The Real Charlie

More Madoff

I'm glad I got my blog post up on Madoff earlier, because my beloved Rabbi, Wes Gardenswartz, says it all, and so well, in today's Boston Globe. I recommend a careful reading of his piece to all.

In My Portfolio There Is Problem

I have avoided posting for about a week because of the Madoff situation. The main reason is because of Ground Rule #2, and my particular concern with this situation will be obvious to those of you who know where I work and what I do. For almost an entire week I primarily dealt with Madoff related issues at the office, ranging from the bizarre to the tragic to the utterly hilarious. It was exhausting and blog-worthy, but I need to choose my words carefully and with some distance.

So speaking, as always, only for myself, a few comments:

1. Diversify. Please, please diversify. I saw a foundation tax return that showed 10% of assets in an illiquid real estate venture, 40% in a Madoff feeder fund, 30% in another Madoff feeder fund, and the rest in a wonderfully diversified and well chosen portfolio of mutual funds and ETFs. So they were 20% of the way there. Here's a hint: if you have to over-concentrate your portfolio to get exposure to a really great manager or fund, you don't have enough money to invest in that fund. The charities supported by this foundation, and the state in which this charity operates as a public trust, should be asking the trustees some hard questions.
2. Demand almost total transparency almost all of the time. A black box investment that seems to work and be interesting and that you just don't get is OK for a few percent of your portfolio if you can't help yourself. It's gambling, and realistically think of it like that. Don't bet, say, your endowment, or your grandchildren's trusts, or a foundation on it. If you making a significant investment demand near total transparency, force yourself to understand the strategy, get third part advice and insist on independent custody of assets.
3. A shanda fer der goyim. That translates from Yiddish roughly as "an embarrassment in front of the gentiles." As in, don't do it. It is an old Jewish rule - don't make us as a people look evil, or reckless, or stupid, or cruel in front of the many, many non-Jews with whom we live as neighbors in either peace and harmony or tension and conflict. A short and sickening trip to google will quickly turn your stomach as you see what the Jew haters in the world make of Madoff. Many of their darkest hallucinations and fantasies about how Jews treat each other and the world, and what our values are, have been brought to life in vivid Technicolor.

I may have more to say on this as time goes by and the story continues to develop. For now, I repeat the words of our great president Ronald Reagan, which I have seen so much the past week or so: trust, but verify.

Let's Not Go There

I haven't posted about investing in some time, mainly because I've been up to my pupik in investing stuff at work and eager to leave it behind at the end of the day. And also, of course, because it is not such a fun topic right now. I actually have acquaintances with whom I can not talk right now, because our primary topics of conversation are investing and the Red Sox, and both are sort of not worth discussing these days. One of them will be back on the table in February, though.

I made one major move in October, pulling some money from managed tax-exempt fixed income and putting it into FDIC insured short term CDs, spread over a bunch of different banks, all maturing over the next few quarters. As the CDs come due, I will be forced to make some decisions: stay in these CDs as a form of super short term fixed income, or put the money back into the muni market, or look for some equities, or something else? If one came due tomorrow, I'd roll it over for another quarter or two, or just hold it as cash.

I sold a few positions to realize some losses (I had gains from earlier in the year to offset) and bought some equities to round out some odd lot positions I've picked over the years (so I owned, for example, 150 shares of Diageo, and bought another 50 to make it 200, which is an easier position to sell or write options against). I will rebalance a few things just after year end, once everyone is done with the tax loss selling typical of this season, especially in bad years. And one thing we know, this is a bad year.

Overall I feel OK about my results to date. I am down, but not too much, and glad to have my munis and my cash positions, and to have gotten out of my "cash equivalent" auction rate securities with the help of my friendly state government. This will turn around, but not for a little while yet, and meantime there are some buying opportunities, but also some major opportunities to get crushed.