Review: Winning the Loser’s Game

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By Dan Wilcock

There’s a reason why investing sages like Jack Bogle, Burton Malkiel, and David Swensen praise Winning the Loser’s Game by Charles Ellis. Now that I’ve read the book (just closed the cover) I know why. This book is a bullshit eliminator, completely clear-eyed about market risk (the fact that losses will happen) that nonetheless explains the stakes in not taking on market risk in a world where taxes and inflation constantly erode wealth. It’s a book that explains the counter-intuitive nature of the market in a way that clicks: why investors should welcome stock price declines, why booming stock markets are better for stock sellers than stock buyers, why stocks aren’t important because of their price but rather because of their ability to produce dividends. Even though these are well established interpretations of the market, their wisdom never sunk in before I’d read Winning the Loser’s Game. Hence I’d recommend it wholeheartedly as one of the best books on investing.

The title of the book comes from a journal article Ellis wrote in 1975. He compares investing to tennis, which for virtually every amateur is a loser’s game. The victor wins on their opponent’s unforced errors. Ellis argues that investing used to be a winner’s game, but the field got so crowded with experts and operators who know how to take advantage of all the suckers (my words, not his) that the only way to win is avoiding unforced errors. The biggest of these is attempting to “beat the market.” This is an endeavor where more than three quarters of professionals ultimately fail. The individual investor socking away money in IRAs and 401ks shouldn’t even try. Rather than losing by actively trading, and compounding those losses with all the fees this entails, investors should craft a realistic policy that seeks to capture the entire market return (through entire market indexes) or a segment of the market through selected low cost mutual funds.

I was already bought into the idea of indexing (the lowest cost, getting the most of whatever the market returns), but before reading this book I might have been more likely to shift my index holding to more bonds in a bear market to preserve value. This is psychologically understandable, but exactly the wrong approach. Big downswings require that investors stick to their policy and make the most of bear markets by sticking to the path they set. This is a more nuanced, and more practical, version of the old saying “buy low and sell high.” That simple saying doesn’t prepare investors to do the right thing. The phrase is premised on active investing, and when the markets are at their most volatile is when we as human beings are most likely to make precisely the wrong decisions. By staying the course, and investing in consistent intervals, buying low and selling high happen naturally. The market cannot be timed, according to Ellis. Jumping in and out of the market is, for most people, lost opportunity.

I read the 4th edition of this book. As of this 2014, Loser’s Game is now in its 6th edition and updated post-great-recession. If you’d like to know how Ellis deals with the market fallout from 2008, I’d recommend that version (which I haven’t read). I think, however, that the reader of the 4th edition would have been very well served throughout the last seven years. They would have stuck the course and rode the massive upswing in equities to their now record highs. They would also have established an emergency fund that would allow them to buy largely into equities and then be steely about holding them.

Anyway, after making it halfway through the book, which I’d borrowed from the library, I ordered a copy for my personal collection (4th edition, much cheaper than the 6th). This is a book that any investor would be well served to read annually, perhaps just before looking at results and allocation. The rest—virtually everything we read online in the financial news—is counterproductive noise.

Blogging in WordPress with MS Word: Any Good?

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By Dan Wilcock

I’m posting this entry on my WordPress.com blog using MS Word 2010 as an experiment, just to see whether it’s any good. Word is set up to interface with most of the major free blog hosting companies, as seen below:

 

 

So if you’ve got a WordPress blog, like me, or one of the other standard options, the interface should be pretty smooth.

Once you enter your URL into the path they provide and enter your blog password, the wizard will let you know whether your blog has been successfully registered. At first this didn’t work for me, but I got through once I realized that the /xmlrpc.php extension after the blog URL is necessary.

