Jim Richmond

Vonage Could Go Bankrupt Over Verizon Patent Suit

Hmmm. A little perspective here...

The award for past patent infringement was for $58 million, which represents about 15% of last year's marketing budget, or about $29 per subscriber line.

The ongoing cost of the award would be 5.5% of revenues. Even if they chose to pass the cost along to subscribers, the cost for their unlimited plan goes from $24.99 to $26.25.

And that's if they lose everything on appeal and don't get the award reduced and can't work around the patents in the future.

It seems the chicken little chants, coming from both the company and from the rest of the media, are a little over done.

PS - I currently have no open positions in VG

Why Is Systemax Fishy About Its Rebate Business?

Mr. Left is definitely onto something here...

This doesn't pass as a scientific analysis, but the evidence from my own personal experience suggests that they're either grossly incompetent or they're intentionally committing rebate fraud. I have no way to know which it is.

I have been due a rebate from this company for around 8 months and despite complaints to the BBB, the FTC, and the AG's office, the company hasn't paid it. The BBB closed out my case against them due to the company's "failure to respond" to the BBB inquiries.

Their OnRebate.com rebate processing site shows my rebate as approved and pending payment, as it has for around 8 months. You can see it at this link:


Before I started with my complaint process, I attempted over a dozen times to call and email OnRebate and TigerDirect. In each case where I was able to get through to a representative, they apologized for the mistake and promised me a check asap. The checks never came.

You'll have to make your own judgment about Systemax. I'm definitely in agreement with Mr. Left that there's something fishy going on over there.

Jim

Red Flags at Systemax: Accounting, Inventory, Customer Service

Here's my personal experience with TigerDirect and OnRebate. Frankly, I'm amazed they are still operating...

I sent in 4 rebates for purchases made at TigerDirect and PC Connection. Within 2 weeks, the OnRebate web status showed that all 4 rebates were correctly submitted and accepted by OnRebate. Next, I waited for payment.... and waited ...and waited.

After 5 months I had received 0 of the 4 accepted rebates. After several calls and emails to OnRebate, I was able to get one of them paid ($20 - the smallest).

Next I contacted PC Connection to request a refund directly from them. To my surprise, they refunded the $100 for the missing rebate and apologized for the trouble (the rep said this is all too common with OnRebate).

For the last 2 rebates which were for items purchased from TigerDirect, I'm at a dead end. Frankly, I simply can't believe a company that's traded on the NYSE could be engaging in such open and outright consumer fraud.

Given how willing Systemax is to defraud their customers, one has to wonder how honest they are in their reporting financials to their shareholders.

Safe Portfolio Withdrawal Rates: Beyond The 4% Solution

Geoff,

Once again, I think we're generally in agreement on the points that you make about the risks of using of old historical data to predict the future.

I'd suggest one caveat for investors with respect to your final point (and I'm sure you'd agree with this). While increasing a portfolio's risk in an effort to increase its return is often advisable, the operation has to be done with care and with the help of tools like portfolio optimizers and Monte Carlo analysis. More risk only makes sense if you can be reasonably sure that the larger expected return isn't overwhelmed by a still larger standard deviation of returns.

One thing that Monte Carlo retirement planners can clearly demonstrate is that risk matters. High volatility in portfolio returns can kill an otherwise great long-term plan. The trick is to find the right balance between reward and risk, such that the goals of the retirement plan can be achieved with a workable level of risk.

Jim

Safe Portfolio Withdrawal Rates: Beyond The 4% Solution

Geoff,

Another interesting read. Thanks! One thing you might have missed was that Guyton's ideas were tested with both historical results and with Monte Carlo Simulation. He published the results of the MCS tests in a 2006 paper.

For anyone interested, I built a free Monte Carlo retirement simulator that was inspired by Guyton's work. It lets you test out his idea of varying withdrawals to get a higher likelihood of retirement success at a higher overall withdrawal rate.

The URL for the planner is flexibleRetirementPlan...
(The further reading page has links to Guyton's papers and to some others)

Evil Inflation -- Or Is It?

Hmmm, I'm not sold on this argument.

As a retiree, inflation would be very bad indeed for me. First, even if real interest rates remain unchanged, the taxes due on the "extra" interest/stock growth that I'd need to earn to keep up my savings' purchasing power would be killer. So just to keep even, real rates would have to increase enough to cover the extra taxes.

Further, unstable prices make predicting the future very difficult for both producers and consumers and the result is a large drag on the economy. The idea that increased inflation causes increased savings flies in the face of history. Increased inflation induces people to consume more (buy it now since it will cost much more next year). This is a dangerous game to play with a fiat currency since everything depends on everybody keeping their cool. Surely you wouldn't welcome runaway inflation!

All and all, I'd prefer a fed that holds the line on inflation and keeps things on an even keel. Although the idea of inflating our way out of debt might sound enticing, it's a fools game that will cause more damage in the long run.

No, we have to get out of this mess the old fashioned way, by tightening our belts, reducing gov't spending (especially entitlements), and maybe even increasing taxes. We should probably start with a gas tax to offset the external costs built into the consumption of fossil fuels.

Can You Trust Monte Carlo Models?

Geoff,

The paper you recommended, like the other papers you've published on your site, was a great read. Thanks for the link.

I'm still not with you that long term MCS models need "ticker" level portfolio parameterization, but now I understand what you're saying. I still think you're blurring the portfolio management problem with the retirement planning problem but reasonable men can differ.

On a related note, I definitely misunderstood you on the inclusion of macroeconomic factors into the model. I guess at the ticker level that would get messy very fast. I thought when you mentioned the need for including forward looking predictive inputs that you were talking about macroeconomic parameters. I now see that you mean predicting the future returns/std dev at the ticker level based on fundamental analysis.

