Depth Dynamics has an interesting story of a pitch to financial advisors to get them to promote leveraged investing. They also tell the story of a couple in their 70s who lost money after being talked into using leverage. Thanks to Ken Kivenko for pointing me to this one. Rob Carrick says that students handle credit cards better than many people think. I wonder, though, whether the various statistics Carrick quotes include the effect of parental help. Some students’ parents pay their credit card bills for them every month. And some parents pay off credit card bills for students who get themselves into debt trouble. This doesn’t always happen, but it happens often enough to skew the statistics to make it look like students handle credit cards better than they really do. You can be sure that banks know that parents are often willing to bail out students with debt problems. This makes students good candidates for credit cards (in the banks’ eyes). Mr. Money Mustache makes a...

The latest Carrick on Money post declared “my brain is a lame investor” and pointed to a well-written summary of 7 way your brain is making you lose money . Fortunately for me, I feel like I have two brains and only one of them is a lousy investor. I have one brain that tends to be emotional and makes snap decisions. It’s quite good at deciding whether to zig or zag in a touch football game and helps me pick up tells on opposing poker players. Unfortunately, it stinks at investing. My other brain – the rational one that tries to think everything through and makes deliberate decisions – has turned out to be the better investor. My years as a stock-picker began during the late 1990s tech boom. Along with almost everyone else, I was overconfident and took wild chances. I did use my rational brain to pore over company reports and accounting statements looking for useful information. However, when it came time to make a trade, it took my emotional brain to ignore the fact that t...

In Ontario, the Municipal Property Assessment Corporation (MPAC) administers the property assessments used to determine property taxes. I just discovered that MPAC’s estimated area of my property is way off. However, the official Request for Reconsideration process is onerous enough that I probably won’t bother to appeal. My fun began when my latest property assessment arrived in the mail recently. The form contains an “access key” which allows me to look up the data MPAC has about my property at their About My Property web site. This seems quite civilized. It was after poking around on this site for a while that I discovered that MPAC thinks my property is about 24% larger than it really is. My best guess is that this has cost me about $1500 in extra property taxes over the years. The problem is that my property is not rectangular. The way MPAC estimates the width is sensible, but the estimate of depth is way high. In a burst of optimism, I started poking around for t...

What’s a factor of 100 trillion between friends? A woman in France received a phone bill that had an extra 14 zeros added to it ! Larry Swedroe examines the claim that index investing increases correlations between stocks making “it harder for active managers to harvest the winners” and argues that it isn’t true. Even if it were true, why would I abandon indexing to lose money picking my own stocks just so some professional money manager can have a better chance to pick winners? SquawkFox has some thoughts on how to get around the upcoming Globe and Mail paywall. The Blunt Bean Counter put together a collection of punitive income tax provisions. Don’t get caught by any of these. Rob Carrick says that “Asking a senior to co-sign or guarantee a loan is a form of elder abuse.” Preet Banerjee says “I’ve always thought that if you really knew what you needed to know to pick the right financial adviser, you probably wouldn’t need one.” He goes on to explain what we need t...

Do you think a financial advisor would rather take on and keep a client who already has a lot of money or a client with little savings? The answer is obvious, but this fact was missed by University of Montreal researchers who conducted the Cirano study of the value of financial advisors . The researchers collected survey data from 3610 working-age Canadian households. They asked many questions related to income, savings, and financial advisors. Among their conclusions was the following: “Controlling for multiple factors ... Those with 15 years or more [with a financial advisor] will have 173% more assets than if they did not have a financial advisor.” The study’s authors offer the following thoughts on this conclusion: “This amount is too large to be explained simply by better stock picking. One highly plausible explanation of this finding comes from the greater savings that is associated with having a financial advisor and other appropriate advice.” Despite the fact that t...

In the late 1990s, it seemed like everyone was a stock market expert. This was fueled by the fact that it didn’t matter much which tech stock you bought because almost all of them went up. Even mathematician John Allen Paulos got caught up in the hype with WorldCom stock. In his book, A Mathematician Plays the Stock Market , Paulos weaves a humble story of his investing folly along with many understandable mathematical lessons about investing. Like many “investors” at that time, Paulos abandoned good risk management and “invested heavily in WorldCom, as did family and friends at [his] suggestion.” He even “emailed Bernie Ebbers, then the CEO, in early February 2002 suggesting that the company was not effectively stating its case and quixotically offering to help by writing copy.” Of course, the world later found out that the real problem was “creative accounting” rather than poor marketing. On index investing, the author makes an interesting point that despite the fact that it...

There is no doubt that when insider traders make money illegally by buying a stock before it is about to rise or selling a stock before it is about to fall, some other traders must be losing this money. However, it can be challenging to figure out exactly who is losing money. The following argument by John Allen Paulos 1 sparked my interest in this question: Consider “a pair of similar situations. In the first one you buy a stock ... and your earnings are $1,000 if it rises the next day and -$1,000 if it falls. (Assume that in the short run it moves up with probability 1/2 and down with the same probability.) In the second there is insider trading and manipulation and the stock is very likely to rise or fall the next day as a result of these illegal actions. You must decide whether to buy or sell the stock. If you guess correctly, your earnings are $1,000 and, if not, -$1,000. ... Your chances of winning are 1/2 in both situations. ... The unfairness of the second situation ...