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Article Archive: 2023 Withdrawal symptoms 12/08/23   Retirement "After more than a year of working part-time, I fully retired two months ago. Without a paycheck, our bank account balance soon fell to a level where we needed to transfer funds from savings to pay the monthly bills. The amount I transferred was equal to just over half of my fulltime monthly paycheck. The mental anguish was palpable." Diseconomies of scale 12/08/23   Funds "We find that quant strategies are less plagued by diseconomies of scale compared to fundamental strategies." Quality of new entrants 12/08/23   Markets "We decided to revisit the US small-cap quality question, this time exploring whether the change in quality is attributable to declining profitability of companies that have been public for years, an influx of newly listed unprofitable companies, or de-listings/M&A from highly profitable companies." Regretful accelerationism 12/08/23   Media "AI-generated content, though, will likely push the situation past the breaking point: yes, the amount of money that can be made from advertising by any individual page is continually decreasing, but if pages can be produced for no marginal cost then the number of pages that will be produced is effectively infinite." Years left to live 12/08/23   Retirement "A key takeaway with life expectancy is that it increases as one gets older." The Stingy News Weekly: December 3, 2023 12/03/23   SNW This week we have Charlie Munger and more. More than money 12/03/23   Munger "The records of people and companies that are outliers are always a mix of a reasonable amount of intelligence, hard work and a lot of luck." A passive crash 12/03/23   Markets "When the traders put in their sell orders, the same algos that got in front of their buy orders on the way up will get in front of their sell orders on the way down. At that time, we expect the combination of algorithmic trading and passive outflows will create tremendous opportunities for those with liquidity." Frugal to be independent 12/03/23   Thrift "Most people are wired to seek status and success, not necessarily happiness. It's remarkable to watch someone fight back against that trend. From the outside they appear frugal. But in fact they've rejected what the world tells them they should want and looked deeper, finding their happiness elsewhere." Successful investing is hard 12/03/23   Munger "Each person has to play the game given his own marginal utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable - and some losses are inevitable - you might be wise to utilize a very conservative patterns of investment and saving all your life." Charlie Munger dies at age 99.9 11/28/23   Munger "Munger died Tuesday, according to a press release from Berkshire Hathaway. The conglomerate said it was advised by members of Munger's family that he peacefully died this morning at a California hospital. He would have turned 100 on New Year's Day." The Stingy News Weekly: November 26, 2023 11/26/23   SNW This week we have bonds, retirement, the really long run, and more. Retirement roulette 11/26/23   Retirement "What about the 4% rule? I might use it as a guideline to make sure I'm not overspending. But I'm going to be flexible about how much I spend each year, taking my cues from my portfolio's performance. At the same time, as a cushion, I plan to keep five years. worth of expected portfolio withdrawals in high-quality short-term bond funds, so there's scant risk I'd ever need to sell stocks during a market downturn." When you start 11/26/23   Behaviour "investors who opened accounts during a boom retain significantly higher equity allocations even decades later. The median investor who started out in 1999, as the dotcom bubble swelled, still held 86% of their portfolio in stocks in 2022. For those who began in 2004, when memories of the bubble bursting were still fresh, the equivalent figure was just 72%." Today's yield curve steepening 11/26/23   Bonds "However, today's steepening results from the opposite conditions. 10yUST yields are rising relative to 3mUSTs'. While the investment spread first appears to be increasing (positive), the impact on existing investments can be detrimental. Falling bond prices (produced by higher yields) could affect other assets and lower their returns. As a result, carry trade profits can compress leading to a reduction in borrowing capacity, unwinding of leverage, forced selling of assets, and lower prices. In this framework, rising interest rates can destabilize financial markets, creating less favorable investment conditions." The case of covered calls 11/25/23   Markets "Because the covered call strategy eliminates the upside potential, it produces negative skewness of returns (the kind investors dislike). And while it is true that a covered call strategy reduces kurtosis (fat tails), the problem is that it eliminates the potential for the good fat tail (the one to the right) while having no impact on the risk of occurrence of the bad fat tail (the one to the left), only reducing its size by the amount of the premiums collected." Not always for the long run 11/21/23   Markets "Once investors accept that stocks can disappoint, no matter the interval, diversified portfolios become more attractive. In an Ibbotson/Siegel world, any portfolio not 100% in stocks must underperform over the long term. Only investors with a low tolerance for short-term volatility can justify mixing in bonds. But if sometimes stocks do well and sometimes not, even an investor with a high tolerance for risk can justify diversifying away from a 100% stock position." Died with a big secret 11/21/23   Thrift "'He seemed to have what he wanted, but he didn't want much,' said Edwin 'Smokey' Smith, Holt's best friend and former employer. But Holt died earlier this year with a secret: He was a multimillionaire. And what's more, he gave it all away to this community of 4,200 people." The Stingy News Weekly: November 19, 2023 11/19/23   SNW This week we have inflation, withdrawal rates, small caps, and more. Safe withdrawal rates 11/19/23   Retirement "This is where Dave Ramsey went wrong when arguing for an 8% withdrawal rate. This only works as long as you don't get unlucky during the first 10 years of retirement. Given that the probability that you run out of money over a 30-year timeframe is only a little worse than a coin flip (42%), Ramsey's advice is far riskier for a retiree than he might have initially imagined." Death of inflation 11/19/23   Markets "The reality is that stocks have averaged about 4.4% according to Dimson (2020) or 6.6% according to Siegel (2014). A lot of this depends on which market you look at and what time horizon, but the global stock market has generated nowhere near 10% when you account for real factors like inflation, taxes and fees. And that's important because we don't live in a nominal world. We live in the real world where we pay for inflation, taxes and fees over time." Diversification is not a free lunch 11/19/23   Markets "Diversification is a vital concept for investors. It is an acceptance that the future is inherently unknowable and can take many different directions. If done well it provides protection against both uncertainty and hubris. The best indicator of an investor's overconfidence is how concentrated their portfolio is. If we could accurately predict the future, then we would only own one security." The death of small cap 11/19/23   Value Investing "small caps currently trade at a 40% discount relative to large caps in the US, so its plausible the decline in small cap quality is reflected in lower multiples. But this still leaves the question of why US small caps trade in line with Europe and at a premium to Japan despite lower GP/A." Momentum review 11/19/23   Momentum Investing "The pervasiveness of momentum returns provides perhaps the strongest evidence against the efficient market hypothesis. We find positive momentum returns in the post-2000 period in markets throughout the world, long after the phenomenon was first documented. We do not find support for risk-based explanations of momentum but find that behavioral theories provide insights about why we observe momentum in some markets but not in others. Nevertheless, we find it surprising that with the important exception of the US, most markets that exhibited momentum before 2000 continue to exhibit similarly strong momentum in the post-2000 period." The Stingy News Weekly: November 12, 2023 11/12/23   SNW This week we have stocks, bonds, inflation, retirement, and more. Inflation and the stock-bond relationship 11/12/23   Markets "For stocks to be more attractive than bonds during periods of inflation, it is not necessary that stocks be perfect inflation hedges. All that is required is that stocks be better inflation hedges than bonds." Financial cancellation 11/12/23   Crime "Banks generally won't say how often they are closing accounts this way, and they're not tracking how often they get it wrong. But federal data offer clues." Consider a bond allocation 11/12/23   Bonds "Looking ahead, we believe investors should consider the value longer-duration bonds may offer in a future environment marked by federal funds rate cuts beyond what the market has currently priced in. While cash offers limited upside, as previous results indicate, the Aggregate Index could generate an intermediate-term total return in excess of today's yield." Good economic news 11/12/23   Economy "Hourly wages for production and nonsupervisory workers (who make up about 80 percent of the American workforce) rose 4.4 percent year-on-year in the third quarter of 2023, for instance, ahead of the pace of inflation. And this was not anomalous: Arindrajit Dube, an economist at the University of Massachusetts at Amherst, crunched the numbers and found that real wages for that same sector of workers are not just higher than they were in 2019, but are now roughly where they would have been if we'd continued on the upward pre-pandemic trend." Best-laid plans 11/12/23   Retirement "I spent a lifetime planning for a happy financial ending, never considering that my health might derail those plans. Today, I'd urge others to follow their dreams as best they can while they can." What goes up 11/12/23   Indexing "Frustrating as it might seem, the reality is that any investment trend we observe might keep going or it might not, or it might continue for a while longer before fading or even reversing." Terminal valuation multiples 11/12/23   Value Investing "In short, TEV multiples should revert toward 12.0x, and an analyst should assume that a company retains 60% of its premium or discount to that multiple." The Stingy News Weekly: November 5, 2023 11/05/23   SNW This week we have Charlie, retirement, hard landings, and more. Charlie Munger interview 11/05/23   Munger "We sit down with the legendary Charlie Munger in the only dedicated longform podcast interview that he has done in his 99 years on Earth. We've gotten to have some special conversations on Acquired over the years, but this one truly takes the cake. Over dinner at his Los Angeles home, Charlie reflected with us on his own career and his nearly 50-year partnership at Berkshire Hathaway with Warren Buffett. He offered lessons and advice for investors today, and