From Sea to Shining Desert

I finally made it back to Moab weeks ago. I'm house-sitting, meaning I get a lot of computer time to catch up on stuff. I finally broke down & made a website again called

Living Without Money

With a FAQ & Essays & Links, to hopefully answer all unanswered questions about this lifestyle & the philosophies & ponderings of it.

Somebody else in the world voluntarily living moneyless right now in the 21st century!

I just found out there are other folks in the world voluntarily living moneyless! There's a woman in Germany who has lived without money since 1996! Her name is Heidemarie Schwermer. Her website is in German, but you can plug it into Babelfish to get the gist of it. It looks like she even wrote a book about it.



Also, there's a Mark Boyle in England who recently told me he gave up money months ago & plans to do it for a year. I bet he'll get hooked just like Heidemarie & I did!
Sometime before that, Mark started the freeconomy community.

I also heard there's another fellow in England (London?) who lives totally moneyless. I forget his name. He doesn't use internet or phones, I hear.

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So here’s what’s happened since I last wrote in this blog thingy last November at my cousin Annie’s in Petaluma, Cali.

IN THE BAY AREA

I got to see my other cousin, Sue (Annie’s identical twin) & her son Jamie, as well as meet Annie’s fairly new boyfriend, Mark. I got to do hikes to the Point Reyes coastline with Annie & Mark. And I got to tune up my bicycle a bit – even finding a luxurious new soft-silicon seat for it in a bike shop dumpster, as well as new tires & tubes. Then off I petalled from Petaluma to Berkeley to visit my friend, Dan & his partner Liz, for a couple days.

When it came time to pedal to Sacramento, Dan & Liz decided to join me part way, parting ways with me at Concord. The bike trip to Sacramento was really nice.

My bike was doing ok, too, even with 7 broken rear spokes that I’d jerry-rigged, using spare spokes & bailing wire to wire them to both the hub & the chain-spoke guard thingamajigger. I was fairly surprised the bike made it all the way to Sacrament land. I should mention I had a complete tool kit, every item found along roadsides since Oregon – a pair of pliers, a crescent wrench, a philips & a standard screwdriver, wire-cutters (for cutting fences) and even an allen wrench that happened to fit exactly! What are the chances of that?

But the Lord Giveth & The Lord Taketh Away. When I got to Sacrament Hell I noticed the nice down jacket Liz had given me in Berkeley had gotten lost off the bike. At first I was peeved, since I thought I’d need it for what I figured would be a bitter-cold train-hop to Utah. Then I had to stop & meditate again, reminding myself that everything I need comes when I need it, & gets lost when I need to lose it. I did now have 2 splendid sleeping bags I had found, after all.

But Sacramento was indeed a hell. Not very bike friendly. I wrecked on a bike-tire-size rut on an insanely busy overpass with no bike lane & thought my life was over. But I came out unscathed.

I ended up spending a couple days in that sacramental purgatory trying to hop a freight with no luck. Only one train stopped. No rideable cars. So I decided to peddle as far as I could toward Reno on the lame bike & see what’d happen. I often got off-road & followed rocky paths along the railroad tracks. Treating an already-ill old 10-speed as a mountain bike isn't recommended. The rear tire finally blew up as I coasted into the town of Auburn. I had no more spare tires, & more spokes had broken. So I ditched the bike & started hoofing it. Right as I walked into town, a train rolled over the overpass, slower than molasses in January [that's the overpass on the left]. There’s my hopping spot, I thought. After a night camping in the woods, I hopped a train out of there. It took me over Donner Pass [right], through Reno, accross Nevada. The December weather was unusually warm & beautiful. I had no need for that down coat in the day, & at night I slept in my sleeping bags.

It took me all the way to Ogden, Utah. I didn’t hop off, thinking it would go southward toward Grand Junction, Colorado, but it ended up going the Cheyenne route. So I rode all the way to Green River, Wyoming – the very same place I had ridden my bike to in July from the Rainbow Gathering!

I hitch-hiked southward. I’d been told a snowstorm would be blowing in, & all I had for warmth was a light sweater. Why would this be the first time in 8 years what I needed wouldn’t come?, I kept reminding myself. A middle-aged oil-rigger guy with a wise & kind face that blew all stereotypes of rigger rough-necks, took me out of his way to Manila, Utah. I had an over-loaded back-pack, & there was no indication that I was lacking anything. But he asked me, as I got out of the car, if I had a jacket. “No,” I said. He said he happened to have a heavy parka he never used, & he gave it to me along with $20. I hadn’t told him I didn’t use money, so I had to figure out how & where to ditch the $20.

Another rough-neck took me past the Flaming Gorge. Then a young guy took me into Vernal, UT. He said he was working on a theory unifying the 4 forces of physics that would blow both Einstein & Hawking out of the tub. A 60-something woman took me to Dinosaur, CO, & another 60-something woman took me all the way to my parents’ house in Fruita, Colorado. She happened to hit & maim a big beautiful elk buck on the way. We were both shook up, needless to say.

I spent a few days with my parents in Fruita, then went to stay with my brother & chop wood at his cabin in Conifer, Colorado. Then back to my parents’ for Christmas, then back here to Moab.

