money jungle

Ben Stein on Life, Happiness, and Index Funds

Posted in ben stein, index funds by moneyjungle on October 14, 2007

This week’s Ben Stein column contains some sage advice on life and investing, as well as a few picks for low-cost index funds:

  • FSTVX — Fidelity Spartan Total Market Index, which tracks the Wilshire 5000
  • EEM — iShares MSCI Emerging Markets ETF, a developing countries ERF
  • EFA — iShares MSCI EAFE Index Fund, an Asia-focused ETF

Why am I such a big Ben Stein fan? His columns, of course. But also his byline: he bills himself as a “lawyer, writer, actor, and economist.” You could spend a lifetime working to (credibly) call yourself a member of any one of those professions, let alone master them. He does all four. In an age of incredibly competitive, specialized careers, I find this comforting and inspiring. 

Feature Request

Posted in features by moneyjungle on October 14, 2007

I use Ameritrade and don’t like its Portfolio management functionality all that much. In order to better track my performance, I would like a view of all my current holdings and past trades with the following: absolute return, percentage return, and annualized return.

I think the analyzed return is the key piece, particularly the ability to compare it with a number of indexes, perhaps over time.

Slowly but Surely…

Posted in GOOG, MSFT by moneyjungle on October 14, 2007

I am becoming a big fan of Google Documents. I have been using it for my business school essays and recently started using the spreadsheet to keep track of my running.

Since it is web-based, the software can be updated regularly. Two important new features that caught my attention were the addition of excel-style shortcuts to navigate through cells (e.g. ctrl-up, ctrl-down), and the ability to auto-sum highlighted cells, at the bottom left of the screen.

Over time, these incremental improvements add up, until some time in the future, the product will equal Microsoft Excel, but at a much lower price. This phenomena is exactly what Clayton Christensen describes in the Innovator’s Dilemma.

Blowing Up — The Postscript

Posted in nassim-nicholas-taleb, niederhoffer, nnt by moneyjungle on October 14, 2007

Like many people, Nicholas Nassim Taleb first came to my attention via Malcom Gladwell’s 2002 New Yorker profile, “Blowing Up“. The article, written shortly after the release of Fooled By Randomness, illustrated Taleb’s contrarian investing strategy by way of contrast to Victor Niederhoffer’s:

“Niederhoffer, like Buffett and Soros, was a brilliant man. He had a Ph.D. in economics from the University of Chicago. He had pioneered the idea that through close mathematical analysis of patterns in the market an investor could identify profitable anomalies. But who was to say that he wasn’t one of those lucky nine? And who was to say that in the eleventh year Niederhoffer would be one of the unlucky ones, who suddenly lost it all, who suddenly, as they say on Wall Street, “blew up”?”

And, as Gladwell goes on to write, their disagreement was more than conceptual:

The distinction between these two sides is the divide that emerged between Taleb and Niederhoffer all those years ago in Connecticut. Niederhoffer’s hero is the nineteenth-century scientist Francis Galton. Niederhoffer called his eldest daughter Galt, and there is a full-length portrait of Galton in his library. Galton was a statistician and a social scientist (and a geneticist and a meteorologist), and if he was your hero you believed that by marshalling empirical evidence, by aggregating data points, you could learn whatever it was you needed to know. Taleb’s hero, on the other hand, is Karl Popper, who said that you could not know with any certainty that a proposition was true; you could only know that it was not true. Taleb makes much of what he learned from Niederhoffer, but Niederhoffer insists that his example was wasted on Taleb. “In one of his cases, Rumpole of the Bailey talked about being tried by the bishop who doesn’t believe in God,” Niederhoffer says. “Nassim is the empiricist who doesn’t believe in empiricism.” What is it that you claim to learn from experience, if you believe that experience cannot be trusted? Today, Niederhoffer makes a lot of his money selling options, and more often than not the person who he sells those options to is Nassim Taleb. If one of them is up a dollar one day, in other words, that dollar is likely to have come from the other. The teacher and pupil have become predator and prey.

Well, it is almost five years later, and Niederhoffer is back in the New Yorker, this time in a piece by John Cassidy. The results are not good:

On Tuesday, July 24th, the Dow fell two hundred and twenty-six points. Two days later, it dropped three hundred and eleven points. Commentators on CNBC were making ominous pronouncements. I sent Niederhoffer an e-mail, saying that I hoped he had been well positioned for the market’s correction. He replied in three words: “I was not.” On Friday, July 27th, the Dow fell another two hundred points, closing four per cent down for the week. The markets were still volatile a week later, when Niederhoffer came into Manhattan for his monthly libertarian meeting. After it ended, we went across the street to a restaurant, where he ordered a cappuccino. He looked pale and haggard, and years older. For several minutes, we sat in silence. Then, in a low voice, he said, “Things have changed totally since we last spoke. The situation is fundamentally different. It is critical.” Kenner and Aubrey joined us, but Niederhoffer hardly seemed to notice them. “We are fighting for survival night and day,” he said when I pressed him for details. “I was caught wrong-footed in the market turbulence. I’m not as smart as I thought I was.”