Friday, February 3, 2017

Short Takes: True Investment Costs, Habitual Spending, and more

Here are my posts for the past two weeks:

Is it Really Necessary to Check Your Credit Score?

My Investment Return for 2016

CEO of Everything

Here are some short takes and some weekend reading:

Steadyhand uses an infographic to show the costs that eat into investment returns, including an often-missed factor: investor behaviour.

Robb Engen gives a strong defense of the Latte factor. It’s not about denying yourself the occasional indulgence. It’s about cutting down on habitual mindless spending.

Investment News reports that an advisor “allegedly cost clients $1.3 million by placing trades through a master brokerage account and then allocating profitable trades to himself while placing unprofitable ones into client accounts.” Most retail stock pickers prefer to think about just their profitable trades, but this is a way to truly make bad trades not count.

Canadian Couch Potato interviews the great Charles Ellis in his latest podcast. “We’re now very close to 99% of all trading is done by expert professionals.” Canadian Couch Potato also has some advice for an investor just starting to invest in a non-registered account in addition to existing RRSPs and TFSAs.

Big Cajun Man discusses Bill C-462 that seeks to prevent opportunists from gouging people for help accessing disability tax credits.

Jason Zweig warns us about very high hidden fees in managed futures funds.

Kerry Taylor gives a primer on Tax-Free Savings Accounts on CBC News Network. Canadians have several misconceptions about TFSAs, and Kerry clears them up.

My Own Advisor measures his investment approach against some advice from Tom Bradley.


  1. I am not sure whether Bill C-462 will ever be enacted, but I hope that one day something like this bill is in place. Thanks for the inclusion this weekend, enjoy the lovely cold weekend!

  2. I missed that Dan Ariely post, loved it!

  3. re: CEO -- " “Nearly two-thirds of support orders in Canada are in arrears.” This is such a high percentage that something must be very wrong. It can’t be that almost everyone is a deadbeat." It's probably a combination of a few things like legal loopholes and the socio-economic demographic of the supporter. We know millionaires can collect 'low income family' government support without any opposition, so there's most likely gapping holes in a lot of these systems.

    "Most people are ill-equipped to handle lump sum payments such as life insurance payouts." My advice would be to sit on any money for a good year. Financial decisions based on raw emotions rarely end well.

    re: Steadyhand infographic -- yes and no. The Dalbar numbers present only mutual fund accounts. Yes they are a substantial slice, but not the whole.

    re: Latte factor -- "It’s about cutting down on habitual mindless spending." 'Habitual' is 'mindless'. It's the same thing which kills returns -- habitual behaviour.

    re: Charles Ellis -- “We’re now very close to 99% of all trading is done by expert professionals.” As Bogle stated a while ago (paraphrasing), "99% of money in the markets is speculation, 1% is new capital generation." In other words, the "professionals" aren't behaving professional at all.

    re: Dan Ariely -- is awesome. 'Nuff said.

  4. re: Latte Factor addendum -- I love how the article starts off with a quote from a ranting Aussie about how Millennials should stop buying outrageously priced food and use that money instead to buy...outrageously priced houses.

    Also this: "There’s a Starbucks and a Tim Horton’s on the University campus where I work and every morning there are dozens and dozens of students, faculty, and staff lined up to get their coffee fix. That is mindless habitual spending."

    Hey, University employee, your paycheque is comprised mostly of government money (aka debt) but also supplemented by all the "mindless habitual spending".

    Take out 'Bucks and Timmies and your employer looses possibly 5% of its income. Would you be willing to take a 5% (or even 1%) pay cut to see these businesses disappear off campus?

    Perhaps a much better question to ask is why these science-proven addictive and harmful substances -- caffeine and sugar -- are allowed to be sold on government (aka tax payer) funded property, by public companies, in the first place?

    The answer: "education" is business.
    (Just ask the executive board, who enjoyed a collective 35% pay raise last year. Still willing to take that 1% pay cut?)

    You can scourge on the student base and your fellow employees as much as you like, but the problem lies squarely with your employer, the government, and the systems they utilize.

    1. @SST: I have no problem with the argument that the government shouldn't be pushing unhealthy drinks, but what's wrong with suggesting that people shouldn't waste their money on them? It seems to me that both can be true. The pusher shouldn't be pushing, but if nobody else will help the users, they will have to help themselves.

    2. What good does it do to tell an addict to "help yourself"?
      It's about as useful as 'Just Say No'.

      Yes, both can be true, but only one is (pro)actionable and effective.

      A better question to ask would be: Why does a government funded institution require the additional revenue of public company contracts?

      A supplementary question to ask: Why would an EDUCATIONAL institute, with access to all the known science and data about addictive and harmful substances (e.g. sugar), ignore said science and data in favour of revenue?

    3. @SST: I know many people who have cut back on coffee consumption, reduced sugar in their coffee, and stopped paying high prices for coffees from retailers. So, in this instance 'just say no' does seem to be more effective than it is with illegal drugs.

      You want the government and educational institutions to stop encouraging the consumption of unhealthy food and drink. I'd like that too. But they won't do it out of the goodness of their hearts. Public pressure is required. Public understanding of the dangers of sugar seems to be rising very slowly.

      On your specific question of why an educational institute would promote sugar consumption, the answer is fairly obvious but frustrating. Education is a business like any other. It craves money. The reputation that schools have of complete dedication to the pursuit of knowledge and being above the pursuit of money is fantasy.

      We've now moved a long way from a writer who suggested that people improve their lives a little by examining habitual spending.

  5. addendum reply: "That is mindless habitual spending."

    I'd like to ask the author of that quote exactly how he knows it's "mindless habitual spending"? What data collection methods and analysis did he employ in order to arrive at that conclusion?

    Perhaps some of those people have made unseen economic decisions in other areas of their financial lives in order that they may enjoy the products sold by Starbucks and Tim Hortons.

    Perhaps some of those people do not have the means to produce coffee etc., e.g. they live in a dorm room, they spend their money on over-priced tuition, etc.

    Perhaps some of those people prefer the options of higher quality (Starbucks coffee) and unique product (Tim Hortons doughnut) vs the innate options (cafeteria food) offered in the closed-system "free market".

    Personally, I'd enjoy a bit more in-depth thinking from those employed at institutes of higher learning.

    1. @SST: Come now. The writer you're talking about has a much larger audience than I have precisely because he doesn't dilute his message in the way you describe. He addressed a large audience of people in a way I think is likely effective. He had no intention of addressing those Starbucks and Tim Hortons customers who have thought through their choices.