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Date: Thursday, 09 Oct 2014 12:42

Today’s linkfest is a short one. For more check out posts by Matt Levine, MoneyBeat and FT Alphaville.

John Gapper, “There is, however, a syndrome among star managers – call it Gross’s Law. They start out being most valuable for their investing talent and end up being most valuable for their marketing charisma.”  (FT)

Setting up for a commodities rally.  (Humble Student)

How to build an investing ‘Frankenstein.’  (The Reformed Broker)

An interview with Eddy Elfenbein of Crossing Wall Street fame.  (Jeff Fleishman)

Why don’t more investment managers formally train their analysts?  (the research puzzle)

Options-holding CEOs like to make money.  (Alpha Architect)

What is the real value add of financial advisors?  (Dave Nadig)

Why go public when VCs are happy to fund your startup?  (WSJ)

Introducing the Fed’s new Labor Market Conditions Index.  (Capital Spectator)

Value investing in the financial blogosphere: five recent undervalued posts.  (Enterprising Investor)

What you might have missed in our Wednesday linkfest.  (Abnormal Returns)

Uber and Airbnb are facing an increasingly complicated landscape.  (TechCrunch)

Why top-rated students are getting rejected by in-state schools.  (WSJ)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Wednesday, 08 Oct 2014 16:42

You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don’t miss out!

Quote of the day

Bethany McLean, “But being Microsoft’s C.E.O. may still be the toughest job in business.”  (Vanity Fair)

Chart of the day

GPRO 1014 624x375 Wednesday links:  a tough job

GoPro ($GRPO) has been the definition of a ‘pain trade.’  (MoneyBeat)

Markets

Remember 2007? That year kind of sucked.  (Pension Partners)

The grains are doing something different.  (Adam Grimes, See It Market)

Crude oil is in a bear market.  (Bespoke)

Companies

Why 3M ($MMM) ain’t breaking up any time soon.  (Michael Santoli)

Yahoo ($YHOO) should take a clue from the Hewlett Packard ($HPQ) breakup.  (Bloomberg View)

Elon Musk is the true successor to Steve Jobs.  (Quartz)

Finance

The new earnings normal at Goldman Sachs ($GS) is not that great.  (Dealbook)

Why the big banks are unlikely to get disrupted by Bitcoin any time soon.  (Pragmatic Capitalism)

Is there a corporate bond liquidity problem?  (FT Alphaville)

Funds

Why Wall Street is pushing so hard on the alternative asset fund front.  (The Reformed Broker)

The new ‘bond king‘ is a computer.  (Total Return)

Do you have a plan for your underperforming mutual fund?  (A Wealth of Common Sense)

Economy

Why the US dollar has been so strong this year.  (The Upshot)

Earlier on Abnormal Returns

Value investing in the financial blogosphere: five recent undervalued posts.  (Enterprising Investor)

What you might have missed in our Tuesday linkfest.  (Abnormal Returns)

Mixed media

How companies like Vivint ($VSLR) and SolarCity ($SCTY) are turning the US into a solar powerhouse.  (Slate, NYTimes)

Why buying experiences trumps buying material things.  (The Atlantic)

The many upsides of owning an inexpensive car.  (Aleph BLog)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Tuesday, 07 Oct 2014 16:35

Quote of the day

Tom Dorsey, “Why should I care about fundamentals, when ultimately, they all get funneled into price. The only ‘fundamental’ I believe in, is the irrefutable law of supply and demand.”  (WSJ)

Chart of the day

GTAT 1014 624x303 Tuesday links:  the irrefutable law

Sometimes stocks go to zero.  (Ivanhoff Capital also Howard Lindzon)

Markets

2014 is all about the underperformance of small caps.  (The Reformed Broker)

Why you should expect increasing market volatility.  (David Kotok)

Strategy

Diversification sucks.  (Bason Asset via TRB)

The seven essential skills of the “perfect” investor.  (Millennial Invest)

Three (rare) skills that make for successful real estate investors.  (Carl Richards)

Companies

GT Advanced Technologies signed a horrible deal with Apple ($AAPL).  (Matt Levine)

How Apple ($AAPL) thinks about the smart home.  (Fast Company)

The problem with Samsung.  (Asymco)

Paypal has an incentive problem.  (Stratechery)

M&A

Spin-offs are all the rage.  (Dealbook, WSJ)

Things can get topsy-turvy in the midst of a M&A boom.  (WSJ)

Finance

Marc Andreessen still thinks Bitcoin will upend the financial system.  (Bloomberg also A VC)

Another peer-to-peer lender is going public.  (WSJ)

Are we kidding ourselves about the safety of the financial system from hackers?  (WashingtonPost)