So I’m in and composing this post—So far, so good. Here are five things I appreciate right off the bat:

  1. Better control of special characters. I can use my preprogrammed keystrokes to type in special characters while blogging. For me that em dash (—) I just typed would take two clicks of the mouse to execute in WordPress but I just hit F10 (the keystroke I chose for em dashes, which I use frequently in my writing, perhaps too much). Word is probably better at special characters and symbols than WordPress. For an example, look at what WordPress did to Pema Chödrön’s name on my ‘about me’ page (look under contemporary thinkers). With Word, this comes out a lot smoother. (Update: this corrected bit was simply my error. I used the upper-case letter, not bothering to see there is an appropriate lower-case letter available.)

     

  2. More upfront control over font size. I’m sure I can code font size by going under the hood and coding it in WordPress’s text viewer, but this is much more civilized.

     

  3. That screen clipping above is nice/was easy. I copied it by hitting window key + PrtScn, and then cropped and resized it right within the Word document. I have no idea how I’d do that with WordPress.

     

  4. This list I’m creating does something I’ve been unable to do with WordPress. Namely, I’m able to add an extra space between items, something I think just looks better. Word does this automatically after you hit return between two items on a list and then delete the middle item. It’s a nifty bit of intuitive functionality that I really miss when I’m composing in WordPress.

     

  5. All those snazzy Smart Art templates, Word’s spell check, etc. This seems to have most of the basic bells and whistles built into Word, such as automatic tables, etc. I’m sure a halfway decent WordPress wizard could repudiate this post showing point by point that composing in Word is unnecessary, but so far this seems to me like a decent way to go.

     

I don’t have any negative list yet, but will append one once I’ve pressed the green publish arrow the Word puts at the upper left-hand corner of the screen. If the blog spits out a bunch of ampersands afterward, I’ll write my complaints below.

***

Nope. Now I’m editing the post in WordPress.com, and everything came through perfectly. I think I’ve found a better way for me to blog.

UPDATE (6/23/2014): Word does have a blind spot when it comes to blogging in WordPress: video. There is no button to insert video content, unlike WordPress, which has the handy “Add media” button with easy ‘insert YouTube’ options.


Oliver Wendell Holmes, Sr., a humorous fellow, but no fortune-teller

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“A man’s learning dies with him; even his virtues fade out of remembrance; but the dividends on the stocks he bequeaths may serve to keep his memory green.”

–Oliver Wendell Holmes, Sr., from The Professor at the Breakfast Table, Boston, 1872

Here is the quote in context (the entire e-book is free) on Google Books.

While his words are good for a chuckle, clearly the fact that I’m blogging about professor Holmes more than thirteen decades later undermines his reputation as all-wise soothsayer—unless the time period being considered is geologic.

His son’s “learning” and “virtues” were arguably even more indelible. When the quote was published, his son, Oliver Wendel Holmes, Jr., was around 31-years-old. Thirty years later, Holmes, Jr., became a member of the Supreme Court, where he served for 30 years. I wonder whether the second Holmes, more famous to contemporary Americans, would agree with his father’s quote. My guess is that all those dividends from stocks probably weren’t as valuable to him as his father’s words, particularly after the “panic of 1893” and then, a few decades later, “black Thursday.”

I read the quote in The Wench is Dead, an Inspector Morse mystery novel by Sir Colin Dexter (Dexter’s early novels are filled with great quotations). More recently, I came across discussion of Holmes, Jr., in Last Call, Daniel Okrent’s excellent prohibition history, which contains yet another great Holmes quip, proving that humor probably ran in the family. Here’s the quote along with the context that Okrent sets:

The [Supreme] court’s senior member, Oliver Wendell Holmes, was known to appreciate his whiskey (in 1927 he registered his gratitude for an illegal gift bottle with a characteristically Holmesian aphorism: “I have not forgotten the prayer ‘Lead us into temptation.”

So, in short, Holmes was a humorous fellow, but he was no good at wisely predicting the future. Maybe that’s a reason why his son was even wiser, and appreciated a glass of whiskey now and then.

