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The Hardest Rule and the Cost-Basis Blues… – Guest Post

By Ginaswo on November 19, 2008 at 4:30 AM in Barack Obama, Hillary Clinton

When I was a girl, my father, a Wall Street executive and Marine, God Bless him, imparted to me the theory of ‘the hardest rule’ in trading/investing. He told me that each day, you ought to look at your portfolio/holdings and examine each individual stock with this question uppermost in mind:

What is the position of this company TODAY? (and) What is the future outlook for this company according to the data available AS OF TODAY?

The corollary to these questions is of course that what happened to this position in the past IS NO LONGER RELEVANT except for as much as it impacts future outlook i.e. when an acquisition might be accretive to earnings down the road.

In other words, you should NOT be looking at your cost basis (the price you paid to purchase the stock). It is of no use whatsoever to start your day examining your holdings if you are going to come to the table with your cost basis uppermost in your mind. You will continue to hold long after you should have sold.

Some people like to talk about tax implications here, and to me it is a useless argument. If you are looking at a stock and trying to ascertain if you should hold/sell/buy, you should be considering the current and future value of the company NOT your individual tax status, NOT what price you paid, NOT what dollar amount you need to buy that flat screen or take that vacation.

It is all about the present and the future, thus the rule.

Hillary as SoS
As word spread of Hillary Clinton’s possible appointment as SoS for the Obama Administration, a terrible case of what Judy Scheinlin and Suzie Orman would recognize as the ‘coulda,shoulda,wouldas’ and what I call the ‘cost-basis blues’ broke out across the blogs.

In a seemingly coincidental occurrence, the Kos Kidz and many heretofore PUMA sites decried the news, with varying themes of:

‘How dare he appoint a Clinton after all we did for him, she will destroy his administration/seize power, she doesn’t deserve to work in his administration, he will be blamed for her failures’ –And- ‘She should tell him to frak off, stay away from him, he will destroy her power base/career, he doesn’t deserve her help, and she will be blamed for his failures’

Well it is not a coincidence when both ‘sides’ if you will are propounding the same memes with different protagonists as the star. It appears as though both groups are failing to follow the MOST IMPORTANT RULE.

There has IMO been plenty of time spent lo these many moons discussing the reasons why each of us supported whom we did and how we evolved throughout the process. However, perhaps we need to spend a bit of time really taking a look at WHY underneath it all WHAT was the single most important factor underlying all others in selecting your candidate of choice?

A friend told me the other day that perhaps I was being harsh in my comments regarding the appt of HRC as SoS. I am fully behind it, over the moon in fact, and I was surprised that so many PUMAS were against it after 2 days of discussion. The friend suggested that we are ‘all in a different place right now’. Yes we surely are, but I am in the same place in which I began, in the sense that I still base my decisions on the MOST IMPORTANT RULE.

From the beginning I have always supported the candidate who IMO was best for the country (and thereby my family) and to some extent the world. That was Hillary, then McCain. When news broke about the (hopefully) imminent appt of HRC as SoS, I brought the MOST IMPORTANT RULE to my analysis and was frankly ecstatic about it.

Why? My reasons are outlined below in a comment I made on another blog. But overarching the entire opinion is that underlying rule.

“I have spent days explaining to my little son that as Americans we are UNIQUE in our peaceful transition of power, and how incredible we are for this, and how we need to come together as Americans and hope for the best and want the best for our country
and I believe that to be true, so for me it is a no brainer.

We have Medvyev going to CUBA and Venezuela, Chavez has them doing war games, Castro also going to China, we are printing money in a way that will magnify our economic weakness and vulnerability to the foreign nations that service our debt
we NEED others to buy our t-bills to supply that money and maintenance that debt
now, where does this come from? Generally China, but China is spending $600B on its own economy trying to transition from exporter to consumer base as we falter
as a Communist country it is essential for them to control their GDP to maintain power
we are consumers in USA 40% of GLOBAL GDP.