Funds

Why holding the Fairholme Fund is so difficult.  (A Wealth of Common Sense)

A deep dive into the new ProShares Managed Futures Strategy ETF ($FUTS). (ETF)

Global

Germany’s economy is weakening.  (Quartz,Gavyn Davies)

China was not shy about investing in Europe in the midst of the Euro crisis.  (FT)

Economy

Is the Eurozone going to drag the US economy down (again)?  (Capital Spectator)

The prime working age population is growing again.  (Calculated Risk)

Earlier on Abnormal Returns

What you might have missed in our Monday linkfest.  (Abnormal Returns)

Mixed media

How to live an anti-fragile life.  (Farnam Street)

This is bad: coffee prices are at 2.5 year highs.  (WSJ)

What if we re-drew borders based on today’s population in the United States?  (Slate)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Monday, 06 Oct 2014 16:37

Quote of the day

Ben Carlson, “Diversification is about accepting good enough while missing out on great but avoiding terrible.”  (A Wealth of Common Sense)

Chart of the day

EAFE 1014 Monday links:  avoiding terrible

That was fast! International stocks are sitting at 52-week lows.  (Dana Lyons)

Markets

Checking on the sentiment situation.  (Short Side of Long, Humble Student)

Expectations for the US dollar are pretty elevated.  (Market Anthropology)

How low can gold go?  (Barry Ritholtz also Syncubate)

Strategy

Is liquidity a unique factor in stock returns?  (Larry Swedroe)

Activists can make money by agitating companies to buy back undervalued stock.  (Greenbackd)

Are you a performance taker or seeker?  (Rick Ferri)

Companies

Hewlett-Packard ($HPQ) is breaking in two.  (WSJ, Dealbook, David Nelson, Crossing Wall Street, Fortune)

Wal-Mart ($WMT) continues to push into services beyond retail.  (WashingtonPost)

For Corporate America stock buybacks have run their course.  (Bloomberg)

Startups are spending freely on SF rents and compensation.  (WSJ)

Finance

Convertible bond issuance has jumped this year.  (WSJ)

The big banks are trying to create a one-stop shop for corporate bond trading.  (WSJ)

How “marketplace lenders” are taking share from banks.  (TechCrunch)

How Bitcoin could die.  (Philosophical Economics)

Funds

How to hack a lower cost ETF option.  (ETF)

Comparing bond fund performance is no easy task.   (Economic Musings)

Public alternatives

There are more publicly traded alternative assets than ever before.  (All About Alpha)

The performance of “multi-alternative” mutual funds is disappointing.  (SSRN via CXOAG)

Global

Emerging markets are going to have to rally absent a commodities tailwind.  (FT)

Checking in on the UK economic recovery.  (Econbrowser)

Economy

The deficit is shrinking faster than anyone expected.  (Daniel Gross)

Is there a wage growth puzzle?  (Tim Duy)

A stronger dollar is pushing inflation expectations lower.  (Sober Look)

The price of renewable energy is plunging. (Ramez Naan)

Earlier on Abnormal Returns

What you might have missed in our  Sunday linkfest.  (Abnormal Returns)

Mixed media

There is a glut of postdoc researchers in science.  (Boston Globe)

Are you an Amazon ($AMZN) or Apple ($AAPL) family?  (GigaOM)

This site hopes to debunk Internet rumors in near real-time.  (VentureBeat)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Sunday, 05 Oct 2014 12:58

Quote of the day

Morgan Housel, “Realizing the limits of your intelligence one of the most important skills in finance.”  (Motley Fool)

Chart of the day

FearGreed 1014 624x318 Sunday links:  realizing your limits

Some measures of market sentiment are finally demonstrating some fear.  (CNN via Ryan Detrick)

Strategy

Jeff Miller, “If you are stuck in gold or out of the market completely, you might want to reconsider your approach.”  (A Dash of Insight)

To win big in the stock market you not only have to pick a rocket ship you also have to hold on for dear life.  (Barry Ritholtz)

Tim Harford, “We passive investors like to congratulate ourselves on avoiding those parasites, the active fund managers, who charge high fees without delivering high returns. Yet we are parasites too, waiting for others to pay for research and then following the herd.”  (FT)

Funds

Felix Salmon, “People who understand the bond market understand that making money in bonds is hard, and has very little to do with your big macro theses, or what you write in your newsletters.”  (Medium)

Why didn’t Bill Gross simply retire?  (Barron’s)

Why you won’t find star managers in the world of mutual funds any more.  (Michael Santoli)

Companies

Why shorting GoPro ($GPRO) is so expensive.  (MoneyBeat)

