Sunday, April 23, 2017

The Stock Market Index Revolution

The Index Revolution: Why Investors Should Join It Now by Dr. Charles Ellis explained a lot of the changes that I have witnessed in the stock market over the last 40 years. Dr. Ellis has a great deal of experience managing large pension funds and wealth funds. He explained the reasons why investing by amateurs like me no longer works and why it makes sense to invest in indexes.

In the 1960’s 99% of stock market trades were by amateur investors who traded just a few times a year. Today, less than 1% of stock trades are by amateur investors. Now, over 1.5 million professional traders, mutual funds, pension funds, and automated trading systems make 99% of the world-wide stock trades.

Full time professional and institutional traders take advantage of underpriced stocks by finding them faster than amateur investors. They do it by getting instant and detailed information about companies unavailable to amateurs.  Stock information sources can cost over $20,000 a year, impossibly expensive for an amateur like me managing my IRA and small portfolio of individual stocks.

Over the past 40 years, the trend toward professional and institutional stock trading led to the creation and spectacular growth of professionally managed mutual funds. Although the “famously successful mutual fund managers” paid huge salaries touted that their mutual funds performed better than the overall market, academic researchers found that over the past decade only one or two of their mutual funds out-performed the S&P 500 stock index. And, after the cost of trades and the high management fees, none of the mutual funds out performed the S&P 500 index.

The stock market generally goes up about 8% per year, averaged over 10 years. The expense of trades and staff, which is commonly 4% of the gain, can cut the long term appreciation of an investment portfolio by 50% of even the best performing mutual funds. Most of the mutual funds do not come close to matching the performance of the overall stock market index, but even if they did the net result would be less because of their costs.

These findings published by academia have led to a mass exodus from mutual funds to exchange traded index funds (ETFs).

The author’s career included managing foundation portfolios as well as researching stock fund results at Yale, Harvard, and Princeton. His unique experience makes the book an especially enjoyable read. I was so impressed with the data and view he presented that I immediately started moving out of individual stocks into ETFs. It has been about 90 days since I started and I am already very happy with the greater stability of the ETFs; no more disturbing daily volatility of individual stocks.

I highly recommend the book. Five stars. 

Thursday, March 23, 2017

Mini Habits

The book Mini Habits: Smaller Habits, Bigger Results by Stephen Guise is based on the story of how the author discovered that mini habits work better than traditional big habits. For ten years the author tried many different personal development systems, to build significant daily habits that would help him achieve his fitness and writing goals, and had no success. One night in desperation he decided upon a mini habits - just one push-up a day. To his surprise this mini habit empowered him to do more and more push-ups and to ultimately develop fitness habits that helped him achieve his goals.

His surprising results with mini habits inspired him to research why they worked so well in achieving major results. The author’s personal experiences with a motivational approach to achievement was that to be motivated to work on a goal, it had to be big enough to be exciting, like running five miles a day or writing 2000 words a day.  The daily tasks required to achieve the goals took so much willpower to start that he never had the energy to get started, much less start a new habit.  Without “motivation” he could not get anything done.

Researchers have discovered that to be motivated to achieve a goal, which requires habit formation, the goal has to be big enough to get people excited. For many people just coming up with a big “exciting” goal was enough of an accomplishment. Having the goal was a reward enough and they no longer felt the need to actually accomplish it. Those who tried to accomplish a big goal which required developing new habits that took a lot of energy and willpower had a very negative experience and feeling of failure when the goal was not achieved.  The result was a huge resistance to developing new habits and a negative experience every time forming new habits was attempted yet not accomplished.

Establishing a mini-habit, on the other hand, does not require a lot willpower to start and since it is easy to do, it creates a regular positive experience by doing it each day. Even though the mini-habit is ridiculously small, it provides a positive sense of accomplishment and encouragement. It is important not to increase the mini-habit goal so that it remains easy to do. The mini-habit doesn’t require much energy to start so there is more energy to do the work.