Russia will be one of the countries buying our debt for us. We need a strong hawk but not too hawky as SoS, our face to the world…

I am not drinking cool aid I am being an American in my way and according to my beliefs as we all do. I believe he has won and is the next POTUS. I believe it is not fair, that doesn’t change it. I believe Hillary will do magnificent things as SoS, where while Obama is on domestic policy, she is able to help millions of people, far more than she can in her SEN seat.

I believe Hillary will look at it that way also and accept. I believe we will likely be attacked and we will especially then need a STRONG SoS. I believe the economy is teetering on Depression and it is GOOD that Clinton era admin staff are staffing the WH
I believe it is more important for the country and my children to have an effective govt. than it is to be proved right about Obama and see us all destroyed. That is what I believe”

A note here for those having trouble considering the application of the most important rule beyond the markets, consider for a moment your views on SCOTUS and the manner in which the various Justices apply the Constitution in their opinions. Are they strict constructionists? In that they interpret like J. Scalia, the meaning of the words within the document as they were defined when written? For if you do, you likely focus on the past and will not appreciate the most important rule. I myself prefer to view the Constitution as a living breathing document, with the Bill of Rights immutable, which is in perfect keeping with the most important rule’s focus on Present and Future over Past.

Today we come to this SoS decision with these two facts on the present and the future: On January 20, 2009 the Obama Administration will take power. Who would make the most effective SoS in order to benefit our country and the world?

For me it’s a no-brainer, it is HRC. Now the part where I get frustrated is NO ONE, not one, of the people disparaging the notion dispute this fact. Yet still, they persist in their view that Hillary should flee from the responsibility and let the Obama Administration fail. Miserably, they presume.

But what of the consequences of that failure? Is a yearning for the schadenfraude that failed to materialize in the campaign worth the price to our country (and the world) of having a less effective SoS at Obama’s right hand?

No clearly it is not. For me it is no different than the reasoning that gave us a second Bush Administration in the 04 elections. Past over present and future.

However, if the most important rule is not in mind, it is easy to be misdirected into agreeing with the Kos Kidz who are doing the same thing, clinging, (bitterly dare I say?), to the Clinton hate that was a tool of the primary that Axelrod used to great effect.

However that very limited view does not consider the present and the future. HRC is beloved around the world. Obama is new, people do not know him and his positions have changed considerably since the primaries. For the country to feel safer, for the world to be more leery of our power and less confident in manipulating a young POTUS, for the moderates who did not vote for the incoming Administration to feel they have a voice in his cabinet, and for my peace of mind in the dead of night, for all those reasons it is an advantageous move to appoint HRC as SoS and it certainly seems she will accept based on all I have seen in her career. She went into public service to serve, and for the reasons I indicated in the comment below, she can IMO do that far more effectively as SoS.

We have all come so far, but the most important rule tells us that while we learn from the past we do not live there. As a history major I believe that the key is to take the lessons the past gave us and bring them forward into the present with an eye to the future.

Living in the past will not move us forward as individuals, as people or as investors. We must accept what the cost-basis was and sell, buy or hold according to the present and the future.

This campaign season was for me intensely painful and the betrayal I still feel is a princely cost-basis for losing the person I considered the best candidate for the country, HRC as POTUS. However, I bring all that passion and belief in her talents that I had supporting her for that role, with me to this present, the one in which the Obama Administration is selecting b/w Richardson, Kerry and Clinton for SoS. The best person for that job is Hillary Rodham Clinton. As always I look at this with the underlying question what is best for the country and my family, which are one and the same in almost every case, the answer is HRC as SoS.

The Cost-Basis Blues: The Economy, The Big 3 Bailout, and Housing
The most important rule was taught to me within the framework of the markets so let us apply it here. For the conservative Schumpeterian economists decrying the Motor City bailouts, the cost basis is too high, While they were willing to throw moral hazard to the winds for the saving of their financial system as they knew it, they draw the line at bailing out the homeowners or GM, yearning for the almost poetic creative destruction that is for many the very lifeblood of capitalism.

