Andrew Hallam wrote a piece in the Globe and Mail that likened enhancing performance in sports by blood doping to an investing method due to Michael Edelson called “value averaging” . Value averaging is simple enough to understand, and if you use the wrong method of evaluating its results, it seems to boost returns. However, the reality is that it doesn’t boost returns, and it drives up your investing costs. The idea of value averaging is to keep your portfolio increasing at some target rate, regardless of what happens in the market. For example, if you target a 0.5% return each month, if the market goes up more than 0.5%, you sell some of your portfolio; otherwise, you add more cash to buy more assets. No matter what happens in the market, your portfolio rises steadily. An immediate problem arises: where do I get this cash to pour into my investments when the market drops? The answer is that you’re supposed to keep a side pot of cash that you either put money into or take mon...

Dividend investors and indexers often disagree strongly on the relative merits of their investing strategies. Recently, the Dividend Growth Investor argued that homemade dividends produced by selling some stock are not as good as real dividends . However, we can easily show that the core of the disagreement comes down to whether or not dividend stocks have an expectation of higher total returns. For the purposes of this discussion, let’s compare an indexed portfolio of stocks that pay a 2% dividend to a dividend stock portfolio that pays an average of 4% dividends, both in tax-advantaged accounts. For the investor who wishes to live on 4% of his portfolio each year, his choices are to go with the indexed portfolio and sell 2% 1 of his shares each year, or go with the dividend portfolio and live off the 4% dividend. Dividend Growth Investor argues that “when someone sells a portion of their portfolio, they end up with less [sic] shares.” However, if the two portfolios get the s...

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...