‘P’ As In ‘Pneumonia’ December 30, 2013March 28, 2017 FORMULA FUNDS Bill C: “I invested 100k into the domestic Formula funds two years ago and now it is worth 191K. Any recommendations to do with this money?” Yes: Let them roll it over into the Gotham long/short, as described here, and stay with it. ‘P’ AS IN ‘PNEUMONIA’ Surely you know the routine – Mike Nichols is trying desperately to get his boss’s home phone number (the car’s broken down and they’re expected at dinner), but Information has stolen his dime. “INFORMATION is a free service, sir,” Elaine May assures him. “INFORMATION would not steal your die-yem” . . . (no court in the land could do this skit justice – you have to blow 99 cents and listen) . . . and now, finally, Nichols has reached a supervisor (Elaine May again, as the supervisor) who is going to look up the number for him, so he says the name of his boss – maybe it’s “Parson?” how can you expect me to remember after all these years? – and the supervisor, wanting to be sure she has it right, asks, “Parson. Is that P as in ‘pneumonia,’ A as in ‘aardvark’ . . .” “. . . and then, finally, N as in ‘newell post’?” To which Mike Nichols, by now entirely befuddled, and certain he will lose his job (it was the Fifties), replies, “I think so.” Well, the point I am getting to, none too quickly, as is the prerogative of a man who prices his work as I price mine, is that when I went to place my order for CISG a week or so back – by cell phone from the West Indies to my actual human broker – I wanted to be sure he bought the right thing. (I’ve been down that road before.) So I spelled it out: “C-I-S-G: C as in China, I as in Israel, S as in Somalia” . . . I was having fun with this, because life is short and almost every minute can be fun if you try . . . “G as in Georgia. The country, not the state.” I wanted to be consistent — I was doing all countries. And, well, I thought it was funny. Long silence. And then, simply, “C-I-S-G? Market or limit?” I had not reached the “full service broker” who has retained my account for the past 40 years principally on the strength of our ability to make each other laugh; I had reached his assistant. “That was really funny,” I coached him, wounded. Not a chuckle. And for this I was paying 40 times the commission I would have paid going through Ameritrade? Three hundred sixty-five dollars instead of eight? We completed the trade. The assistant, I rush to add, could not be a nicer guy, or more helpful. But not to laugh at “G as in Georgia – the country, not the state?” “Ask John to call when he gets back.” I told John what happened. When I got to . . . “the country, not the state” . . . there was the brief pause of confusion I was going for . . . followed immediately by the explosive laugh that had led me to put his kids through college. We then reminisced over Mike Nichols and Elaine May – ‘P’ as in ‘pneumonia’ – and John said, “It’s like how you spell FISH. You remember the old George Bernard Shaw thing? Was it Shaw?” Neither of us knew “for shaw” (get it?) but we thought so. “Of course!” I said, plumbing the recesses of my brainpan. “It starts with a P, right? PH something, right?” “Yes: PHOT. PH as in ‘PHilharmonic,’ O as in ‘wOmen,’ T as in ‘ficTion.’” We may not have had it exactly right. But we had fun. And on the spot I decided to buy a bit more CISG.
WheelTug Makes The Wall Street Journal December 26, 2013March 28, 2017 Here. The first section reviews Lufthansa’s giant TaxiBots, which lift the plane’s nose wheel off the ground and then drive the plane to its take-off area (driving back empty or maybe hanging around waiting for an arriving plane to hook up with and drive back to the gate). The second section is on the 700-pound Honeywell/Safran system that will reside in the main landing gear alongside the mission-critical, super hot brakes. The final section is about little WheelTug. In contrast to Honeywell/Safran, it says, “The system’s savings come not from lower fuel burn but from quicker maneuvering on the ground.” This is not true, of course; weighing less than half what the H/S system does, WheelTug should presumably burn even less fuel. But it does at least hint at what could be the bigger savings: halving the time to board and deplane by allowing passengers to use both front AND rear door jet ways. (The Journal also says, “Thirteen airlines—most of them low-cost discount carriers like Mexican airline Volaris—have reserved delivery positions for 731 aircraft.” In fact, only one, Volaris, is a discount carrier. The Journal didn’t mention KLM or El Al or Alitalia, etc.) However incomplete, a story like this is — I hope! — just one more step as we inch toward making e-taxi a reality. And to date, WheelTug does seem to have the most attractive solution. If you own shares of WheelTug grandparent Borealis, hang in there.
