JL Collins - The Simple Path to Wealth

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ThisDinosaur
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Re: JL Collins - The Simple Path to Wealth

Post by ThisDinosaur » Tue Jul 11, 2017 8:47 am

Devil's advocate, because I'm an argumentative prick:

A factoid I hold in my brain is that economists are notoriously bad investors. (But I don't remember where I read that.) And very many successful investors don't use economic metrics or concepts for investment decisions. Furthermore, most business majors I know are not wealthy, and certainly haven't figured out anything like ERE.

That implies there is some economy of effort to be found in skipping some texts and focusing on others. At least in principle.

7Wannabe5 suggests skipping textbooks in favor of primary sources. I certainly think that's a good idea some of the time, but a *good* textbook would be one that summarizes and pairs down the ideas learned from several, perhaps conflicting, primary sources.

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Re: JL Collins - The Simple Path to Wealth

Post by jacob » Tue Jul 11, 2017 9:03 am

@7wb5 - Because those lack the crucial (3) of Fish's post: https://forum.earlyretirementextreme.co ... 10#p147210 ... and you'd be left devising your own theories. The risk of working out of original sources in an intellectual vacuum/without a basic understanding of the framework is clueless crackpottery (see e.g. every single climate change thread on these forums for illustration). I've read 4 out of the 5 books you've listed. You'd be better served and know much more after reading the Bodie book than those.

Reading the textbook (or a review article) and then tracking back references can be enlightening because earlier sources tend to take fewer concepts for granted... so they're easier (less abstract) to understand. Williams' book is a very long book (his PhD dissertation IIRC) that modern textbooks would summarize in a few statements about NPV of cash flows. It was a novel idea at the time. It's now axiomatic but you're not going to find many investments that are priced in this fashion these days because you now have to know/account for additional factors.

@TD - Nope, that does not imply that anymore than the observation that since 1st graders can't do calculus but 12th graders can, then someone who wants to learn calculus should somehow be able to skip learning how to count or multiply. Knowledge is built on top of other knowledge.

Also economists being bad investors is a straw man. Academic economists are certainly worse than professional investors (no surprise), but as long as they retain a sense of humility they're still better than uninformed or misinformed amateurs. The examples you know are the overconfident ones that blow up. If you look at the investment log, we have a few accountants and self-taught traders who seem to be doing well.

Also see https://www.amazon.com/Death-Expertise- ... 190469412/

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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Tue Jul 11, 2017 12:34 pm

@jacob:

Moi, devise my own theories and take off running without first engaging in exhaustive research? That never happens :lol:

Once again. Do both. Gotcha.

Since life is short and information is near infinite, one shortcut I sometimes use is to simply observe what somebody who is already an expert does and then copy-cat. For instance, I am copy-catting your latitude choice. I asked my multi-millionaire friend what I should invest in, and he said Vanguard Index Fund, which I took to be the sort of condescending advice you offer somebody whom you also offer a handful of 4th of July Parade candy which you would never eat yourself. So, I asked if that was how he invested, and he replied in the negative , but offered no further information. However, I have picked up a few hints from tossed off comments, so I shall persevere with this line of research. For some unknown reason I am like crack on the aging male ENTJ market, and they usually do pretty good in that realm. So, I decided that will be my edge. Figure worst case scenario will find me working my way through a stack of Russian novels in the Martha Stewart wing of some Federal Penitentiary, but no-risk, no reward, fish in the hand worth two fishing poles in the bush... etc. etc. etc.

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Re: JL Collins - The Simple Path to Wealth

Post by jacob » Tue Jul 11, 2017 12:54 pm

7Wannabe5 wrote:
Tue Jul 11, 2017 12:34 pm
I asked my multi-millionaire friend what I should invest in, and he said Vanguard Index Fund, which I took to be the sort of condescending advice you offer somebody whom you also offer a handful of 4th of July Parade candy which you would never eat yourself. So, I asked if that was how he invested, and he replied in the negative , but offered no further information.
Smart man!

