announced plans to expand further, so the Oakland School Board began an investigation and found "financial improprieties."  Next, to great national media fanfare, the federal prosecutors indicted Mr. Chavis on mail fraud, money laundering, and conflicts of interest (see "Indicting a ham sandwich").  Thank God, last week the U.S. Attorneys Office in San Francisco dropped all of these charges for insufficient evidence, and Mr. Chavis agreed to a technical violation in order to move forward.  But, he had to leave AIPCS in 2013 to fight for his life for 5 years.  With class and grace this week, he stated, "I'm not the victim.  The kids are the victims."
     Remember to support school choice, support merit-based rewards, and to embrace others who succeed.  No schadenfreude!
     Finally, a quick note on CAPITALISM.  Ms. Chamlee-Wright, President of the Institute for Humane Studies at George Mason University, issued an article clarifying that our ultimate goal is not only to defeat all aspects of socialism, but also Crony Capitalism, the entrenched large-corporation, political-lobbyist, licensing-barriers-to-entry types of impure capitalism.  She also promotes questioning everyone and everything.  She stated, "I believe that competitive and open markets (plus lots of social and political freedom) are the answer.  Perhaps you think otherwise, but we should have that conversation rather than unthinkingly accept what's put in front of us."  She must be a JAM VIEWS reader!
     A reminder this week to do everything possible to support business startups and entrepreneurial mentality.  Stop at every lemonade stand, and always buy those water-logged golf balls from the kid peddling his inventory next to the pond on the 7th hole.  The Universe is watching.

"We must make the building of a free society once more an intellectual adventure, a deed of courage."  -  F.A. Hayek, Economist.

** Thank you very much to the WSJ, Forbes, and Fortune for the above quotations and statistics.

** For more information on Jeff's Books, Blog, and Legal Challenge, please visit www.jeffmartinovich.com.

** To access JAM Views directly please visit jeffreyamartinovich.blogspot.com 

* SUBSCRIBE TO JAM VIEWS

* PLEASE USE THE BELOW SHARE BUTTONS TO SPREAD THE WORD!