What caught my eye this week.

According to a report in the Financial Times [search result], just a handful of interest rate rises could eat up all the profits of higher rate tax paying landlords.

The FT cites research by the upmarket estate agent Hamptons, which sent freedom of information requests to HMRC. The data collected enabled Hamptons to estimate the pain points for landlords:

Landlords paying the 40% income tax rate would see their annual profits on a mortgaged buy-to-let home wiped out if UK interest rates rise by another two percentage points […] underlining the tightness of margins maintained by property investors.

For a higher-rate taxpayer with an average two-year fixed rate and a 75% loan-to-value interest-only mortgage — a common type of buy-to-let loan — a rise of two percentage points would eradicate their profits, while a single percentage point rise would halve them.

These are dramatically low margins of safety.

CPI inflation is already running at 7% and it is likely to rise further before it falls.

The Bank of England has barely started its rate-rise campaign in response, having taken Bank Rate to 0.75%.

More interest rate rises seem nailed-on. The buy-to-let business could thus be about to be become unprofitable for many wealthier landlords.

Buy-to-lose blues

Of course, those feeling the pinch have options.

Paying down an increasingly costly mortgage will look more attractive as rates rise and cheaper fixed-rate deals expire. Assets and income can be reshuffled.

Some landlords may choose to just eat the pain and subsidize their properties, trusting that eventually rents will catch up or rates fall. Property is a long-term game, after all.

The maths will also make buying rental properties through limited companies more attractive thanks to their more favourable tax treatment – even for those not yet paying higher rate taxes, considering how the income tax bands have been frozen. May as well be prepared.

Higher power

How much sympathy you have for buy-to-let landlords will mostly depend, I imagine, on whether you are one.

But it’s another canary in the coal mine. Higher rates aren’t just bad news for disruptive growth stock investors who’ve seen their shares crash or – at the other end of the spectrum – for those who owned too many long-dated bonds. There will be knock-on effects all over the place.

It’s a process we need to go through to return financial conditions back towards normalcy.

Everyone hated the near-zero-interest rate world. But escaping its feeble gravity will be bumpy.

Have a great long weekend!

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Spoiler alert: Just Keep Buying (available now on Amazon) is an excellent personal finance and investing book. If it had been written 30 years ago, it would have been one of the best ever.

I know that sounds like I’m lauding author Nick Maggiulli while also damning him with faint praise.

But it’s simply a reflection of the spread of investing knowledge on the Internet since the 1990s. (At least until TikTok and YouTube started ruining things.) There’s far more competition.

Good accessible investing books were once rare jewels. I owned them all!

But today I suspect only a minority of even the keenest DIY investors buy and read a book about it.

Tens of thousands of decent investing articles are freely available online. Sorting the wheat from the chaff isn’t an efficient way to learn – and there’s always a risk you’ll accidentally become a meme stock day trader. But given time, the Internet can teach you all you need to know.

It has been a Cambrian explosion of engaging voices and investor empowerment.

Even so, reading a concise and actionable primer like Just Keep Buying could save you months of trawling and dead-ends.

That the book happens to be an engaging read is even better.

Crushing it

Nick’s blog Of Dollars and Data will already be familiar to readers of our Weekend Reading links.

In fact, much of the book will be.

That’s because – to stretch my Cambrian metaphor – Just Keep Buying is like the enduring fossil record of everything the wiser personal finance and investing voices have agreed upon over the past 20 years.

Save regularly and automatically. Invest passively with index funds. Diversify according to your age. You probably know the drill.

Indeed Nick himself contributed some of the best of that raw material.

I regularly find other bloggers quoting his seminal Even God Couldn’t Beat Dollar Cost Averaging for instance. (On a good day they even link to him…)

Just Keep Buying compresses it all down into an action plan. It reads like a very intelligent person consumed the passive investing bloggerati consensus, checked it against the data, and squeezed out the essentials on how to do it right.

Think of how tectonic forces crush coal to leave a diamond.

Nick’s book even sparkles in its way.

Easy reader

It’s ridiculously readable, for one thing.

It wouldn’t be right to say Just Keep Buying reads exactly like a blog, although it does repurpose some articles first posted on Nick’s website.

As I said, it’s much better structured than a blog.

But there’s that blog feel, in the short, attention-grabbing chapters.

Nick leans heavily too on the now familiar blog scaffolding made popular – at least in our sphere – by superstar money writer Morgan Housel.

Each chapter starts with the hook: a characterful and often only tangentially-related story from the world of science, geography, or astronomy. Then there’s the bridge to investing. Then the meat of what you need to know. All so cleanly dispatched you hardly notice the education going down.

For example a chapter on why you shouldn’t fear volatility starts with the founder of Federal Express gambling his company’s dwindling cash at Vegas, to stave off imminent bankruptcy.

The message? Risk comes with the territory. What’s important is taking an appropriate level for your needs and time horizon. But the image of a CEO playing blackjack to save his company is far more arresting than that previous bland sentence was.

Chapter after chapter slides by this way. Before you know it you’re halfway done.

