Charlie Munger 2019 Wall Street Journal Interview Transcript

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

The best thing I read today was definitely , the full transcript of a 6-hour interview with Charlie Munger about his philosophies on business, investing and life, as conducted by Jason Zweig and Nicole Friedman of the Wall Street Journal. (I’ve tried to share a link via my paid WSJ subscription, but there may still be a paywall. Articles like this definitely help make me feel that my subscription is worth the money.)

I enjoy Munger’s direct and open take on many things. Honestly, I think reading his advice helps make me a better person, not investor. Also, he’s a 95-year-old billionaire – can you imagine anyone more incentivized to do exactly what they want with their remaining time? The article is rather long, so while I recommend reading the entire thing for yourself, here are some selected highlights.

How do you spend your day?

Well, I have always sought, since I quit law practice [in 1965], to have a lot of time in every day to read and think. And talk to a few friends about this or that. And I don’t do that because it will make me more money, I do it because it’s my nature. And I had to use that nature because I needed a living for a big family. But it’s just my nature.

Warren’s the same way. We both hate too many appointments in one day. We both have long segments [of free time]. The lives we live would look to anybody else like academics.

Will Berkshire Hathaway beat the S&P 500 in the future?

I think it we’ll beat it a little. But that’s not bad with a market cap of over $600 billion. That’s difficult! Most people won’t do as well as we will. I talked to Warren today. We’re buying one little company…as we sit here. And we haven’t bought anything big for a long, long time. It’s really getting hard for us. These other people will pay a lot more.

Q: If there were one company other than Berkshire you would recommend for the next decade or two, what would it be?

In America it would be Costco. Other than in America, buy the strongest companies in China.

Q: A lot of young Americans seem to be turning against capitalism, on the grounds that income inequality is out of control. What can be done about that?

The world as I know it, from personal experience and from reading, has always concentrated power.

Without the inequality, you don’t get modern private-ownership capitalism, which is what produces the plenty. And so even your kids, if they tried to make an equal civilization, and farm the land that way, would end up with not enough to eat. You’ve got to have individual ownership of a lot of things, with somebody getting and gaining for himself, because otherwise you don’t get the plenty. And the only option you have is to make the social safety net big or small, and you can make it stupid or [you can make it] wise[r], the richer you are.

In other words, the better your inequality-producing civilization that produces the plenty is, the more you’ve got to put into the social safety net. Now if you get a place like Denmark or Sweden or something, a lot of these modern students would like it better, free education, free medical care and so forth. And if you have to bet, the United States will be way more like Canada pretty soon, in terms of more free education at the university level and more Medicare and some kind of medicine for all. And that we can afford without ruining the productivity of the civilization.

…. We can afford [a higher minimum wage]. If you make it too high it will be counterproductive but yes, a prosperous civilization can have a higher minimum wage the way it can have a social safety net. Don’t make it too great and you can afford it.

I have more Democratic children than I have Republican children. I’ve got both.

On Jack Bogle.

You’ve got to remember, Bogle happened to be right about something important. But that [was] his only advantage. He was a monomaniac. And so that’s an odd characteristic. I would not pick Bogle to have the run of the place. He just was very right on one very important subject [the importance of minimizing investment costs], and therefore he’s been very useful.

On payday lenders, the lottery, and legalized gambling.

These goddamn payday lenders, they’re the scum of the earth. Everybody’s working on it but not hard enough. That’s a group that ought to be forced out of existence.

And the way we abuse the poor with the lottery! Think of how contrary it is to the interests of the poor to play the lottery. It’s like a tax on ignorance. They’re vulnerable. I don’t think we should be doing that, but of course everything like it I’m voting against. I always vote against legalized gambling. I just lose all the time. I feel like I’m pushing on a straw and somebody is just pushing back harder every time.

On selfishness and the value of a good reputation.

Another thing that really helps is people, a lot of people think that real selfishness, very extreme, is what works. But it doesn’t.

If you have a reputation for being decent to work with and unselfish, you make more money, not less. And at Berkshire, I can’t tell you the things that we have bought where the people wanted a good home for something that they love and they trusted us to take care of their loved one. That sounds ridiculous to talk about, in that language about businesses. But why wouldn’t you love something you spent your life building up? It’s very natural to love it – it’s your own creation. Of course you want it in good hands.

On his ability to delay gratification (aka “frugal cred”).

The first 13 years I practiced law, my income [from practicing law] was $300,000 total. At the end of that 13 years, what did I have? A house. Two cars. And $300,000 of liquid assets. Everyone else’d have spent that slender income, not invested it shrewdly, and so forth.

