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Kevin Erdmann on a frequent naivete of the (often very well educated) public on how markets work.

A study on “multiplex relationships”, i.e., friendships with co-workers. Based on my own experience, it seems like multiplex relationships are an ideal, and the study found that more multiplex relationships correlated with better job performance.

538 with a fun story on how science “facts” that turn out to be wrong for one reason or another can pervade the literature for long amounts of time. I’m pretty well known at work and in my friend circles for being skeptical of common knowledge, trivia, and statistics that don’t have a source. I like to see a receipt.

Timothy Taylor drops one of my favorite one liners of the year in a piece about correlation and causation:

But of course, if you take any two patterns that show a long-term trend, they will be either positively or negatively correlated with each other.


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Weak links this week, not sure if that’s on me for not reading or the rest of the world for not giving me good content. Anyway, I did drag up a couple of good links and brought back an updated list of what podcasts I’m listening to.

Ben Carlson on Alternative Alpha: this is a really big one, especially the first — tax alpha is something that often hurts an investment manager’s returns (think using munis instead of CDs), but big gains can accrue to the client.

Danielle Morrill gives us her experience on switching from a maker’s schedule to a manager’s schedule. Danielle is a great follow on twitter and is hugely candid and interesting to keep up with.

Podcasts I’m listening to:

Always Listen:

The Bill Simmons podcast is my #1 — I skip many of the pop culture podcasts, but I listen to a few of them too, which says a lot. Obviously the sports and general interviews are crazy interesting.

XYPN Radio podcast is a steady favorite. They do a good job of balancing content from people that want the listeners as clients and actual useful information/good interviews. Must listen for financial advisors.

Occasional Listen:

a16z podcast used to be a stalwart. I’m sure it will return at some point, they just put out so much content it’s hard to keep up.

EconTalk podcast: I’m more choosey about who I listen to on economics these days, but listening to a hugely broad array of people has been extremely useful the past few years.

Masters in Business: I’m going to try to make an effort to listen to more of these. I’m always pleasantly surprised.

New Podcast I’m Excited About:

Macro Musings is a brand new economics podcast from David Beckworth. I haven’t listened yet, but I’m going to give the first 5 or 10 a listen no matter what.


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A day late on links, still aiming for Saturdays.

Sumner on neoliberalism, progressives, etc. My favorite political post of the month.Sumner Quote

Timothy Taylor on tragedy of the commons, specifically, fisheries. I’d love to see a meta-analysis of these “fork in the road” charts and how accurate the intervention/non-intervention paths are.

Taylor Picture

Another terrible rule out of China, h/t Tyler Cowen. I imagine some extremely imaginative company will compute credit scores without this and it will have no effect. Or something.

Article Screengrab

Another Charlie Munger post from Farnam Street, Charlie Munger has been in vogue for several years now among those who seek “underrated” investing gurus, probably better known than Howard Marks and Seth Klarman. Charlie is a cult figure for good reason, and this post is an excellent sampling of why.

Kitces is back with a post on the strengths and weaknesses of approaches to income in retirement. If we’re to judge by his frequency of posts relating to it, this is definitely an area where Kitces thinks there’s plenty of room to improve our understanding vs. the status quo.

Lastly, books: at one point I was hoping to do book reviews because it’s a sexy idea, but it turns out I don’t like writing them at all. Instead, I’m just going to put a note at the bottom of links with books that I’ve finished and put the book review tag on the post. Maybe a paragraph about it, certainly not a review, though.

Surely You’re Joking, Mr. Feynman!: A very funny, very insightful collection of mostly chronological anecdotes from Richard Feynman’s life. His approach to life and adventure is uniquely optimistic and pragmatic at the same time.Capture

Dune: I realized the last many books I had read were non-fiction of one kind or another, and started a hunt for my next fiction read. I started seeing Dune on all of the “top X” lists, and when I asked Kate for recommendations it was the first thing she said — I almost took a day off work to read it, it was so hard to put down. Can easily see why it’s a science fiction classic.

