Blessed by the Potato

Sometimes being mean can be fun. No, that’s not right. Sometimes when I’m having fun I can come off as mean. I don’t aim to be mean, so this is a tough blog post to approach because that is just about all I have to offer. Let us pretend that I have been possessed by Greg McFarlane and this is a guest post FRotM: Book Edition.

A little while ago I got a piece of email that I ignored as being basically spam: a request to review and blurb a new book (actually titled: “A Free Investment Book for You”). Pitched as “a “How to” guide to obtaining compound returns of 20 percent, 30 percent, or more annually from investing in stocks and to do so in a manner that’s worry-free for the investor.” and “The Sane Approach to Investing in Stocks for Insane Profits.” I decided to be nice and junk it. That kind of pitch turned me right off: it looked like it was either not refined enough to know it’s contradictory, or a scam.

Then he followed-up. Clearly this was a real person and not a robot emailing me, so I wanted to put him out of his misery. This is what I sent back:

“I don’t think I would be a good choice for you as a reviewer/blurber. I don’t think 20-30%+ returns and “worry-free” can be put together like that, so seeing it as the central part of your message is troubling. I work as an editor so my reviews tend to be critical in the first place, and starting off on a bad foot already might not lead to a review you would like.”

He still wanted to send me a book, calling me “an excellent candidate for reviewing my book… my desiring your participation at this stage is a testimonial to the respect that I have for you and your work.” Ok kid, flattery will get you everywhere. I got the book. I read the book. I was open to having my mind changed: maybe it was a good investing book and he just needed to work on his email marketing. Alas, it was about as bad as I feared, shy of not advocating that readers borrow money from friends or remortgage their houses to invest.

Rather than tearing into it wholly, I just want to pick on one specific part: those worry-free 20-30% returns. In the book he lays out the 10-stock portfolio that brought him a 128% return in under 5 years. He compares that to just 45% on the S&P500. But that is a mistake. This is basically a giant case of getting a little bit lucky with stock picking, and a lot lucky with timing. He bought in 10 chunks through the end of 2008 and the beginning of 2009 — yes, he just happened to start investing at a generational low in the market that was followed by a massive, unrelenting bull market. No wonder he thinks 20% returns are worry-free. Anyway, it looks like he’s comparing his portfolio purchased across several time-points that span the market lows to a single time-point for the S&P500 from before the Lehman Bros event. It was easy enough to look up the S&P500 total returns and compare an index portfolio that made purchases on the same dates as he did, and the actual comparison would then be 104%. Yes, his picks out-performed, but it’s not nearly as impressive. Oh, and most of those same picks were hit way harder in 2008/2009 than the index was, so if there’s a repeat then so much for the “worry-free” part.

Then he lays out a second 16-stock portfolio that only has a bit over a year of tenure. He boasts a 29.6% return versus the S&P500 at 26.3% [figures not audited]. Yet that portfolio includes one position that just so happened to return 243% in a year. Exclude just that one outlier, and the portfolio underperformed. By a lot. Sure, sometimes that’s how investing works, but that’s not the kind of track record you base a book around (and again, hoping for a single lottery-ticket-stock to pay off while almost half your portfolio declines in an amazing bull market year is not my definition of “worry-free”).

I cannot in any way recommend this book — I haven’t even mentioned the title because I feel bad for the kid, and I don’t want this to be the only review that comes up in Google. But I warned him, and he asked for the review anyway.

Now he did start off by thanking his editors (amongst others), and on a micro level it’s a fairly tight text. With my own self-interest in mind paying for a few editing passes can help make a book more digestible (especially a self-published one). Unfortunately, the over-arching shortcomings cannot be saved by layout and grammar. It really needed a peer review — and some robust back-testing — before being sent off for a copy edit as the basic premise appears to be flawed, based on a mistaken return comparison and a great deal of luck. Though mentioned often in how the book was presented, the issue of worrying and freedom thereof was not covered.

