The Simple Engineering That Will Keep NYC's L Train Rolling

Ever since the last of the brackish water slithered out of the Canarsie Tunnel in the aftermath of 2012’s Superstorm Sandy, New Yorkers have been bracing for the pain. Public transit officials have long warned that the water damage to the 94-year-old tunnel, full of just-as-old subway equipment, would eventually require a long, painful, deeply inconvenient rehabilitation. That’s the tunnel that runs under the East River, carrying many of the L subway train’s 400,000 daily riders from popular Brooklyn neighborhoods like Williamsburg and Bushwick into Manhattan.

The surgery was scheduled for April 2019, when the stretch of L train that takes New Yorkers across Manhattan and into Brooklyn was scheduled to shut down for a 15-month repair job. Ahead of what they officially deemed the “L-pocalypse,” local officials created piles of plans to ramp up bus service, encourage biking, and run new ferry routes, and everything else they could think of to keep all those commuters from taking to cars and making already bad traffic fully catastrophic.

Those plans (as well as wilder ones proposed by concerned citizens) became a lot less necessary Thursday morning, when Governor Andrew Cuomo called a surprise press conference to proclaim that no, the L train won’t close completely, and yes, it will still be fixed for the future.

The new plan for the next few years is to keep the train open and running as normal during weekdays, whilst doing repairs on nights and weekends (the details remain fuzzy). The board of the Metropolitan Transportation Authority, which runs the subway, has yet to adopt the new plan, which was proposed by a commission of half a dozen engineers based at Columbia and Cornell Universities that Cuomo assembled last month, two years after the decision was made to close the line. But the agency put out a press release Thursday afternoon saying it “accepted the recommendations.”

Curious politics are clearly at work here, but New Yorkers are unlikely to care, as long as the subway keeps running. And if it does, it’ll be thanks to two bits of subway engineering infrastructure: benchwalls and cable racking.

Let’s start with benchwalls. If the train stopped in the tunnel and you had to get out, these are the stretches of concrete, running along each wall and resembling big benches, that you’d be walking on. Facilitating emergency exits is one of their main functions—without them, you’d have to jump out of the train, onto the ground and risk hitting the third rail. Benchwalls also hold most of the goodies that make the subway work, including the power and communications cables. When workers were building the line, which started service in 1924, putting the cables in the concrete was the best way to protect them from things like hungry rats and water damage.

Over the past century, those benchwalls have started to deteriorate, a process accelerated by the flooding from Hurricane Sandy. Explaining its full shutdown plan in 2016, the MTA said the tunnel’s bench walls “must be replaced to protect the structural integrity of the two tubes [east and west] that carry trains through the tunnel.”

Replacing these things involves jackhammering away concrete, removing the rubble, replacing the cabling inside, setting new concrete, and having it dry. It’s work you can’t do overnight or on weekends, because any one section takes several days. And you can’t run trains without leaving a walkway to lead people to safety in an emergency.

The new plan involves giving those benchwalls a bit of a demotion. They’ll still be used for emergency egress, but they won’t hold the cables anymore. Instead, the L train will use a “cable racking” system, in which new power and comms lines will be strung up and attached to the sides of the tunnel, above the benchwalls. Turns out, their protective jacketing has advanced since the Prohibition Era. “We’ve had tremendous progress in materials,” says Peter Kinget, a Cornell electrical engineer who served on the panel. , If the jacketing catches fire, it doesn’t produce noxious fumes. It’s impervious to vermin and H2O, obviating the need for the concrete armor. The workers will also shore up the sections of benchwall that are crumbling with fiber reinforced polymer, Cuomo says, leaving the old, inactive cables entombed inside.

That decoupling of the benchwall’s duties is a big deal, because it makes the work much easier to execute. You can cut back service at night and on weekends (by running trains in just one of the tunnel’s twin tubes) and have workers slip underground, setting up the racks and new cables segment by segment. During normal hours, the train operates as it usually does, pulling power from the cables already in the benchwalls. Once the work is done, the MTA will switch the trains over to the new set of cords.

Cable racking has been used for new metro lines in London, Hong Kong, and the Saudi capital of Riyadh, Cuomo says. This would be its first use in the US, and the first time it’s been used to fix up an existing line.

“It’s a clever solution,” says Matt Cunningham, a civil engineer and global director of infrastructure for Canadian engineering firm IBI. It’s cheaper and easier than replacing all the cable-filled benchwalls, and it’s a proven method. “It’s going to work.”

Which brings up the unanswered question of why this idea is just surfacing now. Why not before the MTA decided on the full shutdown, then spent two years preparing for it? It makes Cuomo the politician who averted the traffic-spewing L-pocalypse—but it also makes one wonder why he didn’t come to the rescue earlier. (He’s been governor of New York since 2011.) In his press conference, he presented this as new solution, which is true if you compare it to the techniques used to build the subway in the previous century, but not if you take a slightly narrower view. “It’s not new technology that’s only now become available,” Cunningham says.

Of course, limiting service during nights and weekends to make this fix will still inflict some suffering, and the MTA has a terrible record of mismanaging this sort of operation, so any promises about deadlines or costs should be doubted. “You’re not getting a root canal on five teeth, you’re getting a root canal on three teeth,” says Allan Rutter, of Texas A&M’s Transportation Institute. “There’s gonna be pain.”

In infrastructure as well as in dental surgery, you’ve got to accept some drilling and discomfort. But less is definitely more.


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Netflix Just Made a Truly Insane Announcement on Twitter. (But Wait. It Might Actually Be Brilliant)

Now, Netflix has another big tweet — this time making an announcement about the insane social media challenge that the Netflix movie spawned. And if the first time people reacted with disbelief, this time they’re reacting with awe, because it’s truly brilliant.

The movie, if you haven’t seen it, stars Sandra Bullock, and involves some kind of supernatural power that tracks her and her children. The only way to escape it, is to blindfold themselves and rush to safety.

This being 2019 (happy new year by the way), if you combine a viral piece of entertainment with a weird physical twist, you get a challenge that goes viral: people doing (or pretending to do) all kinds of dangerous things while being blindfolded, and posting them to social media. 

Emphasis on dangerous, of course. My colleague Chris Matyszczyk has a perfect example.

Netflix, naturally, took to Twitter (where else?) to warn people to dial it back:

Can’t believe I have to say this, but: PLEASE DO NOT HURT YOURSELVES WITH THIS BIRD BOX CHALLENGE. We don’t know how this started, and we appreciate the love, but Boy and Girl have just one wish for 2019 and it is that you not end up in the hospital due to memes.

Now, here’s the thing. There’s viral, and then there’s “Netflix tweets about it viral.”

Because as The Washington Post reports, some of the #BirdBoxChallenge videos didn’t actually have that many views until after Netflix posted its tweet.

But once Netflix said things were dangerous: Look out.

Within 24 hours after the tweet, the Netflix warning has another 54,000 retweets and 271,000 likes — all of which adds even more publicity to the big hit the company already has. 

It all adds up to something pretty amazing. On the one hand, Neflix has done the super-responsible thing and asked its viewers not to behave dangerously while posting online homages to Netflix’s super-popular movie.

And on the other hand, Netflix is also pouring gasoline on the fire and ensuring that even more people pay attention to the challenge, the movie, and Netflix itself.

I’ve reached out to Netflix to ask for context. No reply yet. While we wait, let’s just reflect on the challenge, the tweet, and the fact that insanity and brilliance so often seem to be two sides of the same coin.

That, and also how whomever posted the tweet for Netflix started out by saying, “Can’t believe I have to say this…” instead of the corporate “we.” I kind of love that.

Saudi Arabia Won't Be the Last Country to Censor Netflix

When news broke on New Years Day that the Kingdom of Saudi Arabia had censored an episode of the Netflix series Patriot Act with Hasan Minhaj that’s critical of Crown Prince Mohammed bin Salman, it wasn’t a surprise. An outrage, yes. But not a surprise.

Saudi Arabia has a long history of censorship and human rights abuses, and the anti-cybercrime law the kingdom says the episode violated dates back to 2007. And though the rise of bin Salman was greeted by the US and Silicon Valley with enthusiasm, his reforms (women are finally allowed to drive) have come alongside continued abuses (hundreds of women “disappeared” for their activism). But the Netflix incident is also indicative of the pressures tech companies face beyond Saudi Arabia amid a global trend toward digital authoritarianism that shows no sign of slowing.

Minhaj, an American comedian, devoted an episode of his show to the Saudi regime on October 28, weeks after the murder of journalist Jamal Khashoggi at its embassy in Istanbul. The CIA later concluded that bin Salman directly ordered the hit on Khashoggi. “But he has been getting away with autocratic shit like this for years with almost no blowback,” Minhaj says during the show, and suggests that after years of human rights abuses, it’s finally time for the US to reassess its relationship with the strategic ally.

The episode was available to watch in Saudi Arabia for two months, until Netflix took it down last week in response to a request from the country’s Communications and Information Technology Commission. Officials allege that the episode broke Article 6 of its anti-cybercrime law, which criminalizes the “production, preparation, transmission, or storage of materials impinging on public order, religious values, public morals, and privacy, through the information Network or computers.” The episode is still available to watch on Netflix outside Saudi Arabia.

“Free speech and the free flow of information are heavily restricted in Saudi Arabia by way of laws, institutional and cultural norms, and various other mechanisms of social control,” says Ellery Biddle, advocacy director at the free speech nonprofit Global Voices. “There have been robust efforts to restrict public knowledge and perception of the Khashoggi case, so it’s not surprising that this happened.”

Critics admonished Netflix for complying with the kingdom’s request to take down the comedy show. “By bowing to the Saudi Arabian authorities’ demands, Netflix is in danger of facilitating the Kingdom’s zero-tolerance policy on freedom of expression and assisting the authorities in denying people’s right to freely access information,” Samah Hadid, Amnesty International’s Middle East director of campaigns, said in a statement.

Netflix defended its action, pointing out in a statement that it only took down the episode after the kingdom sent the company “a valid legal request.” Netflix, like most American tech companies, goes to great pains to comply with local laws in order to operate globally.

The situation with Saudi Arabia is a notable portent for the near future if the rest of the world continues its slide toward digital authoritarianism. That slide, a decade in the making at least, is becoming precipitous. A recent report from the nonprofit Freedom House noted that at least 17 countries have proposed or passed regulations curbing free speech online since June 2017. Egypt passed a law banning any websites “deemed to threaten national security,” and people who visit such sites can be jailed for up to a year. Iran, where Netflix became available only two years ago, strengthened its internet censorship laws last year, too, with new rules about what can be posted in messaging apps. Tunisia introduced a bill to criminalize defamation online. The list goes on. All of this leads to an internet that is less free and more balkanized, where each nation has different rules—and where companies like Netflix will face the question of how, or whether, they can ethically operate in some markets.

“It’s now clear that as digital streaming services launch in new markets, governments will treat them in the same manner they regulate the local film or television industry,” says Adrian Shahbaz, lead author of the Freedom House report. “That means that in countries where the authorities have little regard for freedom of expression, companies will come under increasing pressure to censor political, social, or religious content they wouldn’t normally worry about under US or European law.”

