Quote Unquote

quoteunquote“I probably find more information that says vaccines aren’t safe,” she says. “I think it’s only because …” She pauses. “Well, I don’t really know. It could be maybe what I’m paying attention to more.”

Smoot also says she trusts the experiences of other parents more than data from a scientific study. “Right now,” she says, “the people telling their personal stories influence me more. I feel like the data could be flawed for one reason or another, but I feel like someone’s story, because they’ve gone through something, and they don’t want other people to go through it, I feel like I trust that more.”

The Psychology of Anti-Vaxers: How Story Trumps Science

Beating the Bias Trap (Additional Resources)

BeatingBiasTrapLogoWhen I attend presentations of various sorts, I am often frustrated in that I want to try to take in and engage with what is being presented but I also want to take careful notes, especially with respect to direct sources. I also want to be able to check these and other related sources out for myself, both to “check the work” and to gain further understanding. Since I am presenting “Beating the Bias Trap” at FPA – NorCal in San Francisco on Tuesday, what follows is my list of direct sources and other materials relating to my subject. My goal is to help attendees get the most out of my presentation as possible. The list and its topics generally follow the order of my presentation. I trust that attendees will find it useful and that others interested in the subject will find some helpful materials. Continue reading

Investing as a Liberal Art

Fireside MarketsI was James Osborne’s guest yesterday on his “Fireside Markets” podcast. James entitled it “Investing as a Liberal Art.” It was a wide-ranging discussion that lasted nearly an hour. You may access it here. I hope you’ll tune in and listen to earlier discussions too.

Investing as a Liberal Art with Bob Seawright

Buster Olney is Biased

OlneyBiasBill Baer of NBC Sports created this wonderful image of tweets accusing ESPN’s Buster Olney of being biased against their teams…with 28 different teams represented. To hear the Twitterverse tell it, Buster is biased against everybody (and for everybody too) — just everybody else. Talk about confirmation bias and bias blindness! Great stuff.

H/T: The Big Lead

You Can’t Outrun the Boulder

RealityBasedInvestingLogoThe idea behind tactical asset management is to make tactical shifts in asset allocation in order to take advantage of what is doing well and to escape what is doing poorly. The standard benchmark is a classic 60:40 allocation, of which VBINX is an excellent proxy. Had the whole concept of market-timing not been so utterly discredited (the latest data is here), it would probably still be called that. Such funds have broad discretion to move among stocks, bonds and cash and to move in and out of various sectors of the equity and fixed income markets in order (allegedly) to take advantage of market opportunities and to avoid market pitfalls.

From a marketing standpoint, the thrust of tactical management is to avoid market downturns (at least the significant ones) and to provide a lower volatility experience. That’s why, after almost disappearing, tactical managers returned with a vengeance after the 2008-2009 financial crisis. Visually, the idea is essentially that, like Indiana Jones, tactical managers can outrun the onrushing boulder of negative returns.

In reality, we can’t outrun the boulder, as the following video (using a plastic “boulder” – it looks like a blast) demonstrates clearly.

A Morningstar study from 2010, updated in 2012 and updated again in 2014 should put the matter to rest. During the pre-2010 period, tactical management underperformance averaged 2.6 percent per year. And over the three years through July of 2014, tactically managed funds underperformed a classic 60:40 portfolio by 3.8 percentage points per year.

The great William Bernstein states the key to that underperformance well as follows.

“There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor – the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.”

Another reason for the underperformance is fees, which are the best indicator we have of performance success. Tactical funds on average charge an annual management fee of 1.48 percent as of 2014, according to Morningstar. That’s nearly double the mutual fund industry average of 0.77 percent, according to ICI.

Tactical management is yet another sort of “cargo cult” investing “solution” (thank you, Dr. Feynman) — an approach, model or system that is said to work somehow without adequate analysis, testing and safeguards. A data-mined but insufficiently authenticated “solution” will almost surely be a disaster for everyone but those collecting fees for it. Some of these “solutions” seem like a joke. Most are deadly serious. But there’s no reason to expect them to work.

You aren’t Indiana Jones. You’re not going to outrun the boulder.

Make Fewer Decisions

WARNING: The following is real security camera footage and it is truly horrible.

In August of 2010, while visiting a shopping center in Daejon, South Korea, a 40 year-old wheelchair-bound man identified only as Mr. Lee just missed an elevator when the doors closed on him a moment too soon (as shown above). Angered at his misfortune, Lee backed up his motorized chair and rammed into the elevator doors. Unsatisfied at merely denting the object of his rage, Lee backed up and acted as human battering ram again. He “succeeded” this time, crashing through the doors and plunging to his death. Not surprisingly, shopping center officials vowed to strengthen the doors of their elevators in order to protect future morons.