Page distribution:
Completely blank, not even page numbers (colouring fodder for your young daughter!), 10%.
Small investing nuggets not even fleshed out enough for a blog post (e.g. 431 words on coattail investing does not blow me away with content), 30%.
Specific information* on companies found in a stock screener that will be instantly out-of-date in book format, 25%.
Index (the kind to look stuff up, not the S&P500), 4%.
Drivel, 7%.**
The purported approach/method/secret, 2%.***

* – Includes estimated future EPS growth rates to two decimal places, though all the percentages round precisely to X.00% so I don’t know why the digits were necessary in the first place.
** – Harsh but accurate summary.
*** – Totals may not add to 100% because math is hard and fact-checking is for losers who don’t have insane profits to chase. Also, yes, depending on how liberal you want to be on what counts as part of the approach versus general rehashing of Warren Buffett quotes, just ~2% on that topic. Spoilers: use PEG, buy when below 0.75-1.

Preet Banerjee has a new book out called “Stop Over-Thinking Your Money!” (subtitled “The Five Simple Rules of Financial Success”). It’s at the pay-down-your-debt, balance-your-budget level of personal finance, so if you’re a regular reader here it may not quite be your speed. It is very approachable and light, so if you do need to find a first introduction to personal finance, this is a good choice. Preet starts off talking about what you need to get an “A” in personal finance vs an “A+”. I’m an academic so that kind of thing appeals to me, but from many of my students I think he maybe should have pitched it as what’s needed to get a “C+ and drunk”. And I do mean talking: he has a very conversational style, and encourages readers to tweet him as they go through the book. That’s also going to make it easy for a beginner to get into it.

I really liked this part on debt:

“Something to consider when you borrow money from a bank is that you aren’t ultimately borrowing money from the bank. You’re borrowing it from your future self. The bank is just the middleman between the two of you, and it charges interest for its services. […] Think of borrowing money as negotiating a pay-cut with your future self.” [emphasis as published]

Preet’s a car guy. Back when he had a regularly updated blog he’d often post racing videos, including a few of himself zooming around a closed track. This comes through in the book, as every other metaphor for life, spending, budgeting, or getting out of debt is related back to driving a car (or owning a car, or a car loan). If you are also a car guy then this is a great choice: you will find it extremely relatable, enjoyable, and relevant. If you are not a car guy, it will still be relatable — it’s not a terribly obtuse metaphor — though like me you may notice the prevalence of cars.

With a minimum of spoilers, the five rules break down to:

1. Disaster-proof your life.
2. Spend less than you earn.
3. Aggressively pay down high-interest debt.
4. Read the fine print.
5. Delay consumption.

In my book, I start off with a disclaimer that you should have these basics down (or something like them) before getting into the investing part I write about. Before I get into the more critical part of the review you should know that I’m going to add Stop Over-Thinking Your Money to the list of books to read before mine. So yes I liked it, but years of science and editing have hard-wired my brain into reviewing critically. Though Preet sent me a copy for free, it wasn’t to “blurb it”.

Disaster-proofing your life is a great place to start a book on personal finance. But in this initial a chapter on disaster planning, Preet spends 19 pages talking about insurance, and 5 pages on emergency funds. That’s a lot of focus on insurance, especially relative to emergency funds (and nothing on cash, lines of credit, or bottled water). This is something I should break off into its own post because I’m something of a bete noire of life insurance in personal finance blogging, so I will stop there. For all my quibbles on the relative emphasis of disaster-proofing components, Preet does an excellent job talking about insurance in this chapter. He goes into the issues with underwriting, with getting insurance at a young age and having the option to renew, and powers of attorney — all without it becoming a total snooze-fest (seriously!).

