Thanks to John Mauldin (and Plutarch) for this:
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” – Plutarch, Greek historian, first century AD
Someone should tell the Koch brothers.
If today’s Republicans get their way, they will lower the estate tax rate on billionheirs — to zero — freeze the minimum wage, cut tax rates further for the rich and food stamps for the poor . . . and find other ways to continue widening the imbalance — “the most fatal ailment of all republics.”
If we pledge allegiance to the Republic, and if Plutarch was right, then today’s Republican Party should really consider reverting to its moderate, reasonable, grand old self. And until it does, my moderate Republican friends should come out in droves this November to elect moderate Democrats.
Beyond cool. Try to find 20 minutes to watch the President’s remarks on the Affordable Care Act from yesterday afternoon.
The law is making all Americans more secure — a couple tens of millions of them very directly, because they have health insurance coverage they never had before; more than a hundred million a little less directly, in that they no longer have to worry about “lifetime caps” or (should they want or need to switch jobs) “pre-existing conditions” or (soon) the prescription drug “donut hole”; and all 320 million of us in the sense that a healthier population with less-rapidly-rising health care costs is more competitive and thus more secure.
All this while cutting the projected deficit . . . which was possible, in large part, because the law upped the tax rate affluent investors are asked to pay on dividends and capital gains — albeit not to rates as high as they were paying in Ronald Reagan’s day — which covered the cost of an awful lot of health care security.
A good thing that our friends across the aisle tried more than 50 times to repeal, worked hard to undermine, and still seek to disparage at every turn.
Watch the way the President talks about this.
GENIX, GONIX, GARIX
Eric Schoenfeld: “You recommended GENIX and GONIX earlier this month. Just wondering: how would you assess how much of one’s savings to split between those two? And — part 2 — how can the preeminent evangelist of low-expense investing recommend such high-expense vehicles?!”
☞ For now, each has a $250,000 minimum. There’s a chance that may be sharply reduced but in the meantime, I should have told you about GARIX, which is pretty close to what you would get if you blended equal portions of GENIX and GONIX.*
I know this sounds a little Goth — were these characters in a Hobbit movie I didn’t see? Or from Game of Thrones?
But the basic notion of all three is pretty simple. Namely, what if you had some really, really smart people come up with algorithms that ranked stocks two ways:
- First, how intrinsically “good” is the business? (Across quite a few metrics, Google seems to be a pretty good business; whereas airlines, by their natures, are horrible businesses — enormous fix costs combined with vicious price competition to fill seats that would otherwise go empty.)
- Second, how “expensive” is the business?
And what if you then bought the least expensive “good” businesses and sold short the most expensive “bad” ones?
While weird things could happen in any given year, over time — if you did this really, really well — there’s reason to think you’d have a pretty strong wind at your back.
Knowing the guy who heads this all up as I do, my guess is that he and his team have done it really, really well — and (to address Part 2) by more than enough to justify the otherwise horrifying 2.25% annual management fee.
(Fundamentally-weighted or value-weighted index funds — which are the stock-market tool of choice I suggest in my book for most of that portion of a person’s money she or he wants in stocks — have much lower expense ratios.)
Because these funds are short as well as long, they may very well under-perform when the market is shooting up; but should do less badly when it is tanking. So these funds may be safer than index funds.
And because the cheap stocks of good companies are likely to do well and the expensive stocks of bad companies selling are likely to do poorly, my hunch . . . which of course it comes with no guarantee! . . . is that these funds will, over time, meaningfully outperform even my preferred index funds.
As a result, I have a good chunk of my own IRA in GENIX and GONIX.
One last point:
Within an IRA, tax efficiency is not an issue.
In a taxable account, it very much is — which is another reason I’ve long leaned so heavily in favor of index funds, which expose you to minimal taxes until you eventually sell with, one hopes, a low-taxed long-term capital gain.
But I wouldn’t rule out GENIX, GONIX, or GARIX in a taxable account, because the manager’s team is likely to manage well for taxes, too. You’d almost surely have somewhat higher tax exposure each year. But you might also have higher returns.
*If you own equal amounts of GENIX and GONIX, you are effectively 60% long the market, because together the funds will be 145% long and 85% short. GARIX, which is close to a blend of the two, is designed to be 120% long the market and 60% short — again, net 60% long.
Quote of the Day
Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.~John Stuart Mill, 1867 (Like shopping centers in the middle of the desert. Or millions of pages of legal documents.)
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