The Supreme Court in 1964 ruled on the suppression of a French film that the state of Ohio had deemed obscene and therefore banned. The question was, did this French film rise to the level of pornography? Asked to define pornography, Justice Potter Stewart delivered what has become a famous statement:

“I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description [“hard-core pornography”], and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…”

“I know it when I see it.” This is also many people’s definition of evil, which has been on my mind over the past few weeks. Evil comes in myriad shapes and forms. Obviously, we have the war with Iran. I’m sure you have seen and read the same articles I have. Some say it is justified; some say that it isn’t. I will freely admit that I don’t know, and that there are unfortunately too many who should admit such, yet instead use whatever platform they have to preach uninformed opinions. The fact is that history will be the true judge of the wisdom of this action. But I think we can all agree that the regime in Iran – the world’s biggest sponsor of terrorism for the last 47 years and murderer of its own people just in the past few months – is evil.

This week I witnessed evil closer to home, and this we have more control over. One of our retired clients called me in a panic Monday evening: she was on the phone with someone who claimed to be with the Federal Trade Commission (FTC). The individual on the other end of the line was telling her that her Charles Schwab account had been tampered with, and that to secure it, she needed to transfer $200,000 immediately. She was on the other line with this gentleman when she called me, and I asked her to connect us. I will give this guy points for commitment to the scam, as he suggested to her that I could be the one who hacked her account. Fortunately, it was that comment that convinced our client that she was talking to a scam artist.

What kind of person preys on confusion to steal from retirees? Evil.

This kind of evil is easier to protect ourselves from. Know that no government official is going to call and demand that you immediately transfer funds. When in doubt, check it out; anything legitimate will allow you to follow up. Schwab offers the following five steps to help safeguard yourself from scams:

> Always verbally verify money movement instructions with the recipient and ask for supporting documentation.

> Perform your own due diligence. Research the recipient/product/person to validate the legitimacy of the request or search for scams/complaints associated with the other party.

> Use appropriate disbursement channels/methods to make payments. Avoid prepaid debit cards, gift cards, and digital currency.

> When you can, view goods in person, pay after services are completed, and send money only to people you’ve met in person.

> Use services that have purchase protection and/or an escrow service, especially for high-dollar transactions.

> (Source: https://www.schwab.com/schwabsafe/security-knowledge-center)

I would add to that list to always use your trusted adviser. Our client thought she had called Schwab to get her tax information, but the crooks on the other end of the phone pretended to be Schwab and told her she had to contact the FTC via a number they provided. We could have gotten her tax information for her, but she “didn’t want to bother us.” Of course I assured her that was ridiculous, that servicing her account is part of our job; she knows she can trust us, so please, always call us.

There is evil in this world. Some of it is big, far away, and out of our control. It is easy to get caught up in those stories when we too often miss the evil that is right in front of us, which is smaller in scale but nonetheless real, and more importantly, something we can actually help prevent.

Evil is hard to define, but I know it when I see it. We would have less of it in the world with a different regime in Iran and closer to home with fewer scam artists. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA

~Evil Closer to Home

“People should stop training radiologists now. It’s just completely obvious that within five years, deep learning is going to do a better than radiologists.”  ~ Geoffrey Hinton aka “The Godfather of AI”

Does that scare you? Would it scare you less if you knew that quote is more than a decade old, and that out here in the real world there are more radiologists today than there were then? Hopefully so, but this knowledge has not stopped the AI elite from continuing to make such claims. Elon Musk recently predicted the end of surgeons because his AI enabled robots will be better at surgery than a human being within three years. Are you looking forward to being operated on by a robot?

Dario Amodei, CEO of Anthropic, published a very lengthy essay in January about the dangers of AI, which include the usual science fiction threats (think “Terminator”). Fortunately for us, Amodei does not think the machines will decide to eliminate mankind…at least not on purpose. That is a relief.

He does think AI will destroy all the jobs on the planet, making human beings worthless (at least economically). He claims that AI is different than technology of the past. When agriculture was automated, the workers could simply move into factories. When factories were automated, the workers could move toward technology and service jobs. He claims that there will be nowhere to go with AI, because AI and AI-empowered robots will do everything, and they will do everything better than humans.