Are electric cars going to save the big utilities?  (Economist)

Finance

Charles Schwab ($SCHW) is readying its own (free) robo-advisor.  (Reuters, Business Insider)

ETFs

Are ETFs the cause or the effect of bad investor behavior?  (ThinkAdvisor)

Managed ETF accounts have not been a boon for investors.  (Barron’s)

Economy

The “dental indicator” is pointing toward a weaker economy.  (Businessweek)

How close are US labor markets to normalization?  (Sober Look also Econbrowser)

The economic schedule for the coming week.  (Calculated Risk)

Earlier on Abnormal Returns

Top clicks this week on the site.  (Abnormal Returns)

What you might have missed in our  Saturday linkfest.  (Abnormal Returns)

Mixed media

Why Costco ($COST) gives away free samples.  (The Atlantic)

22 big thinkers everyone should follow on Twitter.  (Business Insider)

YouTube has a problem: the site doesn’t have good cadence.  (Hunter Walk)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Sunday, 05 Oct 2014 11:24

Thanks for checking in with us this weekend. Here are the most clicked on items on Abnormal Returns for the week ended Saturday, October 4th, 2014. The description is as it reads in the relevant linkfest:

  1. We are not all created equal: on the myth of the 10,000 hour rule.  (Slate)
  2. We are experiencing the flipside of 1970s-style inflation.  (FT Alphaville)
  3. Keep an eye on natural gas.  (Andrew Thrasher)
  4. The decline to-date has been pretty tame.  (The Reformed Broker)
  5. Investors should be thinking differently about dividends.  (Morgan Housel)
  6. One of these bond yield charts is not like the other.  (Pragmatic Capitalism)
  7. Why the yield curve matters.  (The Reformed Broker)
  8. How mindfulness can affect your spending.  (Bucks Blog)
  9. Why supermarkets are in trouble.  (Washington Post)
  10. Why do people in finance get paid so much? Is it the stress?  (Noah Smith)

Here is what else you may have missed on the site this week:

  1. A Q&A with Joshua Brown of Ritholtz Wealth Management a on the launch of Liftoff.  (Abnormal Returns)
  2. Is there a contradiction between advice telling us to save vs. invest in ourselves?  (Abnormal Returns)
  3. Podcast Friday features a talk with Scott Adams of Dilbert fame.  (Abnormal Returns)
  4. The books Abnormal Returns readers purchased in September.  (Abnormal Returns)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and  Twitter.

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Date: Saturday, 04 Oct 2014 12:00

The weekend is a great time to catch up on some posts that were either too long or simply didn’t fit in during the week. Hope you enjoy!

Investing

Why staying on top of the investment world is so difficult.  (A Wealth of Common Sense)

Factor investing as a compromise between active and passive investing.  (GestaltU)

Most financial decisions are best done after a good night of sleep.  (Chuck Jaffe)

What should be in an “investment policy statement“?  (Enterprising Investor)

It’s what you keep that matters: long term vs. short term capital gains.  (Alliance Bernstein)

Why the sequence of returns, vs. average returns, matters in retirement.  (Nerd’s Eye View)

Robo-advisors

Which is the best robo-advisor for you?  (ETF)

The number of robo-advisors is growing.  (Barron’s)

Do robo-advisors have a patent-troll problem?  (Institutional Investor)

Finance

What responsibility do index investors have in keeping markets efficient?  (Think Advisor)

Three interesting historical charts from the history of finance.  (Enterprising Investor)

Business

What can the McLaren race team teach other businesses?  (Businessweek)

A look back at how Jerry Yang of Yahoo ($YHOO) made a bet on Alibaba ($BABA).  (Forbes)

Startups

Paul Graham, “Do not start a startup in college.”  (Paul Graham)

What stock market investors need to know about angel investing.  (OurCrowd)

A lot of angel investments fall apart between the ‘Yes’ and the close.  (David Cohen)

The many downsides of convertible notes for startup investors.  (Points and Figures)

Ten promising startups to watch.  (CNN)

How search funds differ from startups.  (Slate)

Entrepreneurs

The best entrepreneurs cultivate the best habits.  (Charlie O’Donnell)

Why entrepreneurs fail: they forget to reinvent themselves.  (Herb Greenberg)

Venture capital

Venture capitalists are not your friends.  (Steve Blank)

Why VCs need to be more open with entrepreneurs.  (TechCrunch)

How some big name VCs schedule their days.  (Hunter Walk)

Will venture capitalists fund the next big breakthrough?  (Arnold Kling)

Bitcoin

A profile of the guys who are trying to build Coinbase into the go-to Bitcoin company.  (Bloomberg)