While Netflix’s removal of the Minhaj episode has drawn criticism, it is not the first time the company has taken down shows in certain countries. It removed three episodes of different shows in Singapore that allegedly violated a law against positive portrayals of drug use. But generally, Netflix says, the company makes all its global originals available in every country where it operates and only removes shows if legally required to do so in the jurisdiction.

Shahbaz says that Netflix’s response to the Saudi takedown request was in line with an emerging set of best practices for companies dealing transparently with such censorial pressure. “They should state precisely what law they are complying with, what piece of content is being removed, and what steps they’re taking to ensure the action has the smallest possible impact on human rights,” he says. “From what I can tell, Netflix has done those three things fairly well. They’ve stated the law and episode in question and complied by taking the most minimalistic action available to them—censoring only that one episode and only within Saudi Arabia.” He also notes that the company left the episode up on its YouTube channel.

If Netflix didn’t comply with such requests, the site could be blocked entirely. “Unlike in a democracy, where a company can appeal an unjust order using the courts, companies face far fewer options in a place like Saudi Arabia: essentially, either comply or risk being banned,” notes Shabhaz. That’s obviously bad for the company’s bottom line, but it would also curtail access to information. Saudi Arabia, for instance, had a prohibition on all public movie screenings until just last spring (it lifted the 35-year ban just in time to screen Black Panther), making Netflix a crucial way for people to watch television, movies, and documentaries. “On balance, I think it is more important for Saudis to have some access to the service than none at all,” says Biddle.

That kind of complex trade-off is what companies like Netflix face when navigating local laws around the world. (It’s even trickier for social media companies, who don’t have Netflix’s control over the content uploaded onto their sites, but still have to comply with local laws.) Netflix doesn’t operate in China, since it has not been able to square its platform’s model with China’s strict content rules.

More than an issue of Netflix acquiescing to Saudi pressure, this incident underscores the power and appeal of local laws that determine the kinds of materials allowed online. Although the takedown appears to have drawn more attention to Minhaj’s criticisms—“Clearly, the best way to stop people from watching something is to ban it, make it trend online, and then leave it up on YouTube,” the comedian tweeted—the impact of such laws goes far beyond a single episode of a Netflix show being forced offline. People are thrown in jail, silenced, even murdered; they’re prevented from accessing vital information. “The Saudi government only confirmed what Hasan Minhaj so brilliantly argued—that the crown prince’s so-called ‘reform agenda’ is smoke and mirrors at best, or as is increasingly becoming clear, actually represents a further deterioration of political freedom in the country,” Shahbaz says.

In what would be his final column, published posthumously in The Washington Post, Jamal Khashoggi wrote, “There was a time when journalists believed the Internet would liberate information from the censorship and control associated with print media. But these governments, whose very existence relies on the control of information, have aggressively blocked the Internet.” The title of his column: “What the Arab World Needs Most Is Free Expression.”

Countering oppressive regimes and laws requires collaboration between civil society, tech companies, and democratic nations willing to fight for digital freedoms. For the US to take the lead in advocating for an open internet, it would need to do what Minhaj asked in his show: stop turning a blind eye toward the abuses of an ally.


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Google wins U.S. approval for radar-based hand motion sensor

WASHINGTON (Reuters) – Alphabet Inc’s Google unit won approval from U.S. regulators to deploy a radar-based motion sensing device known as Project Soli.

Google signage is seen at the Google headquarters in the Manhattan borough of New York City, New York, U.S., December 19, 2018. REUTERS/Shannon Stapleton

The Federal Communications Commission (FCC) said in an order late on Monday that it would grant Google a waiver to operate the Soli sensors at higher power levels than currently allowed. The FCC said the sensors can also be operated aboard aircraft.

The FCC said the decision “will serve the public interest by providing for innovative device control features using touchless hand gesture technology.”

A Google spokeswoman did not immediately comment on Tuesday, citing the New Year’s Day holiday.

The FCC said the Soli sensor captures motion in a three-dimensional space using a radar beam to enable touchless control of functions or features that can benefit users with mobility or speech impairments.

Google says the sensor can allow users to press an invisible button between the thumb and index fingers or a virtual dial that turns by rubbing a thumb against the index finger.

The company says that “even though these controls are virtual, the interactions feel physical and responsive” as feedback is generated by the haptic sensation of fingers touching.

Google says the virtual tools can approximate the precision of natural human hand motion and the sensor can be embedded in wearables, phones, computers and vehicles.

In March, Google asked the FCC to allow its short-range interactive motion sensing Soli radar to operate in the 57- to 64-GHz frequency band at power levels consistent with European Telecommunications Standards Institute standards.

Facebook Inc raised concerns with the FCC that the Soli sensors operating in the spectrum band at higher power levels might have issues coexisting with other technologies.

After discussions, Google and Facebook jointly told the FCC in September that they agreed the sensors could operate at higher than currently allowed power levels without interference but at lower levels than previously proposed by Google.

Facebook told the FCC in September that it expected a “variety of use cases to develop with respect to new radar devices, including Soli.”

The Soli devices can be operated aboard aircraft but must still comply with Federal Aviation Administration rules governing portable electronic devices.

Reporting by David Shepardson; editing by Jonathan Oatis

The 3 Most Valuable Investing Lessons For 2019

(Source: imgflip)

What a year it’s been! In 2017 it was market heaven for most investors.

The S&P 500 (SPY) not just delivered more than double its historical return of 9.2%, but did so with a peak decline (from all-time highs) of just 3%. That’s compared to the average intra-year peak decline of 13.8% since 1980. It was one of the best years ever, with the lowest volatility in over half a century.

Well, volatility came roaring back with a vengeance in 2018, with the stock market experiencing not just one, but two corrections. In fact, here’s how the S&P 500, Dow Jones Industrial Average (DIA), Nasdaq (QQQ), and Russell 2000 (IWM) fared by their December 24th lows (so far).

Chart

^SPX data by YCharts

The Nasdaq and Russell 2000 (small caps) were both firmly in bear markets, while the Dow and S&P came within a stone’s throw of ending the longest bull market in US history (technically, it’s still alive).

What’s more, all four major indexes are now negative for the year, which means stocks are set for their worst performance since 2008.

Chart

SPY Total Return Price data by YCharts

(Source: Wealth Of Common Sense)

But my point here isn’t to point out what a crummy year it’s been for stock investors, but rather to point out three valuable lessons we need to learn from this crazy year. Lessons that can help us not just become better investors over time, but most importantly maximize the chances of achieving our long-term financial dreams.

1. Markets Can Be Far More Volatile Than You Expect

If it feels like this has been an especially volatile time for stocks, that’s because it has been. In fact two weeks ago we had the worst week for the market since 2008, and are currently on track for the worst December since 1931 (at the peak of the Great Depression).

But the thing about volatility is that it doesn’t just come and go over time. Since 1958 market volatility has been cyclical, but trending steadily higher.

S&P 500 Trailing 12-Month Daily Return Volatility

(Source: Ploutos Research)

As Blackstone’s Byron Wien explains, this is largely a function of both the increased popularity of passive investing as well as computerized trading (which is how passive funds invest their funds).

Recent research suggests that 60%-90% of daily equity trading is now performed by algorithmic trading, up from 25% in 2004. Meanwhile, passive exchange-traded funds have directed trillions of dollars into equity markets since 2009, and the percent of the U.S. equity market share captured by passive strategies has increased from 26% at the start of 2009 to 47% as of 3Q’18. All of these trends are likely to increase volatility moving forward.” – Byron Wien (emphasis added)

In addition to market cap weighted index funds causing periods of blind selling regardless of valuations and fundamentals, you also have robo trading programs that are designed to purely sell, or even short stocks, based on certain technical indicators (which also ignore valuations and fundamentals).

As Benjamin Graham, Buffett’s mentor and the father of modern value investing, famously said:

In the short run, the market is like a voting machine – tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine – assessing the substance of a company.”

As December has shown us, even high-quality companies, with excellent fundamentals and strong growing cash flow, can become deeply unpopular with the market at times of extreme fear. And thanks to nearly half the market being invested in ETFs, and up to 90% of daily trading being run by computer (including based on headlines and even Trump tweets), the market can become incredibly stupid in the short-term, resulting in stock prices becoming completely disconnected from either their fundamentals or the fundamentals of the economy or overall corporate earnings.

As Albert Einstein said, “Two things are infinite, the universe and human stupidity, and I am not yet completely sure about the universe.” Well, this is also true of the market. When investors get scared enough, then the potent combination of blind ETF induced selling and computerized trading can lead to some truly shocking sharp and short-term declines.

Harvard finance professor Xavier Gabaix’s 2005 study Institutional Investors and Stock Market Volatility looked at the October 19th, 1987 (Black Monday) 22.6% stock market decline (the worst in US history). That kind of decline under standard probability theory should occur once every 4.6 billion years. However, the world is far more complex than standard deviation curves would have you believe (Black Monday was a 20 standard deviation event which is essentially impossible).

That’s why the Harvard study concluded that a Black Monday style crash (largely driven by computer trading) is actually likely to occur, on average, once every 104 years. Now that doesn’t mean that such a crash necessarily will occur with predictable frequency. As Mark Hulbert, the author of the Hulbert Financial Digest explains:

“Note carefully that this doesn’t mean a crash this big will occur every 104 years. This instead will be their average frequency over long periods. So it’s possible that we will not experience another 1987-magnitude crash in our lifetimes – or that another will occur today.” – Mark Hulbert

But while a 20+% one day crash (that plunges us instantly into a bear market) are extremely rare (but far more likely than most investors realize), severe 10% daily drops are to be expected, per Professor Gabaix, about every 13 years.

(Source: Market Watch)

5% market declines are likely to occur 61 times per century, or on average once every 1.6 years. As Hulbert points out, the last 5% one-day market decline was in August 2011, and the last 10% market decline was over 30 years ago. Thus we’re actually overdue for a single-day stock market decline that would instantly put us into a correction (or possibly a bear market).

But it’s not just wild one-day broad market declines that have investors spooked these days. Another lesson from 2018 is that even when the S&P 500 isn’t in a bear market, your portfolio might be.

2. Your Portfolio Isn’t The Stock Market And The Market Isn’t Your Portfolio

While the stock market never officially entered a bear market (defined as S&P 500 closing down 20% or more below its all-time high), on December 20th 60% of the S&P 500 companies were in one (a figure that rose to about 66% by December 24).

What’s more as far as quarters go, as of December 21st, the S&P was having its 14th worst quarter ever. On December 24th, the biggest Christmas Eve drop in history, the quarterly performance of the S&P 500 became the 9th worst ever.

S&P 500 Worst Quarters

(Source: Wealth Of Common Sense) – data as of Dec 23rd

But as bad as Q4 has been for the broader market, as we’ve just seen, individual stocks often faired far worse. On December 21st, the Russell 2000 (small caps) was suffering its fourth-worst quarter since its inception in 1979.

Russell 2000 Worst Quarters

(Source: Wealth Of Common Sense)

When the market appears to have bottomed December 24th (yet to be determined), it became the 3rd worst quarter ever for US small caps. The point is that, depending on what you actually own, even standard corrections can be far more painful at the individual level.

