Update: My Weight Loss Profit Breakdown


Back in early February 2015, I wrote about and started participating in a weight loss challenge at As the picture above indicates, a group of folks (strangers or friends) agree on a weight loss goal, put money into a community pot, and the winners split the pot (after fees). It’s part gambling for profit, part community support group, and part behavioral modification nudge.

Knowing myself, I definitely hate losing money if I can at all help it. So far, it’s working! The idea that I would lose hundreds of dollars definitely kept me on track during times of weakness and doubt. (In addition to DietBet, I also did a simultaneous bet at similar site HealthyWager to up the total ante.)

Anyhow, since this is a money blog I figured I’d share some details about my financial results so far on DietBet. You pick from a list of open “games” with a goal of either losing 4% of your body weight in 4 weeks, or 10% in 6 months. I chose the 10% goal and joined The Transformer (Feb 5 – Aug 4), mostly because there were over 1,000 participants and I figured there had to be some people that would drop out. I know, it’s selfish, but it’s like poker – all your profits come from the losers! Indeed, DietBet uses the poker rake business model where they take a cut of the pot and thus never have to risk their own money.

Your weight is verified using a smartphone app (or website) that uploads two pictures each month: one with your feet on a digital scale, and another of your entire (lightly-clothed) body on the same scale. You are given a special keyword to ensure that the weigh-in is done during a 48-hour window.

I put up $25 a month for 6 months. I was offered one month free ($25 discount) if I paid $125 upfront, but since this is all about the behavioral component for me, I wanted the monthly charge to show up on my credit card bill. Players who have chosen to place their bets on a monthly basis may drop out at any time and avoid being charged for future, unplayed rounds.

There is one round per month; Rounds 1 to 6. Half of the total money bet is put towards Round 1 through 5. That is $25 x 6 / 2 = $75, split across 5 rounds is $15 per round. The other half is put toward the final weigh-in round. So $75 is bet on Round 6.

Four rounds have been completed so far, and here are my winnings. Here’s the graphic from my profile page that explains things pretty well:


  • Round 1 Breakdown: $16.09 (7% ROI on $15 bet)
  • Round 2 Breakdown: $26.94 (80% ROI)
  • Round 3 Breakdown: $31.36 (109% ROI)
  • Round 4 Breakdown: $31.50 (110% ROI)

According to their documentation, the average “win” is 50% to 100% of your contribution. My personal results appear to be in line with these numbers. Based on the recent trend, I am not expecting the the future payouts to get much better than about 110% as these are probably the serious participants that will finish successfully. Additional people may also “catch up” and make that final Round 6 goal.

Dietbet does take a cut of the gross pot before distribution, between 10% to 25%. For my small monthly bet of under $100 a month, they will take a significant 25% cut. While I definitely think they should take a fee for providing this helpful service, I am conflicted as to what should be a “reasonable” fee. Keep in mind that taking 25% of the gross pot means that they usually take over 50% of your net winnings! (You are guaranteed never to lose money if you win, which otherwise technically could happen if enough people win.)

If I were to assume that I reach all my future weight-loss goals and a future 100% pot ROI, at the end of 6 months, I will have put in $150 and won $285.89 gross (135.89 in gross profit). After the 25% fee, I will take in $214.42 for a net profit of $64.42. That’s a projected 43% ROI on my $150 total bet. Hmm, that’s not too shabby. Perhaps I should have bet more money in retrospect. 🙂

But if I am honest, the fact that the last time I was this weight was about 15 years ago in college, THAT makes me happier than even winning a hundred bucks. In that very important aspect, I think DietBet has a great idea going. If I lost 9% of my total body weight, I’d still probably be okay with everything. There is also a supportive community aspect where people both commiserate and cheer each other on (which I did not actively participate in… not my thing).

You can read through all the Transformer rules here and how they discourage cheating and such. I’ll do a more complete final review once my 6 months is up.

Portfolio Rebalancing Frequency: Even Less Than Annually?

scaleHere’s another data point on the debate on how often to rebalance your portfolio to your target asset allocation. Econompic Data writes about rebalancing a portfolio back to 60% S&P 500 / 40% Barclays Aggregate Bond index from 1976-2014 and finds that rebalancing every 3 years actually produced slightly better average annual returns that rebalancing monthly (via Abnormal Returns):


Momentum is cited as a potential reason why this works. Looks good at a glance, but look at that y-axis. We are comparing 10.3% and 10.2%. Is that really significant?

