Wednesday, February 26, 2020

2019 Portfolio Review

After slightly outperforming the market in 2018 my brokerage account under performed again in 2019. This time by almost 6%. Since the market as represented by VOO (Vanguard's S&P 500 index fund) was up 31.14% (28.72% capital gain, 2.42% income) my return of 25.28% (22.25% capital gain, 3.03% income) was still pretty good.

The biggest contributor to my under performance was the fact that my portfolio was not fully invested.  I started the year 12.31% in cash and after one stock purchase in October ended the year 12.23% in cash. In a very good year for the market this cash position (which only earned a bit over 2% in interest) was a substantial drag contributing 3.53% to my under performance. My individual stocks also lagged the market returning 26.09% (22.25% capital gain, 3.83% income) and contributing 1.52% to my under performance. As did my ETFs (besides VOO) returning 24.45% (20.55% capital gain, 3.90% income) and contributing .80% to my under performance.  This adds up to 5.85% of under performance in good agreement with the actual 5.86%.

Only two of my individual stocks outperformed by more than 10% (JPM, TGT).  The rest were either within 10% of the market return (ALL, BBL, BLK, ED, INTC, IBM, MET, NSC, UNH) or lagged the market by at least 10% (BNS, CM, CAT, CVS, XOM, PEG, SOUHY, TD, WFC, WBK).  One of my ETFs lagged the market by over 10% (VDE), the others lagged by less than 10% (VNQ, VPU, VYM).

As noted above I made one purchase during the year.  I bought some UNH (a health insurance company) on Columbus day.  This was good timing for once as UNH came out with a good earnings report and the stock performed well for the rest of the year. Hopefully it will do as well as my AET investment.

Sunday, February 9, 2020

HP Notebook Breaks

Last summer I received as a gift a HP notebook computer (model 15-db0015dx). This is a low end machine but it was fine for web browsing and checking my email. However after about 6 months of normal use it developed a flaw in the upper left hand corner of the screen (which I am told is due to a crack in a internal glass sheet). Although the machine was theoretically still within the one year warranty period HP refused to fix it. Their position appears to be that any problem that could conceivably be due to customer abuse of the product isn't covered by the warranty. Which of course makes the warranty of little value as I not sure what if anything would be covered.

In my case the problem could easily have been due to a manufacturing defect, the machine could have been assembled slightly out of spec with the glass jammed into a position where it didn't quit fit and was under stress which eventually caused it to crack. Or the design could be inherently defective, unable to withstand normal use. According to internet sources some of the newer lightweight machines are so flimsy that just holding the display part by the top corner instead of the top center to open it can crack the screen. Which in my view is a defective design.

This has left me considerably annoyed with HP and I will be reluctant to buy their products in the future. I will also think twice about extremely lightweight designs. I bought a Dell Inspiron laptop about 10 years ago. While a little clunkier it has held up fine with similar use. 

Monday, January 20, 2020

Driver's License Renewal

Last Friday I went down to a MJ MVC office and got my driver's license renewed for another 4 years.  This wasn't too painful although at one point I did have to wait about half an hour for my number to be called. This was a longer wait than I remember from previous visits but perhaps the Friday before a 3 day weekend wasn't the best time to visit.

The way the process works is that you first go to a reception desk that tells you where to go next. In my case as I would have to present several forms of ID to get my license renewed I was first sent to a queue for several clerks who were checking that you had brought enough forms of ID to satisfy New Jersey's somewhat complicated requirements. This allows people who don't have the right ID to find out quickly. This line just took a few minutes. After the clerk checked my ID she gave me a sticker with a code (a letter followed by a number) on it and directed me to an area with chairs where I could wait for my code to be called.

The codes were being read out on a loudspeaker and also being flashed up on a bunch of video screens. When a code was called you were directed to a numbered window. Since I had nothing else to do I tried to figure out the system. It was a little complicated but eventually I deduced that there were multiple queues for the different services provided each with a different initial letter. The numbers (for each letter) were then being called in increasing order. I estimate there were about 4 clerks handling license renewal and about 12 people ahead of me. If each transaction took about 10 minutes this would account for about a 30 minute wait.