A skeptical look at the Bitcoin movement in Jeffrey Robinson’s BitCon: The Naked Truth About Bitcoin.  (FT Alphaville)

Science

Elon Musk thinks we need to go to Mars, permanently.  (Aeon)

An interview with Ed Hess’ Learn or Die: Using Science to Build a Leading-Edge Learning Organization.  (Farnam Street)

Health

The Ebola epidemic is stoppable. (Atul Gawande)

IUDs are the gold standard for medical contraception.  (The Atlantic, Wonkblog)

Smartphone pictures are getting integrated into medical workflows.  (GigaOM)

Why you don’t need 8 glasses of water a day.  (FiveThirtyEight)

How exercise may protect against depression.  (Well)

Food

Six companies make 50% of the world’s beer.  (Quartz)

Chicago is a hub of barrel-aged beers.  (NYTimes)

Big Orange Juice is pulling out all the stops to combat a steady decline in consumption.  (WSJ)

Food Network is now all about cooking competitions.  (The Atlantic)

Entertainment

Gone Girl seems to be the movie of the weekend.  (Slate)

How Friends ruined television.  (Vox)

A review of You Might Remember Me: The Life and Times of Phil Hartman by Mike Thomas.  (New Yorker)

Earlier on Abnormal Returns

What you might have missed in our Friday linkfest.  (Abnormal Returns)

A Q&A with Joshua Brown of Ritholtz Wealth Management a on the launch of Liftoff.  (Abnormal Returns)

Is there a contradiction between advice telling us to save vs. invest in ourselves?  (Abnormal Returns)

Podcast Friday features a talk with Scott Adams of Dilbert fame.  (Abnormal Returns)

Mixed media

How American parenting is killing the American marriage.  (Quartz)

Steven Pinker author of The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century writes “Why is so much writing so bad?”  (WSJ)

There are two side to the issue of automation. Insights from Nicholas Carr’s The Glass Cage: Automation and Us.  (Farnam Street)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Friday, 03 Oct 2014 16:40

Quote of the day

Bill McBride, “Right now 2014 is on pace to be the best year for both total and private sector job growth since 1999.”  (Calculated Risk)

Chart of the day

TWTR 1014 624x303 Friday links:  jumpin jobs growth

Twitter ($TWTR) has a more valuable stock to do deals with.  (Recode)

Strategy

Is Warren Buffet a closet macro investor?  (Pascal-Emmanuel Gregory)

Investors should be thinking differently about dividends.  (Morgan Housel)

Successful traders focus on losing well.  (Crosshairs Trader)

Companies

An in-depth look at Wayfair ($W).  (Greg Bettinelli via @howardlindzon, Recode)

Dow Chemical ($DOW) continues to slim down.  (Dealbook)

Why supermarkets are in trouble.  (Washington Post)

Finance

Calpers isn’t done with “high fee” private equity funds.  (The Upshot)

Insurgents aside, technology is not going to kill the big banks just yet.  (FT)

ETFs

ETF fees add up. Keep them as low as possible.  (ETF)

Costs matter more in a low nominal return world.  (A Wealth of Common Sense)

Global

Why oil prices are sagging.  (Wonkblog)

Economy

The September non-farm payrolls report shows continued strong jobs growth.  (Calculated Risk, Capital Spectator, Quartz, Bonddad Blog)

The unemployment rate has fallen faster, earlier, than the Fed forecasted.  (John Hilsenrath)

Uber, and their ilk, depend on a ready pool of available workers.  (Bloomberg View)

Earlier on Abnormal Returns

A Q&A with Joshua Brown of Ritholtz Wealth Management a on the launch of Liftoff.  (Abnormal Returns)

Is there a contradiction between advice telling us to save vs. invest in ourselves?  (Abnormal Returns)

Podcast Friday features a talk with Scott Adams of Dilbert fame.  (Abnormal Returns)

What you might have missed in our  Thursday linkfest.  (Abnormal Returns)

Mixed media

When simple heuristics beat sophisticated models.  (Justin Fox)

What things do you believe that others don’t?  (Millennial Invest)

Is the iPhone 6 Plus too big?  (Business Insider, Paul Kedrosky)

You can support Abnormal Returns by visiting Amazon or follow us on StockTwits, Yahoo Finance and Twitter.