of course he shared his speech on the virtues of Costco once again (among other favorite investments). We're so glad that we got the opportunity to record and share this with you all - break out your notebooks, tune in, and enjoy the singular wit and wisdom of Charlie Munger." [video] Performance chasing 11/05/23   Funds "First, investors are chasing past returns. But on average, funds that have great returns in the last five years tend to have poor returns in the next five years. That means that investors who chase past returns and put their money into the best performing funds of the last five years tend to underperform. How long do investors underperform? The red line in the chart indicates that fund managers have about five years before their investors turn their backs on them. After five years of underperformance, there is no stopping disappointed investors from leaving the fund. My personal experience with investors is that five years is a long time. Most investors will get nervous after six to twelve months of underperformance and leave you after two to three years of underperformance." Beyond risk parity 11/05/23   Markets "The problem is that this still requires investors to forecast the expected returns of different asset classes and sub-asset classes, diagnose the risk of those asset classes, and then combine those asset classes in an optimal way based on their correlations. This problem seems equally, if not more daunting than individual security selection." Bracing for evening 11/05/23   Retirement "Not much rattles me. I'm unperturbed by stock market crashes and I don't worry whether tomorrow will come. But I must confess, I look ahead to the no-go years with trepidation. But I'm hoping that, as with so many things, thinking about the future - and planning for it - will ease those fears." Soft serving a hard landing 11/05/23   Markets "Interestingly, and slightly off topic, we're noticing more companies are choosing debt reduction over stock buybacks. It's a growing trend that we expect will accelerate assuming interest rates and refinancing risk remain elevated. Although this would be a positive for balance sheets, it could remove one of this cycle's most aggressive buyers of equities - corporations." The retired kid 11/05/23   Retirement "Back at work. At age 78, partly by game plan and partly by chance, I've arrived at a productive and meaningful partial retirement." The Stingy News Weekly: October 29, 2023 10/29/23   SNW This week we have trading, bonds, wealth, tipping, and more. Retail performs poorly 10/29/23   Markets "The evidence demonstrates that the attention-induced behavior of individual investors leads to anomalies (mispricings). That is why retail investors are referred to as 'noise traders,' while sophisticated institutional investors are referred to as 'informed traders.' Sadly, individual investor trading driven by attention leads to poor returns." Sea change 10/29/23   Markets "The upshot: While bonds might be relatively more attractive today than they were in the past, the data suggest that bonds will remain relatively less attractive compared to stocks." Americans are getting richer 10/29/23   Economy "Americans saved a lot of money since 2019, and the value of their houses and retirement accounts went up in spite of rate hikes. That's great news, and it suggests that much of the pessimism Americans are feeling about their finances is really more about the general unrest in American society and the scary stuff on the news." The dark side of tipping 10/29/23   Thrift "In a world of card payments, the days of dropping coins into a tip jar are gone. On-screen digital options can sometimes increase gratuities, but at what cost?" Demographics are not the problem 10/29/23   World "Many people (including me a few years ago) assumed that as Japan got older the Japanese would continue to stop working at the same age. But that doesn't seem to have been the case, and thus the number of available bodies in Japan has risen much more than expected. That reflects both better health and less strenuous jobs." Shorting socialism 10/29/23   World "Our research into the market experience of recent Latin American regimes seems to support the broader research on democratic norms, private property rights, and resulting market returns for countries that kept their distance from collective ownership whether via vote or vanguard. We continue to believe that investors trying to discern where to invest their capital over the decades should significantly discount markets that seem prone to policies advancing objectives that are mutually incompatible with those of capitalism." The Stingy News Weekly: October 22, 2023 10/22/23   SNW This week we have woes for the 60/40, defaults, better times, and more. Worst year in generations 10/22/23   Markets "The tried-and-true 60-40 portfolio lost 17% last year, its worst performance since at least 1937" Taking charge 10/22/23   Behaviour "I understand such handwringing, but I'm not inclined to join in. I've spent my entire life hearing that things have never been worse - and yet somehow they keep getting better." Post-earnings announcement drift 10/21/23   Markets "Instead of buying stocks with positive earnings surprises and selling stocks with negative earnings surprises, one should focus on buying stocks with positive earnings surprises that trade near their 52-week highs and selling stocks with negative earnings surprises that trade near their 52-week lows." Superlinear returns 10/21/23   Behaviour "Teachers and coaches implicitly told us the returns were linear. "You get out," I heard a thousand times, "what you put in." They meant well, but this is rarely true. If your product is only half as good as your competitor's, you don't get half as many customers. You get no customers, and you go out of business." Where are all the defaults 10/19/23   Bonds "Even if we recast the historical high-yield spread as if today's rating distribution were true throughout the spread's history, it does not change the historical behavior of the high-yield spread much." The Stingy News Weekly: October 15, 2023 10/15/23   SNW This week we have stress, fraud, ruin, and more. Paradox of past performance 10/14/23   Markets "Although we may not like to admit it, the past performance of an asset class or fund is likely to have an overwhelming influence on our decision making. We may try and mask the hold it has on us, but we are inescapably drawn towards investments with strong recent returns. The more pronounced and persistent the outperformance, the greater the pull. There is probably no more prevalent nor puzzling paradox in investing - in order to enhance our returns we make decisions based on a measure that is likely to reduce them." Coming of age 10/14/23   Retirement "Inspired by the experiences of my patients, I'd like to illustrate several of the hurdles men encounter while navigating their retirement years." Avoid stress 10/14/23   Behaviour "Everyone who has ever invested money knows that financial markets can induce stress. Nobody likes to see their investments make losses but when they do, the pressure builds to recover these losses. But does this stress change investment behaviour? I don't think that any reader will be surprised when I say that the answer is yes." Risk of ruin 10/14/23   Markets "Haghani was dismayed at how few participants grasped how to play their edge, even at an intuitive level. As well as betting on tails, they'd over-bet, under-bet, and erratically bet. Yet position sizing is a huge determinant of performance in gambling and in financial markets." The worst bond bear 10/13/23   Bonds "the crash in long-term bonds is now roughly the same magnitude as the crashes in the stock market during the dot-com bust and the Great Financial Crisis" Almost had me 10/13/23   Crime "Stay calm. Scammers thrive on creating panic and urgency. It's crucial to remain composed and not let fear cloud your judgment." The Stingy News Weekly: October 7, 2023 10/07/23   SNW This week we have bonds, retirement, oil, value, and more. Starting late 10/07/23   Retirement "What would our financial situation be if we retired and our only income was Social Security? That was entirely possible. My employer's pension plan had been woefully underfunded when I began working there. Future pension benefits were far from certain. Meanwhile, my wife's employer had recently been sold, and the new owner had no pension plan." If you're not confused, you're not paying attention 10/07/23   Bonds "bond markets act as if they think inflation can be extrapolated. Long-term interest rates tend to be high when the last decade's inflation was high. US long-term bond yields, such as the ten-year Treasury yield, are highly positively correlated (70% since 1913) with the previous ten years' inflation. But the correlation between the Treasury yield and the inflation rate over the next ten years is only 28%." International value 10/07/23   Value Investing "While value stocks have provided higher returns than growth stocks, like all strategies that invest in risky assets, value investors experience long periods of underperformance. Such periods test investor discipline. Sadly, it is my experience that while economists know that when it comes to risk assets, returns over periods of 10 years or even longer are likely to be just 'noise,' most investors think that three years is a long time to judge performance, five years a very long time, and ten years an eternity. That belief leads them to sell after periods of underperformance. This is even though such periods generally result in asset trading at historically cheap levels." Between bold and reckless 10/07/23   Bahaviour "If success requires taking risk that could easily turn into failure, and the line between the two is nearly invisible in real time, I want to learn from people who accidentally stepped over the line and lived to tell the tale. Companies that survived deep recessions. Investors who survived bear markets. Products that flopped, were redesigned, and then worked." One less vulnerability 10/07/23   Markets "Many of the relationships we have come to know and love (oil vs. USDCAD, Aussie vs. Terms of Trade) have broken down as transmission mechanisms have changed." House of cards 10/07/23   Behaviour "what intrigues me is why people end up with horrifying card balances. On the way to five-figure or six-figure card debt, you have to imagine there's a moment or two when cardholders think, 'Maybe this is getting out of control. Maybe it's time to stop spending.' And yet they don't." The Stingy News Weekly: October 1, 2023 10/01/23   SNW This week we have stocks, bonds, books, and more. The tide is going out 10/01/23   Markets "Much like the tidal cycle in Nova Scotia, which sees the tide go in and out every 12-hours, the economy has been in a very advantageous tidal period for more than 12-years given how long interest rates hovered near historic lows. Yet, with the Fed having hiked rates more quickly than in any period since the early 1980's, the economic tide is clearly shifting. So far, we have just seen the earliest signs." Asset class CAPM 10/01/23   Markets "CAPM suggests that stock returns should rise linearly with volatility. But chart equity returns against volatility and you'll see a scatter plot - indeed, the