This is the 150th edition of TBL. I started with zero subscribers and now, remarkably, have well over five thousand, and usually more than twice the weekly readers as there are subscribers. My sincere thanks to you all.
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Investment Beliefs
Here, in no particular order, is my ongoing working list of beliefs, ideas, maxims, and generalizations that inform my financial and investment process. Send me any you’d add ( to rpseawright [at] gmail [dot] com)
Your purposes should drive your goals and your goals should drive your investment process. Never lose sight of your “why.”
Savings rate beats rate of return.
Process trumps outcomes.
Invest you must.
Daniel Kahneman: “We systematically underestimate the amount of uncertainty to which we’re exposed, and we are wired to underestimate the amount of uncertainty to which we are exposed.”
We all make poor investments decisions. Make sure you learn from yours.
As Adam Gopnik pointed out in The New Yorker, “nothing works out as planned,” and “everything has unintentional consequences.”
Mr. Micawber’s oft-quoted recipe for happiness from David Copperfield, by Charles Dickens, is famous for good reason: “Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Haste makes waste.
Play the long game.
Correlation is not causation; consensus is not truth; and what is conventional is rarely wisdom.
As Dwight Howard, the prodigious basketball talent who never came close to reaching his potential, said, “one thing I’ve learned is that eventually, what you do off the court will affect what you do on the court.” That idea has much broader relevance.
High fees are a major drag on returns; tax advantages and consequences matter a lot too.
Don’t let the tax “tail” wag the investment “dog.”
As Tim Ferriss explained, “creating systems that make it next to impossible to misbehave [are] more reliable than self-control.”
Understand the “arithmetic of loss” (a 10% loss followed by a 10% gain does not get you back to even).
All other things being equal, ETFs are better than mutual funds.
Simple generally beats complex.
Complex instruments, reaching for yield, and illiquidity are usually more dangerous than they appear.
Asset allocation is more important than the selection of a portfolio’s component parts.
Since passive management beats active management most of the time, it is the appropriate default.
Incentives matter.
Nassim Taleb’s rightly emphasizes the importance of “skin in the game: “Don’t tell me what you think, just tell me what’s in your portfolio.”
Don’t put all your eggs in one basket.
As my friend Brian Portnoy likes to say, “diversification means always having to say you’re sorry.”
Be clear about what Barry Ritholtz calls the “long cycle” – secular and cyclical markets.
Our psychological make-up and the behavioral biases and cognitive impairments caused thereby conspire against our investment success. Even when we recognize these problems generally, we typically miss them in ourselves (“We have met the enemy and he is us” ~ Pogo).
As William Gibson said many times, “the future is already here — it’s just not very evenly distributed yet.” Success and social chaos are never evenly distributed, either. It isn’t clear – and there is precious little evidence to support it – that reality is ever evenly distributed.
Forgetting that nobody is close to objective and that nearly everyone wants a piece of the action will cost you a lot of money.
An otherwise great investment plan can readily become a disaster if it doesn’t line up with our understanding, goals, objectives, risk tolerances, and risk capacities.
Risk is a complex and multi-faceted thing – it’s much more than just volatility.
Manage risks before managing returns.
Never lose sight of the facts that investing is both probabilistic and mean-reverting.
Less will change than we expect, things will change less than we expect, and any changes will not persist as long as we expect.
Saving, trading, and investing are very different things.
We always know less than we think we know; thus, forecasts are rarely close to accurate.
When making a trading decision, measure twice, cut once.
It’s very dangerous to fight the Fed and/or the government.
When reading financial, investment, or academic papers generally, the best stuff is usually in the footnotes.
When you have reached your goal, stop playing.
“For the simplicity on this side of complexity, I wouldn’t give you a fig. But for the simplicity on the other side of complexity, for that I would give you anything I have” (Oliver Wendell Holmes, Sr.).
Data should always trump opinion and ideology.
It is little consolation to lose less money than others or less than one’s benchmark.
History doesn’t repeat, but it does rhyme.
Paraphrasing Pascal, we must weigh not only the alluring probabilities of being right, but the dire consequences of being wrong.
Save as much as you can as early as you can.
Always have a contingency plan.
Pain is part of the process.
Create and implement a written investment policy statement. Review it often but alter it rarely and only for very good, data-driven reasons or due to a change in personal circumstances and after very careful consideration.
When the cost of a negative outcome is greater than you can bear, don’t do it (or get out), no matter how great the odds of success appear.
Compound interest is a wonder.
Re-balance regularly.
Hope is not a strategy and lunch is not a long-range plan.
“This time is different” is almost never true, especially in investing.
In matters of taste, finding what you’re looking for is the primary goal. In matters of truth, it’s the main threat.
