Wednesday, July 27, 2005

Meaninglessness

Henry Blodget divines John Roberts jurisprudential predilections from his investment portfolio and it's unintentionally quite funny. Blodget, once the patron analyst of greater fools, famously predicted in October of 1998 that Amazon.com's stock price would soon reach $400. The stock did shoot past $360--up 300% from when Blodget made his prediction--but never matched Blodget's target. Amazon's share price eventually fell to an all-time low of $7 in 2001 and for the past year has traded near $40. Keep that in mind as you read the article.

Journalists, politicians, and activists are scouring the legal writings of Supreme Court nominee John G. Roberts for insight into potential future rulings, but perhaps another kind of examination would reveal even more about his character. Does Roberts act rationally, or is he hotblooded and emotional? Is he prudent and patient, or a compulsive gambler in search of the next big score? Does he think for himself or follow the herd? Can he manage conflicts of interest? Roberts' legal writings offer only tentative answers to these questions. But his financial records supply clear ones.

But the answers can't be be too clear because Blodget admits just a few lines later that Robert's financial-disclosure runs only through 2003 and that

The disclosure form doesn't give an exact value for each asset, only a range (i.e., $15,000 to $50,000 or $250,000 to $500,000). At the end of 2003, Roberts' assets were worth as little as $3 million and as much as $7 million. (Given that the stock market has soared since then, the net worth could now be in the $10 million range.)
And what does this hazy vista into Robert's soul tell us about his future judgments? Quite a lot, apparently.

So, what do Roberts' investments say about him? He is rich, but not so rich that the $200,000 Supreme Court justice salary would feel like chump change. Still, he will be comfortable hobnobbing with other capitalists-turned-public servants in Washington (for whom $200,000 is chump change). Roberts benefits or will benefit from virtually all the various Bush tax cuts, from income to dividends to capital gains to estate taxes.

Aha! Roberts benefited from the Bush tax cuts! We've got him pegged, then! He's one of them. The filthy capitalists. He might even extend eminent domain for the benefit of Bush's corporate cronies! (Never mind that everyone who pays taxes benefited from the cuts!) Or maybe this is a payoff! Roberts must have agreed to serve on the Supreme Court to pay Bush back for those tax cuts! Err...or something like that.

His fortune is self-made, which suggests a bias toward self-reliance rather than entitlements and subsidies.

Of course! Just like Bill Gates, Warren Buffet, George Soros, and the other billionaires who campaigned against the Bush capital gains tax cut and/or support a host of other tax increases and liberal causes.

Roberts' one-eighth share of the cottage in Limerick (worth less than $15,000), combined with an investment in the "New Ireland Fund" (also less than $15,000) suggest a possible Gaelic fetish.

Ummm, sure Henry. And that tells us what, exactly? That he'll take it easy on terrorist-funding organizations to avoid bolluxin' up the musha for his Sin Fein coozins? Now that would be a fine thing, sha?

Roberts' stock and mutual-fund holdings in 2003 were highly diversified, consisting of domestic and international stocks in multiple industries. In keeping with Roberts' reputation for prudence, the equities consisted primarily of dividend-paying blue chips like Coca Cola (less than $15,000), AT&T (less than $15,000, sold), Merck (less than $15,000), etc. Those who view Roberts as a robotic starched-shirt, however, should note evidence of a romantic-idealist streak: a chunk of XM Satellite Radio worth between $100,000 and $250,000. This bizarrely out-of-character investment suggests that Roberts is either clairvoyant or not afraid to dream: The stock is up tenfold since early 2003.
Prudent blue-chipper or starry-eyed dreamer--you can have it both ways with Blodget who, when banned from the securities industry by the SEC, was found to have mocked the same stocks he was pumping for the public, in his private emails at Merrill-Lynch.

Also in keeping with Roberts' clean-cut, churchgoing image, his investments did not include companies in vice industries (gaming, drinking, smoking, etc.). If Roberts ascribes to the Peter Lynch-school of amateur investing--buy what you know--one might thereby infer that he is not a chain-smoking boozer who is forever sneaking off to Atlantic City. One might also conclude that he will instinctively frown on rulings that make life easier for gaming, smoking, and drinking companies (Wall Street take note!).