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First two things I don’t like:
A post on variable universal life, actually gives a more balanced review than most, but commits the cardinal sin of not comparing like options. If someone is going to run an analysis and give a VUL policy the benefit of using the loan feature (which they all do), then the taxable account should also be able to have a loan taken against it (i.e., a margin loan), which is in many senses the exact same thing.

The generally very good Charles Sizemore on 401k contributions: someday people will stop conflating tax-deferral with tax savings, but I imagine I won’t see it.

And two things I do:

Paper out of Chicago & Northwestern that looks at differences between experts and laymen when it comes to economic issues. Really interesting analysis throughout of reasons why there may be diverging opinions even when there is agreement on the facts.

WSJ on the effects of increasing overtime eligible workers. The offset effect (lower base wages) makes intuitive sense, and the question of whether the purpose is to employ more people or “put more money in pockets” is a good one.

Thoughts on Things

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The always interesting Ben Carlson put out some things he doesn’t understand, and I have thoughts on them, so I figured I might as well put them on the internet. Much easier than coming up with an original post.

Why has the average credit card rate remained at ~15%? Interest rates on mortgage, bonds and car loans have all fallen drastically since 2007. Why not credit card rates? I understand these rates need to be higher but why has the spread compared to other credit instruments not compressed at all?

I mean, from the link provided, it looks like spreads did compress on interest paying accounts (which I think the the metric that matters here) by a point or so. I’d guess it didn’t move as much as other things because many people who became interest payers lost their jobs, and [source needed] those people had the hardest time in the recovery.

What’s the endgame with Bitcoin? I’ve read that it’s going to revolutionize online payments as we know them…or it’s going to be a complete failure as a currency that’s over-hyped by techies who hate the government. I have no idea on this one and wouldn’t be surprised by either outcome.

Now this is a good question. The zeitgeist has been quite certain that bitcoin was the medium through which the panacea of the blockchain would reach the world. My guess is that it is myspace to an unknown facebook as far as currencies go.

Why aren’t there seat belts on every bus in America? I’ve seen the videos where the kids get thrown around like rag dolls when a bus gets into an accident. We have to wear seat belts in cars and kids have to sit in a car seat until like age 15 these days, but they don’t need to wear a seat belt on a bus?

I believe the better question is, why not make buses more dangerous?

Why do investors always ask if it’s time to sell stocks after they’ve fallen and then ask if it’s time to buy after they’ve risen?

I actually see a fair mix of this question from clients — it’s the pundits who are most guilty of being completely beholden to following the momentum of the market.

Let’s say you’re a pension invested in Bill Ackman’s hedge fund – How do you explain to your investment committee what your strategy is for that allocation going forward? Ackman’s track record is phenomenal but he obviously has blow-up potential and risk management issues. He’s put his investors in an unenviable position.

Hopefully the investment committee (and the board) were well prepared ahead of time for the potential of something like this. I don’t think there’s an ex post facto answer.

Does premium gasoline really make a difference versus using regular? How about paying $15 for the super car wash versus the $5 express wash? It seems to me that both of these options are the result of marketing over improved quality.

I have no idea if the premiums make sense, but I’m sure there’s a reason race cars and airplanes use different octane gasolines than regular.

How do negative interest rates affect debt-to-GDP ratios? Shouldn’t the debt-to-GDP ratios be going down for all of these countries offering negative interest rate-paying bonds because they’re not paying any interest on their debt?

All else equal, a negative interest rate bond would represent less debt than its interest rate bearing counterpart, but it’s still mostly the same, a -1% bond and a 1% bond are still going to represent something close to face value worth of debt.

Why do people these days think in such extremes? We’re constantly focused on predicting regime changes and black swans. Everything has to be the greatest or worst thing ever. Markets are always either at top or a bottom. Everything is either over- or under-rated. Nothing is ever properly rated these days.

Everyone is a contrarian.

If the 1990s were so great, why were the people still so miserable? The best pop culture movies from that decade (in no particular order) are probably:

  • Reality Bites
  • Singles
  • Beautiful Girls
  • PCU
  • Swingers

Everyone in these movies was unhappy.

