One thing i've been shocked by over the years is how often even well educated, highly intelligent individuals have a very poor education in personal finance and make terrible decisions. Theres just so much noise out there and its still crazy how much of the investment management industry exists despite showing negative value. If I had to sum up personal finance advice for the average person in a few bullets it would be this.
1. Invest in a well diversified portfolio that pays very low fees (vanguard funds for instance)
2. Do not try to time the market
3. Save as much as you can as early as you can - maximize your 401k/ROTH contributions
4. Never carry a balance on your credit card from month to month
It's worth noting that there is a not insignificant number of people who are poor because they make (financially) poor decisions. I say this completely not in a way that's judgmental or dismissive of the issues poorer people have (in the US in particular). There are a number of reasons for this. Decision fatigue [1] is one of them.
So when you have anything from a moderate amount of wealth, you probably know that time, patience and a little financial discipline is all that's required to preserve and even grow that wealth.
Have you ever noticed that it's mostly poor people who buy lottery tickets [2]? Likewise it's the poor who disproportionately fall for "get rich quick" schemes. Some of this you can attribute to bad judgment but also desperation plays a part. I mean, if you have $1000, what does a 10% return net you? $100? Who cares? But what if it could turn into $100,000? Now that'd be something! I suspect this plays into the gullibility of many when it comes to scams.
So in the Steadman case I imagine there was some of that but I also suspect many (or even most) investors were just trying to invest in their future without the promise of 1000x returns and just got duped.
Don't discount the "get rich quick" mentality though. I've seen this first hand. My father and uncle spent their entire lives trying to get rich quick.
It is sad on many levels, but it is also understandable. I've met people who consider their maxed out 401K savings as "meeting their savings goal" and so they spend excess income of frivolous things. Hardest thing in the world to explain to someone looking at an unexpected end of the year bonus of $50K that even though they saved the 'maximum' of the about $25K in their 401k they should also put at least half of that $50K into savings as well. Unless you have 10x your annual salary in a savings account you really can't say you have 'saved enough'. Even then there are so many things that can and do hit you in life that aren't part of the plan. Your house burns to the ground, your kid develops cancer, your wife decides she likes someone other than you better, Etc. It goes on and on.
My grandmother was a daughter of the depression and was really paranoid about future losses (when she passed we found vegetables and fruits she had canned 'just in case' in the cellar that were decades old!) But she also had an expression I liked. I would ask her what she was saving for and she would say "I don't know but I'm sure God will tell me what it is when the time is right."
> 1. Invest in a well diversified portfolio that pays very low fees (vanguard funds for instance) 2. Do not try to time the market 3. Save as much as you can as early as you can - maximize your 401k/ROTH contributions 4. Never carry a balance on your credit card from month to month
I have to strongly second all of these; the issue becomes, once you've done them, what more can you do? You get to a certain age and realize you have most of your career behind you, or you'd like to have most of your career behind you so you can retire early - how do you get there? It's a problem that cuts across different aspects in life: what to eat, how to exercise, etc. Min/maxing, munchkining applied to real life. Is it any surprise that software engineers looking to squeeze the last possible cycle or byte out of their software do these sorts of things? But much like software, premature optimization is the root of all evil . . .
Finance isn't rigorous or fundamental in the way that somethings like math, physics, chemistry, etc are. In that way, it's a lot less interesting to many highly intelligent people, because it is after all, just bullshit which happens to be capable of making you rich in a narrow point in time. In another time and place, there would be nothing valuable or true about most of economics, finance, and the like. Meanwhile the hyperfine transitions of Hydrogen are, and will always be what they are, and be just as useful and fundamental in a thousand years (hopefully).
So, unless the highly intelligent, well educated person has a particular interest in finance, it's probably going to appear to be the crooked, black magic shitstorm it really is.
There are problems with trackers and closet trackers I sthat you have to by the dog's
Some of my actively managed funds managed to avoid a lot of the loss on bank shares - a tracker would have had to keep holding risky bank stocks or say enron and take the loss
Disclosure: I'm probably exposed to every stock in this comment.
Eh. If you're smart and in technology you can beat index funds pretty easily. I'm not even counting Bitcoin. I time the market too.
Your advice works for the median person, but if you're in the intellectual 1% or 0.1% beating the market is pretty easy.
1. You should have a really good reason for buying a high P/E or negative EPS stock. It should be grounded in unit economics and entrenchment, not marketing. Tesla is a good example, I knew it was just a matter of unit economics. The technology was solid. Made over 10x sans options. Apple is another good example: They had a low P/E and I thought they were well situated to make money from services if they could just figure out how to design better software. They did it.
