Investing is Easy!

Let’s say you have come upon some money and would like to invest it. You may be thinking that you are in need of professional advice. You may be thinking that if you need professional help to get the sink unclogged, you’d certainly need a certified financial analyst to make sure that you don’t flush your money down your recently unclogged drain.

With all due respect, I am here to tell you that you are … nuts! You’d have to be certifiable to spend any money on the advice of a certified financial analyst. You can definitely do it yourself. There’s loads of evidence that simple—even-a-child-can-do-it simple—investment strategies work at least as well as the strategies of most so-called experts on Wall Street. If you don’t believe me, read The Smartest Investment Book You’ll Ever Read by Daniel R. Solin, Penguin, New York, NY, ISBN-13: 978-0399532832.

Here’s how to do it, in a few easy steps:

1. Find out how much money you have. Let’s call it M.


2. Let’s say you are A years old. Calculate A percent of M. This is simply A ÷ 100 × M. For example, if you are 19 years old, calculate 0.19 × M.


3. With this money, buy one of the bond index funds in the table below. If you are nineteen and have $1000 to invest, you should spend $190 on a bond index fund. You’ll have $810 left. By the way, you can do all your investing online.


4. Calculate 70% of whatever is left. This is 0.70 × [M – (A ÷ 100 × M)]. With this money, buy one of the domestic stock index funds in the table below. In our example, 70% of $810 is $567. After buying a domestic stock index fund with this money, you’ll have $243 left.


5. With the remaining money, buy one of the international stock index funds in the table below. Done!

Mutual Fund Ticker Symbols
	Bond Index Fund	Domestic Stock Index Fund	International Stock Index Fund
Vanguard	VBMFX	VTSMX	VGTSX
Fidelity	FBIDX	FSTMX	FSIIX
T. Rowe Price	PBDIX	POMIX	PIEQX

Warning: Like all mutual funds, these funds charge fees. But, in general, the ones listed here are low-fee funds. Also, these funds have minimums. Follow the Web links to find out more. It is also a good idea to call and ask for more info; all three companies tend to have well-staffed phone banks. Their toll free numbers are: 877-662-7447 (Vanguard), 1-800-fidelity (Fidelity), and 1-800-225-5132 (T. Rowe Price).

Another warning: There is nothing sacrosanct about the strategy outlined above. You can choose different funds instead of those in the table; each of the three companies has numerous funds in each category. Just remember to stick to index funds. You may even choose to go with mutual fund companies other than the three in the table. Daniel Solin has deliberately been very specific, not because there are no other valid choices, but because he wanted to emphasize the simplicity of investing. When you no longer need his training wheels, you can experiment all you want.

The three key points to keep in mind are:

1. Wealth invested in stocks tends to grow faster on average, but there is a higher risk of a big loss of wealth. Wealth invested in bonds tends to grow slower on average, but there is a lower risk of suffering a big loss.


2. The older you are the bigger should be the percentage of your wealth that is invested in bonds. This means that you need to periodically—say, twice a year—adjust the money you have invested in the three index funds to conform with the strategy described above: that is, you need to ensure that the percentage of your wealth in bonds remains approximately your current age, and that, of the wealth invested in stocks, 70% is in domestic stocks and 30% is in foreign stocks. (Actually, to be quite honest, you should feel free to stray from the 70-30 split between US and foreign stocks; there’s nothing really wrong with 60-40 or 50-50.)


3. Whether you want to buy stocks or bonds, buying index funds is way better than buying individual stocks or bonds. Nobody knows how to pick the right stocks or the right bonds. So, buy index funds instead.

That’s it. Happy investing!

Inside Man: Film Review

I saw Spike Lee’s new film Inside Man this Tuesday (May 2, 2006). I had read reviews of the film by the critics Anthony Lane and Roger Ebert and they had alerted me to two inconsistencies in the script by newcomer Russell Gewirtz. It is always fun to look for dumb mistakes in plot-heavy movies and I managed to find a few that neither Lane nor Ebert had mentioned. I then went to imdb.com to see if other reviewers had spotted the errors. I read the first dozen reviews of Inside Man listed on the site and found no mention of ‘my’ inconsistencies. So, I thought I should list them here. (Spoiler Alert: I will be revealing parts of the plot.)