While I agree with many of the sentiments expressed in these regards, one more time please apply the MOST IMPORTANT RULE. Where are we NOW? What is the impact of failing to act on Detroit and Housing NOW and for the Future as we can see it today?

Clearly a more rapid than necessary advancement to double digit unemployment in the current situation (which is the inevitable result of a failure to enact a Big 3 bailout/bridge loan), will be a crippling blow, just as was the decision by Paulson to let Bear and then Lehman fail.

The same applies to the housing foreclosures. While there is no question that as moral hazard applies we should not be morally or ethically constrained to ‘bail out’ the bad decisions of the reckless banks, homeowners, GM management; we need to look at it TODAY.

Today these foreclosures are bringing down the house values all around them, with no end in sight to double digit housing value declines in the SW and FL. While Hank Paulson and President Bush don’t want to get on board and as recently as Friday, Treasury undersecretary charged with the mgmt of TARP, Kashkari told Rep Kucinich that ‘we don’t feel the US government should be in the business of bailing out failing institutions’, the facts remain nevertheless stubbornly in favor of action to stop foreclosures, and to halt the layoffs that will follow CH 11 by the BIG 3.

The Shakespearean Tragedy of it all: As You Like It? Uhm NO!
Do I like it that TN autoworkers for Toyota who make $30 an hour or so less in avg. compensation will have their tax dollars used to pay off pension and healthcare obligations under UAW contracts in MI? No!

Do I like supporting the McMansions around me with a super special deal while I trudge along the responsible tortoise that finished the race by doing the right thing? No!

But beyond all that (which is cost-basis blues reasoning),

Do I take what I experienced and bring it with me to the present and future always remembering to look at the NOW and not the THEN? Yes! The decision to allow Bear and Lehman to fail was an EPIC mistake and it must not be repeated, had they looked ‘clearly’ and nonpolitically at how it would affect the economy THAT DAY AND FORWARD I do not doubt they would have made a different decision. Here is where we can take what we learned from the immediate past but apply it to the present and avoid the error again.

This is by no means a ‘license to ill’ a la Machiavelli, and no one should take the rule as an opportunity to rationalize that the ends justify the means, if anything the rule’s adherence to the PRESENT speaks to the need for pragmatism in decision making.

So let’s join together, apply the most important rule to these situations and move forward for the betterment of the country and ourselves. Support HRC for SoS, Recognize the imperative nature of the Big 3 bailout/bridge loan, and push hard for movement on the FDIC mortgage modification plan.

Yesterday these choices may have violated all or many of our most dearly cherished ideals of fair play, capitalism, bootstraps and so forth, today they are (as we know from the application of the most important rule), required to sustain both a strong face in foreign policy, and an economic outlook of a sustained recession over one of further collapse. We can work our hearts out in the present for the future and we can hope the cost-basis was not too harsh as we move forward together. The most important rule would tell us that is the only way to go. I betcha our grandparents,(who in my GEN X generation were far more pragmatic than my Baby Boomer parents) would agree.

Further Reading:
CSPAN: Neel Kashkari appears before Congress on TARP

http://tinyurl.com/6cq94z

Scalia on Strict Constructionism:

http://tinyurl.com/6mf6qw

http://en.wikipedia.org/wiki/Strict_constructionism

Cost-Basis defined:

http://www.streetauthority.com/terms/c/cost-basis.asp

FDIC Mortgage Modification Plan:

http://www.fdic.gov/consumers/loans/loanmod/index.html

wodiej

thank you for taking the time to write your post. However I think Clinton would serve us better in the Senate where she can impact a wide array of issues like the economy, taxes, spending, the environment etc and not just foreign policy issues. If she takes this position, her hands will be tied, not so in the Senate. She can champion the causes that are important to her and to us there but not as SOS.

