sereneinvesting.com

A recent WSJ editorial touts the wisdom of objectivist Ayn Rand (”Atlas Shrugged”) regarding the usual evils of government market intervention.

What I find interesting is the perpetual desire of people to glorify one approach and discard all others. “Free market”, they scream, and “government, just leave us alone”. Most people can probably agree that Henry Paulson’s ad hoc, flip-flopping interventions last year greatly contributed to the mess we are in right now. But can you really make a case that government intervention is never helpful or necessary? Or prove beyond the shadow of a doubt that a certain size of government is better than any other size? I don’t think so. If you think you can, please let me know how.

To me the hypothesis “The smaller the government the better” is untestable. You can’t just list the latest three things that went wrong to support your opinion that a total absence of government would be best in any given circumstance, both past, present and future. But usually this is what these articles come down to.

To me “government” and “free market” are like the two sides of the Yin Yang symbol. They complement each other, not take away. Middle ways are usually better than extreme one-sidedness, just like diversification in the long run probably works out better for you than trying to pick the one stock that will greatly outperform the rest of the market.

The ever growing list of victims of the Madoff scandal is simply astounding. I have heard of a multitude of ripoffs in my time, but Madoff takes the cake. At least for now. The latest identified victim, writer and artist Alexandra Penney, is writing a blog about how she experienced the moment of truth.

How can you protect yourself from such fraud? The easiest way is to not rely on one single investment vehicle, especially not a hedge fund, no matter what the track record may be. Yes, this even includes not putting all your money with math wizard Jim Simmons of Renaissance fame. Not that most of us even have the opportunity, but even assuming you did have it … just don’t.

Disregard track records tied to a manager. Other than Warren Buffet I’m not aware of a single “guru” out there that has not at one point last huge gobs of money, despite having had multiyear track records of outperformance.

We all have heard of how Bill Miller and Marty Whitman fared in 2008. Or what about Ken Heebner of Capital Growth Management? He was on a roll the first half of the year by overweighting energy and commodities. As a matter of fact he was on such a roll that Fortune wrote this article in late May. Alas, when the energy market started plummeting, so did Ken. He lost all his outperformance in a matter of weeks and ended up down as bad as Bill and Marty.

So, past performance is never a reliable indicator of future performance, even when fraud is NOT involved. This may not be a new insight, but a lesson we apparently have to relearn time and time again. Even if the splendid track record of Madoff had been true, it should not have enticed anybody to park all their money with him. There are no holy grails out that always work *and* produce outsized returns.

Great, just what the world needs: another investment blog. As like the billions of blogs already out there wouldn’t suffice.

Well, actually, they do not. At least one more blog is necesssary. A blog for all of us who desire serenity over confusion. Remember that Seinfeld “Serenity Now” episode? Exactly.

As of this moment I have several different ideas regarding the direction of this blog, but the general goal is clear: the promotion of a relatively stress-free, non time consuming investment approach. This means to not get bogged down in individual security analysis, or sector bets, or even country selection. Instead I will focus on a few very macro oriented ETFs or mutual funds and do very few adjustments over the years.

Now you’re probably thinking that I’ll only update this blog 2-3 times a year. Au contraire. I plan around five updates a week, mostly commenting on whatever the flavor, article or thought of the day may be. In short, I will be here to reinstill serenity whenever people get too excited over some new product or investment theme. Or simply to comment on many of those articles out there that are just plain nonsense (unfortunately they tend to come out on a daily basis).

So please check back regularly, abandon investment madness for reason and be – serene.