A robber, named Dalton Russell, and his accomplices have taken over a bank and are holding hostages. They are after the ill-gotten gains of Arthur Case, the bank’s founder, who had made his money during World War II by collaborating with the Nazis and cruelly ripping off vulnerable Jews.

Roger Ebert has pointed out that this would make Arthur Case a nonagenarian, which is certainly not what the on-screen Case, as played by the patrician Christopher Plummer, looks like. (By the way, this plot line itself came as a small surprise: given the themes and preoccupations of Lee’s earlier movies, I would have expected the baddie to have got rich by collaborating with South Africa’s apartheid regime to bust sanctions restrictions.)

Russell, the robber, knows all about Case’s past and about the safe-deposit box in which Case has lovingly preserved the incriminating evidence: Lee shows us nasty-looking documents with large swastikas and other Nazi markings.

As Anthony Lane and others have pointed out, the movie is silent on how the robber found out about Case’s past and the safe-deposit box and on why Case didn’t burn the documents five seconds after having laid his hands on them.

Russell’s first demand to Frazier, the NYPD hostage negotiator (played by Denzel Washington), is for food for the hostages. Frazier—clever dick!—bugs the pizza boxes to listen in on Russell’s strategy sessions. Russell—cleverer dick!—finds the bug and hooks it to an iPod that plays a marathon speech by the late Albanian Marxist dictator Enver Hoxha. (The iPod’s screen helpfully says, “Enver Hoxha, Speech”.) The language sounds vaguely Russian to Frazier and the other cops. They bring in a Russian speaker and he says that the language being spoken is definitely not Russian: maybe Polish or Hungarian, but definitely not Russian, probably Central European. At his wit’s end, Frazier plays the bug intercept over the public address system for the crowd of onlookers to hear, thinking that polyglot New York would throw up someone who knew the mysterious language being spoken by the robbers. Predictably, a hard-hatted worker walks up and volunteers that he is “one hundred percent sure” that the language being spoken on the bug intercept is Albanian: he doesn’t know any Albanian but used to listen to his Albanian ex-wife speak Albanian with her relatives. Frazier tries the Albanian embassy for an interpreter, but to no avail. So, he gets the worker to call his ex-wife. She shows up and tells Frazier that he has been listening, not to the robbers, but to a recording of a speech by Enver Hoxha. Frazier is despondent at having been taken for a ride.

Before I get to the inconsistencies, let me describe my general frustration with this part of the movie. As soon as Dalton Russell (played by Clive Owen) had made his demand for food for the hostages, I knew that Frazier would bug the food; it was entirely predictable, this is what happens in all hostage movies. But I soon realized that the robber would have to anticipate the bug because, were Frazier’s bugging strategy to succeed, the heist—and, quite possibly, the movie—would be over in two minutes because the cops would then have an overwhelming advantage. As you can see from the plot summary in the last paragraph, this is exactly what happened, except that Lee took forever to tell the tale. Imagine my frustration: I anticipated the bugging and the pointlessness of it and had to sit through a very long drawn out scene to have my instincts confirmed!

Now for the plot inconsistencies! First, why would Frazier play the bug intercept over the PA for the people in the street to hear? At that point he did not know that the robber was aware of the bug. It would be in Frazier’s interest for Russell and his accomplices to not know that they were being bugged. If the bug intercept is played out on the street over loudspeakers would there not be a big risk that the robber would hear it from inside the bank and realize that he was being bugged? Of course there would.

Second, given that the robber was playing a speech—and not a recording of a faked conversation—to the police bug, why would it be necessary for Frazier to figure out the meaning of the words being spoken to realize that his bugging plan had failed? A speech sounds a lot different than a conversation among multiple people. One wouldn’t need to know Albanian to figure out that the speech was a speech and not a conversation among the robber and his accomplices. Cops listening to a speech on a bug intercept would quickly figure out that they were listening to a speech and not to a strategy discussion among a bunch of robbers.