Joy To The World December 24, 2013March 28, 2017 Who says America doesn’t have a bright future? We just have to put our minds to it. Like these minds at the — now 22! — Success Academy charter schools. I remember when my amazingly generous, praise-shy friend Joel Greenblatt funded the very first one just a few years ago. Here are the results. But that one-minute video (the first link, above) pretty much says it all. # Have a VERY merry Christmas . . . (I’m not religious, but I do believe in Santa Claus) . . . and then go see Her. The one about the guy who falls in love with the operating system of his computer. Whoa! (Do not bring the kids.)
Gift Rappers December 22, 2013March 28, 2017 BEST “SATURDAY NIGHT LIVE” EVVUH! Did you see it? You still can. Jimmy Fallon and Justin Timberlake as “gift rappers” and . . . well, I don’t want to ruin the surprises. But who knew Jimmy Fallon (who once hugged me) was so talented? He’s Bob Dylan! He’s David Bowie! He’s Paul McCartney! He’s Barry Gibbs! He’s that guy on the Big Bang Theory! And he’s taking over from Jay Leno in February. Jay is swell; who can not like Jay Leno? But I think Johnny Carson (whose Tonight Show it will always be) would be delighted with this choice. Enjoy! GOLD Peter V.: “Your pal may well be right about gold going back down to around $800, but not for long, methinks. Watch this very brief video….all those Chinese may not be wrong.” THE BEST INVESTMENT BOOK I READ THIS YEAR The “I” in this case refers not to me but to someone named Meaghan O’Connell of whom I’d never heard until one of you sent me this link. (Thanks, Mike!) And now I’m in love.
Scorecard – Cumulative Cash Invested December 20, 2013March 28, 2017 So Patrick has enhanced the scorecard that tracks the suggestions made here over the years to include a column that shows how much actual cash you would have had to take out of your mattress, beginning with the first suggestion in 1996, to have amassed the theoretical $383,027 it would have grown to last night. If you had tossed $1,000 at each of the 196 suggestions made here over the years, selling when the suggestion was sold (or when the options expired or the company got acquired), or else holding on to this day . . . how much would you have had actually to remove from your mattress to place all those bets? The answer is to be found in the scorecard’s newly added Column A: Cumulative Cash Invested. It starts out $1,000, $2,000, $3,000, $4,000, $5,000 0– then jumps to $11,509 because Patrick assumes you would have shorted Amazon and lost way more than the $1,000 you had intended to bet — but, funny thing, peaks at $53,837, around the end of September 2005, and ends at around $32,301, as of the last suggestion Patrick recorded.* It’s as if your mattress scolded you, as you rolled out of bed this morning: “You owe me $32,301!” And you said, “Oh, Mattress, at the moment that’s true — and if I place more of these $1,000 bets , I could owe you even more — but I didn’t burn the money, you know. It’s turned into $378,673 in a brokerage account! So stop hocking me!” As it happens, I’m going to make two changes today, one of which will make the mattress happy: I suggest you consider taking your profit on GLD (the gold shares) and buying CISG (a Chinese auto insurance company). Because GLD was suggested twice, at $92.29 and at $102.53, and closed last night at $117.61, your mattress will recoup $2,421 (hardly a rousing gain), and because Patrick always assumes you bet just $1,000 on any column’s suggestion, your mattress will give back just $1,000 of that to buy CISG, reducing the cumulative cash outlay in column A by $1,421. See how this works? I’m suggesting you switch from GLD to CISG because someone much smarter than me thinks gold is headed back to $800 an ounce and that CISG — which sells for $5.40 yet has, he says, $8.50 a share in cash — could one day this decade be valued at more like $20 or $25. I will likely keep some of my GLD shares anyway anyway, because it always serves as a chaos hedge and might someday once again serve as an inflation hedge. In hindsight, it would have been a lot smarter to sell a few months ago at more like $150. But at least for the purposes of this scorecard (are you listening, Patrick?), we’re out at $117 — and into CISG at $5.40. Ho, ho, ho. Have a great weekend. *All this ignoring the effect of taxes. And taking a shortcut with dividends. Patrick explains: “For the purposes of this exercise, I only count dividends received when you sell the stock in question. It would just be a nightmare to track each quarterly dividend individually. This means that any stock that you didn’t sell, you aren’t getting credit for the dividends that accrued from that stock. Consequently, the chart slightly overestimates how much cumulative cash is invested. If you like, think of those dividends as offsetting the commissions.”