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Date: Friday, 03 Oct 2014 13:44

Two, almost three, years ago when I was writing my book Abnormal Returns: Winning Strategies from the Frontlines of the Investment Blogosphere I noted the potential for algorithmic investment management to ease the burden on many investors. I wrote:

Of late we have seen some tentative steps taken to provide investors with algorithmic investment services. This represents a natural evolution for the investment business because much of the everyday work inherent in investing can be done algorithmically. And it represents another way in which algorithms have become a part of our lives, oftentimes without our knowledge. More sophisticated, automated investment plans will make life easier for a wide swath of American investors who would be happy to take routine, everyday investment decisions off their plate. Automation or not, investors need to educate themselves along the way. It will allow us to spend more time thinking about the bigger, more impactful questions surrounding money.

Subsequently I have written about the rising challenge of robo-advisors and asked a panel of bloggers this past summer about what impact they might have on the business. 2014 has seen an acceleration in not only the number of providers but also the range of services they provide as well. Two of the bloggers, frequently featured on Abnormal Returns, Barry Ritholtz and Joshua Brown of Ritholtz Wealth Management, are now in the so-called “robo-advisor” space as of this week. Their firm launched a service, Liftoff, that is focused on providing their planning and portfolio management services to the average investor.

You can read more about Liftoff in this press release and in some posts as well at Business Insider, Investment News and Wealth Management. Now that the Liftoff service is live I had a chance to dash off some questions for Joshua Brown to answer which he does below. My questions are in bold. Josh’s answers follow.

Automated investment management solutions have really only come of age since the financial crisis. Therefore investors in these programs have really only experienced up markets. One of the main advantages of having a financial advisor is to “hold your hand” through the dark days. How are you guys planning to do that virtually when the inevitable bear market hits?

A couple of truths you won’t hear anywhere else: Hand-holding doesn’t work if someone is determined to obsess over volatility and paper drawdowns. You can only do so much, the rest is up to the person whose money it is. We do a lot of hard work with education and affirmations at our regular practice, but we can’t rewire people’s brains. There will always be a percentage of people who sell out of their retirement portfolios for the wrong reason. We hope that the characteristics of this service the portfolio itself will minimize that. We can’t prevent it entirely nor can anyone else.

Dave Nadig in this piece at ETF.com talks about the (positive) role Google could play as it enters the financial technology space. He talks about the role a big company like Google could play in educating consumers. If the plan is to manage people’s money over the lifecycle is there an educational component in what you are doing?

We could literally take this anywhere, in any direction. I can’t tell you we’ve got any specific plans at the current moment for education. I feel like Barry and I, and now our lieutenants Michael and Kris, are already doing plenty of that kind of thing informally. We started this service in reaction to readers asking for our help but not qualifying for full-blown financial planning and personalized advice. This includes, by the way, some of the young adult children of our regular clientele. We were tired of sending them out in the hinterland to fend for themselves. I wrote a book about the horror show that awaits the uninformed investor. We built Liftoff as an answer.

Having looked at the major robo-advisors there does not seem to be a whole lot of differences in how they actually manage portfolios. RWM is “white labeling” an automated investment management solution from Upside. What kind of customization can you do to differentiate yourself from the existing competition and those that will soon be using the same platform?

We’ve white labeled the technology but the portfolios are ours, Liftoff is comprised of proprietary models that we’ve created and that we manage on an ongoing basis. I would also say that there is more difference between different automated advisories and their portfolios than might be currently understood. Some of these differences are just marketing spin but some are fundamental.

One of the big selling points from financial advisors is that they can “customize” a portfolio solution for you. In some cases that is clearly important, but I have written that about how “you are not that unique an investor.” Do automated solutions, like Liftoff, implicitly expose the falsity of that hand-crafted portfolio model?

No. Here’s the reality, and this will only partially answer your question but it’s important: Older, wealthier people should have a component of their portfolio that is tactical or, shall we say, risk-aware. Younger, aspirant people should not, or rather, need not have that. This is the major difference and I know it for a fact. I’ve been in meetings and on phone calls with thousands of investors – you’re going to have to take my word for it. The tactical or risk-aware component is so important because it will allow a client to mentally and, in some cases, physically get through vicious drawdown periods without freaking out and selling everything at the bottom. This “holding hands” bullshit is not going to cut it, but it will help. Discipline can best be achieved when there is an open vent somewhere for the steam-heat of the moment to escape from.

Here’s why this is important – a young person who is going to be accumulating assets for the next thirty-plus years doesn’t lie awake at night dreading market sell-offs or volatility. They can accept drawdowns because they have their whole lives to keep earning. With our service, they are continually ADDING money to their investment portfolio on a monthly basis, so sell-offs are actually a net positive for them. This is the perfect client for automated, low-touch, simplified advice.

