This User’s ExperienceThe blog of Matt Henderson

Each person who makes the decision to save, must decide where to store his savings. Should we put them in the bank? Should we stuff them in a mattress? Should we buy real estate, or perhaps works of art?

Cash in a bank will lose value over time due to inflation. Value in a real estate isn’t very liquid. Money invested in a company’s stocks can be lost in a bankruptcy. In general, modern investment theory speaks with a uniform voice — we should allocate our savings across a diversified mix of (ideally uncorrelated) assets. But which assets?

Conventional wisdom — stocks and bonds.

Almost all of the leading investment experts (Malkiel, Bernstein, Bogle, etc.) recommend that we allocate our savings primarily across stocks and bonds. Within this camp, a few peripheral voices recommend mixing in small quantities of alternative investments such as commodities or real estate investment trusts, for their diversification benefits.

In addition, the particular proportion of stocks and bonds is important, as it defines one’s expected “risk” level. A portfolio of 80% stocks and 20% bonds will provide far greater opportunities for gain than a portfolio of 20% stocks and 80% bonds. At the same time, however, it also provides opportunity for far greater loss.

The experts insist that each individual must assess his own level of acceptable risk when choosing a particular allocation, and that we must monitor and adjust accordingly over time, as we get older or as our circumstances change.

Will the future look like the past?

While I am undoubtedly certain of the importance of diversification, I’ve always had two fundamental problems with asset selection conventional wisdom:

• First, the particular assets of stocks and bonds have been chosen solely because of their historical performance. For as long as we’ve had data available (more than 100+ years), a mix of stocks and bonds would have outperformed other passive investment vehicles available to us. But, what if the future doesn’t look like the past (at least within my lifetime)?

• The second problem I have is a lack of confidence in my own ability to assess my own level of “acceptable risk,” and to adequately monitor and manage that risk over time.

An alternative — the Harry Browne “Permanent Portfolio”.

In part due to these doubts, I became attracted to the investment philosophy of Harry Browne — a successful investor, writer, and Libertarian politician from the mid-1970s through late 1990s — introduced in his book, “Fail Safe Investing.”

Harry Browne’s approach begins with the question: What are our objectives for the wealth we consider precious? On that, he had two answers:

• Protection. We don’t want to lose our savings, under any circumstances.

• Growth. If possible, we should try to grow our savings, at least enough to compensate the erosive effects of inflation.

Then — and this is key — rather than selecting assets by looking backwards, he selected them looking forward. He asked, “What are the possible states of our economy? And for each of those states, which is the asset that responds most dramatically?”

He identified the following four states of the economy, and corresponding optimal investment assets:

• Prosperity. In times of prosperity, stocks perform well. According to the principle of diversification, he recommended (as do most experts) investment in passively managed mutual funds or ETFs that track broad market indicies.

• Inflation. In times of strong inflation, when the purchasing power of our paper currency is being eroded (and in times of political or currency crisis), gold does well. He recommended owning physical gold, although owning it in a more convenient alternative (such as an ETF) is also acceptable.

• Deflation. In times of deflation, when interest rates and prices are dropping, the value of bonds increase. The sensitivity of bond prices to such conditions is a function of the bond duration — the longer the better. Furthermore, we need to be holding bonds that can’t be called. In such times, we therefore need to be holding long-term government bonds — e.g. 20 year US treasury bonds.

• Recession. In times of recession, almost all investments decline. During such times, we need a cash cushion to sustain ourselves, and with which to buy up those other assets that are temporarily dropping in value.

Browne recommended that we divide our savings equally among those four assets, and periodically sell those that are doing well, and buy those that are doing poorly — a critical process known as “rebalancing” — in order to maintain that equal 25% distribution of savings across each.

This portfolio, known as the Permanent Portfolio is attractive for a variety of reasons. It is simple. It is permanent. It doesn’t require self-assessment of risk or time-frame. It contains at least one asset that should be doing well at all times, and which historically has carried the portfolio as a whole. Finally, through modern ETFs, it’s very easy to own this portfolio, at extremely low costs.

But how does the Permanent Portfolio perform?

How has the PP performed historically? Very well, in fact! Since 1964, the PP has returned an average of 8.5% per year; quite respectable compared to the 8.8% return of the common 60/40 stocks/bonds portfolio. But whereas the common stocks/bond portfolio lost 30% of its value in the crash of 2008, the PP lost only 1.3%. (You might want to pause, to contemplate that last point.)