Greetings from the West Indies December 19, 2013March 28, 2017 Columbus thought this was China? He thought they had rum like this in China? But — as always — I digress. There is news from the competitor to WheelTug: Airbus signs MoU with Honeywell and Safran to develop electric taxiing solution for the A320 Family. This memorandum of understanding is not necessarily good news or bad news — but it is news. It’s bad if it means Honeywell and Safran will ultimately take part — or all! — of the e-taxi market WheelTug hopes to serve. (To date they have signed no actual airlines; WheelTug has signed 13.) It’s good if it helps persuade the world that “e-taxi” is really on the way. Just as everyone can’t wait for Apple to come out with a larger iPhone (can we?), which presumably will debut mid-2014 (won’t it?), and just as no one would today buy a TV without a remote control (but no one ever did until they were invented), so my hope is that five years from now passengers — and pilots and environmentalists — will be testy indeed if the commercial jet they’ve boarded has to wait for a tug to back them out of their gate, then burn fuel for 45 minutes as they inch along waiting to take off. Not to mention the passengers in rows 25 to 36 wondering why on earth they can only board and deplane from the front door jet bridge instead of the rear. The Honeywell Safran solution seems to weigh at least twice as much as WheelTug, and — perhaps fatally — will live in the main landing gear, butt to jowl with the scalding hot brakes. To a layman — and I am only that — this does not sound like the winning bid. But now I have to go have a rum funny and watch the sun set, as it surely will. My question: why did Columbus ever sail back? Because there was no WiFi? Well, now there is.
McCain v. Mandela December 18, 2013March 28, 2017 I’m glad you liked Alan Webber’s speech, posted yesterday. (I am neutral among all our fine Democratic candidates, but wouldn’t he make a great governor of New Mexico 11 months from now?) Today, I hand the mike to Bill Press, whom you may know from TV or the radio. He has such a clear voice: Can A Handshake Ever Be More Than Just A Handshake? By Bill Press Tribune Content Agency 12/12/2013 It was one of the most awe-inspiring events of our lifetime: Ninety world leaders joining 100,000 South Africans in Johannesburg’s World Cup Stadium for a four-hour-long celebration of the life of Nelson Mandela. But what did the U.S. media focus on? Not Mandela’s remarkable legacy; nor President Obama’s powerful eulogy; nor the historic and curious presence of Barack Obama, George W. Bush and Hillary Clinton on the same plane for 18 hours. No, for 48 hours at least, all the media talked about was the accidental handshake between President Obama and Cuban President Raul Castro. Judging from the reaction of cable news, you’d have thought Obama had suddenly renounced his American citizenship and joined al-Qaida. Networks paraded a posse of conservatives quick to condemn Obama for showing even common courtesy to the leader of “Communist Cuba.” Congresswoman Ileana Ros-Lehtinen called it “nauseating.” Congressman Mario Diaz-Balart accused Obama of playing nice to Cuba, just like “every other terrorist dictatorship.” Senator John McCain, as usual, outdid everybody else by comparing Obama’s handshake with Castro to Neville Chamberlain’s handshake with Adolf Hitler. Which was particularly ironic coming from a man who not only shook hands, but spent an entire evening, with Libyan dictator Muammar Gaddafi in 2009, and later tweeted to his followers: “Late evening with Col. Qadhafi at his ‘ranch’ in Libya — interesting evening with an interesting man.” So why was it OK for McCain to shake hands with dictator Gaddafi, but not OK for Obama to shake hands with dictator Castro? Just asking. The fact is, on so many levels, this whole flap is silly. First of all, Obama didn’t give Castro a big hug, high-five or French kiss. It was just a handshake. A courteous, harmless gesture, which, as Jon Stewart pointed out, you could “teach a basset hound to do.” Obama didn’t seek Castro out. He shook his hand while greeting other world leaders seated in the VIP section. By the way, what was he supposed to do? Spit in his face? Flip him the bird? It’s also worth pointing out that, shortly after shaking hands with Castro, Obama proceeded to the podium and blasted the contradiction shown by certain world “leaders who claim solidarity with Madiba’s struggle for freedom, but do not tolerate dissent from their own people.” He didn’t mention Cuba or Castro by name. He didn’t have to. Finally, let’s not forget where this alleged ill-considered handshake came down: at a memorial service honoring Nelson Mandela, the very embodiment of peace and reconciliation. If there ever were the right place for shaking hands with the enemy, this was it. Mandela even hugged his former white jailers. Had he been alive and present in the World Cup Stadium, he no doubt would have told everybody there to reach out and embrace everybody else, friend and foe. Once again, not surprisingly, the media got it dead wrong. The only thing wrong with Obama’s handshake with Castro is that it didn’t go far enough. If only Obama had seized the moment and suggested to Castro: “Come on up to Washington next week, Raul. You and I need to talk about getting our two countries back on track.” Now that would have been a true Nelson Mandela moment. There’s simply no reason to continue America’s 52-year-old economic embargo against