best-fit regression line that runs through the scatter in fact slopes downward." Fabricating data 10/01/23   Behaviour "there are two different people independently faking data on the same paper. And it's a paper about dishonesty." Partisanship predicts passing 10/01/23   Health "The differences in state death rates are very likely because of differences in vaccine uptake" The Stingy News Weekly: September 24, 2023 09/24/23   SNW This week we have bonds, banks, bubbles, and more. Long and short of it 09/24/23   Bonds "I would lean heavily on short-term bonds. Since interest rates are unpredictable, I see that as the best route to preserving value." Downside of short selling 09/24/23   Markets "Activist short-sellers who remain anonymous typically do so for fear of harassment of themselves and their families, from either their targeted companies or investors who lost money when the stocks of those companies declined in value. They also worry about fending off costly lawsuits." We'll have a good time then 09/24/23   Markets "The Fed needs to be very careful here. The working class and younger generations may discover who is responsible for their inability to own a home." What Works in Banking 09/24/23   Value Investing "A strategy that buys cheap, high-quality banks with conservatively managed loan and asset books can be expected to deliver excess returns in the majority of market environments." Two per cent real yields 09/24/23   Bonds "The good news for investors is that the highest yields in ~15 years, either real or nominal, can be locked in with a buy-and-hold strategy. No one knows if current rates are at or near a peak, but this much is clear: the case for a relatively higher allocation to Treasuries vs. recent history hasn.t looked this compelling since George W. Bush was walking the floor in the Oval Office." Morgan Housel's portfolio 09/24/23   Indexing "Save your money and have a level of cash with which you can absorb and manage and survive all of the unpredictable nonsense in the economy, but invest your money like an optimist." The Stingy News Weekly: September 17, 2023 09/17/23   SNW This week we have stocks, bonds, retirement, and more. Household balance sheets 09/17/23   Economy "The average debt-to-asset ratio historically has been around 13% (currently 12%), getting as high as 20% in 2009 at the depths of the financial crisis and as low as 6% in 1952 before consumer credit exploded higher in this country." Stock-bond correlation 09/17/23   Markets "Investors tend to think of stocks and bonds as negatively correlated, with stocks doing well in positive growth environments and bonds doing well when growth slows or declines. And that was largely true for the last quarter century. But earlier this year, the trailing three-year correlation between stocks and bonds turned positive for the first time since November of 2000" The China model 09/16/23   World "The Peking University professor Zhang Dandan recently estimated that the unemployment rate among youth ages 16 to 24 could be close to 50 percent, more than twice the official figure." Network effects unravel 09/16/23   Markets "For network effects to occur, the product or service has to be highly relevant to its users. When relevance fades, network effects quickly unravel." Getting ready 09/16/23   Retirement "I underestimated how much cash I should have on hand. I thought of myself as a 'rational person.' I could just sell investments when my cash cushion got close to zero, right? Wrong. It turns out I needed a larger cash buffer to sleep well at night. In my defense, it's hard to predict this number without living through a year or two of retirement spending, and watching your dollars dwindle. The lesson: Err on the conservative side." The Stingy News Weekly: September 10, 2023 09/10/23   SNW This week we have big stocks, retirement, stories, and more. Stories vs. intelligence 09/10/23   Behaviour "Stories are indispensable, nourishing and delightful. They are also attacks on the rational immune system." Be suspicious of stories 09/10/23   Behaviour "Tyler Cowen talks about stories" [video] Hot stocks of the decade 09/10/23   Markets "In each of the five full decades we studied, the weight of the top 100 stocks at the end of one decade was materially lower in the next. The decade following the dot-com craze of the 1990s (the 2000s) witnessed the lowest survival rate in our study with only 73% of stocks remaining a decade later" Respect and admiration 09/10/23   Behaviour "Virtually no one in this exercise would think about their obituary mentioning how much horsepower their car has, how many square feet their home is, or how much they spent on jewelry and clothes." More bang for your buck 09/10/23   Value Investing "Europe offers higher profitability among firms trading at deep discounts." On second thought 09/10/23   Indexing "I'm no longer much interested in retirement, at least as traditionally defined. Instead, I see the overriding goal as financial freedom - meaning the freedom to spend my days as I wish without worrying about money. What's the key to not worrying? In large part, it's about feeling we have enough, which is less about a specific dollar amount and more about our willingness to be content with what we've accumulated." The Stingy News Weekly: September 4, 2023 09/04/23   SNW This week we have Buffett, cars, errors, and more. Warren Buffett's canvas 09/03/23   Buffett "Berkshire is likely to continue returning capital to shareholders via repurchases in the years to come, but I suspect that if Mr. Buffett keeps at it for several years, the painting will continue to evolve. The evolution will be subtle from year to year but could be striking in a decade." (when he'll be 103) How to decide 09/03/23   Behaviour "To make sound judgments, some amount of information is necessary. But beyond a certain point, gathering more data doesn't always lead to better decisions. In fact, it can lead to worse results." Driverless cars may be safer 09/03/23   Tech "I would qualify this only slightly by noting that some locations are more difficult than others and while San Francisco is quite difficult terrain, Phoenix, Arizona was chosen because of flat terrain and sunny weather. Still, the bottom line is absolutely correct. Driverless cars are safer and more capable than many people think and we should always measure their defects relative to realistic alternatives and not to some idealized notion of perfection." Dissecting the investment factor 09/03/23   Markets "The investment factor should not be considered in isolation when building portfolios, as profitability and how asset growth is financed (internally or externally) matters. Not all high investment firms (defined as high asset growth) have low expected returns, as those with high profitability and asset growth financed internally have high expected returns." Market returns with error 09/03/23   Markets "For periods beginning 1926, it is conventional to suppose that historical market returns are known with reasonable accuracy. This paper challenges that comfortable certainty. Multiple indexes of market return are examined to show that return estimates do not closely agree across indexes and are unstable within index over time. The paper concludes that two-decimal precision - to the whole percentage point, with an error band of plus or minus one percentage point - would better reflect the accuracy of historical estimates of annual market return. Implications for evaluating mutual fund performance and back testing investment strategies are considered." The Stingy News Weekly: August 27, 2023 08/27/23   SNW This week we have retirement, risk, recession, and more. Castles built on sand 08/27/23   Markets "I woke up to the realization that no matter what the text books say about risk-free investments, there are times when finding an investment with a guaranteed return can become an impossible task." Die with zero 08/27/23   Books "he argues that the purpose of life is to accumulate as many fulfilling experiences as possible, and in doing so we should aim to die with zero dollars." Scared money 08/27/23   Markets "Our bottom-up review supports our belief that the economy is slowing. The inflation rate is also slowing, but accumulated inflation remains a serious concern, especially for middle to lower-income consumers." What we lose 08/27/23   Retirement "If we're to be happy retirees, we need to think hard about how we'll cope with these losses. For some, what's lost won't seem all that bad. But for me - someone for whom work has been so central to my life - the seven losses below loom large." The Stingy News Weekly: August 20, 2023 08/20/23   SNW This week we have retirement, Buffett, and more. Big decisions 08/20/23   Behaviour "Biographer Alice Schroeder writes that, above all, Buffett's motivation for buying more of the company's stock was to stick it to the CEO who tried to screw him out of twelve cents per share." Investing for immortals 08/20/23   Markets "Within equities, I would probably split it 50/50 into a value and a momentum portfolio and within each of these portfolios, I would hold equal amounts in each stock." Less money than you think 08/20/23   Retirement "The median household in this study simply spent the income from their portfolio and avoided taking from the principal portfolio balance." Financial superpowers 08/20/23   Retirement "The lower your fixed living costs, the easier the rest of your financial life will be. You'll have more for discretionary 'fun' spending, for savings, and for giving both to charity and to loved ones. In addition, if your fixed monthly costs are low, you'll be in better shape if your financial life takes a big hit, such as losing your job or needing to pay for a major home repair." The Stingy News Weekly: August 13, 2023 08/13/23   SNW This week we have Warrren, Seth, Graham, and more. Seth Klarman on Security Analysis 08/13/23   Value Investing "An avid coin collector as a kid, Klarman would read everything he could about his hobby. In 1965, the U.S. mint stopped using silver in dimes and quarters, and reduced the amount in half dollars, as the price of silver rose. In 1971, when Klarman was 14 and riding the New York City buses, he befriended the driver, who let him swap a current quarter for the more valuable pre-1965 pure silver coins in the bus's fare box. He was buying the proverbial dollar at a discount." A strange public offering 08/13/23   Buffett "Let me also put our thoughts about valuation more baldly: Berkshire is selling at a price at which Charlie and I would not consider buying it." Against Cassandras 08/13/23   Markets "if you listen to Cassandras, I am very confident, you will lose money in the long run. The only way to make money with doom and gloom forecasts is to time them both on the way in and on the way out very precisely. And I know nobody, who can do that. In fact, the simple observation that the Cassandras all seem to be bearish all the time should tell you one thing: The only ones making money from these doom and gloom forecasts are the ones who make them." The Stingy News Weekly: August 7, 2023 08/07/23   SNW This week we have books, Japan, corrections, and more. Start many, finish few 08/07/23   Books "Most books I don't read past the first chapter. I'm not burdened by bad books" Corrections in bull markets 08/07/23   Markets "So in almost half of all years when the U.S. stock market is up by 20% or more, there has been a double-digit correction during the journey to those wonderful gains." 