Still a Stormy Case of ‘Word is Bond’

In former President Donald Trump’s universe, the past 24 hours have been a severe case of, shall we say, “Stormy weather.”

Now, as much as I would like to say this salacious case of the alleged Trump-Stormy Daniels hush money payment and election interference trial isn’t on my mind, how could it not be? I mean, the optics here are astounding, and the fact that we are still dealing with this sordid issue after all these years is, in my view, sad on multiple levels.

Interestingly, last night, I was speaking with a friend who is also a regular reader of The Deep Woods. He reminded me that he really liked what I had written about this Stormy Daniels issue a few years ago. Now, I must confess that I vaguely remembered the details of what I had written. I mean, when you write as much as I do, it’s actually hard to keep track of it all.

So, I looked up my original article on the Trump-Stormy Daniels issue. Not surprisingly, I was pleased with what I had written, because true to The Deep Woods form, it wasn’t about the surface level details of the incident, but rather about the underlying principles at issue. In this case, the underlying, deeper issue involved is when someone fails to keep their word.

Today, I want to republish my original piece for you, as what it said about the sacrosanct concept of keeping your word, or what I call, “word is bond,” and the failure of so many to live that principle in earnest, is one of the deepest wounds afflicting society. And given that this situation is front and center in every news source around the globe today, these thoughts still very much apply to the events of the day.

So, the following is my article, “The Recent Storm of Contract Dysfunction,” which was originally published March 28, 2018, (all references therein apply to that time period). One interesting note is that the Trump-Stormy Daniels issue addressed here is far less important in the long run than the deeper issue pertaining to the Second Amendment. The former could definitely influence the election in November, while the latter could influence your rights as Americans — permanently.

***********************

Word is bond.

That’s the phrase that keeps coming to mind for me amidst the two most prominent political stories of the day — the Stormy Daniels affair and the latest push to restrict gun rights.

Now, “word is bond” is urban slang shorthand for the longer phrase “your word is your bond,” meaning that if you give someone your word, then you also are giving them your solemn promise.

In the case of Stormy Daniels, the former adult film actress gave her legal promise (which included the signing of a non-disclosure agreement, or NDA) that she would not reveal the details of her alleged affair with Donald Trump. In exchange for that promise, Daniels would receive the sum of $130,000.

That payment was made, yet Daniels still talked.

Her recent appearance on “60 Minutes” was just the latest violation of the word-is-bond ethic.

Now, I want to go on record here as saying that I think the whole Stormy Daniels/Donald Trump incident is repugnant on many fronts. And I am most definitely not arguing for the propriety of Mr. Trump and his associates in this matter. I also am not an attorney, so I can’t attest to the relevance of any lack of signature on the agreement by Donald Trump via an alias, or to whether that legally invalidates the contract. These legal intricacies are all extraneous to my concerns.

What I am saying is that when you make an agreement with another party, and then you violate your part of the agreement, you are guilty of what I consider the most serious ethical breach… i.e., the breach of “word is bond.”

In my own business career, I have signed many NDAs having to do with the trade secrets, methods and practices of my employers. And if I were to violate those agreements, I would rightly deserve the social and legal scorn coming to me.

Call me old fashioned, but I believe the principle that “word is bond” is sacrosanct.

I also believe that when it comes to our rights as Americans, the word-is-bond ethic also applies. That’s why it’s been disturbing to me to see the latest push for a restriction of our Second Amendment rights.

The March for Our Lives protest last weekend in Washington, D.C., and in dozens of cities around the world, has focused attention on ending the horrific gun violence and mass shooting incidents that afflict our society. And while I sympathize and agree with the need to make our society safer for all Americans, I also can’t help but think that the focus on restricting gun rights is a violation of the word-is-bond ethic in the United States Constitution.

You see, the Founding Fathers were intent on creating a nation free from government tyranny.

That’s why it is no accident that the ability to speak freely (the First Amendment) as well as the means by which to protect oneself from government-initiated physical force (the Second Amendment) are bedrock foundations of a tyranny-free state.

I see the Constitution as a kind of word-is-bond agreement between the Founders and future generations of Americans. A word-is-bond agreement that ensures and safeguards our liberties better than any other document in world history. Now, however, there are those who wish to essentially default on that agreement because they think it will make society safer.

