Saturday, August 5, 2017

Common Sense Investing

I found a lot to like about the The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle. Mr. Bogle was the founder of The Vanguard Group and is famous for creating the world’s first index mutual fund in 1975, the Vanguard 500 Index Fund.
The logic of his index fund was to invest in a large number of stocks, all the stocks comprising the S&P 500, to make money from the combination of their growth and dividends. This is a departure from the more common view of investing in undervalued stocks to make money from an increase in their stock value.

Bogle makes a convincing argument that the best way to get the value from the stock market is to invest in all the stocks by buying mutual funds based on indexes of the market that invest in all the stocks.

The author points out that the real net income from stock investments is the investments’ gain minus the cost of the investments. The costs are relatively easy to determine in the case of retail brokers charging for a stock trade when buying or selling  stocks. However, the costs are much more complicated for mutual funds because, in addition to the cost of the trade, in many cases there is an annual incentive sales fee for the broker for up to five years (up to 1.5% a year according to the author). I had no idea that there were hidden sales fees in addition to the purchase fee charged by the brokers. In addition to annual fees, most mutual funds typically have additional management fees of 2 to 3%. In comparison, index funds have low management fees (often .4% or lower) with no hidden sales fees.

What is more disturbing is that 99% of mutual funds significantly underperform the S&P 500 index. When the excessive costs combined with the underperformance of mutual funds are compared to S&P index funds, the long term income differences are shocking. The net return after taxes of $10,000 invested in an indexed fund from 1980 to 2005 would have been $76,200 versus $16,700 for other mutual funds (for those mutual funds that survived). This represents 456% more net income to the investor with far less risk.

If you are one of the 85% of investors who let their broker "manage" their assets, Bogle’s book may keep you awake at night. To sleep better, I switched to low cost, low risk index funds. 

The author’s perspective is unique since he invented the very first indexed funds. It is a little like reading Thomas Edison's thoughts about the light bulb. Bogle knows the issues and history of investing in indexes versus other types of mutual funds.

This "common sense investing" book was easy to read and easy to understand. I highly recommend it to anyone wanting their investments to produce more income with less risk.  Five Stars and hats off to the founder of index investing. 

Friday, July 28, 2017

How your Bank Balance buys you Happiness

I recently read an interesting study, How your bank balance buys happiness: The importance of "cash on hand" to life satisfaction, by Ruberton, Gladstone, and Lyubomirsky from the University of California, Riverside and Judge Business School, University of Cambridge. The study claims having more cash in your checking and saving accounts leads to increased life satisfaction.

This is the first study on money to use actual banking records from the participants to assess how their “liquid wealth” affected their life satisfaction. Previous studies only used self reported estimates of bank account information. In addition to the previous year of bank records, the participants took a Life Satisfaction survey and a two question Perceived Financial Well Being survey. Measures for the study also included Income, Total Spending, Total Investments, Indebtedness status, Employment status, and Relationship status. Another key detail was anyone who had greater debt than savings was excluded from the study.

The study’s results confirmed previous studies findings that people with higher debt have lower life satisfaction and people with investments have higher life satisfaction, as do people with an income high enough to have a moderately good quality of life (approximately $75,000). It also confirmed studies showing that life satisfaction is unrelated to income above $75,000 and people with no debts have higher life satisfaction.

The new revelation from the study was that having more cash in savings or checking accounts increased financial well being and life satisfaction more than any other factor, including total debt, income level, or investments. The study found that with each increase in cash by a factor of ten, life satisfaction increases by 3.45%. So an increase in savings from $1 to $1000 increases life satisfaction by about 10.35%. The next 3.45% increase in life satisfaction is at $10,000 in cash. And another 3.45% increase is at $100,000. The next 3.45% increase in life satisfaction requires a million dollars.

Even people with very large investments (over ten million dollars) who had small amounts of liquidity in their bank accounts had significantly lower levels of financial well being and life satisfaction than those with vastly lower investments yet more liquid wealth in cash.

What is unclear about this new finding is if it is the result of the 2008 financial collapse, since investments may not provide the same feeling of financial well being as before. Or is this something that has been true for a long time and not previously found due to self reporting biases, since actual bank statements were not used in the past. 

The researchers also raised the alarm about how much the long-term, extremely low interest rates from banks may be costing society in happiness and well being. These low rates punish those who have more cash in savings.  

Monday, May 29, 2017

How to Make Your Money Last in Retirement

I just finished reading Jane Bryant Quinn’s book "How to Make Your Money Last: The Indispensable Retirement Guide”. Ms. Quinn wrote this book last year and is now 78 years old, so her concepts are not theoretical or abstract. She shares clear, concrete, and very detailed information on how to make your retirement money last which made this book useful and enjoyable to read.


The most basic thing she recommends to do to make your money last is to earn income as long as you can (as old as possible) and not start taking your social security until you are 70 years old. The social security payout increases 8% a year for every year after age 62.

