Fiddling while Rome is burning

You're probably asking yourself how in the world could John Thain spend $1.2 million redecorating his office while the firm is going down in flames all around him? According to CNBC, Thain paid "$837,000 and his purchases included $87,000 for area rugs, $25,000 for a pedestal table and $68,000 for a 19th century credenza"
Mr. Thain is in good company. Michael Smith, the interior designer who Thain used, has also been hired by First Lady Michelle Obama to redecorate the White House.

When I heard about this story, I thought that it sounded very 1987 and that Darien Taylor, the Darryl Hannah character from Wall Street, was his designer.

Again, just like with the Madoff scandal, I am happy that things like this are coming to light, but not because I think that it will usher in a new era in corporate governance. Wasn't Sarbanes-Oxley supposed to do that? Hell, wasn't the creation of the SEC in 1934 supposed to do that? It's just yet another sign that we're working our way slowly through the muck.

Inauguration Day!

What will Obama mean for my stocks? I don't know. I won't even venture a guess. That's been done already by more than enough people, including Jim Cramer.

I'm taking a few moments to think about the new business landscape that we have. Citigroup has finally thrown in the towel on the financial supermarket concept. Jim Jubak in his latest article opines that Bank of America is heading down that same road. What about JPMorgan Chase? CEO Jamie Dimon cut his teeth and Citigroup as Sandy Weil's right hand man. It doesn't appear that he's given up his former mentor's quest. Are he and Lewis engaged in reckless empire-building? Time will tell.

I would not be a buyer of common stock in Citigroup or Bank of America until the government signals that that the common won't be wiped out.

What is risk?

Other than value, can you think of a more misapplied word in investing? Risk is either maligned or worshipped, not unlike volatility, depending on whether it worked out for you or not.

I've heard a lot of definitions for what risk is. The most common measure, beta, is really a measure of volatility vis a vis the market as whole. That seems lacking. Is VaR sufficient? It should go without saying that the ratings of brokerage firms and ratings agencies aren't worth much, but people still manage billions of dollars based on these complicated fictions.

Joe Nocera recently wrote a piece for The New York Times Sunday magazine about risk. It's a good, thought-provoking, well-reported piece, but it didn't help me invest my money better(I must admit that such a lofty goal probably wasn't Mr. Nocera's point).

My point is that risk is a highly personal topic, no matter how you quantify it. I know that it's easy to look to your mutual fund manager or financial advisor to handle risk management, but don't abdicate this important role. You might not like the job they do.

10 New Year's Investing Resolutions

New Year's is a good time to take stock of your portfolio. If you can do 2 or 3 of things in the new year, than you'll be a much better investor than you were last year.


1. Don't buy a stock just because it's suggested in a magazine or on a blog.

2. Practice asset allocation; rebalance your poftfolio every quarter.

3. Turn off CNBC.

4. Pay attention to spreads, commissions, and account fees.

5. Meet with a financial planner.

6. Examine every holding in your portfolio and make sure that it meets with your larger investment goals.

7. Examine the performance of your mutual funds; consider switching to low-cost index-funds and/or ETFs.

8. File your brokerage statements from past years.

9. Learn a new stock valuation metric.

10. Stick to your investment plan.