The 90s saw one of the greatest booms ever. Markets were up big. Economic growth was strong. Inflation was subdued. Jobs were plentiful. Nostalgia can cause people to assume that the past was much better than it really was, but even when things actually are pretty great, people probably still won’t be very happy.

Clearly the 90s are overrated.

Why haven’t we seen a mutual fund manager who embraces both active and passive management? They could invest something like 75-80% of their assets in the benchmark ETF or index fund and the remaining 20-25% could be used for concentrated stock picks. Wouldn’t this be better than the current crop of closet index funds?

Uh, I think the answer is that if people wanted 80% of their assets in the benchmark they could do that themselves. This seems unnecessarily complicated. Might be better than closet index funds though.

Why is there no robo-advisor in the real estate business yet? Real estate agents are still earning 5-6% commissions and house hunting can now be done online. Why has this industry not been disrupted yet?

Real estate commissions are hilarious, I can’t believe them either.

Why do companies get blamed for “missing expectations” when they release quarterly earnings numbers and not the analysts who create those expectations? Why don’t they ever say, “analyst expectations missed the actual results again”?

Because most people who report on finance haven’t got a clue.

Why isn’t there a national holiday on Thursday and Friday afternoon during the first weekend of March Madness? No one is getting any work done anyways.

Sign me up.

Why don’t more sell-side research analysts practice technical analysis? It seem that they’re all fundamental analysts who set price targets and tell you the value of a stock based on their discounted cash flow models, but they can rarely tell you when it’s a good time to buy or sell the companies they follow. It’s not like their track records could get any worse, right?

Because being a sell-side analyst is all about minimizing the amount of times you’re wrong.

Why are our dogs always so excited to see us when we get home? Every single day it’s like my dog and I have a reunion that feels like my she hasn’t seen me in years.

Maybe because they’re really young? I don’t have any kids, but do they have the same reactions at similar ages? If you’re gone for 10 hours for a 5 year old dog, that’s the same % of their life as being gone for 100 hours for a 50 year old human. And dogs are the best.

Before Google existed, did people just walk around saying, “I don’t know…” all the time?

I assume they must have.

Why aren’t subjects like personal finance, coding, psychology, leadership, problem solving and statistics mandatory in all of our high schools?

I’m thoroughly convinced that having a working knowledge of statistics would do more to get poor Americans out of poverty than almost anything else. It applies to everything.

Why do so many people assume that a politician can either solve or cause all of their problems?

Well because complex problems have complex answers, but if the problem is one person, it can easily be solved.



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Short links this week.

Leading off with another Ben Carlson post: Bunny Markets.  Some really fun charts in this one, though I think the higher inflation in the past probably contributed to the lack of flat markets in the past (real returns close to zero could easily still have ended up with “total return” of 20%+ over 7 years.fla mkts

Tyler Cowen on credit checks helping African-Americans when job hunting.  Well, it’s phrased the other way, but a pretty interesting case of unintended consequences.

David Henderson on the $15 minimum wage in California.  Capture


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Was out of town most of the last couple of weeks. Moving links to Saturdays going forward.

Good post from Ben Carlson on benchmarking. For the individual investor, just being aware of what a benchmark is and why you should pay attention to one puts you way ahead of the game. I’m always amazed how many “sophisticated” investors (endowments, corporations, etc.) spend months selecting an investment manager, and then don’t have a benchmark to compare their performance to going forward.

Scott Sumner on gov’t mandated salary increases and market “tantrums”. My rule of thumb is that anyone who refers to market actions as a ‘tantrum’ is probably not very smart, just got whipsawed in the market, or both.

Scott Alexander on happiness in China (and elsewhere). I can’t help but jump to the (obvious?) conclusion that happiness is felt on a scale relative to something other than the rest of the globe, e.g., their fellow countrymen, the same scale on which the change in wealth is measured.

Promising study on ‘tracking’ (the practice of separating high-achieving students from their peers).  Everything I know intuitively and from my own anecdotal experience says that being with higher-level people day in and day out results in better outcomes. The really interesting part is how there is no negative effect on those who aren’t elevated to the higher level.

