Tag Archives: 3% signal

Excellent books you may not even know exist

Other day, I was sitting out with a cigar and a book about how to avoid speeding tickets. It was insightful and well worth the re-read. It occurred to me that I had read a number of such books, profited from what I’d learned, yet never shared these hidden gems with you all.

That’s no way to treat all the nice people who take the time to read my blog.

What these all have in common: they all conveyed to me some form of important understanding, be it practical, geopolitical, financial, historical, whatever. After reading them, I felt more like a motorboat and less like an inner tube on the choppy waters of life.

Eagan, James: A Speeder’s Guide to Avoiding Tickets. It’s not that I habitually speed, because I do not. It’s that if by chance the police are thinking about stopping me, I hope they won’t, and if they do, I hope they won’t give me a ticket. Some of the technological tips may be dated, but I doubt that the insights into police mentality and habits are obsolete. This twenty-year veteran of the New York State Police got his most helpful possible endorsement when some police-connected official condemned the book. If the police do not want you to read it, obviously, it’s the first thing you should be reading.

Poundstone, William: Big Secrets. Poundstone, an investigative reporter and student of the human mind, dug into many subjects such as Freemasonry initiations, Colonel Sanders’s recipe, and all those supposed backward messages in records. (For those, he rented a studio and split the tracks, playing them both forward and backward.) It is a bit dated, but very interesting and mostly remains relevant. There are two sequels, with no decline in interest level or quality.

Kelly, Jason: The 3% Signal. Most of you who invest are still either picking your own stocks or paying expensive professionals (to underperform more often than not) through conventional mutual funds. The evidence is in, and it says most of you are doing this wrong. Kelly is a very interesting fellow, a Colorado Buff English major who lives in Japan and writes a financial newsletter. Not only does he write well, his market insight is spot on and his investing plan is so simple that even a self-declared financial boob could probably handle it. I’ve been using it for three years and it has made me feel much better about my investing methods.

Anderson, Kurt: How to Back up a Trailer…and 101 Other Things Every Real Guy Should Know. Anderson is that guy we all need to know. He’s like my father, who could have taught me all this stuff had I shown the slightest bit of interest, had I not been practicing the development method of “ignore adulthood and hope it will never arrive.” Unlike many who are gifted in the area of life’s physics, Anderson can write and never comes off as a horse’s ass about it all. The irony, of course, is that the people who should rush out to buy this book are majority female. Girls and women aren’t taught enough of this in life, especially growing up in cities (whereas your average farm girl could have written this book), and capability equals independence. Anderson’s book is their liberator.

Cahill, Tim: A Wolverine Is Eating My Leg. A world in which Bill Bryson sells more books than Tim Cahill is a world with lousy taste, a world that lets people with vested financial interests tell it what to like. The travel genre has many subsets, and one of my favorites is adventure travel. Cahill, a Sconnie now living in Montana, has a laconic descriptive method that knows how to let the humor speak for itself. Unlike some travel writers, he also seems like a man who could safely go back to most of his adventuresome haunts. One of the nicest things my bro John ever did was give me a copy of this book, which opened the way to the other seven-odd Cahill travel books.

Loewen, James W.: Sundown Towns. Prof. Loewen’s name is better known for his studies of mendacious monuments, but I consider this his most important work because it answers a question about how African Americans came to be concentrated in cities. It explains the difference between Southern and Northern post-Civil War racisms. As someone who used to live in a former sundown town (Kennewick, WA, which has never come to terms with this racist past and has instead chosen to avoid the conversation as the eyewitnesses die off), this book supplied a crucial lack in my understanding of American history. If we are ever to repair this ongoing rent in the national fabric, we must arrive at that understanding.

Horwitz, Tony: Baghdad Without a Map. It’s hard to pick a favorite book with authors who always do it right. In cases like these, I choose the one that first drew me in. Horwitz may be best known for Confederates in the Attic, his study of Civil War re-enactor culture, but a Jew traveling all over the greater Middle Eastern region shows me serious chutzpah. Like Cahill, Horwitz knows how to let the reader find the humor. All his books are good, including his historical take on John Brown’s Harper’s Ferry seizure, Midnight Rising. I find him an exception to the rule that journalists should be kicked in the groin if they start making moves toward writing history books. (“But I checked three sources! I can write it!”)

Perkins, John: Confessions of an Economic Hit Man. When you look at a globe, you may not see the strings by which the United States manipulates the world. Perkins explains how we weave them, how we reeve them, and how we yank them to make less fortunate countries do our bidding. If you’ve ever watched a documentary about how drug dealers work hard to develop new addicts because addicts are customers and can be controlled through their addictions, this book will show you how effective (if heartless) that business model can be on a larger scale.

