What is happening at West Virginia University?

mdmakowskyLeave a comment

West Virginia University is proposing a radical restructuring of their university. Did I say restructuring? I meant slashing and buring whole departments:

“Major cuts in faculty, academic programs could hit West Virginia University as financial concerns loom” by Maddie Aiken, Pittsburgh Gazette

Is this fiscally driven? Politically motivated? An attack on education? Some sorta boondoggle? Hard to say with any degree of confidence from all the way down here in Clemson, but that won’t stop me from speculating to my heart’s content. With these sorts of proposals on the table, there has arrived no shortage of proposed explanations and blame. All that said, I am quite confident that the final outcome will result in a different university that more than a few other universities will eventually resemble as well (NB: not mine, to be clear. For all of it’s standard pecadilloes, Clemson appears to be pretty good shape. That said, if the fates hand us a couple losing football seasons alongside a QAnon woke-truther voting block winning a set of seats in the state legislature, well, anything becomes possible).

So why is this happening?

A handful of reasonable explanations, in semi-random order

  1. The University president is a corrupt and incompetent boob

Feasibility: 4/5 Explanatory power: 2/5

Whoo-buddy. This guy appears to be the kind of known commodity that only a completely checked-out board of trustees would ever put in charge of a university. To wit, while plowing through millions he got caught spending $64k (not a typo) on his “signature” bow ties at his job prior to WVU. He has since burned millions at WVU on all the stuff that corrupt managers spend money on when they can’t put the money directly in their own pockets. Click on the whole thread below, it’s pretty jarring. That said, while this is likely all true, I’m not sure he’s burned enough money to wholly explain cuts this deep and a $45m budget shortfall.

2. West Virginia has turned its back on higher education broadly, the humanities specifically.

Feasibility: 2/5 Explanatory power: 1/5

Now, before you get ahead of me, I am not saying that the current political climate, obsessions with “woke” professors, and the broad anti-science/scholarship platform of a chunk of the US conservative movement isn’t making this an easier sell to the state legislature. What I am saying is that the $45m budget shortfall is real and graduate programs are often sneaky expensive. Masters programs are generally expected to be revenue positive for a department, and for many schools were often quite lucrative (at least, they were before the demand from foreign students was cut off). If a MA/MS/MFA program is getting cut during a budget crisis, you can be extra sure that program is losing money. Put another way, the university can’t afford to cut any profitable program right now, no matter how much its political gestalt might annoy certain power players. Placed in this context, I am surprised to see the Public Administration department on the chopping block. Those are often fairly popular and profitable masters programs. To be fair, I was originially the most surprised to see the MFA in Creative Writing program was being eliminated. It has a good reputation, such programs are usually relatively low cost to operate, and often can bring in a lot tuition money from students looking for a “consumption” degree. Then I saw that 100% of their MFA students received a full tuition waiver and $16,500 stipend. For that to work when your university is underwater you need those MFA students to teach a lot of undergraduate composition courses, and even then that leaves you with an English Department faculty hardpressed to justify their own numbers.

3. A $45 million shortfall meant WVU couldn’t put off the future another year

Feasibility: 5/5 Explanatory power: 3/5

This is the converstion we’re all actually having, regardless of the various competing framings. There are departments struggling on every campus. Humanities majors in decline, STEM majors in ascendance. For every Arts & Sciences faculty meeting that turned into a “why are their salaries higher than ours/because there is greater demand for our services outside of academia” food fight, there is now an actual existential question on the table, which means this just got real.

Real-er than you might think. Covid exposed the Return-On-Investment fragility of a lot of high priced private colleges, but <raised-eyebrows sotto voce> made your in-state public university look pret-ty good by comparison. Inflation? Inflation is often a boon to universities looking to cut costs because it offers the prospect of a meaningful haircut to the salaries of every member of your tenured faculty, but only if the state legislature plays along and lets you raise tuition in accordance with inflation. The fact that the flagship public university of a state is staring this down at exactly the moment when things are set up for state schools to succeed is perhaps the darkest harbinger of them all.

