“Think, Act, and Invest Like Warren Buffett,” by Larry Swedroe

February 9, 2013 — Leave a comment

I recently finished ”Think, Act, and Invest Like Warren Buffett: The Winning Strategy to Help You Achieve Your Financial and Life Goals,” by Larry Swedroe. The Warren Buffett stuff is just a facade — a shtick to get investors who are frightened by scholarly works to read the book. Nevertheless, the book is worth reading, and is generally well-written and accessible. As far as I can tell, it’s correct in all of its prescriptions. None of it really breaks new ground, but it’s a book worth reading.

One particularly new bit of information I got from it was the “Opportunistic Rebalancing” approach to rebalancing a portfolio. The idea is that you check your portfolio often for opportunities to rebalance it (weekly or even more often) but, because you’re only rebalancing when your portfolio gets outside a tolerance zone, you’re not actually rebalancing (and incurring trading costs) that often. As I wrote about in my Chapter 6 notes from Investor’s Manifesto, William J. Bernstein doesn’t recommend it, but it’s certainly not a dangerous idea — per Bernstein it’s simply a lot of work for probably not much gain.

So what the bottom line on this book? It’s worth reading, but it doesn’t replace “Investor’s Manifesto” as my pick for the first book you should pick up in your quest for financial competence. It’s hard to match Bernstein’s incredibly clear and well-written prose. Swedroe is good, but Bernstein is better. I’ve added this book to the Reading List in the “Optional Reading” section.

In Book Reviews, FC Step 6: Manage Your Investments, Financial Books, Financial Competence
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Financial Report Card – January 2013

February 7, 2013 — Leave a comment

It’s time for my end-of-month financial report card, this time for January, 2013.

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In FC Step 1: Track Income and Expenses, FC Step 2: Increase Saving Rate, FC Step 3: Essential Responsibilities, Financial Competence
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Where I Went Wrong

February 6, 2013 — Leave a comment

I’m intelligent, talented, have a good job that pays me well, and have had more good luck in this life than I deserve. So why am I broke?

Broke? Yes. I’m 40 years old, have zero credit-card debt, few savings, owe back taxes, and my wife has student loans. Our net worth is negative.

I think there’s three reasons why we’re broke, and I think they may apply to many readers as well, so I’m going to talk about them here.

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In FC Step 1: Track Income and Expenses, FC Step 2: Increase Saving Rate, FC Step 3: Essential Responsibilities, Financial Competence
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“Investor’s Manifesto:” Chapter 6 Notes

February 5, 2013 — Leave a comment

Continuing our detailed review of “The Investor’s Manifesto” by William J. Bernstein, we’re going to look at Chapter 6, “Building Your Portfolio.”

This chapter boils down to one sentence of advice from Mr. Bernstein: “Save as much as you can, start as early as you can, and do not ever stop.”

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In Book Reviews, FC Step 6: Manage Your Investments, Financial Books, Financial Competence, Investor's Manifesto by Bernstein
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Schof.org Status Update

February 4, 2013 — Leave a comment

It’s time for some Inside Baseball about schof.org. There haven’t been too many change to the site that most people noticed, but I’ve made some significant changes under-the-hood, and I thought I’d take a moment to speak about them, and also about the tools I use to make this website.

This is a WordPress blog, hosted on WPEngine.com. I previously wrote about my search for a home for my blog, and everything I wrote there still stands. I still recommend WPEngine.com1 I’m a big fan of WordPress as a blogging tool — it’s a large enough ecosystem that you’ve got every tool you could possibly imagine, and it’s flexible enough to do just about anything. Sure, a lot of people complain about WordPress, but I think it’s good enough for the vast majority of uses.

I recently switched from the (free) Ascetica theme to the (paid) Standard Theme. So far I’m a big fan of the Standard Theme. I like the look, and it’s been fairly simple to customize it to suit my needs.

I use the following plugins:

  • Akismet — automatically put spam comments in a spam folder. Without this plugin it would not be possible for most blogs to have comments. In a few days I have a few hundred spam comments that Akismet has kept me from having to deal with. So far I’ve never had a false positive, although there have been a few false negatives (spam comments that found their way through the filter).
  • BWP Google XML Sitemaps — Generates an XML Sitemap that tells Google and other search engines about the pages on this blog. Useful to get your blog pages listed in search engines.
  • FD Footnotes — Gives me the footnotes I use on this site.2
  • Jetpack by WordPress.com — Jetpack is a multi-purpose collection of plugins published by the same guys who created WordPress. I use it primarily for the equation support (letting me put nicely-formatted equations on the site) and because it provides statistics about user visits.
  • Post Revision Display — This is the most important plugin on the site. If I modify a post or page after it’s been published, Post Revision Display puts that information at the bottom of the page, and lets you see whatever changes I’ve made. I consider this plugin vital to the credibility of this site. I stand by the content I publish, and if I get something wrong, you’ll be able to see that I’ve fixed it, and what my original mistake was.
  • WP-Syntax — Gives me nicely-formatted output when I put some computer source code in a post. I haven’t been using this much lately, but since I’ve been investigating using Python for financial analysis, it may get more use in the future.

