Monday, March 23, 2015

TurboTax vrs H&R Block

It is tax season again and as in prior years I have been using TurboTax (published by Intuit) to do my taxes. A friend was visiting with a similar H&R Block tax program so I decided to compare the two programs. This proved somewhat painful as although the H&R Block program is able to import TurboTax data from 2013 easily as best as I can tell there is no way to import the TurboTax data from 2014. So I had to enter all my 2014 data again. When I had done so the H&R Block program produced similar but not identical results. Some differences were due to the way the programs round to whole dollars. For example TurboTax sums up all my dividends received and then rounds while H&R Block rounds each entry before summing. This sort of thing makes a difference of a dollar or two here and there.

The biggest difference was in their handling of a state tax refund. These are taxable if they are for a year in which you had previously deducted state income taxes and received a tax benefit for doing so. I normally deduct my state income taxes and receive a benefit on my ordinary income tax for doing so. However since I am also subject to the alternative minimum tax (AMT) which does not allow deductions for state income taxes my tax benefit disappears once the AMT is added in. So my state income tax refunds are not taxable. It seems to me that given your prior year's return a tax program should be able to figure this out for you. But neither program handles does. As I have complained before TurboTax makes it quite complicated to exclude such tax refunds from income. H&R Block is better in that it is simpler to tell it that the refund is not taxable but you still have know that it isn't. Fortunately I know this from doing my tax returns by hand but many people won't and will end up paying extra taxes. Recently the Obamacare tax on investment income has added a new complication. Because this tax is on net investment income you are allowed to allocate and deduct a portion of your state income taxes paid from your gross investment income. But this means if you later receive a state tax refund you deducted too much and are required to adjust your investment income in the current year appropriately to compensate. TurboTax (given your prior year's return) helpfully figures all this out for you and automatically computes the appropriate value. H&R Block just gives you an opportunity to enter an adjustment but provides no useful help in determining when such an adjustment is needed or how to compute it. Given that the Obamacare tax started last year so that this is the first year that this adjustment may be needed I expect most H&R Block users will have no idea about what to do and will just assume this doesn't apply to them (which is what I did). Even if a user did realize an adjustment is needed they would have to compute it by hand which is the sort of thing people buy tax software to avoid. So TurboTax definitely wins here. In fairness to H&R Block both companies have a range of programs of varying cost and capacities and possibly a more expensive version of the H&R Block program would have handled this.

Overall this H&R Block program seemed similar but a bit inferior to TurboTax. So given my familiarity with TurboTax I see no compelling reason to switch.

Sunday, March 1, 2015

Book Review

I recently read "The 5 Mistakes Every Investor Makes and how to Avoid Them" a 2014 book by Peter Mallouk. The book makes the case for a mostly buy and hold investment strategy using stock and bond index funds. This is reasonable but the arguments for it are familiar to me so I didn't find the book too exciting. The book assumes a certain basic familiarity with the financial markets, if the investing world is completely foreign to you this book would not be a good introduction.

Mallouk is an investment advisor and the book reads like an extended client pitch. It is good about ways to identify and avoid bad advisors, perhaps less good about how to decide whether you need an advisor at all and what constitutes a reasonable fee. The new robo-advisers (which offer automated advice from computer programs) are not discussed at all.

I would sum up Mallouk's advice about mistakes to avoid as 1) Don't try to time the market, 2) Don't try to pick individual securities, 3) Take the long view, 4) Be wary of biased advice and 5) Don't ignore taxes. (This merges two mistakes in Mallouk's list and adds another). This seems generally sound (although I personally don't follow it 100%).