Eskeldson, Mark: What Car Dealers Don’t Want You to Know. The fine art of screwing the auto-purchasing public is an evolutionary game, so books will tend to become dated. So is this one, but much of its content is still relevant. The essential lesson is that the process of buying a car is a three-card monte game with the dealer making a cameo. An updated version for the Internet buying era would be especially helpful, but no matter the timeframe, the fundamental mentality does not change; when it proclaims itself kinder, honest, and forthright, that is when it is the sleaziest. Car dealers hate when you are not forthright with them because deceit is supposed to be their playground. Definitely a good guide to how they think.

Sullivan, Bob: Stop Getting Ripped Off. I’d like to give a copy to every young person graduating from high school. Thanks to the time value of money combined with ignorance and naïveté, the first twenty years of independence are when the mistakes are likeliest to be costly when all is calculated with eyes wide open. One must learn to be one’s own advocate, and that advocacy must evolve, because what worked for your mom and stepdad may no longer be feasible for you. While the title is a bit misleading, at least in the body of the book Sullivan admits that there are areas where you are going to be ripped off and cannot stop the process. My view: at least if you know what the ripoff is and who does it, you’ll know who to hate.

Molloy, John T.: Molloy’s Live for Success. Okay, so you want to get ahead in the office/corporate world, but you don’t have the right connections, the right personality, the right clothes, the right vibe. You keep wondering why lazy, stupid assholes get promoted and you do not, in spite of your competent diligence. This resentment builds on itself, because you are an honest hard worker who tries hard to get along with others and go the extra mile, thus worsening the gap between you and success. That resentment hits close to my home, because the dawning of reality shortened my naïve, selectively brilliant, industrious father’s life. It would have shortened mine too, except that I decided I didn’t want that type of career. But if I had–if I’d been willing to subordinate my basic identity to a perfectly manufactured persona that kissed the right butts, appeared at the right places, and otherwise gave off the vibe of being a club member–at least I would have had the right textbook. I read it in my early twenties and it helped me to decide that I wasn’t the type to reach the executive suite. It helped me to understand the warm, affectionate, grandfatherly smile of the Sears executive whom I am certain vetoed their hire of me (a great kindness, now that I understand the world better). But if you are that type, the only things that have changed are the technologies and clothes. Even if you are not, if you work for a hierarchy, reading this will help you understand how that hierarchy got where it is (and why, at the rate you’re going, you aren’t getting a slot in it unless you are already slotted by genetics and upbringing to join it). Molloy is much better known for his Dress for Success books, but this is the book that will enumerate the rest of the entry fee.

Happy reading.

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Old friends, and an investing epiphany

Live long enough, and even the somewhat socially awkward will accumulate a network of old friends with decades of experience in various fields. This is great for getting answers. When I have a question about physical science, I can contact a professor of physical science. Question about U.S. military history? I’m fortunate enough to know someone who teaches it at the collegiate level. Want to understand how a given firearm works? I can choose from multiple enthusiasts, none of whom need any encouragement beyond a hint of interest. Need an antique valued? One of the best men at my wedding has been in the business for thirty years. Question about the workings of a suburban police department? How about the deputy commander of a well-respected suburban police force? Real estate? In addition to agents I’ve worked with in three states, I could also call a friend and past client who made his career in the field. My uncle is a civil engineer, one cousin a retired petroleum chemist, another cousin a speech therapist, and so on.

The question is not whether one can locate the expertise, but whether one may fairly impose upon the friend. I’m not unique in this, nor even above the curve. I have this only because I lived to my mid-fifties without spending it all in a shack somewhere out near Glenallen, Alaska. Everyone else my age, except those who live in shacks near Glenallen, has at least as great a network. Those who got out more than I did probably have far greater networks, but I’m very satisfied with my folks. I wouldn’t trade any of you.

For them, it follows, I’m the old friend who edits. When they begin to consider doing some writing, it is quite natural that they ask me about it. I’m glad, because gods know I’ve bugged all of them often enough about this or that. If it comes to an actual project I’ll charge something, but advice is always free to old friends. Truth told, I don’t mind a bit. It’s rather nice that people would think I could help them understand something.

One old friend of mine is named Randy, and with some admitted contact gaps, we’ve known each other since college. Randy retired as a stockbroker with one of the big brokerages, and while in most people that might not mean as much, I’ve always known him as a maverick immune to peer pressure where he knows he is right. That tends to be true of me as well, so I found it easy to believe that he had knowledge and instincts on behalf of his clients that the average full-commission broker might not have had. Put another way, there aren’t very many such brokers I’d have steered anyone toward, but Randy would be the one.