Which brings us to the most important lesson of all from this memorable 2018.

3. If Your Portfolio Has A Critical Point Of Failure, It Will Eventually Fail Critically

Let me be very clear that I am NOT trying to scare anyone out of long-term investing. That’s because the current economic and earnings fundamentals are still pointing to positive growth over the next year or two, and today’s valuations are extremely attractive.

(Source: FactSet Research)

For example, right now most analysts expect about 8% EPS growth for the S&P 500 next year. Even energy stocks, despite the fastest oil crash in decades (43% in two months), are expected to generate nearly double-digit earnings growth.

Today the S&P 500’s forward PE ratio is just 14.2, and most sectors are historically undervalued, especially compared to a year ago.

(Source: Fortune Financial Advisors)

What do today’s historically attractive valuations mean in terms of future returns? Well, over the short-term (1-year), it’s hard to know. But historically a forward PE of 14.2 has resulted in about 17% 12-month returns. But over the long-term (five years) total returns become far more predictable and today’s valuations point to roughly 15% returns.

Don’t trust forward PEs? Well, then let’s use trailing earnings. The S&P 500’s TTM PE is currently 19.1. The market’s 20-year average TTM PE is 19.4, which means that earnings growth next year should drive at least modest returns, even if stocks remain just fairly valued. And keep in mind that the stock market is actually one never-ending cycle of alternating greed and fear. This is why just as stocks tend to overshoot to the downside (as they just did), they also overshoot to the upside.

That’s why since 1926 the average 12-month post-correction rally (from the low) has been 34% (not counting dividends). In today’s market that would equate to a 36% total return for stocks by the end of 2019 (from December 24th close). Of course, that is merely a historical average. Historical data only shows what stocks are likely to do, and is not a guarantee of what they will do (no one can make such guarantees).

But remember those scary quarterly declines for both the S&P 500 and Russell 2000? Well, here’s the good news. After such a major shellacking, stocks almost always rally strong and hard in both the short- and long-term.

(Source: Wealth Of Common Sense)

With the exception of 2001 (9/11) and 2002 (tech bubble bursting), even small-cap stocks have never followed such a miserable quarter with a negative 12-month total return. And over three and five years periods following such quarters, negative returns have literally never happened. That’s not to say that such a thing is impossible, just highly improbable unless you get a perfect storm of events occurring. One possible catalyst for stocks to still be down in 12 months might be the US defaulting on its debt during a failed debt ceiling showdown which Goldman Sachs (GS) has warned is coming between August and October of next year.

But barring an extremely stupid and catastrophic blunder by our government, stocks are likely to be up in a year, potentially a lot, thanks to today’s highly attractive valuations.

But wait a second?! Didn’t I just warn investors that Wall Street, due to the infinite stupidity of investors and the dominance of trading by computers, can be crazy volatile? Didn’t I point out that we’re overdue for not just a 5% single market decline but even a 10% single day bloodbath? Indeed I did.

The final lesson of 2018 isn’t that investors can, or should, attempt to avoid volatility, but rather safeguard their portfolios against it.

(Source: Morningstar)

Believe it or not, stocks haven’t been the best-performing asset class in history despite gut-wrenching volatility but because of it. That’s because most of the market’s returns come from just a handful of its best single day gains, which are almost all clustered during times of peak downside volatility.

Missing just the market’s best 30 days over the past 20 years would mean that an investor in the S&P 500 would have given up all positive total returns. Miss just 50 of the best days and over 20 years, your portfolio would have declined by 60%. For context, the peak decline during the Great Recession was just 57%.

What this effectively means is that good market timing is essentially impossible, and one of the most destructive things you can try with your portfolio. Literally, billion-dollar hedge funds and large investment banks (like Goldman) have spent fortunes on trying to perfect market timing systems, including using an army of quants and AI-driven algorithms. None has yet succeeded in mastering market timing (if it had, it would own most of the world by now).

The key to harnessing the awesome wealth-building power of the stock market is not to avoid short-term volatility, but rather to avoid a large permanent loss of capital. Or as the infinitely quotable Warren Buffett put it, the key to good investing is to remember two important rules.

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No 1.” Now as always Buffettisms need to be clarified. The greatest investor in history isn’t literally saying that you can avoid losing money on every single investment you make. Rather he means all investors need to ensure their portfolios lack a critical point of failure, which results in disastrous mistakes, like selling perfectly good investments during a bear market, at ludicrously low valuations. Or to put another way, you need to avoid being a forced seller of quality stocks during a market decline.

There are two critical points of failure for most investors. The first is the use of margin. As the Oracle of Omaha explains:

“My partner Charlie says there is only three ways a smart person can go broke: liquor, ladies and leverage…Now the truth is – the first two he just added because they started with L – it’s leverage… It is crazy in my view to borrow money on securities… It’s insane to risk what you have and need for something you don’t really need… You will not be way happier if you double your net worth.” – Warren Buffett (emphasis added)

Now I too have made the mistake of falling under the siren song of margin. In fact, that’s why for the next 15 months I’ll be unable to participate in the glorious bargains all around us because I have to eliminate my leverage to zero and start building up cash reserves. I’m very fortunate that my dangerous dabbling with leverage isn’t likely to actually force me to realize terrible losses on otherwise great stocks. My best friend wasn’t so lucky. In the last 2 weeks, margin calls have forced him to realize losses that wiped out two years’ worth of gains. The price I’m paying for my mistake is missed opportunity. His is being forced to lock in catastrophic paper losses on perfectly good and ridiculously undervalued blue-chip dividend growth stocks.

While margin isn’t necessarily of the devil, Buffett’s warning against it (which I now heartily endorse and will personally live by going forward) pertains to the vast majority of people. Remember that leverage amplifies not just losses and gains, but emotions. And it’s emotions, particularly severe fear during downturns, that is the greatest single enemy of most investors.

That’s why over the past two decades, the typical retail investor has underperformed every asset class, and barely stayed ahead of inflation.

Which brings me to the biggest point of failure for most people (even those who wisely avoid margin). That would be the wrong asset allocation.

Since WWII, the average correction has lasted (peak to peak) eight months, and the average bear market (82% of which occurs during recessions) 35 months.

Since the first rule of investing is to avoid a permanent loss of capital, you need to be able to avoid panic selling even when stocks fall to shockingly low levels (and with sometimes terrifying speed). This is where the right capital allocation comes in. Asset allocation simply means your portfolio’s mix of cash/bonds/stocks.

The right asset allocation is essential to being able to emotionally and financially endure the market’s inevitable future declines. The right asset allocation will differ for everyone based on your risk tolerances, goals, time horizon, portfolio size, income, savings rate, etc. You can talk to a certified financial planner (a fee-only Fiduciary that can’t peddle you expensive mutual funds they get kickbacks on is best) to determine the right asset allocation for you.

Note that your asset allocation will change over time, and might require periodic portfolio rebalancing (as stocks and bonds in it rise and fall and your life circumstances change).

(Source: Charles Schwab)

Here’s an example of the standard asset allocation Schwab recommends for the typical retiree. Those are some good overall asset allocation recommendations, but here’s the most important thing to remember during corrections and bear markets.

Cash is king. Or more specifically, cash is what pays the bills during retirement (and allows you to buy quality stocks at fire-sale prices). Since the average bear market lasts for three years (before stocks are back to all-time highs), you want to have three years’ worth of cash available to supplement social security and any pension you may have. What if the bear market is more severe and longer than average?

(Source: Moon Capital Management)

That’s certainly possible. The longest recovery time (from the bear market low to fresh all-time highs) was 69 months or nearly six years. This is where bonds come in. Not just do they provide income, but due to falling interest rates and a flight to safety, bonds tend to rise during a bear market.

So if you are tapped out on cash equivalents (like Treasury notes and money market accounts), you will likely be able to sell bonds at a profit to cover your expenses. And since cash doesn’t decline in value, and bonds tend to rise during a big decline, your cash/bond allocation will help decrease your overall portfolio’s decline, making it easier to avoid panic selling your stocks (emotional point of failure).

For most people being 100% in stocks is a bad idea. Unless your portfolio is large enough to live entirely off safe and growing dividends during retirement (the goal of my new Deep Value Dividend Growth Portfolio), you will need some cash and bonds to be able to take full advantage of the wealth-building power of stocks. Remember the best stock investing strategy on earth is useless if you can’t emotionally or financially stick to it through the entire market cycle.

During corrections (or possibly a non-recessionary bear market) like this, peak market declines and recovery times are shorter than during a typical bear market. So use how you’re feeling now to test your risk tolerance and determine if your asset allocation is actually right for you.

If you’re losing sleep now, when stocks appear to have bottomed after merely a 19.8% decline, you’ll want to make sure that you are less exposed to stocks when the real bear market finally arrives. That can help you avoid emotions (or financial necessity) being your critical point of failure, no matter how unpredictable or crazy the infinitely irrational (in the short-term) and increasingly computer-driven market becomes.

Bottom Line: A Crazy 2018 Serves To Teach Valuable Lessons For 2019 And Far Beyond

I’ve been investing since the age of nine (23 years). And I’ve been a professional analyst/investment writer for four. Yet 2018 has still been eye-opening for me, highlighting the fact that the only predictable thing about Wall Street is its unpredictability.

Don’t let 2017’s freakishly small drawdown fool you. Volatility is not just normal, but has been gradually rising over time, thanks to the growing popularity of ETFs and computerized trading. In the future, we can expect not just similar volatility, but possibly some REALLY wild short-term swings, including a 10% single-day market flash crash that’s now historically overdue.

And while the media may fixate on the broader market (S&P 500 most of all), the fact is that even a moderate downturn, like this correction, can translate into a bear market for even high-quality stocks (including blue-chips and dividend aristocrats and kings) and individual investor portfolios.

But don’t let high volatility and the occasional bear market scare you away from the most time-tested and effective way of building long-term wealth ever discovered. The market’s great historical returns are not despite volatility, but a direct result of the very same short-term gut-wrenching declines investors so fear and hate.

That’s why the most important lesson from this wild 2018 is that risk management isn’t just important, it’s the most critical part of your long-term investing plan. The best investing strategy in the world will prove utterly useless if your emotions or finances don’t allow you to stick with it long enough to work.

Investors need to make sure their asset allocation is right for them. This means holding the right mix of cash/bonds/stocks to both meet their long-term financial goals, BUT also stay calm during the inevitable correction and bear market. And if you want to use margin, just remember to use it with EXTREME caution because it’s a powerful tool that can both greatly increase wealth and also destroy it with alarming speed and violence.

Ultimately the goal of every investor must be to build a bunker portfolio that is based on the motto “hope for the best, but plan for the worst”. While it’s popular to speculate about what will happen in the next quarter or year in terms of the economy or corporate earnings, the fact is that no one knows what craziness the market will bring in the short-term.

So rather than obsess over market timing (historically impossible even for the largest financial institutions) and trying to avoid short-term volatility, investors need to be prepared not just to survive whatever Wall Street throws at you but actually profit from it. Remember that every crisis is also an opportunity, and fortune favors the prepared mind.

