Jack’s Links

Fresh links are back in your eyedrums.

  • Controversial investments generally yield positive abnormal (risk-adjusted) returns using the Carhart four-factor model (beta, size, value and momentum). Screening them out produces suboptimal financial performance.
  • Scott Sumner has a post on free lunches: This is something that intelligent people shouldn’t have to be constantly reminded about, but alas, it is. Please keep in mind, everything needs to be paid for, and if you give something away for free, people will consume more of it than is efficient. See: water subsidies in California.

nearly 90% were in favor of making college free for students from lower income families

  • Speaking of terrible California policies, a blog from Alex Tabarrok on house prices and land use: the numbers really speak for themselves here, but I can never get over how the people who want affordable housing for everybody are the same people who turn around and push for zoning and regulation when it comes to building.



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Mostly investment/market focused this week:

  • WCI on how to retire in 10 years: He’s focused on doctors, but really any high income professional has the option open to them to retire in 10 years. The catch, as is mentioned early and often in the article, is that to retire in 10 years requires retiring at a significantly lower standard of living than the typical professional lives at (because the typical professional both works for much more than 10 years, and probably doesn’t put away enough money to sustain that standard of living either). I share his optimism that it is never too late to save for retirement, at least while you can work.

If you really want to punch out of medicine in 10 years, you can’t live like a doctor now, and you can’t do it later. What you really need is a middle class lifestyle. And I’m not talking about the middle class where one spouse is a pharmacist and the other is an engineer. I’m talking about the middle class where the household income is $50,000.

  • Morningstar on who was on the good side of bad market timing: The author, John Rekenthaler, opens with an interesting point about markets that often goes ignored, transactions are symmetrical. There is a buyer of a share for a seller of a share. Therefore, in a claim he quotes, for every bad timer, there is a good timer (whether intentional or not).

In 2009, I attended several investment conferences, some targeting institutions and others targeting advisors. The message was identical: stocks out, alternatives in.

But I also think that when the blogosphere is really on form, its interactions throw up insights of a depth and quality that the mainstream media simply cannot accommodate.

  • Scott Sumner invokes the EMH: he does it to defend the idea of an NGDP market (some of the criticisms are asinine). It appears he agrees with my usual explanation when asked about the EMH – something like: “To a first approximation the EMH is true, to a second approximation it is obviously not true.” If that doesn’t make sense to you intuitively, then it is probably worth reading the post.

In fact, we do see lots of trading. We see speculation and arbitrage, even though asset prices are usually close to a position where risk-free arbitrage is almost impossible.

With apologies to my faithful subscribers, I think the links in my emails are broken, I am trying to fix it.


Jack’s Links

Was in the Bay Area all week, not much time for reading, but still found a few good links:

  • WCI on evaluating a whole life policy: A great primer for understanding how life insurance works, has a walk-through of looking at the financial pieces (key: unbundling the bundle that is whole-life — impossible to look at the economics otherwise [just how the salesman wants it]), and gets into some relatively simple RATE and FV calculations that everybody should be able to do.

Financial Malpractice

Let’s step back for a second and think about what this insurance agent did. This agent took a 28 year old physician and sold her a whole life policy.

I have somehow managed to build a fairly successful practice and I’m not pushing hard to turn it into a billion dollar firm.

  • Ben Carlson on Good Questions and Great Questions: Hugely applicable to every area of life, not just finance. I often find myself rephrasing questions to clients before I answer because answering a good question can lead down a rabbit hole, while answering a great question is much more likely to start down a path toward peace of mind.

Good Question: How do I get rich?

Great Question: What does a rich life look like to me?

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Jack’s Links

Damn, back at it again with the fresh links. Good mix this week, some markets, some psychology, some economics.

  • Scott Sumner has a post about how bond yields aren’t surprisingly low on a real basis, which we all know is how you’re supposed to measure financial things. My favorite sentence is the last one:

If you want higher interest rates, tell the Fed to cut interest rates.

If more people understood what Scott is getting at, there would be a lot less wringing of hands about monetary policy.