Capital in the 21st Century: A Review

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By Dan Wilcock

Capital in the Twenty-First Century, Thomas Piketty (Belknap Press, 2014)

In my opinion, the worldwide success of Capital in the Twenty-First Century is something to cheer. Wealthy individuals, middle-class, poor, policymakers, bankers, and even artists can see themselves in these pages. They can trace their life trajectories set against the historic patterns of wealth (usually at least 100 years in scope, sometimes much longer). In a few words, the subject matter strikes a chord with most everyone these days.

Last month I bought one of the hastily printed  subsequent editions (the initial print run woefully underestimated popular demand) of this 577-page tome and just finished reading it. The book has a lot to teach about the nature of capital and its place in different types of economies. Everything boils down to two very simple equations that a middle-school student could understand. Probably the most important, to which Piketty consistently refers is:

β = s/g

This is the “capital/income ratio,”the meaning of which Piketty is really good about reminding the reader every time he uses is. β is calculated by dividing savings (s) by growth (g). He shows that throughout history, savings (which reflects the total value of accumulated capital) in rich countries has usually been larger than the rate of growth (the increase in national income). In rich countries today β is often somewhere around 6, which means that total wealth owned (almost entirely in private hands) is worth around 6 years of a given country’s income.

The other equation measures the share of national income that goes to capital’s owners:

α = r×β

r is the rate of return on capital. So, in the case where capital is worth 6 years of national income (β=6), and the rate of return (r) is 5%, then the amount of national income going to capital holders if 30%.

When r is greater than g, wealth begins to accumulate. The rich get richer. R has almost always been greater than g, according to Piketty’s analysis, except for a period of time in the 20th century (when growth was high and capital was subject to a series of shocks related to WWI and WWII). Those days are over. I won’t bother to recap his results specific here, but suffice to say they are food for thought.

OK, enough with the equations. If you could read what I just wrote and get it somewhat (and not to worry, Piketty reintroduces the equations almost every time), then you won’t have any trouble reading his book.

That’s a good thing, because I get the sense that Picketty would like his book to be read and understood by those who have the least proportion of α and β—most likely the low wage earners and asset poor individuals who make up more than half of rich countries peoples but own virtually no capital whatsoever.

That’s what’s great about Piketty. He genuinely cares about human outcomes, and his book’s value lies in showing to everyone that human outcomes are diverging radically. The inequality he presents throughout the book is a reversion to an earlier historical norm, which he ingeniously evokes by quoting from the novels of Balzac and Jane Austen—works of art from an era when the nature of capital was better defined and more commonly understood.

He doesn’t only look at the big picture. He also takes along look at the even more disturbing (particularly in the US) pattern of individual inequality. He makes a compelling case for the amazing rise in top executive pay in America and the spectacular drop in top income tax rates during the 80s and 90s.

This points to some of his suggested solutions: Progressive income taxes topping out at around 80% (as seen in the 20th century) for the highest incomes, an annual progressive global tax on large fortunes (combined with intepol-like global cooperation to stamp out tax havens), or a one-time global tax topping out somewhere around 25% for the largest fortunes. Compared to readjusting the economic balance through inflation or controls on capital (as seen in China), Piketty argues that a return to confiscatory taxation on oligarch-level wealth is the most just and equitable course.

Try telling that to the wealthy who increasingly control politics. Just saying.

I think he makes a strong case, although if I were President I don’t think I’d go as far as he advocates. The wealthy he wants to tax would remain wealthy. The forces he describes would help that wealth to grow again. But then again I’m just above that “50%-and-owns-nothing” category.

What a marvel to have this book explaining the big picture of wealth, in clear prose and without too much math/theory. A highly recommended book.

 

A doodle of economic forces

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Sometimes it’s fun to create economic flow charts on loose leaf paper or cocktail napkins.

This is a simple doodle of how I conceptualize the positive and negative monetary flows related to labor and capital.