I just think it was, to me, it was as natural as breathing, and of course I knew how compound interest worked! I knew when I saved $10 I was really saving $100 or $1,000 [because of the future growth of the $10], and it just took a little wait. And when I quit law practice it was because I wanted to work for myself instead of my clients, because I knew I could do better than they did.

On opportunities.

You only get a few opportunities, and you have to grab them aggressively when they come because even in the most favored life, they’re really rare. My mother listened to all this stuff, and it meant nothing to her. She was never interested in money or worldly success, but she just appropriated the stories to me because they’d amused her.

I always feel that the opportunities are rare. I only get a few and then I have to seize them aggressively.

This last quote is definitely something that I strongly associate with Munger. Even in this interview, you notice he says it twice. It’s something to keep in the back of your mind, whether is applies to an investing opportunity, a career opportunity, or even finding a life partner. Work hard, do your analysis, but in the end you’ll have to take action to get the big results.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Healthywage Review: Bet on Yourself, Get Paid To Lose Weight ($100 Prize Bonus)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

(Update: If you missed it in January, HealthyWage is offering a for limited-time until April 22nd. This can potentially double your winnings!)

hw_logoAfter reading academic studies which found that financial incentives were effective in helping people lose weight, I joined . You tell them how much weight you want to lose, your current body details, how much time you want, and and they’ll calculate what prize to offer you based on how much you want to bet on yourself. Since I eventually lost 50 pounds with the help of HealthyWage and other weight-loss betting sites (and have kept it off since), and I wanted to share my experiences including both positive and negative aspects.

My overall HealthyWage bet was to lose 10% of my body weight over 9 months (22 pounds in my case). My offered bet was to put up $50 per month for 9 months for a potential win of $50. You may like the sound of “winning $500”, but know that a lot of it will be your own money:

Honestly, risking $450 to win $50 didn’t feel like a very good risk/reward ratio, but I wanted the extra motivation. Perhaps my goal was too easy and that was why the payout wasn’t as high. You can put up your own numbers and . Your payout may be much better than mine. The quote is free, you just need to provide any e-mail address.

If I had been willing to bet that I would lose 50 pounds like I actually ended up doing, I could have earned a lot more money:

Initial weigh-in verification. There are four ways to verify your weight:

  1. Smartphone app. There is a HealthyWage app for iOS and Android. You take a clip using the app and your personal scale.
  2. Video Verification. Upload a video to their website using your personal scale.
  3. Verification by a Fitness or Health Professional – Bring a form to your “local gym, pharmacies, corporate wellness clinics, walk-in clinics, HR reps, nurses, your personal doctor, your personal trainer or your chiropractor.”
  4. Verification at a Weight Watchers Meeting.

I followed their carefully, uploaded my video, and both my initial and final videos were accepted with no issues or additional requests.

Every month, I would see a $50 charge on my credit card bill from Healthwage. However, that was about it. There were no encouraging e-mails. No fun tokens or prize giveaways.

Upon initial sign-up, I was given my 2-week window for final weigh-in. HealthyWage’s two-week window is definitely more generous than DietBet’s 48-hour window, with the important difference that I was never sent any reminders by HealthyWage when the time actually came. In comparison, Dietbet sent me multiple reminders beforehand. Now, I had the date marked on my digital calendar with several alerts, so I completed my weigh-in by the second day of the window. It is quite possible that if I waited until closer to the final deadline, I would have gotten a reminder. But I wouldn’t rely on it. Remember, if you forget, they keep your money!

I also did a DietBet at the same time, which is similar but different in that it collects participants into groups and then takes a cut from the pooled bets. See my separate DietBet Review.

Extra final verification hoops. Upon final weight verification, you’ll have to submit the verification video again (see above). But that’s not all. I also had to locate and upload a “before photo” and an “after photo”, which could be any photo from “around the time” of the start and end of the challenge. I also had to upload a scan of my driver’s license. Here’s a screenshot of their page asking for additional information.

Finally, I successfully referred a few people to Healthwage and received extra money added my “pot”. This referral program is nice feature to get some social support, but remember that you get the referral money only if you win your own bet.

Final payout options. There are two options to receive your winnings. A mailed check takes 3-4 weeks to process, with no fee. The other “fast” option is PayPal, which charges a 3% fee. I picked the PayPal option because I didn’t want to wait around for a check. However, they later clarified that it would still take 3-5 business days for Paypal transfer. The 3% fee is taken out by PayPal, so HealthyWage actually sends the full amount (they just choose not to subsidize the fee). In retrospect, maybe I should have just waited for the check. Here’s a screenshot:

hw_finalpay

Bottom line. I committed to a Healthywage bet to lose 10% of my initial weight over 9 months. I lost the weight, completed my verifications without hassle, won the bet, and was paid my winnings. Although I found the process a bit impersonal, they are a legit company. No obligation to get a quote. However, the fact that HealthyWage motivated me to finally lose over 50 pounds was worth more to me than the cash winnings.