Put two and two together and put everything in cash. Sure I missed out on two years of growth, but after the recession hit I bought back at half. Bought back in when things had stabalized and recently sold 85% of the portfolio because fundamentals look wacky. It might take a month it might take two years, but another recession is coming.
3. Research the damn thing. If you don't understand it well enough don't buy it. You're not losing money by failing to buy the next hot thing. I read the entire Bitcoin paper before buying to make sure it could handle different stresses. My only regret was not leaning harder into it when I bought it at $4 CAD / BTC. I was too sheepish about "internet monopoly money" even though I knew it could hit $10k or $50k a coin if it took off.
4. Don't necessarily max out your 401k / RRSP. Tax rates are going way, way, way up once the baby boomers hit the social safety net. If you aren't at the top marginal rate you're using up tax deferment that will be better once you are. Plus having money outside of these vehicles makes investing in your friends startup easier. The only exception is if you're buying a house and you can loan yourself money from it (since it's like buying the house tax free).
5. Bubbles can go on for way longer than you think. Just be fucking patient. Do I wish I mortgaged a house in Toronto in 2009? Sure. But the stock market has gone up too and housing at these levels is unsustainable. At the very least housing price growth will subside.
1. Market the heck out of your fund to get it real big.
2. Run it straight for a few years, but then really hammer the fund with crazy bad expenses (and possible self dealing -- but keep it legal) Do so poorly that any account with a pulse will withdraw all their funds.
3. What's left over is free money for you draw down as 'expenses' for as long as it lasts.
That's a remarkably accurate description of events. It's the "Springtime for Hitler" of funds. Because the fund is so bad there is no one left to hold you to account. The incredible thing is that they could have kept it going indefinitely if they hadn't been so greedy. Just stick all the money in a basket of stocks to replicate an index fund, set annual "expenses" at right around replacement rate (3-4%), and go live in St. Barts.
> The rate of loss only accelerated, and the recession of 2008 dealt this frail fund a killing blow.
Recessions aren't all bad. They have a cleaning effect, sweeping up the cruft and inefficient operations, while exposing the outright frauds in the process.
It's amazing the fund lasted as long as they did...
Interesting read regardless, too bad it wasn't longer as the usual articles typically are on this site.
>Recessions aren't all bad. They have a cleaning effect, sweeping up the cruft and inefficient operations, while exposing the outright frauds in the process.
Feels a bit too generous. Like saying a fire that destroyed your house was beneficial because it dealt with all those pesky fire hazards you hadn't been aware of/addressed yet.
The best you can say is that at least it prevented anyone else from moving in unawares and dying in the fire. But it's still a total loss for anyone who already lived there.
I have been reading A Random Walk Down Wall Street.
The premise seems to be that these actively managed funds, on average, don’t do any better than the market index. So just put your money in an index fund and avoid all the fees from the so called experts.
It's a good book and one of my favorites, but I prefer "The Four Pillars of Investing" by William Bernstein. [1]
Even the recommendations there are more complicated than I prefer. Vanguard has some wrapper funds (Life Strategy, Target Retirement) you can pick from that mean even more simplicity and less room for error. Tax efficiency is the only reason I would get more involved.
Very interesting article. One tangent note: The author appears to have committed a felony by opening someone else's mail. Even if they're dead. A random quirk of the law.
It is 100% legal to open any first class or lower mail with your street address on it that the USPS puts in your mail box.
Source: asked my attorney because for the past three years running we've received the previous owner's W2 in the mail. First year I called the company and sent it back. We just shred it all now.
Technically. 18 U.S.C. § 1701 Says if you accidentally open it it's not a crime, but then not notifying the post office and returning it to them is when it becomes a crime. By a) opening the letter (apparently deliberately as he doesn't say accidentally) and then b) NOT returning it to the postal service, the author has committed a crime.
I'll admit I only skimmed TFA but it doesn't look like we have enough information to conclude that.
It's illegal to steal mail from a box that's not yours, or from the post office, or a mail carrier.
It's entirely possible to accidentally open someone else's mail - many of us just open whatever's in the box, especially homeowners. That's not illegal, it was in your box and it was unintentional and done without malice.
What's illegal is if you then intentionally prevent that mail from being delivered, IE, throw it away. So if you scrawl "return to sender" on it and put it back in the box then you're perfectly legal. There's no indication that the author didn't do that. Edit: that's what I get for skimming, they didn't do that, but are trying to track down the heirs.
