One Small Voice: The Journal of Peter Saint-Andre


Investing for the Rest of Us

2016-05-28

Back in 2009, I wrote a blog post entitled Financial Thinking, in which I summarized the results of six months' research on investment strategies after the 2008-2009 market crash (informed both by practical experience and by my grounding in economics, history, psychology, and philosophy). Since then I've done a lot more thinking and research; more pointedly, of late a few friends have asked for my thoughts on the topic. Thus I figure it's time to provide a more complete report on my thinking about finance and investing.

First, I still agree with much of what I wrote in that earlier post: focus primarily on your career, pay yourself through aggressive savings, strictly limit your spending, don't get in debt, have a big rainy-day fund, don't trust professional financial advisors to have your best interests at heart, etc.

Second, it's unrealistic to believe that you as an individual investor can beat the combined brain power and market power of Wall Street. Think of it this way: let's say you're a doctor or a small business owner or whatever; would you expect on your own and in your spare time to write a computer program that would outsmart the combined brain power of the engineers at Google, Apple, Microsoft, and every other software company on the planet? No way. Yet why do you think that you can beat Wall Street? Don't even try!

Third, most individuals are constitutionally incapable of investing intelligently. Read up on behavioral finance. Its conclusions are sobering: most people buy high and sell low because they let their emotions get the best of them, especially when the investing environment becomes stressful. You might think you're immune, but there's a high probability that you're not.

Put all this together, and what you need is a low-stress investing method that doesn't require a lot of your time, is very safe, and yet still has a track record of handily outpacing inflation over the long term.

It sounds too good to be true, doesn't it?

Maybe it is. But I think I've found something that comes close.

It's called the Permanent Portfolio, and the strategy is to invest as follows:

If one of the components goes above 35% or below 15%, rebalance back to 4×25%.

That's it.

There are no newsletters to buy, no 10-K statements to read, no advisors to pay. You can do it all yourself without day trading or even actively playing the markets.

Yet since 1972 (when the price of gold was deregulated), the Permanent Portfolio method has returned a compound annual growth rate in excess of 9%, with very little stress and worry.

The Permanent Portfolio method (not to be confused with the Permanent Portfolio fund) was created by the late financial writer Harry Browne. Although his book Fail-Safe Investing provides a fine introduction, a more recent book by Craig Rowland and J.M. Lawson (entitled simply The Permanent Portfolio) goes into much more depth. There's also an active discussion forum at gyroscopicinvesting.com, which is a great way to share insights with fellow "PP" enthusiasts (even I, busy though I am, post there from time to time).

Finally, I'll remind you of Warren Buffett's first two rules of investing. Rule number one is: don't lose money. Rule number two is: don't forget rule number one. The beauty of the Permanent Portfolio is that each of the four buckets does well in some environments and offsets losses in other buckets. Of course, past performance is no guarantee of future returns and you need to always be on your toes regarding potential game-changing events. Yet together, stocks, bonds, cash, and gold have weathered many a storm and give every indication that they will continue to do so. Read the aforementioned books (along with all the other approaches you think might work, such as dividend investing) and realistically consider all your options; I've done so and concluded that the Permanent Portfolio is the most reasonable investing approach for folks who don't make their living in financial industry.


Identity Self-Defense

2016-05-22

A friend of mine was the victim of identity theft recently, so I did some research and took action to further strengthen my identity self-defenses. Here's what I learned...

First, there are many measures that lots of folks don't take advantage of, for instance: paying cash for typical expenses such as groceries, using your credit card (not your debit card) for expenses where you want to take advantage of return policies, using your debit card only to take out cash and then only inside the bank branch (even ATMs outside bank branches have been hacked), regularly monitoring your accounts, setting up notifications with your bank and credit card companies (e.g., number of purchases, purchase amounts, ATM withdrawals, declined transactions, password and other account changes, suspicious activity), using strong passwords for online accounts and changing them regularly, even getting free credit reports once a year.

Second, there's a small world of stronger protections that aren't as commonly known:

  1. Ask to get on "do not mail" lists for free credit card offers, since these are an attack vector for people who might steal your mail.
  2. Create online accounts with all the usual services (IRS, Social Security Administration, etc.) so that someone else doesn't do so with your information.
  3. Set additional passwords or activate voice recognition features with banks, investment companies, and mobile phone providers so that someone can't complete a transaction (such as emptying your bank account or switching your phone number to a hacked phone and thus being able to change all manner of other accounts) even if they know your address, SSN, and other personal information. Personally, I like being asked for my special password every time I go into the bank to take out some cash. :-)
  4. Consider freezing your account with the credit reporting companies (Equifax, Experian, and TransUnion) so that no one - such as someone who happens to have stolen your SSN - can pull a credit report on you without your knowledge. It's easy to unfreeze it if you need to and then freeze it again (although depending on what state you live in there's often a fee to do so).

Be safe out there!


Ethics and Politics

2016-02-19

My understanding of philosophy is simple: the love and practice of wisdom. Immersed as I am in the ancients and a few moderns such as Thoreau, I try to live a better life and to have a positive influence in the limited sphere in which I can be effective: to be a good husband, a good friend, a good co-worker, a good neighbor; to exercise financial prudence and mental clarity and physical health and environmental stewardship over my little plot of land; to help make my community a better place to live in and my company a better place to work in; and, at a more personal level, to achieve emotional self-control, to make the best use I can of my limited time on this earth, and to continually improve as a human being. This kind of self-goverance sounds so simple, yet in practice I find it continually challenging.