(Update: If you missed it in January, HealthyWage is offering a for limited-time until April 22nd. This can potentially double your winnings!)

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

A Sense of Urgency: Money Can’t Buy You More Time

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

Over the weekend, I read the NYT Magazine article about the rich and unhappy, which included a man who earned $1.2 million a year in Manhattan and hated his job:

“I feel like I’m wasting my life,” he told me. “When I die, is anyone going to care that I earned an extra percentage point of return? My work feels totally meaningless.” He recognized the incredible privilege of his pay and status, but his anguish seemed genuine. “If you spend 12 hours a day doing work you hate, at some point it doesn’t matter what your paycheck says,” he told me. There’s no magic salary at which a bad job becomes good. He had received an offer at a start-up, and he would have loved to take it, but it paid half as much, and he felt locked into a lifestyle that made this pay cut impossible. “My wife laughed when I told her about it,” he said.

Based on a short conversation in a class reunion, it’s easy to extrapolate endless stressful hours at work, a huge mortgage, fancy private school tuition, expensive vacations, and a high-maintenance spouse. Such a picture makes all of us not earning $1.2 million a year feel better about ourselves. But is he really that miserable?

I suspect it is more like the same situation a lot of people are in. They aren’t happy, but things aren’t bad enough to keep them from still doing the same thing. It’s easy to just say OMY (One More Year) because change is scary. I’d certainly rather be in that position while earning a million bucks a year, rather than earning $40k. He has a lot more optionality than most.

Ever since my post on Retirement Nest Egg Calculators: Running Out of Money vs. Running Out of Time, this following statistic has been stuck in my mind:

If you’re 40, you have a 10% chance of dying before even reaching 65.

What is your likelihood of dying within the next 20 years? Here are based on for US citizens, sorted by age and gender. Below are the rough numbers, along with an edited screenshot of the source at the very bottom.

  • A male, age 30 has a 1 in 20 chance of dying in the next 20 years (age 50).
  • A male, age 40 has a 1 in 10 chance of dying in the next 20 years (age 60).
  • A male, age 50 has a 1 in 5 chance of dying in the next 20 years (age 70).
  • A female, age 30 has a 1 in 35 chance of dying in the next 20 years (age 50).
  • A female, age 40 has a 1 in 15 chance of dying in the next 20 years (age 60).
  • A female, age 50 has a 1 in 7 chance of dying in the next 20 years (age 70).

I try to use these numbers to motivate myself and create a sense of urgency. I’m 40 years old now. There is a 1 in 10 chance that I won’t be old enough to see my daughters even finish college. The person profiled in this article is also probably around 40 years old (15-year reunion of business school). I’m sure there are plenty of 60-year-olds who say “60 isn’t old!” and it isn’t, but that is literally survivorship bias. We all know people who didn’t make it to 60, and these are the overall odds.

Time is your most precious resource. It doesn’t matter what your income is, you only have so much time. Therefore, you should spend it in a way that aligns with your values. Look for ways to get closer to that. If you can’t quit, do the same job with a better employer. Keep working, but switch to a different job within that field/skillset with more personal meaning. Saving more can mean you can get by working fewer hours. If you think you can retire but just can’t seem to pull the trigger, you need to directly confront those last few worries.

Are you unhappy with your situation and still in the same spot as a year ago? Try to find something psychological that will create a sense of urgency. I tell myself “Why am still wasting my time with [insert task]? 1 in 10.”

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

DietBet Review: Using Money To Motivate You To Lose Weight

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

dietbet180It’s that time of year, and since I eventually lost 50 pounds with the help of this and other weight-loss betting sites (and have kept it off since), and I wanted to share my experiences including both positive and negative aspects.

runs weight-loss challenges where I bet my own hard-earned cash that I could lose 10% of my body weight within 6 months. More specifically, a group of folks (strangers or friends) agreed on a weight loss goal, put money into a community pot, and the winners split the pot. Here’s a look back at how the process worked along with some helpful tips and detailed numbers.

