Showing posts with label Book Reviews. Show all posts
Showing posts with label Book Reviews. Show all posts

Sunday, August 25, 2019

Understanding Wills and Estate Planning


As we don't yet have a will, I have been reading this book, which is a simple guide to this topic with plenty of examples. I now see that there is more to estate planning in Australia than I thought. There are no inheritance taxes in Australia, so I thought that "estate planning" wasn't a big deal here. But after reading the book I now see that you might want to design things to prevent various scenarios occurring, and yes there are some tax issues, and then there are all the issues of making sure your wishes are carried out.

For example, in the case of my mother, after she lost the ability to make decisions, we ended up being dictated to by the government about how we managed her money etc. We had to sell all her financial assets and reinvest them in an approved way. We had a power of attorney to act on her behalf, but crazily this became invalid when she most needed us to act on her behalf! This was because prior to 2017 apparently you couldn't have an enduring power of attorney in her country. So, it is important to set up an enduring power of attorney.

I aspire that my children will inherit in real terms at least as much as I inherited from my parents. Of course, we can't guarantee this as who knows what might happen to the economy etc. But we can try to prevent some adverse events happening. An example is if one of us dies and the other gets a new partner. Then they die and the partner inherits everything and decides to give none of the money in their will to our children.  Maybe because they have existing children and rewrite their will to include only them.... This kind of case is mentioned in the book but the solution isn't provided. On p58 it says that the survivor should see a lawyer before remarrying...

I am thinking the solution is to set up a testamentary trust on the death of the first spouse incorporating their share of the total assets. The beneficiaries would be the surviving spouse and the children. The surviving spouse will earn income from the trust during the remainder of their life after which the children will be the sole beneficiaries of the trust. So, clearly, we are going to need to discuss with a lawyer all of this.

Currently, if our nuclear family all died, it would be my mother-in-law who would inherit everything according to Australian law. I can't imagine she would handle that very well and given the large inheritance component from my parents, that hardly seems fair. So, we also need to have contingent inheritors to result in a more reasonable distribution of assets in that extreme case.

We also will need to think about who would be a guardian for our children if we both died. I can't really think of someone here in Australia that we would want to do this and who would agree to it as neither of us have relatives here. But it is something we are going to have to determine.

There are probably lots of things I still haven't considered but I think we are going to need to have rough ideas about all of these before meeting a lawyer. By the way, if anyone can recommend a lawyer that they have used, that would be great!

Sunday, July 15, 2018

Turtle Trading


I have been reading the Complete Turtle Trader, trying to get some inspiration. Back in the early 1980s, futures trader Richard Dennis hired a bunch of relative novices (some actually had trading experience) and taught them a trend-following method of trading. He then got them to trade some of his assets using the methods. The idea was to see if trading could be taught. During the next few years, many of them generated extraordinary returns, as documented in the book. Then the experiment ended after Dennis suffered major losses and shut his fund.

Some of the "turtles" went on to run their own investment firms. The star pupil seems to be Jerry Parker who founded Chesapeake Capital. However, subsequent performance has not really been that good.* The fund has underperformed the S&P 500 and has had about twice as much volatility. Taxes would be much higher on Chesapeake's strategy than on buying and holding the index. Why does voltatility matter? Because I could have used leverage to invest in the S&P 500, increasing volatility to the level of the Chesapeake Capital fund, but increasing returns far beyond its returns.

This doesn't encourage me to adopt a long-term trend following strategy. The assumption of this kind of model is that the future is entirely unpredictable... Eckhardt is cited in the book as saying that random entry into a trade is just as good as long as you follow exit rules. That's true about most momentum trading strategies I think.

It's notable that none of these turtle related firms are very big in terms of assets under management.

* The "LV" fund performed better but still underperformed the S&P 500 on a risk adjusted basis. Salem Abraham's – described as a "second-generation turtle" in the book – fund has gone nowhere in the last ten years.


Tuesday, June 02, 2009

Another Review of Taleb



I wrote a very short review of "The Black Swan" a little while ago. Here is a good but very long review of Nicholas Nassim Taleb. A summary would be: "Taleb is unoriginal when right, otherwise wrong (especially about option pricing), and a dilettante/crank".