Labor and Capital
Illustration by Dan Wilcock, created using Lucid Chart

Being neither an economist nor a mathematician, I find it best to follow the keep it simple stupid (KISS) principle, and for me this is about as simple/stupid a representation of this vastly complex topic as I can come up with.

Leftward arrows are generally negative in nature. Rightward are positive.

This little animated NIH video about obesity is very powerful

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By Dan Wilcock

In 2012 the U.S. National Institutes of Health and the Department of Health and Human Services produced this animated public service announcement. Scarcely more than a minute long, it nonetheless packs a philosophical wallop. I couldn’t agree more with its central idea, that little behavioral changes make a big difference.

The link between joint pain and excess weight, and the fact that ” just 10 pounds adds more than 30 pounds of force to your knees,” couldn’t be depicted more simply or concisely. Excellent computer animation, pacing, music, and message (writing and editing!), all make this a gem. It inspires me to lose weight, and to do so slowly with little changes.

Slightly tangential, but related: My math teacher freshman year of high school was fond of saying that knowledge deficits were like placing large rocks into a backpack. I was exhibit A because I had transferred schools and ended up taking only one semester of algebra. That deficit dragged down my ability to understand pre-calculus, which I barely passed–and only with the help of a tutor. I may never have been destined to become a mathematician, but I probably could have done a lot better with some course corrections along the way.

My point is that this video’s brilliant metaphor for the burden of excess weight (a sandbag on the shoulder) applies to many aspects of life. Mindless accumulation of possessions or indulgence in entertainment can deep six the finances of just about anyone. I’m happy that the U.S. government put together something so simple, yet so evocative and powerful.

 

Micro Rentier

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By Dan Wilcock

Merriam-Webster defines the French word rentier as “a person who lives on income from property or securities.” Here in America, rentier is an uncommon word. Word’s spell-check underlines it.

But it may become a lot more common thanks to Capital in the Twenty-First Century, the bestselling 700-page overview of inequality in rich countries by Thomas Piketty. I just started reading it, and found myself looking up the word in the dictionary. He uses rentier frequently to describe people whose income derives from capital assets instead of direct payment for labor.

Even though Piketty’s book brilliantly uses data to show that the rentiers are grabbing an increasingly large percentage of total wealth, I can’t help but notice that the lines between rentiers and laborers are increasingly blurring in the rich countries he studies.

A great example of this blurring is the so-called “sharing economy,” which was the focus of a cover story in Wired magazine this month subtitled “how Airbnb, Lyft, and Tinder are teaching us to love strangers.”

Is the owner of a late-model car who moonlights on nights and weekends by driving sloshy revelers around town for Uber a worker or a rentier? A bit of both, I think.

The Wired article opens with a day-in-the-life narrative of a 30-year old woman who works as a freelance yoga instructor and personal trainer when not picking up rides through Lyft. Doesn’t sound like dynastic wealth to me, but nor does it sound much like 9-to-5 for a pay-check labor.

I think the web is turning folks into micro rentiers. Traditional income streams, measured in per capita income and unemployment stats, may have flat-lined in recent years, which is a big factor in the rise of inequality. But the web is making it easier to unlock the asset potential of privately-owned stuff like cars and houses that until now were mostly financial liabilities.

I personally haven’t become a micro rentier yet. Security, privacy, and serenity are all things for which I’m willing to pay the opportunity cost of foregone income. But if I were squeezed, I’d definitely consider sticking my toe in these waters. Our economy may well squeeze most of us into these markets in the next few years, at least those without the keys to dynastic fortunes.

Hoya Saxa: congrats to Georgetown’s graduating technology management students

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Spring 2104 Technology Management Capstone Class, Georgetown University
Spring 2104 Technology Management Capstone Class, Georgetown University

Pictured above: This spring’s capstone class. Everyone’s smiling, having just completed Georgetown University’s Technology Management program. (I’m in the blue jacket on the left.)

Congratulations to my classmates. I wish them all the best.