Not long ago, Randy and I had a long conversation about investing. We agree in substance, especially in matters such as that people should remain within their comfort/knowledge zones. I told him I no longer buy separate issue securities, because while it’s possible I could develop the knowledge to do well at it, I know that I will not, and thus shouldn’t fool myself. I received a precious pearl of approval, which I will have set into a suitable mounting in a place of honor.

Maybe it’ll distract everyone from all the little tombstones representing my dumber investing mistakes.

While schooling me, Randy crystallized a realization that explains so very much: winning vs. losing, and the arithmetic. The instinct and habit is to look at an investing choice as one decision, to get right or wrong. It isn’t. Most investing decisions are based on some stated goal, even one as nebulous as “make money.” There are two decisions to make, and for an investment to meet or exceed expectations, both decisions must be right. There is the decision to buy (when/what/how much), and the decision to sell (when/how much) or hold (some or all). That’s a thing to consider: not to sell is also a decision.

If you are wrong 50% of the time, you will probably like your results 25% of the time because that represents the percentage of the time you will do what in hindsight turned out to be the right thing both times. That means that two times out of four you will likely be disappointed, and once out of four, you’ll probably take a straight-on bath.

If you are right 60% of the time, you will get satisfactory results 36% of the time, same reason. You are taking a hosing. About half the time, you will get one decision or the other wrong, with disappointing results. You’ll go splat big time about one time in six.

If you are right 70% of the time, all other factors being equal, you should be happy 49% of the time. You are still losing, though not by much. Slightly less often, one decision or the other will be wrong enough to disappoint. About once in ten, the disappointment will be great.

You have to be right just over 70% of the time just to be pleased more often than not. If you can arrange to be right 75% of the time, you will get a favorable result about 57% of the time. Not many people are that good. I’m not even close.

In the meantime, of course, the overall market does whatever it does. Goals can vary, as can strategies. This is a rabbit hole of exceptions, and I have felt the need to oversimplify this (yes, I am aware I am doing so), but the key takeaway is that there are two opportunities, not one, to screw up a given investment. A mistake in either case will probably cause disappointment.

Thus: even then, even being right three-quarters of the time, you’re pretty happy just slightly more often than not. Enough to matter, of course; enough to be meritorious, and definitely enough to offer a shot at outperformance over time. Your good decisions should outweigh your bad ones. And I guess if you are confident enough to feel you will be right 75% of the time, you probably should carry that through.

The minority of people who can achieve that success is small indeed. I have learned that I am not one. Many of the rest are more or less playing the slots in a different format. Whenever I find myself tempted, nowadays, I remind myself how much I despise gambling, and ask myself whether those glitzy casinos were built with the money people won. I suppose it’s like a former smoker who, when tempted to lapse, looks at graphic images of cancerous lung tissue: if that helps, go ahead.

And how often does one get to make an analogy between casinos and cancerous tissue? You’re very welcome.

For the rest of us, it’s buy and hold index ETFs all the way. We will generally not outperform, but we will get the market return less (very bearable) expenses. Even Jason Kelly, a noteworthy author and manager who has an excellent track record with stocks, has shifted entirely to a mechanistic method involving index ETFs. I’ve been running it in two different portfolios now for a couple of years, and I think it stands a good chance of outperforming because it takes the emotion out of the decision. The only free choice one makes is when to add more cash to the plan. From there, the entire course of events can be handled with a pretty simple spreadsheet and two trades per quarter per portfolio. You can learn more from his book on the topic.

Jason’s writing is entertaining and straightforward. My favorite part is the way he begins by politely butchering out the pundits who bray frequent predictions for which they are never held to account. It’s hard to imagine they can even keep writing, much harder to imagine anyone still wasting time on them, after Jason hits them with the literary equivalent of a fire hose loaded with ice water. He calls them “z-vals,” as in “zero validity,” and when he’s done with them they look like Leroy Brown at the end of the famous song.

You want to hate the media? Don’t hate the ones who are trying to tell you what has happened around the country and world. Start with the mainstream financial media, because they have hate coming. They get to tell you what will happen, be wrong on a consistent basis, and never suffer. They don’t even lose readers. Were you able to confront one, he (most of them are men; for some reason, it appears harder to find intellectually dishonest women) would tell you that doing your own research was your problem, and not to blame him. “If you believed me, it’s not my fault you were that big an idiot.”

Even the salesiest full-commission broker at Merrill Lynch has more accountability than that.

As for me, if I have to be right three-quarters of the time in order to do well, maybe I’d better keep my decisions in the comfort zone.