I think Mallouk slightly overstates the case for stocks, although probably a good bet they aren't really a sure thing even in the long run. People pitching stocks generally reference the historical performance of the US stock market. As the US market has always recovered from setbacks to reach new highs this gives an optimistic outlook. But looking at foreign markets gives a more mixed picture. The Japanese market for example is currently at about 1/2 the level of its 1989 high (I don't think this counts dividends but even so its performance has been dreadful). In particular I believe (contrary to Mallouk) that there is something to be said for cash as an asset class. Mallouk concedes that although bonds have a lower expected return than stocks they have a place in a portfolio to moderate volatility. But the same argument applies to cash which in turn has a lower return and is less volatile than bonds. Or to put it another way if going from 10% cash to 0% is a no-brainer (as Mallouk suggests) why not go further to -10% (buy on margin)? Clearly at some point (which will vary with the individual) the added expected return is not worth the added volatility. That said many individuals probably do have too much cash. Me for example although more because of laziness (I am paid in cash and it piles up in my bank account out of inertia) than because of any considered decision to hold cash. Perhaps a sixth mistake to avoid is laziness.

To sum up while I think the advice in this book is largely sound I am doubtful there is enough of it to make the book worth reading particularly if you are already familiar with it from other sources. Of course some people (possibly including myself) may need to hear the same advice repeatedly to get up enough motivation to actually act on it so perhaps this book will be helpful in that regard.

Sunday, February 15, 2015


The Nov/Dec 2014 issue of the MIT alumni magazine, Technology Review, had a long cover story on inequality, "Technology and Inequality", by editor David Rotman. While it isn't particularly surprisingly that MIT thinks more spending on education is the solution to all problems I nonetheless found it irritating in this instance. Misdiagnosing a real problem is harmful not just because it encourages spending on solutions that will not work but also because it discourages investigating solutions that might work.

The problem with the MIT article (and many similar ones) is that it correctly notes that people who have completed more levels of education tend to earn more money in their subsequent careers and then jumps to the almost certainly false conclusion that the additional years of schooling are why they are more valuable employees. It seems far more likely that some people have more natural academic ability than others and that the traits that make them good students also make them good employees. So the educational system is just identifying students who will make especially good employees. For the most part students who do poorly in school do so because they lack natural academic ability not because their schools are especially bad. There is confusion on this point because average academic ability varies widely between schools so some schools have lots of high ability students who do well and other schools have lots of low ability students who do poorly. It is natural to think that schools where most of the students are doing well must be far superior to schools where most of the students are doing poorly. But in the United States this is not the case, schools (within the range commonly found) make little difference. Move a poor student to a "good" school and they are likely to continue to do poorly, move a good student to a "poor" school and they are likely to continue to do well. Furthermore what differences do exist are predominantly due to peer effects, it is better to be surrounded by good students than by poor students. And of course it is not possible for everybody to have mostly high ability classmates.

One of the traits which helps you do well in schools is of course intelligence or IQ which the article doesn't mention at all. I do not find it surprising people with IQs of 115 do better in school and in their work careers than people with IQs of 85. But schools (in the US) have little effect on IQ and more spending on education cannot be expected to significantly reduce IQ differences and hence income inequality stemming from them.

Nor do I find it surprising that IQ is becoming more important in the job market. In 1920 there were over 25 million horses and mules in the US, by 1960 this number had fallen to slightly more than 3 million (see here). Pure muscle power used to be worth a lot in the economy, now not so much. There is a real issue here but more education isn't the solution.

Thursday, February 5, 2015

Super Bowl XLIX

I usually don't watch the Super Bowl but this year I did. It was quite entertaining. Especially if you were rooting for New England as I was.

Obviously Seattle's decision to pass on the critical play was debatable and it certainly didn't work out. But the level of criticism the Seattle coaches have received seems unreasonable. I doubt the claim that this was the worst play call in Super Bowl history. Instead it appears to me it was likely the unluckiest play call in Super Bowl history in terms of the actual effect of the play on Seattle's winning chances as compared to the expected effect. The level of vitriol does demonstrate why coaches are reluctant to go against the conventional wisdom. If they do and it doesn't work out they get crucified.

Tuesday, February 3, 2015

Portfolio Review

In 2014 my brokerage account increased in value by 12.17% (which breaks down to 9.69% from price increases and 2.48% from dividends).  This compares to a 13.44% return (11.38% price, 2.06% dividends) for VOO (Vanguard's S&P 500  ETF).  So my absolute performance was worse but my relative performance was better than in 2013.  I still lagged the market however.  As in 2013 this was primarily because I wasn't fully invested and secondarily because my stock and ETF picks underperformed.  Ironically while I bought 3 stocks during the year (dropping my cash position from 9.51% to 6.59%) they all lost money so I would have better off staying in cash.