Third, given the inconsistency discussed in the last paragraph, why would Russell, whom the film builds up to be some sort of criminal genius, play the recording of a speech to the police bug? Yes, he may be entitled to a low opinion of the intelligence of New York cops, but why would he take a risk by playing a speech to the bug? I would have thought that he would be ready with a recorded conversation that would plausibly resemble a strategy session between the baddies. That way, he could be sure that the NYPD would spend a lot of time figuring out that their bug had been found out and that they had been played for fools.

In short, Russell Gewirtz’s script of Inside Man was a big disappointment. I did not care for Spike Lee’s unusually leisurely direction either. I did, however, like Matthew Libatique’s pristine cinematography.

The comedian Stephen Colbert’s speech at the White House Correspondents’ Association dinner, on Saturday, April 29, was easily the high point of the evening. But the press coverage the next day essentially ignored it and focused only on the pre-Colbert stuff. Standing just a few feet away from George W. Bush, Colbert let loose with one lacerating attack on Bush’s policies after another. What made it a truly exhilarating event was precisely that Bush was sitting a chair or two away from Colbert. Had Colbert made the same jokes on his hit TV show “The Colbert Report” or some comparable venue they would not have had nearly the same effect. But here he was, saying it right to Bush’s face. And all Bush could do was to try lamely to laugh along so as not to appear totally bereft of a sense of humor.

Coming back to the mainstream press’s Stalinist attempt to airbrush Colbert out of existence, I certainly was not surprised. As it is not easy to quantify these things, one has to rely on one’s own instincts. Mine tell me that precisely at those points at which you most need the TV—and, more broadly, the press—coverage to be fair, the media will subvert the truth to help the right. Having done the right’s bidding at a crucial juncture—say during the 2000 and 2004 election campaigns that I followed somewhat closely—it will then take a few superfluous jabs at the right to have something ready to throw at anyone on the left who may dare to accuse the media of right-wing bias.

Thank God for the Internet, however! In this instance, thank God for YouTube.com. For the time being at least, you can watch Colbert’s speech at that Web site: Part 1, Part 2, Part 3.

"Japanese Story": film review

Last Sunday (April 16), I saw "Japanese Story", a 2003 film by the Australian director Sue Brooks, on DVD. Toni Colette plays Sandy Edwards, a geologist who works for a coal mining company, recently purchased by the Japanese. The Head Office sends over Hiromitsu, a young sarariman, to familiarize himself with the new acquisition and Sandy is told to pick him up at the airport and drive him to the coal mine, which is somewhere in the middle of a god-forsaken desert. Thus enfolds an archetypal story of a culture clash that turns first into a hope-inducing cultural thesis-antithesis-synthesis and finally into a downbeat meditation on the difficulties of cultural outreach.

With the clueless Hiromitsu insisting—over the protests of Sandy, whom he perhaps is unable to take very seriously—that he be taken to a part of the mine that can only be reached by a dirt road, their SUV gets stuck. There is no one to help for miles around. Their cell phones can't find a network. They must light fires and try to sleep in the freezing desert night and then try to free the car again next morning. In this way, this odd couple is thrown together in the middle of the desert, forced to help each other and to rely on each other. Gradually the cultural walls between them disintegrate and they fall very naturally and sweetly in love.

Then, out of the blue, disaster strikes. The giddy and squealing Sandy races towards and then dives into a shallow, muddy pool of water, and before she can warn Hiromitsu about the shallowness of the pond, he dives in too. Possibly having hit his head on the floor of the pond with the force of a vigorous dive, Hiromitsu dies. His wife comes from Japan to take the body home. She sees the pictures of Hiromitsu and Sandy, ecstatic together in the vast Australian desert. Nevertheless, the film ends in a respectful—perhaps even friendly—parting at the airport between Sandy and Hiromitsu's wife, who hands over the pictures to the deeply apologetic Sandy and leaves with a sincere "Thank you".