7 per cent mortgage rates 08/07/23   Real Estate "The recent surge in rates started in June, and if there is an impact on sales from higher mortgage rates, it will likely impact closed sales in the August through October timeframe." The Top 5 08/07/23   Markets "The last 10 years have seen a concentration of returns to the tech sector and to a few companies within that sector. This is both notable and unusual. With the advent of exciting new technologies like AI and superconductors, we think it's plausible that the top 5 largest companies 10 years from now may look quite different from the top 5 today. In which case, a diversified portfolio would likely serve investors better than a highly concentrated size-defined portfolio." Japan in demand 08/07/23   World "On the corporate front, buybacks are set to hit a second consecutive record-setting year in Japan, and dividend yields in deep-value Japanese stocks reached parity with the rest of the developed markets for the first time in 20 years this last year. With these developments already in the works, it's not too surprising to see global asset allocators run out of tangible reasons for the continued dramatic underweight on Japanese equities." The Stingy News Weekly: July 29, 2023 07/29/23   SNW This week we have retirement, the end of growth, and more. Modest, but enough 07/29/23   Retirement "It's easy to be intimidated into thinking you need a lot of money to retire comfortably. The media is full of stories and advertising promoting luxury lifestyles. That can lead you to believe you need to spend six figures to get the most out of your golden years. The truth is, plenty of typical middle-class Canadians live comfortable and satisfying retirements on much more modest budgets." How much to retire? 07/29/23   Retirement "Now we tackle the tricky question of figuring out how much you can draw from your savings at a sustainable rate that involves little risk of outliving your wealth." Visiting death 07/29/23   Retirement "The difference that stands out to me is that such old folks no longer seek nor expect personal transformations. They are comfortable and secure in their personalities, styles, views, relations, and accomplishments, and rarely seek big changes to such things." End of an era 07/29/23   Markets "A Fed economist argues we should expect a slowdown in net income growth" Everything is cyclical 07/29/23   Markets "A lot of mistakes in life come when you think risk is something caused by external forces, when in fact the weight of your own success is enough to pull you down without any outside help." The Stingy News Weekly: July 23, 2023 07/23/23   SNW This week we have value, momentum, courage, and more. Courage required 07/23/23   Behaviour "Do not underestimate the courage it takes to hold stocks during the worst of times, let alone to purchase more. Holding and buying assets that everyone else is running from takes more fortitude than many investors can manage." Rich and anonymous 07/23/23   Behaviour "They figured out what so many other people fail to recognize: The way you maximize enjoying your money is by eliminating social debt. They had total freedom, privacy, and independence." The Albert Bridge factory 07/23/23   Value Investing "despite the many short-term headwinds most 'value' investors have experienced over the last few years, that is where we'll have long-term tailwinds." PE Improvements 07/23/23   Markets "We received a large number of emails and questions about last week's research, and so we thought we'd do a deeper dive into the data to try to provide further insight into the most controversial points." Reducing momentum crashes 07/23/23   Momentum Investing "Stocks far from peaks outperforming stocks near peaks during the market rebounds are the key to understanding the economic channel behind momentum crashes and momentum profits' time-variation." The Stingy News Weekly: July 16, 2023 07/16/23   SNW This week we have indexing, markets, debt, value, and more. International diversification is prudent 07/16/23   Markets "Given the current (as of March 2023) economic positions for the U.S. CAPE (at 3.4%) and the EAFE CAPE 10 (5.6%), unless these values change, investors can reasonably estimate EAFE markets to outperform the S&P 500 by 2.2% annually." Looking up and down 07/16/23   Indexing "I'm happy to over-rebalance when the stock market nosedives, shifting a higher percentage of my portfolio into stock funds than my written asset allocation calls for. But the opposite isn't true. When stocks soar, I sell shares to get back to my target percentage" The red superball 07/16/23   Economy "The current environment for stocks continues to remind us of 2007 when investors also appeared undeterred by developing cracks in the economy and earnings. Based on normalized earnings of many of the businesses we analyze, we believe most stocks are overvalued and have significant downside risk. As investors shrug off slowing earnings growth, sticky accumulated inflation, competitive risk-free rates, and expensive valuations, we believe the future returns of equities are very uncertain, and in our opinion, remain inadequate relative to risk assumed." P.E. operational improvements 07/16/23   Markets "By and large, as an industry, PE firms take control of businesses to increase debt. As a result, or in tandem, the growth of the business and the rate of spending on capex slows. That's a simple, structural change, not a grand shift in strategy or a change that really requires any expertise in management." Sustainable investors expect lower returns 07/16/23   Markets "The takeaway for those investors is to recognize that they are accepting not only lower expected returns, but lower risk-adjusted expected returns, to invest in accordance with their sustainability preferences." The Stingy News Weekly: July 9, 2023 07/09/23   SNW This week we have value, bonds, indexing, markets, and more. End of an era 07/09/23   Markets "I show that the decline in interest rates and corporate tax rates over the past three decades accounts for the majority of the period's exceptional stock market performance. Lower interest expenses and corporate tax rates mechanically explain over 40 percent of the real growth in corporate profits from 1989 to 2019. In addition, the decline in risk-free rates alone accounts for all of the expansion in price-to-earnings multiples. I argue, however, that the boost to profits and valuations from ever-declining interest and corporate tax rates is unlikely to continue, indicating significantly lower profit growth and stock returns in the future." When will interest rates matter? 07/09/23   Economy "There are all sorts of crazy things going on here when you consider how inverted the yield curve is, the speed of the rise in rates and the absolute level of yields that we haven't seen - at least on the short end of the curve - in decades. So when is it all going to matter?" Value of float 07/09/23   Buffett "So, reasonably or unreasonably, I am going to assume that 5% is the point Buffett won't go below for long term rates." Alternative value metrics 07/09/23   Value Investing "The researchers showed that these alternative value metrics indirectly exposed the profitability premium and a sector allocation closer to the U.S. market. For example, the hypothetical P/B portfolio had an allocation to the financial sector of 27%, more than twice as much as the U.S. market. On the other hand, the hypothetical portfolio formed on P/CF had a weighting to financials of 16% compared with the market's 13% weighting." The smart debt money 07/09/23   Bonds "Single B credit has lower returns than BB credit. Our long-standing opinion is that the incremental yield available from lower-rated credit is erased by higher default and down-grade losses. Perhaps the greatest innovation of private credit is that it is not rated. We suspect that if we could get aggregate credit stats for private credit, investors would be concerned by what they found." No right way 07/09/23   Indexing "Every indexer makes judgment calls. Yes, there may be choices that are more sensible than others. But there's no one index-fund portfolio strategy that's right for everyone. Instead, the right portfolio is the one that works for you." The Stingy News Weekly: July 2, 2023 07/02/23   SNW This week we have AI, value, quality, and more. He got us to diversify 07/02/23   Markets "Markowitz's lasting contribution is that he taught investors how to think about diversification, and few people debate that." Value and profitability are complementary 07/02/23   Value Investing "While sharing a common trading philosophy, we believe the characteristic differences between value and quality mean that they are complementary in a portfolio because they work in different ways and at different times. Both strategies can offer a return premium to the market, with the equal-weight value portfolio outperforming the market by 3 percentage points per year since 1998 and the equal-weight quality portfolio outpacing the market by 2 percentage points per year over the same horizon" Why I retired 07/02/23   Retirement "Ken, why are you here on a Sunday if you can retire? This isn't a dress rehearsal for life. This is it. You don't get a second chance." AI is killing the old web 06/27/23   Tech "By contrast, the information produced by AI language models and chatbots is often incorrect. The tricky thing is that when it's wrong, it's wrong in ways that are difficult to spot." The Stingy News Weekly: June 25, 2023 06/25/23   SNW This week we have bulls, bombs, recessions, and more. How we unretired 06/25/23   Retirement "One recent trend among newly minted retirees: unretirement. According to an AARP study, some 3% of retirees are back in the workforce one year later, taking on either fulltime or part-time jobs. Often, unretiring wasn't part of the retiree's original plan - but we shouldn't assume it's necessarily about needing money." Bulls are back 06/25/23   Markets "When you combine the current drawdown, the possibility of further inflation, and the high amount of market concentration in our current rally, you can see why I'm hesitant to take a victory lap for the new bull market." The depopulation bomb 06/25/23   World "Stephen J. Shaw, data scientist and demographer, talks about the global decline in birth rates" [video] Losses in the safest asset 06/25/23   Markets "So, let's pause and briefly recap. At this point, it's clear that there's no single asset that is guaranteed to preserve your wealth. The best we've done is a -49% decline. In the safest asset you still lost half your money at some point!" [pdf] The replication problem in finance 06/25/23   Markets "There is a problem with replication of finance studies on risk premia and trading strategies. Additionally, there is a problem of out-of-sample results not matching in-sample returns. You don't get what you think with most financial studies. There are a couple of reasons for this disconnect. One, the construction of the test was poor. Two, the articles published are only extremes from data mining. Three, risk premia, once observed are