ERE Investment Curriculum

Meetups, joint projects, classifieds, dating, exchanges, buying, selling, etc.
Quadalupe
Posts: 268
Joined: Fri Jan 23, 2015 4:56 am
Location: the Netherlands

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
Posts: 1276
Joined: Sat Jun 30, 2018 8:15 am

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
Posts: 23
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
Posts: 2893
Joined: Sun Nov 13, 2016 2:31 am

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
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

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
Posts: 1733
Joined: Sat Jul 06, 2013 6:52 pm

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
Posts: 23
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
Posts: 2893
Joined: Sun Nov 13, 2016 2:31 am

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.

Redo
Posts: 48
Joined: Sat Dec 01, 2018 2:30 pm

Re: ERE Investment Curriculum

Post by Redo »

Are these books actually good? They have mediocre ratings on amazon.

Fish
Posts: 570
Joined: Sun Jun 12, 2016 9:09 am

Re: ERE Investment Curriculum

Post by Fish »

@Redo - I read the McConnell economics book and it was ok, dry by nonfiction standards but it is a textbook after all. I have limited experience reading multiple textbooks on the same subject and at the same level. Mainly in my area of technical specialization. From what I can tell the author/textbook doesn’t really make much of a difference. Some books might be more “efficient” by providing better explanations but the information content is essentially the same as long as you take the time to learn it.

Redo
Posts: 48
Joined: Sat Dec 01, 2018 2:30 pm

Re: ERE Investment Curriculum

Post by Redo »

Thanks. I don't mind dry, but clarity is important. Seems like some of the textbooks are confusing based on the reviews.

take2
Posts: 317
Joined: Wed Jan 09, 2019 8:32 am

Re: ERE Investment Curriculum

Post by take2 »

I actually just started the Principles of Corporate Finance after reading this thread. Not the book in question but one of the ones Jacob mentioned in his original post. I like it a lot so far and don’t find it dry at all (though to be fair just 1 chapter in).

Redo
Posts: 48
Joined: Sat Dec 01, 2018 2:30 pm

Re: ERE Investment Curriculum

Post by Redo »

Good to know, thanks.

mathiverse
Posts: 788
Joined: Fri Feb 01, 2019 8:40 pm

Re: ERE Investment Curriculum

Post by mathiverse »

For future ERE investment curriculum readers, here is some information about how to approach the knowledge in the books.
jacob wrote:
Tue Jan 10, 2023 9:13 am
I think that depends on the school system. I've been in a few, three countries, and there certainly are differences. The Danish system (as far as my experiences in STEM go) remains my favorite. The focus was on solid practice of fundamentals and being able to apply basic theory to novel situations. IOW, the goal was to teach students a new framework and get them used to applying that framework to whatever problem they can across. "Here's a tool. Lets practice it a lot, so you're able to use it." It was "kennen"-focused.

Contrast with the Swiss wissen-approach that introduced many more tools. Here the goal was for the student to be able to talk _about_ the tools at the exam. The ability to use them was tested once but tool use was really practiced beyond a one-shot demonstration.

The US approach was somewhere in between. There was a bunch a standard problems and the challenge was to identify which one problem one was dealing with and then apply a rehearsed prescription. This works great until a novel situation is encountered.

In my recommendation of econ/finance books, I've been presuming that people would go at it with the "Danish" sentiment and see them as a bunch of frameworks and mental models to guide thinking about the actual world. Not descriptions to be memorized so one can talk precisely about e.g. how exactly the Fed works OR the idea of being able to match the current world to one of 8 case studies in a book. In terms of developing one's thinking, older books are often better because they contain less informational filler details.
mathiverse wrote:
Tue Jan 10, 2023 9:42 am
Can you explain the kennen focused method in a bit more detail? Is this as simple as saying the Danish system would make you do 50 problems for a given tool vs the Swiss system making you do one problem vs the US system making you do 10 problems? Or does it go deeper than that?
jacob wrote:
Tue Jan 10, 2023 10:13 am
Yes, to exaggerate for effect:
Danish: 50 problems for 1 tool.
Swiss: 50 problems for 50 tools.
American: 50 problems for 5 tools.

I think it's best described with

Bruce Lee wrote:
"I fear not the man who has practiced 10,000 kicks once, but I fear the man who has practiced one kick 10,000 times."

While the cream of the crop rises to the top in any of those systems---those who go to grad school tend to be more similar than different, likely in spite of the system they trained under---the systems do have different paradigms and this is relevant for the "middle of the Bell curve". Once students hit employment, the Danes tend to demand an explanation for why some process is the way it is, but they'll then feel free to implement it creatively. Americans are more plug and play; less asking why, but also stumped with unfamiliar problems(*) The Swiss are great at presenting.

(*) One of my Danish professors liked to put in never-seen-before problem types at the end of the written exam arguing that "if the students didn't learn something new during the examination, they were wasting their time". That's a very different attitude than the "practice the study-guide to get an A+"-mindset.

PS: This is all generalized from my experience in physics/math. Other fields may have different traditions.