Game basics. You pick from a list of available “games” that are starting soon. All of them have a goal of either losing 4% of your body weight in 4 weeks (), or 10% in 6 months (). I chose the 10% goal and picked the group with the most participants because Dietbet uses the where the winners take money from the losers. This is smart because Dietbet doesn’t risk any of its own money (also doesn’t have any incentive for you to lose).

dietbetfinal0

Weigh-in rules and tips. Your weight is verified each round by uploading two pictures: one with your feet on a digital scale, and another of your entire (lightly-clothed) body on the same scale. You are given a special keyword to ensure that the weigh-in is done during a 48-hour window. Here are my tips:

  1. Use the smartphone app. Having the smartphone app made it so much easier to snap the pictures and upload with a few taps. iOS and Android only.
  2. Check the dates with your work schedule. During one of my weigh-ins, I was on the road. Dietbet says digital scales are “preferred” but the only thing at my hotel’s gym was a non-digital balance scale. My submission was still accepted. If my hotel gym didn’t have a scale at all, I would have had to search for a Wal-Mart or something.
  3. Know the rules and give yourself time for rejections. One of my submissions was initially rejected because I was wearing running shoes (in that same hotel gym) and I forgot that shoes aren’t allowed in the pictures. You only get a 12-hour grace period after a rejection to re-submit a qualifying weigh-in.

Overall, I felt that Dietbet was fair and quick when judging my weigh-in pictures. You may also be “audited” and be required to submit a video verification. I did not get audited.

Money details. The bet amounts can vary by game, but mine was for $25 a month times 6 months. I was offered one month free ($25 discount) if I paid $125 upfront, but since this is all about the behavioral component for me, I wanted the monthly charge to show up on my credit card bill. Players who have chosen to place their bets on a monthly basis may drop out at any time and avoid being charged for future, unplayed rounds.

There is one round per month; Rounds 1 to 6. Half of the total money bet is put towards Round 1 through 5. That is $25 x 6 / 2 = $75, split across 5 rounds is $15 per round. The other half is put toward the final weigh-in round. So $75 is bet on Round 6. Here’s a screenshot that shows my actual winnings from each round:

dietbetfinal2

  • Round 1 Breakdown: $16.09 (7% ROI on $15 bet)
  • Round 2 Breakdown: $26.94 (80% ROI)
  • Round 3 Breakdown: $31.36 (109% ROI)
  • Round 4 Breakdown: $31.50 (110% ROI)
  • Round 5 Breakdown: $30.42 (103% ROI)
  • Round 6 Breakdown: $152.87 (104% ROI)

I ended up winning $289.19, for a net win of $139.18. That’s a solid 93% return on my $150 initial bet! According to their documentation, the average “win” is 50% to 100% of your contribution. I would venture to guess that the 6-month games have a higher overall payout due to a higher difficulty level.

As noted above, Dietbet makes their money by taking a cut of the gross pot before distribution, . In a previous post, I erroneously assumed that the numbers being reported above were before fees were taken out. The numbers are actually net of fees. (You are always guaranteed never to lose money if you win, which otherwise technically could happen if enough people win.)

Your winnings can be withdrawn either via PayPal or paper check, but you have to pay a $5 fee and make special request for a paper check. When withdrawing via PayPal, you won’t pay any fees, and I was sent my money within a hour. Here’s screenshot proof of my winnings payout showing no fees.

Warnings. When signing up for a challenge, Dietbet will automatically add $20 of “Official Weigh-in Tokens” to your cart. These are not mandatory. I think using the word “Official” is misleading. They should use “Optional” or “Additional” instead. You should treat them as extra raffle tickets for prizes like Fitbits and such. If you want that, fine, but otherwise be sure to remove them otherwise it’s just wasted money.

Bottom line. I committed to a Dietbet Challenge to lose 10% of my initial weight over 6 months. You can see . I lost the weight, completed my verifications without hassle, won the bet, and was paid my winnings. There were a lot of factors that helped me lose weight and change my eating habits:

  • Loss aversion is quite a strange thing. Even though 25 bucks a month isn’t all that much money, the prospect of losing it was a powerful motivator.
  • The Dietbet community board for my challenge was quite positive in supporting other people towards their weight-loss goals.
  • I created extra motivation by telling people about the challenge as I didn’t want to admit publicly to failure.

While Dietbet was not there to cook my healthy meals, exercise for me, or keep me away from the late-night Doritos, it was the missing catalyst that I needed to get my health back on track. For other people this might be a heart attack or other medical issue. I’m glad I didn’t have to wait for something like that. Even if I “lost” the challenge but also lost 5% of my body weight, I might have still seen it as an overall positive experience.

See my separate Healthwage Review, a similar service. You can do both at the same time.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Gene Hackman and Dustin Hoffman on Mental Accounting

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

Richard Thaler won the Nobel Prize for Economics this year for his pioneering work in Behavioral Economics. Of course, he promptly said he would spend the prize money “as irrationally as possible”. Here’s a from the NY Times. Linked was a funny example of mental accounting, told by Gene Hackman about Dustin Hoffman. (Warning: There is a single f-bomb.)

Well, Hackman says when they were both young actors he was over at Dustin Hoffman’s house and Hoffman asks him for a loan.

