Edge: Milevsky, Ritholtz, Zweig, Ferri and More

Edge QuestionThis year’s Edge question is What *should* we be worried about?  I put that same question to some of my friends. What should *we* be worried about?

Some of their shorter answer follow.

Moshe Milevsky is a finance professor at the Schulich School of Business at York University in Toronto and perhaps the world’s leading authority on retirement income planning:

My greatest worry is that I don’t quite know what more to worry about. Yes, I know that I’m supposed to worry about European banks, political paralysis in Washington, inflation, severe weather disruptions, massive financial illiteracy, The Middle East blowing up, again, and China and Japan going to war and — in Canada — a bubble in housing prices. But what really worries me is: what am I missing???  Darn! I need more things to worry about. 

Joe Calhoun is the founder of Alhambra Investment Partners and editor of Real Clear Markets:

Asian crisis, the sequel.

Dana Anspach is founder of Sensible Money LLC and has been the About.com Guide to MoneyOver55 since 2008:

What should we be worrying about… well, I think I would have to put an invasion by space aliens at the top of the list. I think that is just as likely as anything else to cause the world meltdown that Roubini has insisted was coming. And although I perhaps should be worrying about this I don’t, because I don’t know how productive it is to worry about fringe events that I have no control over and can do absolutely nothing about.

If one wants to build as close to a fail-safe plan as possible, then go buy property in a remote area and build a self-sustaining compound. Make sure you are somewhere aliens would find undesirable. If that’s not so appealing, then find something more productive to do with your time than worry. How about focusing on things within your control? Things you can affect; perhaps your education, your career, your investment risk decisions and how much you spend.

Once I have those things nailed down than I might perhaps spend some time pondering, but only with clear guard rails in place lest the pondering cross the line into worry. I might ponder what happens if the Euro doesn’t stick, if global warming accelerates in an exponential fashion, if the U.S heads down the same trajectory as Japan, and good God, most importantly, what happens if one of these weeks Hussman is right?

Geoff Considine is founder of Quantext, a strategic adviser to Folio Investing and writes regularly for Portfolioist:

We should be worried about meaningful employment.  The issue is not just the official employment number but rather the type of jobs and what the employment numbers do not capture.  We have a very low labor participation rate compared to the last 50 years.  Further, we have a huge dropout rate from the labor market, people who have given up, and who are therefore not included in the official unemployment number.  Finally, we have the types of jobs being created.  The post-crisis recovery has seen new jobs but they tend to be lower quality jobs than those that were lost in the economic crisis.  On top of all of this, we have an increasing fraction of young people who are going into major debt to obtain educations that are not going to be economically justified when they enter the job market.

We are likely to see a continuation of the long-term trends of wage stagnation for the middle class and working poor.  Given the trends in employment type, it is not surprising that we see median household incomes that have not risen for decade.

Ironman is the proprietor of Political Calculations:

It’s an interesting question, becomes it comes on the heels of the resolution of what had been our greatest concern coming into 2013 – the great imbalance that would have been unleashed in U.S. equity markets if no compromise had been reached in the fiscal cliff tax crisis to maintain capital gain and dividend taxes at the same, although higher, tax rate.

So what do we worry about after that?  Perhaps the biggest thing we should be worried about now is the prolonged and continuing delay that young people are experiencing in entering into full-time employment in the U.S. work force.

Today, we find that these individuals are encountering the results of a number of policies that the United States has adopted in the last six years that are weighing heavily against both them and their potential employers, that are making this least-educated, least-skilled and least-experienced portion of the U.S. population too costly to employ in full-time jobs at the same time that the available remedies for their employment deficiencies, such as additional schooling, are imposing extremely high and unsustainable costs upon them.

That is not something that can end well if the policies that produced this situation are allowed to continue.  There will be a reckoning and how that reckoning comes about is something about which we need to be greatly worried.

Jon Gillet and Jonathan McAdams are principals of Mission Capital Management:

An ever-increasing “currency tax” (our term for money printing to fund government spending) resulting in a potentially sharp devaluation of the dollar, Euro, and Yen at some point.  Also, central bank tightening is becoming less and less of an option as debts grow to all-time highs in the US, Europe and Japan.  Printing money ultimately should devalue the currencies, and if inflation expectations ever set in, they won’t be able to do anything about it without causing a massive and likely unsustainable increase in sovereign interest expense.  So central banks are likely to simply not raise rates, which would allow inflation to run unchecked.

Scott Vincent is Managing Partner at Green River Asset Management:

We should be worried about the fact that the systemic problems that have caused our capital markets to experience financial crises with increasing frequency and severity have never been addressed adequately.  Capitalism has this great self-cleaning cycle, and we’ve short-circuited it in the name of “saving” our financial system.  In reality we’ve “saved” a flawed system and assured ourselves that we’ll have another, deeper crisis before too long.

Jason Zweig is personal finance columnist for The Wall Street Journal:

What we should be worried about are the things we don’t even realize we should be worrying about.  For investors, the deadliest dangers are always the unknown unknowns.