4. Maybe this is just a West Virginia problem

Feasibility: 5/5 Explanatory power: 4/5

West Virginia’s population shrank 3.2% from 2010 to 2020. The university’s enrollment has shrunk 10% since 2005. It’s hard enough to shrink any public institution’s workforce, let alone one with a tenure system for a sizable portion of it’s employees. Maybe none of this is that complicated. Shrinking populations are hard for government institutions to manage. Politically costly decisions get put off until the lights might actually go out. Choices do eventually get made, however, and when they do, they tend to be drastic.

5. All of the above

Feasibility: 5/5 Explanatory power: 5/5

That’s the best part of this gimmick. It implies I’ve explained the entire West Virginia University dilemma without ever actually committing my reputation to a single excerptable sentence. Come to think of it, I should use this format more often.

Maia on the Barbie movie

Joy Buchanan1 Comment

Where is my 600 words on the Barbie movie? I’m trying to get ready for the Fall semester, which includes two classes that I have never taught before. In the university slang, that would be “two new preps.” There is someone out there living my dream of dropping hot current cultural takes on schedule. I’m going to direct you over to Maia Mindel. Along with Adam Minter, she is someone I would love to meet.

Maia wrote this killer tweet:

The following are links to Maia’s posts:

The Economics of the Barbie Movie: She’s everything. He’s just Ken. (Maia has earned today’s post a parenting tag because she brings in the economics of motherhood.)

Life In Plastic Ain’t So Fantastic: The girlypop economics of Barbie “… she’s always been about being a young professional, living on her own, and hanging out with her friends and boyfriend (not husband) Ken”

Maia even did something relevant leading up to the release of the movie: House of the Mouse: Disney Princesses have only been an official thing for 18 years. Why?

For more economics of Barbie, Jeremy wrote “Barbie Dolls and Women’s Wages“. “… the gains for women in the labor market since the introduction of Barbie are large and worth celebrating.”

For more on film, I did list some thoughts and links for Oppenheimer.

Here is the Box Office Mojo report on 2023 American theater sales, as of August 2023. In less than a month, Barbie reached #2! And Oppenheimer is doing well for a serious historical movie.

5 Game Theory Course Changes

Zachary Bartsch1 Comment

I want to share some changes that I’ll make to my game theory course, just for the record. It’s an intense course for students. They complete homeworks, midterm exams, they present scholarly articles to the class, and they write and present a term paper that includes many parts. Students have the potential to learn a huge amount, including those more intangible communication skills for which firms pine.

There is a great deal of freedom in the course. Students model circumstances that they choose for the homeworks, and they write the paper on a topic that they choose. The 2nd half of the course is mathematically intensive. When I’ve got a great batch of students, they achieve amazing things. They build models, they ask questions, they work together. BUT, when the students are academically below average, the course much less fun (for them and me). We spend way more time on math and way less time on the theory and why the math works or on the applicable circumstances. All of that time spent and they still can’t perform on the mathematical assignments. To boot, their analytical production suffers because of all that low marginal product time invested in math. It’s a frustrating experience for them, for me, and for the students who are capable of more.

This year, I’m making a few changes that I want to share.

  1. Minimal Understanding Quizzes: All students must complete a weekly quiz for no credit and earn beyond a threshold score in order to proceed to the homework and exams. I’m hoping to stop the coasters from getting ‘too far’ in the course without getting the basics down well enough. The quizzes must strike the balance of being hard enough that students must know the content, and easy enough that they don’t resent the requirement.
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Comprehensive Cancer Centers: Expensive But Fast

James BaileyLeave a comment

An article I coauthored, “Comparing hospital costs and length of stay for cancer patients in New York State Comprehensive Cancer Centers versus nondesignated academic centers and community hospitals“, was just published in Health Services Research. We find that:

Inpatient costs were 27% higher (95% CI 0.252, 0.285), but length of stay was 12% shorter (95% CI −0.131, −0.100), in Comprehensive Cancer Centers relative to community hospitals.