Hackman goes into the kitchen and sees all these Mason jars with labels — “entertainment” and “books” and “rent” — and they all have money in them. Except for one, the one that says “food.” So he says to Hoffman: “You have plenty of money, why do you need money?” And Hoffman says, ‘There’s no money in the food jar. I can’t touch the other money. ”

They laugh, they go on, it’s funny but you know, it’s serious. Because we all do that.

If you can’t see the embedded video, here is the .

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Headwinds/Tailwinds Asymmetry, Gratitude, and Relationship Advice

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

freakradio

Freakonomics Radio has a podcast called where they talked with Tom Gilovich of Cornell and Shai Davidai of the New School for Social Research about the concept of :

Most of us feel we face more headwinds and obstacles than everyone else — which breeds resentment. We also undervalue the tailwinds that help us — which leaves us ungrateful and unhappy. How can we avoid this trap?

Here’s a more specific example:

GILOVICH: The idea should be familiar to anyone who cycles or runs for exercise. Sometimes you’re running or cycling into the wind, and it’s not pleasant. You’re aware of it the whole time. It’s retarding your progress and you can’t wait until the course changes so that you get the wind at your back. And when that happens you’re grateful for about a minute. And very quickly, you no longer notice the wind at your back that’s helping push you along. And what’s true when it comes to running or cycling is true of life generally.

This psychological bias relates to all kinds of things in life, including why you think your parents were easier on your siblings than you or why everyone thinks their sports team is always treated unfairly.

Personally, this reminded me of some relationship advice that I was given years ago. Here’s are the basic observations:

  • You are accurately aware of every single good thing you do for your spouse or partner.
  • You are not going to notice every single good thing your spouse/partner does for you.

Simple logic leaves you with the following conclusion:

Your goal should be to feel like you are giving more than you receive. Even if in reality both of you are doing equal numbers of good things for each other, you should still feel like you are doing a bit more because you missed things. Alternatively, if you don’t feel like you are giving at least a bit more than you are receiving, then you probably aren’t doing enough. This concept could also be applied somewhat to professional work relationships.

A similar idea is that when you visit a or national park or campground, try to leave it cleaner than you arrived. You might have left some bit of garbage that you didn’t even notice.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

If someone promises to pay you back, they probably won’t pay you back.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

everylies

Back in the stone age of P2P lending (aka 2006), I used to read through Prosper loan listings one-by-one. Borrowers would outline their monthly budgets showing how they could afford their loan payments, along with explanations of why they needed the money (credit card debt, home improvement, etc.) and why they would pay you back (steady job, good credit history, etc). I’m not sure if this is even an option anymore, but in any case, I wasn’t very good at it.

The New York Magazine article (excerpted from the new book Everybody Lies) discusses an that actually analyzed keywords within past Prosper listings against their default history. Consider the following 10 phrases:

  • God
  • promise
  • debt-free
  • minimum payment
  • lower interest rate
  • will pay
  • graduate
  • thank you
  • after-tax
  • hospital

Half of them are used by people most likely to pay back the loan. The other half are used by people who are least likely to pay back the loan. Care to venture a guess which are which?

Generally, if someone tells you he will pay you back, he will not pay you back. The more assertive the promise, the more likely he will break it. If someone writes “I promise I will pay back, so help me God,” he is among the least likely to pay you back. Appealing to your mercy—explaining that he needs the money because he has a relative in the “hospital”—also means he is unlikely to pay you back. In fact, mentioning any family member—a husband, wife, son, daughter, mother or father—is a sign someone will not be paying back. Another word that indicates default is “explain,” meaning if people are trying to explain why they are going to be able to pay back a loan, they likely won’t.

The phrases used by folks who are most likely NOT to pay back their loans are God, promise, will pay, thank you, and hospital. If someone promises that they will pay you back, they probably won’t pay you back. The more emotions are involved, the less likely they are to pay you back.

This is an interesting wrinkle as lending is such a huge part of the investing world – mortgages, bonds, insurance, and so on.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

New Year’s Resolutions: Nudge Yourself Towards Success

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

newyears

It’s now late January. According to “the internet”, over 30% of people have already failed at their New Year’s Resolution. Well, I say let’s have a do-over since I haven’t even got around to making mine yet. Jonathan Clements has an excellent post called where he outlines some strategies to help improve our chances of success. I’ve re-worked them below according to my own tastes. In my view, all of them involve making failure painful and/or inconvenient (really the same thing, just different levels and frequencies of pain).