If you are careful in how you construct your portfolio, then you can benefit from the fact that bull markets make you money, but in the long-term, it’s bear markets that make your rich.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Cyber attack hits U.S. newspaper distribution

(Reuters) – A cyber attack caused major printing and delivery disruptions on Saturday at the Los Angeles Times and other major U.S. newspapers, including ones owned by Tribune Publishing Co (TPCO.O) such as the Chicago Tribune and Baltimore Sun.

A hooded man holds a laptop computer as cyber code is projected on him in this illustration picture taken on May 13, 2017. REUTERS/Kacper Pempel/Illustration

The cyber attack appeared to originate outside the United States, the Los Angeles Times reported, citing a source with knowledge of the situation.

The attack led to distribution delays in the Saturday edition of The Times, Tribune, Sun and other newspapers that share a production platform in Los Angeles, the Los Angeles Times reported.

Tribune Publishing, whose newspapers also include the New York Daily News and Orlando Sentinel, said it first detected the malware on Friday.

The West Coast editions of the Wall Street Journal and New York Times were hit as they are also printed on the shared production platform, the Los Angeles Times said.

Tribune Publishing spokeswoman Marisa Kollias said the virus hurt back-office systems used to publish and produce “newspapers across our properties.” 

“There is no evidence that customer credit card information or personally identifiable information has been compromised,” Kollias said in a statement

The Wall Street Journal and New York Times did not immediately respond to requests for comment.

Most San Diego Union-Tribune subscribers were without a newspaper on Saturday as the virus infected the company’s business systems and hobbled its ability to publish, the paper’s editor and publisher Jeff Light wrote on its website.

A spokeswoman for the Department of Homeland Security said it was studying the situation.

“We are aware of reports of a potential cyber incident affecting several news outlets, and are working with our government and industry partners to better understand the situation,” said DHS spokeswoman Katie Waldman in a statement.

Representatives of the Federal Bureau of Investigation were not immediately available for comment.

Reporting By Jim Finkle; Additional reporting by Andrew Hay; Editing by David Gregorio

The 10 Most Googled People of 2018 (Who'd You Look Up?)

There’s perhaps no better log of what’s on your mind than your browser search history. (Who hasn’t deleted their search history on a shared computer?)

It stands to reason, then, that getting a window into our collective psyche is as simple as perusing Google’s list of most-searched terms of the year. Google recently released The Year In Search–a comprehensive breakdown of everything we searched for this year, organized by category.

So what was on our minds in 2018? When it comes to people, these individuals were. Don’t worry–if you don’t know one … I Googled it for you:

10. Cardi B

American rapper whose standout hits include Bodak Yellow and this year’s breakout, I Like It, which currently has 674M streams on Spotify and counting. 

9. Stormy Daniels

Her legal name is Stephanie Clifford, and she is an American stripper, porn star, and director who got into a legal battle with Trump and his lawyer Michael Cohen this year. Trump and company paid Daniels $130,000 to stay quiet about an affair she says had with Trump in 2006.

8. Hailey Baldwin

Daughter of Stephen Baldwin, she’s a model and TV personality who married Justin Bieber this year. While legally married, the couple has yet to stage a large-scale wedding with family and friends.

7. Brett Kavanaugh

A polarizing figure, Kavanaugh was appointed to the Supreme Court this year following what some described as an excruciating and exhausting battle for confirmation. Multiple allegations of sexual misconduct were levied against him. 

6. Jair Bolsonaro

Bolsonaro was elected president of Brazil in October, 2018. A very right-wing figure, many have compared him to Trump.

5. Khloé Kardashian

Younger sister of Kim Kardashian, Khloe nearly broke the internet this year when she had her baby girl, True Thompson, in April 2018.

4. Logan Paul

On December 31, 2017, controversial vlogger Paul uploaded a YouTube video showing the corpse of a suicide victim. The video gained 6.3M views within 24 hours, sparked outrage on many fronts, and almost cost Paul his YouTube channel. Paul has since been reinstated on the platform and contributed $1M to suicide prevention agencies.

3. Sylvester Stallone

Stallone did not die this past year, but a lot of people feared otherwise. In February, popular searches included “Sylvester Stallone dead 2018” and “Did sylvester stallone die.” The countries where the hoax was passed around the most? South Africa, Ghana, and Bolivia (the U.S. came in 22nd on the list of Stallone searches).

2. Demi Lovato

A Grammy-nominated musical artist, Lovato was hospitalized this year for a suspected overdose. “I have always been transparent about my journey with addiction,” Lovato said on social media. “What I’ve learned is that this illness is not something that disappears or fades with time. It is something I must continue to overcome and have not done yet. I will keep fighting.”

1. Meghan Markle

Markle married Prince Harry in a royal wedding this year, the guest list of which included Serena Williams, George Clooney, Oprah, Elton John, and the Spice Girls.

This Evening of Food Theater Goes Beyond Inspiring Innovation. It's a Master Class in the Art of Possibility

Entrepreneurs and other creators want to innovate, to create meaningful new things that people love. Once in a while someone delivers at an extraordinary level, devoting themselves to expressing themselves so personally and authentically that they inspire us to seek greatness in ourselves to share.

I was fortunate enough to experience such a leap forward–unexpectedly and contrary to my expectations, as I’ll explain. I’m not a restaurant critic, nor a musician, but an evening at an innovative dining establishment in Culver City, California, has me convinced that its proprietor, Jordan Kahn, may be a Mozart of food. Stay with me. 

My goal is not to praise Kahn or his establishment, Vespertine, whose name is derived from the Latin vesper, “of the evening” or “evening star.” Few readers will be able to experience Vespertine in person. As a teacher and writer on leadership and initiative, I’m compelled by my experience to share how, even in a field such as fine dining, combed over for novelty for generations, even centuries, dimensions of new possibility are available.

Envisioning the Scope

If you lived in the time of Bach, could you have imagined a Mozart opera or Beethoven symphony? Very few could. It took Mozart and Beethoven to create them. 

To say that the later musicians added new dimensions to music takes nothing from Bach as an artist. I love the Brandenburg Concertos and always will, but Mozart’s operas involve many more instruments, many more performers of different types (singers, players of instruments, a conductor), architectural design, ornate sets, wardrobes of clothing, and the contributions of teams of people, many geniuses themselves, who devote careers to deliver a complete, comprehensive work–performers, architects, financiers, carpenters, and others.

Every great artist cares about every detail, but Mozart added dimension and scope of type of details to care for. Earlier generations could not likely have envisioned the scope.

The Paris Opera House and New York’s Lincoln Center are not just other buildings to play music in and seeing an opera in a great opera house is not just hearing some music. It’s an event. An evening at a world-class opera or symphony will affect you for years, maybe the rest of your life. I remember operas I saw in decades ago. The experience begins months before an evening’s performance, before buying the ticket. You learn about the event, its history, the artists. You see how it fits into your life. You accommodate it.

It unfolds in countless ways beyond “just” the music: How you arrive at the venue, walk up the entry stairs, interact with other patrons, are greeted and directed by staff, applaud, and so on.

Mozart’s operas required vision and execution beyond Bach’s and his contemporaries’. We can’t compare Bach to Mozart as artists–each is unique–but we’re glad Mozart did what he did. No one wants music to stagnate with later composers fiddling around the edges of what Bach nearly perfected.

Experiencing Added Dimensions

Kahn’s Vespertine is a Mozart opera amid Bachs in the culinary arts.

To say you ate dinner at Vespertine implies a regular restaurant experience, which it isn’t. An evening at Verpertine involves more dimensions, evolving in space, time, color, sound, and more. It involves the whole building. You actively move from room to room and floor to floor, unpuzzling food you remember seeing prepared as you passed the kitchen an hour or two before. The architect’s voice matters. The manufacturer of the bowls and the land from which its materials were mined matters.

Every great chef pays attention to every detail. Kahn added dimensions and scope of type of detail. The experience begins months before, with research and figuring out how to fit it into your life, figuring out what to expect from articles like this one. It unfolds in countless ways beyond “just” the food, and stays with you for a lifetime.

Composition in the Culinary Arts

I’ve long marveled how the same elements–color, shape, line, form, rhythm, melody, and composition, for example–apply in different arts with parallel meanings. A novel or poem contains rhythm as a song does. Composition involves space in painting, time in music, and multiple dimensions in sculpture, yet we recognize the same underlying meaning of composition.

Before Vespertine, I hadn’t noticed culinary artists using all those elements. Composition might mean how the chef arranged food on a plate or designed a room and matching menu. At Vespertine, it involves more. It uses elements I’m not aware of chefs using, as Mozart expanded beyond the limits of his time.

One early hint in my evening: When making reservations, I mentioned that I was staying within walking distance and could meet my companion at Vespertine. They suggested we arrive by car together–the valet and greeter receiving us would be part of the experience. They were, as was the space where we waited outside, the temperature of the furniture we sat on that chilly evening, the sight lines to Vespertine the building (the restaurant uses the entire several-story building, which reveals itself throughout the evening), the scents, the garden, the first tastes of the evening, how we entered the building, and how we came to expect the evening to unfold.

The night unfolded in distinct scenes and acts, using elements in time and space, with rhythm and melody, of color, form, shape, and composition. Kahn told a story beyond what I thought a restaurant could.

The Evening Begins

I’m risking florid language because of how my evening began, when I was predisposed to dislike the experience. As a New Yorker, I learned of Kahn and Vespertine while researching food and sustainability panelists at an industry event in Greenwich Village a few months before.

Online, I read Kahn’s interviews in which he said he transformed food so you couldn’t tell where it came from. I prefer my food minimally processed, to show off the vegetables, fruits, grains, legumes, and all the ingredients for their innate beauty and taste. I’ve been known to describe processing or covering food with salt, sugar, and fat with such as “assaulting” or “molesting” it.

I found the videos on the site over the top. I didn’t see the point of talking about the building in interviews so much. I could go on, but I wasn’t that interested in seeing more.

Things changed at the food and sustainability event. Each panelist talked about revenue models, funding sources, and other business first, taste second. Kahn wasn’t a panelist. He came on after and prepared food, interactively, describing each ingredient’s origin, its place in nature, its role in sustainability, his experiments to learn it, how and why he processed each as he did, the point of his combining them, and other parts of his craft. His presentation struck me as more honest than rehearsed, from the heart as much as from the hands and head.

Experiencing the ingredients transformed–yes, processed, but the opposite of assaulted–after knowing why, then tasting the results revealed a different purpose to the processing, based in caring and personal expression. The result told a story in flavors and textures over time of tart, sour, sweet, crunch, chewy, oil, crisp, and so on. He didn’t process to cover, hide, or assault, but, in my view, to express his appreciation for the plants, fungi, and microorganisms that went into a simple dish.

I felt I experienced art amid businesspeople. Since I knew I would visit L.A. a few months later, I began looking into an evening there. The place seats only 22 people per evening.

The Evening

The actual experience began with a lunch at Kahn’s casual restaurant across the street, Destroyer, whose layout is more mainstream, though its open kitchen allowed me to see Kahn and his team at work and to speak briefly. Vespertine, the building, was visible, but mysterious. What was the relationship between its style and the food that Kahn’s videos and interviews described?