This is horrifying. It is also wrong. I will freely admit that Amodei knows far more about AI than I do, but his economics and knowledge of human nature seem lacking. First, he suffers from what we in investing refer to as hindsight bias: It may seem obvious today that when farm workers were replaced by machines they would just move into the factories, because that is what happened, but I doubt it was obvious at the time. The automation of agriculture began with the invention of the cotton gin in 1794, while Henry Ford invented the assembly line and with it modern manufacturing in 1913.

It was not obvious then what the next level of employment would look like, and it never is. Humans, if given the freedom to do so, always invent new ways to add value to society anytime they become unburdened by the old. What will human employment look like when AI is fully up and running? I have no idea, and neither does anyone else, but if economic history tells us anything, it tells us that the future is bright. The only thing that can stop that future is the very heavy-handed policies that Amodei thinks are necessary.

We wrote about this in 2009 in the 4^th quarter issue of our Quarterly Report newsletter, “Jobs.” There is a reason capitalism works best in countries with strong faith traditions. Capitalism itself requires faith.

Amodei and the other AI doomsayers also make another major mistake: The question for society is not what AI will be capable of, but what how AI will actually be used. Harvard professor and author Clayton Christensen’s 2011 book, “Disruptive Innovation,” showed how real disruption does not come from cutting-edge technology, because technology always exceeds its utility to the average user.

I was reminded of this just the other week. Michael Smith and I went to record our latest podcast and were suddenly blocked by our IT department from accessing the website of the application we use to do so. The application had been upgraded with “AI” to make it easier to edit podcasts. As with so many instances today one has to question whether this is truly AI or just a simple software update, but the word AI is now on the site and for that reason alone, our IT department makes sure we can’t access it. This is the real world. Both individual users and corporations are going to be very cautious when implementing AI. It will not go as quickly as the technology itself.

I was explaining this at a client meeting for which we met in person but some of the participants joined remotely. The meeting software had a glitch, so we were unable to hear any of the people who joined remotely. This is also the real world. Technology breaks. Everyone seems to know this except for the people who actually build the technology. Will AI be the one exception to this technology rule? Doubtful.

Finally, AI might very well be superior to human radiologists, and it may empower robots who are better surgeons. There is one thing that AI will never likely do better than humans, and that is care. Human surgeons sometimes struggle with emotion. Twice in my life I refused to let a surgeon operate on me because I did not trust them. If I get operated on in the future and have the choice between an AI robot and a human, I’m picking the human. AI may be more precise, but that human cares about me waking up afterwards. That matters; at least that is my perspective.

Warm regards,

Chuck Osborne, CFA

~AI is Coming for Your Job…or is it?

We begin with a history lesson: On January 20, 2026, the market collapsed because the U.S. threatened invasion of Greenland. This date in news cycle ancient history is also known as “last Tuesday” in the so-called real world. But what is real anymore?

I understand why President Trump wants Greenland. At his heart, Trump is a real estate guy whose true strength lies in brand-building promotion. Greenland may very well be history’s first and greatest example of misleading real estate promotion: The island was named for the purpose of encouraging people from the ironically green Iceland to move to the ironically icy Greenland. It didn’t really work. Vikings turned out to be remarkably immune to branding.

The strategic location of Greenland is undeniable, which is why our close ally Denmark happily welcomed a U.S. military base there during the Cold War and has repeatedly told our military they are welcomed to come back. Most financial experts will tell you that you are better off renting your vacation home than owning it, so why would we want it? I suspect it has more to do with the mineral rights than national security, but that is pure speculation on my part.

It is not my role to pontificate on whether the U.S. needs to possess Greenland. My role is to navigate our client’s investments through the notoriously rough seas of the far North Atlantic… okay I mean through the stock market, but the North Atlantic sounds better, and its notoriously large waves are an apt metaphor for the volatility this little hike in the Arctic caused.