I’ve got house-sits lined up till the end of January, so I haven’t stayed back at the canyon cave, yet. Being sedentary, that might mean this blog will probably be less of a travelogue & more philosophical musing again.

I googled "Mill Creek Canyon" & found these photos of the back yard of my cave dwelling, during warmer season. The pool below is my usual bathtub. I am totally amazed that somebody found & photographed the very petroglyph of the Pushmepullya just yards from the cave I stay in! [right]. You can find most any obscurity on the web nowadays.

How could any CEO or king or trust-funder be richer than I?

Blessed are the poor, for nobody can be richer than they. Blessed are the lizards and the ravens and the rattlesnakes and the ants and the trout.

Some Links On Distressed Debt Investing

One of my students is interviewing soon for an internship in an investment bank's fixed income department, and another is going to be starting soon in a credit analyst position, So, these pieces on distressed debt investing were pretty timely.

Michelle Harner over at the Conglomerate posted a very nice piece with some links about distressed debt investing. She highlights the difference between "vulture investing" and "investing for control" (basically traders vs. longer-term investors). She gives a couple of pretty good references. One, from Knowledge@QWharton lays out the basics of "distressed for control" investing:

Simply put, their line of work is to make a profit from companies that have failed to do so and are on the brink of bankruptcy. Unlike traditional hedge funds, however, their investment doesn't stop at buying significant portions of these companies' debt for pennies on the dollar, tidying up the balance sheet and then selling at a higher price. Instead, KPS and Matlin Patterson get in and stay in -- bringing in new managers, installing a new strategy, renegotiating labor and supplier contracts, and so on. (That's the 'control' part.) It's not an easy task, especially given the state of these companies when they step in.

Read the whole thing here.

She also cites some of her own research: a survey titled "Trends In Distressed Debt Investing: An Empirical Study of Investors' Objectives" (available on SSRN here).

Finally, Marketwatch gives us a look into the world of "vulture investors." It's a bit dated (April), but it shows how busy the world of distressed debt has become. One of the guys at my church's men's group is an analyst at a local distressed-debt hedge fund. He said he hasn't had this many good choices to buy since he can remember (luckily his firm is sitting on some cash).

I'm teaching the Level 1 Fixed Income material for CFA this spring, and will be teaching Unknown University's Fixed Income class in the fall. So, I'll probably be posting more on the credit market topics as time goes on (I tend to use this blog as a handy place to keep class-related stuff I want to remember).

It's Final Exam Time

I give my last final exam of the semester tomorrow to my MBAs. Just for the heck of it, I named all the companies and individuals in the problems after characters from Terry Pratchett's Discworld novels. I wonder if anyone in the class will notice?

If they do, I'll probably give them extra credit.

Bill Miller: The Stock Picker's Defeat

From 1991 to 2005, Bill Miller (superstar mutual fund manager for Legg Mason's Value Trust) beat the S&P every year - a record no other manager has ever come close to matching. Then, this last year the bottom fell out and his fund lost 58% (about 20% more than the typical fund.

The Wall Street Journal has a great interview of Miller, and here's the best line:

This meltdown has provided a lesson for Mr. Miller and other "value" investors: A stock may look tantalizingly cheap, but sometimes that's for good reason.

It's a very good piece for discussing in class, since it touches on a lot of issues related to market efficiency. Read the whole thing here.

When Diversification Doesn't Work

I'm not sure, but I think it has something to do with correlation...

The Long-Run and International Evidence on the Value Premium

The term "Value Premium" refers to the empirical observation that firms with low price multiples (i.e Price/Book, Price/Earnings, Price/Cash Flow) have tended to have higher returns than their high-multiple counterparts - even after controlling for risk. People give a lot of possible reasons for this - we have a bad model for controlling for risk, there are behavioral biases, or it's simply a case of data diving.

I just came across a paper by a group known as the Brandeis Institute titled "Value vs. Glamour: A Global Phenomenon" that seems to rule out the data diving story. They examine the evidence for the value premium both across time (the mid 1960's to the present) and internationally. They found that

While the degree of outperformance of value stocks vs. glamour stocks varied across data sets, what strikes us as most significant was the consistency the value premium exhibited:

• across valuation metrics, such as price-to-book, price-to-cash flow, price-to-earnings,and sales growth
• across time, which in this study applies to the 1968-2008 period for U.S. stocks,and the 1980-2008 period for non-U.S. stocks
• across regions, as the results indicated a value premium in developed markets in North America, Europe, and Asia
• across market capitalizations, as the relative outperformance of value stocks to glamour stocks was evident among both large- and small-cap stock universes.
  

The paper has a lot of nice graphs that could be useful in class. You can read the whole thing here.

HT: CXO Advisory Group

The Final Throes of the Semester

It's that time of the semester:

• Only one meeting left for each of my classes.
  
• My student-managed fund survive their end-of semester presentation to the advisory board
• I've graded and handed back all assignments except for final exams
• I've even given out and collected my evaluations
  

Now all I have to do is make up my finals, give them, and grade them.

The crop is almost in. And man, oh man is it about time.

One of the things I like about this career is that it has a rhythm to it - we have new "crops" each semester, and a feeling of accomplishment once the semester is done. But that final week or two is always a bit crazy.

So, to all my readers: If you're a student, good luck on your exams and projects. If you're faculty, hang in there - it's almost time for the break.