The second way to make your money last is to control spending. The happy place to be in retirement is where your expenses are equal to or less than your income.

For most retirees, their biggest reduction comes from downsizing the cost of their housing. 

Another major expense for many are high stock trade fees and hidden commissions in mutual funds, annuities, and life insurance products. These high costs and hidden fees can eat away as much as 50% or more of the long term value of a retirement portfolio. The best way to avoid this is to use a discount broker and manage investments yourself.

An area of great savings and great risk is Medicare. You can start taking Medicare at 65 and it may be much cheaper than your employers health coverage plan, however, there are big risks to doing this. If you start Medicare, the government will automatically start your social security payments. You have to have the payments stopped or you could lose your 8% lifetime increase. If you miss a payment to Medicare, they cover it with social security and that could impact your start date. You may not even be notified and only find out about it at age 70 when you file for social security. Not a small risk.

Although I have  considered Annuities and Reverse Mortgages foolish things to do, the author pointed out some circumstances where they can be very profitable. The book does a great job of explaining the difference between an IRA, a 401K and a Roth IRA and the tax implications of each. She describes the rules for taxes and inheritances and what income is and is not taxable.

One thing I found surprising is that you can open a Roth IRA at anytime and put in any amount. The earnings are not taxed and, unlike an IRAs, there is no minimum that must be withdrawn each year or maximum that can be withdrawn each year. Even better, the earnings are not taxed when taken out. It actually seems too good to be true, so I recently bought a book on the details of Roth IRAs to see what the downside might be.

The author recommends that you pay off all credit card debt before retiring; apparently people 50 and older have a lot of credit card debt - far more than younger people. She also thinks it is best to avoid buying rentals as a source of income because they are hard to manage.

The book’s detail and depth makes it a slow read but I found the information so useful that I used a highlighter to mark the critical details and consider it an important reference.

I highly recommend this book, five stars.

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. 

Saturday, February 4, 2017

The Power of Habit

The book, The Power of Habit: Why We Do What We Do in Life and Business was written by journalist Charles Duhigg who became interested in habits while covering the Iraq war after observing US troops quickly and calmly respond to attacks. He learned that most military training is teaching soldiers habits so they know what to do without thinking. The author explains how habits allow us to do complex tasks without thinking, like driving a car, cooking breakfast, and walking in a familiar place.

Much of the new understanding about habits is from Eugene Pauly who had significant brain damage caused by a viral infection at age 70. Though much of his brain was destroyed by the virus including his ability to make new memories, he was able to perform complex tasks that had been established as existing habits and create new habits. By studying Pauly, scientists discovered that habits are stored in the basal ganglia, the small primitive part of the brain. Habits make up over 40% of our daily activities, which makes us very dependent on this small part of our brain. If we had to think (in our cerebral cortex) through every action we take during the day we would quickly become exhausted and unable to function. Habits are instantaneous responses to stimuli; if a child jumps in front of your car you slam on the brakes without thinking.

Habits are described as behavior loops that start with a cue like being hungry, followed by a behavior, like cooking breakfast, and ending with a reward like feeling full.  All habits start out with a craving of some kind, like a craving for food, or a craving for stimulation or socialization. Habits effectively satisfy a craving by an automatic behavior.  This seems a bit simplistic of an explanation to me considering that habits can be formed without a craving through external pressures, like a job or by your own initiative.

Although habits are powerful and never really go away, they are also fragile and can be altered by small changes to the cue. An example given was the loss of customers to a McDonalds that moved just a block away; the cue at the specific place where drivers saw the McDonalds sign was disrupted and that stopped their behavior of driving in for food.

The author states that to gain control over a habit we must understand what craving is being satisfied by the behavior. To uncover the unconscious craving  we must experiment by giving ourselves different rewards. The author gives a personal example of his cookie craving in the afternoon at work. His routine was to go to the cafeteria, buy a cookie, and talk to people while he ate it. He didn’t know if the craving was for food, stimulation, or socialization. To test out food, he brought an apple to work and ate at his desk. This did not stop his afternoon cookie craving. The next day he went for a walk around the block and that didn’t stop his craving either. Finally, he tried leaving his desk to talk to people and that stopped his craving. So he set an alarm 30 minutes before he normally went to get a cookie in the afternoon and instead talked to coworkers for ten minutes and no longer craved his afternoon cookie.

I found the description of keystone habits very useful. Keystone habits are good habits that lead to developing other good habits. One example of a keystone habit is daily exercise. Once daily exercise becomes a habit, it can lead to a habit of controlling spending, drinking less alcohol, and eating less. For weight loss, keystone habits are keeping a daily food journal and recording your weight every day.  Studies have found people who exhibit these two habits lose more weight than people who don’t have these habits. I am trying to develop these keystone habits to see if they will help me take off the ten pounds I have put on since moving to Oahu.