Again, since this site is called seeking alpha I need to tread carefully, but my focus (for portfolio mgmt) has always been at the asset class level, rather than at the ticker level. That's a debate we probably shouldn't get into because I know that's like religion. I do think there's alpha to be had at the security level, I just don't think I can easily or reliably find it or pay someone to.

I'm of the school that the most likely place to find sustainable alpha is by including macroeconomic factors as inputs, along with historical risk/return/correlatio... data, and optimizing at the asset class level. Now I've never built such a model myself, but I've used several and the approach seems sensible to me. I follow the work by the folks at indexinvestor.com and I think they've done some good work here.

Anyhow, interesting discussion. Thanks again,

Jim

Can You Trust Monte Carlo Models?

Geoff,

Sorry for leaving this conversation be for so long, it's actually really interesting to me.

So as we stand, we both agree that building Monte Carlo simulations that combine historic results with predictive macroeconomic models should be the current best practice for portfolio management and asset allocation decision-making. We both understand that these models are imperfect, but as of now, they are the state-of-the-art.

We also agree that if your MC simulation has to go out 30-50 years, you're signal to noise ratio (and the predictive value of the model) goes down considerably.

Where we differ (I think) is on whether it's necessary to incorporate cross-correlations between asset classes and predictions about macroeconomic conditions into long-term Monte Carlo simulation models that are used for planning purposes.

You believe that we have to at least try (since we had to do all the work for portfolio management purposes anyway), and I believe that it doesn't matter. Further, because of the complexity and costs it introduces (mostly measured by increases in simulation run-time), I think it's better not to.

Did I sum things up correctly? I'm not trying to convince you I'm right, but rather I'm trying to make sure we understand each other's position and justifications.

Regards,

Jim

Can You Trust Monte Carlo Models?

I think we may be violently agreeing, at least in part, especially with respect to putting too much stock on the historical record.

Where we perhaps differ is in our thoughts on our ability (definitely mine, maybe yours too) to build good models that predict future returns and standard deviations 50 YEARS OUT. I'm not saying we shouldn't try (that's why the site is called seeking alpha!), but for the average retiree, and maybe average planner in the mass market, it would be good to focus the portfolio survivability debate more accumulating enough wealth and on active withdrawal management techniques rather than getting too picky about modeling future returns for 30-50 years.

My point was that although a simulator that just takes a set of canned return and standard deviation pairs is rather trivial, it's a good enough place to start so you can focus more on the other variables that are much more under control of retirees such as savings and spending.

BTW, I'd gladly take my return/standard deviation inputs from a sophisticated model such as yours :) The point is that it's not where my energy is focused when working on the long horizon retirement planning problem.

That doesn't mean I don't think there's a place for advanced optimizers that combine past results with predictions about future macroeconomic dynamics. To me that's really cool stuff (way better than historical based models). I just think those tools are better suited to a 1-7 year horizon rather than a 50 year horizon. These tools are for portfolio management rather than for retirement planning. Does that distinction make any sense or is it a false one? I think the goals of the two exercises are different.

BTW, I got the thrust of Bernstein's argument on Monte Carlo to be that we shouldn't sweat the last 10 or 20 points of survival probability (80-85% is probably good enough) when interpreting Monte Carlo data. I thought his point was that because of fat tails from things like a future Hitler or the abomb, there's always a high degree of out-of-model variability that makes saying "we think you have a 95% probability of reaching your goal" a rather silly thing to say with any authority. Maybe I misread him.

In any case, thanks for the reply. It was good food for thought...

Can You Trust Monte Carlo Models?

This was an interesting post and I agree with the general comments on the variations of simulators being mostly dependent on differences in assumptions that are pretty understandable.

I must say however, that I disagree with the assertion that a simulator is useless unless it can generate average return and standard deviation from a real underlying portfolio.

IMHO, a major problem that financial planning (and perhaps finance in general) faces today is that we've built a beautiful edifice of solid mathematics on the very weak foundation that is our understanding of the true relationships between cause and effect in the return generating process.

While I hear your concern that the average investor would need a PhD in order to run many of the simulators, I don't think that obscuring all the built-in assumptions is necessarily better, especially if they turn out to be wrong!

It seems to me that in many cases, pulling out a return and standard deviation based on investor temperment and the historical record is not a bad place to start. I think some of these models have more error signal than they do data signal in them. The comment that the long term correlations go "all the way back to 2001" is at the heart of the challenge. And I'm not making fun of this. As I said, if you go back too far the error signal is louder than the data.

I've built an experimental Monte Carlo simulator that's focused more on the retiree's withdrawal methodology (ability to adjust the draw based on performance) rather than on guessing at the long term dynamics of each investor's underlying portfolio.

Based on my initial results (and as shown in other research), I'm beginning to think that working with retirees on managing their withdrawals and spending (as an ongoing process) may be more important (or at least as important) than trying to nail the precise details of the underlying dynamics of the portfolio and project them out 40 or 50 years into the future.

FYI, the simulator was written in Java and is available online at
home.comcast.net/~jsri...

Limits to Gold and Silver Growth: Supply Having Trouble Meeting Demand

One thing that isn't mentioned in the article is what percent of the error in the reserve estimate was on the supply side and what percent was on the demand side.

It seems that a big peice of the error in the reserve-years estimate may have been in estimating the demand side. Central banks (apparently) have been unloading thieir holdings since the 90's and there was a reduction in investment demand following the price crash in the 80's.

On the other hand, if gold regains traction as an investment, demand could outstrip current estimates which are based mostly on demand for production uses.