When my code was called and I went to my window and found a young woman trying to convince the clerk that she was next. The clerk was having none of it and eventually was able to turn her attention to me. I gave my IDs to the clerk and she checked them (with a slight scare when she momentarily misplaced my old driver's license).  I had to answer the same 3 questions on an electronic pad I had already answered on a written form that I had filled out (as directed) before going to the office. I had to sign my name on a different electronic pad (with another slight glitch when I tried to use the stylus for the first pad which doesn't work). At some point my picture was taken. You are offered the option to retake the picture if you don't like the first one which I declined (as in my experience the second one isn't going to be much different). Then I filled out a check to NJMVC and received my new license (which has a similar format to the old one) and my old license back with a hole punched in it.

As I was driving away I figured out what I think happened with the young woman. She initially missed her code when it was first called. When this happens after a few minutes they call the next code. At this point the young woman belatedly realized her code had been called but it was too late she had missed her slot. But instead of going back to the waiting area and waiting for her code to be called again in a few minutes (as I expect the clerk had told her to do) she had instead hovered around while the clerk served the next customer thinking she would be next. But that isn't how the system works, when the slot opened up again the system assigned the next code which was mine. When I was done I think she was still hovering around expecting to be next which still wasn't how the system works but I didn't wait around to see what happened. Ironically when I was waiting to be called I noticed a repeat code call right before mine which I expect was her code coming up again with a different clerk.  But as she was hovering around the first clerk's window instead of listening for her code it had done her no good.

I felt a little sorry for the young woman as she said she was missing work and seemed to be in a bit of a panic but on the other hand if you are in a hurry perhaps should you be paying attention so you don't miss your code.  And perhaps you shouldn't ignore instructions.  

Sunday, November 10, 2019

The Education of Brett Kavanaugh - An Investigation

I recently read "The Education of Brett Kavanaugh - An Investigation" a 2019 book by two New York Times reporters, Robin Pogrebin and Kate Kelly, about the 2018 confirmation fight over Kavanaugh's nomination to the US Supreme Court. During which Kavanaugh was accused of (among other things) assaulting one woman and exposing himself to another. First I should acknowledge a bias in that I would prefer to live in a universe in which the charges against Kavanaugh are baseless. That said I don't think this is very worthwhile book because it adds little to the press coverage at the time.

The charges against Kavanaugh involve events that allegedly happened over 30 years ago. In evaluating them it is important to account for the fact that human memory is fallible. Not only do we forget things over time we can also form false memories of things that didn't happen. The book does not discuss this at all. I believe there is a large academic literature about false memories which I am too lazy too look up. Instead I will cite a couple of examples from my own experience.

I have a memory of my father (who died over 30 years ago) telling my mother and me (and maybe my brother) that he had gotten a good post-doctoral position which however depended on his receiving his PhD by a certain date which he had failed to do. However when I mentioned this to my mother she had no idea what I was talking about. My brother also has no recollection of such a conversation which I now doubt ever took place. What I suspect happened is that I dreamed the conversation. I don't pay attention to my dreams and usually have forgotten them a few minutes after waking up. However sometimes a particularly intense or vivid dream can form a lasting memory. If the dream events are superficially plausible I suspect that years later I could mistakenly accept such a lasting dream memory as real. Which is what I think happened in this case.

In another case I recently had a conversation with a friend about something that happened over 15 years ago. It turned out our memories differed about one detail. Prior to this discussion I would not have doubted my memory. Even afterwards I thought I was right but in attempting to verify this I found a contemporary email backing my friend's version of events. In this case I think my memory of a real event was contaminated by my memories of somewhat similar but unrelated events. An example of such contamination would be if you had a high school acquaintance named Victor Jordan but later mistakenly remembered his first name as Vernon or Michael because of confusing him with the more notable Vernon or Michael Jordan.

This sort of thing makes me reluctant to credit one person's unsupported recollection of long ago events particularly in politically charged cases like this. But as I said the book does not discuss false memories at all. Instead it just largely repeats the contemporaneus press coverage with little new material. So if you were paying any attention at the time this book won't add much. And if you weren't paying attention you probably aren't that interested in an account of this length (307 pages with end notes) containing lots of basically irrelevant details.

