What I've learned since moving to D.C. (some of which should be obvious): 0164

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What I've learned since moving to D.C. (some of which should be obvious): 0163

8101.  Starting in 2000, S&P Dow Jones Indices did a 16-year study and found that the fund managers who beat their benchmarks one year had an extremely difficult time getting similar returns the next year;

8102.  “If you have an active manager who beats the index one year, the chance is less than a coin flip that the manager will beat the index again next year,” said Ryan Poirier, senior analyst at S& Dow Jones Indices;

8103.  Financial ratings companies like Morningstar, which provides stock ratings that investors can use to get a quick take on many stocks’ performance, continue to give thumbs-up ratings even as the companies they purport to be evaluating crater and lose billions of dollars of shareholder value;

8104.  A study found 47 of the 50 advisory firms continued to advise investors to buy or hold shares in companies up to the date the companies filed for bankruptcy.  Twelve of the 19 companies continued to receive “buy” or “hold” ratings on the actual date they filed for bankruptcy;

8105.  Receiving 5 gold stars from Morningstar (or another rating company) doesn’t actually predict future success;

8106.  A study by researchers, Christopher Blake and Matthew Morey, showed that although the low-star ratings were on target predicting poor-performing stocks, the high-star ratings were not accurate.  There was little statistical evidence that Morningstar’s highest-rated funds outperform the next-to-highest and median-rated fund.  Just because a company assigns 5 shiny stars to a fund does not mean it will perform well in the future;

8107.  When it comes to fund ratings, companies rely on survivorship bias to obscure the picture of how well a company is doing;

8108.  Survivorship bias exists because funds that fail are not included in any future studies of fund performance for the simple reason that they don’t exist anymore;

8109.  Whitlow’s on Wilson has $4.00 draft beer, rail liquor and wine for Happy Hour (i.e., 4 o’clock to 7 o’clock as well as 7 o’clock to 9 o’clock on Wednesday and Friday nights at the first floor main bar and from 5 o’clock to 7 o’clock as well as 4 o’clock to 5 o’clock on Friday nights at the rooftop tiki bar) Monday through Friday . . . and half-priced burgers on Monday(s);

8110.  A company may start a 100 funds, but have only 50 left a couple of years later.  The company can trumpet how effective their 50 funds are, but ignore the 50 funds that failed and have been erased from history;

8111.  When you see “Best 10 Funds!” pages on mutual fund websites and magazines, it’s just as important to think about what you aren’t seeing.  The funds on that page are the ones that didn’t close down.  Out of that pool of already successful funds, of course, there will be 5-star funds;

8112.  A number of mutual fund management complexes employ the practice of starting “incubator” funds.  A complex may start 10 small new equity funds with different in-house managers and wait to see which ones are successful.  Suppose after a few years only 3 funds produce total returns better than the broad-market averages.  The complex begins to market those successful funds aggressively and drop the other 7 and burying their records;

8113.  Most people don’t actually need a financial advisor.  You can do it all on your own and come out ahead;

8114.  However, people will really complex financial situations, those who have inherited or accumulated substantial amounts of money (i.e., over $2 million) and those who are truly too busy to learn about investing for themselves also should consider seeking an advisor’s help;

8115.  If you’re determined to get professional, financial help, begin your search at the National Association of Personal Financial Advisors (NAPFA.org).  These advisors are fee-based (they usually have an hourly rate), not commissioned based, which means they want to help you, not profit off their recommendations;

8116.  One percent can cost you 28% of your returns.  A 2% fee can cost you 63% of your returns;

8117.  Ideally, you should be paying 0.1 to 0.3% in fees;

8118.  Chris Shonk’s three investment buckets: 1.  No control – The first bucket consists of the things you don’t have direct control over.  This might be the money you give to your financial advisor or money from an employer put into accounts over which you have limited input; 2.  Some influence – The second bucket holds investments that you have some influence over, but not total control.  An example Shonk shared was being a minority investor in a company.  You might have a say in what goes on, but you won’t be responsible for making the final decisions; and 3.  Direct control – The third bucket should be filled with things that you have direct control over.  This might mean stocks you choose and buy yourself, investments you put into your own business or real estate investments for which you are the primary decision-maker;

8119.  The way you balance your buckets will depend on your individual needs;

8120.  When he was a young, single entrepreneur, Shonk says he was able to move quickly and make decisions on the spot and he used his “direct control” bucket more often than not.  In your early 20s, you often have the freedom to say, “I’ve got no family, no kids.  I’m going to just go for it and I can sleep on somebody’s couch if things don’t work out;”