The other simple rules were inconsistent in the detail provided: Rule 4 was just 6 pages with one detailed example, and another brief one called up from Rule 1. I liked the discussions in Rule 5, particularly about renovations, but thought there was a lot of ground left to cover when it ended. In debt reduction he talked about methods like the snowball, but didn’t really go into much detail, just recommending Gail Vaz-Oxade’s book. He does mention the point he made in his TEDx talk about how people magically manage to run a balanced budget as soon as their ability to borrow more goes away, but it’s not made nearly as elegantly or persuasively as it was on the stage.

The 5 rules are just the first half of the book to get you ready for the investing part, which occupies the second half. I found the second half a little inconsistent in the level he was explaining things at. He fully explained the “all your eggs in one basket” metaphor (seriously: “If you have six eggs all in a basket and you drop that basket, then all your eggs are ruined. But if each egg has its own basket, then your chances of dropping and destroying all your eggs declines dramatically.”). But then he uses terms like standard deviation without defining them and only obliquely defines stocks and securities (several pages after starting to talk about them).

“Generally speaking, people put too much equity in their portfolio.” I haven’t really seen that myself, I’m usually trying to talk people into higher equity allocations — there’s so much risk aversion out there and stocks are tainted with the stigma of being unknown and weird. That might just be our different experiences: I tend to interact with young people just starting to learn about finances and investing, or else those from the research and health care fields, while his experience in the finance world (at Scotia with dimensional funds and Pro-Financial Asset Management) may have been with more serious investors. I loved his viewpoint on the investor risk questionnaires, how some people try to pick what they think the “correct” answer is to being a good investor, rather than what their actual risk tolerance is. Of course, it’s also just that you think you can tolerate a lot more risk when things are calm, only to panic when TSHTF.

A long chapter called “insurance 101” with graphs and percentages covering how payment leveling works and how the insurance company makes money off the arrangement concludes the book. I had trouble understanding why it was included — there’s already a really good, detailed section on insurance up front. Why so much granular detail on insurance, when nearly everything else is glossed over?

There are a number of comparisons to weight loss and dieting in the book. There is a lot of merit to that analogy: meeting a budget is fairly similar, whether it’s a calorie budget or a dollar one. The concepts and the math are not difficult, it’s just a matter of discipline. However valid it is, I don’t think it’s such a helpful comparison to make. Eating right and staying in shape are notoriously difficult in practice. I don’t think finances and saving are nearly as challenging — a point Preet himself makes on page 3 — so hammering on this metaphor may demystify finance but make many lose hope for actually managing to stick to the principles.

Preet makes the case that you don’t need to put in a ridiculous amount of work to get an A+ in finance if you can stop over-thinking your money to get an easy A. The book is a breezy read and hits the major points so it’s easy to recommend for beginners. But I’d say that “easy A” is a B- at best: many how-tos are missing, which is odd given the bang it started off with on insurance detail; core areas of personal finance like taxes, downpayments, RESPs are not mentioned at all; and Kerry Taylor gets as many mentions as retirement (pensions/CPP: not at all). There’s such a void in this segment of the personal finance education: there are a metric crapton of books for those who are in debt to their eyeballs, and even more investing tomes for those who have the basics figured out, but not much for those just starting out and needing a gentle introduction to getting their house in order (indeed, really the only other one I consistently recommend is The Wealthy Barber Returns). So despite all my (hopefully constructive) criticism above, there is a group of people out there who have an unmet need for a book like this.

Giveaway: Preet gave me a review copy, which I will pass along to someone in gently used condition. Between Feb 6 and 15, I’ll randomly select from comments below that:
1. Say which city and province they’re writing from [Canadians only; GTA-north or Discovery District-area people will get it hand-delivered because I’m too cheap to pay for shipping if I can avoid it and Preet didn’t bribe me even a little bit for the review].
2. Include a 20-200 word discussion on what state their finances and/or financial knowledge and/or that of their friends are in now and/or what simple rule of financial success you would have put in the book [this will be your skill-testing question and human filter].
3. Indicate whether they want the book for themselves or a friend.
4. Are received by 11:59pm on Wednesday February 5th, for whichever time zone my blog server decides it wants to be in that day.

