Economists From The United States

"The amount of risk you can tolerate is partly determined by your sleeping point. The next chapter discusses the risks and rewards of stock and bond investing and will help you determine the kinds of returns you should expect from different financial instruments. But the risk you can assume is also significantly influenced by your age and by the sources and dependability of your noninvestment income."

"Fraud aside, we should have known better. We should have known that investments in transforming technologies have often proved unrewarding for investors. In the 1850s, the railroad was widely expected to greatly increase the efficiency of communications and commerce. It certainly did so, but it did not justify the prices of railroad stocks, which rose to enormous speculative heights before collapsing in August 1857. A century later, airlines and television manufacturers transformed our country, but most of the early investors lost their shirts. The key to investing is not how much an industry will affect society or even how much it will grow, but rather its ability to make and sustain profits. And history tells us that eventually all excessively exuberant markets succumb to the laws of gravity. The consistent losers in the market, from my personal experience, are those who are unable to resist being swept up in some kind of tulip-bulb craze. It is not hard, really, to make money in the market. As we shall see later, an investor who simply buys and holds a broad-based portfolio of stocks can make reasonably generous long-run returns. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges."

"Our survey of historical bubbles makes clear that the bursting of bubbles has invariably been followed by severe disruptions in real economic activity. The fallout from asset-price bubbles has not been confined to speculators. Bubbles are particularly dangerous when they are associated with a credit boom and widespread increases in leverage both for consumers and for financial institutions."

"The paradoxical result of this analysis is that overall portfolio risk is reduced by the addition of a small amount of riskier foreign securities. Good returns from Japanese automakers balanced out poor returns from domestic ones when the Japanese share of the U.S. market increased. On the other hand, good returns from U.S. manufacturers offset poor returns from foreign manufacturers when the dollar became more competitive and Japan and Europe remained in a recession as the U.S. economy boomed. It is precisely these offsetting movements that reduced the overall volatility of the portfolio."

"Why are memories so short? Why do such speculative crazes seem so isolated from the lessons of history? I have no apt answer, but I am convinced that Bernard Baruch was correct in suggesting that a study of these events can help equip investors for survival. The consistent losers in the market, from my personal experience, are those who are unable to resist being swept up in some kind of tulip-bulb craze. It is not hard to make money in the market. What is hard to avoid is the alluring temptation to throw your money away on short, get-rich-quick speculative binges. It is an obvious lesson, but one frequently ignored."

"The lessons of market history are clear. Styles and fashions in investors’ evaluations of securities can and often do play a critical role in the pricing of securities. The stock market at times conforms well to the castle-in-the-air theory. For this reason, the game of investing can be extremely dangerous. Another lesson that cries out for attention is that investors should be very wary of purchasing today’s hot “new issue.” Most initial public offerings underperform the stock market as a whole. And if you buy the new issue after it begins trading, usually at a higher price, you are even more certain to lose."

"This chapter’s review of the Internet and housing bubbles seems inconsistent with the view that our stock and real estate markets are rational and efficient. The lesson, however, is not that markets occasionally can be irrational and that we should therefore abandon the firm-foundation theory of the pricing of financial assets. Rather, the clear conclusion is that, in every case, the market did correct itself. The market eventually corrects any irrationality—albeit in its own slow, inexorable fashion. Anomalies can crop up, markets can get irrationally optimistic, and often they attract unwary investors. But, eventually, true value is recognized by the market, and this is the main lesson investors must heed. I am also persuaded by the wisdom of Benjamin Graham, author of Security Analysis, who wrote that in the final analysis the stock market is not a voting mechanism but a weighing mechanism. Valuation metrics have not changed. Eventually, every stock can only be worth the present value of its cash flow. In the final analysis, true value will win out."

"To the great relief of assistant professors who must publish or perish, there is still much debate within the academic community on risk measurement, and much more empirical testing needs to be done. Undoubtedly, there will yet be many improvements in the techniques of risk analysis, and the quantitative analysis of risk measurement is far from dead. My own guess is that future risk measures will be even more sophisticated—not less so. Nevertheless, we must be careful not to accept beta or any other measure as an easy way to assess risk and to predict future returns with any certainty. You should know about the best of the modern techniques of the new investment technology—they can be useful aids. But there is never going to be a handsome genie who will appear and solve all our investment problems."