Cuba. The Cuban Missile Crisis is long over. Cuba presents no military threat to the United States. Sure, it’s a “communist” country, but so are China and Vietnam, and we do business with them. Yes, they have an American in prison. So does Iran, and we’re negotiating with them. Even the U.S. Chamber of Commerce supports ending the embargo on Cuba so that U.S. businesses can invest in this hemisphere’s fastest-growing tourist destination, just 90 miles from Florida. Today, the embargo’s supported only by Miami’s hardcore, anti-Castro political agitators, more and more of whom are dying off every day. In the spirit of Nelson Mandela, President Obama should follow up his handshake with direct talks to normalize relations between the United States and Cuba. After all, in Johannesburg, acknowledging the lessons we can learn from Mandela, he declared: “South Africa shows we can change, that we can choose a world defined not by our differences, but by our common hopes. We can choose a world defined not by conflict, but by peace and justice and opportunity.” Cuba’s a good place to start. Bill Press is host of a nationally-syndicated radio show, the host of “Full Court Press” on Current TV and the author of a new book, “The Obama Hate Machine,” which is available in bookstores now. You can hear “The Bill Press Show” at his website: billpressshow.com. His email address is: bill@billpress.com. (c) 2013 Tribune Content Agency, LLC. I’m told that the biggest obstacle to our lifting the embargo is not opposition here in the U.S. — it’s that Castro doesn’t want us to. Having the U.S. to blame for everything, and rally against, is the glue that keeps their whole regime going.
Get Fast Or Die: Investing In Kids December 17, 2013December 17, 2013 A friend gave this speech about kids. They happen to be New Mexico kids, but his speech applies to kids in a great many places here and abroad. Whether it be modernizing our schools or getting the lead out of homes or funding pre-K programs and after-school programs — or just making sure poor families have the food stamps they need to feed their innocent children and the health-care coverage they need t0 get them proper care — how can we fail to do these things? The Business Case for Investing In New Mexico’s Children Alan Webber June 24, 2013 KIDS COUNT Conference It’s embarrassing to have to make a “business case” for doing something that’s obviously the right thing to do. After all, what’s the business case for loving thy neighbor as thyself? What’s the business case for doing unto others as you would have them do unto you? All we really need to do when it comes to New Mexico’s children is to consider the words of Nelson Mandela, who said, “There can be no keener revelation of a society’s soul than the way in which it treats its children.” And yet here we are faced with numbers about our state and our children that are unconscionably bad—numbers that are an indictment of our inability or, even worse, our unwillingness to take the measures needed to secure for our state’s children the future they deserve. Or perhaps what we have succumbed to in New Mexico is even worse, even more cynical—a gradual and growing acceptance of the status quo, simply because it is the status quo. The Scandinavians have a name for this disease; they call it “home blindness.” When you see the same thing every day, year after year, with no change and no improvement, after a while you come to confuse the way things are with the way things have to be—the way things will always be. You no longer even see the problem as a problem. You’ve come down with a case of “home blindness.” Social scientists have another name for this sickness. They call it “inner kill”—death from the inside-out. It’s the death of hope and dreams and aspirations, the death of optimism and possibilities and opportunities—and ultimately the death of self-respect. It’s what kills people—of all ages, old and young—when they simply give up and stop trying to make a difference with their lives. Knowing all that is why it is a little . . . . disheartening . . . to be the one to come before you today to make the business case for securing a bright future for New Mexico’s children. The future we all know they deserve—and the future we all know from looking at the numbers and statistics and data in one distressing category after another that they are not going to have. Not if we surrender to the status quo. Not when our state ranks 48th in high school graduation rates. Not when our state ranks 48th in teens who abuse drugs and alcohol. Not when our state ranks 49th in children living in poverty. Or 44th in teens giving birth—children having children. Or 49th in children living in high poverty areas. Or 50th—dead last—dead last in the overall well-being of our children. “There can be no keener revelation of a society’s soul than the way in which it treats its children.” What would Nelson Mandela say about the way we are treating our children? About our sense of urgency for their future? Would he ask for the business case for investing in them? In their education, their health, their overall well-being? Or would he simply cite a recent study that found that young people who drop out of high school have dramatically shorter lives? That’s right—dropping out of high school is hazardous to your health. Dropouts die younger. So if someone here in New Mexico announced a terrible, terrifying piece of news—that a horrible epidemic was ravaging our state and targeting our children, condemning them