It certainly doesn’t feel like someone is flicking the lights on and off. How can this be?

Surgeons also gave stronger recommendations to have surgery if they discussed the opportunity for the patient to meet with a radiation oncologist.

  • Last, I was recently digging into the relatively well-known BHB studies on Asset Allocation: this 2010 piece from Ibbotson I found to be a great and concise review of the original work and the subsequent literature. He succinctly sums up what is now 30 years of research, conventional wisdom, debunking, and myth.

So how should we interpret BHB’s 90+ percent? BHB captured the performance from both the market movement and the incremental impact of the asset allocation policy.

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Short and pithy is the theme this week.

“If there is a constant leitmotif in the papal discourse, it is the notion of the dangers of ‘unbridled capitalism’ and the demand that it should serve ‘men and not profit.'”

What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war.

As an aside, this is one reason why I am not nearly as hard on the UK for the Brexit vote as most of the economists whose views I agree with. From a fundamental point of view, either an independent UK and EU will come to trade terms which are mutually beneficial, in which case it is hard to see big long-term losses to the UK, or the EU is simply a bigger vehicle for protectionism and the UK didn’t make a big mistake by jumping ship. Obviously there are other factors and middle grounds at play.

Gold: It’s Still a Pet Rock

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Happy 4th of July – on this most American of holidays please remember to give thanks for the fact that we have the Fed and not the ECB.

  • Scott Alexander with one of his trademark posts that is highly enjoyable to read in and of itself, but also applies to a whole class of things in a thought-provoking way. This post is about effects of parenting, but the bigger theme is studies not dealing with limitations that seem relatively easy to overcome (hence the title of Scott’s post). The best part about this post is that it isn’t about replication. Maybe I’m a replication crisis hipster at this point, but complaining about it doesn’t seem cool any more.

Let’s see what the study’s Limitations section has to say about this:

We calculated 42 tests and did not adjust for multiple comparisons.

Why would you do this? If NASA preceded their missions with statements like “We are launching a rocket to Jupiter, but we did not adjust for the fact that it is very far away,” we would stop taking them seriously. But for some reason in the social sciences it’s okay?

  • Timothy Taylor with a post about how (perhaps contrary to popular opinion?) the government is more about transfer payments than about provision of goods and services: Generally speaking this seems like a good thing to me, as the government is demonstrably bad at providing goods and services and there are seemingly fewer ways to be terrible at making transfer payments. Whether those transfers are done in thoughtful or intelligent ways or whether they ought to be making them at all is a question for another day.

Now the federal government is spending about 7-8% of GDP on “government consumption expenditures and gross investment,” which is now less than state and local government spending of about 10% of GDP in this category.


Can we create a firm…….

Where there are minimal politics

That has a very low turnover

That has a very high morale and high productivity…

[follow link above for the rest]


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Jack’s Links

  • White Coat Investor with one of his best (imo) posts in a while on debt: Anyone with high income and debt would benefit from reading this with an eye toward critically examining their priorities.

Therefore, if you are a doctor with a car loan, you probably have terrible money management skills. The status symbol isn’t driving a fancy car; it’s driving a paid-for car.

  • In what is certainly unfair to the rest of the financial advisor-centric blogosphere, not only does Kitces put out the best content, he also has great guest posts. This one, from Derek Coburn, on Networking, specifically networking to help existing clients: Everyone knows intrinsically that networking to help yourself reeks of desperation and never works, but the distinction Derek draws between networking as what I’d call ‘shotgun karma’ is a lot less effective than thoughtful networking between two parties who can certainly help each other, especially if you already have a strong relationship with one of those parties.

Of course I still needed to keep exceeding expectations as a financial advisor (you know, do my job), but I realized that by doing something valuable for clients, I could effectively eliminate my competition. Actively helping clients grow their bottom line is the Ultimate Tiebreaker.

  • H/t to David Henderson on this link to Bastiat on what is seen and not seen: Always humbling to read someone from 165 years ago eloquently (shoutout to the translator) describing issues that humanity is still grappling with.