arbitraged away. Four, market behavior and structures change. Overall, the buyer needs to beware." Recession probabilities 06/25/23   Economy An update to Recession Probabilities based on Multiple Financial Measures The Stingy News Weekly: June 16, 2023 06/16/23   SNW This week we have value at all sizes, stocks for the long run, and more. Negatives of index replication 06/16/23   Indexing "The dirty secret of index fund investing is that the transaction costs are still there and simply hidden in plain sight." Stocks a good hedge 06/16/23   Markets "Households who want to fund a goal over an extended period that is adjusted for inflation (e.g., retirement income) should actively consider owning equities, even if they are relatively risk averse." Japan's value mandate 06/16/23   Value Investing "If the reform catalyst plays out, a rising tide may lift all boats, and one might do quite well investing in Japanese large value. But it is curious to us that the stocks you would expect to be most in demand based on the catalyst criterion (and fundamentals) have seen prices rise the least so far this year as investors got excited about Japan." Size doesn't matter 06/16/23   Value Investing "The fact large-cap value and small-cap value stocks earn similar returns may be shocking for investors who have been sold the idea that value investors have to invest in small-caps to capture the value premium. But we need to remember that data/evidence should drive decisions, not stories." Size and long-only value investing 06/16/23   Value Investing "Equally weighted large-cap value portfolios have historically earned similar returns as small-cap value portfolios." [pdf] The Stingy News Weekly: June 11, 2023 06/11/23   SNW This week we have inflation, forecasts, retirement, and more. Lawrence Summers speaks 06/11/23   Economy Rethinking fiscal policy by Lawrence H. Summers [video] Bad at forecasting 06/11/23   Markets "The long-term average market return is 8.9%, yet the average forecast return is less than half that at 3.8%! The average return of the CFO survey is 4.0% and the average return from the household surveys is 6.7%." Bull market vs unemployment 06/11/23   Markets "Average annual returns have been higher from higher unemployment rates and lower from lower unemployment rates." Key to work-life balance 06/11/23   Retirement "80 percent of semi-retirees say they're employed because they want to be; working after retirement is actually more common among workers with higher socioeconomic status. Though some of them might appreciate the extra income, many seem to also find these jobs enjoyable and fulfilling." The worm turns 06/11/23   Markets "Have we finally reached a point of spending exhaustion where the decline in the middle- and lower-income consumer outweighs the growth in spending from the higher-end? From our bottom-up perspective, it appears a growing number of consumers have reached a tipping point. While two months don't make a long-term trend, we believe the worm has finally turned. The all-important consumer is slowing." Hidden cost of covered call writing 06/05/23   Markets "there is a hidden cost of covered call writing, which is the potentially significant opportunity cost of having the stock go above the strike price causing lost portfolio appreciation." The Stingy News Weekly: June 4, 2023 06/04/23   SNW This week we have real estate, retirement, growth, and more. Gains from corporate tax cuts 06/04/23   Taxes "Goods producers increase their capital expenditure and employment in response to a cut in marginal corporate income tax rates or an increase in investment tax credits. In contrast, companies in the service sector mostly use any tax windfall to increase dividend payouts. We base our conclusions on a novel measure of U.S. firm-specific tax shocks that combines changes in statutory tax rates faced by each firm with narrative identified legislated U.S. federal tax changes between 1950 and 2006." Housing affordability 06/04/23   Real Estate "Even when adjusting for inflation to even things out a bit, housing prices are precarious at the moment for anyone taking on a new mortgage payment" When to retire 06/03/23   Retirement "I found it's a good idea to make a list of financial benefits you want to take advantage of before you retire. You should also consider any expenses that could influence your decision. What follows are nine financial situations that might determine your retirement date." Growth vs Glamour 06/03/23   Growth Investing "The bottom line is that the academic definition of 'growth investing' isn't really a proper growth investment style. It is an investment style that invests in overvalued stocks. And the performance difference shown above also means that growth investing does not deserve the ridicule that is often targeted at it by academics and value investors who say that growth investors simply buy a load of glamour stocks at high valuations and then hope they will become even more expensive than they already are." Private equity fundamentals 06/03/23   Markets "From a quantitative perspective, the fundamentals of sponsor-backed companies look frightening. Yet private equity remains the darling asset class of sophisticated investors, with many endowments and family offices nearing a 40% allocation The financial fundamentals look far less attractive than one might expect, given such high level of enthusiasm." The sin premium 06/03/23   Markets "Their findings are consistent with economic theory - investors require higher expected returns to hold more sinful stocks." Rent deceleration 06/03/23   Real Estate "My suspicion is year-over-year rent increases will slow further over the coming months with slow household formation, and as more supply comes on the market." The Stingy News Weekly: May 28, 2023 05/28/23   SNW This week we have timing, trends, extending, junk, and more. Investment junk food 05/28/23   Behaviour "Easy and instant access to information is often framed as a major advantage to present day investors compared to their predecessors, but if anything we suffer from a profound information disadvantage. The benefit of improved knowledge is easily overwhelmed by the behavioural challenge of dealing with an incessant torrent of noise. Much of what investors consume is little more than investment junk food, tempting us into decisions that feel good in the moment but come with a material long-term cost." Trend following in equities 05/28/23   Markets "Japan can be used as a case study as it is ahead of the rest of the world in terms of a declining population. Economic growth has been anemic and its stock market features a long bear market between 1989 and 2010. The results from this analysis do not highlight that long-short trend following was effective when applied to the Nikkei 225, although long-only trend following generated attractive risk-adjusted returns." The time to buy stocks 05/28/23   Markets "Sixty-one percent of U.S. adults say they have money invested in the stock market, the highest percentage Gallup has measured since 2008. Stock ownership fell during the Great Recession and stayed depressed for more than a decade, including lows of 52% in 2013 and 2016." Extend and pretend 05/28/23   Real Estate "Most of those are mortgages with amortizations 35 years or longer, as reported by the banks. The share of the Canadian mortgage portfolio with amortizations 35 years or longer was 25% at CIBC, RBC, and TD, respectively." Timing 05/28/23   Markets "Difficult as it might be sometimes, investors' best bet is to choose an asset allocation - and then to stick with it." The Stingy News Weekly: May 21, 2023 05/21/23   SNW This week we have momentum, volatility, value, options, commodities, and more. The investing mystery of our age 05/21/23   Markets "The paradox of our decade is that the capex needs of a multipolar, environmentally conscious, world are enormous. But, nobody wants to invest in capex for commodities! This is untenable." Zero-day options 05/21/23   Markets "Wall Street has accepted that derivatives trading will never be the same after the frenzy for fast-twitch stock options took hold. What it next has to absorb: The equity market itself is threatening to go the same way." The ugly truth behind the ugly 05/21/23   Real Estate "Now it's David's turn to refuse to walk away: He's using proceeds from the sale to continue his elder abuse lawsuit against Patriot Holdings. A trial date is set for June." Concentrating for factors 05/21/23   Value Investing "How many stocks should you own in a concentrated factor portfolio if the goal is maximizing expected returns or Sharpe ratio?" Reducing momentum crashes 05/21/23   Momentum Investing "Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of momentum stocks, made somewhat 'immune' to momentum crashes , by including stocks far away from their peak position relative to stocks very near their peaks. Turns out the outperformance is very large. It also accounts for the majority of negative momentum performance." Outperformance, please 05/21/23   Behaviour "What's the difference between fund 1 and fund 2 that makes fund 2 so much more attractive? I can tell you it isn't the return because the two funds are designed to have exactly the same return. The key difference between fund 1 and fund 2 is that fund 1 is a frequent underperformer that sometimes has a large outperformance, while fund 2 is a frequent outperformer but sometimes suffers large underperformance." The Stingy News Weekly: May 14, 2023 05/14/23   SNW This week we have monkeys, retirement, risk, and more. Find the bottleneck first 05/14/23   Management "To understand monkeys and pedestals, imagine that you're trying to teach a monkey to juggle flaming torches while it stands on a pedestal in the town square. Two tasks are competing for your money, time, and attention: training the monkey and building the pedestal. One is a possibly intractable obstacle. And the other is building the pedestal." Save more to retire earlier 05/14/23   Thrift "The good news is that we can quantify how much earlier you could retire if you increased your savings rate by 1%. The bad news is that this answer also depends your current savings rate." Diversification 05/14/23   Markets "It's worth noting that any strategy that attempts to beat the market will, by definition, need to have a tracking error greater than 0. One way this could potentially be achieved is with a very concentrated (10- to 20-stock) portfolio, as employed by many actively managed hedge funds. Another way could potentially be through a quantitative approach that seeks to capture factor premia while diversifying away unsystematic risk through larger portfolios." U.S. investors underestimate risk 05/14/23   World "The tendency to invest in domestic stocks may appear safer to Americans than the risk experienced by global stock investors. While it is important to use expected returns as the primary input in a financial plan, advisors should be aware that the possibility of extreme losses that could derail a plan isn't limited to the worst-case scenarios experienced only by U.S. investors." Physical finance 05/14/23   Behaviour "I have to say I remain a bit skeptical" The Stingy News Weekly: May 7, 2023 05/07/23   SNW This week we have Buffett, ETFs, freedom, and more. The 2023 Warren and Charlie show 05/07/23   Buffett "the Berkshire Hathaway annual meeting is a gathering of the company's shareholders presided over by Chairman and CEO Warren Buffett and Vice Chairman Charlie Munger. The Omaha, Nebraska, event gives shareholders a chance to hear Buffett and Munger discuss investing, their economic outlook and life, as well as ask the legendary pair questions." [video] Financial freedom 05/07/23   Behaviour "Financial freedom isn't a seven- or eight-figure portfolio balance. Instead, it's knowing we have enough to pay for the life we want. It's the ability to enjoy two great luxuries - spending our time as we wish and not having to think about money." Best times to trade ETFs 05/07/23   Markets "Avoid the open. Avoid FOMC announcement periods." Make less make more 05/07/23   Economy "Like many of the drivers of the current market and profit cycle, we believe the strategy of making less to make more is unsustainable. The willingness and ability of certain customers to pay higher prices should not be confused with a healthy economy. It's not. As prices increase and volumes decline, economic activity is shrinking. Further, as more companies crowd into the higher-end segment, the risk of becoming overly dependent on volatile and inflated asset prices is growing. While revenue growth from price increases and serving the wealthy may camouflage the decline in economic activity in the near-term, ultimately, to grow organically, the economy must make more, not less. If it doesn't, we'll eventually just be buying and selling empty boxes." Garbage is back 05/07/23   Markets "hype-driven rallies around narrative themes have become a dominant feature in the US equity markets" The Stingy News Weekly: April 30, 2023 04/30/23   SNW This week we have value, AI, fish, teams, and more. AI is a waste of time 04/30/23   Tech "AI will waste a billion hours before it saves a billion hours. Before it kills us all, it will kill a lot of time." Solo vs. teams 04/30/23   Funds "In other words, while the average single-manager hedge fund has better performance, individual funds can be at the very top or at the very bottom, depending on the decisions of the fund manager. Team-managed funds are in the murky middle, neither particularly good nor particularly bad." Swedish Fish 04/30/23   Value Investing "Overall, we think that the low valuations in Europe relative to the US warrant a consideration of overweighting Europe in a global asset allocation today. And one doesn't have to enjoy eating fermented herring or ice swimming to be attracted to the historical discounts on offer in countries like Sweden." Expectations affect share repurchases 04/30/23   Markets "It finds that firms repurchase significantly more shares when they expect higher future earnings relative to market expectations, which is consistent with the undervaluation hypothesis. This finding holds regardless of the level of underlying valuations. The results do not appear to be driven by managerial misvaluation or bias. Rather, my findings suggest that firms utilize insider information to time the market with respect to share repurchase decisions." Booms and busts in value 04/30/23   Value Investing "Campbell, Giglio, and Polk also showed that while the classic value strategy bets on the convergence of valuation ratios across and within industries, the intra-industry component of such a bet typically contributes much more to value.s average outperformance. Thus, investors building value-oriented portfolios might want to consider funds that are industry neutral." The Stingy News Weekly: April 23, 2023 04/23/23   SNW This week we have inflation, wealth, incentives, and more. Price over volume 04/22/23   Economy "Those are good excuses to raise pricing and not care about volume. And that is the world we are living in. Volume doesn't matter. Price does." Rich vs wealthy 04/22/23   Thrift "if you want to feel wealthier you can either: (1) increase your net worth or (2) decrease your desires. This is how you can have far less than someone else while still feeling like you have much more." How incentives work 04/22/23   Books "Too often there's a conflict between what you say and what your incentives signal. You can tell everyone that you care about honesty, but talk is cheap. For the claim to be credible, you need to back it up by taking actions that are costly to you, such as paying the full entrance fee. If you align what you say with the incentives you offer, the signal will be credible and easy to understand." Learned along the way 04/22/23   Books "There are many paths to the top of the mountain. Most journeys start haphazardly, trying one route and then another. But eventually, successful investors settle down and do mostly the right thing for many years, and they end up with surprising wealth - and nobody's more surprised than the investors themselves, who discover that a huge pile of dollars has resulted from decades of prosaic prudence." Pauper's grave retirement plan 04/22/23   Fun "In an acknowledgement of the financial struggles many Canadians are facing, CIBC has announced a new investment plan to help customers scrape through lives of quiet desperation until they're ready to be unceremoniously rolled into a ditch and paved over." [humour] The Stingy News Weekly: April 16, 2023 04/16/23   SNW This week we have compounding, deflation, the Reads, and more. Saved by compounding 04/16/23   Thrift "Consider an investor over a 30-year period earning a 5% average annual return after expenses, versus a pre-cost 7%. Missing out on those two percentage points yields a final result that's half what it could have been." Book publishing 04/16/23   Books "BookScan found that only 6.7 percent of the new titles released by (the top ten publishers in the U.S. trade market) were selling more than 10,000 copies in their first year of sales, only 12.3 percent were selling more than 5,000 copies in their first year, and only 33.9 percent of these titles were selling more than 1,000 copies in their first year." Deflation? 04/16/23   Economy "One month ago, I 'officially' took the position that inflation had been conquered, and that, properly measured, the economy had actually been experiencing deflation since last June. This morning's report only confirmed that position." Automatic enrollment 04/16/23   Retirement "In 2006, nearly one-quarter of participants ages 18 to 24 had no equity exposure. In 2021, 97% of automatically enrolled Generation Z participants had an equity allocation between 41% and 99%." [pdf] Be like the Reads 04/16/23   Thrift "While it might seem like common sense not to spend too much or too little, it can be tricky to achieve this balance. But there are some strategies that can help." The Stingy News Weekly: April 9, 2023 04/09/23   SNW This week we have light, value, mortgages, and more. European value 04/08/23   World "the European market is effectively a large value index today, as it trades at 13x Price/Earnings, which is cheaper than the US large value index at 14x Price/Earnings" The economy and the market 04/08/23   Economy "the US economy and stock market showed a high correlation throughout most of this period. Correlations only fell off considerably four times: during the Great Depression, World War II, the 1990s, and the global pandemic. All of which suggests the S&P 500 was a good proxy for the US economy for much of the last 120 years." Making life worse one bulb at a time 04/08/23   Government "There's something off about LED bulbs - which will soon be, thanks to a federal ban, the only kind you can buy." Mortgage rate update 04/08/23   Bonds "With the ten-year yield at 3.3%, and based on an historical relationship, 30-year rates would currently be around 5.0%. So, mortgage rates are higher than expected based on the ten-year yield" The Stingy News Weekly: April 2, 2023 04/02/23   SNW This week we have average, diversifiction, inflation, and more. The age of average 04/02/23   Markets "Distinctiveness has died. In every field we look at, we find that everything looks the same. Welcome to the age of average." So much to like 04/02/23   Markets "Not only are stocks better value than they were 15 months ago, but also the long-term benefits remain as impressive as ever. What benefits? Here are nine reasons I have 88% of my retirement portfolio in stocks." Feel bad all the time 04/02/23   Markets "The average number of days to go from peak to trough is 381, so just over a year. The average number of days to go from the previous peak to new all-time highs is 1,166 days or more than 3 years." Simple diversification 04/02/23   Markets "The research we reviewed demonstrates that a simple 1/N factor diversification strategy will likely be at least as efficient as more 'sophisticated' versions such as mean-variance and minimum variance strategies." Historical CPI based on current practices 04/02/23   Economy "we find that current inflation levels are much closer to past inflation peaks than the official series would suggest." Memory and probability 04/02/23   Behaviour "Behavioral economists connect the way our memory works to how we make probability judgments" The Stingy News Weekly: March 25, 2023 03/25/23   SNW This week we have Hetty, happiness, timing, and more. America's first value investor 03/25/23   Value Investing "Hetty Green's accomplishments are extraordinary by any standard, but what makes them even more impressive is that she succeeded despite having none of the advantages afforded to men at the time. Hetty Green could not purchase a seat on the New York Stock Exchange, serve as a director on a corporate board, or even exercise the right to vote." No satisfaction 03/25/23   Behaviour "But here's what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness 'is weak, even if statistically robust.' In fact, they go on to note that 'the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.'" Mr. Market's paddle 03/25/23   Markets "Fed members also appear confused by the relationship between the Fed's powerful tools and concerning macroeconomic trends, such as inflation, wealth inequality, and the declining labor participation rate. Chairman Powell recently commented on the labor participation rate, noting rising retirements were contributing the decline. Based on his comments, it appears Powell is unable to connect the dots between the Fed's powerful tools and retirement-enabling portfolio and home values. Instead, he blames COVID and doesn't consider the linkage between the Federal Reserve's bloated balance sheet, asset prices, and labor availability." Executives with remarkable timing 03/25/23   Markets "Never-before-seen IRS records show that CEOs are sometimes making multimillion-dollar bets on the stocks of direct competitors and partners - and doing so with exquisite timing." Merger arbitrage 03/25/23   Markets "There are about 40 deals per year meeting our criteria; 89% of deals close successfully. The arbitrageur earns about 2.0% on the successful deals and loses 2.8% on cancelled deals for a blended average 1.5% return on long exposure if they were to bet on every merger." Institutional impact on factor premiums 03/25/23   Markets "For anomalies that are risk-based, that is what we should expect to see because, while risk cannot be arbitraged away, cash flows can reduce the size of the premium. For the anomalies that are behavioral based, it appears that limits to arbitrage are still sufficient to allow them to persist post-publication." The Stingy News Weekly: March 19, 2023 03/19/23   SNW This week we have bank bailouts, value spreads, Cliff, and more. Central banks move 03/19/23   Markets "In a global response of the type not seen since the height of the pandemic, the Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a co-ordinated action to enhance market liquidity. The ECB vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was .instrumental. for restoring calm." UBS to rescue Credit Suisse 03/19/23   Markets "UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving just 1 UBS share for 22.5 Credit Suisse shares they own. Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law so that it can be completed rapidly." Value spread expands 03/19/23   Value Investing "Today's peak seems more like the tech bubble than the financial crisis. Expensive stocks were bid up to unfathomably high prices, while deep value type stocks have just plodded along." Cliff Asness interview 03/18/23   Markets "Neither he nor AQR engages in market timing, but the spread between value and growth had gotten so huge that he felt comfortable 'sinning a little.'" [audio] No going back 03/18/23   Retirement "But there's a downside to making the emotionally safe choice. The problem: In some cases, the path that promises least short-term regret - by, say, claiming Social Security right away, taking the pension lump sum and avoiding immediate annuities - could end up hurting us financially over the long haul." Bank run 03/18/23   Markets "It would be shocking if we are not talking about loan-level delinquencies, charge-offs and credit losses later this year. Our expectation is that the stress banks' asset-liability managers are under right now gets shifted to banks. credit officers in the second half of this year. This is the slower-moving risk in banks that has been dormant for many years now thanks in part to easy monetary policy, and it seems to be awakening due to the knock-on effects of higher interest rates and the draining of liquidity from the financial system." The Stingy News Weekly: March 12, 2023 03/12/23   SNW This week we have bank runs, enough, menopause, and more. US backs customer deposits 03/12/23   Markets "Silicon Valley Bank customers will have access to their deposits starting on Monday, U.S. officials said on Sunday, as the federal government announced actions to shore up deposits and stem any broader financial fallout from the collapse of the tech startup-focused lender. ... SVB equity and bondholders would be wiped out, said the official, who briefed reporters after the announcement." Enough: Graham's Lesson 03/12/23   Graham "Graham had enough money. What he didn't have enough of was time. So he refused to invest more of his most valuable asset in the pursuit of riches." The Other Enough 03/12/23   Retirement "Many folks are happy to get off the career treadmill. But for others, including me, calling it quits doesn't come easily. We humans are inherently restless. We want more stuff, more money and, yes, another success. And when we get these things, we quickly grow dissatisfied and start hankering after something else. We never achieve that final, fully satisfying triumph that we crave." Defying Logic 03/12/23   Markets "In theory, higher rates should result in downward pressure on housing prices. But there's another, more subtle factor at play: Many existing homeowners, who had been considering selling, now feel 'stuck.' The problem is that, if they move, they'll have to take out new mortgages, which might be prohibitively expensive. The result: Fewer homeowners are putting their homes on the market. That reduction in supply is putting upward pressure on prices at the same time that higher rates are applying downward pressure." Your house is a terrible investment 03/12/23   Real Estate "Hey I've got an idea. We're always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?" Bank Runs, Now and Then 03/12/23   Markets "There was an infamous story of a bank run in Hong Kong that was caused by a long line in front of a pastry shop that just so happened to be right next to a bank. People assumed the line was for depositors taking their money out of the bank, word spread and soon the bank run was on for no other reason than the herd mentality." The Demise of Silicon Valley Bank 03/12/23   Markets "One of the features of banking crises is that they rarely repeat consecutively. This matters because policymakers have a tendency to craft regulation around the last war. US stress tests include all manner of scenarios for bad credit, but few for interest rate shocks. The severely adverse scenario for 10 years Treasury yields is 0.8-1.5%; the baseline scenario, reflecting a shallower recession, incorporates yields of 3.2-3.9%." Hot and heavy 03/08/23   Health "Yet, a lack of understanding and support for women experiencing menopause by the medical establishment and by workplaces, leads women to "lean out" of future career advancement." The Stingy News Weekly: March 5, 2023 03/05/23   SNW This week we have value, thrift, retirement, China, and more. Riding the rails 03/05/23   Retirement "Each strategy has some merit. The 4% rule is a great shorthand tool because you can often do the math in your head. Guardrails, on the other hand, may be more complex, but the way it responds to changes in the market makes it more realistic. Many school endowments, it's worth noting, use a hybrid approach: They withdraw a fixed percentage of their endowments, but that fixed percentage is often set in relation to a three-year moving average of the endowment's value." Intangibles and value 03/05/23   Value Investing "It is worth noting that other value metrics, such as price-to-sales (which is not affected by accounting for intangibles), did not work during the 'dark winter' for value stocks. This shows that the poor performance of the value factor was less about how the worth of a stock was measured and more about the price aspect (growth stocks outperformed because the multiple of earnings investors were willing to pay for them increased dramatically relative to the multiple for value stocks)." Spendthrift propaganda 03/05/23   Behaviour "My purpose in touching on the lives of these two women is to point out that they never enjoyed spending their wealth." Boo! Stocks and bonds are positively correlated 03/05/23   Markets "For the past 30 years, the correlation between stocks and bonds has been negative. But last year, the trailing three-year correlation turned positive for the first time since November 2000. This is something that many investors today have never experienced in their professional lives." Dan Wang on China 03/05/23   World "What I did not sufficiently appreciate is that a state that would so casually decapitate a sector like online tutoring would also have the will to visit catastrophe upon whole cities. And fear of those moves is wearing on people. I perceive a fading sense of enthusiasm among businesspeople and youths." The build-nothing country 03/05/23   World "Ever day, new examples of this stasis pile up. In Berkeley, a plan to build student housing was just blocked by a court, which demanded that the university study whether students themselves constitute an environmental hazard. I wish I were kidding, but I'm not." Wild lumber prices 03/05/23   Markets "Lumber is currently at $369 per 1000 board feet. This is down from the peak of $1,733, and down 72% from $1,441 a year ago." The Stingy News Weekly: February 26, 2023 02/26/23   SNW This week we have Buffett, the long term and very long term, and more. The long term 02/26/23   Markets "Elroy Dimson, Paul Marsh and Mike Staunton published a book the early-2000s called Triumph of the Optimists: 101 Years of Global Investment Returns that looked at the historical record of equity markets around the globe since the year 1900. This book provides the answer to these questions. And lucky for us, the authors update the data on an annual basis for the Credit Suisse Global Investment Returns Yearbook." Buffett's letter 02/25/23   Buffett "In August 1994 - yes, 1994 - Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion - then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to grow." Stocks vs bonds 02/25/23   Markets "A more revelatory observation is that, in the first 150 years of McQuarrie's data, bonds and stocks perform about the same. And they also perform nearly the same from 1982 to 2012. In fact, what emerges is that the equity outperformance that seems so evident in Siegel's data is in fact concentrated in the period from around World War II to 1982." Change 02/25/23   Thrift "By your 50s, you might realize you're on track to have plenty saved for retirement. But by then, if you're like me, frugality will have become a way of life and you could find it awfully hard to change." No need to guess 02/25/23   Retirement "Since so much of personal finance is beyond our control, it's important to control what we can - in other words, to know which questions can be answered without reference to a crystal ball." The Stingy News Weekly: February 19, 2023 02/19/23   SNW This week we have Munger's AGM, risk, stagflation, life expectancy, and more. Starter homes gone 02/19/23   Real Estate "If you're in the market for a new home I'm sure you've been waiting for years for prices to come down. Maybe higher mortgage rates will help. But unless there is some government action at the federal and local levels to make it easier to build more, the days of new homes going for $300k or less might be a thing of the past." Good on 200k 02/19/23   Economy "If you had an income of $200,000, that would put you in the top 10% of household incomes or the top 5% of individual incomes in 2021." Jabba the Mutt 02/19/23   Economy "Based on our bottom-up view, we do not believe economic activity, net of inflation, is as robust as recent economic reports indicate. And while it's too early to determine if we're heading into a lethargic and ugly Jabba the Mutt recession like 2008, current economic conditions certainly aren't the award-winning purebred investors appear to be pricing into risk assets." Risk eats return 02/19/23   Markets "To understand the intuition behind reducing exposure with the square of volatility, first consider an investor whose portfolio returns ten percent one month and draws down ten percent the next. The end portfolio isn't flat: the investor has lost one percent of their starting investment, even though the average return over the two periods was zero. Now consider an investor whose portfolio rises five percent before falling by the same amount. That investor will only lose 25bps relative to his starting point." Charlie Munger speaks 02/15/23   Munger "Berkshire Hathaway Vice Chairman Charlie Munger speaks at the Annual Shareholders Meeting of the Daily Journal Corporation." [video] Years you have left to live 02/14/23   Health "As expected, the probability that you live to the next year decreases as you age. More than 99% of people under the age of 60 live to see the next year, but the probability shifts towards zero relatively quickly after that." The Stingy News Weekly: February 12, 2023 02/12/23   SNW This week we have value spreads, volatility, bubbles, millions, and