In fact, the Permanent Portfolio has prospered during both bull and bear markets, in a manner that has been very stable.

So what’s the catch?

One might wonder, as I often have, why more experts don’t recommend the PP, and why more people don’t invest in it?

Regarding the second question, the PP has a big issue working against it — tracking error. It’s ups and downs will not mirror those of the general stock market, and so when stock-heavy investors are boasting of their big returns in a given year, the PP holder will more likely than not be looking at more meager growth. For this reason, investing for the long-term in the PP requires determination and fortitude.

That I have no problem with; I can stick with a plan. The other question has long bothered me more — why don’t the other investment experts, for whom I have such respect and admiration, give this portfolio much thought or attention?

Well, this past week, one of those investors, William J. Bernstein, did just that — he published an article about the Permanent Portfolio, in which he refers to it as, “a thing of beauty.” In fact, the main problem he has with the PP is precisely what I mentioned above: It’s hard for most people to stick with it, over the long run. Reading that article made my day.

There’s a lot more to the permanent portfolio (and investing in general) than I’ve covered here. For general investing, I’d recommend Bernstein’s book, “The Investor’s Manifesto”, and for information about the permanent portfolio, the best starting point is the Crawling Road blog. (The Crawling Road forums are great.)

I really enjoyed watching this video of Paul Graham at the 2009 Business of Software conference, in which he discusses 21 future trends he believes we can bank on. Having grown and sold an early web business to Yahoo, Paul has since become a highly influential writer and participant in the technology industry. Currently, he runs “Y Combinator,” a venture capital company which makes financial and advisory investments in startups.

In his talk, I was excited to hear Paul emphasize the importance of some areas in which I’m invested, both personally and professionally:

• OS X on the desktop. Paul points out that open-source, while a great model for the development of technical solutions, falls short at the boarder with design, because of the human psychology aspects which are central to good design. For that reason, he believes (as I’ve long believed) that Linux will never have a place on the desktop, and, of the remaining options, Mac OS X is and will continue to be the clear winner. (He also notes that over 50% of his audience was using Macs — perhaps an early indicator of broader future market trends.)

• The iPhone will be a huge deal. Paul believes the iPhone has no competition, and is unlikely to see any competition in the near future — because it’s the top priority of the world’s best design company. He also believes this is a tragedy for such a hugely important emerging market (i.e. mobile), because of Apple’s application approval process, which is pretty much the anti-thesis of free markets. (Interestingly, he points out that the central thing going against Android is that it belongs to Google — since a firm can only have one top priority, and for Google, that’s search.)

• Bet on design. As more and more of our daily lives involve interaction with software systems, the scope of design will continue to increase, and the need for good design will become ever more important. He points out the unfortunate curiosity about design — that everybody believes they’re good at it, and in that respect, it’s quite different than, say, the engineering or medical fields. (Nobody, other than trained physicians, feel they’re “probably good at surgery.”)

I strongly agree with Paul on all these points, especially the one about design. And that’s particularly exciting for me, as design is both a personal passion, and a (if not the) fundamental value of my company.

On a closing note, as clever as he is, Paul didn’t get it right on all fronts. At 41:30 in the video, talking about the coming importance of real-time, he says, “I think Google Wave is going to be important.” On that, he must have momentarily forgotten his earlier emphasis on the importance of good design. Oh, well, nobody’s perfect.

Just wanted to mention that I’ve recently created a dedicated page here on the blog listing some properties that I have available for sale. If you, or anyone you know, would be interested, feel free to get in touch.

I’m currently reading “The Power of Less,” by Leo Babauta, the guy behind the ZenHabits.net blog. The book focuses on the benefits of setting limitations on what we do and consume, and focusing on the essential things in life. Right now, I’m reading the chapters on setting limitations.

Examining my own life, while I can’t see many areas where I’m excessive, I could only find one area in which I consciously set limitations, and that’s in the area of diet. I follow the Paleo diet, which avoid sugars and carbohydrates (pastas, breads, grains, beans, etc.), and focus on meats, vegetables, nuts and fruits — basically what the “hunters & gatherers” ate during the Paleo age.

In part due to the Pareto 80/20 principle, and in part due to the suggestion that it helps the metabolism from resetting, I allow myself one day per week to eat anything I want. On that day, I might have Churros con Chocolate for breakfast, paella for lunch, a double ice-cream in the afternoon, and maybe some spicy Jamaican jerk chicken with lots of beer for dinner.