Monday, March 16, 2009

Book Review: Tim Ferriss - "The 4-Hour Work Week"


Snork-Maiden somehow convinced her employer to buy this book for their library :) I have mixed reactions. It's not one of these books that just drearily pads out a single idea in to book length format like Zilliak and McCloskey. So that's good.

1. I'm all for the don't defer life approach. Instead try to make money at something you like to do anyway and have fun doing it. That's pretty much what I've done most of my life as much as I can, so no problems with the basic premise.

2. Then there is stuff on focusing and cutting out useless or less useful work. This is good in principle.

3. "Low Information Diet". Taleb also says he doesn't read newspapers. This is a non-starter for an economist like me who is expected to have an opinion on what is happening in the political and economic spheres. Well anyway I enjoy reading news and opinion. I occasionally read fiction but prefer to read current affairs stuff for fun. I'm a social scientist. But there is another problem with it which also features in the next item...

4. "Interrupting Interruption and the Art of Refusal". It's certainly good to think about how to streamline routine interactions with people. But if you did half of what Ferriss suggests you'd come across as a total jerk who I wouldn't want to do business with. People who seem to have no interest in anyone else. And, though many meetings and interactions are a waste of time, you never know what might happen just as you never know what you might read that might be useful and give you a great idea. In other words, you need to be open and receptive to "positive Black Swans" not be some narrow-minded overplanning idiot.

Of course, what works for you will depend on what your personality type is. In the Myers Briggs system I guess that Ferris is an INTJ - Introverted, intuitive (but could be S sensing), thinking, judging. Certainly not an E-P (extroverted, perceiving) type who is open to learning and adapting to experience. Well, that's the impression his book gives.

5. The core of the book is very detailed information about setting up an internet based business which looks like it would be very useful for someone who wants to do that. It's never interested me enough to want to do it. So this section eventually got me rather bored and skimming through. My life has been based around being an employee who is least like an employee. The ultimate job I found was being a research only academic. In many ways that is great on the other hand I found myself getting stressed out worrying about how I could justify myself receiving money from the government as salary at times when my research wasn't going well. But that's because I am very conscientious. For someone like Ferriss who is willing to pretty much cheat to achieve his goals (i.e. his method of dehydrating to get into a very low weight class in Chinese kick-boxing and then inflating up again before the fight) it wouldn't be a problem. Being a trader also sounded cool but turned out to be hugely anxiety producing and not suited to my personality really.

6. The final part is all about planning travel and international relocation. I'm pretty much an expert at the latter so I skimmed pretty fast through this bit.

Don't get me wrong, there's lots of good stuff in all the chapters but don't think you should implement all of it and not all of it might be for you. I think my opinions differ because Ferris can't really imagine making money from doing what he wants to do anyway. So he is still in the mode of work is separate from life and you should compartmentalize. That's not at all where I'm coming from.

Tuesday, March 10, 2009

Book Reviews: Gladwell


I read Blink by Malcolm Gladwell. While it is a good read I found it rather frustrating. I agree totally with the tone of the Wikipedia article. I guess it is too journalistic and not analytical enough. Sometimes making intuitive judgments is good and sometimes it is not. Some people are born with the abilities to make them and other times they can train to have those abilities. Well, the real world is messy I suppose but Gladwell doesn't make it much more tidy.

Next I tried to read "The Tipping Point". After reading about people who are "Connectors", "Mavens", and "Salesmen" I quickly got bored and gave up on reading. Maybe it is just too culturally specific to the US (where I lived ten years so other non-Americans would be really alienated). Very lengthy examples are Paul Revere, Sesame Street etc. It really didn't seem to be about how small things make a big difference as it is subtitled but about how social networks work. It really wasn't about "tipping points" at all as I would understand the term.

Next I've started Tim Flannery's "The Weather Makers"...