In other words, these cutting-edge hospitals that tend to treat complex cases are more expensive, as you would expect; but despite getting tough cases they actually manage a shorter average length of stay. We can’t nail down the mechanism for this but our guess is that they simply provide higher-quality care and make fewer errors, which lets people get well faster.

What are Comprehensive Cancer Centers? Here’s what the National Cancer Institute says:

The NCI Cancer Centers Program was created as part of the National Cancer Act of 1971 and is one of the anchors of the nation’s cancer research effort. Through this program, NCI recognizes centers around the country that meet rigorous standards for transdisciplinary, state-of-the-art research focused on developing new and better approaches to preventing, diagnosing, and treating cancer.

Our paper focuses on New York state because of their excellent data, the New York State Statewide Planning and Research Cooperative System Hospital Inpatient Discharges dataset, which lets us track essentially all hospital patients in the state:

We use data on patient demographics, total treatment costs, and lengths of stay for patients discharged from New York hospitals with cancer-related diagnoses between 2017 and 2019.

You know I’m all about sharing data; you can find our data and code for the paper on my OSF page here.

My coauthor on this paper is Ryan Fodero, who wrote the initial draft of this paper in my Economics Senior Capstone class last Fall. He is deservedly first author- he had the idea, found the data, and wrote the first draft; I just offered comments, cleaned things up for publication, and dealt with the journal. I’ve published with undergraduates several times before but this is the first time I’ve seen one of my undergrads hit anything close to a top field journal. You can find a profile of Ryan here; I suspect it won’t be the last you hear of him.

Barbie Dolls and Women’s Wages

Jeremy Horpedahl5 Comments

I was reading “The Ultimate Guide to Barbie” the other day, and I noticed an interesting piece of data towards the end of the magazine: the original Barbie doll in 1959 retailed for $3. Today, according to the magazine, a Barbie costs around $14-19. And they further told us that adjusted for inflation, that $3 original Barbie is about $24 today.

I’m not sure exactly where they got that number. Using the BLS CPI tool, it’s more like $31.50. And while I appreciate the attempt to give us historical context, I think for the typical reader will still be a bit perplexed. What does it mean to say $3 in 1959 is equal to $24 (or $31.50) today? Well, it means that the price of Barbie dolls has risen more slowly than other goods and services (quality adjusted). But I think we can do better on the context.

Here’s my best attempt to give context:

The chart shows the number of minutes of work that the median woman would need to work to purchase a Barbie doll for her daughter. In 1959, it took almost 2 hours of work. Today, it takes only about a half hour (I’m using the lower range from the magazine, $14 for a Barbie today, although there are plenty of $10-11 Barbies on Amazon).

Another way of thinking about it: with the same amount of work, a working mother today could buy her daughter 3-4 times as many Barbies as her counterpart in 1959.

I deliberately used median female wages here to make another historical comparison. Women’s earnings have increased much more than men’s since 1959. Back then, median female earnings for full-time, year round workers was only 61% of male earnings. Today, it is close to 85%. True, that’s still not parity. And for those that know the history, you will also know that the closing of that gap has stagnated in recent years. But this is still some major progress during the Barbie Era.

Finally, as I have emphasized before, looking too much at the cost of one product over time has limits. What about other goods and services? A toy, even a well-known brand like Barbie, is a tradable good that can be manufactured anywhere in the world (it looks like Indonesia is where many Barbies are made today). So it wouldn’t be surprising that it has got cheaper over time. But what about all goods and services?

Here’s where inflation adjustments are most useful. Not for individual goods and services, but for looking at incomes over time. How much stuff can a given income purchase compared to the past? That’s what inflation adjustments are for. And this chart shows male and female median earnings in 1959 and 2023, with the 1959 figures adjusted to 2023 dollars using the PCE price index.

