Investing the right way
There is a lot of debate in finance about the Efficient Market Hypothesis, and to what extent it applies to real markets. I’m generally an efficient markets proponent, but that’s not what this article is about. What I’d like to discuss is a lesser known side-effect of the Efficient Market Hypothesis that no one really talks about.
Bitcoin is a monetary system. The best way to understand it is in comparison to two other monetary technologies: the gold standard and the U.S. Federal Reserve. In both of these systems, you need a way to control how much money exists (supply), and how people give it to each other (exchange). Bitcoin is simply one more way to implement supply and exchange of currency.
Bitcoin is also a thing that random d-bags talk about to each other, and to their bored dates. We will not discuss that aspect of bitcoin here but it’s actually the predominant societal aspect of bitcoin.
This article was originally posted on December 14, 2015 and updated on December 1, 2021.
For several years, I’ve been thinking about buying a car. This is a big deal for me, because I have owned exactly one vehicle in my life, a 2004 Ford Ranger. He’s my buddy. I feel bad about looking for a new one, but it’s time (or so I thought). One consequence of my vehicle loyalty is that I haven’t given any thought to buying a car since long before I was interested in financial planning.
It’s pretty confusing! So I want to share my thought process here to illustrate 1) a way to think about buying cars, and 2) how the economics of car ownership can be an example of how we can use a financial modeling approach to simplify other complicated decisions.
Continue reading “Should I Buy A New Car?”Great example of status quo bias in an article about the flu this week. And EU privacy laws are helping a murderer wipe his history from Google. Fun stuff!
The most important financial news of the past two weeks is that scientists have discovered that Jackson Pollock’s technique cleverly avoided a characteristic of fluid dynamics that leads to unwanted curly tails on paint pourings. Finance!
Two weeks ago, something weird happened in the lending markets that businesses and banks use to shuffle their spending money around. A sharp increase in repo rates resulted in the Federal Reserve conducting its first major intervention in short term lending markets since the 2008 credit crisis.
Continue reading “What Are Repo Rates and Why Are They Messed Up?”An extra long list this week to catch up after Hurricane Dorian. Favorite quote this week: “Thus, accumulating evidence shows that over-representation of males in STEM fields is perhaps better framed as under-representation of males in reading fields and the latter is driven by relatively low reading achievement among males.”
I really enjoyed the article about Google’s internal culture, but the key article this week is a short blog from PIMCO on the possibility of negative interest rates in the U.S.
Support for minimum wage hikes, food stamps, passive indexing, and free trade. I’m kind of all over the place this week. Plus an engraving of Adam Smith wearing one of those cool wigs like a boss.
This is Part 1 of a series of posts about various cognitive errors that lead to poor investment decisions. Part 1 deals with confirmation bias.
I know that most men—not only those considered clever, but even those who are very clever, and capable of understanding most difficult scientific, mathematical, or philosophic problems—can very seldom discern even the simplest and most obvious truth if it be such as to oblige them to admit the falsity of conclusions they have formed, perhaps with much difficulty—conclusions of which they are proud, which they have taught to others, and on which they have built their lives.
Tolstoy, What is Art, 1897
The average investor isn’t very good at it
The modern middle class investor beginning their retirement savings has full access to the same investments as the wealthiest and most sophisticated investors. Index funds and ETFs provide a cheap way to invest in the vast majority of global liquid assets. This has made the playing field for investing mostly flat, for the first time in history!
Despite this historically flat playing field, most investors don’t come anywhere close to a “market return”. Blackrock has compiled some data from 1997-2016 showing annual individual asset returns compared to the average investor:
