Playing “Fill-In-The-Blank” Mad Libs with Financial Buzzwords

madlibscoverAfter you spend enough time consuming financial media week after week, you start seeing patterns in the noise. I understand why of course, as creating content to feed the beast can get quite exhausting. But hopefully, by pointing out these out, you as an individual investor can realize that there may or may not be any substance behind the marketing buzzwords and short-term forecasts. Entertaining? Yes. Useful and actionable? Much less likely.

A good analogy would be with the classic word game Mad Libs, where “one player prompts others for a list of words to substitute for blanks in a story, before reading the – often comical or nonsensical – story aloud.”

Here’s how the usual “Profile of successful mutual fund manager” article usually goes. I am paraphrasing myself in 2006.

[Name of recently successful mutual fund manager] may not look the part, but at the helm of [formidable sounding firm], his [mutual fund name] has outperformed its benchmark by [big number]% annually over the past 5 years. The key is to [something skill-based like “on-the-ground” human research or complex computer algorithms] and also [something classic like “long-term perspective” or “focus on the fundamentals”]. As a result, the manager says that people should [something vague and simple for the Average Joe investor].

There are also the marketing materials coming directly from the firms themselves. Here’s an actual quote taken from a 2008 fund brochure. I’ve bolded the buzzwords for your convenience:

The OIM Core Plus Fixed Income strategy is rooted in the idea that individual security selection produces the best opportunity for risk-adjusted excess returns over time. Through an extensive, bottom-up research process, our portfolio management team focuses on optimal bond selection of investment grade corporate bonds, mortgage-backed securities, US Government Treasuries and taxable municipal bonds. The team employs a tightly controlled duration discipline and closely manages all portfolio risk factors. The portfolio management team’s objective is to produce predictable, consistent excess returns net of fees over the Barclay’s Capital Aggregate Bond Index.

The Oppenheimer Core Plus fund was supposed to be very conservative and was marketed to those with children within 5 years of college. What happened next? It proceeded to lose 38% of its value in 2008, while the fund’s benchmark actually rose 5.24%.

Barry Ritholz probably digests more financial media than 99.9% of folks out there, and in a recent WaPo article he pretty much nails the average CNBC guest who gets the question “Where’s the Dow going to be in a year?”:

“Our view is that the economy in the U.S. continues to _______, and we foresee _______ problems overseas ______. China is _______, and that has ramifications for the Pacific Rim’s ______. Greece is ______ in Europe. The commodity complex is causing _____ for emerging markets. But many sectors of the U.S. economy remain _______, and some sectors overseas are still _______. The valuation issue continues to be _____, and that means _____ for investors. That has ramifications for corporate profits that will be ______. We think the economy is going to do ______, and you know that means inflation will be _____, which will force interest rates to ______. Under these conditions, the sectors most likely to benefit from this are ______, ______ and ______. The companies best positioned to take advantage of this are ____, ____ and ____. Based on all that, we especially recommend an overweight allocation to ____, ____ and ____. Thus, we believe the Dow will be at ______ next year.”

There are good mutual fund managers, good financial reporters, and good hedge fund managers out there trying to do the right thing. But the problem is that when you see such meaningless words and phrases, you just can’t tell if they are good or bad. Next time you watch CNBC, Fox Business, or Bloomberg TV, see if you can match up the blanks and buzzwords. Thanks to reader CJ for the Ritholz article tip.

My Financial Account Tidying Up Checklist

kondoI suppose it’s not a good sign that in the middle of reading a #1 NYT bestselling book on organizing your stuff… you lose the book in all your stuff. In case you haven’t heard of it yet, The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing by Marie Kondo. In my defense, it is a rather small book. I hope I don’t have to buy another one.

Instead of spending more time looking for it, I decided to make a list of all my financial items that could use some decluttering. As someone who loves to try out new financial products, I tend to accumulate accounts in during bouts of enthusiasm. Part of the “Kondo-ing” process is going through things by categories (i.e. clothing) and not moving onto another category until you’re done. Most importantly, you should only keep things that “bring you joy”. Hmm… how about “bring me profit”?

Bank accounts

  • Close out inactive bank accounts which are unlikely to offer good interest rates or other benefits in the future.
  • Re-examine all automated transfers (direct deposit, 401k contributions, 529 contributions, auto billpay, etc).

Investment accounts

  • Close out idle brokerage accounts.
  • Merge all speculative activity into one brokerage account.
  • Consider liquidating all positions smaller than a certain size.
  • Merge smaller 529 plan accounts and/or change beneficiaries.
  • Check up on LendingClub and Prosper P2P lending accounts. These should be nearly wound down.
  • Check up on Patch of Land crowdfunded hard money lending account.

Credit card accounts

  • Close out accounts which will not justify the annual fee based on my planned activities for the next year. Decide ahead of time which ones to keep if they offer to waive the annual fee for another year.
  • Mark on calendar any special perks or benefits which still need to be used.

Gift cards

  • Redeem Visa/Mastercard/AmEx prepaid cards into Amazon gift card credit.
  • Think of ways to use up retail gift cards; add to calendar to be finished next two weeks.
  • Decide what to do with unused retail gift card. Sell at loss? Wait until year-end 2015 and use for gifts?

Not-going-to-do list

  • I still haven’t gone paperless and have no immediate plans to do so, but I already have a pretty good system for organizing my paper statements.
  • The same system already has me examining all expenses on a monthly basis.
  • I’m happy with my core investment portfolio. Relatively clean and simple.
  • I don’t have any old 401k or IRA balances floating around. We have an active 401(k) at Schwab PCRA, Solo 401(k) at Fidelity, and IRAs at Vanguard.
  • I’m happy with our core monthly cashflow setup. We combine finances and have one joint checking account where we deposit a set amount each month and pay all bills from that account. We make additional transfers if we have larger one-time expenses like a new roof or something.

I’ll try to update as I work through this list.

Financial Freedom and The Parable of the Mexican Fisherman

mexfishIn the rush of our everyday lives, it’s easy to lose sight of the real reasons why we work and toil every day. Money is a tool, not the end.

I’ve seen several versions of this parable in various books and blog posts (like here and here), but haven’t been able to pin down the original source. Here’s my favorite variation:

An American investment banker took a vacation to a small coastal Mexican village, on doctors orders due to his stress-related health problems. Unable to sleep, he took a walk along the pair and saw a small boat with just one fisherman docked. Inside the small boat were several large yellowfin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “Only a little while.” The American then asked why didn’t he stay out longer and catch more fish? The Mexican said he had enough to support his family’s immediate needs. The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.” The American scoffed, “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman you would sell directly to consumers, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually New York City, where you will run your expanding enterprise.”

The Mexican fisherman asked, “But, how long will this all take?”

To which the American replied, “15 – 20 years.”

“But what then?” Asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich, you would make millions!”

“Millions – then what?”

The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siestas with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

I also use this story to remember to live and enjoy things now and not focus solely on the future.

Image credit: gogeid of Flickr

Paperless vs. Paper Statements


Pictured above is the Fujitsu ScanSnap iX500 Scanner. It can digitize a page every 2 seconds, and some version of it has been on my Amazon Wishlist for many years. However, I still haven’t plunked down 400 bucks for it, because I don’t know if I’ll ever go completely paperless.

There are many tutorials on how to scan all your paper documents into Dropbox or Evernote. Liz Weston recently had a Reuters article about going paperless with tax-related documents:

I don’t make New Year’s resolutions. Instead, I resolve every tax season to get a better handle on my paperwork — with mixed results. This year, I turned to three certified public accountants to find out what apps, software and strategies they use to keep track of everything.

Kelley Long, a Chicago CPA and personal financial specialist, tries to generate as little paperwork as possible, opting for electronic records instead. “The IRS accepts electronic records,” said Long, resident financial adviser with Financial Finesse in Chicago. “There’s no need to keep paper. That’s the one thing they’re modern about.”

