Weekend Links - 5/26/2017

QUOTE OF THE DAY

I’m convinced that having a long-term mindset and being more patient than other investors is one of the last true edges remaining in the markets. This is one of the few things that can never be arbitraged away by faster computing power or more intelligent hedge funds looking to make a quick buck. Ben Carlson 

CHART OF THE DAY

RETIREMENT FINANCE AND PLANNING

Why Retirees Cut Back on Spending: A Growing Pessimism, ItSeems, WSJ.  

The Mental Mistakes We Make With Retirement Spending. WSJ.  

The Relationship Between Guaranteed Income and SafeWithdrawal Rates, Mike Piper. In other words, holding all of the other variables constant, it’s reasonable for a person with a very high level of guaranteed income to spend from their portfolio at roughly three-times the rate of a person with a very low level of guaranteed income. 

The Impact of Guaranteed Income and Dynamic Withdrawals onSafe Initial Withdrawal Rates, David Blanchett.  Modeling dynamic withdrawals also affected safe initial withdrawal rates, although its impact was significantly less than that of guaranteed income, slightly less than return assumptions, but greater than the assumed portfolio asset allocation.

What Can the Retirement CARE Analysis Tell You About YourRetirement Plan? Pfau.  

Retrenchment Rule - Optimal Wealth Drawdowns. Gordon Pye 2012.   

A Pension Promise to Oneself, Sexauer and Siegel 2013 CFApubs.org.  What you and almost everybody else do have is the ability to make a pension promise to yourself that is the economic equivalent of the promise that an employer could make. With or without your employer’s assistance (it helps but isn’t really required), you also have the ability to deliver on that promise. You will make pension payments to yourself from the moment you retire until the end of your life or your spouse’s life, whichever comes later.  

Making Retirement Income Last A Lifetime, Sexauer, Peskin and Cassidy 2015, CFApubs.org.  To enable investors to spend down the assets in their defined contribution accounts more easily, the authors propose a decumulation benchmark comprising a laddered portfolio of TIPS for the first 20 years (consuming 88 percent of available capital) and a deferred life annuity purchased with the remaining 12 percent. This portfolio can be used directly by the investor (akin to indexing) or as a benchmark for evaluating the performance of a more aggressive strategy. 

5 Hot Tips For A Cool Retirement, Dan Solin.  It’s all about fees. 

The Ultimate Guide to Safe Withdrawal Rates – Part 15: More Thoughts on Sequence of Return Risk, earlyretirementnow.com  Low average returns are less of a problem than Sequence of Return Risk … What’s even worse than getting screwed over by SRR in retirement? Very simple: first you get screwed over by SRR while saving and then again while withdrawing money in retirement…you can’t hide from SRR…For retirement savers there is one sure-fire way to avoid missing out on strong equity returns early during the accumulation phase: Borrow against your future retirement account contributions and invest the whole loot as one big lump-sum payment without further contributions in the future…If this sounds too extreme to you, I’d have to agree.   

Mortgage Your Retirement, Ayres & Nalebuff 2005, Forbes.  

Sun Tzu or a Rubik's Cube? Dirk Cotton. My point is this. Retirement finance is a probabilities game. There is no set of rules that guarantees a successful outcome like the set of rules for solving a Rubik's Cube, even though both are complex problems. Retirement finance is more of a Sun Tzu thing.

Are You Being Too Frugal in Retirement? The Actuarial Budget Benchmark Can Help You Decide, Ken Steiner.  

MARKETS AND INVESTING 

Maybe Buybacks Are Actually Kinda Dumb, dealbreaker.com.  “Everyone’s been programmed now for a generation to believe in buybacks,” Alsin says. “The problem is the correlation isn’t working now, and it won’t work in the long term. It’s short-term thinking and it can’t continue…We’re not long companies that do buybacks.” 

Why Value Stocks Have Disappointed, Morningstar.  

Not So Dumb, Jonathan Clements. It’s One Of Wall Street’s more galling rituals: its regular dismissal of everyday investors as stupid. They’re the “dumb money” you should watch so you know what not to buy—the sheep that the “smart money” regularly fleeces…this focus on smart and dumb money ignores an alternative explanation: Even if investors aren’t rational as judged by classical economics, their behavior can make sense if we consider what they’re aiming to achieve with their money. 