Monday, October 28, 2019


I recently applied for Medicare and last Friday I received my Medicare card in the mail. The eligibility age for Social Security has been rising but it is still 65 for Medicare. You have a 7 month window to apply starting the third month before the month you turn 65. So I could have applied back in July but I didn't get around to filing my application until September 30.  

The application process was fairly easy, I was able to apply online through the account that I had already set up. The government has resumed the two factor authentication system that caused me problems before but now can send the security code by email (as an alternative to a text message to my non-existent cell phone). As I recall there were just a couple of tricky parts to the application. The application asked when my current health insurance started. I was pretty sure this was the same day as my employment started (which was in fact the case) but thought I should double check with my employer. Then for some reason I had trouble entering the date on the form and eventually gave up and put it in the additional notes section at the end. The other tricky part of the application was that it asked for the exact form of my name on my social security card which required a trip to my safe deposit box to check.

I quickly got an acknowledgement which stated at least five days would be required for a decision. According to some discussion of this I found on the web five days is optimistic and in fact the note accepting my application was dated October 15. Since I expect my case was about as straightforward as possible it appears you should allow at least two weeks. The acceptance note was posted to my online account and said a letter would follow. The letter arrived October 24 and the card sent separately arrived October 25. It appears from the card that my coverage actually started at the beginning of October (as opposed to the day I turned 65).

So it takes almost a month to get your card even when everything goes well. This didn't matter much in my case but if you need coverage as soon as you turn 65 or if you suspect your decision might be held up for some reason I would recommend getting your application in as soon as possible.

Since I am still working with medical insurance from my employer it seemed best to just apply for Medicare Part A which is free. When I stop getting coverage from my current employer I will have an eight month window to sign up for the other parts without penalty (otherwise there is a penalty in the form of higher monthly premiums depending on the length of the coverage gap as the government doesn't want you waiting until you get sick to sign up).          

Tuesday, May 28, 2019

Bad Blood

I recently read "Bad Blood" a 2018 book by John Carreyrou.  This book tells the story of Elizabeth Holmes and her startup company, Theranos.  Holmes was an undergraduate at Stanford University when she came up with the idea of founding a company based on revolutionary new technology that would allow many medical tests to be performed using a single drop of the patient's blood. Unfortunately Holmes didn't actually have such technology or it appears a realistic plan for developing it.  Holmes wasn't deterred by this, she dropped out of Stanford in 2003 and raised millions in venture capital for Theranos.  For a while Theranos seemed quite successful.  At its peak in 2013 and 2014 it appeared to be worth around $10 billion which would have made Holmes a multibillionaire.  However this valuation turned out to be illusory.

John Carreyrou was (and is) a Wall Street Journal (WSJ) reporter. He wrote a series of articles for the WSJ starting in October 2015 about wrongdoing at Theranos which broke the spell Holmes had cast.  Other investigations by government regulators followed and it soon became clear that the vaunted Theranos technology had little if any real value.  Theranos ceased operations in 2018. Holmes has settled civil charges with the SEC and is currently awaiting trial on criminal fraud charges.  This book tells the story through 2018.

I was a bit disappointed in this book.  Much of it consists of the stories of various Theranos employees who were made uneasy by some aspects of the way Theranos did business.  This gets repetitive after a while. The book seems longer than necessary at about 300 pages.  And it doesn't seem particularly insightful about pulling together the facts that Carreyrou uncovered.  

The book isn't totally worthless, I did get from it a better picture of what happened.  However perhaps the story is ultimately not so significant or interesting that it needed a 300 page book, at least not this one.  I think most readers can safely skip this one.

Thursday, May 9, 2019


I recently read "Railroader" a 2018 biography of Ewing Hunter Harrison III by Howard Green.  Harrison (who went by Hunter or E. Hunter) lived from 1944 to 2017.  He worked for railroads most of his adult life starting out as a laborer (carman-oiler) in 1963 and eventually becoming the chief executive officer (CEO) of four different major North American railroads.  He made major changes that were very successful (at least from a shareholder point of view) and which have reshaped the industry.  Comparable in some ways to Steve Jobs, Harrison is much less well known (as indicated by the respective sizes of their wikipedia entries linked above).