8121.  When you’ve got a family to consider, it’s time to balance the buckets a little differently.  Since having his first child, Shonk now keeps 50% of his wealth in the buckets that are safer, the “stay rich” buckets.  There might not be a lot of room for growth in those buckets, but there’s also not a lot of risk.  The other 50% he keeps open, ready to invest in opportunities that come his way.  As a seasoned entrepreneur and investor, Shonk knows when to go hard and invest in something that’s got potential;

8122.  The third bucket of funds can make a world of difference depending on how you see it.  Shonk suggests that you look at money as “rocket fuel,” which is especially true of the money in your “direct control” bucket;

8123.  Shonk cautions that you want to make sure all of your bases are covered and that you have enough to live on.  “Don’t be cavalier,” he warns;

8124.  It can be tempting to diversify funds in hopes of minimizing your risk, but Shonk warns against “de-worse-ification.”  You can do too many things and de-risk yourself out of anything epic ever happening.  The one thing you’ve done is assure yourself of nothing epic happening by doing too much, too small and too diversified;

8125.  Find something compelling, that “dare to be great” opportunity, and go for it.  You don’t have to throw everything in at once.  In fact, Shonk recommends staggering it.  Invest a little bit and, if it pans out, invest more;

8126.  The one thing that you have as an individual is a finite amount of everything.  A finite amount of time, a finite amount of knowledge, a finite number of relationships and a finite amount of capital.  It’s what you do with your time, knowledge, relationships and capital that makes the difference.  You want to immediately take a finite thing and make it infinite;

8127.  If you’re thinking about using a broker or actively managed fund, call them and ask them, “What were your after-tax, after-fee returns for the last 10, 15 and 20 years?”  Their response must include all fees and taxes.  The return period must be at least 10 years because the last 5 years of any time period are too volatile to matter;

8128.  With their high expense ratios, actively managed funds have to outperform cheaper, passively managed funds by at least 1-2% just to break even and that simply doesn’t happen;

8129.  In The Smartest Investment Book You’ll Ever Read, Daniel Solin cites a study conducted by Professor Edward S. O’Neal from the Babcock Graduate School of Management (now the Wake Forest School of Business).  O’Neal tracked funds whose sole purpose was to beat the market.  From 1993 through 1998, less than half of these actively managed funds beat the market.  And from 1998 through 2003, only 8% beat the market.  The number of funds that beat the market in both periods was a whopping 10 or only 2% of all large-cap funds;

8130.  Bottom line: There’s no reason to pay exorbitant fees for active management when you could do better, for cheaper, on your own;

8131.  Life doesn’t always give you time for a warm-up.  Live like life is the warm-up;

8132.  A girl’s ideal night is to see the whole club, get drinks and see the deejay;

8133.  Be physical with the girl you like.  Don’t touch the girl you don’t like, but still have fun and tell jokes;

8134.  You’re only as faithful as your options;

8135.  A woman is going to pursue someone who lets her see herself like she wants;

8136.  Validation is just recognition;

8137.  We all want to be in the inner/inside circle;

8138.  We are chasing the way others perceive us;

8139.  We pursue relationships with attractive people to like ourselves a little more;

8140.  Idealized love is love of who you want to be or how s/he sees you;

8141.  If you see yourself as undeserving, you will pursue people who treat you that way;

8142.  We attract what we are.  We look for someone who is damaged like we are;

8143.  If you have less than 40-60% mirroring (in a partner), the relationship will probably fail;

8144.  Age can be an issue in mirroring because you are at different stages in life with differing goals;

8145.  Older guys can give a woman how she wants to see herself;

8146.  Younger guys can give a woman escapism;

8147.  Don’t wish it was easier, wish you were better.  Don’t wish for less problems, wish for more skills;

8148.  Our tendency to conflate “likeable” with “trustworthy” is amazing.  One study at the University of Chicago demonstrated this.  The title of the study: “U.S. doctors are judged more on bedside manner than effectiveness of care;”

8149.  Your financial advisor might be likeable.  He might be funny and thoughtful.  But when it comes to your money, focus on results;

8150.  You should know that every dollar you’re paying to a financial advisor via fees is a dollar you could have invested.  For example, a 1% fee can reduce your returns by around 30%;