I’m also using Google Analytics to give me a little more data than Jetpack does about how people use the site, and I’m running a single Google Ad on each page to help offset the cost of running the site.

In addition, we’ve got a new Advertisement Policy, a new Privacy Policy, and a Pingdom Status Page for schof.org.

In Internet & Web, Technology
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“Investor’s Manifesto:” Chapter 5

January 19, 2013 — Leave a comment

Introduction

Continuing my chapter-by-chapter notes on William Bernstein’s “Investor’s Manifesto,” here we take up Chapter 5.

I’ll open with a quote from Bernstein that nicely summarizes the chapter:

The prudent investor treats almost the entirety of the financial industrial landscape as an urban combat zone. This means any stock broker or full-service brokerage firm, any newsletter, any advisor who purchases individual securities, any hedge fund. Most mutual fund companies spew more toxic waste into the investment environment than a third-world refinery. Most financial advisors cannot invest their way out a paper bag. Who can you trust? Almost no one.

Whew!

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In Book Reviews, FC Step 6: Manage Your Investments, Financial Books, Financial Competence, Investor's Manifesto by Bernstein
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New “Financial Competence Reading List” Page

January 17, 2013 — Leave a comment

I’ve created a reading list for people striving for Financial Competence. I’ll be continuously adding to it as I read more blogs and books. Enjoy!

In Book Reviews, Financial Books, Financial Competence
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The Four Percent Rule and Your Personal Pucker Factor

January 17, 2013 — 2 Comments

Introduction

If you’re an investor counting on the 4% Safe Withdrawal Rate for your retirement planning, your pucker factor should be going up to about an eight right now.

I first heard of the “Four Percent Safe Withdrawal Rate” via Mr. Money Mustache. It states that if you draw down your investments by 4% each year (withdrawing the money to live on) there’s a high degree of confidence your investments should last for a 30-year-retirement. Assuming you have enough assets to support a 4% withdrawal rate, this has been a hugely comforting plan. It’s made many people think they could retire sooner than their intuitions told them.

Here’s the back-story on the rule: William Bengen wrote a paper in 1994 answering a seemingly simple question: “A new retiree makes plans for withdrawing some inflation-adjusted amount from their savings at the end of each year for a 30-year retirement period. What is the highest withdrawal amount as a percentage of retirement date assets that with inflation adjustments will be sustainable for the full 30 years?” I took this question from Wade Pfau’s excellent analysis and expansion of Bengen’s original paper. Bengen studied every 30 year period between 1926 and 1994, assumed a 50/50 stock/bond split1, and saw what the safest maximum withdrawal rate (SAFEMAX) was. During all those 30-year periods, the lowest the safe maximum ever became was 4.15%, and thus the 4% safe withdrawal rule was born.2

Now as we all know, you can’t guarantee future performance based on past experience. Just because the 4% rule worked for every 30-year period in the past doesn’t mean it will work in the next 30 years. And there’s been some evidence lately casting doubt on the 4% rule. The first bit of evidence we’ll cover is the lower expected returns we’re seeing from the market, and the second is changing macroeconomic conditions in the country as a whole.

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In FC Step 6: Manage Your Investments, Financial Competence
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Warren Buffett’s “The Snowball”

January 16, 2013 — Leave a comment

I was captivated by The Snowball: Warren Buffett and the Business of Life by Alice Schroeder. It’s amazing that Schroeder was given the access that she was, and the result is a truly fascinating book about a great investor and businessman.

It’s not a snow job by any means — Buffett is a man with warts, and Schroeder does her best to show the real man — sometimes cheap, selfish, and self-centered. Far from the legend of Warren Buffett, Schroeder, shows us an investor who worked very hard, was brilliant, and was lucky enough to get away with making a few major mistakes.

I found the book inspiring, both personally and professionally. The book made me want to save more, and want to invest my savings.

Highly recommended.

 

In Book Reviews, Financial Books, Financial Competence
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