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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Tue Jul 11, 2017 1:21 pm

:lol:

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vexed87
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Re: JL Collins - The Simple Path to Wealth

Post by vexed87 » Wed Jul 12, 2017 6:37 am

7Wannabe5 wrote:
Tue Jul 11, 2017 8:35 am
I still haven't gotten around to developing an interest in finance, but mightn't the general method towards erudition of starting with textbook and delving for original sources also prove helpful?

So, why wouldn't I be better served by reading some selection such as "Reminiscences of a Stock Operator" by Edwin Lefevre, "The Wealth of Nations", "Principles of Political Economy and Taxation" by Ricardo, "The Theory of the Leisure Class" and "The Theory of Investment Value" by Williams, than some dull textbook?


@7WB, Good point, but it works both ways, sometimes there are problems with going directly to the source, I can think of several notable errors Darwin made in OtOoS which would be debunked in later work by other evolutionary scientists. The framework might be there, but it might not yet be finessed, or relevant in the context of today. Of course, I'm definitely not saying that all original works only have their value in nostalgia/nerd factor. Summary learning can be dangerous too.

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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Wed Jul 12, 2017 8:34 am

@vexed87:

I agree. I think I was only 18 or 19 when I read "On the Origin of Species", but I already had enough modern framework to recognize the "notable errors." So, not exactly a desert island experiment. But, that would also be true of my modern generalist framework, especially at my current age, if I chose to read original sources, rather than textbook, on the topic of finance. I mean, highly unlikely I would be able to summon up exact reference, but also highly possible that, for instance, something I read in a series of articles published in Harper's magazine in 1996 would allow me to recognize similar "notable error" made by Ricardo.

The best example of "danger of summary learning" in my experience, occurred to me when I finally got around to reading Einstein in the original when I was around 35. I just did a quick internet search to see if anybody else had this experience, and found this verification:

http://www.vicphysics.org/documents/tea ... danken.pdf

Also, I don't recommend actually reading the Qur'an (in a couple different translations) unless you want to feel like tearing your hair out when you watch the news. I have read at least 3 books or articles written by well-regarded Western journalists in recent years that repeated incorrect information from same secondary source in this realm.

One of the funniest, most interesting, threads I ever traced was Dr. Laura's "The Proper Care and Feeding of Husbands" back to a late 19th century work on the topic of voodoo love spells. I sort of feel like I own this "trace", so I often share the wisdom found therein :lol:

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Re: JL Collins - The Simple Path to Wealth

Post by jennypenny » Wed Jul 12, 2017 5:43 pm

7Wannabe5 wrote:
Wed Jul 12, 2017 8:34 am

Also, I don't recommend actually reading the Qur'an (in a couple different translations) unless you want to feel like tearing your hair out when you watch the news.
Ha, I'm not a fan of bible thumpers and I get really annoyed with ones who've obviously never taken the time to read and study the bible before hammering people with it. It's applicable here because if you only adopt the 'bullet points' in a system without grokking the underlying principles, you risk misapplying them when conditions change (or only adopting the ones you like).

It's the difference between only being able to follow a recipe as written or understanding why your bread won't rise when it's cold or the cookies flatten out when the dough is too warm. Strictly following the recipe only works when conditions are 'normal' and you won't know how to adjust them when conditions aren't normal if you don't understand why the yeast needs to be warm and the butter shouldn't be completely melted.

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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Thu Jul 13, 2017 2:27 pm

@jennypenny: I agree, although I must admit that the only version of the Bible I have read cover to cover was the 1970s "The Way" edition, so it's kind of like I actually think "Jesus Christ Superstar" ,"Godspell" and soundtrack from "Exodus: The Movie" provide the background music for the Judeo-Christian tradition.