Long keeps a folder on her computer desktop for the current year’s tax documents. If a document comes to her in paper form, she scans it, saves it in the folder and shreds the original. She converts emails documenting charitable contributions and other tax-related expenses into PDF files by choosing the “print” function and then “save as PDF.” […] At the end of the year, she downloads her bank and credit card statements into the folder.

But then Reader Bill sent over this Clark Howard article about the benefits of paper statements:

If you think about all the companies you do business with, they all try to get you to turn off paper statements. If you’ve done so, I want you to turn that around and go back to getting statements in the mail.

With a paper statement in hand, it’s easier to prove that you had the money in the first place in the event funds go missing. If you are set up for electronic info only, well, that’s going to hurt. So the best precaution I can give is for you to go back to getting the paper.

So, which is safer? In my opinion, for most things they are equivalent. Paper statements can be lost, stolen, or destroyed (i.e. house fire). Electronic statements can be lost, hacked, or destroyed (i.e. hard drive crash). You can protect yourself with redundant copies of either one (i.e. safe deposit box, extra USB drive, cloud backup). Keeping a nice long history of either paper or paperless statement can help you prove ownership or status of assets. Indeed, the IRS accepts electronic copies as equivalent to paper, so why shouldn’t we?

(I would agree with the implication that those repeated calls for you to “go paperless” are less about eco-friendliness and more about saving printing and mailing costs. I am also curious to know if credit card companies have found that paperless statements lead to more missed payments and thus more interest and late fees. It certainly is less wasteful, though.)

The safest thing would be to keep both. In the event of some Fight Club-esque event where the digital records of your assets are lost, paper statements might help. In the event of some local disaster where my home and my bank is destroyed, then digital records in the cloud would be helpful. (It may be a good idea to read up on file encryption.)

What do I do? I maintain regular paper statements for my most important financial accounts. That’s basically my primary IRA, 401(k), brokerage, checking, and savings accounts. The main reason for the statements is that I am in charge of family finances, and if I am injured or worse, then my spouse will be able to track everything simply by opening up the mail (plus other estate documents). I also keep paper copies of our monthly bills coming in for the same reason. I still enjoy my ritual of sitting down with physical bills and paying my bills (online) once a month as I use the opportunity to review our monthly spending. Important statements are sent to a P.O. Box instead of my house to reduce chance of theft and protect privacy.

I also have several other financial accounts that are either dormant, temporarily opened for reviews or experiments, or have low balances. Those are all set to paperless and tracked online by I’d rather give Mint my passwords and keep a virtual eye on all of them, rather than the likely alternative of never checking in on them at all.

Get Rid of Second Car and Use Uber Instead?

uberiphone5Forget borrowing money to buy a car, the concept of owning a car itself is changing. Owning a car requires committing to a long list of expenses:

  • car payment and value depreciation ($1,000+ a year)
  • car insurance premium ($500+ a year)
  • fuel costs ($600+ a year)
  • government tax, registration, and fees ($300+ a year)
  • maintenance and repair costs
  • parking, traffic tickets, and tolls

In rough terms, owning a car runs at least $3,000 a year with most people spending more than $5,000 a year. Consumer Reports calculates the median at $9,000 a year over the first 5 years for new car buyers.

As a couple with two cars, I’ve been thinking about trying to get by with one car in the household. Even besides public transit, consider all the car-based options that may be available:

  • Renting a car, but driving ourselves. (ZipCar, RelayRides)
  • Being driven around by other people who rent or own cars. (taxis, Uber, Lyft)
  • Being driven by autonomous robotic cars. (Google or major auto company)

After recent positive experiences with Uber and reading about the advancements in self-driving cars, I now believe that within the next 10 years we will shed at least one car. (I doubt I would want to go completely carless with two kids and all their activities.) Some food for thought on the subject:

  • With Uber, Less Reason to Own a Car – Farhad Manjoo at NY Times.

    “In many cities and even suburbs, it’s becoming much easier to organize your life car-free or car-lite,” said David A. King, an assistant professor of urban planning at Columbia University who studies technology and transportation. By car-lite, Dr. King means that instead of having one car for every driver, households can increasingly get by with owning just a single vehicle, thanks in part to tech-enabled services like Uber.

