Wednesday, January 13, 2016


The billion dollar Powerball jackpot lured me into buying a lotto ticket for the first time in my life. This proved pretty easy. There is a NJ lottery vendor near where I usually buy lunch. The tickets are sold by a machine. Despite the record jackpot there were no lines to speak of but it did take me a few minutes to figure out the process. I didn't win of course but I figure I easily got $2 worth of entertainment out of my ticket.

Saturday, January 9, 2016


Kevin Drum praises the rise of "they" as a third person singular gender neutral pronoun which is fine but he seems to think it should replace all uses of "he" or "she" which is bizarre. "They" is for use in cases where you don't wish to specify a gender. For a (purely hypothetical) example "one of my co-workers is cheating on their timesheets".

Saturday, December 26, 2015

Investment Mistakes

I recently read "Investment Mistakes Even Smart Investors Make and How to Avoid Them" a 2012 book by Larry E. Swedroe and RC Balaban. This book devotes a few pages each to a list of 77 investment mistakes. I found this format a bit disjointed and annoying. I read the book straight through perhaps it is more suitable for dipping into from time to time.

For the most part I found the advice in the book unobjectionable. It makes the case for using index funds and not trying to beat the market. This is good advice for most people but these days it has become a type of conventional wisdom that can be found in many books.

One point of disagreement I had concerns modern portfolio theory (MPT). In the MPT framework the markets are rational and the only way to increase your expected returns is to accept more risk, and not just any risk but non-diversifiable risk. MPT is elegant but it is doubtful that it is in total agreement with reality. In other words real markets probably aren't completely rational. But this book totally ignores that possibility and makes deductions based on MPT that depend on markets being rational. So for example mistake 22 (p. 70-74) which compares value and growth stocks deduces from the putative greater returns from value stocks that they must be riskier than growth stocks. The problem is empirically this doesn't appear to be the case. In my view to the extent that the excess returns from value stocks are real a more plausible explanation is that investors find (or found in the past) growth stocks more exciting and were willing pay a little more for them on that basis. Causing the more boring (and hence cheaper) value stocks to outperform a little. And of course as with any other market anomaly once it becomes widely known it is likely to go away.

So in summary I didn't really care for this book. In part this is because I have read a bunch of books with similar advice. So although I don't think the book is terrible I don't see any special reason to recommend it.

Saturday, October 10, 2015


I recently read Boomerang, a 2011 book by Michael Lewis based on magazine articles he wrote in 2009, 2010 and 2011. These articles looked at Iceland, Ireland, Greece, Germany and the United States in the aftermath of the financial crisis. I generally like Lewis as a writer and I found the book entertaining and a useful reminder that the excesses that led to the financial crisis were not confined to the United States.

In Iceland the problem was the banks. They grew extremely large (compared to the economy of Iceland) by making lots of bad loans around the world. The rapid growth should have been a red flag as credit worthy borrowers are a scarce resource that other banks will compete strongly for. This makes it hard for a bank to grow rapidly while maintaining high loan standards. Obviously there is less competition for bad credits so it is easier for a bank to grow rapidly if it makes a lot of low quality loans. But this generally doesn't work out too well in the long run.

In Ireland the problem was an amazing property and construction boom which Irish banks fueled with easy credit. When the bubble inevitably popped the banks became insolvent and would have failed had not the Irish government made a dubious and extremely costly decision to guarantee all their debt. In the US there is a lot of loose talk about taxpayer dollars bailing out the banks but in fact the government profited overall by supporting the banks (since as it turned out they were fundamentally sound). This was not the case in Ireland.

In Greece the problem (as least as related by Lewis) is that the Greek people individually and collectively are not credit worthy. So it was a big mistake to admit Greece to the Euro as this gave the false impression that Greece was credit worthy. So a lot of bad loans were made to Greece.