When we adjust for changes in all prices, not just Barbies, we can see that median female earnings have roughly doubled between 1959 and 2023. That’s not quite as robust as the “Barbie standard of living,” which allows you to purchase 3-4 times as many dolls. But 2 times as much stuff is pretty good. It’s especially good when compared with male earnings growth, which grew about 44 percent.

It should be obvious here that these are just the raw medians, not controlling for anything like education, experience, or occupational choice. Controlling for those will shrink the gap a bit more. But the gains for women in the labor market since the introduction of Barbie are large and worth celebrating.

Perma-Bear Jeffrey Snider: The Job Market Is Rolling Over, the Slide Into Recession Is Inevitable  

Scott Buchanan1 Comment

A stopped clock is occasionally right. And so are perma-bears, those commentators or analysts who continually predict that GDP and stocks will plunge – perhaps in the next quarter, but more often say six months from now. (And that deadline keeps getting pushed back every six months).

When I was first getting started investing, I was overly influenced by these seemingly cautious and sober souls, and I consequently lost out considerably compared to my colleagues who blithely stayed fully invested. So I hold my native pessimism in check when investing, and stay mainly in the market, but with a little cash in reserve just in case The Big One hits.

All that said, I do try to sample various points of view. If I have been mainly seeing positive chatter, I turn to my favorite perma-bear, an analyst named Jeffrey Snider. His YouTube channel is called Eurodollar University, and he runs a subscription service as well.

Jeff seems like a genuinely nice guy, who believes that his dire readings of the macroeconomic tea leaves are helping folks avoid disaster. His demeanor is more like an earnest teacher, not a huckster trying to sell something. I should add that he offers meaningful insights on the Eurodollar scene, which is globally significant and which most analysts do not understand or even recognize.

But Jeff’s bias is nearly always toward the negative, and it is something of a good-natured joke among his viewers. Typical comments: “ The market can remain irrational longer than Jeff can stay pessimistic” and “Jeff is the best on Youtube. I watch his videos every night right before I go to bed. In less than 5 minutes, I’m in a semi-conscious coma. Its better than any sleeping pill. That smooth soothing voice extoling the virtues of a collapsing economy works wonders. A++”.

Well, what is the bear-meister saying now? He claims that the seemingly red-hot employment numbers that have been reported in recent months are less hot than they appear. I will paste in a few snips from his recent YouTube, It Just Happened…The JOB MARKET JUST BROKE!! .

One point he makes is that there has been a persistent, inaccurate bias to the upside in the payroll numbers reported by the BLS. These big numbers are what gets reported; what does not get reported so much is, month after month, these monster payroll increases are quietly revised downwards, often by substantial amounts:

Even with the adjustments, these still seem like large increases in employment. Undaunted, Jeff pokes holes in the hot labor market scenario by claiming that full time employment is actually stagnant; it is the rise in part-time workers that creates the seemingly large army of the newly employed. The fact that total hours worked has plateaued seems to support his case here:

Another factor is worker hoarding. Employers were so burned trying to scramble for workers during the 2022 reopening-from-Covid that they are keeping their workers on payroll (even part-time), just in case the economy picks up and they need to pull them in full-time. A case in point is manufacturing. New orders are down considerably this year, and headed even lower, yet manufacturers have not cut their workforces appreciably:

If orders stay low for a long enough time, however, the manufacturers will have no choice but to start massive layoffs.

As another indicator of labor market softness, temporary workers may be a leading indicator of employment trends. They are not such a core part of a company, so there is less hoarding of them. And temporary help services have been in a steady decline this year, which is consistent with a cooler economy:

Sell Everything??