I’ve definitely observed that limiting consumption of sugars and carbs to once per week both amplifies my enjoyment of them, and allows me to enjoy them without any of the detrimental health and weight-gain consequences of their regular consumption. (Particularly interesting is the amplification of enjoyment.)

So on the point of setting limitations, it looks like Leo Babauta may be right on the money.

Recently, I’ve been unable to use the Banc of America brokerage site. The site logs me out whenever I navigate from one section to the next. I emailed them, and got this response:

We are aware of a recent issue whereby the wallst.com cookie is now required on the Account Overview page. If the cookie is not accepted, you are logged off of the website. The issue appears to be the result of recent changes to the site, and the appropriate technology partners have been engaged. You can correct this issue by going to Safari – Preferences, then press the Security icon. Please press the radio button next to ‘Always’ and press the red button in the upper left corner to close the window.

Oh, the irony. While, on the one hand, Bank of America continually makes doing business with them increasingly cumbersome in the name of ‘security’ (e.g. the recent requirement to setup ‘SafePass’), they are now telling me that in order to use their website, I’ve got to configure my own browser as insecurely as possible.

Posted via email from Matt Henderson’s Posterous

I’ve recently noticed poor 3G network speeds when using my iPhone, and wanted to conduct some tests to identify which of the following could be the potential culprit:

1. Could it be the new 3.0 version of the iPhone operating system?

2. Could it be the new 3GS model of the iPhone?

3. Could it be a problem with my 3G provider, Vodafone España?

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In the Mac OS X operating system, when you copy content from one application, and paste into another, the source styles, in addition to the content, is copied into the destination. Unless you’re expecting or desire this behavior, your workflow is interrupted and you’re left with a bit of a mess to clean up (the effort of which relates to how quickly you discover what happened).

Most style-aware applications support a “Paste and Match Style” option, but some don’t (like “sidenote”, the application in which I’m writing this post.) For those, we’re kind of stuck.

Based on how I work (mostly in plain text), as well as most people I know, a preferred approach would be:

• “Paste and Match Style” should be the default behavior of the basic “Paste” function.

• The current “Paste and Match Style” option should be renamed and re-functioned “Paste with styles”.

• Applications that are particularly interested in styles (page layout applications, graphic design applications, etc.), could, on pastes which include styles, simply prompt the user, “Include styles with this paste?”

I recently contacted Bank of America regarding the refinancing of my home. (I’m hoping to take advantage of the relatively low rates currently available.) Refinancing involves speaking with a loan officer. Loan officers generally are compensated, at least in part, through commissions.

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CapitalOne could have emailed me with the following short note:

Due to forthcoming changes in our online banking, please visit the following URL if you access Bill Pay via Quicken: capitalonebank.com/betteronlinebanking . If you don’t do Bill Pay via Quicken, you can safely ignore this email.

I don’t do Bill Pay at CapitalOne via Quicken, and so I could have immediately got on with my day. Instead, CapitalOne chose a process which unnecessarily cost me about five to seven minutes of my time.

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Sent from my iPhone

Posted via email from Matt Henderson’s Posterous

Sent from my iPhone

Posted via email from Matt Henderson’s Posterous

Version en Español (English version follows)

Problemas con Vodafone, España

Llevo siendo cliente de Vodafone, España desde hace siete años. Durante los ultimos cuatro años, he tenido contratadola tarifa plana de 39 Euro/mes data plan, que me daba conectividad al internet desde mi teléfono.

En Marzo del 2008, recibi un SMS de Vodafone donde comunicaban: “la modificación de su plan de datos ha sido realizada con éxito”, sin embargo, nunca habia pedido ningún cambio a mi contrato.

Llamé a Vodafone, y mirando mis facturas, confirmaron que habían cometido un error, e immediatamente cambiarían la configuración al plan original que ya tenía antes. (Hay que tener en cuenta también, que cuando se llama a Vodafone, España, hay una conexión, via a VoIP con la peor calidad que se pueda imaginar, a un centro de llamadas en Argentina. Es torturoso intentar explicar el problema cuando apenas se oye nada.)

Vodafone, intentando reestablecer el plan anterior, no lo encontraban y no sabían como se llamaba. Uno podría imaginar que tienen almacenado un historial de los servicios de cada cliente, pero no. No sabían el plan que yo tenía. El plan mas usado se llama Navega y Habla donde te dan un número y una tarjeta de datos para el ordenador. Insistían en que esa era el plan y no podían entender que yo quería datos en mi teléfono y no el ordenador.