Furthermore, you are certainly allowed to open the mail of the deceased if you are the next of kin. In fact, you can put in a request to get their mail forwarded to you with the post office.
There's other cases where it's entirely legal to open someone else's mail, such as mail addressed to your minor child.
Is there no oversight for mutual funds in the USA one of the reasons why I prefer IT (Investment trusts) where the board acts in the interests of the share holders and not the managers.
> An envelope had landed in our mailbox containing a check in the amount of $10.32 made out to one Anna Mae Heilman.
The whole debacle of solving this mystery could've been avoided by not stealing mail from someone you don't know and instead marking it return to sender.
[+] [-] Mitchhhs|8 years ago|reply
One thing i've been shocked by over the years is how often even well educated, highly intelligent individuals have a very poor education in personal finance and make terrible decisions. Theres just so much noise out there and its still crazy how much of the investment management industry exists despite showing negative value. If I had to sum up personal finance advice for the average person in a few bullets it would be this.
1. Invest in a well diversified portfolio that pays very low fees (vanguard funds for instance) 2. Do not try to time the market 3. Save as much as you can as early as you can - maximize your 401k/ROTH contributions 4. Never carry a balance on your credit card from month to month
And yet so much goes wrong...
[+] [-] cletus|8 years ago|reply
It's worth noting that there is a not insignificant number of people who are poor because they make (financially) poor decisions. I say this completely not in a way that's judgmental or dismissive of the issues poorer people have (in the US in particular). There are a number of reasons for this. Decision fatigue [1] is one of them.
So when you have anything from a moderate amount of wealth, you probably know that time, patience and a little financial discipline is all that's required to preserve and even grow that wealth.
Have you ever noticed that it's mostly poor people who buy lottery tickets [2]? Likewise it's the poor who disproportionately fall for "get rich quick" schemes. Some of this you can attribute to bad judgment but also desperation plays a part. I mean, if you have $1000, what does a 10% return net you? $100? Who cares? But what if it could turn into $100,000? Now that'd be something! I suspect this plays into the gullibility of many when it comes to scams.
So in the Steadman case I imagine there was some of that but I also suspect many (or even most) investors were just trying to invest in their future without the promise of 1000x returns and just got duped.
Don't discount the "get rich quick" mentality though. I've seen this first hand. My father and uncle spent their entire lives trying to get rich quick.
[1] http://www.nytimes.com/2011/08/21/magazine/do-you-suffer-fro...
[2] https://www.theatlantic.com/business/archive/2015/05/lotteri...
[+] [-] ChuckMcM|8 years ago|reply
My grandmother was a daughter of the depression and was really paranoid about future losses (when she passed we found vegetables and fruits she had canned 'just in case' in the cellar that were decades old!) But she also had an expression I liked. I would ask her what she was saving for and she would say "I don't know but I'm sure God will tell me what it is when the time is right."
[+] [-] npsimons|8 years ago|reply
I have to strongly second all of these; the issue becomes, once you've done them, what more can you do? You get to a certain age and realize you have most of your career behind you, or you'd like to have most of your career behind you so you can retire early - how do you get there? It's a problem that cuts across different aspects in life: what to eat, how to exercise, etc. Min/maxing, munchkining applied to real life. Is it any surprise that software engineers looking to squeeze the last possible cycle or byte out of their software do these sorts of things? But much like software, premature optimization is the root of all evil . . .
[+] [-] QAPereo|8 years ago|reply
So, unless the highly intelligent, well educated person has a particular interest in finance, it's probably going to appear to be the crooked, black magic shitstorm it really is.
[+] [-] sillysaurus3|8 years ago|reply
[+] [-] walshemj|8 years ago|reply
Some of my actively managed funds managed to avoid a lot of the loss on bank shares - a tracker would have had to keep holding risky bank stocks or say enron and take the loss
[+] [-] 3pt14159|8 years ago|reply
Eh. If you're smart and in technology you can beat index funds pretty easily. I'm not even counting Bitcoin. I time the market too.
Your advice works for the median person, but if you're in the intellectual 1% or 0.1% beating the market is pretty easy.
1. You should have a really good reason for buying a high P/E or negative EPS stock. It should be grounded in unit economics and entrenchment, not marketing. Tesla is a good example, I knew it was just a matter of unit economics. The technology was solid. Made over 10x sans options. Apple is another good example: They had a low P/E and I thought they were well situated to make money from services if they could just figure out how to design better software. They did it.
2. When the cover of Time magazine is this:
http://img.timeinc.net/time/images/covers/pacific/2005/20050...