As I said, it is worth considering all sides. I think the specific points mentioned above are all valid ones. I would add that if students actually start payments on all those loans which taxpayers and the Fed have subsidized for the past three years, that will finally put a crimp in the spending. Also, the surprise downgrade of U.S. federal debt by the Fitch rating agency , and resulting jump in interest rates, has finally gotten people talking about out-of-control government spending, for one week anyway.   Also, the great China-reopening that was supposed to jump-start the global economy seems to be pretty flat.

However, a couple of counter-points to the bearish narrative:

First, even if manufacturing is rolling over, in the U.S.  it is fairly small relative to services. At least in some geographical areas, my anecdotal reports say that it is still a challenge to get good workers to do services.

Second, the tidal wave of cash from pandemic giveaways that washed into our collective bank accounts is still not depleted. Consumer confidence is high, and we are spending freely. This economy is a big, big ship, and it is still steaming full ahead, brushing aside high interest rates and yield curve inversions. The  recession seems to continually recede. There will inevitably be a downturn someday, of course, but absent some geopolitical event, I think it may take some time for it to arrive.

And finally, even if the long-awaited recession does arrive, it may not necessarily be so bad for stocks. Since the 2008-2009 Great Financial Crisis, the Fed has taken a very active role in supporting the markets. Wall Street has been conditioned to expect the Fed to flood the system with money if a serious downturn occurs. Also, the Street is betting that there will be enough howls of pain over the high interest being paid on the federal debt that unbearable pressure will be brought on the Fed to loosen up; the vaunted independence of that institution will be put to the test, with Congressional threats to alter their charter if they don’t cave to pressure. And so, “[economic] bad news is [investing] good news”, in contrast to the pre-2008 world. Furthermore, federal deficit spending ramps up during recessions, and as noted in The Kalecki Profit Equation: Why Government Deficit Spending (Typically) MUST Boost Corporate Earnings , this deficit spending tends to boost earnings.

And so even if Jeff Snider is correct that the economy is rolling over and will soon slide downward, this may not give investors a very useful signal. As another one of his YouTube viewers has commented, “This channel is a masterclass in learning that knowledge about the macro environment does not provide an edge in markets.” 

There’s never been a better time to teach yourself something

mdmakowskyLeave a comment

There are things that you can, on some level, know are true but not fully internalize until you re-experience that truth multiple times. We all know that there is a seemingly unending supply of free and paid educational instruction available on the internet, from the broadest mathematical pedagogy to instructions for replacing a single grommet on a specific appliance make and model. We are awash in content, much of it explicitly designed to aid in our self-guided educational journeys. You and I already know this, but every few years I feel like I re-live a moment of awe at what is costlessly or near-costlessly made available to anyone with an internet connection.

As you probably know, I am an economist and a sports junkie. In both my professional and sports endeavors, I tend to dabble in scattered interests until I get narrowly obsessed with something. Sometimes this takes the form of a 5 year research project, other times it means I become a hockey goalie for 15 years. For both hockey and most of the technical aspects of my economic research, I am almost exclusively “self-taught”, though I’m not sure that is all that unusual anymore. Woe be unto the applied economist who thinks an afternoon’s cap-and-gown affair means they are done struggling to learn new econometrics.

The corridor of athletic activity available to me has narrowed with injury and age, so like many before me I have turned to golf. At first reluctantly, I’ll admit, but now I am fully on board. I’ve constrained my financial investment, using (until very recently) entirely used equipment, found balls, and opting for less expensive courses. As I’ve progressed, what has once again shocked me is not just how easy it is to acquire instruction, but the incredible nuance and narrowness of that instruction. If something isn’t working for me, I can simply describe the problem I am experiencing into google and a dozen videos diagnosing and remedying the problem will instantly appear. If I want to understand the biomechanics or even physics behind my swing to build intuition, I can watch 100s of hours of videos. If I want advice geared towards players with similar personal characteristics, habits, or preferences, it all appears before me. It is not without exaggeration to suggest that I am receiving better instruction as a 46-year old amateur with one good knee than all but the absolutely most privleged in the world would have received 30 years ago.