Another keystone habit is keeping a “conflict planning journal”, which leads to preparation for difficult circumstances. By writing down ahead of time how you are going to deal with a conflict, for instance how will you deal with a really hostile customer, you will be less upset and emotional when it happens. Being less upset leads to other positive things.

The author described successful organizations that teach their employees habits to make their businesses more effective and profitable. Alco Aluminum increased their profits by 500% by developing safety habits in their employees. Starbucks teaches their employees communication habits to deal with hostile customers. A low ranked NFL team became top ranked by teaching their players better football habits.

Although some of the author’s claims in this book are thin and there is minimal discussion about how to create habits, I found the book worth reading and recommend it.  Five stars.

Sunday, January 15, 2017

IP6 - a non-toxic Treatment for Cancer

I became interested in the nutrient “inositol hexaphosphate”, known as IP6, after finding out that it reduced toxic levels of iron in the blood and organs. Initially, my research on IP6 concerned me as many health websites identify IP6 as an anti-nutrient  since it removes iron, copper, selenium, zinc and other metals from the body. If I had not just read the about the dangers of iron and learned that older adults frequently have toxic levels of iron, I would not have considered taking IP6 as a supplement.

IP6 is a natural substance found in the bran of grains, cereals, seeds and nuts. Since bran is now removed from most grains, Americans are getting very little IP6 compared to their grandparents. Long term studies have shown lower rates of cancer in individuals who consume lots of foods with high levels of IP6. More recent studies of IP6 consumption have also shown significantly lower cancer rates in countries that consume IP6 rich foods. Unfortunately, IP6 tends to bond with proteins in the grain which reduces how much the body can absorb from foods and makes it difficult to get the amount of IP6 into the bloodstream that was used in studies that cured cancer in mice.  The book recommends IP6 supplements be taken on an empty stomach to get the best benefit and avoid the IP6 bonding with food.

IP6 provides key nutrients to the mitochondria and cell membrane. Since the mitochondria control cellular reproduction rate, cellular death, intercellular communication, and cell differentiation of new cells, it is critical for them to receive nutrients to function properly.  I learned from Tripping Over the Truth that cancers are caused by damage to mitochondria, not damage to the cell nucleus DNA which was believed for decades.  The nutrition from IP6 curtails the mitochondria from initiating increased blood flow to support cancer cells rapid growth, slows cell reproduction rates, and increases cell differentiation. Cancer cells are rapidly reproducing cells that are immortal (no apoptosis) caused by damaged mitochondria.  In late stage cancer, cancer cells replicate so fast that the cells are not differentiated enough to be recognized as a specific type of cell like a breast or liver cell. Undifferentiated cancer cells (known as cancer stem cells) can be transported in the blood stream to other organs in the body where they are not recognized as being foreign by the immune system and can continue to replicate and create a metastasized cancer site.

The book described the many other benefits of IP6 that researchers are discovering:

  • reduces excess iron in cells;
  • reduces xanthine oxidase, an enzyme that makes uric acid. Uric acid causes gout so reducing xanthine oxidase could offer relief to gout suffers;
  • helps people with Type II Diabetes because getting inositol into the cell makes cells more responsive to insulin;
  • appears to reduce blood sugar levels in the blood and help repair damage blood vessels from high glucose levels in diabetics;
  • helps reduce kidney stones by binding to and removing excess calcium.
  • improves the immune system, increases bone density, reduces anxiety attacks, reduces obsessive compulsive behavior, and increases energy by recharging the potassium in  ATP cycle.

IP6 looks like it may be an effective nontoxic treatment for cancer as well as a nutrient to prevent cancer. (The author did mention that he has a patent on IP6.) The book convinced me that there were enough benefits of taking IP6 to risk any side effects of lowering my metal levels. I have been taking it as a supplement for about two weeks and I have noticed that it has improved my energy level and seems to be making my skin look better (something not predicted by this book but mentioned in the Dumping Iron book).

In addition to IP6, the book covers many other topics about cancer. For example, there was a review of what is wrong with the methods used to diagnosis and treat bowel cancer. The current method of looking for blood in fecal matter results in a large percentage of false positives which requires expensive, painful, and dangerous procedures to confirm if the diagnosis is accurate or not. Even worse, this entire system of diagnosis only detects 20% of colon cancers, so 80% of colon cancer cases go undetected. The author proposes using a less invasive mucus test that is 78 to 90% effective for finding all colon cancers. Similar cases are made for breast cancer and lung cancer diagnoses using more accurate and less costly diagnostic tests that are currently available.

Although this book was not an easy read and written for people with a bioscience background, I recommend it to anyone wanting to learn more about how to improve their health through better nutrition. A lot of the information and topics were understandable to an average reader like me. Highly recommended. Five stars.