The film is beautifully acted and directed. But the third act (Hiromitsu's death and after) left me bored. It is undoubtedly legitimate for a film to take a hesitant view of the possibilities for a genuine bridging of the East-West gap, but unfortunately the film doesn't have any interesting observations on that theme: it is content to simply assert that theme.

Finally, let me touch upon this film's distinctive approach to the intimate scenes between Hiromitsu and Sandy. There are perhaps just two of these scenes and they are very understated. What struck me as exceptional, however, was the reversal of roles in these scenes. The slightly built and delicate-looking Hiromitsu lies absolutely motionless and expressionless on the ground, with only his eyes—wide open and very still—expressing some desire and anticipation, while Sandy, who is physically the bigger and built, as they say, like a truck, crouches over him and gradually lowers her body to his.

A Strike in India: Part III

When public sector employees in India go on strike, they create economic disruption on a scale proportional to the importance of the public sector. Consider the days when Indian Airlines, a public sector carrier, was the sole domestic airline. A strike by its workers would—just like that!—shut down all air transport in India. Even today, despite the presence of some private airlines, a strike at Indian Airlines cripples air transport within India. The same goes for banks, post offices, railways, land-line phones, colleges and universities, you name it. The price that India is paying for its socialist past—during which the “commanding heights” of the economy were brought under state control—is that it has been taken hostage by the public sector employees’ unions. The government remains keenly aware that there policies must never, never, never alienate the unions; otherwise, the unions would strike and bring the economy to its knees.

This is actually well understood by most Indians. I have known many Indians in my life but have not met even one who expressed any real sympathy for strikes by public sector employees. Most Indians seethe with anger at the indignity of having to deal with public sector employees who they see as underperforming, corrupt, and unaccountable people, living it up at taxpayers’ expense. To make matters worse, they are unable to see a way out of the situation; as long as the public sector remains dominant the government will remain vulnerable to threats by the unions, and as long as the government remains vulnerable to the unions’ threats it will be unable to privatize the public sector and cut the unions down to size.

The only way out of this vicious circle may be for economists to keep making the case that we are in a vicious circle and to highlight the indignity of a large and proud nation being held hostage by a tiny minority of its citizens. Another thing that economists could do—that no one else can—is to come up with a sound econometric estimate of the economic costs of having a humongous public sector, and to do whatever possible to make that rupee figure as much of a commonplace in India’s daily discourse as the GDP growth rate or the size of India’s foreign exchange reserves, two factoids that most educated Indians have at their fingertips.

Indians already know how awful a bind they are in with the public sector unions thanks to their socialist past. All that they need to win the fight against the unions is a vocabulary to express what they have known all along.

In the rest of today’s entry, I will talk about another aspect of the role of India’s public sector unions that has not been discussed much: the fact that they are an anti-democratic force.

Some Indians may see the Indian curse of periodic public sector strikes as an essential (or, at any rate, inevitable) part of the boisterous pageantry of democracy and may, as a result, look upon these strikes somewhat indulgently. I, on the other hand, have lately begun to see a darkly anti-democratic side to India’s public sector strikes.

In a democracy, government policies are supposed to be determined by—and only by—the popular will as expressed through the ballot box. Given that public sector strikes (and the threats thereof) surely do influence the Indian government’s policies (especially those regarding privatization of the public sector, the disciplining of underperforming or corrupt public sector employees, and the salaries of public sector employees), it follows that public sector strikes must necessarily be anti-democratic.

If one admits—as I believe most Indians would—that India’s democratically elected governments would (a) privatize the public sector faster, (b) try harder to punish underperforming and corrupt public sector employees, and (c) slow the rate of salary increases for public sector employees, were it not for the threat of strikes by public sector employees, then one would be admitting that public sector strikes do affect the decisions made by India’s governments. And that admission would be tantamount to an admission that public sector unions are an anti-democratic presence in Indian society.