"History, in this instance, does teach a lesson: Although the castle-in-the-air theory can well explain such speculative binges, outguessing the reactions of a fickle crowd is a most dangerous game. “In crowds it is stupidity and not mother-wit that is accumulated,” Gustave Le Bon noted in his 1895 classic on crowd psychology. It would appear that not many have read the book. Skyrocketing markets that depend on purely psychic support have invariably succumbed to the financial law of gravitation. Unsustainable prices may persist for years, but eventually they reverse themselves. Such reversals come with the suddenness of an earthquake; and the bigger the binge, the greater the resulting hangover. Few of the reckless builders of castles in the air have been nimble enough to anticipate these reversals and to escape when everything came tumbling down."

"Technology will ultimately greatly improve the intentional payments system. And there will always be advantages to holding an asset that is anonymous and transportable without a physical trace. But the lessons of history are immutable. Speculative bubbles will persist. But they ultimately lead most of their participants to financial ruin. Even real technology revolutions do not guarantee benefits for investors."

"Part of the genius of financial markets is that when there is a real demand for a method to enhance speculative opportunities, the market will surely provide it. The instruments that enabled tulip speculators to get the most action for their money were “call options” similar to those popular today in the stock market."

"Behavioral-finance theory also helps explain why many people refuse to join a 401(k) savings plan at work, even when their company matches their contributions. If one asks an employee who has become used to a particular level of take-home pay to increase his allocation to a retirement plan by one dollar, he will view the resulting deduction (even though it is less than a dollar because contributions to retirement plans are deductible from taxable income up to certain generous amounts) as a loss of current spending availability. Individuals weigh these losses much more heavily than gains. When this loss aversion is coupled with the difficulty of exhibiting self-control, the ease of procrastinating, and the ease of making no changes (status quo bias), it becomes, as psychologists teach us, perfectly understandable why people tend to save too little."

"Investors should certainly be aware of new methods of portfolio construction. And high net worth investors might consider adding a multifactor smart beta offering or a risk-parity portfolio to the overall mix of their investments. Factor investing can potentially increase returns at the cost of assuming a somewhat different set of risk exposures than those of a standard broad-based index fund. And investors who are able to accept the added risks inherent in leverage might profitably add a risk-parity portfolio to their set of investments. Such offerings should only be considered, however, if they are low cost and if their potentially adverse tax effects can be offset in other parts of the overall portfolio. And I continue to believe that a broad-based total stock market index fund should be the core of everyone’s portfolio. Certainly, for investors who are starting to build an equity portfolio in planning for retirement, standard capitalization-weighted index funds are the appropriate first investments they should make."

"There are, I believe, five factors that help explain why security analysts have such difficulty in predicting the future. These are (1) the influence of random events, (2) the production of dubious reported earnings through “creative” accounting procedures, (3) errors made by the analysts themselves, (4) the loss of the best analysts to the sales desk or to portfolio management, and (5) the conflicts of interest facing securities analysts at firms with large investment banking operations. Each factor deserves some discussion."

"Portfolio theory begins with the premise that all investors are like my wife—they are risk-averse. They want high returns and guaranteed outcomes. The theory tells investors how to combine stocks in their portfolios to give them the least risk possible, consistent with the return they seek. It also gives a rigorous mathematical justification for the time-honored investment maxim that diversification is a sensible strategy for individuals who like to reduce their risks."

"A widely held belief is that the ticket to a comfortable retirement and a fat investment portfolio are instructions on what extraordinary individual stocks or mutual funds you should buy. Unfortunately, these tickets are not even worth the paper they are printed on. The harsh truth is that the most important driver in the growth of your assets is how much you save, and saving requires discipline. Without a regular savings program, it doesn’t matter if you make 5 percent, 10 percent, or even 15 percent on your investment funds. The single most important thing you can do to achieve financial security is to begin a regular savings program and to start it as early as possible. The only reliable route to a comfortable retirement is to build up a nest egg slowly and steadily. Yet few people follow this basic rule, and the savings of the typical American family are woefully inadequate."

"The strong form of the EMH is obviously an overstatement. It does not admit the possibility of gaining from inside information. Nathan Rothschild made millions in the market when his carrier pigeons brought him the first news of Wellington’s victory at Waterloo before other traders were aware of the victory. But today, the information superhighway carries news far more swiftly than carrier pigeons. And Regulation FD (Fair Disclosure) requires companies to make prompt public announcements of any material news items that may affect the price of their stock. Moreover, insiders who do profit from trading on the basis of nonpublic information are breaking the law."

"The efficient-market hypothesis does not imply, as some critics have proclaimed, that stock prices are always correct. In fact, stock prices are always wrong. What EMH implies is that no one knows for sure if stock prices are too high or too low. Nor does EMH state that stock prices move aimlessly and erratically and are insensitive to changes in fundamental information. On the contrary, the reason prices move randomly is just the opposite. The market is so efficient—prices move so quickly when information arises—that no one can buy or sell fast enough to benefit. And real news develops randomly, that is, unpredictably. It cannot be predicted by studying either past technical or fundamental information."