I would point out that in a previous Vanguard research article, a similar backtest was done on a 60/40 Broad US Stock/Broad US Bond portfolio rebalanced across various thresholds from 1926-2009. Their conclusion (emphasis mine):

We found that no one approach produced significantly superior results over another. However, all strategies resulted in more favorable risk-adjusted portfolio returns when compared with returns for portfolios that were never rebalanced.


From a 2008 paper from Dimensional Fund Advisors:

Aside from avoiding excessive trading, there are no optimal rebalancing rules that will yield the highest returns on all portfolios and in every period.

From advisor and author William Bernstein:

The returns differences among various rebalancing strategies are quite small in the long run.

Instead of there being a benefit to rebalancing less often, it may just be safer that the frequency doesn’t matter. On the other hand, given the potential cost of rebalancing from taxes, commissions, and bid/ask spreads perhaps lowering the frequency doesn’t hurt.

I think the most important thing to note is that in every test case above, the rebalancing was done on a strict schedule and without emotion. The problem you are really trying to avoid is being afraid buy whatever has been getting crushed and selling what has been doing awesome. There’s that behavioral/emotional component again.

As for me, I try to check my portfolio once a quarter, but rebalance no more than once a year. An annual frequency is as easy to remember as your birthday, it’s not too often and not too seldom, lots of smart people are proponents, and it gives me the opportunity to do tax-loss harvesting. I use tolerance bands such that if my major asset classes are off by more than 5%, then I will rebalance. Otherwise, I “rebalance lite” year-round using any new money to buy underweight asset classes.

The Only Two States of Your Portfolio: Happy All-Time High or Sad Drawdown

emoinvestQuick question – What was the highest value ever for your investment portfolio? Now, what was the value exactly a year before that? You probably know the answer to the first question, but not the second, even though both have little to do with your final portfolio value.

I am currently reading the e-book Global Asset Allocation by Meb Faber and he had a good observation that I don’t recall ever expressed in this specific manner (emphasis mine):

It is a sad fact that as an investor, you are either at an all-time high with your portfolio or in a drawdown – there is no middle ground – and the largest absolute drawdown will always be in your future as the number can only grow larger.

We tend to carry the highest value of our portfolio around in our heads because of the powerful cognitive bias of anchoring. Let’s say that 10 years ago you started with $20,000 and today with your contributions and investment growth your total is $100,000. If next year your portfolio experiences a drawdown to $80,000, you’ll probably identify your portfolio as being 20% down from $100,000, as opposed to a 400% increase from $20,000. $100,000 is “what you had” and you will forever be anchored to that number, even if for it only lasted just for a day.

That is, until you reach another all-time high (yes! $105,000) and that will be your new anchor. (This applies to individual holdings as well – I’ve found this especially pervasive when using brokerage smartphone apps that allow me to frequently check in with just a tap.)

If your portfolio is anything like mine, it has been repeatedly been hitting all-time highs for a year or two. The problem is, sooner or later, there is a 100% chance I’ll be stuck in a prolonged drawdown phase. I will think about my high-water value every time I check my statements (which is why perhaps it is better not to check your investment value much more than once a year). I will question my existing asset allocation and how to invest my new money.

Now add in loss aversion – the other finding from behavioral economics that people feel the pain of losses much more severely than the pleasure of gains (studies suggest we hate losses roughly twice as much as gains).

That means drawdowns are always lurking around the corner, and we hate them twice as much as any investment gain. It’s no wonder that investors are often their own worst enemies by not sticking to their investment plans.

Back to Basics: Simplify and Automate Your Savings

automateLet’s take a step back and focus on some actionable tips to simplify and automate your savings. Think of it as knocking out your New Year’s Resolution in just 10 minutes or less.

New Year’s resolutions fail because willpower is like a muscle. If you keep having to choose the “right thing” that does not provide immediate gratification, your willpower muscle starts to fatigue. Eat the healthy kale thing instead of the nachos? Yes for a few times, but after a month no no no. Take 15% of your paycheck and set it aside? You’ll forget. The key is to take away the decision = no willpower fatigue.