Estuve llamando durante una semana, intentando activar mi plan de datos anterior y finalmente lo hicieron.

Cuando llego la factura cobrada en Mayo, me doy cuenta que Vodafone me ha cobrado 400 Euro (mi consumo medio por mes es 60 Euro.)

Immediatamente llamé a Vodafone para que corrigiesen el error. Entonces me dicen que no tienen acceso a mi factura y que tengo que esperar hasta que reciba la factura por correo antes de llamar y explicarles el problema. Me informan que solo tengo 30 dias para comunicar cualquier queja.

Esperé, y la facturas dejaron de llegar por correo. Llamé de Nuevo para comunicar que no recibia las facturas y me prometieron emitir copias y mandarlas de nuevo añadiendo una nota explicando que aunque los 30 dias habian pasado, tendría derecho a reclamar el cargo en el banco dadas las circunstancias.

Estamos en Septiembre, no he recibido ninguna factura desde entonces. Ahora tengo acceso a las facturas on-line pero solo las dos últimas, no tengo acceso a ninguna antes de Junio 2008.

Vodafone no me permite ninguna reclamación hasta que no tenga la factura. He intentado preguntar en una tienda de Vodafone de mi localidad pero lo único que hacen es hacer la llamada a atención al cliente desde la tienda.

Aquí esta el gráfico de mi consumo sacado de la página de Vodafone. Vodafone no quiere reconocer que hay algo anormal durante el mes de Marzo, aunque reconocieron su error, y no me resuelven mi problema. Siguen insistiendo que necesita la factura.

No se que hacer ahora para solucionar esto. No quiero seguir llamando (no anotan los problemas, asi que como cada vez que llamo hablo con alguien diferente, tengo que contra la historia completa una y otra vez.) Como nada está escrito no hay evidencia de ningún acuerdo, como por ejemplo la promesa de enviar las facturas o el ampliar el plazo de reclamación.

Esto es realmente lo que yo llamo mala atención al consumidor.

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One of our neighbors who works in the Spanish agriculture business was telling us, in passing conversation one day, about the steroidal products that are used nowadays in the produce industry. It was interesting to hear that one of the main uses for such products was the production of crops which simply look good. She explained, for example, how unnatural it turns out to be, that each piece of a given fruit or vegetable happens to grow to precisely the same shape and size as all the others.

Skip ahead a few weeks, and we were reminded of this conversation when we received the first delivery from a new service we’ve subscribed to. A group of local organic farmers have organized themselves into a cooperative, and for about 20 Euros per week, will deliver a large box full of locally grown seasonal fruits and vegetables to your door each Tuesday.

The above photo illustrates how different organically grown, untreated carrots can turn out!

To celebrate the new BJJ brown belt, as well as a couple other things, (and in part due to the breakdown of our 10-year-old Honda), I decided it was about time to splurge on a lifelong dream I’ve had to own a Jeep Wrangler, in particular the new Jeep Wrangler 4-Door Unlimited.

Given that I normally get around town on a Honda Scooter, we realized that our usage of the car was about 99% off-road, on our weekend outings to the mountains. The need Jeep’s going to allow us to get to some of the places we couldn’t before, and it’s gonna be a heck of a lot fun!

We took it for its first spin today, going up and down the muddy dirt roads around Jubrique. Man this thing can get around! I’m wondering how long it’ll be before I’m comfortable enough to try some of the stuff you see on YouTube!

Last night I was out on a bike ride, from Monda to Tolox. About 8:30 PM, I was on my way back, and had just turned the corner at junction to Guaro. My eye caught what looked like a mouse on the side of the road. As I approach, I saw it was a little abandoned kitten.

I hopped off the bike, but it ran off the road, and into a pile of large rocks. It was obviously pretty scared.

After waiting 10 minutes, I decided to continue on.

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The United States offers a lot of conveniences and advancements with respect to (certain parts of) Europe, but I find the level of automation and corporate cost reduction a bit disturbing. Most calls to American customer support lines recently are a bit too consistent with my call yesterday to Earthlink:

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On March 26, 2007, I ordered a pair of Oakley Half Jacket sunglasses from the UK-based Chain Reaction Cycles, who claim to be “Europe’s Largest Online Bike Shop.” At almost $180, this purchase represented the most I’ve ever invested in sunglasses, but I’d always understood that Oakley made top-quality sports sunglasses, and, hey, if they’re good enough for Lance Armstrong in the Tour de France, they should be good enough for my jaunts around the hills of Marbella.