So was it all worth it? Yes, after three years of study I can say that I’m wiser in the ways of technology. I’m not quitting my work as a writer and editor any time soon, but the digital revolution now feels more like something I can harness where useful and ignore the media-driven noise surrounding all things cyber. Before I took this program, my relationship with technology was based more on ignorance and fear. Now, thanks to master teachers like John Gilroy and Pablo Molina (who helped found the program), I can approach technological solutions with far more confidence.

Thanks go to Georgetown University, which paid 70% of my tuition as an employee benefit over the years (I started working for Children’s National in 2012, and since then I’ve finished the program slowly). One of the great aspects of working for Georgetown is that, after one year, they cover tuition entirely. If the study is related to the job, the tuition benefit is tax exempt. Anyone interested in Georgetown’s professional studies programs, of which Technology Management is one, would be very wise to consider applying to work at Georgetown one year out to take advantage of this incredible benefit.

Not every class was wonderful, but the classes were filled with bright technologists and aspiring-technologists (like me) from a broad diversity of backgrounds. There were quite a few students who hailed from Africa, where technology has the power to change things dramatically. A couple of ex-students were advanced enough in their careers that they came back to teach in the program.

The program’s biggest weakness is over-reliance on a business school paradigm of hypothetical business cases and pitches. It would be better to really build things, launch them (even if it’s just a prototype, no elaborate business plan), and shop them around town within DC’s growing tech entrepreneurship scene. Maybe it’s too much to ask for the school to administer that. Student initiative needs to count for something. Entrepreneurship isn’t cookie-cutter. That being said, I think it could be a bit stronger with more of a robust framework tied to real opportunities: “Oh, that slide deck is hypothetical, you say. We’d be glad to take that off your hands and run with it.” –Such words would embolden some graduates to leave the safety nets of their jobs in order to join the start-up fray or start side projects without a care of whether VC-money ever gets involved.

For me, studying technology has made me realize the value of my current work, which is far outside of the realm of IT. Working with words all day is a pleasant way to earn a living, and I feel most fortunate. Thanks to the TM program, if I need to expand on that work on new platforms, through digital videos, etc., I’m ready.

So mission accomplished. Cheers! Mazel Tov! Kampai! etc.

 

Good enough

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Everything goes better with simplicity. That’s why I changed this blog’s original title, “Abstract Utility,” which was a bit too, um, well, abstract. The new name is “good enough,” a useful way to look at life. I also added a tag line, “a blog about books, ideas, and the good life.” That’s what I tend to write about here. This month I read three books that infused brilliantly within my worldview and inspired me to change this blog’s name, look and feel: In Praise of Slowness by Carl Honore, Enough by Bill McKibben, and You Are Not a Gadget by Jaron Lanier.

Each book shares a core value about the pleasure and mystery of being human. Honore’s book is about the worldwide movement to slow down and enjoy life. McKibben’s book from a decade ago warns us that we’ll lose our identity as humans once genetic engineering and artificial intelligence converge. Lanier’s book is about how our much hyped internet has become a disappointing slum where humans are devalued and the anti-human “hive mind” reigns.

Each book taught me in different ways that it’s OK to reject biotechnology and Silicon Valley’s vision for the future, that it is all right to be imperfect and slow, and that each person has inherent qualities that risk being blurred by the web. They complement each other and reinforce the idea that more, faster, better, stronger, healthier, prettier, richer, etc., etc. etc. are a road to ruin when pursued to excess. Each person has the power to invert this sad aspect of the human condition by saying “good enough,” when it happens to be true.

“Good enough,” the idea,  helps people establish lasting wealth because they are no longer trapped in the consumerist vortex. It helps folks improve their lives by managing technology, not the opposite. It opens up human relationships because it permits honest listening. Instead of just waiting for the other person to finish speaking to say more, it opens the ears and the heart. It limits disappointment and promotes satisfaction.

