Barack Obama has proposed confiscating the profits from one of the few recent positive areas of my diversified retirement portfolio.
Unlike Obama's government pensions, my retirement will not be paid with money confiscated from taxpayers under the threat of imprisonment. I have to fund it myself and choose investments to weather downturns in the broader market as we have seen this year.
Democratic presidential candidate Barack Obama called Friday for a windfall profits tax to fund $1,000 emergency rebate checks for consumers besieged by high energy costs, a counter to Republican rival John McCain's call for more offshore drilling in coastal states like Florida.
The pitch for putting some of the economic burden of $4-per-gallon gasoline on the oil industry served a dual purpose for Obama: It allowed him to talk up an economic issue, seen by many as a strength for Democrats and a weakness for Republicans, and at the same time respond to criticism from McCain that Obama's opposition to offshore drilling leads to higher prices at the pump.
In a period of obscene gasoline prices, it is not coincidental that the one area of my portfolio that is showing positively obscene returns is oil production and exploration. If Obama seizes my profits, my portfolio will see an even bigger loss for the year.
Frankly, what Obama is proposing to do is to break one of the tenants of Modern Portfolio Theory. That returns can be maximized and other benefits obtained through diversification, "chief among them, a reduction in the riskiness of the portfolio. MPT quantifies the benefits of diversification, also known as not putting all of your eggs in one basket."
Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rains or shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio.Obama is proposing to smash the one basket of eggs I own that is still intact.
In other words, Markowitz showed that investment is not just about picking stocks, but about choosing the right combination of stocks among which to distribute one's nest eggs.
All things considered, Obama's position is not too far from this.
We demand a division of profits of all heavy industries.Do not elect this Socialist.