A bit less than three weeks later, having heard nothing, I emailed Chain Reaction about the status, and received an “Ooops, sorry about that. They’ll be leaving today.” reply. Not a good start.

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Recently getting access to the alpha version of OmniFocus (which, by the way, is going to be the ultimate GTD application) provided a good opportunity to re-assess my personal productivity.

Over the past months, without being able to pinpoint a precise cause, I’d begun to sense myself becoming less and less productive. Although somehow there never seemed to be enough time in the day to get everything done, the actual amount of useful output I’d been producing seemed to diminish.

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My first real job was a co-op position with the Georgia Power Company back during my university days. The company bought us all Macintosh computers (Mac IIs), and I was introduced to desktop publishing with the Aldus PageMaker application (which, today, is known as Adobe InDesign).

I started using PageMaker and the office LaserWriter to prepare and print documents for school — reports, essays, anything really. Like most desktop publishing novices, my documents attempted to use every font, sizing, coloring and positioning option the program offered. The resulting documents were technically amazing (given the common technology of the day — monoface font editors and dot-matrix printers), but somehow were nauseating to look at.

I always wondered what was it that made professionally designed documents look so much better, and then I came to discover the realm of design. I bought two books by Robin Williams (the author, not the actor): “The Mac is not a Typewriter”, and “Design for Non-Designers”. These books changed my life! It’s amazing how simple concepts can have such powerful, dramatic effect.

After reading these two books, the aesthetic quality of my documents improved dramatically, and I soon discovered that a well designed document, even with weaker content, could achieve better marks than a difficult-to-read document, with stronger content!

Anyway, in the book “Design for Non-Desigers”, Robin introduces the reader to the four simple cornerstones of design — known as the “CRAP” principles — which, when applied, almost always produce a better looking document, layout or screen:

1. Contrast. Strong/weak, big/small contrasts create emphasis and flow.
2. Repetition. Repeating design elements supports consistency.
3. Alignment. The eye likes to find lines of alignment.
4. Proximity. Related things should be grouped together.

Today I was reading a book Alex ordered, “Designing Interfaces”, by an interface designer working at the Mathworks (makers of Matlab). It was very interesting to read about some of the psychology principles underlying UI design. In particular, the work of the Gestalt group theory psychologists, who concluded — interestingly enough — four principles:

1. Closure.
2. Similarity.
3. Continuity.
4. Proximity.

I find it interesting, and exciting, to see such common denominators between disciplines.

Wow, it’s been a long time, but I’m back to blogging. Business has been going well, and that’s received most of my non-family time, but things are settling down, and some blogging time should free up now.

What’s new:

• Bought an Apple TV and a new Phillips 32″ LCD screen. I’m in love! Oh how I’m waiting for the “Connect to iTunes store” button. That’ll be all she wrote for me.

• Finished up The Wade, and it’s now on the market. The Wade is Henderson & Henderson’s latest home on Georgia’s Lake Lanier.

• Launched the new MLK.com site back in February. MLK wanted a Flash site, so we architected a hybrid Flash/XHTML/CSS site using Flex and integrating with a back-end Ruby on Rails application. It’s one of the most advanced web applications we’ve built to date! (Dang do we have some rock stars in MakaluMedia!)

• Won a contract to build a site for some successful people in the US, that’s going to make big positive environmental impact. Got a lot of high profile backing. I’m super excited to see where it leads!

• Had to make a difficult business decision. Hope it was the right one.

• Gotten heavily into GPS. More on that later…

• Business wise, made the big decision to reduce our client work in the Spain office, and go for the development and selling of own product. We’re brewing on a few ideas, and hope to have the plate clean and ready to start work in September. If you’re a Rails developer with a passion for user experience, we’d love to talk to you.

• Lost my digital camera, and replaced it with a Canon IXUS 850. I love the wide angle!

• Was requested to make dinner tonight, and had the fun experience of trying to figure out where my wife would have logically stored the pasta sauce. Laundry room next to the vacuum cleaner? (It’s been there in the past.) Nope. Behind the paper towels? (been there too…) Nope. “Honey, where’s the past sauce?”… “It’s either in the laundry room, or behind the paper towels.” … “Uh, no, I’ve checked there.” [hair dryer starts from upstairs...] “Honey? Honey?” Great. Ah ha! Almost behind the coffee machine. Should have been obvious…