The traditional wealth management customer, however, benefits greatly from having a trusted advisor whom they can count on and can go to with concerns and questions. This customer does fear large losses of value and market crashes – and this fear is quite rational, I might add. When you’re wealthier and older, you have more to lose and less time to make it back. You have a higher cost of living and much more complication in your life – dependents, debts, estate issues, health problems etc. I do not believe an automated solution will ever replace the need for personalized, customized advice and a great human relationship for this client. The technology is helping us serve this client better and more efficiently, it is not becoming the service itself.

As Michael Kitces at Nerd’s Eye View has noted a ton of capital has rushed into the robo-advisor space. Any thoughts on how this all plays out? Do we end up with a few big players or do we see a bunch of different models succeed?

I have to say that I don’t look at what we’ve built as being “in the robo-space” even though I accept the fact that it’ll get lumped in. The media sees this as some kind of robo-war between Schwab and Fidelity and advisors and on and on, but the truth is, it’s a gigantic world with almost $100 trillion in wealth that needs managing, nobody is getting most of it. I think it’s a lot more interesting to think about what Liftoff could do for the kinds of customers who end up at wirehouse call-centers or second-tier brokerage firms simply because no one is interested in helping them in a conflict-free way. We are.

The truth is, I absolutely love what Adam Nash and Andy Rachleff have built at Wealthfront, we like those guys a lot and respect the hell out of them. Bill Harris at Personal Capital is a friend and is brilliant as well, the guy was in the PayPal Mafia with Elon Musk and Chad Hurley! We love what they’re all doing but we don’t compete with them. Barry and I are not Type A personalities, we’re not super-competitive people and we’re not trying to win anything. I don’t have any VCs to answer to so I have no problem admitting that I have don’t know how big or small a deal Liftoff will end up being for us – all I know is, it’s going to help the people who use it. That’s our priority. Upside helped us bring our Liftoff product to market and we’ll see where it goes. We’re not in the market-share hunt, we’re in the business of giving great advice and managing money.

Sometimes I think we, the blogosphere and by extension the financial media, don’t acknowledge the enormity of the changes that have occurred in investing in the past decade. We are now in the world where asset classes, via ETFs, are virtually free. Now investment management is available at a nominal fee as well. Where does this trend end?

I remember in the year 2001 when a representative from the American Stock Exchange came to our branch to explain SPY to the brokers, which it had recently listed and was trying to find an audience for. It seems like yesterday. You’re right, the pace of innovation sneaks up on you, but when you give it some thought, it’s breathtaking – especially when you consider the “stodgy” image that finance has attached to it for some reason!

Thanks to Josh for his responses and good luck with Liftoff.

www.FeedBurner.com) Liftoff Q&A with Joshua Brown of Ritholtz Wealth Management

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Date: Friday, 03 Oct 2014 12:54

Every week brings a slew of new podcasts and videos. We are planning to make this a regular feature. You can also check out last week’s links. Tell us if there is anything we missed. Enjoy!

Barry Ritholtz talks with noted investment strategist Byron Wien.  (Soundcloud)

Guy Spier, author of The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment, goes to Authors@Google.  (Guy Spier)

Michael Covel talks with Larry Swedroe author of Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns with Less Volatility.  (Trend Following Radio)

More on the power of low-cost investing from Sensible Investing. (part 5, part 6)

Is it possible to create new “Silicon Valleys“?  (a16z podcast)

Startups, even when successful, can be a risky business.  (Startup Podcast)

James Altucher talks with Scott Adams, creator of Dilbert and author of How to Fail at Almost Everything and Still Win Big.  (The James Altucher Show)

Marc Maron talks with Rivers Cuomo lead singer for Weezer.  (WTF)

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Date: Thursday, 02 Oct 2014 19:51

It is a common statement in corporate finance that companies should invest in positive NPV, or net present value, projects to maximize shareholder wealth. Can this sort of approach make sense from an individual investor’s perspective? This idea came to mind because I came across some quotes about savings that on the face of it seem contradictory.

So, next time some financial expert tells you that the key to financial success is saving more tell them they have their economics precisely backwards.  The key to financial success isn’t saving, but investing in your own future production. – Cullen Roche, Pragmatic Capitalism

The only way to build wealth is to have a gap between your ego and your income. Getting rich has little to do with your income and everything to do with your savings rate. And your savings rate is just the difference between your ego and your income. Keep the former in check and you should be fine over time. – Morgan Housel, Motley Fool

You’re not going to get rich buying stocks. Put the money into reading, writing, learning, starting your own business. Investing in yourself is by far the best investment you can make. – James Altucher, Twitter

It’s not a top call or a trading tactic you can implement right now to hedge out your portfolio, but saving more money is still one of the best ways to reduce your risk in the markets. Bubble or no bubble, saving more money provides a margin of safety against the possibility of lower market returns in the future. – Ben Carlson, A Wealth of Common Sense

On the face of it these quotes seem to be odds with one another. On one hand we are supposed to be investing in our own human capital. On the other hand we need to be saving more to offset future market (and life) risks. I would argue there really is no contradiction between these two schools of thought.

