Good reads from around the Web.
A great article in Time this week featured insights from the economist Dan Airely.
The author of several eye-opening books on how we’re not as rational as we think we are, Airely is now applying his findings to time management.
Unlike most productivity gurus – who seem to start from the premise that better time management will helpfully make us more productive worker bees – behavioural economist Airely is alert to the agenda of the consumerist world:
“The world is not acting in our long-term benefit. Imagine you walk down the street and every store is trying to get your money right now; in your pocket you have a phone and every app wants to control your attention right now.
Most of the entities in our lives really want us to make mistakes in their favor.
So the world is making things very, very difficult.
If you followed every directive from your surroundings these days you’d quickly be broke, obese, and constantly distracted.
It’s like we’re surrounded by scheming thieves: thieves of our time, thieves of our attention, thieves of our productivity.”
As always, it pays to know your enemy.
Do read the rest of the article.
From the blogs
Making good use of the things that we find…
- Starting investing is the hardest part – Abnormal Returns
- ‘Myth’ of passive investing gaining traction [My quote marks] – Prag Cap
- A chat with Rob Arnott of Research Affiliates [Nerdy] – Reformed Broker
- The bond bull market has distorted risk premiums [Nerdy] – AWOCS
- Shares don’t fall just because they’ve gone up – Wealth of Common Sense
- Sector weights: Another financial toolbox gizmo – Investing Caffeine
- Taking account of Return on Capital Employed – UK Value Investor
- A reminder on the difficulties of shorting – The Value Perspective
- Illustrated history of every US stock market crash – TraderHQ
- There are no gatekeepers – This Is Going To Be Big
- Low-cost healthy eating rules – Under the Money Tree
- How to hack your life for the better – The Escape Artist
- Monkeys reject income inequality – A Wealth of Common Sense
- Are you giving the shaft to your future self? – Mr Money Mustache
Product of the week: Are solar panels better than a savings account? A journalist writing in ThisIsMoney thinks he will break even in just seven years on his £6,250 installation.
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.1
- Fewer active managers are beating the market [Search result] – FT
- Why would you pay £500 to lose £23,500? – Motley Fool UK
- Gold is a hedge… if you have enough time – Swedroe/ETF.com
- Beware alternative investments – Swedroe/ETF.com
- Don’t pander your wealth away – Housel/Fool US
- Morningstar can’t usefully pick winning managers – Advisor Persp.
- A new UK radio station about investing – Share Radio
- Overconfidence is deadly when investing – MarketWatch
- How some good came of the AO flotation [Search result] – John Lee/FT
- Buffett’s bargain railroad – Bloomberg
- Anthony Bolton’s recollections – Telegraph
Other stuff worth reading
- Credit unions are making a comeback – Guardian
- Poorer graduates shut out of much of London jobs market – ThisIsMoney
- The $1 billion trading site that vanished (with the money) – Bloomberg
- Ten winners of the 20-year old National Lottery – Telegraph
- If other industries were like Wall Street – Housel/Fool.com
- Saving ourselves from not saving – NYT
Book reader of the week: Looking for a Christmas present for a book fan who is running out of space on their shelves ? Amazon has cut the price of its Kindle Paperwhite e-reader to just £99. It’s great to be able to take hundreds of books on holiday in a device that’s smaller than most paperbacks!
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- Reader Ken notes that: “FT articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”.” [↩]
Not a comment on another interesting article, but in case you or your readers have not seen this one in todays FT.
It is another article but quite a good one casting doubt on research into financial strategies by the estimable Tim Harford.
If you cannot click on it search for Finance and the Jelly Bean Problem
I love you guys! great round up as usual. admiring! Keep it up! WE ARE ALL GOING TO MAKE IT!!
Re the FT article, another one which is worth a look is John Authers this week in his The Long View. To summarise over-simply he is suggesting that the buyers pushing the US market up are the constituent companies themselves, continuing their process of buy-backs regardless of valuations.
“As valuations grow higher with the rising stock market, so buying back stock becomes more expensive, requiring companies to make real inroads into their cash piles. And for shareholders, buybacks become questionable once valuations grow too high – it means that their cash, held within the company, is being used to buy something that is too expensive.”
Article Heading “Stock Buybacks fuel all-time highs – but for how long?
