Here are my posts for this week: Why Market Timing Fails Loan Pushers Too Big to Fail Here are some short takes and some weekend reading: David Chilton (the Wealthy Barber) explains in this video clip the secret to a happy financial life. Saving isn’t just about making a better future; it’s about making life simpler and better right now. His remarks at the end about math knowledge are interesting. I’ve definitely noticed that people with strong math skills tend to earn more money than the general population. Whether they’re better at handling and investing that money is another question. Canadian Couch Potato shows how to reduce transaction costs and optimize asset location by treating all family investment accounts as a single big portfolio. Doug Runchey explains how working past age 60 affects CPP benefits in a number of example cases. Dan Hallett takes a look at a market-linked GIC that seems good on the surface but wilts under Hallett’s scrutiny. Big Cajun...

I wouldn’t have thought it possible to turn an account of the 2008 financial crisis into a story as compelling as a novel, but Andrew Ross Sorkin did it with his book Too Big to Fail . Sorkin gives an inside account of the actions of Wall Street executives and government officials that captures their panic, greed, loyalty, and in some cases patriotism. One theme in the early part of the book is the power play that exists at the top of large corporations. In one example, an executive forcing another out of a company is just a routine “disposal of a potential rival.” In another example, one executive is pushed out but not a second because the second “appeared nonthreatening.” This is a peculiar world where competence is valued, but too much competence is threatening. Another theme is executives making themselves rich at the expense of their own firms. Even when the market for Collateralized Debt Obligations (CDOs) “was perceptibly unraveling,” Merrill Lynch kept churning them ou...

I was out for a walk at lunchtime one day and saw a huge billboard for a payday loan company. The huge font read $100 LOAN FOR $1 Presumably this means that you’d pay only $1 in interest on a loan of $100. This is cheaper than the usual rates for payday loans, so I suspected a catch. Then I noticed a smudge to the right of the large font. I had to cross the street to read the fine print written sideways: ON FIRST LOAN The font for the fine print was so much smaller that all three words together sideways were the same height as each large character in the main message. So, the offer is a lower cost entry to a cycle of debt and despair. It all reminds me of the techniques used by drug pushers when I was young. The first joint or little baggy is free, but you’ll have to pay when you come back for more.

In a recent study , market timing based on Robert Shiller’s well-known Cyclically Adjusted Price-to-Earnings ( CAPE ) ratio failed to produce market-beating returns. Here I offer an explanation of why this doesn’t work. Shiller’s CAPE is one way to try to measure whether stocks are currently over- or under-valued. If CAPE gives correct results, you might think it’s self-evident that getting out of the market when stocks are overvalued would be a good idea. Based on this reasoning, the study results seem to imply that CAPE is not a good valuation measure, but this isn’t necessarily correct. Even if CAPE is completely accurate, it still isn’t necessarily useful for market timing. The problem is that it takes time for stock prices to readjust. Suppose that CAPE says prices are 10% too high. If the market reacted quickly, then next year’s returns would be 10% lower than normal. But prices don’t react this quickly. Suppose that it takes 10 years for stock prices to adjust and b...

I wrote one post this week replying to email I usually ignore: Replying to More Email Here are some short takes and some weekend reading: Potato has some thoughtful arguments for why his family don’t need much life insurance on his life. Insurance brokers are likely to disagree strongly with him. He makes some interesting points, but it’s hard to decide to what degree I agree or disagree without some numbers. Canadian Couch Potato reviews the book Clash of the Financial Pundits: How the Media Influences Your Investment Decisions for Better or Worse . Sounds like an interesting read. Million Dollar Journey updates his Smith Manoeuvre (leveraged) portfolio. In my opinion, very few people are well-suited to leveraging a portfolio. Frugal Trader says “If you can’t stomach losing 20-30% in the portfolio in any given year, then your risk tolerance isn’t suited for leveraged investing.” My Own Advisor reviews Larry Swedroe’s book The Quest for Alpha which makes a strong c...

I get a lot of great feedback from my readers. I get other email as well. Here is another installment of replies to emails that I usually ignore (see the first one here ). Dear Julia, Thank you for the opportunity to profit from writing a post that directs my readers to your forex broker. Forex trading has all the advantages of trading against extremely highly skilled opponents without the built-in tendency for prices to rise that we see with stocks. If I ever lose my empathy for fellow human beings, I’ll take you up on your offer. Sincerely, Michael -------------------- Dear Blair, Forgive me if I’m a little skeptical of your claimed ability to offer unbiased financial advice to Canadian seniors. What threw me off was the phrase “Gold Price” in your organization’s name and the reference to “proprietary trading algorithms.” When you say that current seniors are the wealthiest generation ever, is it your mission to cure them of this affliction? Sincerely, Michael

I wrote one post this week about how I can feel myself getting complacent about stock market risk: Stock Markets Only Go Up? Here are some short takes and some weekend reading: Million Dollar Journey has an excellent list of key philosophies for long-term investing success. Beginning investors and old hands would do well to read it. John Heinzl does a great job of explaining the problems with covered-call ETFs. Canadian Couch Potato says that if you started investing in stocks in the past 5 years, you don’t really know your tolerance for risk yet. However, older investors who suffered through 2008-2009 had their nerves tested. My Own Advisor gives the results of a Sun Life survey on the difference in attitudes toward retirement between men and women. Big Cajun Man explores a market timing strategy. It might be more believable if he included references to “Dementia 5”.