First, consider your paycheck. Is it bi-weekly, semi-monthly, or monthly? Let’s say it is biweekly and you get paid this Friday, January 9th. That means you know you’ll get paid on January 23rd, February 6th, and so on. You just need to schedule a transfer for 15% of your paycheck for each of those days directly into an online savings account. Here are screenshots and tips for some specific providers:

Auto-save with your 401(k) plan.
This allows you to get any company match, grow your money faster with tax advantages, and also takes the money out before it even reaches your paycheck. Our provider is TransAmerica, which like many others now offer an option for annual auto-increases as well. The only frequency option is every pay period.


Auto-save with Ally Bank Savings Account.
This is my go-to savings account, and it has the most flexible list of frequency options: weekly, bi-weekly, every 15 days, weekly, every 2 weeks, every 4 weeks, monthly, every 2 months, every 3 months, every 6 months, every year, the first business day of each money, or the last business day of each month. With a competitive interest rate, no minimum opening balance, and no monthly fees, and other features – see my Ally Bank Savings Account Review for details.


Auto-save with Capital One 360 Savings Account.
Formerly ING Direct, this is the original no minimums, no monthly fee online savings account. The frequency options include weekly, bi-weekly, semi-monthly, monthly, or quarterly. You can even set up special sub-accounts and name them things like “Vacation” or “Next Car”. See my Capital One 360 Savings Account Review for more details.


Auto-save with Vanguard IRA and mutual funds.
The best place for low-cost investing in an IRA. Under “Automatic Investments”, you can schedule investments for mutual funds in either IRA or taxable accounts. You’ll need to have the fund already established with the minimum initial investment. The frequency options include weekly, monthly, bi-weekly, or semi-monthly.


What if I need the money? Well, if you put in an online savings account, if you really need the money, you can transfer it back. But even transferring back out of your savings account will take a conscious effort, so you’re less likely to do it. You can’t easily withdraw from a 401k or IRA, so you’ll just have to make the commitment.

The key here is to combat laziness. If you like this idea, take action today and you’ll be on autopilot the rest of the year!

More Research on Buying Experiences vs. Things

travelsignpostYou’ve probably heard the advice that you should buy experiences and not things. (Except maybe when things help you experience.) This Atlantic article explores new findings from behavioral research about the differences between experiences and material objects.

With experiences, people are less competitive and worry less about keeping up with the Jones’:

Gilovich’s prior work has shown that experiences tend to make people happier because they are less likely to measure the value of their experiences by comparing them to those of others. For example, Gilbert and company note in their new paper, many people are unsure if they would rather have a high salary that is lower than that of their peers, or a lower salary that is higher than that of their peers. With an experiential good like vacation, that dilemma doesn’t hold. Would you rather have two weeks of vacation when your peers only get one? Or four weeks when your peers get eight? People choose four weeks with little hesitation.

Experiences elicit positive feelings and promote social togetherness rather than creating impatience and worries about scarcity.

Those waiting for experiences were in better moods than those waiting for material goods. “You read these stories about people rioting, pepper-spraying, treating each other badly when they have to wait,” he said. It turns out, those sorts of stories are much more likely to occur when people are waiting to acquire a possession than an experience. When people are waiting to get concert tickets or in line at a new food truck, their moods tend to be much more positive. […]

Research has also found that people tend to be more generous to others when they’ve just thought about an experiential purchase as opposed to a material purchase. They’re also more likely to pursue social activities.

Do You Spend More at Restaurants When Splitting The Bill?

There always seems to be a new startup involving sending money person-to-person, with the most common demo showing how easy it is to split a restaurant bill with your friends. Is this really a huge problem? Are there many groups of friends where one person orders lobster and four drinks without offering to pay their fair share? Yes it can get weird once in a while, but I would think things would self-regulate quickly. (Okay, maybe not the $47,000 food bill for 6 people on the right!) Also, it’s not very hard to ask for split checks with modern POS cash registers… maybe just tip a bit more for the inconvenience.

The economic argument is that if you know you’ll be splitting the bill evenly, you are incentivized to order more. In a group of six, ordering a $6 cocktail only costs you $1 more. A $12 appetizer is only $2. But you’re also subsidizing other people, so social dynamics come into play. If someone believes others are “freeriding” on them, then they’re more likely to order more, and so on. Do people really spend more when splitting the bill?