The prag cap view that passive is still a form of active, due to having to make an active choice on which indexes to follow, is surely overstating the point. It is true that the performance of some indexes, such as the FTSE 100, can end up being dependant on just a few of the companies it tracks. It may also be true that the average man on the street is not aware of the risks this might pose. But if you are not having to choose when to buy or sell having selected a specific company then it does not sound very active to me.
I don’t quite get the point: “even the passive index fund investors … are actually underperforming as well because they picked funds within the global aggregate”. Is the article saying that the only true passive fund is a global all-share one? I have weighted my allocation to have a large part of it driven by the markets that are likely to have a direct impact on my personal inflation rate: as long as consistently I beat that I would say that everything is performing just fine… or is that just me?
@Steve — Yes, I included the link because it’s somewhat thought-provoking, and because it’s a novel new line of attack, not because I think it should change how anyone invests. He is saying one should invest in a single global fund, one that includes all equities, bonds, property, private unlisted equity, etc. I think it’s a fair point to say that’s an ideal — I don’t think it’s fair to couch such comments in talk about ‘myths’.
I’ve discussed my views on his talk of myths before: http://monevator.com/weekend-reading-passive-investing-is-about-logic-not-rhetoric/
Remember it is *cheap* funds that do well, not passives. It’s just that passives tend to be cheap!
Obviously having a single global cap-weighted fund is ridiculous – it would be almost entirely in bonds! One needs to blend asset classes based on their properties, not in some ludicrous effort to get the most cap-weighted portfolio possible. Of course, you know this as you say as much in your eminently sensible post you link to above.
I am tempted to create my own little passive fund from Canadian, Swiss, Swedish, and Norwegian shares and bonds. Unfortunately the coming Little Ice Age might rather torpedo it. So perhaps I should look somewhere warmer. Australia, Singapore … Mexico, even.
@Steve – Pragcap says that a truly passive indexing portfolio follows whatever the global weighting for each major asset class is, currently around 40% global stocks, 55% global bonds, 5% global real-estate trusts (ignoring commodities since they are loss-makers in the long-run apparently).
Vanguard’s Lifestrategy 40% equity is one simple way to get a close approximation to the current global asset index, although it biases towards home and has no real-estate trusts. You’d need to make your own version using index trackers:
I suppose you start off by finding out the current global % weighting for each class, put that % of your money into each relevant global index fund, let them fly wherever the markets take them, then top them all up with identical amounts whenever you put new money in? No need for rebalancing to a fixed %, just take whatever the world gives you.
The idea is ripe for someone to make a fund based on if it hasn’t already been done?
@ Greg – Pragcap says the global bond cap is 55% right now, so not entirely in bonds I think, but he was just saying that most people who call themselves passive are in fact deviating from a passive global index by going overweight stocks. I don’t think he recommends we stick to the literal global % for each class, it depends on your age and risk-tolerance.
It was only 40% bonds in the early 80s he says, so the bond boom may make the global weight for bonds go up even higher if borrowing costs stay low for a long time, leading to a massively overweighted bond % eventually, exposing people to too much credit, so sticking to 60% stocks/40% bonds or 40/60 would be more sensible I think. Vanguard LifeStrategy wins for me every time.
@davidpa — Thanks for sharing that info. Just one thing though:
My bold above.
To be fair to Cullen Roach (PragCap) this is what he is arguing, basically. That even people who designate themselves as passive investors make active decisions.
A truly passive investor would say “this is where the world’s money has placed its bets, and I am not claiming to be smarter than the world’s money, therefore I’ll follow it exactly”. So you’d take whatever bond allocation the world’s capital had chosen.
I think as far as it goes he makes a good point. My concern with him is how he then seems to couch that in general anti-passive rhetoric (while saying he is a fan of index trackers, in some circumstances).
Don’t get me wrong, for what it’s worth I personally think your comments I’ve selected are very sound (and you’d be entitled to your view even if I didn’t! 🙂 ). Just point out the PragCap connection.
dearieme – “I am tempted to create my own little passive fund from Canadian, Swiss, Swedish, and Norwegian shares and bonds”
… why? it’s not very passive to pick the countries (unless perhaps you divide your time between those 4 countries, i.e. they’re your “home” countries). and i doubt the stock markets of those countries are very well diversified – most individual countries’ markets are not.