I realize that, particularly for young people, this might be horrible advice. There’s still something to be said for motivated striving, getting good grades, making it into good schools, but only to the “enough” point. The standard thinking in America is better to overshoot than to fall short of “enough.” But I think that programming is responsible for a great deal of misery. Each of us can be the judge of what’s good enough for us. Our lives are short, but at least we have this ability to discern between “more” and “enough.”

A good example of how to choose enough: slow down while driving. Be courteous to pedestrians and bikers. One of my neighbors was a royal jerk yesterday. It infuriated me that he tailgated behind me in his SUV, obviously wanting me to speed up on the 15-miles-per-hour street where I live. Then when I reverse parked in front of my house, which slowed him down further, he felt it necessary to spend a few second staring me down. Why was all this anger created? Why does he need to get home 15 seconds faster? Why did I need to get angry as well, about someone who lives a half block from me (though I don’t know him)? All this flare-up could be reduced with a little dose of “good enough.”

So here’s my good enough: even though my neighbor pissed me off, I’m going to forgive him. I like where I live in Rockville, Maryland, just outside of Washington, DC. My neighbors don’t need to be perfect. Most of them are great. Things are tranquil and carefree. Plus I live a pleasant five-minute walk from the bus that takes me to work. Since it’s the start of the line, I always have a seat, which means I can read.

See? “Good enough” is a powerful idea. It may not be what industry wants, and it definitely isn’t what we learn in school or on TV, but it works for me.

Living free of Facebook and Amazon

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By Dan Wilcock

Last June I quit Facebook after reading Who Owns the Future? Since then, I bought a used DVD copy* of the Social Network and have watched it twice. The film’s parable of asocial ambition confirms my bias against Facebook’s fundamental creepiness. My update: I don’t miss Facebook, but must admit that I subsequently became a more frequent Tweeter. These companies can fill real human needs, but they also fuel unfortunate screen addictions. Riding the bus every day, I’m surrounded by folks and their feeds. They have one thing going for them, though: At least they aren’t driving!

But back to Facebook–good riddance. Why should we make them rich by handing over our life narratives? It’s a pity no-one reads the user agreement. It says that they won’t pay you for the content you provide. My guess is that one of the big companies will one day start paying people for what they do online, and a new market will be born. Until then, we are suckers in their game.

As a new year’s resolution, 2014 is my year of Amazon.com abstinence. So far so good, but here again I have an admission to make. Although my overall spending declined, I’ve still bought books, music and gifts. My four sources are importcds.com for music, bn.com and Better World for books, and eBay for other random things. This fracturing of purchases into more discreet categories is probably a good thing. If I know what I tend to buy more clearly, I can focus on whether I really need to do so. For example, sometimes I really feel I must add a book to my collection. I’ll do so, sometimes, but I can usually extinguish this desire in one of two ways:

  1. Check out the book from the library and read the first 100 pages. If I’m still convinced it’s a classic that I’ll re-read at least once, then I’ll buy it. But otherwise I’ll be satisfied without, and in some cases I won’t even finish the book because it’s a drag. Ownership is a funny thing. Once you expand the concept to include all of the resources in the public domain, for which you likely helped to pay, then the need for stockpiles of “private” goods diminishes.
  2. Count the number of unread books at home. I usually come up with about 50, to which I could add about 10 on the shelf in my office. All of these at one point occupied the part of my brain dedicated to impulsively acquiring things. By rekindling the desire I once felt for these things, the realization dawns that I could go the rest of the year and probably all of next year without buying another tome. To the extent that I’m reminded of my partial “ownership” of the library, it’s possible that I won’t need to for the rest of this decade. Perhaps the print publishing industry will have comepletely gone up in flames by then, at which point I’ll reluctantly start reading books on screens.

Here’s to raging against the machine in small incremental ways.

*I got it for a dollar at Record Exchange, one of Silver Spring, MD’s handful of badass record stores (hey, there’s a great idea for a forthcoming post.)