Indeed, even a former Supreme Court justice thinks we should alter our Constitutional bond, arguing that the Second Amendment is a “relic of the 18th century.”

Of course, part of the brilliance of the Constitution is the provisions in it that allows Americans to alter that agreement provided there is enough consensus. So, if we want to have that debate, then we should have it.

If we do, I suspect we’ll discover the true wisdom in the concluding text of our Founders’ promise, “…the right of the people to keep and bear Arms, shall not be infringed.”

Word is bond.

***************************************************************
ETF Talk: ‘V’ ‘B’ Playin’ the Game Right with This ETF

As the late Kenny Rogers once intoned, “If you’re gonna play the game, boy you gotta learn to play it right…”

As I’ve learned, playing the game right is about winning bigger than you lose. Now, while that sounds like an obvious sentiment, it really means that the first “win,” or payout, shouldn’t be your last — have patience, and continue to let those successful investments mature.

On the subject of patience, let me add one further axiomatic bit of advice — building wealth really isn’t that hard. What I mean is, understanding the concepts is the simple part, practicing restraint and not deviating from your investment principles in search of a shortcut is the trickier part.

Suffice to say, patience and restraint may not be the most rousing of concepts, but they most certainly are useful in investing, especially when it comes to small-cap exchange-traded funds (ETFs).

Now, there is a chance that the mere mention of small-cap ETFs may nonplus some of my readers because, like many facets of the economy, the radical climb of interest rates has led the small-cap sector to underperform. However, it is likely that interest rates will lower toward year-end, and that means small caps will once again begin to outperform.

So, in true Renaissance fashion, let’s delve into today’s ETF — the Vanguard Small-Cap ETF (NYSEArca: VB).

VB is a passively managed small-cap fund with a goal of tracking the performance of the CRSP U.S. Small Cap Index, which measures the investment return of small-cap stocks. Thusly, the fund provides investors with a convenient way to match the performance of a diversified group of small companies.

The fund also offers solid diversification with growth equities accounting for about one-third of its holdings and value equities making up roughly 28% of its positions. Though the fund offers exposure to the bottom 2-15% of all tradeable assets, i.e., the investable universe, its holdings are mainly concentrated among industrials, financials, consumer discretionary stocks, health care and information technology.

With more than 15% of VB’s allocation in the information technology sector, investors are offered sound material growth exposure, which may help to offset some small-cap fund limitations such as high volatility and debt-dependence.

Not only is VB a massive fund with $54 billion in assets under management and $136 billion in net assets, it is highly liquid, with an average volume of more than 800,000 shares traded and a median 30-day bid/ask spread of roughly four basis points, according to Vanguard.

Moreover, VB provides a dividend yield of 1.49%, with payouts every three months that totaled $3.25 per share in the past year. The fund’s last ex-dividend date was March 22, 2024. In case that isn’t incentive enough, it’s a relatively affordable fund for factor-oriented investors with an exceptionally low expense ratio of 0.05%.

Chart Courtesy of stockcharts.com

The chart above offers a glimpse of why we are discussing VB today. While the fund saw a sharp decline in November, it not only recovered — but has continued to climb with gusto. VB’s 200-day moving average has shown an upward trend since December, and its 50-day moving average is fast approaching its 52-week-range high of $229.54.

The fund’s top 10 holdings include: MicroStrategy Incorporated (MSTR), 0.44%; Builders FirstSource, Inc. (BLDR), 0.44%; Targa Resources Corp. (TRGP), 0.43%; Deckers Outdoor Corp. (DECK), 0.42%; Axon Enterprise, Inc. (AXON), 0.39%; PTC Inc. (PTC), 0.37%; Entegris, Inc. (ENTG), 0.37%; Williams-Sonoma, Inc. (WSM), 0.35%; DraftKings Inc. (DKNG), 0.34% and Booz Allen Hamilton Holding Corp. (BAH), 0.33%.

In sum, playing the game is about knowing when to hold them, when to fold them and when to walk away. In VB’s case, interested investors may do well to hold them and watch them flourish.

With a rich dividend, a low expense ratio and strong liquidity, VB may lead to a winning hand.

