Welcome to my latest Weekend Reading edition. Earlier this week I interviewed the CEO of ModernAdvisor Navid Boostani, who provided some insight how Robo Advisors can help you train your investing brain.
I then went on to write about how you should learn to live with stocks, as much as you can.
Who’s watching the Blue Jays this weekend? We all should! #GoJays!
Enjoy these articles and see you here next week for a new dividend income update.
A reminder some new mortgage rules come into effect next week. These changes are likely to affect every homeowner in a small way, especially if you sell your home. From the article: “The new rules will require you to report every sale of a principal residence on your tax return, whether you owe tax or not. And this starts with dispositions in 2016. So, if you sold a home earlier this year, you’ll have to provide basic information (date of purchase, proceeds of disposition and a description of the property) on Schedule 3 when you file your 2016 tax return.”
CBC news highlighted the Nortel bankruptcy saga is finally getting sorted out. Beyond John Roth and Frank Dunn, I believe the lawyers in this drawn-out process got rather rich.
Big Cajun Man provided a roundup of #MoneyTalk items including my article. Thanks for that.
This Smiling Saver provided an update on Million Dollar Journey.
Here are 7 tips to build a fat RRSP nest egg.
Boomer and Echo commented on a list of big behavioural biases. Because money is emotional it definitely clouds judgement now and again.
Tawcan has some thoughts for a doomsday market.
Preet Banerjee looked at how group RESPs compare with individual and family plans in a new Drawing Conclusions video.
Young and Thrifty decoded some real estate commissions. Personally, I think you should be wary of anyone earning their salary on a commission – do your own due diligence, real estate or otherwise and ask tough questions like “how are you compensated”? If you don’t like the answer they provide then move on.
“Living with stocks”
— Buy Boring: I’d add a caveat to this, buy boring upon closer inspection. There’s been many boring companies — banks, utilities, pipeline/ energy, healthcare, consumer staples — which have failed because of any number of non-obvious problems.
— …equity returns will probably be lower than they are today: most likely. You could also investigate private equity which tends to offer more even-keel returns (think long-term average stock returns). You won’t get the 15% or 38% years, but you also won’t get the -10% or -45% years (illiquidity will also force the “stay invested” issue). Interesting trend in PE is a move away from single entity/commodity/sector offers toward micro-Berkshire/Onex type offers where a PE firm will buy up a varied basket of SME private businesses, work for 3-5 years to make them more attractive, and then either sell off the individual business or the fund as a whole. Guess the few big market bombs over the last 10-15 years taught at least a few people that diversification is the only real free lunch — public or private.
— …a list of big behavioural biases. Because money is emotional it definitely clouds judgement now and again.
Close. Money is an emotionless, errorless tool*. It’s the user who embodies emotional, cloudy judgement. I’d say the biggest reason for this is that pre-investment money quite literally represents a persons life and for this reason fears loss. Thus creep in all the biases. Unfortunately most people don’t even know they are operating from a biased mentality thus cannot even begin to negate those behaviours. As well, even if biases are recognized, most people will not change their behaviour but will continue on doing what is comfortable (a biological phenomenon), which is doing what they are already doing.
For example, using our non-dominate hand is said increase willpower and self-control, both useful tools in the scope of investing. Yet how many of us will choose to use our other hand even in very simple and mundane activities such as opening a door, drinking coffee/beer, brushing teeth, or even pointing at something. Using the non-dominant hand is about as simple and easy a win as can be had, yet none of us do it, opting instead to keep comfortable (and/or engage in more complex utilities which offer a much higher rate of failure and damage).
Interestingly enough, it’s probably our evolution as a right-handed/left-brained species which has caused us so much strife.
*(I still become emotional over my actual tools. Like angry and disappointed with my CrappyTire Craftsman, a shadow of their former glory, cheap in price and quality; or exuberantly thrilled with the constant high performance of my Milwaukee; and of course undervaluing the value of the plethora of frequently used no-name tools which make life tick along, from scissors to doorknobs.)
Enjoy your weekend storm in whatever part of the country you are in!
I sometimes use my other hand just to try things out! Drinking my coffee with it now 🙂
I see what you mean SST and would agree, money isn’t emotional by itself – the user is.
I always enjoy the comments by SST.
I keep thinking about biases from time to time, and how they can improve behavior. Sometimes I think that biases are just a way to point fingers at past behaviors, which is actually an example of hindsight bias. (e.g. – if I have $10M, I would more likely have more in fixed income than stocks because earning $10 M is tough to achieve in general and I would hate to lose a lifechanging amount of money – but I would be called suffering form loss aversion, especially if stocks do much better than bonds. If I invest it all in stocks/businesses I would be viewed as being overconfident, especially if stocks do much better than bonds).
We don’t know the future – so to be honest, anything we do using past information is pretty much a shot in the dark. The S&P 500 rose by a lot since 1900, but that is not a guarantee that it would grow through 2070 ( after which I may not even care). So long story short – studying biases may be helpful, but also it is important to not put too much weight in them either.
Does that make sense?
Makes sense to me – hard to predict the future 🙂 Post on that to come!
Great list of articles. One major, major issue with what you wrote here Mark…..Two guys from Cleveland here. #GoIndians #RallyTogether. May the best team win the series. If the rest of the games are like Game 1, we should be in for an epic series. If you find yourself in Cleveland for any of the games, let us know!
Well, you’re up 2-0 now! Enjoy the series 🙂
Thanks for the inclusion this week, fall is here in the Nation’s Capitol !
Thanks for the mention Mark. Have a great weekend!