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Dragline
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Re: JL Collins - The Simple Path to Wealth

Post by Dragline » Thu Jul 13, 2017 2:34 pm

7Wannabe5 wrote:
Tue Jul 11, 2017 12:34 pm
@jacob:

Moi, devise my own theories and take off running without first engaging in exhaustive research? That never happens :lol:

Once again. Do both. Gotcha.
Did somebody say "DO BOTH"? :D

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Dragline
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Re: JL Collins - The Simple Path to Wealth

Post by Dragline » Thu Jul 13, 2017 2:50 pm

7Wannabe5 wrote:
Thu Jul 13, 2017 2:27 pm
@jennypenny: I agree, although I must admit that the only version of the Bible I have read cover to cover was the 1970s "The Way" edition, so it's kind of like I actually think "Jesus Christ Superstar" ,"Godspell" and soundtrack from "Exodus: The Movie" provide the background music for the Judeo-Christian tradition.
I am currently reading a version that is broken up into daily snippets ("One Year Bible"). It's funny how some parts are "all story" and others are "no story". Acts of the Apostles reads like the Odyssey with shipwrecks and everything. OTOH, you can see there was no very coherent way that people lived in the old testament, but that people lived differently in different eras as the technology went from pastorals to simple agrarians to bronze and iron. One of the first things they did after King Solomon died was to kill the minister that ran his forced labor operations. I would hazard a guess that was one of his biggest generators of wealth.

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fiby41
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Re: JL Collins - The Simple Path to Wealth

Post by fiby41 » Fri Jul 14, 2017 1:31 am

Dragline wrote:
Thu Jul 13, 2017 2:34 pm
7Wannabe5 wrote:
Tue Jul 11, 2017 12:34 pm
Once again. Do both. Gotcha.
Did somebody say "DO BOTH"? :D
Why not both

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Re: JL Collins - The Simple Path to Wealth

Post by jennypenny » Fri Jul 14, 2017 7:11 am

I'm not arguing that everyone should have to read the bible, or even all christians. I do think it's a requirement though if someone is going to carry it around in a holster.

How many people have recommended index funds to friends and family because they made a lot of money over the last few years, without any understanding of how they work and when they might not. That's where I think not knowing the underlying principles is wrong. Learning them for yourself is important, but learning them before making recommendations to other people should be required.

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Re: JL Collins - The Simple Path to Wealth

Post by IlliniDave » Fri Jul 14, 2017 8:31 am

Well, crap. I just recommended a Thai restaurant I like to someone, and I don't have an inkling of how to cook Thai, what the signature ingredients are, how they blend together through the preparation process. No PhD in nutrition either, never been to a culinary school, no restaurant work experience, never been to Thailand or met a native of that country. I've never even stayed at a Holiday Inn Express. I am a bad man.

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Re: JL Collins - The Simple Path to Wealth

Post by jacob » Fri Jul 14, 2017 12:03 pm

The financial markets seem rather unique (on top of my head) in terms of how much rope the average person can go out and purchase with which to hang themselves.

All a blogger or writer or stand-up comedian has to do is to say that "the information is presented 'as in' for entertainment purposes only" and then the financial industry is such that people can employ their life-savings based on whatever funny stuff that was presented to them for entertainment purposes. It's weird how even replacing one's own toilet is more regulated than retail investing. (In myTown, it requires a licensed professional.)

When I wrote my blog-disclaimer, I originally wanted to write something clever about "any readers who weren't adults ... or too stupid to think about the consequences of their actions ... read no further" but I eventually went with the current boilerplate.

What I learned after 10 years of running this website is that there are many people who will literally take whatever you say [literally, again] w/o applying any thinking of their own. Once upon a time I wrote down my holdings .. maybe in 2010 or so ... and then five+ years later someone out of the blue emails me and begins to discuss that portfolio's current performance, etc. And I'm like "Dude, I sold most of that stuff years ago!"