So, with that, I will leave you with a quote from the American poet Henry Wadsworth Longfellow, a quote I find in keeping with restraint and avoiding shortcuts — “The heights by great men reached and kept were not attained by sudden flight, but they while their companions slept, were toiling upward in the night.”

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me. You may see your question answered in a future ETF Talk.

*****************************************************************
In case you missed it…

May Day, Reimagined

May 1 is a day that’s also known as “May Day” in many countries around the world. Think of May Day as a sort of Marxist version of the same holiday we celebrate in the United States called Labor Day. Now, when I say a “sort of Marxist version,” I am not being at all hyperbolic. You see, in 1889, an international federation of socialist groups and trade unions designated May 1 as a day in support of workers, and it did so in commemoration of the Haymarket Riot in Chicago in 1886.

These socialist groups were in essence Marxist, although they organized themselves under the umbrella of greater workers’ rights (a worthy objective in theory). Yet the underlying philosophical premise behind socialism is that the means of production should be owned or controlled by the state, and not by the capitalists. This, according to Marx, should be implemented for the benefit of all, and is part of a natural transition from capitalism into a stateless and classless society without private property.

“Workers of the world, unite!” is the slogan from Marx and Engels’s “The Communist Manifesto,” published in 1848. It means that the working class should work together to get rid of capitalism — and the capitalist producers — and win a class war. And make no mistake; that concept is at the philosophic root of May Day.

Well, to me, this thinking is supremely flawed, and that means that May Day requires a reimagining into what I think is a far more appropriate celebration.

So, I propose that we in The Deep Woods community promote May Day under a new name, “Capitalist Day.”

By capitalist, I am referring to anyone who works hard to create wealth. Anyone who has made the noblest of choices, the choice to cast their mind, body and spirit into the world in pursuit of productive achievement of the sort that creates the goods and services we need to survive and thrive in a hostile environment.

Make no mistake about it, the world is a hostile environment. Before there were any dinner tables, grocery stores, electrified homes, televisions, internet, etc., there was the cold, harsh and unforgiving state of nature. Yet in the face of this adversity, a producer of goods (aka a capitalist) chose to forage ahead and mold reality into all the comforts we enjoy today, and that Marxists around the globe all-too-often take for granted.

Now, one might argue that as Americans, we have been blessed with incredible natural resources and that we should thank the heavens for this blessing. But I see it differently.

In my view, natural resources are neither natural nor resources. It takes man’s mind to create resources from nature.

Think about it. Nearly every value you hold as a human — safety, security, shelter, clean water, ample food supply, the ability to traverse the globe — indeed, modern civilization itself, is made possible by a thinking human’s efforts to produce such things.

It’s man’s mind; his reason, ingenuity, science, hard work and capital, put in the service of his attempt to achieve values, that is responsible for your worldly bounty. And this bounty is the virtuous result of man’s ability to shape nature into the byproducts of his will.

So, today, as you see the world stage protests and demonstrations around May Day, I want you to reject this paradigm and celebrate “Capitalist Day.” Even better, if you also are a capitalist/producer (and if you are reading this, I am fairly certain that you are), then take a moment to celebrate yourself.

You’ve earned it.

*****************************************************************

Somebody That I Used to Know

Now and then I think of all the times you screwed me over
But had me believing it was always something that I’d done
And I don’t wanna live that way
Reading into every word you say
You said that you could let it go
And I wouldn’t catch you hung up on somebody that you used to know…

–Gotye, “Somebody That I Used to Know”

People change, circumstances change and conditions are constantly changing. There are those that you once knew intimately but that now have become “somebody that you used to know.” While this can be a trying development in one’s life, it is neither uncommon nor infrequent. So, when approaching these situations, try to be as objective as possible by assessing the reality of the now, and not the reality that was somebody that you used to know. Doing so will save you a whole lot of time, heartache and spent energy. And in case you were wondering, yes, I speak from experience.

Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.

P.S.  I will be holding a special subscribers-only teleconference on May 15 at 1:00 p.m. entitled “Making Triple-Digit Wins Despite a Higher-for-Longer Interest Rate Environment.” The event is free to attend, but you must register here. Don’t miss out!

In the name of the best within us,

Jim Woods