ERE Investment Curriculum

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Quadalupe
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Re: ERE Investment Curriculum

Post by Quadalupe »

@J+G, sorry man, I found it quite hard to keep up. I actually read by myself up until Ch 18 or so. But since I didn't really *study* the material, I couldn't retain it. Currently, I'm trying to build a 'read textbook non-fiction consistently' habit, and in accordance with the stuff I read in Atomic Habits I start with reading 1 page in the morning and 1 in the evening. Hoping I'll remember more this way!

I'll post some questions and observations in relevant topics when they come up, but don't wait up for this slowpoke.

Jin+Guice
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Re: ERE Investment Curriculum

Post by Jin+Guice »

@Quadalupe: I think I was just going way to fast. Not just reading the chapters but typing up a coherent summary and then discussing them is quite time consuming. As Jacob said, better to go slow than to rush just for the sake of keeping up.

One nice thing about this being a forum discussion is that there is no need for us to do this at the same time. Obviously it will help discussion if we all read the same chapter recently, but I'm just going to start by posting summaries of each chapter, which will hopefully be helpful across time.

cheese
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Joined: Tue Nov 18, 2014 4:42 pm

Re: ERE Investment Curriculum

Post by cheese »

Hi everyone! It has been a couple months since the last activity on this thread so I wanted to revisit the topic to see if anybody has made much progress on the McConnell Economics textbook. For a while I was reading at least a few sections every day and have been able to work my way through the first 12 chapters. I apologize for not contributing to the threads on the individual chapters but I'm not sure I've had much to add to the discussion.

Unfortunately, I've lost a lot of my enthusiasm since the end of January and am not sure how to proceed. I've been taking copious notes and working through at least a couple example problems for each chapter but so far I don't feel like this has done much to make me a more knowledgeable/competent investor.
jacob wrote:
Mon Dec 30, 2019 7:35 am
I don't think blasting through the material will be helpful when improved investing is the actual exam. For investing, I think it's better to have a deep understanding of some key aspects than having covered a lot of material.
I realize there probably aren't any shortcuts but I'd also like to avoid spending a lot of time slogging through material that won't eventually help me improve my investing. Maybe an intermediate understanding of economics will serve a valuable foundation later but as a relative beginner it is difficult for me to know which topics/concepts are important and what can safely be glossed over/ignored to avoid being overwhelmed by detail to the point where it obscures the big picture. I'm considering taking a break from the McConnell textbook and at least temporarily jumping to another textbook in the curriculum to see if I find the material a bit more engaging/pertinent.

ertyu
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Re: ERE Investment Curriculum

Post by ertyu »

cheese wrote:
Tue Mar 03, 2020 12:23 pm
so far I don't feel like this has done much to make me a more knowledgeable/competent investor.
Don't focus on solving problems or mastering graphical models. The part of economics that is relevant to investing has to do with forming theories about how stocks will do. There are two parts to this:

(1) forming a theory about the macroeconomy (economy as a whole): where are we in the business cycle? what do you think will happen next? how will policymakers react? Will incomes, spending, investment, etc. etc. likely increase or decrease? What will likely happen to interest rates? To consumer and producer prices? To exchange rates and thus to countries' export revenue? Etc.

The theory you form can then be used to inform an active asset allocation or, (2) to form a theory about how a particular company will do in the abovementioned economic conditions. Example: Company X is a car manufacturer. If we are at the end of a business cycle, it is probably unrealistic to project strong, uninterrupted growth in this company's profits in the next 3-5 years. If recession comes, people will lose their incomes, and the demand for new cars will likely fall. The profits of company Y who produces components for cars will likely decrease as well, because if car manufacturers aren't selling cars, they're probably not gung-ho about making them either, and thus aren't gung-ho about ordering component parts. Company Z, on the other hand, who runs a nationwide chain of car repair shops, is likely to not suffer much because if people aren't buying new cars, they'll need to repair their old ones, as cars are a necessity for anyone who needs them to get to their job. Etcetera.

jacob
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Re: ERE Investment Curriculum

Post by jacob »

cheese wrote:
Tue Mar 03, 2020 12:23 pm
I realize there probably aren't any shortcuts but I'd also like to avoid spending a lot of time slogging through material that won't eventually help me improve my investing. Maybe an intermediate understanding of economics will serve a valuable foundation later but as a relative beginner it is difficult for me to know which topics/concepts are important and what can safely be glossed over/ignored to avoid being overwhelmed by detail to the point where it obscures the big picture. I'm considering taking a break from the McConnell textbook and at least temporarily jumping to another textbook in the curriculum to see if I find the material a bit more engaging/pertinent.
The entire curriculum is foundational stuff that establishes the frameworks for understanding and thinking about investment strategies later on. It's as much to be able to evaluate actual books/strategies on investing that you read later on and possibly improve on what you read. Covering the foundations is like doing conditioning training necessary to learn the actual fighting skills.