If you’re like most people, you probably aren’t sure whether it’s appropriate to laugh at Lee’s stupidity or simply to despair at the loss of life (as well as the depth and extent of human stupidity). While most are not as flagrant as this one, it isn’t hard to find myriad examples of poor decision-making among the ranks of humankind. We make many such mistakes ourselves, even though we may not remove ourselves from the gene pool for having done so.

Our tendency towards poor decisions is a subject I write about often, even if and as our ability to overcome the behavioral and cognitive foibles and biases that so readily beset us is more than a little limited. Proposed remedies (or at least ameliorators) include implementing better choice architecture (such as slowing down and avoiding distractions), building better processes (checklists, for example), and cultivating a support system willing, able and eager to point out one’s errors. But even when we recognize our inherent weaknesses as a species, we tend to think that we’re somehow immune individually and readily discount the advice of those who suggest that we might be wrong.

One powerful and often overlooked corrective to poor decision-making should be obvious – make fewer decisions. This isn’t some paean to procrastination, however. It’s simple math. Fewer decisions means fewer bad decisions (which is particularly significant in that eliminating mistakes is demonstrably more important to good investment outcomes than making good choices). Continue reading

I’m Honored

honorsPerfect Client has included Above the Market among its 15 Financial Advisor Blogs Worth Following.

Above the Market is the blog of Bob Seawright, former lawyer turned investor. The blog is a wealth of information, and is a great source of investing advice, financial solutions for hypothetical clients, and industry insight. Mr. Seawright contributes articles to many other publications, and his wealth of knowledge is finely displayed (and shared) on his blog.

I’m deeply honored, particularly as it’s a very good list.

The Age of Financial Secrecy Is Ending

res-0515-coverThe May edition of Research magazine is now available online. My monthly column is available here. A taste follows. I hope you’ll read it and the entire magazine.

In the financial services industry, there is precious little that ought to remain secret. Instead of trying to maintain the self-serving secrecy that has dominated our industry for so long, especially because such secrets will keep getting exposed sooner and sooner, the key to our longer-term survival will be to remake who we are and what we do to serve clients in a transparent future. That will mean true transparency—not the faux-transparency (think “disclosure”) our industry uses to protect its own interests. It will mean clearly and fully articulating what we do and why there are (data-based) reasons to think we can accomplish what ought to be accomplished. It will mean an honest appraisal of our fees and their justification. It will mean serving our clients’ interests instead of our own. It will mean more truth-telling and less sales pitch.

The Age of Financial Secrecy is Ending

Hot Pants Investing

I watched Mike Krzyzewski’s first Duke win from the stands in Cameron Indoor Stadium as a student in 1980 and his fifth national championship victory earlier this month at home, on television, with my grandchildren. I’ve probably seen a majority of the games in-between one way or another. Coach K is an icon, and widely regarded as perhaps the best college basketball coach of all-time. He is the winningest college basketball coach of all-time. But when has hired 35 years ago, he wasn’t even generally considered to be in the running for the job. During the entire month-long coaching search, Krzyzewski’s name never appeared in any North Carolina newspaper as even a long-shot candidate for the job. No radio station nor any television station suggested him as a possibility.

Then Duke Athletic Director Tom Butters insisted that he was getting the “brightest young coaching talent in America” to lead his basketball program (video from the hiring news conference here – notice how “Krzyzewski” is repeatedly mispronounced in the report) when he hired Coach K. There was no live coverage of any kind. The local morning paper had reported that one of “three Ws” – Bob Weltlich of Ole Miss, Old Dominion’s Paul Webb or then top Duke assistant Bob Wenzel – was going to get the job. But Butters hired the West Point graduate, then just 33 years old and coming off a losing season at his alma mater. Butters had ultimately listened to Bob Knight, who told him that Krzyzewski had his own good attributes without the bad.  The headline in The Chronicle (Duke’s student newspaper) was “Krzyzewski: This is Not a Typo.” Ironically, the local afternoon newspaper got the scoop several hours before the press conference, but it was after deadline and there was nowhere to report it.

This story seems quaint today, with the idea that a major college basketball hiring could remain unreported and largely secret until the press conference and that the coach hired had not even been considered a candidate is appropriately presumed to be impossible in this digital age. Obviously, times have changed. To get at what that sort of change means to our culture and to the financial services business, we have to go back into ancient history, even before 1980. Continue reading