Beyond self-governance lies communal governance. My perspective on politics is again informed by the ancients, as well as by Jeffersonian localism (divide the counties into wards!) and by my upbringing in a town of 2,000 people with its New England tradition of local decision-making and town meetings. To my mind, democracy is literally people power: what happens when a small group of people decide to govern themselves. The current political arrangements in America are not democracy. The ancient Greeks opposed elections (preferring random selection of "representatives") because they feared that it would lead to oligarchy. And they were right!

One of the many problems with oligarchy is that tends to devolve into kakistocracy - rule by the worst. Abraham Lincoln once said (and I agree) that "no man is good enough to govern another man without that other's consent." The sentiment seems quaint now, when the "elect" who purport to govern the people are some of the worst among us, not the best or even the good. The problem is more serious the farther that the government is from the people - in general I would put more trust in a town or county government than I would in a state government or certainly the federal government (I call D.C. the "den of corruption"). Indeed, my involvement in governance is limited to something like Jefferson's ward, in the form of the civic association in my neighborhood of ~250 households.

Thus when folks get all worked up about politics - by which in a presidential election year they mean national politics - I mostly shake my head and sigh. Instead of spending even a few hours a month reading and watching and debating and agonizing over my meaningless vote in the primaries or caucuses or general election, I would rather devote that time to better governing myself and to helping with the governance of a true community in my neighborhood. Perhaps someday I'll extend that sphere of involvement to the county I live in, but I see no good reason to give much attention to state or national or international affairs when it is so much more productive for me to devote myself to my own ethical improvement (which is the only basis for healthy political action in the first place).


Living in Earnest: Kurt Keefner's Concrete Ethics

2016-02-19

Have you ever noticed those people who live in their own reality, and who go through life as if they're the center of the world? Whether their act is being cool or earthy, macho or sweet, they're essentially pretending their way through life instead of authentically living it.

Kurt Keefner noticed, too, and instead of shrugging it off he thought about the phenomenon for years and eventually wrote a book about it, entitled Killing Cool: Fantasy vs. Reality in American Life. I liked the book so much that I agreed to review it for Reason Papers. You can find my review here (eventually I'll post it on my website, too, but until then I'd encourage you to check out Reason Papers because it's a fine journal).


Joining Filament

2016-01-04

It was 17 years ago (January 4, 1999) that my dear friend Jeremie Miller announced the Jabber open-source project, which in many ways laid the foundation for the messaging systems that billions of people use today (e.g., huge services like WhatsApp and Apple iMessage got their start using Jabber/XMPP, even if some of them migrated to special-purpose technologies later on). Although when I got involved with the Jabber project in November 1999 it felt like I was late to the party compared to folks like Temas Muldwowney (contributor #2), clearly I've found plenty to do in standardizing and extending XMPP over the last 16+ years.

Few people get a chance to change the world once, as we did with Jabber. Even fewer get a chance to change the world twice, but starting today I'm doing exactly that by joining Jeremie and Temas and the other great people at Filament, an Internet of Things startup that is revolutionizing communication and interaction for the trillions of devices that will be coming online in the near future.

Indeed, the combined hardware/software stack that the Filament team is creating is even more deeply inventive than Jabber, and really takes the original Jabber ethos to the next level by enabling devices to be fully autonomous (without the need for accounts at centralized or federated services in order to communicate with each other). Plus the Filament technology stack is about much more than just communication, because it combines secure, private communication with cutting-edge methods for smart contracts and blockchain transactions to enable the exchange of economic value, not just messages. I like to think of this as the extension of voluntary exchange from the level of millions of firms (microeconomics) and even beyond the level of billions of individual humans (nanoeconomics) to the level of trillions of devices (what we could call picoeconomics).

During discussions with members of my new team, the potential of what Filament is building has repeatedly boggled my mind - and I think big in the first place! Of course, potential doesn't pay the bills, so I'll be strongly focused on deploying real-world applications, forging long-term business relationships, and laying the foundation for lasting success.

The hardest part of joining Filament has been leaving my friends at &yet. Happily, I will maintain an affiliation with the "yetis" as an informal technical and business advisor, contributing to the company's overall strategy with a special focus on realtime collaboration. I will also continue to serve the Jabber/XMPP community in several capacities, continuing some of the initiatives that Jeremie, Temas, and many others started way back in 1999.

That said, my primary focus now is helping to nurture the seeds that the Filament team is planting, and to change the world yet again on an even larger scale. I could not be more excited!


Monadnock Valley Press Annual Report 2015

2015-12-31

Because I spent most of my time in 2015 working at my day job and on the side researching the book I'm writing about Henry David Thoreau, I published very little in 2015 at the Monadnock Valley Press - really just A Doll's House by Henrik Ibsen and the Meditations by Marcus Aurelius. Here's hoping I can do better in 2016. We also earned only $150.63, a 50% drop from 2014. I'll need to talk to our director of sales and marketing about that... ;-)


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