If this [stuff] wasn't inherently interesting then perhaps it's better just to invest in a couple of balanced index funds and be done with it.

steveo73
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Re: ERE Investment Curriculum

Post by steveo73 »

jacob wrote:
Tue Mar 03, 2020 3:28 pm
If this [stuff] wasn't inherently interesting then perhaps it's better just to invest in a couple of balanced index funds and be done with it.
Pick a 2 or 3 fund portfolio, stick to it for life and you will outperform the vast majority of people. Knowledge in the financial markets is a funny thing. It doesn't necessarily lead to better returns and can lead to under performance.

cheese
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Joined: Tue Nov 18, 2014 4:42 pm

Re: ERE Investment Curriculum

Post by cheese »

@ertyu: Thank you, your comments were incredibly helpful! Perhaps I haven’t been approaching the material in the most effective manner. Moving forward, I’ll focus more on the implications of what is being explained in a given chapter as opposed to the specifics of the calculations, graphical analysis, etc. (losing the forest for a detailed study of the trees). I got really bogged down drawing countless graphs in the chapters on aggregate expenditures and the aggregate supply/demand model.

@jacob: Fair enough, I suppose I’m getting ahead of myself. I didn’t mean to imply that I'm not interested the material (I actually thought the chapter on fiscal policy was incredibly informative and captivating), just that I'm finding some of the chapters to be a bit more tedious than others. Also I probably just needed to whine a bit... sorry everyone. I’ll continue forging ahead, I recognize that I will need a thorough understanding of economics if I'm hoping to make informed investment decisions in the future. Thankfully, I think I’ll find the investment/finance textbooks to be much more within my wheelhouse.
jacob wrote:
Tue Mar 03, 2020 3:28 pm
If this [stuff] wasn't inherently interesting then perhaps it's better just to invest in a couple of balanced index funds and be done with it.
I was comfortable punting on investment strategy early on when my savings (and the potential investment gains/losses) were low but now that I’ve accumulated a significant amount, learning more about finance/economics/investing has taken on an increased sense of urgency. Since I'm planning to reach FI at a relatively young age (35-40) and hoping to potentially live off of the investment proceeds for the remainder of my life, I'd be hesitant to permanently walk away from a career without either a MUCH better understanding of what I'm doing (and why/how) or requiring a huge safety margin. How else could you possibly decide when you have a reasonable expectation of success? Reaching the high savings rates required for ERE has been shown to be relatively straightforward (if not always easy), even with median incomes; I think determining how to invest the savings to generate the requisite returns is considerably more difficult. I know I'm only considering the financial aspects of ERE but they are important!

I agree that being able to evaluate specific strategies is paramount. For instance, one of the books I’m currently reading, How To Retire Early And Live Well With Less Than A Million Dollars, discusses retiring with assets requiring average investment returns of 8-12%* which would theoretically allow me to retire immediately but which I also recognize would be incredibly foolhardy (I imagine anyone choosing that high of a withdrawal rate would be toast in <10 years). Even I understand that market valuations and sequences of returns are important. Of course this book was written from the perspective of someone who retired in 1981 with the book published in 2000 so it isn't hard to understand how that might have worked for him. To be fair, I haven't finished the book yet.

*described as easy, "almost anyone should be able to produce this return" to "possible but difficult"

ertyu
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Re: ERE Investment Curriculum

Post by ertyu »

cheese wrote:
Tue Mar 03, 2020 11:01 pm
I got really bogged down drawing countless graphs in the chapters on aggregate expenditures and the aggregate supply/demand model.
The conceptual part of AS/AD is useful. For instance, that GDP is the sum of what the gvt does, what companies invest, what consumers spend, and whatever flows in and out of the country. It helps you see why the massive QE of the last couple of years has not led to a price level increase: if the money gets funnelled into buybacks instead of increased investment and increased wages, I and C aren't rising by a sufficient amount to shift AD meaningfully. In podcasts, you would sometimes hear that we have not yet closed the post-2008 income gap - AD has not shifted meaningfully enough to return to trend growth.

tl;dr: focus on what the graphs are telling you conceptually.

This counts double when you reach the sections on perfect competition, oligopoly, monopoly, etc. Economics textbooks would often teach you how to manipulate the models, but this is the section where it's least important to be able to do so.

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