  • A Financial Model Comparing Car Ownership with UberX (Los Angeles) – Kyle Hill at Medium.

    So there you have it… for the average American who drives 13,476 miles per year, owning a motor vehicle will cost them $12,744 per year to maintain, and the cost of taking UberX everywhere will cost them $18,115 per year. However, Americans who drive less than 9,481 miles in a year should seriously consider ditching their car, because UberX will be cheaper.

  • How Do Car Ownership Costs Compare to Uber? – Uber Blog.

    The math doesn’t lie. In a city with with a fast, practical (and cool) alternative like Uber, it would very much be worth your time to crunch the numbers and see how much you’re really spending on your gas, parking, maintenance, etc. and how much time you spend doing those things. Because having your own personal driver pick you up in a slick car each and every day is a hell of an appealing alternative.

  • Uber vs Car Ownership – Sam Altman.

    Taking uberX everywhere is now cheaper for me than owning a car (I have an expensive car, so it’s not a super fair comparison, but I still think it’s interesting).

Of course “the math” depends on where you live and how you drive, but even small to medium cities will be affected. Uber now has UberFamily (car seats) and UberPool (multiple passengers heading the same direction). Now look at self-driving car technology. If I buy a self-driving car, that’s really just another convenience/luxury that costs me more money. But what happens when Uber and Lyft don’t have to pay drivers? (Robots taking jobs again!) Fares will drop even further.

PaperKarma App: Take A Photo Of Your Junk Mail and Say Goodbye

pkappI totally missed this app the first time around, but PaperKarma is an iPhone/iPad app and Android app that helps you stop junk mail. Catalogs, magazines, coupon books, flier, credit card offers, yellow books, etc.

You just snap a photo of any piece of unwanted mail, and that’s it. (Try to capture the address label and any tracking codes.) They scan the photo, grab the pertinent details, and contact the mailer directly to remove you from their distribution list. They’ll even contact you when you are successfully unsubscribed. For free. That sounds almost too good to be true.

Previously, I’ve had success with the websites to stop unwanted catalogs and to finally end delivery of those huge phone books (both free as well).

How Simple or Complex Are Your Finances?

Dan Kadlec of Time magazine offers up 9 Ways to Simplify Your Finances. I always swing back and forth, wanting a nice simple financial life one day, and the next day itching to try out all the cool new financial tools out there. I tend to split up my accounts into “core” and “explore”. The “core” accounts hold the vast majority of my money, while the “explore” accounts result from sign-up promotions and/or pure curiosity. Anyways, let’s see how I did one the 9 ways listed:

  • Get down to one mutual fund. The article recommends target-date funds, which I think are fine if you go Vanguard, Fidelity Index, or maybe T. Rowe Price. Right now my portfolio holds 10 mutual funds/ETFs and some individual TIPS. If it weren’t for different 401k providers, I could get down to about six.

    I really don’t feel these funds are very hard to manage though as I have my target asset allocation already determined and I simply rebalance with new funds and once a year otherwise.

  • Keep two credit cards. Fail. I go through a lot of credit cards. Right now I’m meeting the spending requirements on the Barclays Arrival Mastercard and the Chase Ink Plus. It’s a profitable hobby, I tell myself.
  • Pay bills online. Stamps cost way too much to do it any other way. I charge what I can on credit cards, and the rest is done with online banking.
  • Choose one financial institution. Does this mean bank or brokerage? Probably both? Well, I have one local regional bank account and an Ally checking/savings combo as my core bank accounts. Vanguard and Fidelity are my core brokerage accounts. I guess another fail, but I am unwilling to give up features here for simplicity.
  • Automate everything. Direct deposit for both of us, check. 401ks are always automatic, so check. Automated IRA funding? No, I just do a lump sum early in the year. I’ve tried, but I don’t like to automate credit card bills.
  • Get overdraft protection. Ally Bank checking account has a feature that I can automatically use my savings account for overdrafts with no fee. I don’t even know if my local bank account has overdraft protection or not, as I’ve never had to use it.
  • Create an emergency fund. Check. I haven’t done any rate-chasing recently, as there has been very little to chase. But I know I would if some bank offered a crazy-high APY.
  • Pay yourself first. I don’t do this explicitly, although I do make sure that both of our 401ks and IRAs will be maxed out early on in the year.
  • Get organized through new technologies. I do use the recommended (free) to aggregate my spending transactions only. I also use one of their recommended password managers, 1Password ($40+). I like both. I hadn’t heard of the other password keeper mentioned – Dashlane – but it does look polished and the basic version is free.

