Blessed by the Potato

These look pretty cool. Definitely watch the video. I’m immediately reminded of Leviathan.

**spoilers**

There’s a part near the end where they fly the shark in to a girl sleeping(?) in bed and she freaks out, as is proper in that situation. Full warning: if I ever get woken up by a FLYING SHARK I will punch whoever sicced it on me in the throat. That’s scary enough when you’re fully awake.

Netbug sends along this gem of an anecdote of a blimp owner who wakes up to find the blimp has drifted through the house and into the bedroom in the night.

“I awoke the way you awake when you suddenly know that there is a large levitating sinister presence hovering towards you with menacing intent through the maligant darkness.”

Now imagine if it was a shark.

The big news this week seemed to be the US debt downgrade and the stock market. I’ll likely get around to posting about the market sometime later.

I never liked Top Gear, but then again, I’ve only seen it when pointed to it by something outrageously unrealistic, like when they tried to pick the only test where a BMW could beat a Prius in fuel efficiency (all-out throttle on a closed track at speeds you could never drive on a police-patrolled road and hope to keep your license). So it’s not surprising to see them called out again for distorting a “test” to make their point that they don’t like technology or saving gas — in this case draining the battery of an electric car before setting out on a trip to cripple the car. They seem to have a genuine, irrational hatred for any new technology or even the very notion of saving fuel instead of going fast. Zoom-zoom is definitely a bias present in many automotive journalists, but Top Gear is brain-damaged in their fervour about it. “Jeremy Clarkson is either an idiot or a genius. He’s either an idiot who actually believes all the badly researched lying offensive shit that he says. Or he’s a genius, who’s worked out exactly the most accurate way to annoy me.”

An interesting juxtaposition in the Globe this weekend: a “Me and My Money” column on a GIC-only investor who claims to have achieved returns of “within a few dollars” of the S&P500 from 1980 to 2002 using just GICs, and another article says that we can’t avoid investing in the stock markets with our nest egg since cash doesn’t provide the needed returns. For the GIC investor, I suppose it’s possible that he did match the market performance with just his GICs: though the S&P500 increased 900% (not including dividends) over that time, for a CAGR of ~11% (probably more like 13% once dividends are included), interest rates were high over much of that period. Plus, 2002 was the bottom of the tech wreck, so he looks to have cherry-picked. Though I do have to wonder if he’s including the effects of taxes (did he have enough RRSP room for an all-GIC portfolio?), or perhaps he forgot about dividends.

The uproar over Google’s real name policy for G+ continues to rage, even picking up a moniker of its own: the “nymwars”. The EFF weighs in, as doesMicrosoft Research, calling “real” name policies “an abuse of power”.

Michael James talks some more about the futility of active investing, with the help of Larry Swedroe’s “The Quest for Alpha”. I keep meaning to get my thoughts out into a blog post on why I think active investing is possible (though still not a great idea for most people), but it’s getting harder and harder to get motivated to write that as my “alpha” has been firmly negative in 2011 (and getting worse).

I finally figured out what the mysterious flashing yellow triangle error message on HP LaserJets means: there’s a mouse in the printer!

I heard him nomming away in there while I was trying to sleep at the cottage. Somehow I got him into a tupperware container, and took him for a little walk down by the water. Wayfare (who is unimpressed that I ran into her room going “I caught a mouse I caught a mouse! Wanna see?” at 5 in the morning) thinks I didn’t take it far enough and that it’ll just come right back in, which is not a bad bet. My parents can deal with the less-sucky more-permanent pest removal methods.

I just do tech support.

I’ll jump on the active vs. passive investing posting spree. To sum up for those that don’t follow a hundred other blogs, there was something negative said about passive investing, in particular that it shouldn’t be attempted in a bear/sideways market. Well, how do we know we’re in a bear/sideways market? Passive investing is, IMHO, still a great choice then, as making that call on market direction is too difficult for most of us to even attempt (not that that stops us). So, good counters by Canadian Capitalist and Michael James.

I’m a bit torn on the whole matter myself. For one thing, I’m not entirely an active or passive investor, having my portfolio split into the active half and the passive half (though the halves aren’t quite equal, with the larger half belonging to the active part).

I completely see the logic of passive investing for the average person, and that’s all I recommend to people who ask what to do with their money. For the majority of people out there it is the right way to go: control your fees, be happy with “average” (though indeed, one can do better than the average investor with a passive approach), use your time to live your life. Or to put it another way, play to not make any errors.

But at some level 1) I think that superior returns can be attained (e.g.: the superinvestors of Graham-and-Doddsville) and 2) I don’t think that I am average, helped in part by 3) the fact that my dad is an active investor who has out-performed. The average investor/mutual fund has a short time horizon, lack of patience, chases returns, trades too much, over-values growth, under-values strong balance sheets, and is emotional. So I don’t think it’s a wonder that the average investor actually underperforms a passive portfolio, and moreover, I think that even a diversified passive portfolio can be improved upon. The problem of course is the Lake Wobegone effect: the average investor believes they are above average, and then makes mistakes that leads to underperformance.

There’s a tough line to walk there: value investors can and do underperform for long periods of time while waiting for the voting machine to turn into a weighing machine, so I want to be patient and stay the course if I have confidence in my analysis even when the market moves against me. But, I don’t want to brush away a lack of skill as a temporary underperformance. So I’ve created a set of rules for myself I call Potato’s Valve:

The money flow for the passive portfolio is like a one-way valve: money only goes in (until retirement). It gets first crack at new savings to at least make the registered account contributions.

The active portfolio started with most of my previous life savings, and can get a portion of ongoing savings as long as it’s performing. When out-performance stops (as it did in the first half of this year) the valve gets turned off and new savings go exclusively to the passive portfolio.

That protects me against the hubris of continuing to think I’m above-average when the evidence says otherwise. The passive portfolio will continue to grow and will be there in the background, a cushion when I fall down, and only a tiny drag if I do make it big. Since I’m still young and very much in the savings/accumulation phase of my investing career, my future contributions will be more than my current portfolio size, so even if I under-perform with my active portfolio (or even blow it up!) it won’t totally kill me, as long as I eventually put most of my assets into a passive portfolio that does work. Potato’s Valve should keep me investing in what has the best chance of giving me good returns in the future: my active portfolio if that continues to do well, or the passive if it doesn’t (assuming that active investing has any kind of chance — if it doesn’t, the valve will keep me from chasing that for very long with very much capital) while protecting me from myself.

Part of this comes back to what Michael James mentioned in the comments: an active investor has to pick a benchmark and compare how well they’re doing, and have some idea of what poor performance is. It makes no sense to spend the time doing active investing just to get a poorer result than you could get with a diversified passive portfolio, and not even know it! More to the point: if you can’t track your own past investment performance, what chance do you have of projecting the performance of companies in the future?

[Yes, this is the first time I’ve ever call that rule that, but I figure with a dumb name it might catch on]