It is abundantly clear that government policies in India on privatization, on the disciplining of underperforming or corrupt public sector employees, and on public sector salaries would have been significantly different were it not for the threat of strikes. In other words, the constant threat of strikes is pushing India off the course dictated by the ballot box. Moreover, this distortion is being brought about by a small minority—in the billion-strong Indian population—that happens to have the disproportionate power to cripple the economy through strikes.

Ideally, a government in a democracy should come to power by winning a majority of all votes. As long as it does not violate the Constitution, the new administration should be able to formulate its policies freely and govern freely during its term of office, at the end of which there would be another election in which the people would render their verdict on what the outgoing administration did while in power. Now, how can it be democratic if, say, ten thousand railway employees go on strike halfway through the government’s term of office, bring the economy to its knees by shutting down the entire rail network for a month, and compel the democratically elected government to abandon its privatization policies? And how would this be different from, say, a military coup?

I think it is high time for Indians to realize that the public sector is not just taking a bite out of the economy; it is handcuffing India’s precious democracy.

A Strike in India: Part II

Returning to the recent strike in India that I discussed briefly in my last entry, let’s consider the demands of the strikers. According to the PTI report that I mentioned in my last entry, some of the reasons given for the strike are:

• The current UPA government’s proposals to sell some of its shares in certain public sector companies


• Proposed “dilution” of a law by which any firm with 100 or more employees needs the government’s permission (almost never obtained) to fire any employee (I am not making this up!)


• Proposals to turn the Security Press, which prints paper currency, and the government mints into independent corporations


• Proposals to involve private companies in the modernization of the airports, which are all government owned and operated


• The postponement of the Pay Commission’s review of the salaries of public sector employees


• A new system of taxes on savings schemes


• Proposals to merge weaker public sector banks into the larger ones

This list of demands may leave many non-Indian readers scratching their heads in incomprehension. In America, where I live, fewer than 10 percent of private sector employees belong to trade unions. I happen to be a proud member of the faculty union at the C.W. Post Campus of Long Island University in Brookville, New York. We are no patsies; we have gone on strike during all of the last three contract negotiations (with varying degrees of success). But on all those occasions, we—that is, all members of our union—voted by secret ballot on the strike proposal before going on strike. And we struck about things like pay increases, health insurance, pensions, tenure, more time to do research, and other similar issues focused narrowly on our concerns about how our employer was treating us. Going on strike to protest against the economic policies of Bill Clinton or George W. Bush was, needless to say, never on the cards.

The key to the contrast between strikers’ demands in India and America lies in understanding that the main unions in India are extensions of its main political parties. Each political party has its own affiliated labor union and these unions dominate the labor landscape. As a result, the labor movement in India has become hostage to the larger political battles within India.

Another important contrast between strikes in America and in India is related to the use of coercion. I have already said that my union does not go on strike without taking a vote on the issue first. Moreover, the union never even tries to punish those who cross the picket line. We stay angry at our recalcitrant colleagues for a while, but pretty soon all is forgotten and forgiven. Things are very different in India. Violence is routinely used by union members and their hired toughs to shut down entire cities, and not just to prevent the crossing of picket lines by members of the striking unions. During Thursday’s strike, the entire state of West Bengal was shut down by the strikers. There was no public transport. All offices, businesses, schools, and colleges were shut down for the day. (The American equivalent would require that when Long Island University professors go on strike they shut down all activity on Long Island.)

The government does nothing to stop this. During Thursday’s strike, the West Bengal government issued special stickers for cars that were meant to take employees of information technology firms, which stood to lose heavily because their foreign clients would be unlikely to tolerate a daylong interruption of services, to work, hoping that those cars would be let through. But that did not happen; the stickered cars were blocked and their tires deflated. (Incidentally, the issuance of the stickers was an implicit acknowledgement by the government that compliance is coerced in Indian strikes; if those who wish to go to work could go to work, the stickers would not have been necessary.)

Jo Johnson’s report on the strike in The Financial Times of September 29, 2005, begins as follows:

Tensions between India’s Congress-led government and its communist allies are
expected to erupt on to the streets today during a nationwide strike by more
than 1m bank and airport workers against the administration’s economic
policies.