"A random walk is one in which future steps or directions cannot be predicted on the basis of past history. When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable. Investment advisory services, earnings forecasts, and chart patterns are useless. On Wall Street, the term “random walk” is an obscenity. It is an epithet coined by the academic world and hurled insultingly at the professional soothsayers. Taken to its logical extreme, it means that a blindfolded monkey throwing darts at the stock listings could select a portfolio that would do as well as one selected by the experts."

"The castle-in-the-air theory of investing concentrates on psychic values. John Maynard Keynes, a famous economist and successful investor, enunciated the theory most lucidly in 1936. It was his opinion that professional investors prefer to devote their energies not to estimating intrinsic values, but rather to analyzing how the crowd of investors is likely to behave in the future and how during periods of optimism they tend to build their hopes into castles in the air. The successful investor tries to beat the gun by estimating what investment situations are most susceptible to public castle-building and then buying before the crowd."

"Investing requires work, make no mistake about it. Romantic novels are replete with tales of great family fortunes lost through neglect or lack of knowledge on how to care for money. Who can forget the sounds of the cherry orchard being cut down in Chekhov’s great play? Free enterprise, not the Marxist system, caused the downfall of the Ranevsky family: They had not worked to keep their money. Even if you trust all your funds to an investment adviser or to a mutual fund, you still have to know which adviser or which fund is most suitable to handle your money. Armed with the information contained in this book, you should find it a bit easier to make your investment decisions."

"The firm-foundation theory argues that each investment instrument, be it a common stock or a piece of real estate, has a firm anchor of something called intrinsic value, which can be determined by careful analysis of present conditions and future prospects. When market prices fall below (rise above) this firm foundation of intrinsic value, a buying (selling) opportunity arises, because this fluctuation will eventually be corrected—or so the theory goes. Investing then becomes a dull but straightforward matter of comparing something’s actual price with its firm foundation of value."

"Socialism's failure in the former Soviet Union and in the other socialist countries stands as a clean and unquestionable warning as to which path any rational and sane people should never follow again. Government planning brought poverty and ruin... Unfortunately, America is not absorbing the lessons that should be learned from the socialist experience and, instead, is following the same path of destruction."

"Government is, and always has been, the greatest criminal threat to the peaceful members of society."

"Our world today is in the grip of anti-capitalism. State bureaucracies ruling over anti-market policies have grown into ideological and political elites who arrogantly presume to know and dictate how we should all live and work."

"The rationale for the vast network of government welfare programs as well as regulation and control over private enterprise is based on the socialist analysis of the market economy."

"Capitalism in the 19th century did not doom the worker to a life of perpetual poverty. Instead, they kept creating new and better-paying employments as the decades went by. They produced the wealth and rising income that resulted in the emergence of a phenomenon completely new to human history: a self-supporting and educated middle class that grew more and more as they lower classes bettered their economic well-being."

"If government goes beyond securing liberty and instead violates it through regulation, redistribution, and planning, then citizens are victims of legal plunder."

"Democracy in itself does not define or guarantee a free society. History has told many stories of democratic societies that have degenerated into corruption, plunder, and tyranny."

"It should be remembered that men of courage, integrity, and principle can stand up to Big Brother and resist the headlong march into economic tyranny."

"Liberals say they are for civil liberties and personal freedom, but they continue to advocate government regulation of business, redistribution of wealth, and various forms of social engineering to manipulate human relationships and attitudes."

"Each of us, Leonard Read said, must become candles of liberty in the darkness of collectivist ideas. The brighter we each shine through our understanding and ability to articulate the meaning of freedom, the more we will be beacons that can attract others."

"The history of paper money is an account of abuse, mismanagement, and financial disaster."

"Who is the fascist? Individualism and the political philosophy of limited government is not only inconsistent with but is the exact opposite of fascism and Nazism. Under Fascism fascism and Nazism, the state reigns supreme with absolute power over everyone and all forms of property. It can well be asked: who is the fascist, when the president of the United States and many Democrats and Republicans in congress call for expanded authority for the FBI and other federal security agencies to intrude into the lives of the American citizenry? Who is the fascist, when the call is made for increased power for the FBI to undertake ‘roving wiretapping’ or have easier access to the telephone and credit-card records of the general population? Who is the fascist, when the proposal is made to make it easier for the FBI to investigate and infiltrate any political organization or association because the government views it as a potential terrorist danger?"