  • Tell everyone. Announce your resolution on Facebook, Instagram, or other widespread manner. Somebody (frenemy?) will likely follow-up. You’ll want to avoid the mild shame from lots of people you know sorta well.
  • Tell just one important person. Share your resolution and deadline with a person whose opinion you care about. You’ll want to avoid that acute shame from a close friend or relative.
  • Tell nobody, but bet money on it. You could set up a bet with a friend, or use a website like DietBet. You’ll want to avoid the financial pain from losing money.
  • Put hurdles between you and bad habits. Want to spend less? Use cash for everything. Institute a cooling-off period of 1 week for every $100 of cost. Cut up or freeze your credit cards in ice. Cancel any “bad” subscriptions, and make yourself pay for it manually each month. (Try Trim if you need some help canceling things.) Remove junk food from the house, so you’ll have to go out and buy it. Make it a hassle.
  • Make it automatic. Make “good” subscriptions. Set up (or increase) an automatic paycheck withdrawal for 401(k) and/or IRA retirement accounts. Set up an automatic transfer to your savings account. Sign up for a service like Digit. After the initial setup, the lazy thing is now the good thing.

You might use one, or you might use all of them, depending on your specific goal.

Photo credit: by Annie Taylor-Lebel.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Your Employer Took Your Money, Invested For Retirement, and You Liked It

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

Below is a chart taken from this about employer-run 401(k) retirement plans and how the default settings have changed over the last decade:

wsj_vg_savings_full

The trend: Employers are making you save more initially by default, making you save a little more every year by default, and putting it in a pre-mixed target-date fund of stocks and bonds. Employees can opt out of any of these things at any time. But they aren’t.

Credit Suisse braced for complaints last year when it upped its initial automatic savings rate for new employees to 9% from 6%. It did so after years of experiencing lackluster interest from the firm’s roughly 8,500 employees—specifically younger workers—in the U.S. when meeting to discuss increasing retirement savings, said Joseph Huber, chairman of the bank’s pension-investment committee.

But Mr. Huber said the bank heard concerns from only two people, who weren’t previously putting any money into their 401(k) plans. Credit Suisse also decided to automatically increase the default rate by 1% a year until an employee reaches 15%. It doesn’t match contributions up to the highest rate, although it contributes $3,000 to $10,000 for each employee annually.

“It’s companies’ biggest fear and it was radio silence,” he said.

Well, perhaps I shouldn’t be pointing this out because the current inaction may be a good thing. The only problem is that don’t have an company-sponsored retirement plan. The bigger your company, the more likely you have one as an option.

wsj_vg_bw

The takeaway? Try using this behavioral psychology trick on yourself. Commit to saving more through automatic, recurring transfers. Use a savings account or an IRA if you don’t have a 401(k) match. Set the amount such that it hurts a bit. You can always change it back later (but hopefully you won’t need to).

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Do Financial Advisors Really Keep Portfolios and Clients Disciplined?

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

I written about Dimensional Fund Advisors (DFA), a mutual fund family that is powered by top academic research. Another things that makes DFA unique is that they are only sold through approved financial advisors. You can’t buy them with just any old brokerage account. (Exceptions are certain 401(k)-style retirement plans and 529 college savings plans.) Allan Roth has in Financial Planning magazine, which is a trade publication targeted to financial professionals.

Why not sell directly to Average Joe investor? Here is David Butler, head of DFA Global Financial Advisor Services:

DFA has no intention of bypassing the advisor channel and offering its funds directly to retail investors. “We think advisors help keep investors disciplined,” Butler says.

In my previous post The True Value of a Real, Human Financial Advisor, I wrote about this concept. A good client advisor will help you keep your cool when the next disaster comes. Vanguard says that the biggest “value add” from good advisors is their “behavioral coaching”. A good financial advisor keeps you from making the “Big Mistake” that derails your plans.

onepage_bigmistake

But later in the same Allan Roth article, the idea of advisors as disciplinarians is called into question.

But do investors get better returns? I tested Butler’s claim that DFA advisors help keep investors disciplined by asking Morningstar to compare the performance gap between the two fund families. The performance gap is the difference between investor returns (dollar weighted) and fund returns (geometric).

Over the 10 years ending Dec. 31, 2014, the DFA annualized performance gap stood at 1.28% versus only 0.22% for Vanguard. When I showed these figures to Butler, he responded, “It’s hard to make an argument about the discipline of advisors based on these figures.

Here’s a primer on investor returns vs. fund returns. Investor returns are the actual returns earned by investors, based on the timing of their buying and selling activities.

The next step was to compare the investor returns of DFA’s largest fund, DFA Emerging Markets Value I Fund () with $14B in assets with the closest Vanguard competitor, Vanguard Emerging Markets Index Fund () with $54B in assets. I personally think a better comparison would be with their DFA Emerging Markets Core Equity I Fund (), so I’m throwing that in as well.