American readers must not assume that all those one million bank and airport workers were polled by secret ballot on the strike proposal. The union leaders, who usually are also members of the political parties that the unions are spawned from, make these decisions and the party muscle is then used to coerce compliance.

This deadly combination of unions affiliated to political parties and union decision-making that disdains grassroots democracy has reduced the Indian labor movement to a very costly joke at the nation’s expense and turned unions into pawns on the political chessboard.

The Communist Party of India-Marxist (or, CPI-M) is particularly reliant on this cynical use of labor’s power. It is actually a relatively weak party with a base limited to the Indian states of West Bengal (where I spent the first 23 years of my life and where I still have strong ties), Kerala, and Tripura. It is precisely its lack of an India-wide grassroots base that has led the CPI-M to rely so desperately on strikes and strike threats. It has no power except the power to use its labor unions to shut large parts of the country down and thereby inflict widespread economic pain.

The cynicism of the communists is reflected in a phrase in Jo Johnson’s report that may have startled non-Indian readers: “communist allies.” The CPI-M is actually part of a quasi-coalition with the UPA government. The communists actually sat down with the UPA and thrashed out a plan called the Common Minimum Program before the current government took office. The UPA depends on the communists’ support in parliament for its very existence. The communists could bring the UPA government down by simply voting against any bill that they do not like. So, why are they causing mayhem on the streets instead?

If the UPA government is brought down the CPI-M would lose all the advantages of being a member of the governing quasi-coalition. Moreover, they don’t want the right-wing parties to return to power. The strike was a pre-emptive move designed to scare the UPA government into not bringing any bill to parliament that the CPI-M would be forced to vote against (and thereby bring down the UPA government). The whole idea was to keep their unions happy by stymieing all attempts at reform and to at the same time ensure continued rule by the UPA-communist quasi-coalition.

I feel sorry for the UPA government and especially Dr. Manmohan Singh, its distinguished leader. With “allies” like the communists, who needs the opposition?

A Strike in India: Part I

Today, I will discuss a general strike that took place in India on Thursday, September 29, 2005. American readers may find in this discussion of the Indian labor landscape yet another reason to consider themselves lucky to be American.

Here are the lead paragraphs of a Press Trust of India report on the strike:

Industrial and commercial activities as also air services were affected in large
parts of the country today as the day-long strike by Left trade unions crippled
work in the public sector banks and insurance companies and government
undertakings to protest the UPA government’s economic policies.

The impact of the strike was the maximum in the Left-ruled West Bengal where life
came to a standstill with public transport, including train services, remaining
paralysed.

If this were not enough, the unions promised more to come. The PTI report quotes Gurudas Dasgupta, a union leader, as saying, “If the government does not yield to our demands, there will be a larger strike and for a longer duration. … Let the government read the writing on the wall and change its policies.”

It is instructive to see in all this how the Left is leveraging India’s socialist past, during which crucial sectors such as banking, railways, and air transport were reserved for the public sector, as a weapon in today’s political skirmishes.

Public sector employees in India have never been accountable for their performance or for their ethical choices. And their salaries have always been politically determined variables immune to the laws of supply and demand. (For example, bureaucrats’ salaries are determined by something called the Finance Commission, which happens to be staffed by—guess what—ex-bureaucrats! The last Finance Commission set wages so high that most state governments had very little money left over for developmental expenditure after paying the salaries.)

How do they get away with this? Simply by going on strike—or threatening to go on strike—from time to time. Because the public sector dominates all crucial economic gateways, a strike by public sector employees can impose such heavy costs on India that no government dares to privatize the public sector or to hold the public sector employees accountable for poor performance and get-a-load-of-this levels of corruption. Dr. Frankenstein’s monster can now take care of itself.

To the catalog of reasons against the expansion of state power we can now add a new one: the Indian experience shows that it is not the leaders at the top but the employees at the bottom that make a powerful public sector a formidable roadblock for even a democratic society that seeks to undo its past mistakes.