If we think about our overall portfolio as some combination of human and financial capital it makes perfect sense that we would emphasize different kinds of investments at different times. Early in our careers it makes sense to invest in ourselves because we have a lifetime to generate some return on that investment. A common example would be formal education but this extends to our careers as well. In this lecture Paul Graham talks about the importance of “just learning” in whatever form or fashion it occurs.

However at some point we all need to become net savers. There are any number of life experiences that require a ready source of funds. This isn’t limited to retirement but also personal milestones along the way. The important thing about living below your means to generate savings is that it provides us a cushion. As Bob Seawright in a ThinkAdvisor post writes:

Things rarely turn out the way we expect. We never have everything covered. Life happens. Act accordingly. You have been warned.

Maybe the above quotes didn’t strike me as contradictory is because I wrote some very similar things in my book a couple of years ago. Two of the takeaways from Chapter 12 talk about these very issues:

  • Savings is the best investment. A focus on reducing expenses makes generating high, but uncertain returns on your investments less critical. The so-called “sharing economy” is making it easier for consumers to have experiences without the cost of ownership.
  • For many the best investment may not be a financial one but an investment in the things in our lives that that cannot be quantified.

We shouldn’t manage our lives the way one would manage a corporation. There are far too many factors that cannot (and should not) be quantified. However being more conscious about the trade-offs we make in ways small (and large) can make navigating our financial lives more intentional and authentic.

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Date: Thursday, 02 Oct 2014 16:52

Quote of the day

Joe Fahmy, “Remember that the market is a master manipulator. It conditions us to think one way over and over and over until we are finally convinced of a pattern. Just when we think we have things figured out, the market magically changes character.”  (Joe Fahmy)

Chart of the day

PTTRX 1014 624x390 Thursday links:  the master manipulator

The story of Pimco Total Return Fund in asset flows.  (Quartz)

Markets

Why you should expect a pick up in equity market volatility.  (Pension Partners)

S&P 500 dividends rose 12%+ in Q3.  (Crossing Wall Street)

Strategy

Why the yield curve matters.  (The Reformed Broker)

How have bonds performed during periods of rising rates?  (Sellwood Consulting)

We are all foreasters, get over it.  (Pragmatic Capitalism)

Companies

Warren Buffett is getting into the car retailing business.  (Fortune, MoneyBeat)

Cable companies are getting out of the TV business.  (WSJ)

Netflix ($NFLX) is getting into the Adam Sandler business with a four-film deal.  (NYTimes)

Finance

Key man risk is a real thing in investment management.  (Reuters)

Josh and Barry have joined the robo-advisor fray.  (Business Insider, Wealth Management, InvestmentNews)

What Google ($GOOG) should keep in mind as it wades into fintech.  (ETF)

On the battle between New York and London for financial supremacy.  (FT)

Why do people in finance get paid so much? Is it the stress?  (Noah Smith, WSO)

ETFs

The October Mutual Fund Observer with an overview of the most recent Morningstar ETF conference.  (Mutual Fund Observer)

Investors are parking their Pimco redemptions in bond ETFs.  (MoneyBeat)

There are no shortage of dividend-focused ETFs.  (Institutional Investor)

The problem of illiquid bonds in liquid bond ETFs.  (Aleph Blog)

Global

Now wealthy Indians are buying homes in the US.  (NYTimes)

Economy

Weekly initial unemployment claims are near post-crisis lows.  (Calculated Risk, Capital Spectator)

Why we should expect to see continued nominal wage growth.  (Bonddad Blog)

Many Fed haters can’t admit they were wrong.  (Joe Weisenthal)

On the problem of false precision in finance and economics.  (Mark Buchanan)

Earlier on Abnormal Returns

The books Abnormal Returns readers purchased in September.  (Abnormal Returns)

What you might have missed in our  Wednesday linkfest.  (Abnormal Returns)

Mixed media

In praise of single-purpose tools.  (Craig Mod)

How to complain less. (Becoming Minimalist via @barbariancapital)

America is overlooking the energy value in manure.  (Daniel Gross)

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Date: Wednesday, 01 Oct 2014 18:24

A monthly post looking at what books Abnormal Returns readers purchased at Amazon in the prior month is a great way to scan the month’s most popular finance and investing books. Three new books jumped into the top ten including Zero to One, The Education of a Value Investor and Deep Value. Here are the books (combined print and Kindle) that our readers purchased most often during September 2014:

The Top 10

  1. Zero to One: Notes on Start Ups, or How to Build the Future by Peter Thiel
  2. Statistics Topics by Salil Mehta
  3. It’s Not All About “Me”: The Top Ten Techniques for Building Quick Rapport with Anyone by Robin Dreeke
  4. The Education of a Value Investor: My Transformative Quest for Wealth, Wisdom, and Enlightenment by Guy Spier
  5. Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations by Tobias Carlisle
  6. Fortune’s Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street by William Poundstone
  7. Business Adventures: Twelve Classic Tales from the World of Wall Street by John Brooks
  8. Risk Savvy: How to Make Good Decisions by Gerd Gigerenzer
  9. Why Don’t We Learn from History? by B. H. Liddell Hart
  10. The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis by Martin Wolf

The Next 10

  1. Beyond IQ: Scientific Tools for Training Problem Solving, Intuition, Emotional Intelligence, Creativity, and More by Garth Sundem
  2. If You Can: How Millennials Can Get Rich Slowly by William Bernstein
  3. Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration by Ed Catmull
  4. Rational Expectations: Asset Allocation for Investing Adults by William Bernstein
  5. Rock Breaks Scissors: A Practical Guide to Outguessing and Outwitting Almost Everybody by William Poundstone
  6. The 5 Secrets To Highly Profitable Swing Trading by Ivaylo Ivanov
  7. The Most Important Thing Illuminated: Uncommon Sense for the Thoughtful Investor by Howard Marks
  8. Location Is (Still) Everything: The Surprising Influence of the Real World on How We Search, Shop, and Sell in the Virtual One by David R. Bell
  9. The End of Absence: Reclaiming What We’ve Lost in a World of Constant Connection by Michael Harris
  10. The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz

Thanks again to everyone who purchased a copy of my book or any other book (or item) during the month. Keep an eye on this space for more book news.

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Date: Wednesday, 01 Oct 2014 16:55

You can keep up with all of our posts by signing up for our daily e-mail. Thousands of other readers already have. Don’t miss out!

Quote of the day

Robert Seawright, “Things rarely turn out the way we expect. We never have everything covered. Life happens. Act accordingly. You have been warned.”  (ThinkAdvisor)

Chart of the day

HYG 1014 560x420 Wednesday links:  forewarned is forearmed

High yield spreads have been on the rise for awhile now.  (Business Insider)

Strategy

How major asset classes performed (or not) in September.  (Capital Spectator, Bespoke, ZorTrades, Horan Capital)

How have REITs performed during periods of rising interest rates.  (A Wealth of Common Sense also WSJ)

Why do we use volatility as a proxy for risk?  (StreetEye)

Do bond investors earn the term and default premia?  (Larry Swedroe)

Why companies should put a professor on their boards of directors.  (Alpha Architect)

Finance

Regulators are taking a closer look at leveraged loans.  (Bloomberg)

Where the Darden Restaurants ($DRI) board went wrong.  (Dealbook)

What Bill Ackman is charging overseas to invest in his new public fund.  (Breakingviews, Dealbook)

Uncle Sam has little intention of making Fannie and Freddie investors whole.  (Business Insider, Breakingviews)

ETFs

There is a full-on European ETF price war.  (FT)

Comparing the so-called guru ETFs.  (ETF)

How Charles Schwab ($SCHW) is driving ETF sales.  (FT)

Pimco

A profile of Daniel Ivascyn the new CIO of Pimco.  (WSJ)

The downsizing of the Gross’ former fund could be messy.  (FT)

Consultants are bailing on Pimco.  (Dealbook)

Small is beautiful: when bond kings manage too much money.  (SSRN)

Parsing Bill Gross’ record at Pimco.  (Businessweek)

Global

Why things will likely not end well in Hong Kong.  (Justin Fox, Humble Student)

Economy

The ISM Manufacturing survey for September shows continued growth.  (Calculated Risk)

Per ADP private sector payrolls continue to expand.  (Capital Spectator)

Has the Treasury gone too far in lengthening the maturity of the national debt?  (Real Time Economics)

Earlier on Abnormal Returns

What you might have missed in our  Tuesday linkfest.  (Abnormal Returns)

Baseball

Why baseball is suffering a dearth of runs.  (Wonkblog)

MLB team building strategies continue to evolve.  (Economist)

On the death of the bunt in MLB.  (The Atlantic)

Mixed media

The iPhone 6 Plus is great for gamers.  (TechCrunch)

How “statement socks” became a thing.  (The Atlantic)

The sports blackout rule is no more.  (WashingtonPost)

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