I question Obama’s motives anyway. Didn’t he say Clinton’s foreign policy experience consisted of serving tea in foreign countries? I think Obama is just throwing her a bone and his only intent is not that Hillary would be good for us as SOS but that he could minimize her impact. In the Senate she could vote against some of his policies. Remember, she is not far left like he is.
Snickers

Ginaswo, I started reading your post, fascinated because of the stock market/investment angle and I love all of LD’s posts which have made this economic situation so much more clear to me. I respectfully disagree with your analogy. Here’s my reasoning: Human beings are not stocks or “designated bartering units.” We are a collection of thoughts, personality, ideas, values, beliefs, and many other things. Many of our most ingrained beliefs and values were gained at certain developmental stages brought about by the family system and family rules as well as societal norms and culture. I am not a psychologist or socialogist, but I have been in therapy 20 years working steadily on my issues, taking psychology classes and sociology classes and reading dozens and dozens of books on all sorts of subjects dealing with psychology/sociology.
There is no accurate way to measure the human element. Who can say when a hard/bitter individual can actually succumb to compassion or love in a given situation? Who can say when a loving person, blinded by grief, will commit an act of revenge – perhaps on the wrong person?
All we have in this election is past practice and precedent, to borrow legal concepts. Mr. Obama has shown himself to be a corrupt, inept, and untruthful individual, who has little or no integrity or honor. He expects to be held to a different yardstick than the rest of us and refuses to answer questions or show documentation to verify his statements.
This is not a good barometer of what is to come for this great nation. Nor is it a great portent for those who actually accept his cabinet appointments. He, unlike Bush, has shown no loyalty to his underlings and menials, I don’t think he believes he has peers. I also don’t believe that a miracle will occur to change his fragmented personality or his damaged ego.
Another fact I’ll share: I was born in Indonesia when it was the Netherlands Indies, right after the worst of the revolution. My family was interned in Indonesian prison camps because they were of European descent and part of the colonialist mindset. I do not decry this act of revolution nor yearning for freedom. I understand it. However, while my parents, my sisters, and I were fortunate to get out and move to The Netherlands in 1951, some of my family was not so fortunate. I understand more than most, the Indonesian mindset during the time Mr. Obama/Soetoro lived there. I also understand how this country had to have shaped his belief system and his personality during crucial times of his ego development. And because of this understanding I am anticipating a worse administration than the last. I hope I’m wrong. I hope good change is in the offing, but I’m not optimistic.
Northwest rain

O is a user and a taker. I don’t believe that he actually made the offer — or if he did he made the offer in good faith.

Narcissists are vindictive people — O is a passive aggressive and he is very controlling.

I agree with Snickers, above — the next few months and years are going to be very difficult for America — the “change” some people are looking forward to isn’t the change they will be seeing.

O is an unrepentant sexist pig — he simply has no respect for women. Respect for women is learned behavior — and he was in the wrong place when boys learn about social rules and customs.

Sorry I just can’t see the Stock Market analogy — O is a con man — he is not what he seems. Nothing he does is what it seems.

With people the PAST is very important. The past is who we are, living in the present moment. The people in our past — shape who we are.

The culture we grow up in shapes who we are, and how we see the world. Again — this is our past — but it shapes our present and our future.

I KNEW when bush was appointed by the Supreme Court that he was going to be one of the worst presidents in US history. He was a failure as a businessman and he escaped insider trading because of who his daddy was. I don’t think any of us could imagine how really bad he was going to be — 8 years ago.

O is already making more decisions — Biden as VP is a glaring example of bad judgment. Again past behavior gives us clues of his future behavior.

AGM — Attention Getting Mechanism.

Tossing out Clinton’s name as SoS — is a game — it is an AGM. Dysfunctional families have at least one child who is very skilled at using AGM — to divert attention and to stop the fighting of family members. Some adults continue to use AGMs to control others. I see this in 0-zero.

As soon as the attention of the public is distracted O will toss out another AGM to remain the center of attention — he uses people — he has no empathy, nor respect for people. This is based on his PAST behavior.