I’ve been a Bell home phone user forever. With two multi-day power outages in the last decade, and multiple 8-12 hour outages with loss of cell reception in the last year, the sheer reliability of plain old telephone service (POTS) is a feature I like and am willing to pay for over digital IP options. Plus the quality — I can’t stand talking on my cellphone and will call people back if I’m at home (or at my desk at work) and they try my mobile.

However, Bell is expensive, and has a ridiculous notion of inflation. For a service that has not really required any capital investment on their part or high marginal costs, the rate has gone up by about triple that of CPI over the last decade, and with a 7% increase this year on our bill, it was one straw that made me want to cancel. They’re also more expensive than their competitors (like Teksavvy), but we know Bell — as much as I may hate having to call their telemarketing department, the service just works and we can rely on it to continue to work. That should be the case for a POTS reseller as well, but we were willing to pay a few dollars more per month to stick with Bell. Yet the gap was significant at around $10-20 per month, so we used the old trick of calling to complain and got a discount to bring it closer. A $10/mo discount for 12 months was a small price for Bell to pay to keep us happy and loyal, and make the price a little more fair. And when that would expire we’d call back and renew it, often missing out on a month in-between without a discount.

This has been the routine for years now. It’s tiring and I keep asking if they can just put a permanent reduction in the rate to make it competitive, but the constant threat to cancel with discount is just their mechanism. It’s how they do business, so that’s the game plan we follow. Yet this year when I called in, they wouldn’t give it to me. They would give me a “great” rate on internet and TV if I switched everything over to them, but that’s not happening (Bell: you burned too hard on UBB to try to pretend you have an affordable unlimited service now). As a phone-only customer, I could take my business elsewhere: they didn’t want it.

What really set me off though was the incredibly awful and shady accounting practice they had for the end of the discount. Rather than immediately seeing that the 12-month discount had expired, they continued to put it on my bill, and charge me the reduced rate. Then in a later month they retroactively took it back and hit me with a massive one-time bill. Likewise, on the first bill with the new, 7% higher (in a year when inflation is less than a percent) rate, they retroactively applied it to the previous month. That is needlessly infuriating. In essence, it’s a billing error. I shudder to think of the damage that could be done with such practices for someone living closer to the edge in their budget, with multiple services with Bell, opening their bill one day to see a (one-time) double payment required.

I finally had enough of it and have switched. I tried Teksavvy first — great prices and I love them for internet — but they wouldn’t take my money. For whatever reason, Teksavvy has put in a “stop sale” on home phone service. Even though it’s still advertised on their website, they won’t take me as a phone customer. Primus would however, so off I go (though they are a touch pricier than Teksavvy’s unobtainable teaser pricing).

[Spoilers throughout]

Just watched both Pacific Rim and Man of Steel, and they both bothered the physicist part of me in a common way: a needless fuckton of punching.

In Pacific Rim they have these giant robots fighting giant monsters that swim up from a dimensional portal at the bottom of the ocean. Ok, a cool premise and consider my disbelief suspended — I’ve got my brain dialed all the way down to 1 for this, let’s have some fun.

Then they fight, and not only do the giant robots wade waist-deep into the ocean to fight (rather than staying on land where they might have an advantage), they fight with their fists. Millennia of human technological development have brought us a wealth of options better than a closed fist (even a robot fist) for damage. The whole time I was going “Get a sword! You idiots, stop punching, it’s doing next to nothing! Get a sword! There, that shipping container — stomp on it and get a make-shift giant shiv!” Go to the local comic book store and check out the giant robots and you are going to find that all of them have giant swords or giant guns: Gundam, Heavy Gear, Voltron, even some Transformers (who generally get giant guns). There’s a good reason for that: swords work. A cutting edge lets you do more damage than a punch, and the length lets you swing it for more leverage, speed, and attack range.