The German problem was a little different. Germany was saving more money than could be productively invested in Germany. So the German banks looked to invest abroad. Foreign investing can work out but you have to be careful you don't get stuck with a bunch of garbage the locals have sensibly passed on. The German banks failed to be adequately cautious thereby acquiring a lot of bad loans and a worldwide reputation for stupidity.

I thought the final chapter on the United States was the weakest in the book. Lewis discusses the financial problems of some state and local governments but in a big country like the United States there will always be some problems. Lewis doesn't really make the case that these problems threaten the country as a whole.

So in summary I can recommend the book as a good example of its genre.

Monday, June 8, 2015

Realizing Losses

Some people claim that if you own a stock whose market price falls below your purchase price you haven't actually lost money unless you sell the stock.  This is nonsense of course but what is true is that you can't write the loss off on your taxes unless you sell the stock.  So from a tax point of view it makes sense to periodically eliminate losing positions even if this requires you to acknowledge error. 

In this light last Friday I sold out my position in Ensco (ESV) a company which owns and leases out offshore oil drilling rigs.  I had bought this stock in March 2014 (at a price of about $48 per share).  In hindsight I was unduly influenced by the 6% yield (at the time) which should have been a warning sign.  I also was operating on the assumption that oil prices should be expected to rise over time and underestimated the risk of a price drop.  When the oil price did drop so did Ensco's dividend (cut by 80%) and stock price. 

I received about $24 per share when I sold.  So I lost about $24 per share or 50% of my original investment.  But by selling I will be able to write the loss off on my taxes (perhaps over several years).  I estimate this will result in a tax saving (federal and state together) of about 25% of the loss or $6 per share.  Which is better than nothing.

I have some more underwater (i.e. currently losing) stock positions but I let them be.  They weren't down as much and I have more faith in their future prospects.  The problem I see with Ensco is that new US shale oil may now (in large part) be cheaper to produce than new offshore oil.  In which case the demand for offshore drilling rigs will remain severely depressed indefinitely.  With predictably bad consequences for Ensco's profits and stock price.

Sunday, April 19, 2015

2014 Taxes

I got my income taxes done a little early this year.  I submitted the federal return electronically late on April 6 and mailed the state returns the next day.  My federal refund has already arrived, it showed up in my bank account April 15.  I was pleased of course but on reflection it could have been faster.  It should be immediately clear to the IRS that the return is legitimate (because it matches the 1099s and W2s reported to the IRS and is similar to my return for 2013 including having the same address and bank information) so in principle my refund could have arrived in just a couple of days.  However given the actual IRS system (which among other things appears to only issue refunds once a week) this was close to best case.  And I guess cutting this time down shouldn't really be a top priority for the IRS.

The IRS is much quicker than New York and New Jersey.  New York estimates 6 weeks and New Jersey 12 weeks which is consistent with my experience (except for New York in 2013 when I didn't get my refund until the end of August).  We will see how it goes this year.

Incidentally I intended to drop off my state returns at the post office on my way to work but drove right by and was a couple of miles past before remembering and turning around.  Not a big deal but it did leave me with a bit more understanding of how a parent could forget to drop a infant off at day care (as sometimes happens with tragic results).

Added May 1:  Both of my state refunds arrived quicker than usual this year.  My New Jersey refund check arrived in Wednesday's (4/29) mail and my New York refund check arrived in today's mail.  I can only speculate as to why things were faster than usual this year.  I have now filed several New Jersey returns maybe that reduces fraud concerns.  Also perhaps the fact that both refunds were on the small side.  Maybe filing a week early helped.  And I suppose it is theoretically possible the states have become more efficient.

Sunday, April 12, 2015

Blog Roll Switch

I have replaced educationrealist in my blog roll with West Hunter.  Educationrealist is a blog about teaching by a high school math teacher.  While I generally agree about the importance of innate cognitive ability (compared to other factors) in student achievement the fact is I am just not that interested in the details of teaching medium ability high school math classes.  West Hunter is a blog about human genetics (and other things) by two scientists (one of whom writes most of the posts) working in the field which I find more interesting.