Last Tuesday we did not trade at all, and none of our clients or long-term readers would be surprised by that. As I sat and watched the mayhem, I wondered, who is selling today? To me the outcome of the Greenland fiasco was obvious. I was confident in this, first because I had to take civics in eighth grade and have a pretty good understanding of the checks and balances in our constitutional republic. Secondly, this was typical Trump – start the negotiation with an outrageous position knowing full well it won’t happen, but it might help get a better deal than imagined in the end. This is The Art of the Deal; he wrote a book about it. There was no way Trump was going to invade Greenland.

Trump continues to say he loves tariffs, but I am beginning to believe that what Trump really loves is the threat of tariffs. The actual tariffs put in place by this administration are a fraction of the shock and awe proposals on “Liberation Day” last April. (The Economist has done good work on this for those who are interested in learning more.) He wasn’t going to go through with the tariffs threats any more than he was going to invade Greenland. With Trump, the bark is always bigger than the bite.

So again, I sat there last Tuesday wondering, who is selling? Are traders really so naïve as to believe that we are going to break up NATO over Greenland? Maybe, but I doubt it. I believe it is far more cynical than that. I think the traders who played havoc on the market never really believed in the Greenland story. They believed, cynically, that fools out there would believe the story and thus panic, and they positioned themselves to profit on other’s fear.

This is precisely why normal people dislike Wall Street. As an investor, I knew that Tuesday’s selloff wouldn’t last; sure enough, by Friday the loss on the S&P was minimal and most diversified strategies ended the week in positive territory. These speculative games create opportunities for investors, and we were net buyers last week. I fear, though, that the speculation of traders scares off too many investors who need to be invested to realistically achieve their retirement goals. I’m a sailor and I enjoy sailing on the ocean, but no one likes steep waves coming in short periods. Most get seasick and all think such an environment is miserable.

John Maynard Keynes said it best, “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”  The stock market exists to provide capital to serious companies who wish to expand, build factories, create jobs, and produce products we all want and need. It is the best allocator of capital the world has ever seen. It does not exist to be a casino, or even to provide for anyone’s retirement – although prudent investing will do just that. When will Wall Street ever learn?

I am not holding my breath, but the market and the world would be a better place if we took Keynes’ warning seriously: Wall Street should be more like a market of stocks and less like a casino. At least that is my perspective.

Warm regards,

Chuck Osborne, CFA

~Will They Ever Learn?

It has been a tough five years for the “expert” class. The anti-expert narrative got a huge boost with the Covid pandemic – total shutdowns were a disaster, and it was especially hard on school-aged children. The vaccine did not live up to the hype. Most embarrassingly, debate on what would be the best path was silenced and any view that did not align with the approved narrative was labeled as “misinformation.” That was a huge mistake, and the ramifications are being felt today.

We now have a significant group who are convinced that the experts are always wrong. This is human nature, that we always seem to overcorrect from the most recent problem. It brings to mind one of my favorite quotes from Benjamin Graham, “The stock investor is neither right or wrong because others agreed or disagreed with him; he is right [or wrong] because his facts and analysis are right [or wrong].”

One night I was sitting at a bar in Midway airport having a drink with a friend and colleague who works for a large 401(k) provider (I note this to emphasize that he was not a naive person with limited financial understanding). Somehow the subject of Roth retirement plans came up, and he was thinking about converting some or all of his 401(k) into a Roth. His neighbor had just been to a multiple-day presentation put on by a self-described “expert” who had a detailed presentation on why conversion to Roth was the right path. (I’ll get back to our “expert” in a moment.)

I blurted out, “Are you crazy?” (In my defense this was a colleague…I am much nicer to clients than I am to colleagues.) He was startled because he had not heard anyone push back so forcefully on the folly that is the Roth. Roths are popular and the world is full of “experts” who will tell you how wonderful they are, but they are not right or wrong because they are popular; they are right or wrong because their analysis is right or wrong. In this case, it is wrong.

Quick reminder: traditional retirement plans give the investor a tax deduction on her contribution, the money grows tax-deferred, and then she will pay taxes when she takes the money out in retirement. With a Roth, she pays taxes today and is promised tax-free income in retirement.