Wednesday, March 04, 2009

Book Reviews: Zilliak and McCloskey and Taleb



Snork Maiden brought home borrowed copies of Ziliak and McCloskey's "Cult of Statistical Signficance" and Taleb's "The Black Swan". in a way both are rants against standard practice in quantitative analysis. But Taleb's book is ten times better or more than Ziliak and McCloskey's. The latter have a single point that researchers often misuse the concept of statistical significance and ignore the actual size of an effect or variable in favor of just stating that it is "significant" - which just means in statistics that there is a low probability that we think there is an effect when there is none (the probability of falsely rejecting a null hypothesis that is in fact true). Now many researchers write up ineffective discussions of what their research found or make fundamental mistakes in method. But it's not universal and the book never really explains key concepts such as what statistical significance is. It's just one huge rant against all the economists and statisticans that the author feels have oppressed them or their like-thinkers. It assumes we know these things and know the authors critique already (which I do as an economist). The statistician R. A. Fisher is the big villain of the story and Gosset the oppressed hero. But there is never any discussion of exactly what their contributions were.

By contrast, Taleb defines all the basic ideas he uses and has more than one idea. Not all are original of course. Many are commonplace in recent behavioral economics and in more general economics. And they are not esoteric ideas in economics. Winner takes all ideas are in Frank and Bernanke's introductry textbook that I used to teach from. There are notes for the sources at the end of the book. And yes he rants and raves against everyone he believes thinks incorrectly but he does it in an amusing way. I like to read him and didn't find him too annoying. Some people complain about his use of fiction, autobiography, and fictionalised autobiography alongside factual material. In this he reminds me of Robert Pirsig who embedded philosophical and autobiographical material in a story about a motorbike trip across America in "Zen and the Art of Motorcycle Maintenance". I don't have a problem with it. It makes the book much more readable than it would otherwise be.

Wednesday, July 23, 2008

Superannuation Handbook 2007-08



I just finished reading The Superannuation Handbook 2007-8 by Koken and Smith. It is a pretty comprehensive coverage of Australia's very complex superannuation or retirement system. I think my understanding of the system improved somewhat after completing the book, though it is still hard to keep all the facts and rules organized in my head.

Australia's superannuation system is complex for a number of reasons. First and foremost, governments have continually changed the rules while trying to grandfather in existing super investors in many cases. And there have been very significant recent changes. In the US, new rules have often meant the creation of new types of retirement account such as the Roth IRA or Roth 401k. In Australia there is only one type of account and all the various rules have been applied to that same account class. So we have pre-tax and post-tax money going into the same accounts, for example. In the US defined benefit pension schemes are an entirely separate beast to defined contribution retirement accounts. Not so in Australia.

Second, while the US does not tax money in retirement accounts Australia does (the US taxes payouts from accounts that had pre-tax contributions like the 401k). This I suppose is why self-managed superannuation accounts in Australia are subject to such a bureaucratic regulatory nightmare compared to IRA accounts in the US.

Third, there are several different age thresholds (55, 60, and 65) at which investors have different rights to access their super and varying taxation obligations if they do. In the US there is a single age threshold of 59 1/2, though you can access your money before then subject to tax and penalties (unless you do a 72t or annuity).

Fourth, eligibility for social security in the US does not depend on assets whether in retirement accounts or not. Access to the age pension and other benefits in Australia does depend on income and assets tests and sometimes it matters if the source is from super or not (but less than in the past).

Fifth, in Australia, how much tax you pay depends on how you take the money out of your super account - whether as a variety of different "income stream" products or as lump sums.

Well, there are probably more reasons that don't immediately come to my confused mind that result in the Australian system seeming more complex to me.

The book does an admirable good job of covering this very confusing topic. There are three points though which are somewhat weak. Not all terms are clearly defined. For example, the entry in the glossary just says that a "complying pension" complies with certain regulations. It'd be nice to spell out some of these more clearly.

Second, the authors often gloss over details and technicalities. Footnotes or appendices to chapters could cover these if they don't want to complicate the text further. For example, there is a rule that a low-income self-employed person cannot get a government co-contribution if their "business income" is less than 10% of their total income. In other words the rest of their income is from investments or superannuation etc. This is the kind of point that was glossed over that I wanted to get a straight picture on.

