Notes, Views, and the Occasional Provocation September / October 2011 

Thank goodness for the inspiration of Steve Jobs. I'm heartened to think there are new generations of innovators, artists, students, businesspersons and people of all stripes who can keep his example in mind as they tackle the pressing problems of the day.

Mr. Jobs said that Apple sat "at the intersection of the liberal arts and technology," and Apple's products are a beautiful blend of aesthetics and functionality. Mr. Jobs himself, through repeated demonstration of personal courage and perseverance, may be better said to have lived at the intersection of heart and technology. I, like most everybody else, am saddened to see him go.

All the best,

Milo Benningfield




Steve Jobs' Foolish Optimism
Mr. Jobs planted an "apple seed" during one of the gloomiest moments in American history, proving that as bad as things sometime seem in the economy and the markets, there's the ever-present risk that they can go right. more

BFA Media Quotes
Recent media quotes. more




Steve Jobs' Foolish Optimism
Though we had lots of warning that Steve Jobs' health was failing, the shock I felt on hearing the news of his death yesterday took me straight back to college in the 1980's when I learned that John Lennon had been killed.

The connection between the memories isn't so surprising. Jobs loved the Beatles and was a child of the counterculture that they embraced. As the world knows, he dropped out of college, dropped acid, was a vegetarian, and made a pilgrimage to India just as the Beatles did. Though he apparently named Apple Computer after working in an Oregon orchard, few could help but notice the resemblance to the Beatles' record company Apple Corps. (The Beatles certainly did, ensuring years of negotiations, a secret agreement, and litigation between the companies.)

Perhaps nothing symbolized Jobs' rebellious nature more, however, than his co-founding of Apple Computer on April Fool's Day in 1976. Then, as now, the political and economic mood of the country was on edge. We'd just suffered through the Vietnam War, Watergate, and the assassinations of Martin Luther King, Jr. and the Kennedy brothers. There was deep dissatisfaction with both Washington and Wall Street, worry about environmental threats, and, for many people, a sense of pessimism about the future. Nothing could have been more wildly optimistic at the time than Jobs' founding a personal-computer company.

The mid-to-late 70's was also a period of disillusionment for investors. Lured into owning stocks by the 1960's economic expansion, many of them had endured the biggest market crash since the 1930's Great Depression and a "lost decade" of returns. By 1977, investors were giving up. As noted institutional consultant Peter Bernstein wrote, "We hate stocks, we hate ourselves, and our customers hate us."1

As Time Magazine described it, investors now saw the markets as a "roller-coaster to nowhere":

The 1977 [stock-market] sag only climaxes a decade of disappointment. Indeed, the stock market, once a great driving force and sensitive indicator of the U.S. economy, has been steadily losing its vigor, and its hold on investors' minds, for most of the past dozen years.2

Investors, particularly younger ones, began pulling their money out of the stock market:

Says San Francisco Broker Paul Juliet: "The 25-to-40-year-olds are not in the market anymore; they probably have lost money and had a bad experience. I think we are going to have difficulty attracting those people back."3

Where were they going? Pretty much anywhere except stocks. A long list of more tangible assets attracted investors – real estate, art, coins, and collectibles like vintage bourbon bottles. Reporters enjoyed digging up stories of investor frustration, like the one about the Baltimore school administrator who told the stock market to "go sit in the corner and wear a dunce cap." For five and a half years, the administrator had tried investing in two mutual funds that had gone nowhere; now she was putting her money in certificates of deposit.

A former Westinghouse salesman had invested in two "mortgage investment stocks" and watched his money disappear. Alarmed, he

sold half of his stock holdings and put the proceeds into tax-free municipal bonds and savings bank bonds. He also bought four acres of woodland property and a hardware store, and on Saturdays he tends the emporium himself.4

New York Stock Exchange seats, once worth more than half a million (1960's) dollars began selling for little more than the price of a New York City tax medallion.