About 24 hours later, my companion picked me up from around the corner, and we arrived. After the aforementioned welcome, the staff walked us in, told us to take the elevator up, to where Kahn greeted us, standing before another open kitchen, or area of food preparation, because it didn’t look like a kitchen. What his team was preparing, I couldn’t guess from looking. He walked us up more stairs, giving more view of the floor.

A staff member sat us at a bench. The staff alternated between bringing us food, giving us space, serving neighbors, explaining what was in the food, and answering questions. The descriptions created as much mystery as they answered. The dishes, utensils, and napkins were various shades of black, their textures various shades of earth. There was rhythm between the architectural design and clothing, between seeing the food prepared an hour before its presentation, and between the periods of sitting and walking to new rooms.

There was line, shape, color, and form also in time and space, not merely physical lines of the tables or walls, but of the experience. Every restaurant composes the food on the plate. Vespertine’s composed our countless and various interactions–walking, talking, eating, listening, overhearing, climbing, descending, entering, exiting, and so on–into a composed, curated, orchestrated evening.

Each dish was a character in its scene, with a back story giving it depth, development to carry me forward, relationships with every other character, and plot twists to keep me interested. How the giant kelp was served related to the spruce about 10 courses later. The split cone from which emerged a hidden garden (I can’t explain it better) resonated with the open sphere I spelunked to find submerged treats beneath subterranean pools of frankly I don’t know what.

Every dish was presented simply, yet became complex as you broke it open, cracked the surface, sought the ingredients the server mentioned, and otherwise solved what Kahn and his team riddled for you. Initial discoveries yielded new mysteries, which yielded delights, wonderment, and fun. Each scene stood on its own while arising from the scene before and propelling to the next. That is, each dish, absent the rest of the Vespertine experience, was delicious, harmonious, and the equal of any dish I’ve had at any ordinary restaurant, as each Mozart song would stand on its own.

It would be a mistake to think the food, wine, and service dominated the evening. On the contrary, despite the artistry, it prompted and supported meaningful reflections and conversation. Great art adds to, not distracts from life and relationships. For all its artistry, Vespertine didn’t overpower but nourished.

Over a dozen courses later–a story with many plot twists–we left, amid curtain calls of tastes, scents, and staff members as we traversed and explored the outdoor garden nearby which we entered.

I received an email reminding me of some of the evening’s players: giant kelp, sea lettuce, burnt onion, black currant, salsify, abalone mushrooms, concord grape, tradescantia (a wildflower), rose apple, almond, radish, yam, smoked soy, salted plum, leek, rose, begonia, pumpkin, guava, sunchoke, lovage, parsnip, juniper…that’s about half the list.

I’m writing these words six weeks after the event. The writer in me felt challenged to communicate the experience authentically and accurately, and it took this long to digest.

General Electric: My Best Stock Pick For 2019

General Electric (GE) has been the worst performer in my portfolio this year, by far. Nonetheless, I am optimistic that 2019 will be a much better year for the industrial company, and I believe investor pessimism with respect to GE has seen its low in 2018. General Electric is my top rebound bet for 2019 that could produce high risk-adjusted returns for investors. Though GE could test its most recent lows, the risk/reward remains very attractive as long as General Electric is out-of-favor.

A Year In Review

It was a devastating year for General Electric: The company continuously disappointed investors throughout 2018 with poor earnings, the announcement of an SEC investigation with respect to the company’s insurance reserves, a scrapped dividend, and the appointment of yet another Chief Executive Officer. To top things off, General Electric has so far failed to restructure its ailing power business which is in a prolonged slump. Adding insult to injury, General Electric’s stock got booted from the Dow Jones Industrial Average earlier this year, too.

On the back of such developments, General Electric’s share price slumped 58.3 percent this year, making it the worst performing investment for a lot of investors.

Testing New Lows?

Market volatility roared back in the fourth quarter with a vengeance. On the back of deteriorating investor appetite and decreasing investor confidence in the U.S. economy, stocks have corrected sharply to the downside since October. General Electric’s shares, for instance, dropped to a devastating 52-week and multi-year low @$6.66. Two years ago, GE traded at ~$30.

Though GE is now longer oversold, and managed to bounce back up to $8 in December, shares could very well test this year’s lows in case investor sentiment takes another hit. Should GE fall through its latest lows, this would point to more downside for GE’s stock over the short haul.

Source: StockCharts

GE In 2019

General Electric will focus on three major businesses going forward: Aviation, Power and Renewables, which will make up GE’s new core business.

The power business, which brought in ~$35 billion in revenues in 2017, will be the center of investors’ attention in 2019. GE took a $22 billion impairment charge in its power division in the third quarter of 2018, and investors will closely monitor management’s progress with respect to the restructuring. Should GE’s new management be able to turn things around in light of a weak gas turbine market (and in the absence of a U.S. recession), investor sentiment could gradually recover and improve prospects for share price appreciation.

In any case, General Electric will not be the same company in the future that it is now. General Electric will execute on its strategic actions plan in 2019 that calls for a healthcare spinoff and the divestiture of its stake in Baker Hughes, an oil field services company General Electric bought in 2016.

Here’s GE strategic action plan:

Source: General Electric

There are also more asset sales in the cards for 2019. General Electric has loosely guided for $20 billion in asset sales, and the company could step its divestiture game up next year in order to shed underperforming businesses and raise cash. Together with the dividend, General Electric could potentially invest billions of dollars in new growth initiatives in sectors such as aviation, digital and renewable technologies. In 2018, for instance, General Electric sold its rail business to Wabtec in a $11.1 billion deal and agreed to sell its Distributed Power Business to private equity company Advent International for $3.25 billion.

Valuation

General Electric is dirt cheap, and has a very attractive risk/reward, in my opinion. Though downside risks exist with respect to both the U.S. economy and General Electric’s ability to restructure its power business, GE’s shares are priced for disaster, selling for less than nine times next year’s estimated earnings.

Chart

GE PE Ratio (Forward 1y) data by YCharts

General Electric has widely underperformed its peers in the sector, Honeywell International (HON) and 3M Company (MMM), especially since October.

Here’s how GE compares against its industrial peers in the sector in terms of forward P/E-ratio. GE’s earnings multiple today is about half the earnings multiple of its closest peers.

Chart

GE PE Ratio (Forward 1y) data by YCharts

Risk Factors Investors Need To Consider

There are three major risk factors that could affect the investment thesis negatively:

1. General Electric fails to turn around its power division, and, as a result, cash flow and margin problems continue to weigh on GE’s financial performance and investor sentiment in 2019;

2. A U.S. recession (should it manifest itself) could hit GE’s cyclical industrial businesses, such as aviation and oil & gas, hard;

3. Should GE’s stock price fall below the most recent low at $6.66, more downside looms over the short haul.

Your Takeaway

General Electric is taking massive action right now, and there are reasons to be optimistic and give management time to execute on its turnaround plan. Management is super focused on driving this restructuring home, and will leave no stone unturned to show improved capital efficiency going forward.

Honestly, I can’t see how things could get much worse from here, and GE’s shares are already priced for disaster. So much bad news is already baked into General Electric’s valuation that the industrial company can almost only surprise to the upside in 2019.

GE remains widely out-of-favor, which points to huge recovery potential next year as investor sentiment could gradually shift if GE’s financial performance improves. I am prepared to add to my long position if GE drops below the latest low at $6.66. GE is my top stock pick for 2019.

Disclosure: I am/we are long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

From Meghan Markle to Mega Millions, These Were 2018’s Top Google Searches

Google Trends “Year in Search 2018” is out. And if this year’s version of the annual list proves anything, it’s that people are really obsessed with their eyelashes. Arranged by topics, the list’s “beauty questions” top five list gets straight to it: three of the top five searches were lash-focused, including “How to apply magnetic lashes,” “What is a lash lift,” and “How to remove individual eyelashes.”

But blink that thought away and there’s lots more to see. There was one really big winner on the search front: World Cup. It took the top spot in both overall searches and “news” searches. Whether you call it football (correct) or soccer (oh, fellow Americans!), the game behind World Cup is a frequent top search on Google Trends.

When it came to hope for a better financial future, searches got a bit more old school (and desperate) with “Mega Millions” claiming the third spot in the “News” category, “How to play Mega Millions” grabbing third place in the “How to” category, and “Mega Millions Results” taking seventeenths in overall searches. New money (or, really, new new money) played a role too—though it seems searchers were more confused by it than in search of it. First place in the “What is…?” category was claimed by “What is Bitcoin.” In 2017, the currency showed up in fifth place on the “How to” list, as in “How to buy Bitcoin.”

Unfortunately, death by suicide or drug overdose played a major role on this year’s list. Places three to five on overall searches were, in order, Mac Miller, a musician who died from a drug overdose, designer Kate Spade, who died by suicide, and chef/author/TV personality Anthony Bourdain, who also died by suicide.

On the entertainment front, the year’s big winner in movie search was Black Panther. The top musician slot went to Demi Lovato. And, phew, on the most-searched songs front, “Bohemian Rhapsody” beat “Baby Shark,” which came in third. With wedding watching its own form of entertainment for the search masses, “Royal Wedding” was the top weddings search while “Kat Von D Wedding” came in fourth. Fortnite was, not shockingly, the top search in the “Video Games” category.

Food is, as always, a much-searched category but 2018’s top five veered wildly between excess and food poisoning and restraint (and a serious need for comfort). “Unicorn cake” won the year followed by “romaine lettuce,” “CBD gummies,” “Keto pancakes,” and “Keto cheesecake.” Things were a little tastier on the Spanish-language recipes list where “receta de chocoflan” and “Chimichurri receta” came in numbers two and three.

Politics showed up in rather interesting ways on the list. Newly-appointed but much disputed Supreme Court justice Brett Kavanaugh took the third spot on the “People” list, beat out by singer Demi Lovato and the new royal, Meghan Markle. And the searches for “How to” included “How to vote” and “How to register to vote” in the top two spots. Top searches for politicians? Stacey Abrams in first, followed by Beto O’Rourke, Ted Cruz, Andrew Gillum, and Alexandria Ocasio-Cortez. (And if social media companies would think of searches as votes, they would want to take notice of the number five “How to”: “How to turn off automatic updates.”)

Of course, sending the year on its way can be a melancholy time for some people. So, as always, Google queued up some tear-inducing hope in its annual Year in Search video.

General Electric: Expect A Big 2019

To call 2018 a bad year for shareholders of General Electric (GE) would be a grave understatement. Throughout the year, the company has undergone expanded investigations by the government, shuffled top management, sold off various assets, and, on multiple occasions, revise down performance expectations before ultimately eliminating them for the foreseeable future. By practically all accounts, the industrial conglomerate has been hit harder, and in almost every way possible, more than it has ever been hit before in its more than 100-year history. Now, as 2019 approaches, the big question facing shareholders is “what’s next?” While it’s possible 2019 will bring with it even more pain than 2018 has, the more likely scenario is that the firm will use the New Year to restructure its operations (out of bankruptcy) and will, if all appropriate steps are taken, prepare for a turnaround that could bring to shareholders significant value.