DFA fund returns are often higher relative to index fund competitors. Here’s a Morningstar chart comparing the growth of $10,000 invested 10 years ago in each of the three funds. You can see the DFA funds do slightly better in terms of fund returns. Click to enlarge.

dfa_em_vg_10k

But what about investor returns? I took some screenshots of their respective Morningstar Investor Return pages.

dfa_em1b

dfa_em_vg

dfa_em3

We see that after accounting for the timing of actual cashflows, the average investor in the DFA fund actually lost money with an annualized return of -1.01% and -2.04%! Meanwhile, the average Vanguard investor earned over 6% annualized.

The three mutual funds don’t have the exact same investment objective, but they do both all pull from the overall Emerging Markets asset class. The DFA funds try to focus ways to earn greater long-term return by holding stocks with a higher “value” factor, but it also has a higher expense ratio. The Vanguard fund just tries to “buy the haystack” and passively track the entire index.

Let’s recap. The stated reason why DFA is only sold through advisors is that they offer more discipline. We are told that such behavioral coaching is where human advisors provide their greatest value. However, the evidence available suggests that DFA advisors are less good at trading discipline than when a similar fund is completely open to retail investors.

I found this rather surprising. I used to think that restricting my potential advisors to those were affiliated with DFA was one way of getting an “above-average” advisor. But after doing my own research, I found that even though DFA investments are generally lower-cost, the additional fees charged by individual advisors ranged widely from reasonable to quite expensive.

I am confident there are financial advisors that can provide the proper behavioral coaching that makes them well worth the cost. At the same time, clearly many are not providing the advertised guidance and discipline. The problem remains – how does Average Joe investor find the good ones? I still know of no clear-cut way.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Weight Management vs. Money Management Advice Similarities, Revisited

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

nodietI’ve written previously about the importance of permanent habit change in both managing your finances and your body weight. After finishing Smart People Don’t Diet by Charlotte Markey and then reviewing my Kindle highlights, please allow me to compare weight management and money management one more time.

I’m going to keep it simple; I’ll quote exact sentences from the book, and then tweak them ever-so-slightly to magically transform them into personal finance wisdom. Here’s a quote about her overall reason for writing this book:

Psychologists like me have been doing research about eating and weight loss for over a hundred years, and thousands of studies about these issues have been published. Scientists in related fields such as nutrition, medicine, and community health have also been studying and publishing about these issues for a very long time. And yet it seems that the most marketable and even outlandish ideas are what get the most attention when it comes to weight loss—not necessarily the ideas that are really going to work!

Here’s my Mad Libs version (all changes are bolded):

Finance academics like me have been doing research about investing for over a hundred years, and thousands of studies about these issues have been published. Scientists in related fields such as economics and behavioral psychology have also been studying and publishing about these issues for a very long time. And yet it seems that the most marketable and even outlandish ideas are what get the most attention when it comes to investing—not necessarily the ideas that are really going to work!

Sounds about right to me. Now, the recommended first step is to track your eating with a food diary:

Phase 1 is all about taking inventory and getting to know yourself—a critical first step. There should be no sense of deprivation when you follow the instructions for Phase 1. Phase 2 is when you’ll start to actually make changes to your eating behaviors.

In the same way, my recommended first step has been to track your spending with a daily log. There is virtually no change needed!

Phase 1 is all about taking inventory and getting to know yourself—a critical first step. There should be no sense of deprivation when you follow the instructions for Phase 1. Phase 2 is when you’ll start to actually make changes to your spending behaviors.

However, many successful people don’t need to keep up this daily tracking forever.

This is all common sense, but it is also supported by research: keeping a mental record of what you eat, or “counting” what you eat, is exhausting. This is one reason I don’t recommend constantly counting calories or counting anything as part of a long-term approach to weight management: food choices shouldn’t add to your mental fatigue.

The key is to measure your baseline and then make incremental but permanent changes. Nowadays, I still add up my expenses at the end of each month, but I don’t track anything on a day-to-day basis.

This is all common sense, but it is also supported by research: keeping a mental record of what you spend, or “counting” what you spend, is exhausting. This is one reason I don’t recommend constantly tracking every expense or counting anything as part of a long-term approach to money management: financial choices shouldn’t add to your mental fatigue.

Here are tips on creating better habits that won’t suck up all your willpower:

You don’t need to squeeze your own oranges to make juice; just eat an orange. You don’t need to make homemade bread; just buy whole-grain bread. It is okay to rely on frozen fruits or veggies to ensure that you eat enough each day. If you want to change your habits for the long-term, stick to a plan that is simple and create food routines. Simple is sustainable.

Simple is sustainable, I like that phrase!