For a book about a potentially dry subject, Just Keep Buying is a page turner.

Putting Just Keep Buying to work

That halfway point is where Just Keep Buying pivots. The first half is all about personal finance. The second half focuses on investing.

Like this the book first outlines how, why, and how much to save – with useful detours into debt and home buying – before explaining how to put your money to work to create long-term wealth.

There’s not much prevarication. Nick makes the case for each step like a confident barrister. Save this much to aim for that much. As you’d expect if you know his writing, he also backs up each strategy with data. So he doesn’t just tell not to sit around in cash waiting for the next crash. He’s got the data to prove why it’s usually a losing strategy.

There’s plenty of graphs too. These are very welcome, albeit they’re not quite as easy to read in printed form as on his website.

And there’s the judicious deployment of personal anecdotes.

As a Stanford graduate with a fairly modest background who is now moving and shaking in New York, Nick straddles several worlds. Yet he deploys his experiences lightly.

For example very late in the book he reveals his family’s financial fall from grace during the US housing downturn in the 2008 crisis. Where others would have opened the book with a strident claim to have risen from the ashes or whatnot, Nick just makes a level-headed point about the perception and reality of wealth. It’s disarming and effective.

Slightly less successful is a range of quotes and other sources sort of shoehorned into the copy. We even get US shock writer Tucker Max’s advice not to be an angel investor, for instance. Perhaps these are part of what makes the book such a breezy read, but at least for me they feel a bit like they’d been peppered in to spice up or add depth to the message.

I feel the book is at its best when Nick just tells us what he thinks.

Sincerely simplified

On that note, a flipside to Nick’s confident no-nonsense approach is you’ll probably find some things you disagree with. There’s usually a caveat in the text (just like my ‘usually’ there) but in some places Nick’s rules do stretch the sense of that word.

There’s no law that says you must save as much as you splash out to assuage spending guilt, for example (Nick’s 2x rule). And a throwaway comment that you could give your match to charity instead would in reality produce a vastly different financial outcome over a couple of decades.

Similarly, while I understand the mathematics that says somebody with a high savings rate ‘must’ save more of any future salary raise to stay on-target – because that target has been arbitrarily defined as retirement spending that’s a certain percentage of their pre-retirement spending, reached by a predetermined date – the reality is that if you save hard for a couple of decades you actually have huge optionality later.

Of course there will be consequences if you spend your raises in your 50s and 60s. But you won’t really be breaking any savings rules.

This isn’t to take anything away from Just Keep Buying. Nick shows his workings, as my old maths teacher used to say. He’s not preaching a huckster’s secret way to wealth. Many readers will find his clear instructions hugely helpful and reassuring. Those who want to tweak the formulas will do so from a solid starting point.

The same could be said for the investing chapters. We don’t get a deep dive into asset classes or platforms or anything else.

But how many people really need that?

Our chapter on bonds in the never-published Monevator book is longer than Nick’s entire summary of the pros and cons of the most important assets to build a portfolio. But honestly? For most people his summary will be enough. For them a simpler guide that is easily digested and put to work will trump a deep dive that satisfies the purists (even one that has been published!)

That said, one thing I’m not quite sure about is whether I found the book to be such an easy read because I’m so well-versed in this stuff.

Nick talks a lot about volatility, for example. That’s a bread-and-butter word for old hands, but opaque to the uninitiated. I think a moderately intelligent reader would have few problems. But I guess some people could find the simple messages obscured by unfamiliar lingo, despite Nick’s best efforts.

I should mention too that the book was written for a US audience. In practice there’s only one chapter where this matters – a provocative section on how to best use US tax shelters that actually is a bit contrary to that prevailing consensus I talked about.

You won’t get much from that if you’re not a US citizen. But the rest of the book is universal.

A sticker and a keeper

In the 15 years since starting this blog, I’ve seen many money bloggers come and go.

I still remember finding Nick’s blog, Of Dollars and Data. That first article featured his trademark animated data-visualizations, which might as well be black magic to us Cro-Magnons at Monevator.

Better still, Nick’s words lived up to the fancy graphics.

I gulped and copied the link for Weekend Reading.

Long ago I decided that if we were going to be outgunned by smarter, savvier new kids on the block then at least I’d do my small bit to bring them to the world’s attention. That’s one reason why I’ve kept linking to other websites each week for all these years – and long after it fell out of fashion. (The other is so you enjoy my finds and keep reading us to discover more!)

There’s been a lot of false alarms along the way. Many people have a couple of great blog posts in them. Some a half-a-dozen.

But very few keep up the quality for years.

Nick has – even several years in and after his blog turbo-charged his career (and I presume his workload). And now he has a great book to add to his resume.

Just buy it

Just Keep Buying is among the best of the spate of investing blogs turned into books. It’s not quite at the level of Morgan Housel’s The Psychology of Money, but that was one for the ages.

Besides – whisper it – much as I adore Housel’s writing and will laud The Psychology of Money as much as the next jealous blogger who’s unlucky enough to be writing at the same time as him, Nick’s book will probably deliver more takeaway value to more people.