There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.

After-Tax Wealth For Various Tax-Efficient Withdrawal Strategies ncluding Partial Roth Conversion

Book Review:

I recently read (re-read? I think I listened to the audiobook before) The 4-Hour Workweek, which if you haven’t read it, has extremely little to do with working four hours per week, and everything to do with eliminating inefficiencies, bottlenecks, and self-imposed restrictions in your life.

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Jack’s Links

All economics this week, though I’ve got some financial planning posts lined up for the near future.

  • Alex Tabarrok links to the 80,000 hours career guide: I started watching the videos, I’m predisposed to liking them since I think earning to give is one of the best ideas to come to charitableness in a while. Love these graphs that Alex included:



The simple fact that we got gasoline last week gave us no inherent advantage over others in getting it this week. We had to line up yet again. But, with rent control, the fact that we had a rent-controlled apartment last year gave us a huge advantage over those looking for apartments this year.

  • Timothy Taylor with a post reflecting on the state of fossil fuels: paints a picture that suggests we might not be running out of fossil fuels as fast as everyone always assumes. We seem to be finding new oil at least as fast as we use it up. I wonder if that’s good or bad.

  • Scott Sumner on Fed President James Bullard: they really do need to figure out that whole reconciling dot plots vs. market expected inflation thing, though. As a side-note, it seems more and more smart people outside of economics are buying the story that NIRP is just an extension of ZIRP and LIRP (is that a thing?).

“Look, monetary policy is not about interest rates, it’s about hitting the dual mandate.  There is no evidence that we need to dramatically adjust interest rates going forward to hit the dual mandate, so don’t pretend there is.  The Fed should not be trying to ‘normalize’ interest rates, it should be trying to maintain high employment and 2% PCE inflation.”

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Trump said: “I just left Los Angeles, thousands of cars, millions of cars coming in [from Japan]. We get nothing. We get cars. They get . . . We want to send rice, we want to send corn. . . . The imbalance of these things. They send a car. We send corn.”

So which is it? Do we send corn or don’t we send corn? And are cars “nothing”? And, if we do send corn, what’s wrong with that? Objecting to producing corn in the United States, where it’s cheaper to produce than in Japan, in return for cars that are cheaper to produce there than here—if they weren’t cheaper, we wouldn’t buy them—is to object to trade per se.


But in the realm of macroeconomic stabilization, I view “nothing” as something that–to a reasonable approximation–has been tried and has failed. Anything one does has consequences. There is no true “inaction.” There is only “Do A” or “Do B.”

Since 1900, has the American economy had massive inflation or massive deflation?  If you are spending fifty cents, it is massive inflation, as today that sum hardly buys you anything, but earlier you could have received a nice white shirt.  If you are spending 100k a year, there has been radical deflation.

most estimates cluster around zero and developmental effects on things like IQ can be rejected (“In all eight subsamples, we can rule out wealth effects on GPA smaller than 0.01 standard deviations”).

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And it is unauditable to boot. If you believe that another financial crisis is just a question of time, there will be a generation of auditors that will once again have to answer for turning a blind eye to market indicators of deteriorating economic conditions.

Though the bridge took only 11 months to build in 1912, it will take close to five years to repair today at a huge cost in dollars and mass delays.

First, it’s often the case that buildings of little historical worth are preserved by rules and regulations that are used as a pretext to slow competitors, maintain monopoly rents, and keep neighborhoods in a kind of aesthetic stasis that benefits a small number of people at the expense of many others.

Second, a confident nation builds so that future people may look back and marvel at their ancestor’s ingenuity and aesthetic vision. A nation in decline looks to the past in a vain attempt to “preserve” what was once great. Preservation is what you do to dead butterflies.

New Jersey … to make cursive writing mandatory in the state curriculum. “So that students are able to read our most valued historical documents in their original form … this bill requires that cursive be included in the public school curriculum.”

Oh, and for books, I finished the third Dune book, Children of Dune. Much more like the first, and much less of a grind than reading the second book.

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