more. Where millionaires keep their money 02/12/23   Thrift "Many people are curious about the financial habits of the wealthy, and for good reason. Having a better understanding of how millionaires manage their money can help us learn from their successes and potentially improve our own financial well-being as well." Information in valuation spreads 02/12/23   Value Investing "For value investors, the above findings are good news. The largest historical drawdown for the value premium from November 2016 through October 2020 led to a dramatic widening of the book-to-market spread between value and growth stocks." We measure what we can 02/12/23   Markets "There is a common idea in academic finance that is conspicuously dismissed by both contrarian investors and the popular culture: the claim that historical volatility is a good indicator of future risk." Helpful in theory 02/12/23   Markets "Each bubble differs, but the eventual comeuppance always feels brutally familiar." Graphing Dividends 2023 02/08/23   Stingy Investing Here's an update to my Graphing Dividends feature that corrects calculation errors that impacted the 2022 returns. My apologies for missing the bug the first time around. [pdf] The Stingy News Weekly: February 5, 2023 02/05/23   SNW This week we have dividends, value, 60-40, and more. 60-40 annus horribilis 02/05/23   Markets "2022 was the first year in which both assets were down significantly. The Bond Agg lost 13.0 while the S&P 500 fell 18.1%. The only other year a 60/40 portfolio lost money and had a negative bond return was 1994, a mere blip on the chart." Why equal weighting works 02/05/23   Markets "two factors will remain the key driver of outperformance: three parts small cap and one part value." After the darkest hour 02/05/23   Value Investing "Today, deep value companies in Europe can be purchased at around 5x EV/EBITDA and 0.8x Price/Book" The disappearing index effect 02/05/23   Indexing "The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 3.4% in the 1980s and 7.6% in the 1990s to 0.8% over the past decade. This has occurred despite a significant increase in the percentage of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns on average during the 1980s and 1990s, but only -0.6% between 2010 and 2020." Dividend impact on stock returns 02/05/23   Dividends "As shown in the table above, without controlling for the factor exposures, while the dividend payers had lower monthly returns (1.06% vs. 1.09%), the significantly higher monthly volatility of the non-payers (6.42% vs. 4.23%) resulted in the dividend payers having a higher annualized compound return (12.25% vs. 11.10%)." The value of projects 02/05/23   Management "We find that discounting based on expected returns (such as variants on the CAPM or multi-factor model), performs very poorly. Discounting with an Implied Cost of Capital (ICC), imputed from comparable firms, obtains much better results. ... Finally, we show that under standard assumptions about the production function, the value loss from using the CAPM can be sizable, of the order of 10%." The Stingy News Weekly: January 29, 2023 01/29/23   SNW This week we have dividends, value, phones, and more. Be wary of extreme yields 01/29/23   Stingy Investing "Overall, returns tend to fall dramatically when yields reach extremely high levels." No customer service 01/29/23   Management "When there's no option to pick up the phone, at some point it obviously creates all kinds of havoc in customers' lives" Tim talks value 01/29/23   Value Investing Tim McElvaine talks about some of his recent investments. [video] Avoiding Unhappiness 01/29/23   Thrift "it seems that we can't buy happiness with a fistful of dollars or a stack of credit cards. The thrill of a new purchase is short-lived. But money spent to reduce our financial worries, such as by paying off credit card debt, may help stave off the unhappiness that can lead to depression." Valuation risk strikes 01/29/23   Value Investing "We think there's ample room for continued normalization of multiples that should continue to support small-cap and value stock returns globally in the decade ahead." Arithmetic vs. geometric returns 01/29/23   Markets "with apologies to all the people who know this by heart, let me spend today discussing the difference between arithmetic and geometric returns and why understanding this relationship is crucial for long-term investment success." Asset allocation crash risk 01/29/23   Markets "While Factor-Based and Risk-Parity portfolios exhibit best risk-adjusted returns in the long run, the Dynamic Asset Allocation reduces the abandonment risk due to its lower expected drawdown. Across all strategies, risk-tolerant investors that rely on the longer history for setting their expectations, experience significantly better outcomes, particularly if their investment horizon includes times of crisis" The Stingy News Weekly: January 22, 2023 01/22/23   SNW This week we have dividends, low fees, periodic mixing, and more. Rich income 01/22/23   Thrift "if you're interested in understanding how your income compares to others in the U.S. (and whether that makes you rich), then you've come to the right place. So, how much income do you need to be rich? Let's find out." The easy way to returns 01/17/23   Stingy Investing "Slashing fees is an easy, and practical, way to boost long-term returns and it explains the popularity of low-fee funds and very low-fee index funds in particular." The smaller stable dividend portfolio 01/17/23   Stingy Investing "I used a combined injection of low-volatility and dividends on large stocks to form the Stable Dividend portfolio. This time around I'm using a similar approach to inoculate smaller stocks to form the, imaginatively named, Smaller Stable Dividend portfolio." Price-to-fantasy ratio 01/17/23   Markets "If reported earnings next year merely match the likely final 2022 level of $181, then the current price-to-forward earnings (P/F) ratio is 21. In 2023, if earnings tumble just 20% from 2022 levels, then the correct current P/F ratio is 26, hardly a bargain." Asset Mixer Update 01/17/23   Stingy Investing We've updated our Asset Mixer to include real data for 2022. Periodic Table Update 01/17/23   Stingy Investing We've updated our periodic table of annual returns for Canadians to include real data for 2022. The Stingy News Weekly: January 15, 2023 01/15/23   SNW This week we have Cliff, interviews, bacon, and more. Cliff Asness interview 01/15/23   Asness "Cliff joins the show to discuss FTX, AMC, why hedge funds aren't hedging, the role of index funds and a whole lot more." A place to start 01/15/23   Retirement "The 4% rule may be making a comeback. But it's just a starting point - and you shouldn't necessarily follow it precisely." Job interview nightmare 01/15/23   Management "Companies are seemingly coming up with new, higher, and harder hoops to jump through at every turn. That translates to endless rounds of interviews, various arbitrary tests, and complex exercises and presentations that entail hours of work and prep. There can be good reasons for firms to do this - they really want to make sure they get the right person, and they're trying to reduce biases - but it's hard not to feel like it can just be too much." Uncorrelated assets 01/15/23   :Asness "Recently, Dimensional Fund Advisors wrote critically on 'liquid alts.' They make some good points, but they also draw some odd conclusions that if applied more generally would not be to their (or our) liking. Besides discussing their piece, below I take this opportunity to review the general rationale behind holding uncorrelated assets (in particular, equity 'factors' held in a long-short manner)." Spending money 01/15/23   Thrift "How people invest their money tends to be hidden from view. But how they spend is far more visible, so what it shows about who you are can be even more insightful." Crispy bacon 01/15/23   Funds "Being wedded to a benchmark by relative return fears, career risk, and investment mandates, in our opinion, practically guarantees a highly correlated and ordinary outcome. If the objective is to achieve higher returns with less risk, we do not believe looking like everyone else, or serving soggy bacon, is the answer. Bacon, in our opinion, should be served crispy." The Stingy News Weekly: January 8, 2023 01/08/23   SNW This week we have the asset mixer, periodic table for Canadians, recessions, bonds, and more. Harvey vs the spread 01/08/23   Markets "The spread, which Harvey's work is based on, has been consistently inverted since mid November and hovered Wednesday at around minus 82 basis points. Despite the curve being inverted for the ninth time since 1968, Harvey said it's probably not a harbinger for a recession." Trading a 2s10s inversion 01/08/23   Bonds "We have discussed why the yield curve inversion is important to investors while showing that such an event, despite not offering an immediate boon for bond investors, does support both intermediate and long-term forward return outperformance. Further, we have also demonstrated that bond price returns following the peak of a yield curve inversion tend to produce above average forward-looking returns across all time horizons." Volatility laundering 01/08/23   Funds "Given the massive popularity of private investing today, it may very well be true that, as a great man once almost said, 'Never have so many paid so much to so few for the privilege of being told so little.'" The bubble has not popped 01/08/23   Value Investing "Value spread at 94th percentile" A disaster for Tesla 01/08/23   Markets "On this metric, Tesla still has a similar enterprise value to many of these automakers combined even after falling so sharply in 2022, despite being utterly unjustified by current fundamentals." Asset Mixer Update 01/03/23   Stingy Investing We've updated our Asset Mixer to include nominal data for 2022. Periodic Table Update 01/03/23   Stingy Investing We've updated our periodic table of annual returns for Canadians to include nominal data for 2022. The Stingy News Weekly: January 1, 2023 01/01/23   SNW Happy New Year! Dividends and buybacks 01/01/23   Dividends "the combined yield from both is close to 5%" Archive: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23	Articles by   Norman Rothery Topics   Academia   Accounting   Banks   Behaviour   Bonds   Books   Brokers   Christmas   Crime   Debt   Derivatives   Disaster   Dividends   DRPs   Economics   Economy   Education   Fun   Funds   Government   Growth Investing   Halloween   Health   History   Indexing   Law   Management   Markets   Marketing   Media   Pensions   Pricing   Real Estate   Retirement   Science   Stingy Investing   SNW   Stocks   Taxes   Thrift   Trusts   Value Investing   Wealth   World Personalities   Warren Buffett   Benjamin Graham   Charlie Munger   David Dreman   Martin Whitman   Tweedy Browne   James Montier   John Dorfman   Prem Watsa   Francis Chou   Walter Schloss   Seth Klarman   Nassim Taleb   Robert Shiller   James Grant   John Bogle   John Neff   Bill Gross   Dan Hallett   Tim Cestnick   Jason Zweig   Norm Rothery Article Archive   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015   2016   2017   2018   2019   2020   2021   2022   2023
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