Third, there are plenty of worked examples in the text, but most of these only cover the first year of any investment program. In some cases they comment that the difference between investing in superannuation or outside superannuation isn't that big. But that's the result after only one year. The results of investing in superannuation or outside superannuation could look quite different in the long-term than in the short-term.

Bottom line, I'd recommend this book as a very solid background to the topic though you might need to consult the ATO website and other resources along the way.

Tuesday, May 13, 2008

Livermore and Niederhoffer



While on the topic of book reviews and risk, I recently read "The Education of a Speculator", Victor Niederhoffer's autobiography (up till 1996) and "Reminiscences of a Stock Operator", the story of Jesse Livermore (up till 1923). Both are, in my opinion, fascinating reading for those interested in the history of the financial markets and musings on how to trade and speculate. While trading is mostly about technicals - short-term supply and demand for securities - and investing is mostly about fundamentals in the long-term - speculation is about the combination of the two in the medium term. Both Niederhoffer and Livermore were very independent minded and both very successful for periods of time, punctuated by massive blowups. The problem is both cases was lack of risk control. Livermore traded individual stocks using 10% margin, which was allowed before the 1930s and tended to pyramid his positions up and up and then pile all the profits into another huge notional position. When eventually the markets turned against him he had his biggest position and especially as the markets were relatively illiquid at the best of times in the early 20th century selling quickly was hard and he suffered massive losses. Niederhoffer never used stops, used large positions and describes the familiar situation of praying that the market will vindicate you eventually as you lose more and more. He blew up one year after this book was published after a tremendously successful run. The problem: shorting large amounts of puts. As the article cited in the last sentence mentions, Berkshire Hathaway is also shorting puts. The difference, is that the amount is small relative to the net worth of Berkshire. Unless some catastrophe took Berkshire and the S&P down to less than 20% of their current value they won't be wiped out. The lesson is not to short more puts than you are happy to buy the stocks that you are obligating yourself to buy. Don't be too greedy.

Sunday, December 30, 2007

Trading in the Zone: Review

I've now read Trading in the Zone by Mark Douglas. There are lots of reviews that give the book high praise. My review sounds very critical, but probably this is because I am already aware of a lot of a lot of the issues covered in the book through reading trading blogs such as Brett Steenbarger's.

The author is a trading coach but not a psychologist. He is right on the mark in describing the emotions and thoughts traders have which damage their performance but one of the weak points of the book is any of his discussion of how the brain works or any other science for that matter. We read of beliefs being conscious of themselves, the law of conservation of energy applying to such beliefs etc. Other weak points is that the first ten or so chapters could be much condensed. He only really gets to the point in the final chapter: "Thinking Like a Trader". It would also be helpful to have far more examples of actual traders that Douglas has encountered who illustrate his points. There are very few such examples. I can only think of two off the top of my head. Instead there are pages and pages of the single example discussion about a hypothetical boy who is afraid of dogs.

One of the key parts of Douglas' prescriptions for successful trading is to have total confidence in your ability as a consistent trader. What he doesn't address is the real possibility that your trading system stops working in terms of giving you an edge due to temporary or permanent changes in market conditions. What do you do then? How do you know that the edge is gone?

On the plus side he is right about the nature of the markets and the problems traders face and what is necessary to trade in a consistently profitable fashion. There is really only one exercise in the final chapter aimed at changing the trader's thinking. This is of course a very important exercise. One insight I did get was into the nature of "self-sabotage". Douglas says that our belief that other activities are more important or valuable than trading causes us to get distracted and not pay attention to the market and then make mistakes and lose money. This might be especially true once you had made some money - you might think - "OK now I can get back to more important stuff that society values more highly" - and then your profits are lost.

Though my comments here are mostly critical, I'd still give this book 4 stars if I was doing an Amazon.com review. It would be especially valuable for people who have gotten started trading and are experiencing their first round of frustration with not being able to hold onto profits.

Tuesday, December 18, 2007

Trading in the Zone



I walked into town this afternoon and bought a copy of this book at Borders (yes we have them here too). Luckily there was a copy available. The book is in twelve libraries in Australia including one of the public libraries here in the ACT, checked out till 20th January. But I want to read it before then and at my leisure so I thought it was worth the investment. I'll report on what, if anything I learn. Most people seem to say it is one of the best books on trading.