And The Economist is this:
https://i.ebayimg.com/images/g/qcYAAOxyGwNTFJSE/s-l300.jpg
Put two and two together and put everything in cash. Sure I missed out on two years of growth, but after the recession hit I bought back at half. Bought back in when things had stabalized and recently sold 85% of the portfolio because fundamentals look wacky. It might take a month it might take two years, but another recession is coming.
3. Research the damn thing. If you don't understand it well enough don't buy it. You're not losing money by failing to buy the next hot thing. I read the entire Bitcoin paper before buying to make sure it could handle different stresses. My only regret was not leaning harder into it when I bought it at $4 CAD / BTC. I was too sheepish about "internet monopoly money" even though I knew it could hit $10k or $50k a coin if it took off.
4. Don't necessarily max out your 401k / RRSP. Tax rates are going way, way, way up once the baby boomers hit the social safety net. If you aren't at the top marginal rate you're using up tax deferment that will be better once you are. Plus having money outside of these vehicles makes investing in your friends startup easier. The only exception is if you're buying a house and you can loan yourself money from it (since it's like buying the house tax free).
5. Bubbles can go on for way longer than you think. Just be fucking patient. Do I wish I mortgaged a house in Toronto in 2009? Sure. But the stock market has gone up too and housing at these levels is unsustainable. At the very least housing price growth will subside.
[+] [-] JackFr|8 years ago|reply
2. Run it straight for a few years, but then really hammer the fund with crazy bad expenses (and possible self dealing -- but keep it legal) Do so poorly that any account with a pulse will withdraw all their funds.
3. What's left over is free money for you draw down as 'expenses' for as long as it lasts.
[+] [-] wnissen|8 years ago|reply
[+] [-] goialoq|8 years ago|reply
[+] [-] dmix|8 years ago|reply
Recessions aren't all bad. They have a cleaning effect, sweeping up the cruft and inefficient operations, while exposing the outright frauds in the process.
It's amazing the fund lasted as long as they did...
Interesting read regardless, too bad it wasn't longer as the usual articles typically are on this site.
[+] [-] brandnewlow|8 years ago|reply
[+] [-] FooHentai|8 years ago|reply
Feels a bit too generous. Like saying a fire that destroyed your house was beneficial because it dealt with all those pesky fire hazards you hadn't been aware of/addressed yet.
The best you can say is that at least it prevented anyone else from moving in unawares and dying in the fire. But it's still a total loss for anyone who already lived there.
[+] [-] madengr|8 years ago|reply
The premise seems to be that these actively managed funds, on average, don’t do any better than the market index. So just put your money in an index fund and avoid all the fees from the so called experts.
[+] [-] arielweisberg|8 years ago|reply
Even the recommendations there are more complicated than I prefer. Vanguard has some wrapper funds (Life Strategy, Target Retirement) you can pick from that mean even more simplicity and less room for error. Tax efficiency is the only reason I would get more involved.
[1] https://www.amazon.com/Four-Pillars-Investing-Building-Portf...
[+] [-] bhhaskin|8 years ago|reply
[+] [-] Simulacra|8 years ago|reply
[+] [-] zrail|8 years ago|reply
Source: asked my attorney because for the past three years running we've received the previous owner's W2 in the mail. First year I called the company and sent it back. We just shred it all now.
[+] [-] Overtonwindow|8 years ago|reply
[+] [-] mikestew|8 years ago|reply
[+] [-] astura|8 years ago|reply
It's illegal to steal mail from a box that's not yours, or from the post office, or a mail carrier.
It's entirely possible to accidentally open someone else's mail - many of us just open whatever's in the box, especially homeowners. That's not illegal, it was in your box and it was unintentional and done without malice.
What's illegal is if you then intentionally prevent that mail from being delivered, IE, throw it away. So if you scrawl "return to sender" on it and put it back in the box then you're perfectly legal. There's no indication that the author didn't do that. Edit: that's what I get for skimming, they didn't do that, but are trying to track down the heirs.
Furthermore, you are certainly allowed to open the mail of the deceased if you are the next of kin. In fact, you can put in a request to get their mail forwarded to you with the post office.
There's other cases where it's entirely legal to open someone else's mail, such as mail addressed to your minor child.
[+] [-] hayksaakian|8 years ago|reply
[+] [-] walshemj|8 years ago|reply
[+] [-] pnutjam|8 years ago|reply
[+] [-] bearbearbear|8 years ago|reply
The whole debacle of solving this mystery could've been avoided by not stealing mail from someone you don't know and instead marking it return to sender.