This is all the more important when placed in the context of the rising cost of personal instruction. The price of passive instruction may be rapidly approaching zero, but that doesn’t insulate active instruction from Baumol’s cost disease. The cost of having someone’s time all to your self has never been higher, which means if you want your instruction curated, the regulatory device of interpersonal obligation and sunk costs, or simply an upscale babysitter that lets you feel like a good parent while you scroll your phone for an hour, you’re going to pay more than ever.

The only downside to being able to costlessly access our near-infinite Library of Alexandria, if there must be one, is the guilt I feel as I steadily improve. Every increment of improvement is evidence that I chose to get better at golf instead every other dimension of my professional and private self. The double-edged sword of opportunity cost haunts me, reminding me that everything I learn comes at the expense of what I chose not to learn. I could have learned about the China Trade Shock, the latest reason why every identification strategy ever employed in an economics paper is wrong, Mandarin, or how to cook rissotto for my wife.

But I chose golf. There’s probably insight into myself to be be had there, but some lessons are best left unlearned.

Secondhand for AdamSmithWorks

Joy Buchanan1 Comment

Last month, I blogged about the book Secondhand. This week, I wrote a piece about it for AdamSmithWorks: THE INVISIBLE THREADS: ADAM SMITH AND THE GLOBAL SECOND-HAND CLOTHING TRADE

The author of Secondhand, Adam Minter, simultaneously appreciates the value created by large “impersonal” markets and also paints colorful pictures of the individual people involved. He has respect for individuals in the system who, using local knowledge, extract all the value out of what rich people consider to be trash. Minter sits in the seat of Adam Smith.

But it is not the popular movement, but the travelling of the minds of men who sit in the seat of Adam Smith that is really serious and worthy of attention.

Lord Acton, Letter of Lord Acton to Mary Gladstone

Another piece about clothes from AdamSmithWorks is: “WHO ARE YOU WEARING?” FASHION PRODUCTION IN THE AGE OF ADAM SMITH. This article does “the pin factory” for clothes. The global supply chain is incredible, just looking at manufacturing alone. Minter takes it further by following goods all the way from their first consumer to their very last user.

There is some good news about how the world is getting better as the average person gets richer, but trash does also cause problems as we consume more stuff. Does Minter write about the environmental concerns of the “fast fashion” camp? He has a different idea than what others have proposed like taxing by volume or banning some commercial activity. In terms of practical advice, Minter advocates for labeling consumer goods by how long they are expected to last. It’s tragic when someone spends $20 on a good that will wear out after 1 year when they should have spent $30 on a good that will last 10 years. There are some “dollar bills on the ground” here because consumers don’t accurately assessing quality at the time of purchasing. The power of brands to signal quality helps with this problem, but if you don’t want washing machines piling up in landfills then you might want stores to put a greater emphasis on durability at the point of sale. We do something like that with nutrition labels, so it is possible.

5 Easy Steps to Improve Your Course Evals.

Zachary Bartsch2 Comments

Incentives matter. I’ve taught at both public and private universities, and students have given me both great course evaluations and less great student evaluations. The private university cared a lot more about them. Obviously, some parts of student evaluations of their instructors are beyond the instructor’s control. The instructor can’t control inalienables and may not be able to change their charisma. But what about the things that instructors can control? Regardless of your current evals, here are 5 policies that are guaranteed to improve your course evaluations.

1: Very Clear Expectations/Schedule

Have all deadlines determined by the time that the semester starts. Students are busy people and they appreciate the ability to optimally plan their time. Relatedly, students desire respect from their instructor. Having clear rubrics and deadlines helps students know your expectations and how to meet them – or at least understand how they failed to meet them. Students want to feel like they were told the rules of the game ahead of time. This means no arbitrary deductions or deadlines. The syllabus is a contract if you treat it like one.