"It's hard to imagine those who framed the U.S. Constitution could have imagined the U.S. at the millennium. It's harder yet to imagine what we'll pass on, if we don't think of the seventh generation from now."

"There is a peculiar kind of hatred in the northwoods, a hatred born of living with with three generations of complicity in the theft of lives and land. What is worse is that each day, those who hold this position of privilege must come face to face with those whom they have dispossessed. To others who rightfully should share in the complicity and the guilt, Indians are far away and long ago. But in reservation border towns, Indians are ever-present."

"the poverty of dispossession is almost overwhelming. So is the poverty of complicity and guilt. That shame combined with guilt and a feeling of powerlessness, creates an atmosphere in which hatred buds, blossoms and flourishes. The hatred passes from father to son and from mother to daughter. Each generation feels the hatred and it penetrates deeper to justify a myth. Norman Grist suffered from Indian Hating Disease. He had it bad, knotted tightly and pungently in his gut"

"Native American teachings describe the relations all around-animals, fish, trees, and rocks as our brothers, sisters, uncles, and grandpas. Our relations to each other, our prayers whispered across generations to our relatives, are what bind our cultures together."

"There is a direct relationship between the loss of cultural diversity and the loss of biodiversity. Wherever Indigenous peoples still remain, there is also a corresponding enclave of biodiversity."

"We ended up having a long, wide-ranging conversation about the difference between an extractivist mind-set (which Leanne Simpson describes bluntly as "stealing" and taking things "out of relationship") and a regenerative one. She described Anishinaabe systems as "a way of living designed to generate life, not just human life but the life of all living things." This is a concept of balance, or harmony, common to many Indigenous cultures and is often translated to mean "the good life." But Simpson told me that she preferred the translation "continuous rebirth," which she first heard from fellow Anishinaabe writer and activist Winona LaDuke."

"There is no Indigenous group in the US whose relationships to ancestral foods has not been severely impacted, if not completely disrupted. Some of these are well known, having been extensively documented, and no one has written more powerfully or prolifically on the issue than Winona LaDuke. LaDuke is the quintessential Indigenous eco-warrior, making her mark in larger Indigenous environmental justice conversation not only as a researcher but also as an activist who has worked tirelessly for decades in her own White Earth reservation community to protect Ojibwe access to wild rice, known to them as manoomin...Another high-profile issue LaDuke has written about is the disruption of the Klamath nation's relationship with salmon and sucker fish."

"While Native peoples have been massacred and fought, cheated, and robbed of their historical lands, today their lands are subject to some of the most invasive industrial interventions imaginable."

"In her book The Militarization of Indian Country, Anishinaabe activist and writer Winona LaDuke analyzes the continuing negative effects of the military on Native Americans, considering the consequences wrought on Native economy, land, future, and people, especially Native combat veterans and their families. Indigenous territories in New Mexico bristle with nuclear weapons storage, and Shoshone and Paiute territories in Nevada are scarred by decades of aboveground and underground nuclear weapons testing. The Navajo Nation and some New Mexico Pueblos have experienced decades of uranium strip mining, the pollution of water, and subsequent deadly health effects. "I am awed by the impact of the military on the world and on Native America," LaDuke writes. "It is pervasive.""

"If you appoint Indian people, don’t just make them pretty Indian people that sit in your administration. Let them do their job. Indigenous thinking is what we need in the colonial administration. That’s when change happens."

"Seventy-five percent of the world’s mining corporations are Canadian, and all through Latin America there’s human rights violations."

"It’s so tragic that, you know, on one hand, the Biden administration is like, “We are going to have Indigenous Peoples’ Day, but we’re still going to smash you in northern Minnesota and smash the rest of the country.” Same thing, you know, Klobuchar and Smith, the two Minnesota senators, shameful their lack of courage, not only for Indigenous people but for the planet"

"In the final analysis, the survival of Native America is fundamentally about the collective survival of all human beings. The question of who gets to determine the destiny of the land, and of the people who live on it-those with the money or those who pray on the land-is a question that is alive throughout society."

"Enbridge and the Walz administration are climate criminals."

"The Biden administration needs to stand up. You know, on one hand, I’m looking at Joe Biden, and I’m so grateful. Like, Bears Ears, that was the right thing to do, you know, to get back and to be the people that are supporting Indigenous people and Land Back...You know, 80 million acres of national parks stolen from Indian people, let’s start returning those, too, along with creating new national parks. We could just start returning land that was stolen. That would be a great step."

"No sane person supports this pipeline. Only people who want to take oil money from Canadian multinationals support this pipeline."