Dumb and Dumbbells

Dear Mr. Berko: Please explain dumbbell investing. We have $166,000 to invest and the broker recommended a strategy called dumbbell investing. Next question: What’s wrong with young people today? Our 33-year-old son graduated from University of California with a 3.79 GPA, and he makes coffee at Starbucks. His wife, also a college graduate, answers phones for a real estate company. We paid over $170,000 for our son to get his degree and it’s worth nothing. We’re thinking of a class action suit against the university and several parents are interested. Your opinion would be appreciated.

– SA: Portland, OR

Dear SA: Forget it. You’re the reason your kid has a job you don’t like! On the other hand, maybe your kid lacks the skills to be the success you want him to be. He may be happy as a stoat in mud, pouring coffee. The biggest reason for a kid’s failure in school is the parent. But it’s so convenient to blame the school.

Most of today’s colleges have morphed into “failure factories.” That’s what happens to public schools without active parental interest and participation. And as a result, colleges admit growing numbers of unqualified students only because they need the revenue.

When government begins to finance an activity, attitudes change and the quality of that activity diminishes enormously. Note Medicaid, FHA, Department of Housing, the Pentagon, USPS, Medicare, EPA, the public school system, etc. Colleges are notable examples, too. With billions of dollars of gushing federal money, colleges strive to become bigger not better. They’ve morphed into medium-sized cities with a governing body, police force, hospitals, parks, restaurants, housing, retail stores, sports complexes, parking lots and gigantic entertainment centers.

To pay for this Golconda, colleges must expand their enrollments with indecently lower admission standards. And, because those incoming students have room temperature IQs, professors teach to the lowest level. That’s why University of California, San Diego teaches “God, Sex & Chocolate,” Columbia offers “Zombies in Popular Media,” Ohio State offers “Sport for the Spectator,” and Swarthmore teaches “Cross-Dressing.” Courses like Cornell’s “Tree Climbing,” Princeton’s “How to Dress,” Skidmore College’s “Sociology of Miley Cyrus” and Oberlin’s “How to Win a Beauty Pageant” are prominent. These are easy-to-pass courses for the stupids, many of whom borrowed government money to enroll in these classes.

Several summers ago, an exasperated college president complained to me: “We have become Towers of Babel in politically correct educational bureaucracies.” He said he could reduce his budget by 30 percent if he had the power to “redirect plant expansion, control admissions, limit course offerings, assign teaching duties and eliminate surging grade inflation.” His college has 23 students per teacher, but if all university employees were included (maintenance, police, administration, legal, human resources, student finance, housing, health care, ad nauseam) the student/employee ratio would be 1.7 students for each employee.

As for your first question, it’s called barbell investing, not “dumbbell investing;” it doesn’t require brains and has better than average merit. I know dozens of folks who swear by this strategy. Here’s how it works: If investing $100,000, use $50,000 to purchase 10 of last year’s worst performing S&P 500 stocks and $50,000 to buy 10 of last year’s best performing S&P 500 stocks. It’s called barbell investing because there’s equal weight on both sides. It bets that the winning sectors will consolidate their gains via a bandwagon effect and that the battered stocks will recover most of their losses. An analysis over the last 25 years of data shows that barbell investing beats the overall performance of the S&P 500 Index 68 percent of the time. However, this strategy failed to beat the market in 1997 and 2008, and those were two years when we had a serious stock market crash.

I like your broker because he’s given you good, solid advice. However, no strategy is foolproof and sometimes these strategies don’t work, especially when you want them to. So it makes good sense to limit this strategy to about 30 percent of your portfolio.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.


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