to lives of poverty and then sentencing them to premature deaths—you’d think that our elected leaders, our business and civic and spiritual leaders would all want to know the name of this disease and announce their readiness—their unified commitment—to do everything and anything to find the cure. And anyone who had the poor taste or bad judgment to ask for the business case for saving our children’s lives would be scorned. And rightfully so. We know the name of the disease—it’s poverty and educational failure. And we know the name of the cure—it’s early childhood education. So with all that said—let me turn to the business case for New Mexico’s children. Because we all know that it’s not enough to know the right thing to do the right thing. We want to know the costs and the benefits, the ROI, the bottom line on doing the right thing. We want the morally right move also to be a financially smart business move. We want to align our money and our souls. So here goes. Over the last 40 years or so I’ve had the good fortune of working on and writing about the way the world is changing—and what each of us individually and all of us together can do to bend that change in the direction we want it to go. To be change agents rather than change victims. I’ve written about it as editorial director of the Harvard Business Review and I’ve done it as an entrepreneur as co-founder of Fast Company magazine—the fastest growing, most successful business magazine in U.S. history. And I’ve worked on it as policy advisor to the mayor of Portland, Oregon, as special assistant to the U.S. Secretary of Transportation, and as an advisor to the governors of Michigan and Massachusetts. I’ve looked at the world of change as a journalist, an entrepreneur and a team member in local, state and federal governments working to create a better future from Oregon to Massachusetts—and now, for roughly the last decade, here in New Mexico. But my actual introduction to the power of change—to the challenge of change—came not in this country but in Japan. The year was 1989 and I was working as the managing editor of the Harvard Business Review when I learned that I’d been named a leadership fellow by the Japan Society of New York. I’d been given a 3-month long opportunity to meet with the next generation of Japan’s leaders in business, elected office, their ministries, and journalism. Now 1989 was a long time ago (in some ways) and so some of you may not remember what was happening back then. In 1989, developers in Minneapolis broke ground on the largest shopping mall in the United States—the Mall of America. In 1989 President Bush (the first one) signed a law banning smoking on most domestic flights. And Dan Quayle, his vice-president, gave a speech in which he said, “What a waste it is to lose one’s mind!” It was the year that the Dow Jones average passed the 2,500 mark for the first time in history. (Today, for those who haven’t checked, the Dow started the day at almost 14,800.) In 1989, David Dinkins was elected New York City’s first African-American mayor. And in 1989 students in China took over Tiananmen Square in a massive protest for freedom. 1989 was also the high-water mark of Japan’s global economic domination. Harvard Professor Ezra Vogel had written “Japan As #1,” detailing the strategy Japan was using to create a world-beating industrial policy. In everything from cars to consumer electronics the Japanese were—and I’m going to use a technical business term here—eating our lunch. So much so that Japanese companies were using their huge profits to buy up U.S. trophy properties, from the Pebble Beach golf course to Rockefeller Center. Americans were concerned . . . and rightly so. The Japanese appeared to be playing a completely different economic game, and we were caught flat-footed. In America, we not only didn’t know how to play that game—we couldn’t decipher the rules. It was as if the world had changed—suddenly, dramatically, and without warning—and we were locked in the past, with policies and programs that no longer matched reality. So my trip to Japan could not have come at a better time—not if I wanted a close up look at how change was re-shaping our future. With a business card that said Harvard Business School on one side and the Japan Society of New York on the other, I had access to the technology labs and business leaders of Japan’s most competitive companies—a front row seat to the future. What I saw was both stunning and simple. The world had changed, the game had changed and the way you won—or lost—had changed—permanently. Starting in 1989, only three things mattered. To have an economic future, you had to understand and master three powerful forces: First, Globalization—our national borders and boundaries no longer insulated us from competitors from other parts of the globe—the whole world was one big marketplace. Second, Technology—digital technology coming out of high-tech labs was transforming everything—how we worked, where we worked, how we created value, how we connected with each other and with customers. In the future, everything would be personal, portable and digital. And third, Human Capital—very simply, the team with the best people would win. Because the other two factors—globalization and technology—put everyone on the same level, the last factor—people, and their talents, their knowledge, their creativity, their drive, their entrepreneurial energy—became the one key driver of change. In the old economy we kept score only with financial capital. In