7Wannabe5
Posts: 9369
Joined: Fri Oct 18, 2013 9:03 am

Re: ERE Investment Curriculum

Post by 7Wannabe5 »

One of the newer methods employed when teaching math in the U.S. is to present a problem and then ask, "Does anybody want to share their strategy for solving this problem?", and then follow-up by asking, "Did anybody solve this problem using a different strategy?" The benefit of this teaching method is that it liberates the mastery of concepts from rote algorithms. The downside is that given limited time/attention, some kids don't master the use of any algorithmic tool beyond "use calculator."

There are many adults in the U.S. who do not comprehend the most basic arithmetic concepts outside of memorized facts or algorithms. For simple instance, many adults can't even comprehend that 8 can be added to 37 by first adding 3 to get to 40, and then adding 8-3=5 to 40 to get 45, but there are 6 year old children who do comprehend the necessary underlying concepts.

I'm sure there's some analogy that could be applied to investing.

jacob
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Re: ERE Investment Curriculum

Post by jacob »

7Wannabe5 wrote:
Tue Jan 10, 2023 11:44 am
One of the newer methods employed when teaching math in the U.S. is to present a problem and then ask, "Does anybody want to share their strategy for solving this problem?", and then follow-up by asking, "Did anybody solve this problem using a different strategy?" The benefit of this teaching method is that it liberates the mastery of concepts from rote algorithms. The downside is that given limited time/attention, some kids don't master the use of any algorithmic tool beyond "use calculator."
Ahh, "algorithmic" was the missing word. It is my impression that US STEM education is (was?---I'm 15 years out of the game) algorithmically based. E.g. 1) identify problem, 2) pick corresponding algorithm, 3) execute mechanically.

In the Danish system (now 25-35 years ago---I'm getting old :-P ), students (grade 11) would, for example, spend an entire semester on statistics doing very many different variations of calculating standard deviations, variations, and confidence intervals for a huge (100+) number of different problems. For example, better students would definitely know (kennen) that only 2% fall outside of +2 sigma, simply because they've looked up normal distribution tables a gazillion times. (This was before fancy calculators or laptops were allowed.) Likewise, much of grade 12 was spent doing inner and out products, finding the distance or intersection between a line or a plane or a ball. OTOH, something like matrix algebra, which is a tiny step up from that, was never even mentioned.

As such the idea was to master a few tools well enough for students to put together their own "algorithm" at a level of complexity that would typically require the combination of 2-3 of those eventually very familiar tools. Therein lay the primary difference.

In comparison, the Swiss system I experienced was very blue. Solutions were handed down from teacher to student. "Here's how you solve this and here's how you solve that and so now you know." Insofar students actually needed to solve something, the smarter ones would figure it out on their own (no thanks to the teacher) and the dumber students would just copy the results of smarter ones. Again, this is anecdotal. I may be completely off here.

jacob
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Re: ERE Investment Curriculum

Post by jacob »

To give an example and NOT TO START A DISCUSSION a widely used investment concept is the risk-return curve which _may_ look something like this:

https://en.wikipedia.org/wiki/Risk%E2%8 ... _graph.jpg

If merely memorized or taken naively, the immediate conclusion would be that maximum return comes from taking maximum risk. Combine this with the idea of ergodicity in the long-run, and it's easy to [falsely] conclude that one should invest in the riskiest assets possible.

However, understanding where that curve is actually coming from, it's clear that this graph only shows the mean-outcome and not the entire spectrum of possible trajectories. Yes, the average goes up in the long run, but so does the variation! This is why SSR is a thing. It's being discussed because the general lack of fundamentals means that this is not intuitively obvious to those who have learned just to focus on the graph of the mean.

Mastering a few other concepts should lead one to think about how e.g. credit-availability would influence the slope and variation of the curve. Where does this line come from anyway? Is is statistical? Historical? What are the assumptions? Why is this used the way it is?

In short, the reason I'm pointing people towards the investment curriculum is to provide some tools to become better able to think about these kinds of problems. It is not to provide "answers" or "algorithms" for dealing with particular questions or situations.

It's the same with the ERE book. The goal is to teach people how to question and how think. Not to provide answers or algorithms.

User avatar
fiby41
Posts: 1611
Joined: Tue Jan 13, 2015 8:09 am
Location: India
Contact:

Re: ERE Investment Curriculum

Post by fiby41 »

SSR server-side rendering?

ertyu
Posts: 2893
Joined: Sun Nov 13, 2016 2:31 am

Re: ERE Investment Curriculum

Post by ertyu »

Who can recommend an up-to-date textbook on monetary economics as it actually works? I looked at a couple of recent college intro class textbooks, and they have not been updated post QE. Some resources I found are this and this by the St. Louis Fed as well as the book Central Banking 101 by James Wang (the author has also given a couple of youtube book talks, googleable under the book's name). I wonder if anyone else has read anything coherent which systematizes current monetary economics.

jacob
Site Admin
Posts: 15907
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 77
Contact:

Re: ERE Investment Curriculum

Post by jacob »

fiby41 wrote:
Wed Jan 11, 2023 1:51 am
SSR server-side rendering?
Sorry, SRR, sequence of return risk.

Post Reply