Human beings have a past and that past directs how we behave in the present and in the future.
andrew191

For some time now I’ve built houses for people. One of the oddest and most recurring themes is the pre-construction argument between the wife and the husband. It is almost always focused on some minor detail like the color of the curtains, or what type of floor in the kitchen, one or two sinks in the master bath, or what type of mailbox to have out front. This argument often takes place before they’ve even secured financing. I usually let it go on for a while because I will use it later. Eventually I’ll step in and remind them that we haven’t even drawn the plans and they’re already arguing curtains. First things first.

All of this speculation about Obama, his policies, his cabinet, etc. is a waste of time because Obama has done and said nothing that we can depend on. If a pathological liar tells you something, are you going to alter your life to accommodate his promise? Of course not. The only thing predictable about Obama is that he is unpredictable, he exists for us to serve his needs, and unless we can read his mind, we’ll never know for sure what he wants us to do at any given moment.

Speculating about the merits of Hillory as SoS in an Obama administration is a waste of time when you understand the fickle nature of her boss. Your time would be better spent planning what you’re going to do with all the money when you win the lottery.
Trudy

I agree!
andrew191

Obama is all about the AGM. Now that he has worldwide exposure, that is now the level of his apatite, the U.S. alone won’t satisfy it, so an extremely dangerous situation exists. Good leaders don’t need to be first and formost in everyone’s minds all the time. I prefer going days or weeks without giving the president a thought. Obama will demand to be in all of our minds every day, think big brother. Big, loud, needy, look at me, brother.
http://deleted Aaron

The FDIC plan is terrible and it will put the US government, that means you and me, on the hook for about 2 trillion. The new loans are also recourse loans and force the borrower to stay in his or her home for 5 – 7 years depending on the terms. Can you say “slave to your home?”
elsie

This is a good point.. how unpredictable Obama is..
Perhaps the best analysis yet about the prospect of HRC as SoS is best spelled out by Tom Friedman of NYT, He says that to be an effective SoS, he or she must be the extension of the POTUS himself, and that the POTUS should always be behind the SoS so he or she has credibility before the word leaders..
Given Obama’s inconsistencies and unpredictability, HRC may or may not be an effective SoS because it is highly doubtful that he will be behind his own SoS. Remember his own personality itself clashes with HRC. The past is always important to know what is the future.. We have learned a lot about Obama during the primaries and where he would lead is something that we all have to know that he changes course not according to what the country desperately desires but always to what this type of personality desires..
AnninCA

I agree, of course, with your perspective, but I’m definitely a pragmatist…..(and an investor..:))

I want what works best for this country. I sure don’t want Obama to fail to prove me right about him. I want to be quite wrong, in fact.

Selfish motives? You betcha!
SFIndiePUMA

A couple of quotes by George Santayana (December 16, 1863, Madrid – September 26, 1952, Rome), a philosopher, essayist, poet, and novelist, that I find particularly relevant:

“Those who cannot remember the past are condemned to repeat it.”

“Our character…is an omen of our destiny, and the more integrity we have and keep, the simpler and nobler that destiny is likely to be.”

The past for me is fairly immediate: how The Pretender got to where he is. I won’t forget it, and I won’t forgive it, because otherwise I condone it and help to create a new, viler paradigm of corruption in our country. And those people who are jumping on board his administration, all those former Clintonites, are now suspect to me.

And if The Pretender’s character is an omen of his, and therefore our, destiny, we’re in for a rough ride. And yet, maybe that’s what has to happen for anything to change. In my work, I see every day a reality of being human – we do not make changes in our lives until we’ve hit bottom.

“And then the day came when the risk to remain tight in a bud was more painful than the risk it took to blossom.” Anais Nin

I don’t think, as difficult a time as we’re experiencing right now in this country, that we’re ready to blossom. So, many will look away from the past, ignore the character of The Pretender, applaud the illusion of his successes, and continue to remain tight in the bud of denial.