A key measure of profitability in the railroad industry is the operating ratio which is defined to be the ratio of operating expenses to revenue.  Clearly lower is better.  Harrison made his reputation by significantly lowering the operating ratio at each of the railroads (Illinois Central, Canadian National (CNI), Canadian Pacific (CP) and CSX(CSX)) where he worked at the executive level. This led more or less directly to increased profits.  In many industries such increased profits would be temporary as competition means lower production costs are eventually passed on to customers in the form of lower prices.  However there is little price competition among the major railroads (they do compete on price with the trucking industry) so this process is occurring slowly if at all.  The result is much higher stock prices and happy shareholders. Certainly I am happy that my Norfolk Southern (NSC) stock is up about 120% (as compared to about 40% for the market as a whole) since I bought it in 2015.  Harrison didn't work for NSC but shareholder pressure is forcing the other major railroads to adopt his methods.

While Harrison made his shareholders happy other stakeholders such as employees and customers were less pleased.  If you browse the forums where railroad people hang out you will find a lot of animosity towards Harrison.  This is natural as some of the shareholder gains came at the expense of employees.  Many workers at all levels lost their jobs either because Harrison determined that they weren't really needed or because they were unwilling or unable to adapt to the new order.  No one likes to lose their job and there is a natural wish to believe (however delusionally) that the company will come to regret eliminating it.

Some customers too were unhappy with the changes.  In some cases because they were made worse off even if overall the changes were beneficial.  In other cases because the changes were disruptive short term regardless of any long term benefits. Harrison's take or leave it negotiating style and in some cases the lack of reasonable alternatives didn't help. Customer dissatisfaction appears to have been particularly acute with CSX the last company Harrison managed because Harrison seems to have tried to make changes too rapidly leading to frustrating service disruptions.  Harrison's haste is somewhat understandable as he died less than a year after starting at CSX and must have suspected he didn't have much time.  However it was enough as he was succeeded by a disciple, James Foote, who has largely followed the course Harrison set.

So what was Harrison's secret.  How was he able to repeatedly achieve outstanding results.  One important factor has been alluded to above.  The railroad industry is very old and over time arrangements had evolved that balanced the interests of employees, shareholders and customers in a certain way. Harrison realized that this balance was not set in stone.  A balance more favorable to shareholders was possible.  For example just because it had become customary to allow some employees to leave early (before the end of their shift) didn't mean Harrison had to go along.  If he required employees to work their full shifts he could get by with fewer of them.  There seems to have been a fair amount of fat of this sort that Harrison could eliminate if he was willing to unilaterally alter longstanding arrangements.  Similarly in some cases Harrison could raise prices or otherwise change customer contracts to the railroad's advantage.

Another thing Harrison did was emphasize the efficient use of capital equipment.  This is important in a capital intensive industry like railroads.  Harrison realized that locomotives and rail cars were only earning money for the railroad when they were in motion.  So he tried to keep them in motion.  If he operated his locomotives more hours per day he could get by with fewer of them.  Similarly if he reduced the time rail cars sat around in yards waiting for the train that would take them on the next leg of their journey to be assembled and dispatched he (or his customers who in many cases own the cars) could get by with fewer of them and also improve service by reducing transit times.

Harrison also introduced what has become known as precision scheduled railroading (or PSR).  This involved two changes. Freight railroads had traditionally not operated on set schedules instead dispatching trains once a sufficient number of cars had been assembled.  This meant customers could never be sure exactly when their shipment would arrive.  Harrison moved towards fixed schedules in which trains left at set times.

The railroads had also used a hub and spoke system in which a rail car would start at a spoke location pass though one or more hub locations and finally end up at another spoke location.  This involved a lot of assembling and disassembling of trains as cars would be brought together for one leg of their journey and then go their separate ways on the next leg.  This work was done at hump yards so named because they were built on an incline (or hump) to allow gravity to help move the cars around.  These yards tended to be expensive bottlenecks which slowed the movement of cars through the system.  Harrison moved towards a point to point system in which trains moved cars directly from their origin to their destination.  This allowed the closure of many hump yards. The net effect of these changes is theoretically to reduce costs while improving service by making it faster and more reliable.  In practice the cost savings from PSR seem to be clear cut but the service improvements have been a bit more debatable particularly in the transition stage while kinks are being ironed out.