2: Mid-Semester Evaluations

One of the absolute best ways to improve your evaluation is to ask your evaluators for a performance update. Make a copy of your end-of-semester course evaluation and issue it about halfway through the semester. Then, summarize the feedback and review it with your class. This achieves three goals. (1) It is an opportunity to clarify policy if there are misplaced complaints. You may also wish to explain why policy is what it is. Knowing a good reason makes students more amenable to policies that they otherwise don’t prefer.  (2) It provides voice to students who have things to say. Often, students want to be heard and acknowledged. It’s better that a student vents during the informal mid-semester survey than on the important one at the conclusion of the course. (3) If there are widespread issues with your course, then make changes. If you’re on the fence about something, then take a poll. And if you decide to make changes, then be graciously upfront about it. Unexplained or covert changes violate policy #1.

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Knowing When To Sell: Portfolio Review

James Bailey2 Comments

90 plus per cent of people, they spend all their time on the buy decision and then they figure it out as they go along on when to sell and we say that’s crazy. You need to establish sell criteria, even if it’s just rebalance, even if it’s a trailing stop, whatever it may be on all your public market positions, because otherwise it gets emotional and that creates huge problems.

Meb Faber

Last week I explained why I buy individual stocks. This week I’ll share how I think about when to sell individual stocks, as I go through my portfolio and decide what to hold and what to sell. This is the first time I’m doing this exercise, though I should have done it long ago; until now I’ve unfortunately been on the wrong side of the above Meb Faber quote.

I actually think that most people are correct not to put much thought into what to sell, because I still agree with Buffett and most economists that most people should just buy and hold diversified index funds. Thinking about selling too much might lead people to sell everything whenever they get worried, sit in cash, and miss out on years of gains. But the important truth in Faber’s point is that if you are buying stocks or active funds for any reason other than “its a great company/idea that I’d like to hold indefinitely”, it makes sense to put as much thought into when/whether to sell as when/whether to buy.

People buy stocks all the time based on short-term arguments like “this banking crisis is overblown”, or “I think the Fed is about to cut rates”, or “this IPO is going to pop”, or “I think the company will beat earnings expectations this quarter”. These might be good or bad arguments to buy but they are all arguments about why it makes sense to hold a certain stock for weeks or months, not for years or indefinitely.

But people often buy a stock for short-term reasons like these, then hold on to it long term- either out of inertia, or because they grow attached to it, or because it lost money and they want to hold until it “makes it back” (sunk cost fallacy). None of these reasons really make sense; they might work out because buying and holding often does, but at that point you might as well be in index funds. If you’re going to be actively trading based on ideas, it makes sense to sell once you know whether your idea worked or not (e.g., did the company you thought would beat earnings actually do it) to free up capital for the next idea (unless you genuinely have a good new idea about the same stock, or you think it makes sense to hold onto it a full year to hit long-term capital gains tax). Its also always fair to fight status quo bias and ask “would I buy this today if I didn’t already own it?” (especially if its in a non-taxable account).

Maybe this is obvious to you all, and writing it out it sounds obvious to me, but until now I haven’t actually done this. For instance, I bought Coinbase stock at their IPO because I thought it would trade up given the then-ongoing crypto / meme stock mania. I was correct in that the $250 IPO started trading over $300 immediately; but then I just held on for years while it fell, fell, fell to below $100. The key difference I’m trying to get at here is the one between ideas and execution: its not that I thought Coinbase had such good fundamentals that it was a good long term buy at $250 and my idea was wrong; instead I had a correct short-term idea of what would happen after the IPO, but incorrectly executed it as if it were a long-term idea (mostly through inertia, not paying attention, and not putting in an immediate limit sell order at a target price after buying).

So if you buy stocks for short- or medium-term reasons, it makes sense to periodically think about which to sell. I’ll show how I I think about this by going through some examples from my own current portfolio below (after the jump because I think the general point above is much more important that my thinking on any specific stock, which by the way is definitely not investment advice):

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