The author suggests taking at least a month to see if mini-habits will work for you. I tried the mini-goal the author had, to write 50 words a day on a book I have been working for a year about what I have learned about cancer that I think everyone should know. The first few weeks the mini-goal seemed to help a little, but now that I have been doing it for 6 weeks it seems to be helping a lot. It not only helped with writing the book, but it contributed to me focusing the content and scope of the book. Instead of trying to explain the historical models of cancer and how recent discoveries are finding them to be wrong, I am focusing on the stunning new discoveries and the success of non-toxic cancer  treatments. Last week I wrote more in a day than I have since high school.

I feel using mini-goals is helping me achieve my goals. If you want to try a new way to accomplish things try out mini-goals. I highly recommend this book - Five Stars.  

Sunday, February 12, 2017

Trump’s Plan for America – Improve your Health and Sanity by knowing the Future

Rapid change and uncertainty can be upsetting and even make you sick.  The media’s daily portrayal of President Trump’s s behavior as crazy and unpredictable has convinced many people that his plans are vague and out of control.  The reality is that Trump published the actions he planned to take as president in 2015 and as far as I can tell he is following the plan exactly.  Knowing his plan and what to expect next has reduced my stress and allowed me to ignore the media’s portrayal of Trump as a clueless president who has no idea what he is doing.  I summarized Donald Trump’s 10 major plans for America based on his book, Crippled America: How to Make America Great Again:

End illegal immigration in America. Enforce existing immigration laws and deport all illegal immigrants who have come across the border or overstayed their visas. Build a wall along the US/Mexico border. End US “birth citizenship” which grants a US passport to babies born in the US to non-US citizens, in many cases their mothers travelled to the US on tourist visas, temporary visas, or illegally for the sole purpose of the birth.

Foreign policy
Foreign policy will be based on what is best for the US. The US will no longer put other countries first at the expense of the US tax payers and American workers. This will have wide-spread effects on trade, defense, and foreign policy where America is footing the bill for the defense, economic protection, safe ocean passage , or international organizations for other countries.

Renegotiate all US trade deals to favor the US.  Renegotiate or terminate NAFTA. Although WTO is not mentioned, changes to trade deals with China and Europe and Japan are specifically discussed.  Stop countries like China, Germany, and Japan from getting a trade advantage by keeping their currency artificially low.

Make the US military unquestionably the best military force in the world. The plan is to increase funding, increase troop numbers, improve training, and improve the quality and military equipment available to US troops. Have the best missile systems in the world. Charge countries the US protects around the world for the cost of the defense.

Support US oil, gas and coal production. Stop the EPA from enforcing rules that are not laws. Repeal environmental laws that impede the energy industry. Charge OPEC for the cost of the military protection the US Navy provides them.

Health Care
Replace Obamacare. Provide cheaper alternatives for health insurance that gives people more choices and does not fine those without insurance. Create more competition between insurance companies to reduce healthcare prices. Negotiate with drug companies for lower drug prices. Build and fund mental hospitals to take care of the people that need to be there.

Make the tax code so simple that no American will need an accountant to fill out their forms. Any person earning under $25K or couple earning under $50K will pay no federal taxes. All corporate taxes will be 15% as well as individual entrepreneurs.  US corporations will be able to bring money earned overseas back to the US and pay only a 10% tax. All loopholes for the rich will be closed and the effective tax rates for the top 1% income earners will be increased.

Make gun law standard nationwide.  Allow everyone, except felons, to carry a concealed gun anywhere in the US. Make it a federal crime for any felon caught with a gun, with a 5 year sentence in federal prison with no parole or reduced time for good behavior.

End federal programs for education. Give all federal funds for education to the US States to use as they see fit.

Rebuild the infrastructure across the US.  Increase the amount the US spends on infrastructure from 2.4% of the US GDP (Gross Domestic Product) to 9.0% of our GDP. 

I have come to believe that much of the commotion surrounding President Trump’s actions are caused by his business approach of getting his plan completed as quickly as possible and not from him doing  the unexpected. Whether you agree with Trump’s plan or not, you can reduce your stress by knowing more about details of what he plans to do. I highly recommend this book, 5 stars.