...got returns?

Jump in the RiskPool. The Water’s Fine.

Posted: November 1st, 2013 | Author: | Filed under: Opinion | Tags: , , , , , , | 1 Comment »

Most rants against ObomneyCare ignore the reality that you (we) pay for the under-insured right now and much less efficiently. Think about health care’s contributory cost to the Cost Goods Sold (CGS) of almost every product you buy, or the fact that 15-20 cents of every dollar spent by the federal government is spent on healthcare.  These are big numbers.

As one of the largest consumers of health care, and with the growth of health care costs substantially exceeding the Consumer Price Index, it simply makes sense that the Government would seek to control the cost.  So despite that the insidious cost of patchwork health insurance coverage is not immediately apparent to the opponents, it is a very real cost to you and me with respect to every product or service that we consume.  And the ACA, poorly implemented as it has been, has reasonably sought to control the cost.

Dissent is essential to finding best solutions. Yes, the roll-out of the ACA was clearly bungled.  But the hatred over this issue is utterly maladaptive. The best and most admired companies in the world have all suffered speed-bumps along the way to success. The NYSE bungled the Facebook IPO; IBM stupidly gave away DOS to sell more hardware; Xerox gave away its early point-and-click technology…. but the answer was clear:  fix it.  The executives in the Executive Suite accepted responsibility, rolled-up their sleeves and fixed it.  And yes, some lost their jobs.  That is how to create the ‘great’ from the mere ‘good.’

Congress demagoguery over this issue is deeply irresponsible.  The right answer, as it would be for any executive management team, is to fix the problems. The concept of ‘universal’ health care with high participation through an individual mandate is sound (and has been vetted by a multitude of ’thinking’ conservatives ie Nixon, Romney, AEI, Heritage Foundation).  The Congress needs to get over the rhetoric and fix the problems. The result will be a health care system that redounds generously to producers and consumers alike. Right now it does not.

Some have argued that there is a gulf of difference between ‘health care’ and ‘health insurance’ whereby the former is cheaper to the “paying public” to absorb the uninsured costs of emergency room visits, versus subsidizing a (poor) individual’s health insurance.  On the point of cost, I am not a wonk enough to counter the “health care” versus “health insurance” with hard numbers.  But this is a reasonable concern.  And if the opponents are correct that “it could not possibly be cheaper than continuing to pay only those health care costs actually incurred” then we should probably abandon or significantly re-work ACA. Full stop.

My guess is that the cost of on-demand uninsured “health care” is literally thousands of times (perhaps tens of thousands) more costly than on-demand “health care” administered by the risk-pool insurance approach. Also the costs of absenteeism, morbidity, low productivity are difficult to measure but they are enormous drags on the bottom line of any company, and literally company-killers for small business owners.

None of us knows the future, so we have to be vigilant and nimble with regard to ACA’s implementation and re-works. I am aware of the counter-argument that the government has been rarely vigilant or nimble.  That is even more reason to embrace market-driven solutions (slightly) constrained by baseline minimum requirements. The latter concept is not unknown. There is a free and competitive market for labor for example, while the Government restricts employment for kids under 16, requires bathrooms in the workplace etc.


Seeking Yield and Capital Preservation

Posted: November 4th, 2012 | Author: | Filed under: Strategy | Tags: , , | Make a Comment »

If income and capital preservation are important, it might be prudent to limit exposures to the public equity markets. Your risk preference curve is likely one in which the joy from a capital gain will not nearly equal the pain from a capital loss of the same magnitude. In pages 183 – 190 of DIYHF I give various methods for risk weighting a portfolio using easy steps. They work.

Income is always attractive. Consider allocating some portion of your funds to REITS, which have not only a strong prospect for capital appreciation henceforth but also an attractive dividend.

Also consider the crowd funding alternatives. Crowd funding is an innovative and profitable disintermediation of the banks (who are scarcely lending anyway) for the investor. Right now banks take your money, pay no interest and lend it to borrowers out at 400 to 600 basis points in profit. Crowd funding allows you to invest directly to consumers or to businesses and keep that 400 – 600 basis points for yourself. The default rates are low, your capital is diversified across multiple borrowers (like a bank) and the annual returns range from 5% (for high credit-worthy borrowers) to as much as 30% annually (for the riskier borrowers). Of them all I believe that www.prosper.com is the most professional offering.

- Wayne Weddington