ALTERNATIVE RISK

Beat Robo-Advisors At Their Own Game With Rules-BasedInvesting, Nasdaq. What does the data show? That applying quantitative factors consistently over time is the key to success. While it’s certainly true that past success is no guarantee of future performance, if the past eight decades are indicative of anything at all, it’s that, when it comes to investing, consistent, rules-based investment decisions far outshine human intuition. 

Managed futures - the intersection between Kahneman andKlein, mrzepczynski.blogspot.  …managed futures managers implicitly take the best from each to form their strategy framework. From Kahneman, managed futures has a deep awareness for potential biases and uses rules to control risk and offset the natural tendency to sell winners and hold losers. From Klein, we see managed futures managers can be good natural decision-makers by using the patterns that are apparent in price activity. Trends happen and rules can be developed to exploit them.  

Factor Investing in the Corporate Bond Market, CFA Institute.  We offer empirical evidence that size, low-risk, value, and momentum factor portfolios generate economically meaningful and statistically significant alphas in the corporate bond market. 

Cliff Asness' Big Trend Following Fund Is Down 19% Since Its2015 Peak, Forbes.  “It’s a strategy that has struggled because it relies on trends in financial markets and the markets have been range bound and choppy in almost every asset class you look at,” says Morningstar analyst Tayfun Icten.  

SOCIETY AND CAPITAL

North Sea Wind Power Hub: A giant wind farm to power all ofnorth Europe, arstechnica.com, …we need the technologies that can deliver vast amounts of clean power with relatively stable output  

Cost of Health Insurance Isn't All About Fairness, Bloomberg.  Should women have to pay more for health insurance than men? That has been a critical question for opponents of Republican health-care reform, and it requires grappling with the fundamental nature of insurance, market prices and fairness. Related are questions about how much older people should pay relative to the young, or to what extent individuals with pre-existing conditions should be vulnerable to higher premiums.    …     For all the moral arguments against differential pricing, health-care reforms must be politically sustainable, too. 

Virtue is its Own Reward: Or, One Man’s Ceiling is AnotherMan’s Floor, Cliff Asness.  Frankly, it sucks that the virtuous have to accept a lower expected return to do good, and perhaps sucks even more that they have to accept the sinful getting a higher one.  Well, embrace the suck as without it there is no effect on the world, no good deed done at all. Perhaps this necessary sacrifice is why it’s called “virtue.” 

Rising Job Tenure and Its Tradeoffs, Tim Taylor.  But overall, the picture that emerges is that job tenure rates aren't up because of workers who are more productively  matched to stable jobs. Instead, job tenure rates are up from a combination of a less dynamic economy and a less fluid labor market, combined with a Great Recession that caused more workers to cling to the job they had.  

Vanguard's Irritating Perch on the Moral High Ground, Bloomberg.  There isn’t anything really unusual about Vanguard. If you’ve ever taken a business strategy course, it’s just a low-cost producer, no different than Wal-Mart in retail or Hyundai in autos or Old Navy in apparel. Vanguard’s founder, Jack Bogle, even once wrote a book about how people should make less money, but Vanguard employees make plenty of money, otherwise they wouldn’t work there. What’s irritating about Vanguard is not its corporate strategy, but its occupation of the moral high ground.  

Cochrane on two new housing papers, johnhcochrane.blogspot.  " Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009." … Half of all US growth for a half century is an astounding amount… OK, maybe that's too huge. Well, read the paper and see how they came up with the number…  

GDP per capita vs Self-reported Life Satisfaction, 2014.  Our World in Data.  

Women’s Earnings As A % Of Men’s Earnings. Metric maps data visualization for the US.  

The Growing Skill Divide in the U.S. Labor Market, St. Louis Fed.  This difference results in a polarization in the labor market, between skilled employees capable of performing the challenging tasks in the cognitive nonroutine occupations and entry-level employees that are physically strong enough to perform the manual nonroutine tasks. 

Increased Pension Funding Comes at Expense of Higher Education, ai-cio.com.  The report attributed the imbalance to the strong legal protection afforded to pension funds that educational institutions are not entitled to. It said that as a result, altering benefit levels for existing employees or those already retired is “difficult, if not impossible,” while the same is not true for public colleges or universities. 

The Retirement Gender Gap: Saving, Risk, and Guaranteed Income, Susan Hoover at CFA institute.  “The National Institute on Retirement Security (NIRS) released a report [in 2016] with a startling finding: ‘Across all age groups, women had substantially less income in retirement than men,’ and were 80% more likely to be impoverished during their so-called ‘golden years.’ As they aged, the situation worsened: Women between 75 and 79 were three times as likely to fall into poverty than their male counterparts.”