Thanks for the advice. I'll be sure to sell my sin stocks before Roberts gets on the bench. By the way, does that mean that if Robert Bork had only been fortunate enough to have a secret penchant for S & M flicks (instead of old classics) he would have been enthusiastically endorsed by the liberals who investigated his video rentals? On the theory that, you know, he watches porn so he doesn't really mean it when he warns that America is slouching toward Gomorrah thanks to judicial liberalism?

Roberts' stock portfolio is a conflict-of-interest nightmare. If Roberts continues to own all these stocks, he may have to recuse himself from many cases before the Supreme Court. (While in private practice in 2003, Roberts represented 19 states in their antitrust suit against Microsoft. Yet his 2003 financial disclosure form shows Roberts holding $100,000 to $250,000 worth of Microsoft stock.)

Well, people do tend to slightly reorganize their personal lives when they, oh, say, get elected President or CONFIRMED TO THE FREAKIN' SUPREME COURT!
On the whole, Roberts' investment choices suggest that his financial character is much like his legal one. In investing, he tends to accept prevailing conventional wisdom--which, in the case of the financial markets, often changes and is often wrong--and to apply it with above-average competence.
That's right. We know that conservatives are all little lemmings who just follow the swarm. Roberts is just a fast lemming...or would that be a slow lemming? On the plus side, he certainly can't be filibustered if he's this mainstream!
For example, to his credit, Roberts does not appear to have made the usual boneheaded mistakes of the late 1990s--assuming that "diversified" meant owning the stocks of eight fiber-optic companies instead of one, for example, or betting his entire 401(k) on one stock. He also does not seem unduly vulnerable to the alternating influences of fear and greed: He did not quit the market in a panic in mid-2003 or bet the farm on Internet stocks in mid-1999 (or, if he did, he jettisoned the evidence). Instead, he maintained a diversified portfolio and, largely, held onto it through thick and thin.
Boneheaded mistakes? Hmmm. Like when super-stock-analyst Blodget plowed $700,000 into Internet stocks just a few months before the bursting bubble splattered his net worth all over Wall Street?
Still, Roberts' investment decisions do not show evidence of the rigorous, summa cum laude analytical skill that he is said to evince on the legal side. Either his own choices--or those of his investment advisers--suffer from common-but-flawed thinking.
Investment advisor? Wait a minute! You mean all this prognosticating may not even be based on Robert's own investment decisions? You mean we could just be predicting what kind of a Supreme Court justice cousin Harry the financial advisor back in Buffalo would make?!
Roberts' stock portfolio, for example, is actually too diversified: He holds so many positions that the benefits of diversification are likely lost to trading and administration costs (monitoring the well-being of 40-odd stocks is more time-consuming than monitoring the well-being of 10), and the portfolio is so representative of the market that it might as well be the market. A wise investment adviser would tell Roberts to sell all his stocks and buy one low-cost index fund instead.
Forty stocks is too diversified? It might as well be the market? A wise advisor would recommend index funds? If Blodget had been telling people the exact opposite of that a few years ago he might still have a job in the securities industry!

As for his fund and stock selection, Roberts does show some susceptibility to peer pressure--aka, what the majority thinks is smart at any given time. Positions in Cisco, Time Warner, Dell, Lucent, and PMC Sierra suggest that Roberts did not maintain iconoclastic clearheadedness through the 1990s but instead bought into the "do-it-yourself" stock-picking craze. Similarly, in 2003, when the mass of investors shied away from individual equities, he sold several stocks (at a bad time) and replaced them with funds. Roberts also owns a lot of high-cost, actively managed mutual funds, which suggests blind acceptance of the common-but-erroneous belief that professional investors usually beat the market (they don't). As with the individual stock holdings, Roberts would be well-advised to sell most of his high-cost active funds and add money to his few, low-cost index funds.

Bottom line? Roberts the investor is smart and conservative but, like most of us, prone to following the herd.

Aye yi yi! And there you have it: Roberts is a prudential, conflicted, diversified, non-iconoclastic, sometimes fuzzy-headed, starry-eyed dreamer who follows conventional wisdom (or lemmings--I forget which), stays the course, and is susceptible to peer pressure. Wait a minute? Was this about Sandra Day O'Conner's rulings or her replacement? I'm so confused!

2 comments:

Anonymous said...

Roberts' Rules!
Can't wait 'til he gets in there and shakes, rattles and rolls.
GO John GO!

BTW - great post.

Ashley said...

Thanks!