That answer, of course, is deep and true on the one hand but useless on the other.  It does have a practical corollary, however: All great investors are intellectuals with boundless curiosity.  By thinking hard and reading widely, they import ideas and theories other investors haven’t taken into account.  You don’t need to know what the Fed will do or where the dollar is headed; the best thinking among hundreds of millions of investors has already been impounded into the market price of all related assets.  But if, instead, you study self-organized criticality in physical systems or distributed decision-making in non-human species in an attempt to predict when markets might reach irresistible momentum, you might have something that isn’t in the price.  Or, if you read every peer-reviewed article on the South Sea Bubble or the history of central-bank interventions, you might have an edge over the algorithms, at least in the long run.  Or, if you study the neuroeconomics of decisions under fear and stress, you could be more ready than your rivals when the market melts down next time.  In short, what we should be worried about is thinking conventionally and not trying, whenever we can, to burst the bounds of the market’s orthodoxy.  Only by ranging far afield from the usual analysts’ reports and standard databases can an investor even hope to capture a glimpse of what the next unknowns might be.

David Merkel, of The Aelph Blog, is principal of Aleph Investments, LLC:

The situation that the world is in now is similar to the 1840s in Europe.  Governments deep in debt, and pouring on more.  Currency debasement. Rising inequality. It ended with several revolutions around 1848 with many debts repudiated.

Suki Mann, Credit Strategist, Societe Generale, worries about finding signs of sustainable upward trajectory in economic growth.

Barry Ritholtz, proprietor of The Big Picture, is CEO and Director of Equity Research at Fusion IQ and the author of Bailout Nation:

Things that are within your control; don’t worry about things you cannot control.

Howard Lindzon is the co-founder and CEO of StockTwits®:

Middle East always. Second our stupid tax laws at home.

Larry Swedroe is a principal and the director of research for The BAM ALLIANCE and has authored or co-authored 12 books, including his most recent, Think, Act, and Invest Like Warren Buffett; he blogs at CBS MoneyWatch:

My simple answer is What you should be worried about is outliving your assets so you cannot live in at least the minimal standard you could be happy about. The problem with these types of questions is that it’s the unknown unknowns that often cause the problems, rather than the known unknowns.

Rick Ferri is an author, blogger and the founder of Portfolio Solutions:

I’m an investment guy. By default, that makes me a professional worrier. But I don’t worry about the markets or interest rates or what the Fed is going to do next month; mostly I worry about my clients. I worry because they worry – more specifically – they worry about not having enough money.
This brings me to a topic we should all worry more about – worrying too much about money. Money worries have become so ingrained in our culture that it has literally become an epidemic. It makes us lose sleep, think irrationally about the future, and can even cause health issues.

We should worry that people are worrying too much about money — and that’s not good. I have listed a few thoughts on this issue that we may all take solace in.

First, worrying too much about money has never led to more money. The more we worry, the less productive we become, and the less money we accumulate.

Second, most worries about money are greatly exaggerated. We see examples of this everywhere. A recession is coming even though there are no signs. Interest rates will skyrocket even though they remain historically low. The stock market is in a bubble even though valuations are reasonable. Government spending will bankrupt the country though we are the richest country in the world.

Third, investing with excessive worry leads to poor choices. We tend to become short-term speculators rather than long-term investors. We’ll follow herd mentality when making decisions rather than thinking rationally. We’ll believe our advisers and fund managers who say they’ll protect our money from a bear market even though they cannot. Eventually, we’ll disconnect from the markets and go to cash at the most inopportune time.

John Lennon wisely observed that life is what happens to you while you’re busy making other plans. In the spirit of his words, I say that life is what happens while we’re overly worried about money. Let’s worry less about money and focus more on enjoying what we already have.

Bob Seawright is the Chief Investment & Information Officer at Madison Avenue Securities and the proprietor of Above the Market:

I am more than a little worried about self-organizing criticality and the consequential cascading catastrophic risks that may confound us at many levels and  in many areas.  But I will take some advice from Barry Ritholtz and try to limit my worries to things I can control — at least maybe/sort of (since no less of an expert than Daniel Kahneman suggests that it’s doubtful that we can control our behavioral and cognitive biases to a significant degree).

Behavioral economics has done a terrific job at discovering the beginnings of an outline as to the behavioral and cognitive risks and biases we all face. My post entitled Investors’ 10 Most Common Behavioral Biases from last July describes 10 key problem areas (and has consistently been the most popular post overall on this site).  Unfortunately for us, #10 on that list — bias blindness – is not just true, it’s really true, reeks of truthiness, is true in spades. It is our overarching problem.

We all tend to share this foible — an inability to recognize that we suffer from the same cognitive distortions and behavioral biases that plague other people.  If we believe something to be true, we quite naturally conclude that those who disagree must have some sort of problem and are well-nigh certain that our beliefs merely reflect the objective facts simply because we think they are true.

In his 1974 Cal Tech commencement address, the great physicist Richard Feynman emphasized that “[t]he first principle is that you must not fool yourself – and you are the easiest person to fool.”  That fact – and it surely is a fact – worries me to no end.

The Edge Question series:

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