Monday, February 19, 2007

Wealth Cycle Investing



Since Millionaire Artist wrote that Loral Langemeier's "Wealth Cycle Investing" was a very foreign in approach to her, I was intrigued to take a look for myself. I got a copy and have started reading it. Basically it seems to be about levering up your balance sheet and taking more risks and for people with zero or negative net worth starting a side business to generate some cash to invest. This isn't very unusual to me. I feel Langemeier is overexaggerating how different her approach is. But it is radically different to the advice given by the usual personal finance gurus like Suze Orman.

Like many such business investment oriented "gurus" she favors direct investment in income-producing assets rather than financial assets like stocks. But she does like origination of loans to other people. I don't see any neccessary inherent advantage in direct purchase of productive assets. Take for example Warren Buffett. He does get involved directly in the insurance business - this is where Berkshire's real business knowledge is. Otherwise they are investing insurance profits and float is other people's businesses. Even when Berkshire buys whole companies as subsidiaries they retain existing management in place. In fact that is a key Berkshire principle - investing in good managers. But Loral only seems to think that investing in stocks as a way to learn about businesses (which it is too). Why not invest with good managers?

In fact, good managers could be seen as part of the investor's "team". Langemeier emphasizes continually the importance of a team to investment and business success. And it is true that networking and extensive use of specialized professionals is going to be crucial to the kind of investing she favors. Investors like me network too - but mainly online. I don't yet use any professionals for the kind of investing I do. I rely on books written by professionals. I figure out my own taxes and figure out that at this stage I don't need an "entity" (guru self-help books often overemphasize the need for "entities" - filing Schedule C as a self-proprietor has many of the same advantages - but again they are going to be much more useful for direct investors than financial traders). Well in fact Langemeier does recommend investment in private equity. Her rationale seems to be that she is more likely to have direct access to management as a private equity investor. Given the minimum usual required investment in private equity and the need to diversify over a few deals, even if you could get in on a deal as a non-accredited investor it might not be a good idea. On the other hand if you are really an active participant then it is like investing in your own business and maybe is a risk worth taking?

Otherwise, her advice seems generally solid to me and she does discuss risk, but like Kiyosaki, and others I think overstates how appropriate this path is for most people. There is no inherent advantage in my opinion in investing in any particular class of asset or starting any type of business unless you have some aptitude or edge in that investment or business. If you lack the aptitude things can instead go very wrong. If you have no edges you want to be maximally diversified (actually, to her credit, Loral likes diversification). Her best client story, is based on Jed who was managing a small chain of bike stores but had a net worth below zero. Following his first investment of just $3000, Jed quickly manages to put together complicated real estate deals. I think his management experience helped him to do this. Understanding what your edge is is I think very important to business and investment success but rather under-discussed.

Sunday, September 03, 2006

Books on Tax for Traders

Just ordered a couple of books about tax for traders. The Tax Guide for Traders by Robert Green and The New Traders Tax Solution by Ted Tesser. This is definitely a topic I need to understand much better before taking my trading business to the next level. I know about several of the issues but am unclear how the following interact: 60/40 treatment of futures, mark-to-market accounting, trader tax status, self-employment tax. Well I know that mark-to-market accounting results in you not being allowed to use 60/40 treatment of futures. But I was reading that you still can claim trader tax status, and somewhere I read you can still avoid the self-employment tax. Need to get this all straight and also understand whether I should set up a business entity such as an LLC or S-Corporation.

Wednesday, March 08, 2006

Unexpected Returns



Received the copy of Unexpected Returns by Ed Easterling I ordered from Amazon and started reading. The book looks at longer term cycles in the stock market and the justification for hedge fund type investing instead of buy and hold. Buy and hold works in the long bull markets such as from 1982 to 2000 in the US, but maybe we are now in a protracted sideways bear period as occurred in the 1960s and 1970s and buy and hold could provide dividends and interest but little long term capital appreciation.