That’s because Just Keep Buying is both a solid mantra and a call to action.

Yes, if you’ve been knocking around these parts since the financial crisis it’ll be reassuringly familiar, like a greatest hits album. But if you’re newer, it could seriously accelerate your progress.

It would also be a perfect gift for that smart, curious, would-be investor in your life.

If you’re looking for a comprehensive manual on the nuts and bolts of even simple passive investing, you’ll have to buy a companion tome. (Or keep reading Monevator!)

But how many people really need that? For 90% of its target market, Just Keep Buying will get 95% of the job done. Recommended.

You can get your copy of Just Keep Buying via our Amazon affiliate link. (Here’s the US link). Nick did kindly send me a copy of his book for review. He also wrote a personal note at the front. But I don’t believe these thoughtful gestures have bamboozled me into liking his book!

What caught my eye this week.

I have ruffled feathers before by remarking that in my – purely anecdotal, totally unscientific – experience, engineers make the worst stock pickers.

On reflection, perhaps the push back I got was fair. I should have included doctors too.

We could spend a lot of time debating why my observation about engineers and doctors is not very useful. For example, I know a lot of engineers, and there are an awful lot of doctors about.

Perhaps flautists make even worse stockpickers than engineers? Perhaps but they so rarely pipe up.

Luck looms large

Instead I want to point to a great post at Fortunes & Frictions.

The author Rubin Miller asks whether chess players make good investors. However the question is sneakily rhetorical because Miller – a minor chess whiz, incidentally – already knows there’s no reason why they should:

It’s easier for people who aren’t great chess players to be great investors. They don’t expect things to always work out perfectly.

Disruption of well-laid plans, and navigating the unexpected, are familiar. That’s how life works.

Whereas people who invest their time in a niche pursuit like chess, where perfect execution leads to ideal outcomes…have a potentially warped version of what drives success.

Chess players are familiar with wins and losses being honest feedback loops on the quality of their strategy and decisions.

But investing outcomes are often not helpful feedback loops, and completely unhelpful in the short-term. There is too much noise.

The post makes a compelling argument that luck looms too large in some pursuits – Scrabble, Backgammon, investing – for anyone to stay on top for long.

In chess, by contrast, the greatest winners keep winning.

That’s nothing like with investing. Just think of all those tumbling league tables and stories about the latest fallen investing guru.

Perhaps I’d argue that as you extend out the time horizon of investing, maybe the skill-signal becomes more apparent. (I say this, as most of you know, as a naughty active investor).

But in the short-term term investing is more like a game of Hungry Hungry Hippos.

And this is where the engineers and doctors go wrong, I suspect.

Engineers tend to think in terms of certainties, which is death to good investing.

Doctors do (rightly) have a capacity for fuzzier thinking, as anyone who has received a maddeningly vague prognosis on their lump, cough, or bump will know.

But their differential diagnosis rarely reverses back to first principles.

Perhaps medics also believe (thankfully) that they can fix things.

In contrast, good active investors can be more like the brutal backstreet butchers of yore. Real chop and chuck merchants.

Too good to be true

Coincidentally, Joe Wiggins at Behavioural Investment warned this week that consistent performance from a fund manager is actually a giant red flag.

After all, we know that the market is capricious.

We also know that different investing methods prosper under different regimes.

Given that, you should run for the hills if your fund manager posts market-beating returns year in, year out. In that case you probably don’t own a fund but a bit part in a Ponzi scheme.

Wiggins advises:

Fund investors should stop focusing on and thinking about consistent excess returns – it tells us nothing meaningful – and instead concentrate on consistency of philosophy and process.

In a complex, unpredictable system that is all that can be controlled.

(Incidentally, in case anyone cites Renaissance Technologies’ infamous Medallion fund as a consistent performer I’d say (a) fair and (b) to me ultra-high frequency trading looks more like financial systems plumbing if you’re generous and rent extraction if you’re more cynical. Either way it’s not really active investing as we’re discussing it here).

Thrills and skills

An alternative piece of advice to Wiggins’ for active fund managers – or those who would try their hand at stock-picking – is the one we’ve espoused for years.

Don’t bother.

The chances you will turn out to be even a legitimately inconsistent market-beating stockpicker are slim. It will be years before you have a sense of whether any gains you make are due to luck or skill.

And as Jack Raines at Young Money pointed out this week, you could have been doing something more predictable with your time and effort instead of signing up to an existential crisis:

Was it worth it?

My friend Lars Kroijer ribbed me about this years ago.

Spending a lot of time researching and picking stocks made sense if you were paid to manage other people’s money, he said. You took a small percentage of a huge number as your reward.

But I wasn’t rich enough for even 10% outperformance on my nest egg to beat simply earning more from a career or starting a business. So why not just invest in a tracker fund and do something else more profitable instead?

Why not indeed?

Because active investing had become a passion and a game long before I knew enough about it to understand any of this.

Perhaps you’re the same. If you’re going to do it, you’re going to do it, right?

Even though most of us know we shouldn’t – and many of you reading this sensibly don’t!

Have a great weekend all, and enjoy the links below.

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