What is their analysis? A quick Google AI search will give you the highlights. The number-one argument for Roth is that the investor expects higher tax rates in retirement. If one believes that they will pay a higher rate in retirement, then he would be better off paying the lower rate today, or so the argument goes. The problem with this argument is that it defies reality. According to the Center for Retirement Research, four out of five retirees pay little to no income tax. So, for the vast majority of the population, if one chooses to contribute to a Roth instead of the traditional plan, then he is giving up a tax deduction now to save on a small to nonexistent potential future tax bill. If he converts, then he is giving himself a large tax increase today to avoid a small or nonexistent bill in the future.

Back to my colleague’s neighbor’s multi-day seminar on the virtue of Roth. The “expert” started his Roth presentation as most Roth devotees do, with the sad analysis of our country’s fiscal situation. The runaway government debt, he argued, meant that taxes are all going up in the future. Ultimately everyone who believes in Roth gets to this point: “Taxes are going to be higher in the future.” Really? Who are these politicians who are going to raise taxes across the board, especially on retirees?

Most politicians want to avoid raising taxes on anyone, but those who are not afraid of the T word always want to tax only one group of people. You know who I’m talking about – “the rich.” Who are these rich? In the Secure Act 2.0 of 2022, they would be any employee making $150,000 or more (it was originally $145,000, but they adjusted for inflation). Anyone in that group who makes a “catch-up” contribution to their retirement plan must put that contribution into a Roth. This was explicitly used to pay for other benefits in the act. In other words, that is how politicians raise taxes – force retirement savers into Roth.

This gets to the other unspoken issue with Roth: The investor is trading a known tax deduction for a promise. If the tax situation is as bad as my colleague’s neighbor’s expert claims, then what is more likely: an across-the-board tax increase on all, or the removal of the tax-free status on those rich folks who have Roths? In the 1980s when Social Security had to be saved, they did so primarily by taxing the benefit which had been previously promised to be tax-free. Keep I mind that the overwhelming majority of retirees are in a lower tax bracket in retirement, so the increase would have to be large enough for that lower bracket’s rate to be higher than the higher bracket’s rate while working. Never say never, but the odds of that occurring are incredibly remote.

Finally, the question everyone asks is whether a Roth is better than a traditional retirement plan, but a more interesting question is whether a Roth is better than a regular brokerage account. This is a hard question to answer because it will depend heavily on how the account is invested. If it were invested in our core equity strategy over the last five years, the experience would be as follows: In 2020 the gain was 23.39%, but only 3.6% was realized; 2021 gained 15.09% with a realized gain of 9.7%; In 2022, we had a loss and took a tax deduction; 2023 saw a gain of 12.8% and a realized gain of 1.8%; 2024, a gain of 31.52% and a realized gain of 4.4%. Realized gains were all taxed at long-term capital gains rates, not income tax rates.

This is just an example for educational purposes. The point of this real-world example is that in a prudently managed brokerage account, the taxable consequences are not great and therefore the benefit of the Roth is not great. It is more than nothing, but does it outweigh the strings that are attached, like five-year lockup and other retirement plan rules?

That answer is not as clear as Roth vs. a traditional retirement plan, but there are many who might argue the added flexibility of the brokerage account outweighs what small tax benefits one would get in a Roth. With the Secure Act 2.0 Roth provision taking effect in 2026, many plans that did not previously offer Roth will be forced to do so. Does that mean you should switch? Being popular doesn’t make it right. The facts and analysis say you shouldn’t, regardless of what “experts” might say. At least that is my perspective.  

Warm regards,

Chuck Osborne, CFA

~Roth – Are the Experts Wrong?

It was a mid-December afternoon when the phone rang as we were wrapping up the year, signing Christmas cards, and planning the firm’s Christmas party. On the other side of the line was a voice telling me that he was with the Securities and Exchange Commission (SEC), and he and his staff would be paying us a visit that next week. 

It is part of the job. We are regulated by the SEC, and they will periodically come to inspect our operation. I was not worried, but I was a little miffed, since an SEC exam does not exactly get one into the holiday spirit. From the SEC staff’s perspective, this was great – they were from the Atlanta office literally one block away from us. They could get in one more exam and still be home in time for Santa. 