According to a study pointed out by Undercover Economist Tim Harford, people just might:

Diners were, at random, offered three different billing rules: split-the-bill, pay-your-share, or on-the-house. They were also asked to order food by writing their choices down, without discussion. This odd request was made less odd by the fact that they were all filling in questionnaires at the time.

Homo economicus immediately emerged: diners ordered, on average, 37 shekels worth of food when paying their own way, 51 shekels when splitting the bill, and 82 shekels when the experimenter picked up the tab for everyone. (A small follow-up experiment hinted that people splitting the bill six ways behave similarly to those paying one-sixth of their own bill.)

The study involved bringing strangers together in an actual restaurant ordering real food, so it’s close but not quite the same as eating with friends. Even with friends, I still tend to think as a group the total bill would be a bit higher, like maybe one more person will order a beer if everyone else is having one.

Sell in May and Go Away? How About Remember To Rebalance In May and November

“Sell in May and go away” is a rhyming market-timing slogan that may never… go away. Here’s a graphic that seems to support the idea that stocks have historically performed much worse between May and October than the rest of the year. Credit to Reuters/Scott Barber via Abnormal Returns. Data set is the MSCI World Index from 1971-2011.

Meanwhile, The Big Picture shares a bunch of graphs from TheChartStore that don’t make it look so clear-cut. Looking at this one, why shouldn’t just bail out every September? Data set is the S&P 500 from 1928-2011.

Larry Swedroe tests the theory out using 30-day Treasury bonds as the alternative investment in this CBS Moneywatch article:

He looked at returns through 2007 from six start dates since 1950. “Sell in May” beat “buy and hold” if you started investing in 1960, 1970 and 2000, but not if you started in 1950, 1980 or 1990. “It’s pure randomness,” Swedroe says. “How would you ever know when to start?”

Throw in the tax implications of all that buying and selling, and I agree. Do you really want to base your investing strategy on a data-mining result that has no logical explanation behind it? Sounds too much like driving a car using only your rearview mirror.

However, Tadas Viskanta of Abnormal Returns has what I think is a reasonable compromise – what if you just decided to rebalance your portfolio at the very end of April and the very end of October? You should rebalance your portfolio regularly anyway, so why not do it twice a year, six months apart. If your target asset allocation is 70% stocks/30% bonds and now you’re at 80/20 due to the recent run-up, why not go back to 70/30. If things end up at 60/40 in November, then again, go back to 70/30.

You could call it “Remember to Rebalance in May and November”. It even rhymes! If “sell in may” really works, you’ll get some benefit from this mean reversion wackiness. If it’s just noise, you portfolio shouldn’t theoretically be hurt any more than picking other months.

Understanding the Habit Loop: Cue, Routine, Reward

Personal finance in theory is simple. Earn more, spend less. We all know that. But what makes it hard is changing our behavior, and much of that behavior is controlled by habits that we can’t stop. A new book called The Power of Habit: Why We Do What We Do in Life and Business by Charles Duhigg tries to explain the science and behavioral psychology of how habits work. You may have already seen some articles based on his work:

  • How Companies Learn Your Secrets (NY Times) – Includes how Target figured out that a man’s teenage daughter was pregnant before he did.
  • The Power of Habit (Slate) – An excerpt of the book explores the science of cravings and a habit that almost all of us have: brushing our teeth with toothpaste each morning.
  • Book Review in Businessweek – About how a new CEO for Alcoa changed the company by changing their routines.

So how do we change our bad habits so that we are more productive, healthier, and wealthier? We have to understand the Habit Loop, which consists of a cue, the routine itself, and a reward. In the case of toothpaste, the cue is feeling a film over your teeth (or just waking up). The routine is brushing your teeth with toothpaste. The reward is the feeling of a clean mouth, but critically also the tingling feeling from the toothpaste. Even though it doesn’t actually help clean your teeth, without the ingredients that cause the tingling, people don’t feel like toothpaste does it’s job and won’t buy it. We crave the tingling.

Stopping a habit means stopping the habit loop. For example, Duhigg was gaining weight because every afternoon he would go down to the cafeteria and eat a cookie and socialize with friends. After some experimentation, he figured out that the socializing was the reward, and the cookie-eating had just been subconsciously linked. So he started a new habit where he would socialize away from cookies and the craving of snacks went away.

