On Risk

Its funny how the human mind deals with risk. Last year at this time, no one but no on wanted to invest in stocks, you had supposed gurus saying put all your in a mattress and if you brought up stocks or investing at a party the person you were talking to would flee. 

Here is the thing, you didn't need to be Bruce Berkowitz to see that stocks were cheap, you just need to be objective and analytical. If all you did was buy the S&P index fund a year ago, then you have over 30% gains by today. If you bought individual stocks you probably did even better.

Now, the market is up and if you go to parties people actively talk about investing and "getting back in", why start now? Why buy once the prices have risen so much using dollars that were sold on the cheap in the crisis? Where is the logic? People are clearly more comfortable buying things once they have risen in price, but if you get an Ivy League MBA you are taught the fairy tale markets are rational. 

Of course, its not logical, and neither is how we deal with risk. Your required reading for today is the great Jason Zweig's Your Money and Your Brain. This is a book about neuroeconomics, but its really about risk.

This all brings us to Jeremy Grantham's Q4 letter which contains good news (Volckerization) - wait wise regulation is helpful? Bad news - corporations are now people - wtf?!? Does this mean APT is identity theft? And then a decade review that includes following:

Education and training are the keys to increasing wealth on a sustainable basis and the U.S. is in danger of losing its once large edge here.

I am sad to report but I see nothing to refute this. Its one thing to run large fiscal deficits, its another thing to run trade deficits on top of that, but to compound that by not investing the money in something that will pay back over time - for example education - makes no sense. 

When FDR dug us out of Depression 1.0, he ran crazy deficits but built up a ton of infrastructure that we're still leveraging today

Today we are again running deficits to dig out a financial hole - but where is the payback coming from? Where is the education stimulus? I work on projects all the time that are primarily built outside the US, I have no problem with this. I realize the world is flat  the US Is not gonna win all the bids,but here is the thing - I am not sure that based on current trends the US will even compete. Why not sponsor a High tech High School in every state or every major city? There are big honking problems to work in robotics, biotech, fabs and nanotech. There's tons of engineering to be done in computers. Do you want to send that all outside the US? What do we have to do to move the conversation towards investing for the future rather than spending in the present? 

In many ways this is an easier problem to solve than FDR, he had to invest in expensive infrastructure projects, he was in the industrial age. We are in the information age, we need knowledge workers, all we need to do is invest in people - how hard is that?

So coming full circle back to the beginning of this post, just like the financial nuclear winter of 2009 was a great time to buy stocks and the relatively fat and happy winter of 2010 is less so, isn't the time when you are paying for (but not necessarily sourcing/delivering) big tech projects the time to invest to make sure you pay/source/deliver those same big projects in the future?