I could of course make the claim that it's not my responsibility if other people are stupid. But in my experience, that's not how THEY see it. This is a major reason why I don't provide public tracking of my portfolio. I can guarantee that there would be a dozen people who would copy it outright and then forget to keep track of it (or be pissed if I don't keep a running update). Then there would be several dozen who would copy some of it but not other parts (for whatever dumb reason) but blame me regardless because they didn't understand that the parts they left out was a hedge and not just some individual ROI idea. Finally, there would be large amounts of people preparing to exit or lose all faith if my picks turned out to underperform for 3 months or 12 months ... wanting explanations, etc.---and the opposite effect in the opposite situation.

This is why there's very little useful analysis available for free on the internet or even shared with uninformed friends&family. There's just zero-upside to making it freely available(*). This is also why the recommendation to anyone who doesn't demonstrate that they've put in the time to try to understand is the current herd default strat. That way one can always say that one wasn't recommending anything that everyone else wasn't at the time. It also means that when the person goes elsewhere (on the internet) to confirm, they'll get the same answer ... and if things go bad, it'll be in the company of many others in the crowd. In other words, it's a "safe" recommendation for the one making it.

(*) Only reason I can think of are the people on seeking-alpha, etc. fishing for analyst or portfolio manager jobs.

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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Fri Jul 14, 2017 12:13 pm

@jacob:

So, you are saying that 42 degrees North is not the best latitude? Damn. I already threw down my pennies and seeds.

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Re: JL Collins - The Simple Path to Wealth

Post by BRUTE » Fri Jul 14, 2017 9:58 pm

jacob wrote:
Fri Jul 14, 2017 12:03 pm
The financial markets seem rather unique (on top of my head) in terms of how much rope the average person can go out and purchase with which to hang themselves.
it is legal in this country to purchase a 200HP, 1000cc sport bike (top speed: 200+mph, 0-60 in <3sec) after filling out a 1-page multiple choice test, riding around a circle in a parking lot, and paying $26.

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Dragline
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Re: JL Collins - The Simple Path to Wealth

Post by Dragline » Fri Jul 14, 2017 10:12 pm

Wheeeeee -- splat!

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Re: JL Collins - The Simple Path to Wealth

Post by classical_Liberal » Sat Jul 15, 2017 11:32 am

BRUTE wrote:
Fri Jul 14, 2017 9:58 pm
it is legal in this country to purchase a 200HP, 1000cc sport bike (top speed: 200+mph, 0-60 in <3sec) after filling out a 1-page multiple choice test, riding around a circle in a parking lot, and paying $26.
Does Brute think licensing laws should be more restrictive? Maybe it's the 3% non-libertarian rearing its ugly head?

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BRUTE
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Re: JL Collins - The Simple Path to Wealth

Post by BRUTE » Sat Jul 15, 2017 12:59 pm

no, brute thinks it's ok. most humans brute knows are sensible enough to start out on a starter bike. and even those that don't rarely die. in fact, brute doesn't know a single motorcyclist that died as a newbie. most die when they reach the juvenile/invincible stage that sets in roughly 6-24 months after first starting out.

brute was merely commenting to Dear Leader jacob that there are other ways besides the stock market for humans to hang themselves.

7Wannabe5
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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Mon Jul 17, 2017 8:13 am

jacob wrote:This is also why the recommendation to anyone who doesn't demonstrate that they've put in the time to try to understand is the current herd default strat.
Yup. This is pretty much what my multi-multi-millionaire investor friend communicated when I tried to pump him for information again a couple days ago. He tried to explain to me why an index fund is better than a "standard' mutual fund, and when I communicated that I already comprehended that, he said something like "Well, you don't have enough money to have the same opportunities I have, and you haven't put in the work." and brushed me off.

But, I persisted, and although he has a real rough, brusque manner of talking, and I had to follow him around while he hustled through his morning exercise regimen, and let him buy me breakfast, I did manage to get some general advice which I would bullet-point as:

1) Work
2) Work
3) Work
4) Work
5) Study
6) Avoid addictive chemical substances
7) Avoid envy and resentment
8) Accept reality
9) There is more than one model
10) Constantly adapt

And the story he told me was: "There was a man who owned a bait shop. One day a customer asked him 'Do those green and purple lures really attract fish?', and he answered 'I don't sell to fish.' "

I was most intrigued by his revelation of bullet point (9), because clearly indicative of systems theory level of analysis. So, I asked him about systems theory, and he wasn't familiar with it, but he said "Harvard Decision Tree." So, I looked it up, and found article published in Harvard Business Review in 1964 (when my friend would have been in his early 20s), which I highly recommend to any of you who like to read original sources.