In 1979, Businessweek ran its now-famous cover article, "The Death of Equities," which tolled the bell for stock markets. Acknowledging the wide-spread investor exodus from the markets, one Wall Street veteran noted, "We are running the risk of immobilizing a substantial portion of the world's wealth in someone's stamp collection."5 Businessweek questioned whether investors would ever return to the markets, suggesting that even a strong rally might not be enough to entice them back.

The next year, in 1980, Steve Jobs committed yet another audacious act of optimism: he took Apple Computer public. Just when stocks seemed the last thing anyone wanted to buy, Mr. Jobs offered shares of Apple to everyone. His timing was impeccable: a couple of years later, U.S. stocks entered the longest-running bull market the world has ever seen and over the next eighteen years hardly ever looked back. Those years were full of fits and starts for Apple—Jobs' ouster from the company in the mid-80's, his triumphant return in the 90's, gargantuan product successes and flamboyant flops—but three decades after going public, Apple became, briefly this year, the largest company in the world.

The founding of Apple in the 1970's, during a period of extreme pessimism about our ability to solve the pressing problems of the day, is a reminder that even during the bleakest economic and political times, the seeds of future success may be planted. The same year as Apple was founded, another little company, Genentech, was founded just up the road in South San Francisco – a company that today is credited with creating the entire biotech industry.

Back east, good things were going on as well in the 1970's. John Bogle founded The Vanguard Group in 1974 and a year later introduced the Vanguard 500 Index Fund, the first index fund available to retail investors. Wall Street thought the fund was a quaint, doomed idea and laughed at it, calling it "Bogle's Folly." Mr. Bogle was the one laughing later as The Vanguard Group pulled business away from the rest of Wall Street and three and a half decades later became the largest mutual fund company in the world.

Mr. Bogle surely appreciated Steve Jobs' commencement advice a few years ago to Stanford University students, telling them to "Stay Hungry. Stay Foolish." The entire speech is well worth the time to read or view, and thanks to a host of astonishing technologies that emerged over the past several decades, you can easily do so by searching for the 2005 Stanford commencement address on the Internet.

In the meantime, here are the last few paragraphs of Mr. Jobs' address – not bad at all for a college dropout:

When I was young, there was an amazing publication called "The Whole Earth Catalog," which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and Polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish.

And I have always wished that for myself.

And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

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BFA Media Quotes
Bloomberg, September 28, 2011
Milo was quoted in an article by Ben Steverman, "The Challenges of Retiring Abroad," which discusses the allure of retiring to foreign countries. Milo cautioned that people need to do their homework before doing so. "Retiring abroad works well on paper, but the reality is different," says Milo Benningfield, head of Benningfield Financial Advisors in San Francisco. "There are lots of hidden costs."

He also noted that "many countries have a 'layer of bureaucracy you don't really know about until you're there'" and advised expat retirees to keep six months of living expenses in local currency because of exchange-rate fluctuations. Read the article.

Reuters, September 22, 2011
Milo was quoted in an article by Jessica Toonkel and Aaron Pressman, "Morningstar to Rate ETF Model Portfolios." The article discusses plans by investment-research firm Morningstar, Inc. to rate model portfolios of exchange-traded funds managed by major brokerage firms and other advisers. While ratings would bring much-needed transparency, Milo questioned whether Morningstar was best-suited to provide them:

[S]ome advisers worry that it would be a conflict of interest for Morningstar to rank ETF model portfolios, because the research firm has its own offerings through its subsidiary, Morningstar Investment Services. "Seems like a huge potential conflict, with at least an appearance of impropriety," Milo Benningfield, an independent financial adviser with Benningfield Financial Advisors, said.

Read the article.

Thank you for reading. Please look for our next newsletter in November.

Best regards,

Milo Benningfield

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1 Time Magazine, "Wall Street: Bad News is No News," December 19, 1977.

2 Time Magazine, "Roller-Coaster to Nowhere," August 29, 1977.

3 Ibid.

4 Ibid.

5 Businessweek, "The Death of Equities," August 13, 1979.

Copyright 2011 - Benningfield Financial Advisors