Then right near the end, the main characters are like “We’re totally boned.” “No, we have one option left — deploy sword!” And I just lost my cool. “You assholes had a sword the whole time? What the hell? The sword should be your first option, not your last one! Aaaaarrggghh!!”

On top of that were the scenes where the monsters pick up and throw the giant robots around like toys. Look, I hate to have to bring physics into it, but even if the monsters were totally strong aliens and all, they were still shown to be flesh and bone and roughly neutrally-bouyant in seawater. The robots on the other hand were metal. Heavy, dense metal. Trying to pick one up should have just resulted in the monster climbing up/hanging off. Though they were roughly the same size, the robots would have been something like 5X heavier.

Overall, Pacific Rim had some neat robot-fighting-monster visual action, but there were so many things so very wrong with it that I just couldn’t turn my brain down low enough to achieve the required level of suspended disbelief. And that’s not even talking about the mind meld/two-pilot neurointerface nonsense. I just accepted that the brain is hard and they were going to get a bunch of that wrong. But how did they not get that steel/titanium/unalloyed iron (???) is heavy or that “deploy sword” should be higher up on the Jaeger pilot checklist? This is basic late show “will it float” level science we’re talking here.

Man of Steel also featured a lot of punching. Ok, Superman movies are tough to do because he’s too powerful — it’s a challenge to create some credible suspense or danger around him. It usually boils down to trying to outsmart him, put someone he cares about in danger (but then Lois always ends up looking like a tool), or throwing another ultimate baddy at him (in this case, other Kryptonians).

So the Kryptonians show up, Superman starts to fight, and throws punches (and cars, and trucks, and a train, and then more punches). You’d think eventually he’d realize that the punching thing just isn’t working: neither of them are getting hurt. But he never does. Yes, the movie has cool destruction physics, blasting around punching each other and destroying all kinds of property and civilian lives in the process. But I got bored watching the whole thing; it was a stalemate that they just wouldn’t move away from.

There were even pockets of the world where the Kryptonians lost their powers (e.g., on the ship, near the world engine), yet the writers never came across the idea of taking advantage of that (smash Zod until he lands within a zone where he’s weak, then fly in with momentum to knock him out and break Superman’s hand, or zap him with heat vision from outside where powers do work, or something). Another oddity was that in this one there were no fragments of Kryptonite to weaken Superman (another incredibly common plot point because it’s really hard to make a story without weakening Superman somehow — he’s too powerful to be really interesting in a conventional superhero way), but instead his powers seemed to be due to a combination of “earth’s yellow sun” as well as the atmosphere, so reverting those inside the Kryptonian ship is what weakened him. But that atmosphere condition on his power should have suggested that flying to space was not going to be possible, yet he goes and does it a bunch anyway (and in ways that are not even relevant to the plot, just as a visual homage to the times he did it before).

I haven’t read the comics, so perhaps these elements are already out there, but I think a good Superman movie should:

• Revise the canon so that Superman is tough but not invincible. Then the fight with Zod et al. could have some progress, and some point to continuing past the first ineffectual punch and thrown car, if they sported bloody noses or something.
• Focus on the world Superman inhabits, but not necessarily him. At this point we can probably take as a given that for the really big, world-changing crises Superman is going to show up and save the day. But what about a run-of-the-mill mugging, will he show up, or will your screams go unanswered? Is there a cult that worships him?
• Move away from the ultimate peril trope. The parts of Man of Steel that were interesting were where he was drifting around, trying to balance his desire to stay hidden and his temper with wanting to touch the world and not retreat entirely. Superman can still do neat things and maybe have some kind of story without a supervillain threatening the whole world.

I’m still kind of amazed at how much effort movie creators will go to in their CGI, with intense physics/particle modelling to create cool/realistic visuals, but they won’t spring a few hundred bucks to have a scientist (or someone with a modicum of common sense) check their plot devices for believability. Far too much time spent on questions like “how would it look if this building collapsed and fell into this building with a hole punched through it from an alien being thrown through?” and not enough on “should this fight really be happening here, like this?”