Expect the breakup to occur

One thing that very few people will disagree with, I think, is that a breakup of General Electric must occur. The business has become so large that it is, from a management and capital allocation perspective, inefficient. When you have so many divisions, figuring out where and how to deploy limited capital can be hard, while as separate entities, the fact of the matter is that individual management teams can focus on their core operations. By breaking up, the firm will also, for the most part, rid itself of GE Capital, which is likely where any currently undisclosed problems probably reside.

As management indicated while John Flannery was still General Electric’s top dog, I fully expect the company to divest of itself its GE Healthcare segment in some way, shape, or form. Management has indicated that this will take place through an IPO, but it’s expected that shareholders might still retain some of the business, though all of this could change over time. We already know thanks to an announcement earlier this year that the firm is likely to continue winding down its ownership in Baker Hughes, a GE Company (BHGE), by selling off its stake in the firm, but a big question here might relate to timing. Since the end of September, shares of the oilfield services firm have plummeted 34.6%, so while the company has struck a deal for a sale of some of its stock, I suspect that additional sales will only happen following a recovery in unit price.

Following the spinoff of its Transportation segment into a commanding interest in Westinghouse Air Brake Technologies Corporation (WAB), also known as Wabtec, next year, I believe management will likely begin monetizing its interests there as well. Personally, I see monetizing both Wabtec and Baker Hughes further as a sizable mistake given the future outlook I have for both energy and transportation in the US, but the cash generated from these deals will allow management to reduce debt and/or to invest further into what operations are left.

One thing I would love to see transpire is the sale or spinning off of General Electric’s Power segment. At this time, the firm intends to separate that into two different sets of operations, which may be setting the stage to sell or spin off at least one of them. I see this new decision under CEO Culp as a sign that he understands Power is General Electric’s most significant problem at the moment, and since plans to retain power occurred while Flannery was still in charge, I have modest hope that management will divest of the segment or at least part of it.

Don’t expect a distribution hike

During its third quarter earnings release earlier this year, management made a significant change to General Electric’s dividend policy. They said that, effective this month, the company would only pay out $0.01 per share each quarter as a distribution, down from $0.12 per quarter previously. This decision, though controversial, will result in the firm’s annual distribution falling from $4.175 billion per year to just $347.925 million per year. While I would have loved to see it cut all the way to zero so that management would have even more cash to put toward debt reduction and investing in core assets, the savings seen are material regardless.

Investors hoping for the distribution to recover in the near future are, I think, engaging in wishful thinking. As of the end of its latest quarter, General Electric had cash, cash equivalents, restricted cash, and marketable securities worth $61.69 billion, which is a lot to work with, but it also had $114.97 billion worth of debt (inclusive of $2.70 billion of non-recourse debt). Admittedly, debt was down from the $134.59 billion the firm had at the end of its 2016 fiscal year, but as assets come off the books, debt also must be reduced. Some of this could be taken off by spinning off various assets (for instance, the firm could probably spin in the low tens of billions of dollars off with its Healthcare segment if it so decided), but it’s likely that a lot of the work toward reducing debt will be tied to asset sales and the cash that otherwise would have been allocated toward its quarterly dividends. Until management can reduce debt, it’s unlikely we’ll see a hike, and that probably won’t occur until, at the very best, late next year.

*Taken from Moody’s

Where does debt need to be in order for management to consider raising its distribution again? The short answer is that it’s anybody’s guess, but more likely than not, it’s by whatever amount would allow the firm’s credit rating to rise back into the As. As you can see in the image above, the firm’s credit rating, as calculated by Moody’s (MCO), used to be Aaa until it fell in 2009. Since then, the rating has fallen further and, today, the firm’s long-term debt rating is Baa1. This still places it in a category known as “investment grade,” as the image below illustrates, but the drop, even though it’s not on watch for a further downgrade at this time, will weigh on financing options until the situation can be improved.

*Taken from Moody’s

A lot of cost-cutting and wheeling-and-dealing

If General Electric is going to not only survive but thrive for the long haul, there’s no doubt the firm will need to cut costs. This is especially true if the company elects to keep its Power segment, but irrespective of it, certain corporate costs will need to be slashed as the firm works to spin off its assets. Although management has, in recent times, done well to push for cost cutting, when the company actually starts to break up, we will know whether, and to what extent, this is actually true. One strategy that could work quite well could be what the firm struck with Baker Hughes. As part of its share divestiture, the two companies have entered into a series of joint agreements that will keep their operations intertwined through things like guaranteed low pricing and joint buying of key assets. I suspect this kind of wheeling-and-dealing to continue as the conglomerate sells off more of itself.

Takeaway

Based on the data provided, it’s clear that 2018 has been awful for General Electric, but investors who are expecting more pain to follow through 2019 might be on the wrong side of the bet. If 2018 was the crash for the business, 2019 will likely be the start of a true recovery for the firm, especially if management can work to restructure the entity in the way that they should. Obviously, whether the firm is successful or not, investors should expect a tremendous amount of volatility during the process, but that could present opportunities to buy and sell at attractive prices for the emotionally-detached investor.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Best TV Scenes (2018): 'Killing Eve,' 'Atlanta,' and More

Was there anything more all-consuming in 2018 than television? In addition to the ever-churning 24-hour news cycle, the streaming services all increased their output wildly, cranking out more shows than anyone could ever possibly watch. Cable networks, too, kept releasing incredibly original content. There was so much out there it was almost impossible to get through a good binge of The Great British Baking Show. (We found time.) But in the vast sands of Peak TV’s beachhead, where were the diamonds? No need to keep searching—we’ve got a few right here.

Homecoming Gets Ratioed

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Sam Esmail‘s Amazon adaptation of the popular podcast wasn’t notable simply because it lured Julia Roberts to episodic television, or because it surrounded her with a remarkable cast that included Stephan James and Bobby Cannavale. It made a mark because it let you know, in no uncertain terms, that you were watching something special. The writer-director is no stranger to visual flair, having made Mr. Robot look as skitteringly paranoid as it felt, but on Homecoming he shifted gears, using overhead shots and creative crops to enhance the sense that not everyone knew the whole story. And when Roberts’ Heidi Bergman finally visited the site of the mysterious Homecoming program where she’d worked years prior, and finally turned her head to look in just the right direction, her perspective at last fell into place and everything resolved—from the black-barred 4:3 world she’d been living in to a glorious, relieving 16:9. A variation of Vertigo‘s famous dolly zoom, it may not have been something you’d never seen, but it was certainly something you’d never appreciated quite so much. —Peter Rubin

Killing Eve Takes You to the Hole

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Was there a better single season of TV this year than BBC America’s Killing Eve? No, there was not. (See you in the comments!) But in a series that gave us an excellent game of cat-and-mouse between assassin Villanelle (Jodie Comer) and MI5 agent Eve (Sandra Oh), the greatest part was a single line delivery. Villanelle, surrendering herself to a Russian women’s prison in order to take out a former accomplice, has gotten one step closer to her prey but knows she needs to be sent to solitary confinement to complete the task. So she does what any self-respecting killer would: She shivs her cellmate. As the authorities close in on her, bloody and still bruised from a previous fight, she pulls the shank out, raises her hands in the air, and screams “Take me to the hoooole!” with an expression typically reserved for wide receivers who just scored an impossible touchdown. It sums up everything you need to know about Villanelle in one moment—her ruthlessness, her childlike glee at killing, her downright black sense of humor—and cemented Comer’s as one of the breakout performances of the year. —Angela Watercutter

Donald Glover Makes His Late-Night Breakthrough

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Before Atlanta, before Community, before anyone had heard of Childish Gambino, Donald Glover auditioned for Saturday Night Live. He was writing for 30 Rock at the time and doing sketch comedy, but fate (and, really, Lorne Michaels) decided that Studio 8H would remain Gloverless for the time being. Ten years later, fate reconsidered, and in May Glover pulled double duty as guest host and musical guest for one of the last episodes of the show’s 43rd season—and one of the best in years. Even setting aside the music performances (he performed “This Is America” for the first time, releasing the now-famous video on YouTube directly afterward), Glover showed that his assured stewardship of Atlanta was no fluke; he committed to one weirdo role after the other, from ’80s R&B sendup Razz P. Berry to Jurassic Park’s embattled/insane defense lawyer. But nothing reached quite so high as the digital short “Friendos,” in which Kenan Thompson and Chris Redd joined Glover to drag the tropes and machismo of Migos-style trap music into therapy. The result was a master class in parody, performance, and pacing, teasing an actual emotional arc out of what could have been an empty send-up. It was more than a skit—it was a skrrt skrrt. —P.R.

Sharp Objects Saves the Best For Last

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Sharp Objects is a show about the details: The moments of clarity, the things we remember (and how we remember them), the actual hidden words sprinkled throughout the show’s lush frames. But in an extremely deft move, it saved its best detail for the final seconds (if you don’t count the post-credits scene, that is). Camille Preaker (Amy Adams), thinking that her mother Adora (a stone-cold Patricia Clarkson) has rightfully gone to prison for the deaths of multiple young girls in Wind Gap, Missouri, settles into a new life with her sister Amma (Eliza Scanlen) in St. Louis. It’s there, in Amma’s room within the model of their mother’s Wind Gap house that Amma has been curating for years, that Camille sees what her younger sister has been using to recreate the elephant-tusk floor in the model’s parlor: human teeth. Specifically, the teeth of the girls Amma has killed. As the younger sister enters her room and sees what Camille has found, she near-whispers “Don’t tell mama.” It’s a moment both cruel and childlike and left fans of HBO’s miniseries dead in their tracks. —A.W.

Succession Becomes Everyone’s Number-One Boy

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I admit that when I first saw the promo spots for Jesse Armstrong’s HBO family-feud drama, my first reaction was fatigue: oh, hey, squabbling rich people, great. I must not have been the only one; Succession seemed to take everyone by surprise, a refreshing acid bath in a summer of sameness. Armstrong may be British, but his experience—co-creating the truly dark sitcom Peep Show and writing for Armando Iannucci’s scathing The Thick of It—translated perfectly, making the tale of an Rupert Murdoch-like aging paterfamilias and his preening progeny a little like Veep, just if everyone was both evil and competent. (Well, except Kieran Culkin’s Roman. And Tom Wamsgans. But Cousin Greg is coming around!) The race to inherit a media empire is a marathon, not a sprint—but even running from a traffic jam to a vote of no-confidence gets tough when there are so many knives waiting for you to turn your back. —P.R.

