Lessons from my Daughter

My favorite horseback rider on the planet, bar none, rides out of a barn in Concord, Massachusetts.

She is passionate about horses, competes frequently, and would probably be at the barn every day if her parents would let her. I know her pretty well, since I am her father.

Caroline has been riding horses for nearly all of her life. Don't ask me how she got interested in horses - neither my wife nor I ride. But even though she is a very good student, and thinks she would like to be an environmental engineer someday, her true calling at this stage of her life is the horse world.

Last weekend, Caroline competed in an eventing competition at the University of New Hampshire. For those who don't follow the horse world, eventing consists of three different events, usually spread over two days.

First, on Saturday, is the dressage competition, where riders go through a series of very intricate maneuvers on their horses in front of a judge. While this can be very nerve-racking - since points can be won or lost based on very small movements - the riding is very controlled and temperate, as you would expect from riders wearing jackets and white pants.

Then there's Sunday, where the two other events take place. One is called stadium jumping, where riders jump over a variety of different obstacles in a enclosed rink. Finally there is cross country, where riders race through fields jumping over walls, ditches and cross rails, all within an allotted time period.

The Sunday events always make me nervous. Riding horses that are moving at a gallop and jumping over rails and walls may seem exciting, but to a parent watching it also presents plenty of opportunity for injuries. Horses have survived for 3 million years on this planet by spooking and running away from anything that looks unfamiliar, even if there is a rider on their back. Given the fact that the typical horse weighs around 1,500 pounds, a panicked horse can usually overcome the most determined rider.

But here's the part where I really learned something this past weekend.

On Saturday, after the dressage competition, most of the riders went home with their horses to rest for the next day. Not my daughter, however.

Caroline and I walked the cross-country course three times on Saturday afternoon, twice with a measuring wheel so Caroline could figure out the correct pace between jumps. She wrote down notes on her arm (literally) so that she could easily refer to the times while she was riding. She and I also walked the stadium course a couple of times so she could mentally plot the correct sequences between jumps.

Then, on Sunday, we arrived at the show early so we could walk the courses again.

Why did Caroline do all of this?

Well, as the great UCLA coach John Wooden once said, "Failure to prepare is to prepare to fail". Caroline wasn't just walking the courses to look around - she was mentally preparing herself to give herself the best possible chance at success. Moreover, the fact that she had walked the courses several times meant that there was very little chance of any "surprises", so that she could focus her entire attention on getting her horse to perform at the best possible level.

And so yesterday, Sunday, I felt relaxed, probably for the first time ever at a horse show. While there is always the chance for injury riding horses, watching Caroline study and prepare meant that she was treating the event as a competition rather than an excuse to ride her horse through the fields and make a few jumps. Anything can happen with horses, of course, but the combination of strong training and careful preparation meant that she had significantly reduced the risks.

After Saturday's dressage event, Caroline was in third place in her class - pretty good, I thought.

But on Sunday her preparation paid off. Her stadium ride was flawless. And her cross-country ride was, as she said, the best she had ever accomplished.

Meanwhile, the two riders ahead of her both had several penalty points, and faltered.

And so, on Sunday afternoon, Caroline was awarded the Blue Ribbon - she had won, even though she had started the day significantly behind the girls that had been first and second.

Her Blue Ribbon was great, of course, but I was even more impressed by how hard she had prepared. Preparation doesn't always guarantee success, of course, but it sure does increase the odds in your favor.

Way to go Caroline!

Teachers and Other Workers Face Changes to Their 403(b) Retirement Plans - WSJ.com

New rules on 403(b) plans are creating problems for both participants and plan providers.

Teachers and Other Workers Face Changes to Their 403(b) Retirement Plans - WSJ.com

Family Value: Leaving Your Roth IRA to the Kids - WSJ.com

Good post from Saturday's Wall Street Journal on Roth IRA's



Family Value: Leaving Your Roth IRA to the Kids - WSJ.com

News Analysis - Deflation Could Stall Efforts to Revive Greece - NYTimes.com

As the details of the Greek bailout package emerge, it appears that for now at least the euro remains intact. However, what also has become clear is the assumption that inflation can cure all debt woes, which may not necessarily be the case.

Here's an article from this morning's Wall Street Journal discussing the dilemma.


News Analysis - Deflation Could Stall Efforts to Revive Greece - NYTimes.com

Op-Ed Columnist - The Euro Trap - NYTimes.com

Paul Krugman in the New York Times this AM with a good piece on the mess in Europe. If you're curious as to why you should care about problems across the Atlantic Ocean, this is a good read.

Here's the most relevant sector, in my opinion:

What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.

But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is.

The problem is that deflation — falling wages and prices — is always and everywhere a deeply painful process. It invariably involves a prolonged slump with high unemployment. And it also aggravates debt problems, both public and private, because incomes fall while the debt burden doesn’t.

Op-Ed Columnist - The Euro Trap - NYTimes.com

Fidelity Investments: Helping Aging Parents Plan

Good summary piece from Fidelity.


Fidelity Investments:

Utility Stocks

I went to go see Dan Ford yesterday afternoon. Dan follows the Power and Utilities area for Barclays, and is a very good analyst.

For the first time in at least a couple of years, Dan is positive on the group, in particular the regulated utilities.

Many investors buy utility stocks as yield vehicles, so it makes sense to compare the group relative to corporate bonds.

At the present time, the relative yield of utilities versus Baa-rated corporate bonds is nearly 1 standard deviation outside of historic norm. Put another way, Dan figures utilities are 13% undervalued compared to a comparable yield vehicle.

Part of the reason may the possibility that the tax rate on qualified dividends may go to 40%, which was proposed by the Senate Budget committee last week. This figure caught the market by surprise - President Obama's 2011 budget had proposed dividends be taxed at 20% (compared to 15% currently). However, Dan's contacts in Washington told him earlier this week that it was unlikely this large increase would be imposed, since it would hit retirees disproportionately hard.

Even if the tax hike were approved, in my opinion, it would not necessarily mean a problem for investors who hold utility stocks in tax-deferred accounts.

Besides yield, Dan cited several other reasons to be bullish:

• Typically utilities lag at the beginning of a market upswing as investors chase lower quality, higher beta names. The market rally over the past year has followed this pattern. Utilities were star (relative) performers during the market swoon, but have since lagged, making their comparative valuation attractive. Dan figures managers will begin to move to higher yielding utilities later this year;
• The utility industry raised $7 billion in equity money last year, which was far beyond their actual needs but a "panic" reaction to the tight capital markets. With cap ex budgets being slashed (too much excess capacity), there will be only $3 billion in equity raised this year, reducing the supply pressure;
• Electric demand - which had fallen off a cliff during the recession - has slowly began to recover, helping the revenue line;
• Energy (input) prices have remained low, especially natural gas, which should help margins;
• Rate case decisions (with the exception of FPL in Florida) have generally been favorable, as commissions seem to recognize the need for utilities to earn competitive returns.

The one part of the utility industry that Dan remains cautious on is the pure power generators (e.g. Calpine). There is still too much capacity in this sector, and it will probably be several years before reserve margins shrink enough to allow premium pricing.

Dan has made a lot of money for my clients in the past, so I think he is worth a listen.