Ensco PLC (ESV) which I bought early in the year was my worst performing stock with a total return of -33.92%.  I also bought two foreign banks near the end of the year,  Westpac Banking (WBK) a big Australian bank and Bank of Nova Scotia (BNS) a big Canadian bank.  They were both down at year's end, -3.45% and -1.38% respectively. 

I didn't make any other changes.  My existing positions tended to either significantly underperform or outperform.  In the underperforming group were my other energy picks, VDE, XOM and COP which had total returns of -9.97%, -5.98%  and 1.77% respectively.  Also underperforming were BBL (-26.88%), IBM (-12.20%), CAT (3.58%) and JPM (9.68%).  IBM continues to struggle so being forced to sell most of my position has worked out well so far.

VYM (13.38%) basically matched the market.

On the positive side my utilities outperformed in 2014.  ED was up 23.97% and PSEG was up 33.86%.  Similarly VNQ (another interest rate sensitive pick) was up 29.99%.  These positions had underperformed badly in 2013.  Two more solid outperformers were TGT (22.98%) and my other US bank WFC (23.72%).  Aetna (AET) my best position in 2013 continued to do well (up 30.82%).  My best performing stock in 2014 was Intel (INTC) with a total return of 43.29%.

Stock prices of course fluctuate however the dividend stream a diversified portfolio provides should be more stable and hopefully will increase over time.  In this regard my dividends (weighted by my initial 2014 positions) increased by 8.29% for 2014 versus 2013.

Thursday, January 29, 2015


I recently made several purchases from Amazon.  I didn't have a very positive customer experience.  On one purchase they offered me a $10 credit to sign up for their 'pay with points' program in which you can use credit card reward points to pay for Amazon products.  This isn't actually a bad idea as I have lots of reward points which I should do something with.  But when I signed up I didn't get the credit.  Amazon customer service did give me the credit when I complained but by that point I was so annoyed I had unsigned up.  So Amazon ended up paying me $10 not to sign up.  I also bought a TV.  Amazon claims to offer price protection on TVs, if they drop their price within 14 days you can get a credit for the difference.  But again I had to email customer service to actually get the credit although according to their help pages this should not be necessary.   On another item I was ready to buy but there was no buy button on the product page.  It showed up some time later but only after I had wasted considerable time.

A general complaint I have with Amazon is that if you get to the final page before buying and notice something wrong there doesn't seem to be an easy way to fix it.  At least I didn't see anything to do but abort and start over which is quite annoying if you had several items in your cart.  Another general complaint I have is about their numerous significant price changes (both up and down).  Perhaps these are somehow revenue maximizing (although I find that difficult to believe in some cases) but I wonder if they are properly accounting for how annoying this is.

My most recent purchase was TurboTax Deluxe 2014.  I ordered it Friday night (during a brief period when it was selling for under $40) and surprisingly it was delivered around noon on Sunday by the USPS much earlier the estimated arrival time.  This was kind of impressive but also seems sort of pointlessly expensive, why not just deliver it with the regular mail.

As for TurboTax, Intuit has annoyed a lot of people by removing a bunch of long standing features from the Deluxe version (in order to force upgrades to the much more expensive Premier version) but fortunately it appears I don't need any of them for my 2014 taxes.  I did have some trouble installing it and was worried when it first came up with the Basic version logo but this eventually changed to Deluxe and it seems to be working ok.

Wednesday, January 28, 2015

Snow Day

It appears that perhaps 6 inches of snow fell from Monday through Tuesday morning at my residence near Princeton, New Jersey. This is not nothing but is not at all unusual for a winter storm in this area and was nowhere near the alarming prior predictions. These predictions were bad enough to induce my employer to announce Monday evening that my work location was closed Tuesday. Perhaps this decision was a little premature but it is nice to get notice as early as possible.

It is not too surprising that the predictions of potentially record breaking snowfall totals did not materialize (at least not in New York City and areas south and west). For a record snowfall everything has to go just right (or wrong depending on your point of view) which means most potential record breakers will fall short.