I like playing around with finances, so I’m okay with my level of complexity for the most part. Things are set up so that most of the important stuff in a few limited places in case something happens to me, but maybe 5% of our net worth might be spread out in some experimental accounts.

Cooked: A Book About Why You Should… Cook

Consider the following questions that you may have asked yourself recently:

  • What can you do to consume fewer calories while eating healthier food?
  • How do you get your family to spend more time together, talk, and connect?
  • How do you get the public to care more about what they are eating, which in turns forces the food corporations to improve their standards?
  • What can modern super-specialized citizens do to feel more in touch with nature and self-sufficient?
  • How can you save some money?

I’m sure the title has given it away by now, but the answer is to cook! Specifically, cook at home for yourself and your family, as close to from scratch as possible. At least, that’s the lesson from the book Cooked: A Natural History of Transformation by Michael Pollan. A previous post expanded on the health benefits of cooking at home, and the book examines cooking as broken down into the four elements: Fire (BBQ), Water (Braises), Air (Bread), and Earth (Brewing).

Indeed, why is it that we seem more obsessed by food than ever (Food Network, Cooking Channel, Yelp, Food Bloggers Everywhere) at the exact same time that fewer and fewer people actually know how to cook? The food industry is betting that the current generation of kids will have hardly any idea of how to cook even basic dishes, as it means even more $$$ for them! A quote from consumer researcher Harry Balzer:

[Read more…]

Cooked: The Health Argument For Cooking At Home

I’m roughly halfway through Cooked: A Natural History of Transformation by Michael Pollan. Although the book covers a variety of topics ranging from chemistry to religion to anthropology, the overarching theme is examining the practice of cooking meals for yourself (and your family).

Cooking food has become one of our most outsourced tasks. Everyone is busy. But is letting huge for-profit corporations prepare what we eat really worth the time savings if it costs us our health? Consider what studies have found:

  • When we cook meals ourselves, we eat less than when we outsource to frozen meals or restaurants.
  • Obesity rates are inversely correlated with the amount of time spent on food preparation.
  • Regular cooking is correlated with superior health and longevity.
  • Poor women who routinely cooked tended to have a more healthy diet than richer women who did not.

In the book, food industry expert Harry Balzer (who knows exactly how often we actually eat out, not just how much we admit to… which is a lot!) put forth some insightful diet advice:

Cook it yourself. Eat anything you want – just as long as you’re willing to cook it yourself.

Essentially, eating unhealthily these days is mostly the byproduct of eating out, including meals-in-a-box and frozen dinners.

There are many other potential benefits of cooking for ourselves, stay tuned for a full review. Together, I’m hoping they’ll convince me to start cooking regularly again!

The Perfect Thing: What Is Your Little Obsession?

I’ve been thinking about another excerpt from investor Charlie Munger’s biography about his father Al Munger:

Though he could not be described as a lavish spender, Al Munger savored just the perfect thing, whatever it was he needed. Al had learned the joy of artful living from his mother. She shopped for the very best coffee beans, then took great pleasure each morning in grinding them for fresh coffee. It was a Tao philosophy, Midwestern style. In the Tao Te Ching, Lao-Tse urged seekers to regard the small as important and to make much of the little. “The little obsessions,” Charlie called them.

This is an appealing idea. Only a select few can afford a Ferrari or Bentley, but most people reading this can afford a great cup of coffee. Instead of focusing your energy on the crazy-stupid-expensive “bests” like an Hermes leather handbag or Patek Philippe watch, why not enjoy the best cheesecake in the city?

