Weekend Links

QUOTE OF THE DAY

"I don't hire people unless they are programmers…that's where the power is."

Advice to recent college graduates thinking about a career in finance by Jeff deGraff of RenaissanceMacro in an interview with Barry Ritholtz on BloombergView.

CHART OF THE DAY 

RETIREMENT FINANCE AND PLANNING

Financing Education Is a Retirement Issue, Advisor Perspectives. "The rising cost of college has added an additional financial burden for many parents who don’t want to see their children suffer under a mountain of student loan debt. This noble goal unfortunately has many sacrificing their own retirement nest egg to help secure their children’s future."  

Retirement Income Planning and the “Language of Longevity” CFA Institute. "…what if financial advisers stopped using shortfall (or ruin) probabilities as the guiding risk metric for retirement income planning?" 

Why Most Retirement Planners Ask the Wrong Question, WSJ. "people should be focusing on a different question: “What’s my paycheck?"  

Let’s Shrink Retirement, Stanford Center on Longevity.  "The key obstacle standing in the way of creatively redesigning life is that we humans are creatures of culture, and life expectancy increased so fast that culture hasn’t had a chance to catch up. A decade-and-a-half into the 21st century, our lives are still guided by the same norms and social scripts that guided our parents and grandparents. It once made sense to get all your education early in life, work hard while you find a mate and rear your children. It made sense to retire at 65 in 1933 when Social Security was put in place. If you were lucky enough to survive to 65 (most people didn’t) getting a few years off at the end of life made sense. But these norms no longer make sense for lives doubled in length—and in which good health lasts much further into people’s later years." 

5 Crucial Retirement Years For Your Money. CNBC.  "…any investing missteps in the years right around when you stop working will have an outsized effect." [rehash of "sequence of returns" risk. Lightweight but decent 101-level intro to sequence risk.]

How to Choose the Best Retirement Income Strategy, Tomlinson [2014 -- this might be a repost]. 

What Does Retirement Really Cost? Milevskey on ThinkAdvisor from Research Magazine [2011].  "What Does Retirement Really Cost?" 

Why The Empty Nest Transition Is Crucial For RetirementSuccess.  Michael Kitces.  

How Much of that Part-Time Income Can You Afford to Spend inRetirement? Ken Steiner. "This post will encourage retirees who work to possibly consider taking a longer-term “actuarial” perspective by spreading the present value of this extra income over their remaining period of retirement." 

MARKETS AND INVESTING

The Hidden Danger of Being Risk-Averse, HBR [2013]. "In other words, prevention-focused people generally prefer the conservative option when everything is going according to plan, but they will embrace risk when it’s their only shot at returning to status quo." 

Jack L. Treynor and the Birth of the Quants, CFA Institute. "In this imaginary Treynor-less world, mass casino psychology and fund manager guru-worship might rule, unchallenged by any metrics other than crude popularity and marketing spend." 

Expected Returns, Research Affliates.  

The Mythical Rebalancing Bonus-Part 1, the Personal Financial Engineer.  "The statement that rebalancing will increase returns isn’t incorrect, it’s simply incomplete. Over investment periods of 20 years or less it’s possible that rebalancing among uncorrelated stocks and bonds may provide some benefit. However, over very long periods of time the chance that it will provide some extra juice is greatly reduced, and a rebalanced portfolio may very well underperform a simple buy and hold strategy. In other words, investment horizon plays a major role when earning excess return through rebalancing (or not)."  

Stop Worrying About the Stock Market Crashing! Barrons. " While the risk of a crash is not zero, you’re almost certainly more worried about a crash than is justified." 

An Epic Historical Performance Streak: Domestic 60/40, AlphaArchitect.  "US-centric 60/40 portfolios have literally knocked it out of the park since 2010. Nearly a 10 percent compound annual growth rate, less than a 7 percent worst drawdown, and a Sharpe ratio of 1.33"  

Here is a good short view -- and the takeaway is that the world is not ending btw -- of the McKinsey Report on lower expected returns inthe future compared to historically high returns of the last 30.  AbnormalReturns.com. "Forecasting the future is difficult for anyone, even the folks at McKinsey. That being said planning for a future of relatively muted returns does not hold a lot of downsides for the investor. A higher savings rate, an emphasis on low costs and a well though out portfolio will serve you well in the future. So if the future turns out brighter than expected you will be all that much farther ahead of the game." 

Indexing Moves Into Dangerous Waters, ThinkAdvisor.  "…indexing's most active proponents continue to argue that indexing will not become capacity constrained." 

The Conditions You’d Want Are Already Here. Josh Brown.  "Have we corrected through time, rather than through price, enough to spark the next leg higher for the bull?" [I find posts like this a little incautious but I guess I like the alternative point of view]

ALTERNATIVE RISK 

A Random Talk With BurtonMalkiel, THinkAdvisor.  "My sense is that the factors behind smart beta are not dependable. Where they may work, they undoubtedly involve more risk."   

3 Lessons From Hedge Funds’ Rise and (Partial) Fall, Morningstar. "…hedge funds face unprecedented questions about their worth."  

Hedge Funds Crowding Out Liquidity, CIO.  

LendingClub and the Question of Internal Hedge Funds, FinAlternatives. "A troubling hypothetical scenario is the possibility that a data advantaged platform would support one or more of its internal hedge funds competing for the same loans, while at the same time receiving funding from individuals, banks, credit unions, and independent funds to support its capital requirements." 

Citi Survey: Risk Premia Strategies Remain at Forefront ofInvestors' Agendas. FinAlternatives.  