You don’t need to analyze the balance sheets of individual companies; just buy an index fund. You don’t need to remember to manually save every month; make it automatic with scheduled online transfers to your IRA and/or 401k. It is okay to rely on Mint.com or PersonalCapital.com and credit/debit cards to track your overall spending. If you want to change your habits for the long-term, stick to a plan that is simple and create financial routines. Simple is sustainable.

Finally, a nice little summary. (The book has a lot of good advice, but it is a little repetitive.)

What I recommend to people to help them to lose weight is not always sexy, but it is what works. Weight-loss books change; most of them don’t stick around because they don’t work. To be healthy and lose weight, you have to change your habits. You also have to understand why you are eating. Convenience, habits, and our emotions are all an important part of our food choices.

What I recommend to people to help them to save and invest wisely is not always sexy, but it is what works. Personal finance and investing books change; most of them don’t stick around because they don’t work. To save prudently and achieve financial freedom, you have to change your habits. You also have to understand why you are earning and spending. Convenience, habits, and our emotions are all an important part of our financial choices.

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

Pact App: Cash Motivation For Exercising or Eating Healthier

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Thank you for supporting this independent site.”

gEHJgtmM_400x400I am nearing my 6-month anniversary of making a weight loss bet with HealthyWage (3 months left) and DietBet (less than a week left). My aversion to losing money has really helped me remain focused on my goals, so I have a newfound respect for this niche inspired by behavioral economics. I’m also looking forward to spending my winnings! 😉

The (Free: , iOS) is another way that you can use money to motivate your health-related goals. (Formerly known as GymPact.) While the betting websites above track weight loss, this one has three different goals that you can choose:

  • Gym workouts. You make a commitment to “work out” at a set frequency per week. Any gym workout, run, or bike ride over 30 minutes counts, as does walking 10,000 steps in day. Only one workout per day counts, and the app will use GPS or built-in motion sensors to track your progress. You can also link up a Fitbit or Jawbone.
  • Food diary logging. You make a commitment to log your daily food intake a certain number of times per week. A complete daily food log with at least 1,200 calories and 3 recorded meals will count as a completed day. In partnership with MyFitnessPal.
  • Eat more veggies. You make a commitment to track and eat a certain number of servings of fruits and vegetables per week. This is tracked by uploading pictures taken by your smartphone and verified by other Pact users.

Some screenshots:

pactapp3 pactapp2 pactapp1

For each item that you miss, like a missed workout, you agree to a set penalty like $10. Upon starting a pact, you must provide a payment source of either a credit card or PayPal. If you complete the pact, then you will actually earn a small profit from the money taken from other users. The numbers will vary, but the reports I have found indicate that it has worked out to between 15 cents to at most $1 for each completed task, usually more towards the lower end. Pact gets their cut of the broken commitment penalties first, as that is how they make money.

In order to understand how or why such money-based incentives work, read this article from which summarizes recent academic research in behavioral economics:

Cash is a strong incentive, but the motivation goes away soon after the money does. That’s where those commitment contracts come in. At the end of the month-long incentive program, Royer and her team approached some of the employees with a proposal: They would hold onto your money if you committed to going to the gym once every two weeks, over a period of two months. If you met that goal, they’d give you your money back; if you didn’t, they’d give it away to charity. Not everyone the researchers approached signed on, but the ones who did—women and overweight people were the groups most likely to opt in—went 25 percent more often than those who didn’t.

[…] But it was the after-effects of the contracts—the behavioral changes that had been cemented long after the agreements expired—that most thrilled the researchers. Even two to three years after the study, those who participated in the month-long incentive program and then signed a two-month contract went to the gym at a rate that was 20 percent higher than those who weren’t entered into any program. Twenty percent may not seem like a lot, but it’s a remarkable uptick for an experimental program to maintain long after its conclusion.

Despite the hype about “getting paid to work out” or “cash rewards for health living”, this app is mostly about the human tendency of . Losing $5 or $10 for every time you slack off and skip the gym is going to hurt a lot more than getting 50 cents if you do go. But based on my own experiences, such motivation can definitely work if you make the commitment.

I personally like this app because I don’t think I can lose another 10% of my current weight, but I can keep eating a steady stream of fruits and vegetables. I just have to consider whether I will actually remember to check-in several times a week, even if I actually do the healthy activity. Otherwise, I’ll just be losing money due to another human tendency: procrastination!

“My Money Blog has partnered with CardRatings for our coverage of selected credit card products. My Money Blog and CardRatings may receive a commission from card issuers. All opinions expressed are the author’s alone, and the content has not been provided nor approved by any of the companies mentioned. Datenfluss.info is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for supporting this independent site.”

www.karter-kiev.net/zaschity-kartera/honda-52.html

www.kinder-style.com.ua/girls/kofty-rubashki-futbolki-dlya-devochek/

http://best-cooler.reviews