We bought the Graco Snugride 35 carseat initially because all the safety research suggests that keeping kids rear-facing longer is safer. Rated up to 35 lbs, we figured that this car seat — though large and heavy — would keep Blueberry rear-facing until she was pretty much two years old. Though it’s large for an infant carrier, I was able to fit it in the Prius and still manage to get my seat to a decent position for driving (it’s about an inch further forward than I had it when I positioned my seat without any such constraints — not the most comfortable position but a workable compromise). Blueberry is very tall for her age (obviously a mix-up at the hospital), and though she still has over 10 lbs to go before hitting the weight limit she’s getting close to the maximum height for her infant seat. Time to move up.

So now we’re off shopping for convertible car seats, the next step up that can be either rear- or forward-facing. With these larger seats, it’s almost impossible to find ones that can fit behind a front seat well enough for me to drive or for Wayfare to comfortably sit. I’ve been checking various forums for tips and reviews and pictures of how they fit, and it seems like the two on our shortlist are the Britax Marathon/Boulevard or the Diono Radian. I’ll spare you my pro/con lists, coin-flipping, and hand-wringing on this decision (though feedback on those seats is welcome in the comments).

What really got me in our search was the oft-stated fact that carseats are improperly installed some huge portion of the time. I heard numbers ranging from 80% to 95% depending on the source, and it got me thinking: where does this bit of conventional wisdom come from? I’ll grant that installing the old-fashioned way with a seatbelt is difficult both in terms of skill and strength required, but I really had no issues with the LATCH install. After all, that’s what LATCH is supposed to help with. Plus, the epidemiology data all says that kids in car seats are safer, so either the install error-rate is over-stated, far more people are managing to get/pay for a professional installation, or seats are safe even if installed incorrectly. I started to wonder just how true this conventional wisdom was, or if perhaps this factiod had been invented by the stores offering a $25 installation service and picked up by the media, so I went off in search of a source.

There are some NHTSA reports that seem to be the origin of these figures. This one, for instance, gives a high error rate for installation, topping 95% for first-time installers, who in this study (or a similar one I just read) were recruited from a university’s volunteer pool (i.e.: first-year psych students giving their very minimum effort for $10 and a course credit).

The most common error is loose installation: a carseat, when properly installed, is supposed to be able to move less than an inch. Now, a carseat that can be wiggled an inch and a half is not meaningfully more dangerous than one that can only be wiggled an inch; likewise, the carrying handle for a removable carseat has a specified position for use in the car for each brand (and it is often different for each model) — though many first-time installers got it wrong, it’s also not usually critical. If they apply a severity score, then “only” about 30% of seats were incorrectly installed in a really bad way. The good news: the error rate drops in half once parents/caregivers who have carseat experience are tested, rather than novices. The bad news: that’s still a nearly 50% error rate. To pick out one more interesting factoid, there was a higher error rate for those who drove cars with leather seats.

I’m surprised that even digging into the data, the “legitimate” error rate still appears to be shockingly double-digits high. That really says that something needs to be done to make carseats easier to install safely. Some kind of standardization is most likely the answer: either continue with LATCH but standardize the connectors, or create a universal base that the manufacturer’s individual seats can clip into. Angle adjusters with a wide range of motion are also likely going to be needed — far too many official installation instructions include the use of towels or pool noodles (sold separately) to prop up one part of the base, which is frankly ridiculous. Many require a great deal of strength to tighten properly, or that the adult put their full weight on the seat to jam it down into position — a ratcheting belt-tightener would be a great feature on many of these seats.

As an aside (and not necessarily a product recommendation) this car seat is a neat one from a human factors point of view, with sensors and a display to help ensure correct installation. The video there is only about a minute long if you want to go have a watch.