Weekend Reads for Finance Pros: Fees, Buffett on Investing, and Hitting the “Reset Button”

I just returned from a week-long beach vacation. Bliss. What is it about walking barefoot in the sand, or listening to the sound of the ocean, or diving beneath crashing waves that helps us instantly hit the reset button?

My excuse is that I grew up in a surf town (Durban, South Africa) and then lived in Cape Town. But now it turns out there is scientific research behind why a beach holiday is good for your health. In his new book, Blue Mind, marine biologist Wallace J. Nichols contemplates questions such as: Why are we drawn to the ocean each summer? Why does being near water set our minds and bodies at ease? Looking at water, being around it or in it, apparently coaxes our brains into releasing happy chemicals such as dopamine, serotonin, and oxytocin. It’s no wonder I loved Luc Besson’s 1988 film The Big Blue.

With all this in mind, I’ll kick off this edition of Weekend Reads with a humorous reminder of life as we know it:

A modern take on Maslow's hierarchy of needs h/t @MarkMelin pic.twitter.com/BEuV3ds3bS

— Lauren Foster (@laurenfosternyc) August 12, 2014

Followed by some advice for understanding and managing stress: “How Successful People Stay Calm.” (SPOILER ALERT: one of the things they do is disconnect. Think: Beach holiday. No WiFi.)

Here are some other interesting articles from the past few weeks, in case you missed them.

Investing

• What makes Warren Buffett a great investor? Is it intelligence? Discipline? Or both? (Farnam Street)
• Speaking of Buffett, individual investors have been cutting back on cash in portfolios, the exact reverse of what the legendary investor has been doing at Berkshire Hathaway. Who do you think has got it right? (South China Morning Post)
• One more: “Warren Buffett’s First Investing Lesson” (The Reformed Broker)
• On knowing what stage of the bull market we are in: “The most intelligent investors are the ones that are willing to admit that there is no certainty with market cycles,” writes Ben Carlson. “The pundits, portfolio managers and financial advisors with the most certainty are usually the ones you should listen to the least. It’s impossible to know exactly when a market cycle will end because the pendulum can swing too far in either direction.” (A Wealth of Common Sense)
• “Seven Essential Steps in Portfolio Management” (Enterprising Investor)
• Beware the “home country” bias: “Globetrotting With Your Portfolio” (The Cordant Blog)
• A few facts about mutual funds that may (or may not) surprise you: Morningstar’s annual U.S. Mutual Fund Industry Stewardship Survey found that of the 7,700 mutual funds it tracks, only 910 (12%) had a personal investment by the fund manager of at least $1 million and a Barron’s article reported that almost 50% of mutual fund managers don’t invest in the fund that they manage. Meanwhile, the authors of a Financial Analysts Journal article on performance and manager tenure found that of 2,846 single manager stock mutual funds they studied from 1996 through 2005, only 195 (6.9%) had the same manager by year-end 2005. More than half of all fund managers were shown the door within the first three years and more than three quarters were fired within the first five years. What to do about this? How should we help educate investors about this? George Sisti, CFP, says the following disclaimer should appear in mutual fund advertisements: “Past performance is no guarantee of future returns. It is likely that the current fund manager has no money invested in the fund and will be fired for underperformance in the next three years.” (MarketWatch)
• Wise words from Jim O’Shaughnessy, author of four books on investing, including What Works on Wall Street: “Never Bet Against the US Stock Market Over the Long Term.” (Yahoo Finance)
• Beware the stories we tell ourselves: “Being gripped so tightly by a story you tell yourself about the world, especially a pessimistic one, is a dangerous way to make long-term investments.”

Great post from James Osborne @BasonAsset on the dangers of narratives – especially pessimistic ones #investing http://t.co/mD3g1YAUjW

— Robin Powell (@RobinJPowell) August 28, 2014

CAPE Ratio

• Robert Shiller has a new paper on using a revised CAPE ratio for the industrials, utilities, and railroads sectors. (NBER)
• Salil Mehta, CFA, weighs in with his blog post “CAPE and Math” (Statistical Ideas)
• In his article “Are Stock Prices Headed for a Fall?” Burton Malkiel, author of A Random Walk Down Wall Street, notes one camp argues that the market is dangerously overvalued (the CAPE ratio stands at over 25, well above its long-run average of about 15), while another group of forecasters is convinced stocks are reasonably valued. So who is correct? And what’s an investor to do? (Wall Street Journal)

Advisory Business, Robo-Advisers, Fees

• Can an algorithm be a fiduciary? As it turns out, yes. Human contact is not required. (Reuters)
• A new report recommends advisers reconsider fees and boost client experience in battle with robo-advisers. (Investment News)
• “How to Talk With Clients About Aging” (Financial Planning)
• “An Emerging Price War in the World of Investment Advice” (New York Times)
• “The investment fee wars continue to heat up as scale becomes more important than the actual size of the expenses,” says Ben Carlson in his post “The Unintended Consequences of Risk Avoidance.” He notes that “while fees are important over the long haul, investor behavior is much more important. “Investors need to make sure they aren’t sacrificing other areas of portfolio management in a push to only reduce fees. Lower investment fees are only one of the many risk management techniques needed for a successful portfolio.” (A Wealth of Common Sense)
• No love for advisers from Dilbert’s creator:

Laugh (and cry) pic.twitter.com/hbnPNMDivF via @dilbert_daily h/t @BankersUmbrella

— CFA Private Wealth (@CFAwealth) August 13, 2014

Retirement

• Rising life expectancy is nearly always considered a good thing. But as people live longer, the financial demands mount: “The Rising Challenge of Measuring and Managing Longevity Risk.” (Institutional Investor)
• “Determining the Optimal Fixed Annuity for Retirees: Immediate versus Deferred” (Journal of Financial Planning)
• “Healthy, Wealthy, and Wise: Retirement Planning Predicts Employee Health Improvements” (SSRN)
• Why do today what you can put off till tomorrow?

Retirement planning? No way —we're just a bunch of procrastinators http://t.co/spwRgOvEWX

— 🌴 (((Jim Pavia))) (@jimpavia) August 12, 2014

And Now For Something Completely Different

• “The Odd Work-Break Ratio That’s Great for Productivity” (Mashable)
• “Yes, Flexible Hours Ease Stress. But Is Everyone on Board?” (New York Times)
• “Afraid of Failure? Think Like a Scientist and Get Over It.” (Entrepreneur)
• If all the talk at the beginning of this post got you dreaming about a beach vacation, but you simply have no time to get away, escape with this relaxing video of a tropical beach with blue sky, white sand, lapping water, and a palm tree. You don’t even need to leave your desk.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/JLGutierrez