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%;
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