the new economy, what mattered was human capital. People weren’t an expense; they were our most important assets. What I saw in 1989 convinced me that the economy we’d all grown accustomed to after World War II had vanished permanently. In this new economy, this knowledge economy, winning meant out-thinking, out-innovating, and out-executing the competition. In 1993, when we produced the first issue of Fast Company magazine—20 years ago—we took those operating principles as our manifesto. The world had changed—and business was the force driving that change. You could divide companies into two groups: the ones that got it—and the ones that didn’t. The ones that didn’t get it were still playing the old game. They were stuck in the old story. But there was a new story, one that told old companies they had to change—or lose. Adapt—or fail. Get fast—or die. The new story was being written by a new breed of leaders: They embraced change—rather than resist it. They championed competition—rather than withdraw from it. They advanced technology—rather than avoid it. They competed on innovative business models—on new ways of tapping the creativity of their people, connecting with their customers and making money. At the same time, they talked about standing for something more than just making as much money as possible. They embraced the idea that the best companies exist to help people create meaningful lives. And they treated their people as the most important part of their business. You began to hear business leaders and entrepreneurs say, “Our people are our only real asset. And unlike our office space, our desks, and our computers, these assets go home every night.” The two most influential business books of the last 25 years, one by Tom Peters, the other by Jim Collins, both reached the same conclusion, independently: when it comes to creating a winning company, they said, “the hard stuff is the soft stuff”—meaning it wasn’t finance or tangible assets that made the difference. It was the soft stuff—the stuff that involved people. Because in an economy of ideas, a knowledge economy, an economy based on your ability to out-think, out-innovate, out-execute the competition, very simply you need to attract, hire, retain, promote, reward and advance the best people—in the world. Globalization. Technology. Human Capital. For the past quarter-century, that’s been the new story—the story of the present and of the future—the story of how companies compete, how countries compete—and how states and local communities compete. Which brings me to our state and our cause today. In his best-selling business book, “Good to Great,” Jim Collins writes about the long, hard journey that companies take to achieve true greatness. Nothing happens, he says, until the leaders are willing to confront what he calls “the brutal facts of life.” You’re here today because you are New Mexico’s leaders. As our state’s leaders, it’s time for all of us to confront the brutal facts of life. We all know the numbers and we know the numbers don’t lie. There’s a reason why our state is both #50 in jobs created since the end of the Great Recession and #48 in high school graduation rates. . . . Why we are the state with the largest gap between rich and poor and #47 in children living in families where the head of the household lacks a high school diploma. Because in the new economy, economic opportunity and educational performance go hand-in-hand. Here’s what some other numbers tell us: Between 1980 and 2010, the hourly wages of young men with advanced degrees went up by 32%. For college graduates, wages went up by 20%. High school graduates saw their wages decline by 8%. They actually went down! And high school dropouts? The wages of high school dropouts went down by 14%. That’s the business case for New Mexico’s children. We are creating poverty by our approach to education. It is not being unfair or unduly critical to say that our state has failed to grasp—or to act on—the undeniable logic of the last 25 years, the iron logic of the new economy. Globalization. Technology. Human Capital. It’s as if we didn’t get the memo. Instead of investing in our children, building human capital, stressing innovation and entrepreneurship, our state business model seems as locked in the policies of the past as U.S. companies were back in 1989. We continue to emphasize tax cuts and deregulation and traditional infrastructure investments—a logic that ignores today’s reality, never mind the rapidly changing reality of the future—and pretends that if we’re cheaper than Texas or dirtier than Arizona we can lure a few low-paying, old economy jobs across our borders—assuming our un-educated or under-educated students could qualify for those jobs. We are busily preparing our children for a future that’s already past. The road ahead is filled with the curves of change, but we are steadfastly driving the New Mexico economy straight ahead with our eyes firmly fixed in the rear view mirror. Because once you accept the undeniable logic of globalization, technology and human capital, you quickly realize that our children aren’t competing with Texas and Arizona. They’re competing with Taiwan and Argentina. And they’re not even competing for jobs—not in the old sense of the word. Because the best experts tell us that by 2020 roughly 40% of the work being done in this country will be work created by the worker—we’re all being called upon to be entrepreneurs of our own lives. What that means is that we not only need to