For other bad habits, you may need to avoid the cue, or replace the reward with something that doesn’t harm you as much. I believe this is how nicotine gum and electronic cigarettes work. You can get the nicotine buzz and/or the physical routine of holding a stick and sucking flavored “smoke” out of it.

Starting a new desired habit involves creating a positive reinforcing loop. An example given is to create a cue, like leaving your sneakers and workout clothes beside the bed before going to sleep. The routine is working out, but you need to actively anticipate the reward – a fresh fruit smoothie or maybe the feeling of looking at the scale each day and seeing your weight go down. Replacing bad habits not only requires learning replacement routine or rewards, but also practicing them over and over again.

Is it really that simple? I doubt it. Is this yet another book that distills a complex subject into a overly-simplified but convenient story? Maybe, but I like the questions that it asks. Now which of my many bad habits should I try to change…

The Overnight Rule For Managing Your Portfolio

Recently, I came across an investment tip called the Overnight Rule from Carl Richards via the NYT Bucks Blog:

Imagine that all your investment holdings were sold overnight by accident.

You can’t undo the trades, and now all you have is cash.

Would you buy back everything you owned previously again at their current prices? If not, why are you holding them now?

I think this provides a fresh look at your portfolio, as many times we hold investments for irrational reasons. For example, there is the well-documented trait of loss aversion (even though readers of this blog may be immune), where investors really hate selling at a loss, even more than they love selling with a gain.

Perhaps you bought the stock at $20 a share, and it is now at $15 a share. You want to get rid of it “just as soon as it gets back to $20 a share”, so that so you can say you didn’t lose money on it. It’s better to admit the mistake and put your money in something better.

Then there is regret aversion. Perhaps you bought it at $50 a share and now it’s at $400 a share. You get to tell your friends how you bought Apple at $50 a share. You’re afraid it’s overpriced, but you don’t want to miss out if it rises some more. You sit on your gains and choose inaction instead of having to make a hard decision even though your money could be better deployed elsewhere.

Maybe it is company stock from your job, or shares that you inherited from a beloved family member. Whether is it some form of sentimental attachment, inertia, or plain laziness – you may want to consider your reasons for holding them.

There is a small exception to this rule if you are sitting on large capital gains in a taxable account and don’t want to realize them and get hit with the tax bill, especially if the alternative investment is also very similar (ex. mutual funds with similar holdings). However, even in this scenario you want to make sure that you’re not holding a poor investment just to put off a tax bill.

I did not come up with this myself, but read about this rule somewhere online within the last month. I’ve searched for the source but can’t find it, so please let me know if you do. Found it, thanks!

Spending and Saving Money Is All About Trade Offs

Author and professor Dan Ariely has gained fame from being able to make his behavioral economics research accessible to the general public. We all want to understand better why we do what we do. His newest book is The Upside of Irrationality. You can read sample chapters from his books for free via the eBook Taste of Irrationality.

One of the problems he’s trying to address is saving for retirement. Why do so many people save less than they need to? Here’s what Ariely says, via a recent interview on the Betterment blog:

The world around us (wants) us to spend money now. The incentives (to spend) are always very high. It’s hard to resist that, and sadly, after being tempted towards spending, spending, spending, what we have left for savings is not enough.

Investing is between now and later. It’s about the trade off, and because people are not making these trade offs correctly, we’re basically in the (bad economic) situation that we’re in.

Money is fungible. Any time you spend money on anything, it could be spent on something else. The $10 lunch, the $1,000 TV, the $20,000 car. We all know this is true, but in practice we tend to weigh things differently. Here is a thought experiment taken from a recent talking engagement (paraphrased):

Imagine being presented with the decision to either by a $700 Sony speaker set or a $1000 Pioneer speaker set. Most people go for the better and more expensive Pioneer speakers.

Now, what if the same people were instead presented with the decision between the $700 Sony set + $300 in CDs and DVDs or a $1000 Pioneer speaker set? Ariely found that now most people go for the Sony set and music package.

Why? It’s easier to imagine the value of $300 of CDs as opposed to the diluted value of $300 spread across all the possible things in the world to buy.