Finally, Arbital, which I think has a chance to be a huge step forward in house people learn about concepts. Their (I don’t know what to call it, curriculum?) Bayes’ stuff was really fun to go through. Since if we round to the nearest 10, I have 0 readers, I don’t think they’ll mind my link.


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A post on negative gearing in Australia – I’ve noticed attitudes there about real estate seem to be similar to the way millenials in the US view real estate. Whatever happens in Australia might be a good leading indicator. Lots of good points from John here, I think another factor that influences people is the assumption that real estate values will continue to appreciate in excess of interest rates.

Good post on timing the bottom (or the fiendish difficulty thereof) from Ben Carlson. Bull markets tend to start hard and fast, but there can be lots of head fakes during a bear market.

Spending in retirement – Wade Pfau gives some thoughts on sustainable draws and a welcome refresher on the 4% rule, something that has become such a well-known guideline that many professionals don’t remember where it came from or how it should or shouldn’t be applied.

Coordinating work & leisure has value – this is one of those second level ideas that seems obvious once it’s brought up. I wonder what sorts of implications this has on the ‘gig economy’ and work-from-home jobs that are becoming more common.

Tariffs and unintended consequences – fun read on some of the accidents of history that affect the goods and services (mostly goods) that we have available today.

No pay-wall paper on the value of financial advisors – I’m not sure there’s much here that doesn’t fall into the self-selection category (where people who hire advisors are already much more likely to have better outcomes), but some interesting differences found between people who call themselves advisors but do no actual planning and those who are more comprehensive.

Children who start school later perform better in the labor market.

Zappos’ holacracy – I’ve been a fan of Zappos for a while, I really liked their famous policy of offering new trainees a bunch of money (I think it was 2-3 months salary or something) to quit. This article was fascinating and extremely confusing. I can’t help but feel like they are onto something, but think they are onto something totally different and are just sprinting down the rabbit hole at full speed. I can’t imagine working there.

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A dozen things from Richard Thaler: lots of interesting thoughts about how the academic collides with the market, EMH is a theme.

Children can tell abstract expressionist art from work by animals and other children: the real kicker here is that they can’t actually “tell”, it’s just that children as young as 4 are already capable of rating works by animals as “higher quality” than abstract expressionism. Contrary to the researchers’ thoughts, this does not seem to me like a good result for fans of the abstract.

Reaching training for babies: This makes a ton of intuitive sense and lines up well with a lot of pet theories I have about skill development in general. I think there’s a decent chance (25%?) that velcro mittens become a real thing.

The relationship between reading and writing: A lot of parallels to other disciplines here, it’s not just about creating, it’s about consuming and understanding what’s been done, what’s being done, and what people think can’t be done. I really liked the quote “The only people for a serious writer to compete with are the dead that he knows are good.”

Words to eliminate from your vocabulary: I agree that most people would do better in their speaking and writing to take heed (especially using ‘but’ when they should be using ‘and’), although I wonder what the other side of the coin when asking for help vs. assistance is. Maybe people are more likely to aid you if you ask for assistance than help and it’s a win-win? I’m not sure.

File Under ‘Markets Working As Intended’: A NYT article about the fact that if you are diagnosed with depression you will pay higher insurance rates. This article has some of the most confusingly chosen quotes I’ve ever seen, e.g., “It is scary to think that I am less insurable when I am likely someone who needs life insurance more than those without mental health issues” which is not so much ‘scary’ as it is ‘obvious’. Adverse selection is something insurance has been grappling with since the day it was first used.

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I have for you two posts about the Fed “running out of ammo”. If you don’t think that idea is moronic, I can’t save you.

Ben Carlson

Scott Sumner

I read the transcript and didn’t watch the video, but boy oh boy do I ever like Nate Silver.

There’s a pretty interesting phenomenon that I appreciate more and more each year, where sounding reasonable but being totally out of touch with the facts of the matter is a great political strategy. One of those strategies is insisting that corporations pay their “fair share” of taxes.