Atlanta Finds the Horror in Show Business

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TV’s most self-defined and self-propelled series has always expertly balanced on the edge of horror. Not outright horror a la Hereditary or Halloween, but the cruel, creeping horror of the everyday: of, say, being a washed-out, left-for-dead, past-his-prime singer trapped by the cage of the past. Before “Teddy Perkins”—the sixth and most terrifyingly unforgettable episode of Season 2—Donald Glover’s appetite for dark farce unraveled in purposefully uneven bouts. Though viewers had come to occasionally expect it, life for Earn (Glover), Paper Boi (Brian Tyree Henry), Van (Zazie Beetz) and Darius (Lakeith Stanfield) wasn’t a constant cycle of doom and dread. With the audacious “Teddy Perkins”, Glover and director Hiro Murai crystalized a tale so perversely dark and wonderfully disorienting into a 40-minute k-hole of showbiz horror that one will never look at ostrich eggs in quite the same manner again. As standalone episodes go, it was a nifty repackaging of genre expectations, a stylistic trick as much as it was a shock to the series’s instinctive movement. “Teddy Perkins” was Atlanta at its most deliciously unafraid: refusing, as always, to be made small by the constraints of the medium. —Jason Parham

Hugh Grant Gets Scandal-ous

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No ’90s-borne movie star has aged quite as impeccably as Hugh Grant, who not only starred as a egomaniacal thespian in this year’s wondrous Paddington 2, but also played an impeccably amoral politician in BBC’s crisp three-part mini-series A Very English Scandal (now streaming on Amazon Prime). Based on real-life events, Scandal casts Grant—his movie-star smile transformed into a polite smirk—as Jeremy Thorpe, a Member of Parliament who winds up having an affair with a desperate, rather daft drifter (an excellent, almost fawn-like Ben Whishaw). As Thorpe’s secret past threatens to become public, Grant’s confident and quietly scheming politico decides to have the young nuisance killed. What follows is a ripping, upscale bit of pulpy non-fiction, full of dim-witted goons, painfully oblivious spouses, and careerist government creeps—a little bit Coen brothers, a little bit Patricia Highsmith. And it’s all led by Grant, whose ambitious MP speechifies with confidence, yet whose expressions discreetly detail his many years of loneliness, sadness, and sacrifice. It’s his keep-calm-and-carry-on performance that allows Scandal to indulge in its sumptuous twists and turns, making for a very unmissable time. —Brian Raftery

Pose Celebrates Mothers’ Day

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Beyond being a story about 1980s New York ball culture and family, Pose is also a Cinderella tale: It literally begins with Blanca Evangelista (the enthralling Mj Rodriguez) being harassed by her sisters while her house mother, Elektra Abundance (Dominique Jackson), laughs in the wings. But while that trope necessitates that Blanca have her princess moment, it happens in a far different kind of fairy tale. Done with suffering abuse under Elektra’s roof, Blanca sets out to form a house of her own—adopting dancers Damon (Ryan Jamaal Swain) and Ricky (Dyllon Burnside), exotic dancer Angel (Indya Moore), and former foster kid (and sometimes drug dealer) Lil Papi (Angel Bismark Curiel). After nearly a year struggling to keep her family together—amid Papi’s drug dealing, Damon and Ricky’s relationship, and Angel’s affair with a married Trump employee—Blanca brings everyone home and defeats her rivals in the House of Abundance in the season’s final ball. She also, naturally, gets crowned Mother of the Year, a better crown than that given to any fairy tale princess. —A.W.

American Crime Story ‘Drive’s You to the Edge

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The trick of The Assassination of Gianni Versace—as well as its American Crime Story predecessor, The People v. O. J. Simpson—is that you already know the ending: Andrew Cunanan killed fashion icon Gianni Versace. What the show does is lay out the groundwork for his murder. And those moments, thanks to the Emmy-winning performance of Darren Criss as Cunanan, make for far more drama than the eventual outcome. Like, for example, the scene where Cunanan and his lover David Madson (a heartbreaking Cody Fern, who would go on to play the antichrist in showrunner Ryan Murphy’s American Horror Story this year) head to a bar on the road trip Andrew has forced them to go on. As they walk into the small watering hole, none other than Aimee Mann begins singing a cover of the Cars’ “Drive,” and a series of moments of resignation set in. David, attempting an escape through a busted out window in the bathroom, realizes he’ll never get away and that Andrew might very well kill him. (He does.) Andrew, listening to Mann croon “You can’t go on/thinking nothing’s wrong,” realizes David’s fear and his own fright at being left alone and steadily cries listening to Mann in an unbroken 90-second shot. Ryan Murphy shows, including Pose and Glee, are known for their musical moments, but this went far beyond song and dance and cut to the bone—and probably is the scene where Criss secured that Emmy. —A.W.

Queer Eye Comes Out Swinging

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Literally every episode of Netflix’s reboot of Queer Eye is a tear-jerker. (There’s a reason they advertised Season 2 with tissues.) However, the episode in Season 1 where AJ, a gay man living in Atlanta, comes out to his stepmother—”To Gay or Not Too Gay”—is the one that inspired the most reach-out-and-touch-someone levels of bawling amongst Queer Eye fans. And with good reason. The crux of the episode is that AJ has a good job, a cool (if messy) apartment, a sweet boyfriend, and good pals. He’s also in the closet when it comes to his family. His father passed away a few years prior and when he tells his dad everything he wanted to say via a letter he reads to his stepmom, well, the floodgates are opened. He chokes back sobs; she cries and hugs him; the audience, including the Fab Five, sit in damp-eyed awe. It’s wonderful and heartbreaking. It does, however, have a very happy ending: AJ and his boyfriend got married shortly after the episode aired. —A.W.

Forever Goes Bananas

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Amazon’s Forever is a weird show. Co-created by Master of None producer Alan Yang, it deals primarily in the deep, dark corners where relationships thrive and get dirty. Focused on the afterlives of June (Maya Rudolph) and Oscar (Fred Armisen), it peels back the layers of a failing relationship to unveil what really went wrong in the first place. As with many struggling couples, no one was really at fault—they were both just stuck. This all comes to a head in the first season finale when June and Oscar realize that they agree on one thing: Bananas are the perfect beach food. (They are self-contained, filling, come in a fairly sand-proof wrapper … you get the idea.) It is, as Vulture noted they, and the audience, realize “they are exactly strange enough for each other” and have perhaps their first honest conversation ever. It was often hard to figure out what Forever was building towards. The fact that it was this made it all the more perfect. —A.W.

Netflix Becomes Nanetteflix

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On Tuesday, June 19, seemingly out of nowhere, Netflix released Nanette. By itself, this wasn’t surprising; Netflix drops comedy specials willy-nilly all the time. But the performance from Hannah Gadsby—one hour and nine minutes of comedy, searing social commentary, and a little bit of art history—crashed the party with aplomb. By the following weekend, it was the one comedy special on the streaming service that no one could shut up about. With good reason. Gadsby’s brand of humor, which tackles the machinations of comedy, male privilege, and her own attack at the hands of a homophobe, had the kind of bite unseen in comedy in a long time. And for that, we’d like to express our gratitude to Gadsby through the metaphor of a clap. —A.W.


More Great WIRED Stories

Saving Your Retirement From A Stock Market Crash

Disclaimer: I am not a financial advisor. The advice given below is not a financial advice, even though my excitement might make it look like such. In fact, what follows below are just my thoughts, those of an ordinary person who works hard and tries to save and invest as sensibly as he can.


I received a call from a 59-year-old gentleman, a distant relative, yesterday. We have not met in the past two decades, so the sudden call was surprising. But it was not after the first minute of our talk when he asked, “I’ve heard from your aunt that you work in the stock market. I wanted to discuss my investments. Can you please help?”

“Hmmm… sure,” I said, almost sensing that he wanted to discuss his stock portfolio with me. But he started talking about his upcoming retirement – planned for 2019 – and about a plot of land sitting in his hometown waiting to build his retirement home next year.

He said he had been saving and investing as much money as he could for his retirement and for building this home. He had almost 90% of his money invested in stocks and equity funds, a lot of those bad decisions – and mis-selling by his advisor and broker – as I realized on knowing his portfolio. The stock market’s recent volatility – and especially in the banking and finance space, where my uncle is invested heavily – has made him lose around 30% of his portfolio value in a span of just a few weeks.

Now, this discussion is not about banking and finance stocks, how good/bad they are, and how quick/long they would take to recover. This discussion is about lessons from how my uncle’s retirement seems to have gotten compromised at least for another few years, thanks to the decline in his stock portfolio less than a year from his retirement, and how you may avoid a similar fate when you stare your own retirement on the face.

My uncle told me how the recent dip in his portfolio brought back some painful memories, like from 2008, when he had seen his retirement portfolio lose around 50% value. At the time, while he was more than a decade away from retiring, the decline in portfolio value was still a significant portion of his total family savings.

He now worries it will be harder to recover another big loss so close to retirement. “It’s impossible to try and time the market,” he told me. “To sit there and watch your investments fall apart is hard, but if you take it out and it goes up, that’s not good either. It’s hard!”

* * *

I am not a financial advisor, but when people ask me how much money they should invest in stocks versus other avenues like bonds and fixed deposits, etc., my response is consistent – “It depends on when you need the money.”

My general rule of thumb is that any money that you need in less than three years (maybe five years, if you so want) must be protected as far as the core capital is concerned. You are not seeking growth here but safety. And thus, this kind of money may be kept in liquid funds, fixed deposits, and some part cash. Don’t invest this money in the stock market, because if the tide turns for the worse during this period (like it had done for my uncle), your financial life and retirement may get compromised.

Any money you need between the third and fifth year from now may be invested in stocks/MFs versus bonds/FDs in a ratio of 50:50 (again, choose your own ratio based on your comfort levels).

This leaves us with money that is needed beyond the next five years. This may be invested fully in equities. History has proven that equity returns improve with an increase in holding periods. So, the probability is on your side when you invest your long-term money (needed beyond five years) in equities.

You may also divide this long-term money into two separate buckets. The first bucket could be the money you need between the fifth and tenth years of your retirement, say between 65 and 70 years of age (assuming you will retire at 60). This money could be invested in high-quality, well-diversified mutual funds or high-quality, stable businesses that provide not just the possibility of some growth but, more importantly, capital preservation.

As for the second bucket of your long-term money, which you will require beyond ten years from retirement, you can be more aggressive and invest that part in high-quality mid- and small-cap stocks and/or funds. Here, the risks you take will be higher than the first bucket, but the probability of growth is higher too. Just that you must ensure that you don’t buy businesses that may lose you capital permanently here too. This is a non-negotiable, even when you extend your investment horizon.

The idea of such allocation across buckets is that the more time you have before you need the money, the more aggressive your investment strategy. You may probably live another fifteen to twenty years or more after you retire, leaving you more than enough time to ride out not one, but multiple stock market crashes. So why not take advantage of the potential time on hand?

However, that’s not a mandatory thing. As Warren Buffett has said, “It’s insane to risk what you have for something you don’t need.”

* * *

Let’s move ahead from the allocation part to a bit about cash flows.

Having enough cash on hand to avoid withdrawing funds during severe market declines can be reassuring to people in or close to retirement. That means if you are three years away from retirement, a good rule of thumb will be to keep one year of expenses out of the market and then increase that for every year closer to retirement you get.

So, by the time you retire, you will have three years of expenses as cash in hand. Combining this with the allocation part mentioned above, keep this cash safe in liquid funds, fixed deposits, and some part cash.

I am assuming here that we don’t have a period of negative equity returns that extends beyond three years. So, with three years’ cash in hand and the market crashing around the time you retire, you don’t need to touch that money and can live off the cash. And replenish the three-year buffer every year.

(All that I have mentioned above assumes that active income stops coming in after you retire, which is true in most cases. But then, starting a part-time work or a second career that does not take a toll on your time and can be managed easily is a great idea. Just ensure that you don’t become a full-time investor.)