Anyways, pretty clear that the reason I will never be a multi-multi-millionaire is very poor adherence to bullet points (1)-(4), some issues with (6) if sugar and second-hand-testosterone count, and tendency to err towards the optimistic on (8)...sigh.

Felipe
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Re: JL Collins - The Simple Path to Wealth

Post by Felipe » Mon Jul 17, 2017 3:34 pm

@7wb

That story is from Poor Charlie's Almanac, I love that book.

7Wannabe5
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Re: JL Collins - The Simple Path to Wealth

Post by 7Wannabe5 » Mon Jul 17, 2017 4:22 pm

@Felipe: That makes sense in context. I will have to add it to my reading list.

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Re: JL Collins - The Simple Path to Wealth

Post by Isabel » Wed Jul 19, 2017 4:02 pm

jacob wrote:
Tue Jul 11, 2017 9:03 am

Also economists being bad investors is a straw man. Academic economists are certainly worse than professional investors (no surprise), but as long as they retain a sense of humility they're still better than uninformed or misinformed amateurs. The examples you know are the overconfident ones that blow up. If you look at the investment log, we have a few accountants and self-taught traders who seem to be doing well.

Also see https://www.amazon.com/Death-Expertise- ... 190469412/
When economists are worse than profesional investors than laypeople are better investors: See: Torngren&Montgomery (2004) "Worse Than Chance? Performance and Confidence Among Professionals and Laypeople in the Stock Market"

"In two studies, stock market professionals (N1 = 22, N2 = 21) and laypeople (N1 = 29, N2 = 34) provided thirty-day forecasts for twenty stocks and estimated the size of their own errors as well as their own and the other group's mean errors. Both groups predicted that the errors made by professionals would be half the size of the errors made by laypeople. In reality, the errors of both groups were about the size predicted for the laypeople. Participants also estimated their ability to pick the best performing stock from two options. Both groups proved to be overconfident. Professional predictions were only successful 40% of the time, a performance below what could be expected from chance alone. Self reports and correlations between forecasts and price movements suggested that the professionals based their predictions on specific information of the stocks without sufficient awareness of the unreliability of this information, while the laypeople used simple heuristics based on previous price movements."

Daniel Kahnemann and currently Gerd Gigerenzer work on this topic and prove that there are heuristics, where instincts (and laypeople) are much better than most educated experts.

Instinct Can Beat Analytical Thinking: https://hbr.org/2014/06/instinct-can-be ... l-thinking (Interview with Gigerenzer)

Or:
Heuristics and Robustness in Asset Allocation: The 1/N Rule, “Hard” Constraints and Fractional Kelly Strategies

"Harry Markowitz received the Nobel Prize in Economics in 1990 for his work on mean-variance optimisation that provided the foundations for Modern Portfolio Theory (MPT). Yet as Gerd Gigerenzer notes, when it came to investing his own money, Markowitz relied on a simple heuristic, the “1/N Rule” which simply allocates equally across all N funds under consideration. At first glance, this may seem to be an incredibly irrational strategy. Yet, there is compelling empirical evidence backing even such a simple heuristic as the 1/N Rule. Gigerenzer points to a study conducted by DeMiguel, Garlappi and Uppal (DMU) which after comparing many asset-allocation strategies including Markowitz mean-variance optimisation concludes that “there is no single model that consistently delivers a Sharpe ratio or a CEQ return that is higher than that of the 1/ N portfolio, which also has a very low turnover.”
http://www.macroresilience.com/2010/07/ ... llocation/

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