Perhaps it would help us to remember a list of things at different price points that are really important to us, so that we can better judge our daily spending. For example, if I really enjoy my daily $3 coffee, then I could think of other small purchases in terms of giving up that coffee. Now, getting everyone to agree to delayed gratification is something for which I don’t think there is a simple solution.

Brand and Price As Shortcut Quality Indicators & The Coach Factory Outlet Trick

I’m currently reading the book Cheap: The High Cost of Discount Culture by Ellen Ruppel Shell, which is very well researched and a good read so far. One of the major themes of the book is how our culture is losing the ability to discern quality for ourselves. As a result, we use brand names and prices as shortcut indicators of quality.

First, take brand names. In general, we love brand names, because each of them allows a mental shortcut as to what to expect. Mercedez Benz. Rolex. Nike. This is why outlet malls are so popular. Since brands = quality, and outlet = low prices, we get insanely excited. Outlet malls are greater tourist attraction draws than national monuments.

As for prices, how often do you see a huge number on a shirt price tag, but with a slash through it? Retail Price: $80. Your Price: Only $19.99. Even better, make it one-day only like Groupon or The Manufacturers Suggested Retail Price (MSRP) is often purely a marketing scheme to make you feel like you’re getting a deal. This is called the reference price. You may not know anything about fabrics or stitching, but hey, this shirt used to cost $80, so it must be pretty good quality. I’m saving over 75% off the original price, how can I lose?

Coach is given as a great example of a well-recognized brand name that uses these tendencies to its advantage. Starting out in 1941 as a small leather workshop in New York, Coach is a maker of “affordable luxury” leather purses and other accessories complete with trademarked logos. Most manufacturing is now done in China and other cheap-labor countries. In fact, the gross margins across the company are now a huge 70-75%. (Gross margin is the difference between selling price and the cost to produce.)

Traditionally, outlet and factory stores sold slightly damaged or defective examples of their regular products at a steep discount. However, it may surprise you that now many brands make goods designed specifically for their outlet stores. At a Coach Factory Store, 80% of the stuff inside is sold exclusively in those stores. These are lower-quality versions, intended to be sold only at outlets for a lower price. You can’t return outlet purchases at a regular store, because they aren’t the same thing and are subtly marked as such (also because they want to make it harder to return).

Would it surprise you further to know that Coach makes more profit from its factory stores than its full retail stores? Per this article, Coach had 347 retail stores and 129 factory stores in North America. In a way, you could say that the main purpose of the full-price Coach stores in upscale shopping centers is to keep up the facade of quality. Meanwhile, the Coach Factory Outlets provide all the profit. The glitzy stores create that critical reference price ($800 purse!), so you think the Factory Store price is a good one. A $149 Coach? What a deal. If you own Coach bags or know people who do, think about it. How many did you buy at a “real” store vs. a Factory store?

Over time, this practice should dilute Coach’s brand equity. However, if we are indeed unable to judge quality and are just interested in brand names anyway, then it will take a while.

Blink: Don’t Think Without Thinking When It’s About Money

Thanks to the discovery of free eBook rentals at the library, I finally read Blink: The Power of Thinking Without Thinking by Malcolm Gladwell over the weekend. It’s a short book and an easy read, which probably helped create its great popularity.

The book is primarily about the power of your “adaptive unconscious” to make quick and often-accurate decisions. By doing what Gladwell terms “thin-slicing”, the mind extracts the pertinent information out of a ton of available data. An expert on antiques spotting a fake within seconds, a researcher who has seen hundreds of couples being able to predict divorce, a veteran military commander winning a war game against a sophisticated algorithm overwhelmed with data, or someone who has studied facial expressions for years being able to spot hidden emotions. While interesting, I viewed much of this as an expected result of experts being experts.

However, in the end it also exposes how the unconscious can make bad decisions, full of prejudices and tendencies that you aren’t even aware of. Even if you think you are making decisions completely objectively, unless you truly strip out all the other variables then you can’t be sure. Although there is little mention of personal finance topics here, I would say this cautious side is where the book applies to money.

Other books like Your Money and Your Brain and Predictably Irrational have shown that a lot of our instinctual and/or unconscious tendencies towards money actually hurt us financially. We repeatedly find ourselves in speculative bubbles, our mind does quick relative calculations when it shouldn’t and we get used to a better lifestyle too quickly. Being aware of these hidden tendencies can help us become more successful.