* * *

If you’ve still got more than a decade to go before you retire, you can follow the above-mentioned rules too. Both in terms of allocation and cash flows. Just that you can be more aggressive in terms of allocation to (high-quality) equities, as doing so would likely increase the long-term growth potential of your savings – which could increase your chances of achieving a secure retirement even more.

Also, save more, especially if you’ve been delaying it and effectively relying on market gains to compensate for your savings deficit in recent years. Markets have no obligations to carry your bidding.

When you save more, you create for yourself a buffer to deal with big declines in the stock market and your portfolio value and raise the chances of success back to where it was before the market setback.

The bottom line is this: You can’t predict when a bull market will stumble or know for certain how severe the ensuing bear market will be. No one can. But giving your retirement planning a stress test before the market slumps and thinking rationally about how to react will put you in a much better position to weather any crisis than making decisions on the fly while you’re under duress.

Hope this makes some sense.

These 3 Things that Drive Me Nuts At Retail

The Shop Local movement has been trying hard to encourage more people to consider shopping local and independent rather than defaulting to the big boxes or ordering online. Clever marketing has helped get us in the shop where we find a carefully-curated selection of products, creative merchandising, and better customer service. Unless it’s a store I visited recently where I was not only completely ignored but when I asked a question, I was barely acknowledged let alone provided the right answer. 

We all have bad days but building a brand takes so much time. It’s a shame to lose business because of a misstep since that customer may only have that one experience from which to judge your shop.

Here are three things that drive me nuts but are easy for retailers to fix–if they care about serving their customers.

1. Greet me when I enter your business.

You don’t need to jump on customers as soon as they pass the door threshold but simply acknowledging their presence can go a long way. It breaks down the barrier between customer and proprietor and makes it easier for your customers to reach out to you if they have a question. There have been plenty of times when this simply polite gesture could’ve kept me in a shop rather than making me feel like an intrusion and unwelcomed.

Bonus point: One retailer I used to support regularly would offer me a cup of hot tea or apple cider in a pottery mug (all of which it sold, of course). Sure it takes time to wash that mug and it costs money to offer hot tea to each customer, but it made me feel welcomed and encouraged me to take my time to enjoy my tea and consider gifts I may not have purchased had I not made the time. I never once left that shop without buying something.

2. Don’t gossip in front of me.

I realize a merchant’s shop is their place of work and like in most workspaces, employees gossip. When a customer enters, though, the gossip needs to pause. If I continue to hear employees gossiping, I begin to wonder what they might say about me when I walk out the door. Creating a warm and inviting atmosphere goes a long way with customers who want to shop, not feel like they might be gabbed about later on.

Bonus point: One retailer put out a little bistro table near her cash wrap and would often invite friends to stop in and catch up with her. She also had two chairs nearby with a wrap or throw blanket (merchandise) which she’d move whenever a new customer entered and she’d make it a point to invite the customer to join her if she was with someone else. It was a gesture many appreciated and friendships formed over the years. Eventually, the owner added more chairs, a longer table, and held a book club meeting and other events in that space.

3. Don’t Assume My Price Point.

There are times when I need a small gift and other times I’m seeking for something unique and willing to pay a premium. Rather than guessing my price point is low, ask me if I have a budget in mind because you might be surprised.

Bonus point: Chicago-based REP CHI, an independent gift retailer, has been my go-to for Chicago-specific gifts for years. Among the gifts I buy often is a set of four coasters which she makes herself but doesn’t always have in stock. On a recent visit, she’d mentioned she was making more and if I’d like her to set aside a set. Not only did I buy one, I bought four, even after she told me the price increased by 30 percent. I didn’t care because the coasters are worth it but also because she went through so much trouble to make me feel like a valued customer.

The purpose of any business is to please our customers. Notice that each of the top three things that drive me nuts deal with customer service more than the selection of products and that’s because a transaction is simple. You find what you need at the price you want to pay and you buy it. But if I wanted that kind of experience, why wouldn’t I just go online or a big box store? If a customer is willing to support your business, whether it’s a retail shop or a hair salon or an auto body clinic, make sure you take a moment to honor their time and consideration.

A Looming Government Shutdown Tops the Week's Internet News

Welp, 2018 is going out with a bang. In the last week, America got a reminder that Russia hacked the 2016 US election by hijacking social media; acting attorney general Matthew Whitaker rejected legal advice to recuse himself from overseeing Special Counsel Robert Mueller’s probe; drones attacked British airports; and California dealt with potential UFOs. Actually, considering how the rest of the year has gone, that’s not much of a bang at all—just a standard week in 2018. But what else are people talking about on this wreck that is the internet? Let’s find out, shall we?

Trump’s Big Move

What Happened: President Trump announced the US would be pulling troops out of Syria, leading to some instability, to say the least.

What Really Happened: Trump’s surprise holiday gift to the Middle East arrived early Wednesday, as reports surfaced suggesting that the United States was about to withdraw troops from Syria. Those reports were soon confirmed via Twitter, because of course.

No, wait; I mean these tweets—but please remember that Trump announced that the US has defeated ISIS all the same.

It was, to put things mildly, not a popular decision, even within Trump’s own, traditionally kowtowingnomatterwhat party.

The decision came as a surprise to many, with a lot of people unsure how, exactly, the decision had been reached, especially considering the president’s own national security team was apparently against it. Others believed that he had a pretty good idea.

So, if his own defense secretary had no say, who exactly was consulted?

OK, sure; for any other administration, that would seem like a wild conspiracy theory. However, when you look at who benefits from this decision, you do start to wonder just a little

Funny thing about those actually arguing in favor of this move: the president doesn’t seem to be aware that it’s happening, judging by his public statements.

Wait. They have to fight ISIS? Wasn’t ISIS defeated, according to a tweet made by exactly the same person just a day before? Man, international politics moves so quickly these days.

The Takeaway: An unexpected casualty of the decision might point to larger problems with Trump’s attitude towards geopolitics: Defense Secretary Jim Mattis resigned Thursday over the matter, penning a letter that makes his feelings on the matter clear.

The Incomplete Sentencing of Michael Flynn

What Happened: Just in case anyone forgot: There’s still an investigation into potentially illegal activity surrounding the presidential campaign of the man currently in the White House, and it’s continuing to bear strange, surreal fruit.

What Really Happened: As if anyone could forget the ongoing legal trouble surrounding the Trump administration, this week saw a sentencing hearing for one of the president’s former advisors—in this case, former National Security Advisor Michael Flynn. If it seems like it was just last week that one of Trump’s former advisors had a sentencing hearing, that’s because it was. But like the seasoned pro he is, the president was eager to get out in front of the story.

Still, it’s just a sentencing. How exciting or surprising could that be, unless you’re Michael Cohen making statements about being free once you get three years in jail? Turns out, the answer was “very surprising.”

These would be the circumstances alleged by Flynn’s lawyers that he was, essentially, hoodwinked into confessing because no one at the FBI told him that lying to the FBI was a crime. Things only continued from there.

Well, yeah; that sounds pretty wild, especially the whole not hiding disgust thing. But that was just the start.

So, that was a surreal event. Who saw an abrupt postponement coming? Definitely not Flynn’s attorneys, who were judged to have badly miscalculated by the media. But, at least it ended well, at least in regards to the irony of the whole thing.

Roll on, March, I guess?

The Takeaway: When it comes to the surreal developments in a legal case like this, there’s a sensible response and a non-boring response. Guess which one this is.

Paul Ryan’s Retirement Party

What Happened: Paul Ryan is just days away from retiring as Speaker of the House, so clearly it’s time for a farewell tour that perhaps doesn’t get the response he’d like.

What Really Happened: We’re not saying that some politicians have an exaggerated sense of their own importance, but outgoing Speaker of the House Paul Ryan had a “farewell address” at the Library of Congress last week, and the invitation looked like this:

Actually, never mind the invitations, the actual speech didn’t look too much better—

—but let’s not think about the optics. Let’s focus on the substance, shall we? Ryan complained about the “broken politics” of Washington, while congratulating himself on a tax bill that hurts the poor. So, you know, pretty much what you might expect, all things considered.

Let’s just say that not everyone was impressed with Ryan’s speech—or, for that matter, his legacy as a political figure. Headlines like “Good Riddance, Paul Ryan,” “So Long, Paul Ryan, You Won’t Be Missed,” “Paul Ryan Is the Biggest Fake I’ve Ever Seen in Politics,” and “Paul Ryan Was a Villain and No One Will Miss Him”—all of which are actually real, and from a 24-hour period, amazingly—might give that away.

In fact, we’d go so far as to say that some were particularly unimpressed.

So, uh, happy retirement…? (We’ll always have your creepy workout photoshoot, Paul. Nothing will ever take that away from you. Sadly.)

The Takeaway: Meanwhile, the woman who is likely to replace Ryan had perhaps the greatest response to the entire thing.

Shaft the Messenger

What Happened: You weren’t being paranoid after all; someone else really was able to get access to all your messages on Facebook. Doesn’t that make you feel better?

What Really Happened: In case you thought that things couldn’t get much worse for Facebook considering its recent public relation woes, guess what: It could get much worse. Take it away, New York Times.

Yes, you read that right, as unbelievable as it may sound.

Not enough yikes for you just yet? Oh, just keep going, because it gets worse.

Many people were wondering what the solution was. A recurring theme kept popping up.

Meanwhile, the media took a different, and far less surprising, tack, with everyone talking about deleting Facebook a lot.

How serious was this as a threat? Well, Facebook released two different responses to try and clear up rumors … by pretty much confirming the reporting. That’s almost a start, kind of?

The Takeaway: On the plus side, at least this was the only PR disaster for Facebook this week related to other people having access to private information on the platform.

The Shutdown Looms

What Happened: It’s been teased throughout 2018, but as the year draws to a close, perhaps the US has finally reached the point where the government is going to shut down. Just in time!

What Really Happened: The US government has been wavering around a shutdown for some time now. There have been short-term fixes and last-minute deals for months in an attempt to ensure that there isn’t what Rep. Nancy Pelosi memorably called a Trump Shutdown. Last week, for example, with just days to go before funding ran out, there was a move towards one more before-the-buzzer save—not that anyone seemed to think it would work.

Funny story; it never even got a chance to fail in the Senate.

Yes, it’s Paul Ryan again, a day after bemoaning “broken politics,” helping politics be that little bit more broken.

So … maybe the shutdown is back on?

Well, perhaps not…

President Trump, at least, spent Friday morning doing what he could. Which is to say, he tweeted about the subject a lot.

People were not incredibly impressed.

At the time of this writing, it’s not been voted on by the Senate. But here’s a funny story: the president is refusing to sign a bill that doesn’t fund the border wall that was, originally, going to be paid for by Mexico (hey, remember those days?), but … what if there was an alternative? What if someone else wanted to pay for the wall so that the government could stay open?

Well, that seems entirely legit.

It’s surely a sign of 2018 that it’s actually impossible to reject this plan entirely out of hand. Maybe we should just run a GoFundMe to keep the government open? Oh, no, wait; that’s called paying taxes.

The Takeaway: Assuming that we are almost certainly going to have a shutdown for the holidays—everyone’s favorite gift—let’s just take a moment to appreciate what’s happening, shall we?

See you all in 2019!


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