Personally, I’m not sure I connect with this philosophy. I like good coffee, but I just buy whatever is cheap and nearby on the days that I need it. I like craft beer, but will drink Bud Light happily. Maybe I have to work on this artful living thing. :)

On the other hand, I did buy what may be the world’s best nail clipper for under $16. Also, my wife makes what I truly think is the world’s best roast chicken based on a really simple recipe by famous chef Thomas Keller. Follow the directions carefully, and it will turn out amazing. Bake some root vegetables alongside it, and you have a perfect meal for under $10.

Do you have an example of something that you enjoy the best of, but it still costs say under $25?

TreeHugger CEO Apartment: 420 Square Feet, 8 Rooms

I’m surprised I missed this earlier since I love this type of thing, but below is a nicely edited video from Gizmodo showing the 420 square feet apartment of CEO Graham Hill. It’s cool how they fit in the claimed 8 rooms using moving walls, floor-to-ceiling storage, and clever furniture and appliances: living room, office, bedroom, guest bedroom, dining room, bathroom, kitchen, and I guess they’re counting the closet as a room? You really have to see it to understand.

I like this concept, especially when efficient use of space allows you to be able to afford to live in the heart of a good city where you can do much of your “living” outside in parks, cafes, bars, and restaurants. I’ve seen the moving wall before inside this Hong Kong apartment (only 344 sf), and much of the furniture is from Resource Furniture (eek, that fancified murphy bed costs $12,000). Installing solar panels (on the window shades?) with battery storage is a nice touch, and I’d consider the portable induction burners and combo microwave/induction oven for my own place.

More on this apartment: LifeEdited, New York Times

Related posts:

Why You Should Make a New Year’s Resolution

If you’re like me, you may wonder if a New Year’s resolution is even worth the bother. By chance, I was listening to an NPR interview today with a Dr. John Norcross, a psychology professor who decided to study this phenomenon. Listen, download the mp3, or read the transcript at Here are the highlights:

According to Norcross, 40-50% of people make New Year’s resolutions each year. How did they do when studied over time?

Dr. NORCROSS: In two of our longitudinal studies, 40 to 46 percent of New Year’s resolvers will be successful at six months. So, the half empty is it’s true, most people fail. But 40 to 46 percent is pretty impressive. […]

You know, I was tired of people saying resolutions never succeed, we shouldn’t even try them. And I said, well, wait a minute, these are life-sustaining behaviors. What’s the alternative? So, the alternative was to track people starting before January 1st with the same behavioral goals, with the same motivation to stop or to take the resolutions but who just weren’t going to do anything then. And that’s – and only four percent of them were successful at six months. So you go from four percent, all the way up to 44, 46 percent by taking a New Year’s resolution seriously and trying to do something about it.

10 times the success rate! So people who made resolutions had a 40% success rate as compared to 4% from those who had the same motivations but didn’t set resolutions. Definitely encouragement for would-be resolvers. More goods news is that the studies found that slips or short lapses in the resolution did not always lead to failure. Many people used the lapses to strengthen their determination.

How to set a good resolution. Norcross recommends setting attainable, realistic, and measurable goals. So lose 10 pounds instead of 50 pounds or “a lot of weight”. Save $100 more from each paycheck vs. saving an extra $15,000 somehow during the year. Grandiose goals set you up for failure, as you need to have inner confidence that the specific goal you set is achievable. This agrees with the popular SMART mnemonic that says that goals should be Specific, Measurable, Attainable, Relevant and Time-sensitive.

So, resolutions are good, especially if you do them right. However, you may want to keep number of resolutions to a minimum:

FLATOW: So you do one thing at a time, you know? Don’t say, I’m going to diet and quit smoking at the same time, because you’ll never get them both done.

Dr. NORCROSS: Well, there’s some interesting research on that. And that is, it depends how much time and commitment you have. If the two resolutions are related, then it may make sense to do it together. For example, losing weight and increasing exercise – most people see those things as going together. But if there are two very different resolutions, you may just be overwhelmed with the amount of time and energy that they call for. So, we ask people never more than two. If they’re related, two is great. Otherwise, just do one at a time.