Me, I’m ready to blossom. And for all those others who are also ready, we need to form a cohesive group with a plan of action. We need to bring together all the different factions to create a real movement of change. We need a leader and a voice. It’s not Hillary any more.

I vote for Lady Lynn!
http://www.madinthemiddle.blogspot.com churl

I like the stock analysis but it strikes me that most of the political analysis is short-term rather than long term. In the short term, a great SoS will make some difference in feel-good America. In the long term, a great U.S. senator will make a huge difference in the lives of millions of Americans of all types, not just the foreign policy wonks.

We need people in Congress willing to stand for civil liberties and fair play. We don’t need them looking out for seating arrangements at a G8 conference.
Choo Choo Magoo

Ginaswo – Great post. Love your Dad’s “Hardest Rule.” It’s a great life strategy (one I try to use myself though I hadn’t thought of it in those terms until now)
Evaluate the present
Peer into the future
Look back at the past
Move forward

A couple of key factors to consider
Are you ready, willing, and able to move forward?
Are you using a microscope or a telescope to peer into the future?
Are you using tinted lens (dark, rosy or clear) as you look back at the past?
Do you know which direction (north, south east or west) is forward?
Finding a park bench and just resting awhile is sometimes the best option.

Which is why, even using the “Hardest Rule”, we all don’t end up at the same place. Or we end up at the same place but travel a different path. I agree with you on HRC as SOS. Agree on needing the auto industry in future. Disagree on how to get there. I don’t think a bail out will save them, the companies need to dismantle, reform and rebuild. And the workforce will be the better for it moving forward.
Choo Choo Magoo

Oops.
First – You look back at the past.
Then – Peer into the future.
Texas Playwright

Stay in the Senate, Hillary!
http://moderateinthemiddle.wordpress.com/ ginaswo

well aaron you could do Jingle Mail, which is happening all around me and turning places into ghost towns, that is the alternative to the FDIC plan :0(
http://moderateinthemiddle.wordpress.com/ ginaswo

thank you for the very thoughtful comments, I appreciate them all :0)

The Senate leadership votes were held yesterday, Hillary got no chair no subcmte, no nada

she is a junior Senator out of 100 others, who will have I am sure LOTS of impact for NYS but none for anyone else.

I believe Hillary has already taken the post, and I believe we will hear shortly

I think she KNOWS she can do more as SoS

Please take a gander on her duties as SoS, think of her 16 billion budget, her world travel, and how she can highlight the needs of those around the world and how Big Dawg can help those people..

I did a post on it here:

http://moderateinthemiddle.wordpress.com/2008/11/18/no-musical-chairs-in-dem-leadership/

thank you again for all the comments, I know this is an unpopular view and I really appreciate the courtesy of the opinions :0)
http://moderateinthemiddle.wordpress.com/ ginaswo

I am trying to approach this by looking at the past also, as a history major religion minor I do that without even thinking!:

In 92 when Big Dawg came in MANY Dems didnt like Hill and Bill, well IMHO THEY, those DEMS, the internicine strife KILLED universal healthcare and led to the 93 elections and the NEWT effect

I do not want to be one of those DEMS who didnt like Big Dawg or Hillary and stymied their attempts to bring meaningful reform to the people of America and the world
http://moderateinthemiddle.wordpress.com/ ginaswo

I hear ya :0)

But will we nill we, he is the incoming POTUS, and I prefer HRC to Kerry or Richardson as SoS
Billy

It doesn’t matter.Hillary didn’t serve her supporters or america by going with that liar,nut care no good low life.And what Obama did was lie all the way and you think that she will be able to do any good any where with those low life corrupted democrats?

I will never ever vote Hillar again ever.!!!
Billy

I am now independent.I don’t have to stay in any party who cheats the people of their votes and right’s
Mr. Natural

Jingle Mail?
Mr. Natural

Excellent point, AnninCA. The race is over. Time to move on.

(Now, if you occasionally hear me aim a jibe at Pharoah, it’s mostly to stay in practice.)