Liquid Alternatives Build on Big March Gain, ThinkAdvisor.  

Love Affair With U.S.Low-Volatility ETFs Is Turning Torrid. BloombergView.  "Anxiety skyrocketing among investors as Fed decision looms." 

Factors Continue To Underperform, Greg Swenson. "Investors of late have been piling into the so-called “safe” corners of the market. Whether it happens in an up or down market, typically this type of crowding does not have a happy ending."  

Generating Alpha by Exploiting Market Anomalies, CFA Institute.  "Why do these anomalies persist? Berezin blamed deeply embedded institutional incentives and behavioral biases and concluded that rational thinkers could “exploit these anomalies in a meaningful and profitable manner.”  

Is Your Alternative Investment Doing What It Should BeDoing?, Attain Capital.  "In short – you shouldn’t underperform on the way up, AND underperform on the way down." 

SOCIETY AND CAPITAL

A Country Verging on Collapse: A ReadingList on Venezuela. Longreads.com.  [Comment: When I was a child in MN in the late 50s and early 60's I could not have placed Venezuela on a map.  Now at 57, living in Fort Lauderdale, Caracas (as a Venezuelan friend pointed out to me) is almost half the flight time from here than a flight to Minneapolis.  Also, I am now surrounded by a non-trivial number of Vz expats that have tried to escape from a failing society.  When my children ask me about various flavors of politics, what they mean, and what happens when they get implemented in the real world I point to Vz for at least one example. It's a pretty sad story. Capitalism may have its pros and cons but nobody wants this.]

Water, Water Still Is Scarce, Except for California'sRich. The Atlantic. "A study from University of California, Los Angeles, found the city’s wealthy regularly use three times as much water as the less-affluent, but the “Wet Prince” took this to an absurdity. This single homeowner consumed 11.8 million gallons of water in one year. That’s enough for 90 homes. Bel-Air is in the Los Angeles water district, so while the rest of the city tightened its taps, or even looked to Australia for water-cutting techniques, the Wet Prince seemed to have turned up every faucet." 

Rising Tuition Discount Rates at Private Colleges, Conversable Economist. "…the level financial help a student receives as a freshman, when making a choice between colleges, is going to be more than the financial help received in later years. Beware!" 

Money Doesn't Buy as Long a Life as It Used To, BloombergView.com "…among young people in particular, mortality has been falling a lot faster in poor areas than in rich ones…One reason for that decline is what Currie and Schwandt call “stunning” reductions in mortality rates for young African-Americans between 1990 and 2010, especially among black men. And because good health in childhood predicts good health in adulthood, we are likely to see significant declines in mortality as today’s young people age." 

How the West (and the Rest) Got Rich, Deirdre N. Mccloskey, WSJ.  "As Matt Ridley put it in his book “The Rational Optimist” (2010), what happened over the past two centuries is that “ideas started having sex.”" 

The High Cost of Ultralow Interest Rates, WSJ. "These policies are toxic for financial stability. They force retired people to curtail spending and discourage the young from saving for retirement. They force people into making risky investments and don’t stimulate economic growth. Worse, they gradually undermine personal responsibility and ensure that future generations are more dependent on government programs." 

Quits are Recovering, Federal Reserve of St. Louis. "“Quits” are a very good sign for the economy. In principle, a worker quits a job only if she has a better offer elsewhere or has a strong belief she can find another job relatively easily. Also, the threat of quitting puts upward pressure on the wages of the currently employed because firms have to compete to keep the best workers." 

Venmo Is Turning Our Friends Into Petty Jerks, QZ.com.  "One Venmo user told me that a co-worker had invited her to coffee, only to request $3.79 in reimbursement afterward. Another said her roommate charged her $3.32 for a shared garden rake. “When he moves, am I supposed to ask for my $3 back?” she asked. “Venmo is making everyone stingy and strange.” 

How Return Assumptions Affect Investor Behavior, Awealthofcommonsense.com.  "Effectively, many of these pensions are making return assumptions based not on reasonable market return expectations, but based on their current or future spending needs and their willingness (or lack-thereof) to put in additional funds. The higher the assumed rate of return, the lower the value of the liabilities and thus the less money they have to put into the fund each year through contributions. Eventually this will catch up with those plans that are under-funded and have lofty return expectations." 

Is Going Into Finance Good for Society? TheAtlantic. "In the fallout from the Great Recession, it’s been commonplace to vilify those working in the financial-services industry. But Goetzmann argues that finance is a worthwhile endeavor, beyond just earning a ton of money: Its innovations have made the growth of human civilization possible." 

Urban Living Becomes a Luxury Good, Bloomberg. "…urban life is becoming a luxury good in much of the U.S., in part because there isn’t enough of it to go around…Urban housing and office space are likely to remain scarce, and the U.S. will stay a majority-suburban nation for many years to come." 

How to Fail Well, Fool.com  "Asked about the Fire Phone last week in an interview last week, Amazon CEO Jeff Bezos said: "If you think that's a big failure, we're working on much bigger failures right now. I am not kidding. Some of them are going to make the Fire Phone look like a tiny little blip." 

Mickey Mouse is getting out of the currency business. USA Today. "Walt Disney (DIS) this month announced it would no longer publish and sell its own currency: The Disney dollar." 

A senseless subsidy, The Economist.  "Most Western economies sweeten the cost of borrowing. That is a bad idea" 

Why Trade? The Social Function of Markets. Medium.com.  "the market is the voting mechanism with which we decide what resources will go to reusable rockets and what will go to diaper fasteners."