Archive for the ‘Site Purpose’ Category

About the Author and the Blog

Wednesday, December 30th, 2009

“Wisdom Speaker” is a working physical scientist living on the east side of the San Francisco Bay Area.  Wisdom Speaker is between 30 and 50 years old and has a top-tier Ph.D. in his field.  W.S. also has a spouse, 2 children in school, a house with a mortgage, and occasionally a sharp tongue. Like many his age, W.S. manages a portfolio that is “big enough to worry about, but too small to retire on”.

For years, W.S.’s spouse led the family to develop strong saving habits, and over the years they invested using conventional buy-and-hold, dollar-cost-averaging, asset-allocation methods. But in 2005 realized that conventional financial wisdom was no longer adequate to the times. Unfortunately this occurred after buying a new home near the peak of the 2000-2006 housing bubble. Although the home equity could not be saved (for some years, anyway), the housing experience “woke them up” to the speculative/Ponzi financial environment. Time was invested in a more detailed financial education. Abandoning “buy-and-hold” and taking detailed control of the household finances, W.S. went to cash and avoided the 2008 financial panic.

The family finances came out well ahead of their 75/25 allocation benchmark, but now the question arises as to how, exactly, one should invest for sustainable gains going forward.  The classic definition of an “investment operation” is one which, “upon thorough analysis, promises security of principal and a reasonable rate of return” (Benjamin Graham). In short, a sustainable gain!  Now, some of what is often considered speculation is in fact investment (e.g. trading with a high probability of success, but a short time horizon).  On the other hand, the lesson America failed to learn from Enron and the dot-coms is that too often, what is sold as “investment”, is actually speculation – or worse, fraud!  Clearly we cannot trust others to do our “thorough analysis”, guarantee “security of principal”, or deliver a “reasonable rate of return” for us.  How now to invest?  W.S. hopes to share what he has learned about investing for “Sustainable Gains”, and to learn from others with similar interests.

W.S. also believes that Graham missed a critical element of what constitutes an “investment”.  There is an ethical or moral dimension to investing:  one must put one’s time and treasure to good use, and be able to sleep well knowing what the “investees” are doing with one’s treasure.  An “Investment Operation” must be one which “upon thorough analysis, promises security of principal and a reasonable rate of return while putting capital to a use one can agree with.  Wave upon wave of financial scandal shows that this issue is far wider than “socially responsible” index fund sellers would have one believe.  Even the simple act of buying a CD, or a T-bill, has an ethical component. So “Ethical Investing” will be another theme covered here.

Another issue that comes up almost immediately is that the fiat money we use today isn’t wealth, or capital, or anything really.  It’s a bunch of carefully arranged electrons (or paper, or metal disks, but always of minimal intrinsic value) which record the exchange of debts.  But debt is not capital!  Capital is the surplus of production over consumption.  Debt is an agreement to deliver future production in exchange for current production.  True wealth might be better defined as accumulated resources to meet human needs.  W.S. has only dabbled in this area so far, but understanding the “Nature of Wealth” is vital to having “Sustainable Gains” in this area, and will be another theme here.

Finally, there is the eternal issue of time. One can often earn more money, or save it, but one’s time is far more strictly limited. Time spends itself whether one likes it or not, one never knows how much one has left, and it’s darned hard to get more!  But perhaps careful “Time Investing” (not just time management), particularly in conjunction with financial investing, can lead to sustainable gains (measured in terms of any personal goal) as well?  At any rate, between work, family, and personal needs, W.S. feels time-poor, and struggles to fit all the joys and sorrows of life into the 24-hour day, so “Time Investing” will be another theme here.

Hope you enjoy the site!  I look forward to seeing where this goes…

What is the Squid?

Wednesday, December 2nd, 2009

The original “Great Vampire Squid” reference was by Matt Taibbi, in “The Great American Bubble Machine“, printed in Rolling Stone in July, 2009.

Here at DoNotFeedTheSquid, I take a broader view, but let’s start with the original:

“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.”

The broader view taken here is that the Squid is a collective parasite, consisting of any person or organization (not just some parts of Goldman Sachs) which siphons human time and natural resources away from truly productive enterprises. (* This definition may evolve as we delve further, but it’s a good place to start…)

Unfortunately the examples are all too numerous. The Squid includes:

  • Failed financial and industrial corporations which squander billions of taxpayer dollars while refusing to reform their worst practices and unwise incentive structures.
  • Politicians, media, and their followers which glorify sensationalized trivia, while neglecting to study and understand the real news. (Meanwhile, bloggers eat their lunches, and historians prepare to excoriate them for nonfeasance or “failure to act properly when required to do so”.)
  • “Consumers” of all kinds, who fail to think before buying, and consequently let the squid feed on them unimpeded.
  • “Investors” of all kinds, who settle for too little and fail to demand quality products from the financial sector. (We can start with the fraud-ridden mortgage system and crappy 401(k) plans with high fees, but the list is much longer!)
  • And so on…

Part of the problem is that “We have met the Squid, and they are Us!” The Squid is not so much an organization, or a person, as it is a mindset, paradigm, or worldview. It’s a worldview which tolerates fraud, tolerates incompetence, tolerates inefficiency and waste. It’s a worldview which many of us (this blogger included) fell into during the long credit boom, when prosperity seemed boundless because money and credit were abundant… but those days are now over.

Many of us, perhaps nearly all of us who grew up during the Long Boom, were raised to believe in a system that worked for all. But we now see that the system worked far better for some than for most, and that during the Lost Decade of 2000-2009, declining incomes relative to inflation actually robbed the many to pay the few.

The Squid brought us wealth inequality and far too many individuals who feel that anything goes as long as no one catches them. As a result of this and other shortcomings, that system is now broken… and yet those most responsible for its failure have not been held accountable.

Here at Do Not Feed The Squid, the goal is to break the faulty mindset, to crack the broken paradigm, and to restore a more productive worldview. We feed the squid whenever we fail to think realistically about the human systems we have created, and let them run amok at our shared expense. We must learn from the recent failures, and fix the systems involved, but it is difficult to do so while the flawed mindset remains dominant!

I myself have much to learn, and can only dimly see the direction to go, not the destination to be reached. But I hope others will join me on this journey, and we will be able to make faster progress together. Hence doing this as a blog!

Readers may also be interested in my other blog, Investing for Sustainable Gains, which will focus more specifically on individual investing ideas. Do Not Feed The Squid is a more philosophical look at the broader national crisis.

A blog is born

Saturday, July 4th, 2009

Investing for Sustainable Gains is launched!  The goal is to help busy people manage time and money to meet personal goals efficiently, independently, and with less risk of catastrophic loss.