Pay special attention (pro and con) to things that can’t be measured, things that compound, things that matter, and things that last. Everything can't be measured. In fact, the more important it is — love, learning, wisdom, imagination — the less it can be measured at all, and the more disastrous any attempt to do so tends to be.
Totally Worth It
This is insane. Unbelievable range.
Feel free to contact me via rpseawright [at] gmail [dot] com or on Twitter (@rpseawright) and let me know what you like, what you don’t like, what you’d like to see changed, and what you’d add. Praise, condemnation, and feedback are always welcome.
Of course, the easiest way to share TBL is simply to forward it to a few dozen of your closest friends.
A Forever stamp currently costs 63 cents, but is going up to $0.66 cents in July, the USPS announced recently. The postal service last raised prices in January 2023 and July 2022; and expects to continue the twice-a-year cadence for at least through 2024. The old cheaper Forever stamps still work – if you still have some of those lying around and still use stamps you’re getting a deal.
“Remember DC is way more ‘VEEP’ than ‘House of Cards.’”
A recent paper argues that the Roman Catholic Church started being anti-science only after the Counter-Reformation. “Across Europe, Catholic and Protestant cities had shared comparable numbers of scientists per capita prior to the Counter-Reformation, but Catholic cities experienced a cataclysmic relative decline precisely when the Counter-Reformation was implemented ... the shock persisted in the long term ... overall, the Counter-Reformation appears to be one of the largest shocks to science in human history.” Twitter summary here. Don’t miss the lead author’s institutional affiliation (H/T Astral Codex Ten).
A Consumer Financial Protection Bureau employee forwarded to a personal email account confidential information on 250,000 consumers and dozens of financial firms, in what the agency has described to U.S. lawmakers as a “major incident.”
Trump: A Setback for Trumpism shows how, after Trump was elected, support for most of his policies (including immigration restrictions) fell. A new paper confirms that this is a general pattern when right-wing populists win elections.
Goldman Sachs economists now estimate, based on tax receipts, that the U.S. will hit the debt ceiling by early June, rather than August as previously projected.
An object called Oumuamua entered the solar system several years ago before leaving. A few astronomers speculated in might have been an alien spacecraft. One of those astronomers, Harvard’s Avi Loeb, got access to Department of Defense data that he used to locate another weird interstellar visitor – a two-foot-long object that hit Earth in 2014 and landed (probably in fragments) in the ocean near New Guinea. He has now gotten private funding for a submarine search team to look for fragments of the object on the ocean floor (H/T Astral Codex Ten).
Taylor Swift rejected a $100 million FTX deal after asking a pointed question about the legality of the product: “Can you tell me that these are not unregistered securities?” She knew SBF was trouble as soon as he walked in.
A recent poll found that a large majority (60%) of Americans agreed that the federal government is spending too much. However, when asked to select specific areas for cuts, the only category a majority wanted to shrink was foreign aid, less than one percent of the total.
You may hit some paywalls herein; many can be overcome here.
This is the best thing I read or saw last week – it’s stunningly beautiful. The craziest. The coolest. The cleverest. The oddest. The funnest. The weirdest. The saddest. The most interesting. The most enlightening. The most pitiful (and creepy). Blurred lines. Hmmm. What could go wrong? Laugh or cry? Cruel and unusual. On forgiveness. Joy. Xi. Too dangerous. A “really bad day at the office.” The best news.
This is the best thing I read or saw this week. The saddest. The wildest. The most absurd. The best letter-to-the-editor. Strange tasting tea. Duh. Nonsense. More nonsense. San Diego. Incentives matter. Remember. Counterproductive. Serendipity. Flex. Factcheck: True; also true. Very cool. Duh. Important research.Endangered. Yikes. Adversarial collaboration at work. Open questions. Rat tales. Excellent argument. This week’s theme song (if you live under a rock, here is why).
Please send me your nominations for this space to rpseawright [at] gmail [dot] com or via Twitter (@rpseawright).
The TBL Spotify playlist, made up of the songs featured here, now includes over 260 songs and about 20 hours of great music. I urge you to listen in, sing along, and turn up the volume.
My ongoing thread/music and meaning project: #SongsThatMove
Benediction
To those of us prone to wander, to those who are broken, to those who flee and fight in fear – which is every last lost one of us – there is a faith that offers hope. And may love have the last word. Now and forever.
Amen.
Thanks for reading.
Issue 150 (April 21, 2023)
On belief #12, Jordan Palmer, a well regarded quarterback trainer, noted recently that in his decade+ working with Qb's he's never worked with one that lived a chaotic off-field lifestyle and then played games like a field-general. It always catches up.