Over the years Harrison had a lot of detractors but for the moment at least he seems to have prevailed.  The railroads he managed have for the most part continued on the new course he set and the remaining large North American railroads are adopting his methods, the financial results he achieved are just too impressive to ignore.  During their latest quarterly report conference calls NSC talked about hiring people with PSR experience and Union Pacific (UNP) said it was going to "pause" construction of Brazos Yard, a large new hump yard it had started constructing just last year with considerable accompanying fanfare.  The other large American railroad BNSF (Burlington Northern Santa Fe) doesn't directly report to public shareholders as it is now part of Warren Buffett's Berkshire Hathaway conglomerate.  Buffett has said that he tolerates a certain amount of fat in the companies Berkshire owns so there is less pressure on BNSF to rapidly adopt Harrison's methods.  Still it seems unlikely that Buffett will accept substantial underperformance indefinitely.

Regarding the book, Howard Green is a television journalist who interviewed Harrison several times. Apparently they got along reasonably well so Harrison commissioned Green to write his biography.  It was to be unauthorized in the sense that Green was to have the final word on content and in any case Harrison (who had been seriously ill for some time but continued to work) died before the book was finished.  Still Harrison probably expected the book to be generally friendly towards its subject and it is.      

The strength of the biography is Green's access to Harrison, his family and his friends.  This led to hundreds of hours of interviews many with Harrison himself.  However Green perhaps relies too much on stories told by or about Harrison in interviews.  While these stories do give an impression of what the man was like there is often room to doubt that they are completely accurate.  In several cases Green notes that other people's accounts of the same events differed.  However in other cases Green seems to have made little effort to establish what actually happened.  One disadvantage of becoming friendly with your subject (and his family and friends) is that it may make you hesitate to ask questions that they might find disagreeable.  For example Harrison's father apparently suffered some sort of injury while serving in the armed forces during WWII. The book is extremely vague about exactly this was.  I expect the relevant military records still exist but perhaps Green was reluctant to ask Harrison to request them.  Similarly Harrison was seriously ill while working at CSX and ended up dying just a few days after finally going on medical leave.  But again the book is vague about exactly what was wrong.  It appears Harrison was not very forthcoming and Green was unwilling to press him. CSX was also kept in the dark and as a result changed its bylaws to require future CEO's to be regularly examined by a company doctor.  

Harrison retired somewhat unwillingly from CNI at age 65.  He didn't enjoy not working and eventually teamed up with a couple of hedge funds to get himself installed as CEO first at CP and then still looking for new worlds to conquer at CSX.  Naturally the incumbent CEOs (and his previous employers) were not too enthusiastic about this so a certain amount of maneuvering involving proxy fights and lawsuits was involved. This was covered in a bit more detail I would have preferred as I was more interested in what he did as CEO.  

I thought the book was a little weak in analyzing the relative contribution of the changes Harrison made to the improved financial performance.  For example the book discusses numerous changes Harrison made to improve the operating ratio by cutting costs.  But of course the operating ratio can also be improved by increasing revenue through higher prices or volume.  The book says little about this.  Perhaps this is because the contribution of revenue increases was insignificant but if so it would nice if this was explicitly stated.  

It is also unclear to me to what extent the benefits of Harrison's changes extend beyond railroad shareholders to society at large. Harrison claimed his changes would improve service and allow the railroads to take market share from the trucking industry.  Was he correct?  The book isn't much help in answering this question, perhaps interviews with a few large rail customers or trucking competitors might have shed some light.  Regarding future competition between trains and trucks, trains are more energy efficient and will have a competitive advantage if oil prices increase significantly.  On the other hand self driving technology would help trucks more than trains as driver costs are more important for trucks.   

In summary I thought the book was okay.  It was reasonably entertaining and I learned some things from it. However when I saw the book in my local library I checked it out because I already knew a little about Harrison and the changes he has brought to the railroad industry and was interested in learning more.  If you have no such desire you probably won't find this book to be of much interest.