have our children begin school ready to learn, stay in school, finish high school, be college-ready, go to college, and graduate from college. We need them to learn how to out-think, out-innovate, and out-implement the competition. We need them to create their own livelihoods. Why does this matter? Again, because in the new economy, economic opportunity and educational performance are two sides of the same coin. And once again, the brutal facts of life don’t lie. Dropouts today have an unemployment rate of between 15% and 18% in our state—double that of high school graduates. Dropouts cost themselves a minimum of $200,000 in earnings over their lifetimes—and make $1 million less than a college graduate. If you want to talk about jobs, traditional jobs, dropouts today are ineligible for 90% of the jobs in the United States. And they cost us money, all of us, as taxpayers. Each class of dropouts costs the State of New Mexico $111 million in health care costs And if every member of every New Mexico high school class were college-ready, we’d save almost $32 million per year in remedial community college costs and lost earnings. Here’s the bottom line: Every $1 invested in turning a drop-out into a stay-in—into a successful graduate–returns between $1.45 and $3.55. Net net, the business case for educating New Mexico’s children is this: it’s the best investment money can buy. And in the new economy, it may the only investment that matters. There’s one other critical component to this business case—and it’s something the Japanese taught us going back to 1989. When it came to creating high quality products, we learned, the Japanese had discovered a simple business truth: it’s faster, cheaper and better to build with quality than to try to add quality later. If you do it right the first time, you don’t have to waste time and money trying to get it right later. The same is true for our children. The greatest investment we can make in their futures is in their earliest years—the years between birth and 5 years old. Those are the critical years when their brains are developing, when they are learning how to socialize with other kids, when they are developing the life-long skills that will equip them for the future—or not. Too many of our children start on their first day of kindergarten already behind. The idea is that we’ll fix it later. We’ll fix them later. But there are three things wrong with that kind of thinking: first, those kids almost never catch up. Second, the cost of playing catch-up is staggering. And third, no child should ever have to suffer the humiliation of failure so young in life—the indignity of being treated like a car under warranty that’s coming in to be fixed. Again, the numbers don’t lie: every $1 invested in early childhood education yields an $8 return on the investment. And instead of defeated kids, early childhood education produces young people who are motivated, excited, optimistic, and forward-looking. So where does this leave us in New Mexico? Very simply, we have no choice. And nowhere to go but up. The business case for New Mexico’s children is very, very simple: Education is economic development. Investing in our children’s schooling is the best economic strategy New Mexico can choose. In an economy driven by talent, we must do everything we can to encourage our children to develop and express their own individual talents. In the end, this is the bottom line: It doesn’t matter whether you make the case for New Mexico’s children as a business case or an ethical case. Because today, they are increasingly the same case. There is no conflict here between the two. What is vital for New Mexico’s children is vital for New Mexico business and New Mexico taxpayers. Think of it this way: What if New Mexico were a publicly held corporation? And what if it were accountable to its shareholders for its performance? Well, the truth is, New Mexico is publicly held. We’re the public. We’re the shareholders. That means we’re all responsible, we’re all accountable for how our public investments are performing. How our jointly owned public corporation is doing. We’re all responsible for asking the tough questions about New Mexico’s balance sheet—our tangible and intangible assets—today and for the future. What does our balance sheet say about our critical early investments in our most valuable asset—our children? We’re all responsible for challenging our state’s business model—what do our investments say about our strategy? Are we focusing on the future, where well-educated entrepreneurs create high-value opportunities? Or are we stuck in the past, pursuing a race to the bottom, where low-paying jobs go to low-educated young people? This is up to us. This is grass-roots leadership. This is the moment when we face the brutal facts of life. When we hit bottom and then set our eyes and our hearts and, yes, our wallets on the slow, steady, hard rise up the ladder. This is when we acknowledge that the old story is officially over. When we begin to write New Mexico’s own new story—a story of optimism and opportunity, entrepreneurship and innovation, self-reliance and creativity—attributes we have in abundance in our state—if only we choose to invest in them. This is when we look one last time at the words of Nelson Mandela: “There can be no keener revelation of a society’s soul than the way in which it treats its children” . . . and we pledge our time and our money and our honor—and our souls—to do right by the children of New Mexico. Thank you.
