It's a beautiful evening, not hot, not cold, and importantly, not buggy. It's an unusually good summer evening to sit on my back deck with a beverage and some music, and take a look around.
First I see my neighbor to the east. She’s been widowed for years now. She’s out doing yard work, which she seemed to have enjoyed a lot more 10 years ago, but not so much now that she’s around 80 years old. A few weeks ago, she told me she recently retired, and was spending more time with her great-grandchildren. Unfortunately, she doesn’t get to spend as much time with them as she wants, because now she has a houseful to help take care of, too. That’s because in the past year, she’s allowed four people to move in with her: Her partially disabled, adult son (or brother, not sure); her grandson’s mother-in-law, who is effectively renting her basement for $100 a month; and now her adult granddaughter and the granddaughter’s boyfriend. Let’s just say, this neighbor has some people taking advantage of her Iowa Nice.
Now I see the adult granddaughter and the boyfriend. They walked out to check the mail, although it isn’t clear why that task needed both of them. Maybe they were on one of their outdoor smoke breaks? My neighbor allowed them to move in with her a few months ago – even though she doesn’t approve of them living together. She told me she’s hoping to ”straighten out” the girl, implying social/legal problems in the past. Since the couple has lived there, there has been no sign they’re working, they clearly have no ambition to help with any yard work, and their dog disappeared (or more likely, ran away from them). Clearly, there is a lot of straightening out still to be done.
Now I see my neighbors to the northeast. He and his wife, daughter, and daughter’s boyfriend are just returning from an afternoon of boating. They have a nice boat they keep at home, and they’re very good about getting out with it in the summer. He runs his own business out of his garage, has some nice toys (like the boat) and keeps a clean property, although in 15 years I’ve never seen his wife or daughter do any of the work on said property. The daughter is a bit of a wild child, and although she’s still in high school, he’s mentioned that he’s ready for her to move out. We’ve heard shouting matches many times over the years, although on this evening, like the weather, it’s calm.
Now I see the wife carrying their old, grungy-looking dog outside and setting it on the front lawn. This is her version of walking the dog. It’s been this way for years, probably since the month after they got the dog, after ‘new puppy’ syndrome wore off. Within a minute, the dog poops basically in the same spot where it was set down, and hobbles back to the front door to be let in again. Every year, this makes for an interesting patchwork of deep green grass next to the lighter greens and brown parts of the lawn. Of course, the whole thing is pathetic – and I mean both the dog and the way it’s treated. Good grief, why do people keep dogs that they don’t want to care for properly?
No time to worry about that now. It's still a beautiful evening, and only a few minutes have passed. Time to enjoy the simple pleasures of my more uncomplicated life.
Thursday, June 30, 2016
Friday, June 17, 2016
Saving Investors From Themselves
One of the smartest financial journalists I follow is Jason Zweig. He isn't a media darling, but he's fairly well-known for writing a column for the Wall Street Journal, and he's also authored books and operates his own web / blogging site at jasonzweig.com.
I was looking at his blog archive recently, and came across a gem from three years ago called, "Saving Investors From Themselves." He's writing about financial journalists, but he could just as well be writing about financial advisors.
Here's an excerpt -- if you don't want to read it all, at least read the last sentence.
I was once asked, at a journalism conference, how I defined my job. I said: My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.
That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.
In practice, for most of the media, that requires telling people to buy Internet stocks in 1999 and early 2000; explaining, in 2005 and 2006, how to “flip” houses; in 2008 and 2009, it meant telling people to dump their stocks and even to buy “leveraged inverse” exchange-traded funds that made explosively risky bets against stocks; and ever since 2008, it has meant touting bonds and the “safety trade” like high-dividend-paying stocks and so-called minimum-volatility stocks.
It’s no wonder that, as brilliant research by the psychologist Paul Andreassen showed many years ago, people who receive frequent news updates on their investments earn lower returns than those who get no news. It’s also no wonder that the media has ignored those findings. Not many people care to admit that they spend their careers being part of the problem instead of trying to be part of the solution.
My job, as I see it, is to learn from other people’s mistakes and from my own. Above all, it means trying to save people from themselves. As the founder of security analysis, Benjamin Graham, wrote in The Intelligent Investor in 1949: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.
But humans perceive reality in short bursts and streaks, making a long-term perspective almost impossible to sustain – and making most people prone to believing that every blip is the beginning of a durable opportunity.
My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.
I was looking at his blog archive recently, and came across a gem from three years ago called, "Saving Investors From Themselves." He's writing about financial journalists, but he could just as well be writing about financial advisors.
Here's an excerpt -- if you don't want to read it all, at least read the last sentence.
I was once asked, at a journalism conference, how I defined my job. I said: My job is to write the exact same thing between 50 and 100 times a year in such a way that neither my editors nor my readers will ever think I am repeating myself.
That’s because good advice rarely changes, while markets change constantly. The temptation to pander is almost irresistible. And while people need good advice, what they want is advice that sounds good.
In practice, for most of the media, that requires telling people to buy Internet stocks in 1999 and early 2000; explaining, in 2005 and 2006, how to “flip” houses; in 2008 and 2009, it meant telling people to dump their stocks and even to buy “leveraged inverse” exchange-traded funds that made explosively risky bets against stocks; and ever since 2008, it has meant touting bonds and the “safety trade” like high-dividend-paying stocks and so-called minimum-volatility stocks.
It’s no wonder that, as brilliant research by the psychologist Paul Andreassen showed many years ago, people who receive frequent news updates on their investments earn lower returns than those who get no news. It’s also no wonder that the media has ignored those findings. Not many people care to admit that they spend their careers being part of the problem instead of trying to be part of the solution.
My job, as I see it, is to learn from other people’s mistakes and from my own. Above all, it means trying to save people from themselves. As the founder of security analysis, Benjamin Graham, wrote in The Intelligent Investor in 1949: “The investor’s chief problem – and even his worst enemy – is likely to be himself.”
From financial history and from my own experience, I long ago concluded that regression to the mean is the most powerful law in financial physics: Periods of above-average performance are inevitably followed by below-average returns, and bad times inevitably set the stage for surprisingly good performance.
But humans perceive reality in short bursts and streaks, making a long-term perspective almost impossible to sustain – and making most people prone to believing that every blip is the beginning of a durable opportunity.
My role, therefore, is to bet on regression to the mean even as most investors, and financial journalists, are betting against it. I try to talk readers out of chasing whatever is hot and, instead, to think about investing in what is not hot. Instead of pandering to investors’ own worst tendencies, I try to push back. My role is also to remind them constantly that knowing what not to do is much more important than what to do. Approximately 99% of the time, the single most important thing investors should do is absolutely nothing.
Subscribe to:
Posts (Atom)