The exam went smoothly and was done in time for our firm party. During the standard wrap-up briefing they went over all their findings, and I will never forget the interaction about our website. They found no issues with it but reminded us that we are not allowed to make exaggerated claims. I jokingly said, “So I can’t claim to be the greatest investor who ever lived?” The agent laughed and said that’s right, “besides, I have already met him.” I thought he was joking, but he wasn’t – they had actually found an adviser who claimed on his website to be the best investor ever. 

Years earlier, the head of sales for Invesco’s retirement division liked to say that he was often wrong but never in doubt. I would always respond that the investment team was seldom wrong but always in doubt. Overconfidence is a death knell to investors. It is one of the first life lessons anyone in this business learns. I didn’t need to meet “Mr. Greatest Investor Ever” to know that eventually his clients would regret they ever did. 

Of course, overconfidence was not this gentleman’s only sin. Hyperbole: “Exaggerated statements or claims not meant to be taken literally,” according to the Oxford dictionary. Today we swim in an online ocean of hyperbole: People begging for attention, posting about their lives, and then anxiously waiting to see how many likes they get. Experience in the real world will teach you that humility is the better path, but humility doesn’t excite the algorithm. Hyperbole, on the other hand – that gets people’s attention. 

As an investor, one needs to learn to sniff out hyperbole. Management is always putting the best foot forward, and a good analyst needs to be able to read through that when listening to earnings calls. However, hyperbole has become so prevalent today that many forget about not taking it literally; some people are not capable of discerning the difference between hyperbole and fact. 

The only thing more common online than hyperbole is the ever-present “straw man.” When I was a young analyst, many investment teams would assign two analysts to work up a specific company. One analyst would build the case for investing while the other would build the case for selling. They would debate each other in the investment committee meeting, and the arguments had to be sound and strong. Sadly, this is not what happens in our divided world today. Today, the algorithm will find someone – anyone – making the claim it thinks you want to hear. That person will then tell you what the other side’s argument is, except what he really tells you is what is known as a straw man. 

The best example I remember of the straw man was during the 2010 great debate over the Affordable Care Act (ACA). There were lots of good arguments against the ACA – cost, complexity, unintended consequences. However, ACA’s proponents did an amazing job of creating a straw man to beat them all: if one were against the ACA, it meant she didn’t want people to have health care. In my memory, this was the first time that people really started to believe that the “straw man” they had created was actually the real argument of the other side. This was the beginning of the other guys not just being wrong, but being evil; who could possibly want people to be denied health care? Any rational person would know that no such person exists, but not everyone who reads posts online is rational. 

This brings us to the tragedy of Charlie Kirk. Last Sunday he was the subject of our adult Sunday School class. He wasn’t meant to be, but how could he not? We noticed something frightening about our world: the more liberal members of our group found nothing in their social media feeds but references to Kirk being evil and hateful, while the more conservative members of our group found nothing but references to him being the greatest citizen this country has ever seen. The algorithm constantly feeds what we want to hear.

What are good people to do about this? The biggest obstacles to investing success are the psychological traps: We overestimate risk; we believe that whatever is happening at the moment will keep happening; we are too quick to sell winners to lock in gains, and too slow to sell losers because we want to get back to even and not take a loss. I could go on and on. The most important thing for the professional investor to remember is that he is just as human as his clients and has all the same flaws. We can’t magically make them go away, but we can be aware of them and guard against them. 

“Let your yes be yes and your no, no. For whatever is more than these comes from the evil one.” Matthew 5:37. We need to recognize that most of what we hear and read online is hyperbole, and while we can’t stop it, we can be aware of it and refuse to participate. We can also learn to recognize straw men, and again, stop participating. You and I might recognize that these are exaggerations not meant to be taken literally, but not everyone is as mentally well. 

I have been writing about economic issues for a long time. I always kid that I must be doing a good job, because I get yelled at by both sides. The truth is that I mostly get positive feedback, and I get it from both sides. When we actually talk about policy and the real-world impacts, we discover that the online myth of a divided country is hyperbole. If we can just stop the hyperbole and burn down all the straw men, then we will find a much better world – a world in which we can once again debate solutions to our problems with substance. At the end of the day this is what Charlie Kirk tried to do, and the world would be a better place if we followed his example. At least that is my perspective. 

Warm regards,

Chuck Osborne, CFA 

~Lessons From a Career Investing Other People’s Money