A Dynamic Scorecard December 16, 2013December 16, 2013 So here’s the new and improved scorecard from Patrick Johnson. If you click the link, it should download an Excel spreadsheet to your computer. The spreadsheet shows the 196 investment suggestions Patrick identified, in reading back through all 4,300 or so archived columns, and imagines that you had put $1,000 into each one . . . selling when I suggested you might sell or holding on to the present if I never did. The average holding period has been about four and a half years, so you wouldn’t have had to tie up $196,000 to make these 196 investments; you’d have sold some and reinvested the proceeds in others. Had you done what Patrick imagined (and ignoring taxes), you would have had $378,673 as of last night — compared to $282,388 if you had done the exact same trades but with the S&P 500 index instead. In other words, in this very theoretical exercise, you’d be $96,285 ahead. The internal rate of return would have been 14.7% versus 7.3% with the S&P 500 (or quite a bit less still just keeping your money in the bank). Friday I whimpered about counting my Amazon posts against me as short sales. Would anyone really have shorted Amazon — twice, no less, as per lines 22 and 24 of Patrick’s spreadsheet — based on the two columns I posted? Because this spreadsheet is “dynamic,” it takes just a second to see that if you eliminated Amazon from the tally (by setting the “investment results” to a neutral $1,000 for each of those two suggestions, neither a gain nor a loss) the Internal Rate of Return over the 17 years jumps from 14.7% to 16.8%. Or to take an opposite example, should Borealis really count only twice as heavily as those Amazon shorts? Patrick has the theoretical investor shorting Amazon twice and buying Borealis four times. Yet one might argue that — given the frequency with which I’ve enthused over Borealis over the past 14 years — it should count for more than 4/196ths of all the suggestions. Which would also have boosted the internal rate of return. That said, unlike these two examples, there are likely other places where a reasonable observer would say I got off easy — for example, in only getting dinged for my disastrous First Marblehead suggestion once. All I know for sure is that Patrick used his own judgment in what to include or exclude — I did not participate in any of that — and that’s fine with me. (If you find places where it appears Patrick just out and out goofed — being human — by all means let us know.) One col thing about this spreadsheet is that it’s dynamic. If you save it to your hard drive and then open it in Excel, you can update it on your own by pressing Ctrl-Alt-F5 (or selecting the “refresh all” option from the DATA tab menu). If you’re connected to the Internet, Excel will retrieve the previous day’s closing prices — you’ll see a little progress report in the bottom left corner of the screen as the screen flickers several times over perhaps 30 seconds, as each new gulp of data is retrieved. It won’t adjust for dividends or stock splits, let alone know when to add a new suggestion or sell an old one — that’s why God invented Patrick. But it’s still kind of fun. If you’re a Democrat or a moderate Republican, please give that extra $96,285 to the DNC. If you’re a Republican, please enjoy a nice trip around the world.
Spectacularly Wrong December 13, 2013 Patrick Johnson has updated the spreadsheet that contains all my suggestions since 1996, and even tweaked a version of it to allow it to update itself (not for dividends and splits and stuff, but for daily stock price changes), which will be awfully cool if we decide it’s indeed ready for prime time. For those of you foolhardy enough actually to have acted on some of these suggestions, the spreadsheet may hold some interest. I am myself one of those people, so I perused it with great interest. I saw, for example, that the rate of return on one of my picks was negative 651%. And here you thought I could only lose 100% of your money! Abashed but curious, I went to see what insanity I had inflicted on you, here, explaining why I had shorted a little Amazon in April of 1998, and here, explaining why I had shorted a little more. Hindsight is so fun. Those columns are, at the least, cautionary tales to folks like me who think they’re smart, rational, and experienced. At least I was smart and experienced enough not to short very much Amazon. (I’d also argue that none of you would in fact have shorted Amazon based on either of those two posts — not least because of my general caveats on short sales, such as, “PROMISE ME YOU WILL NOT TRY THIS AT HOME. IT’S MY JOB TO DO THE STUPID, RISKY THINGS AND TAKE THE PAIN FOR YOU.” So maybe they shouldn’t be weighted as heavily in the scorecard as some of the other suggestions. But look at me, whining to the teacher about my grade. Patrick was right to include Amazon along with the rest, and that’s that. I’m not 12 years old anymore, haranguing Mr. Alexander about the B+ he gave me in Ancient History. Mr. Alexander and I remain friends to this day, though I clearly deserved an A-. I can still tell you more about Attila the Hun than all but a couple of you would want to know. But I digress.) Apparently, if, since 1996, you had put $1,000 into each of the 200 suggestions Patrick has identified — and sold if I suggested selling — you would today have $380,000 or so — versus about $283,000 if you had bought and sold the Standard & Poor’s 500 Index instead. About a 14.8% internal rate of return for the stuff here, Patrick calculates, versus 6% from the S&P. (All this ignoring the effect of taxes.) More to come. But if you have time, I think you may be amused by those two spectacularly bad calls on Amazon. From whom I have this week alone bought 12 pairs of argyle socks, a jumbo pack of Nectresse, Good Courts, My Promised Land, a pair of 514 Levi’s (too green?), another Sodastream, and a musical instrument — not to mention the final episodes of Breaking Bad at $1.99 each, streaming directly through my TV. Retailing has changed a bit since 1998.