Weekend Reads for Financial Advisers: Neuroscience, Gold, and Martin Scorsese
If you think CFA charter holders are a boring lot, here is one piece of video evidence to the contrary: “Volatility at World’s End: Two Decades of Movement in Markets.”
The credit for “concept and creative direction” goes to — the envelope, please — Christopher Cole, CFA, managing partner at Artemis Capital Management. (The video was first shown in conjunction with Cole’s speech at the 2012 Global Derivatives and Risk Management Conference in Barcelona, Spain.)
Now on to some interesting reads you may have missed.
Behavioral Finance/Neuroscience
- In a recent blog post, my colleague Jason Voss, CFA, noted that “behavioral finance offers few prescriptions for how to combat the cognitive errors that it so adroitly points out, leaving many ungrateful for having their foolishness pointed out to them.” Which is why conference sessions that offer practical solutions are so helpful. Enter Sian Beilock, from the University of Chicago, a speaker at the recent 2013 Financial Analysts Seminar. Beilock authored Choke: What the Secrets of the Brain Reveal about Getting It Right When You Have To, which Voss points out “is expressly written to provide solutions for the harried professional who must make high-stakes decisions under pressure.” Here is his excellent post based on her session: “High-Stakes Decision Making: How Neuroscience Rescues Behavioral Finance.” (Enterprising Investor)
- “The End of Neuro-Nonsense: Is the Age of Mindless Brain Research Already Over?” (Slate)
- New research shows that while crowds may be smart when it comes to making tough, close calls (think “wisdom of the crowd”), they are not so smart when it comes to choosing between two options, one of which is vastly superior to the other. Ok, yes, the study was performed on ants, but researchers point out there are human parallels for certain circumstances. Here’s one most of us can relate to from “The Stupidity of the Crowd“: “I went to buy something on Amazon, and I was supposed to compare options and features and cost. But what I did instead was just buy the most popular thing.” (The Atlantic)
Investing/Risk Management
- @trengriffin shares a dozen things he has learned about investing from George Soros and Howard Marks. (25iq)
- “Probability and the Precautionary Principle: Could Science Learn from Finance” (Magic, Maths and Money)
- “Where Do Thin Tails Come from?” — a July 2013 working paper by Nassim Nicholas Taleb. (Cornell University Library)
Gold
- “Dylan Grice on the Intrinsic Value of Gold, And How Not to Be a Turkey” (Zero Hedge)
- In “Budging (Just a Little) on Investing in Gold,” Greg Mankiw starts by asking: “SHOULD gold be a part of my portfolio?” And concludes with this: “In the end, I abandoned my initial aversion to holding gold. A small sliver, such as the 2 percent weight in the world market portfolio, now makes sense to me as part of a long-term investment strategy.” (The New York Times)
- Mankiw also penned a short blog post: “On Au.” (Greg Manikaw’s Blog)
- This prompted Josh Brown, a.k.a @ReformedBroker, to pen a post on portfolio construction and gold, and cc: Mankiw in the headline. (The Reformed Broker)
- Ditto for John H. Cochrane who blogged about “two basic mistakes” in Mankiw’s analysis. (The Grumpy Economist)
- Which in turn prompted @Noahpinion to write a piece titled: “What is the Payoff Structure of Gold?” (Noahpinion)
Energy
- “Electricity Market Rules Did Not Provide a Worthy Opponent for JPMorgan’s Brainpower” (Dealbreaker)
The Financial Crisis
- How the executives who brought down Bear Stearns bounced back. (Mother Jones)
- Phillip Swagel, a professor at the School of Public Policy at the University of Maryland and former assistant secretary for economic policy at the Treasury Department from 2006 to 2009, has compiled a nicely curated list of books on the financial crisis. (Economix)
Practice Management
- A recent study apparently found that 44% of advisors are over age 55. Which wouldn’t be so bad if it wasn’t for the fact that so are many of their clients. What this means is that the financial industry is at a “generational crossroads,” writes Johann Snider, program director of capital market insights for Russell Investments. While this “trend represents a great concentration of wisdom, life experience and wealth” it also “represents a risk: at a certain point, the firm’s future profitability and growth potential is hampered by older clients impacting the revenue that the advisor may eventually be able to generate.” What can you do about this for your own firm? For starters, read Snider’s post: “The Perils of an Aging Book.” (Helping Advisors Blog)
- In the wake of the Supreme Court’s historic rulings on gay marriage, legally married same-sex couples are now entitled to the same federal benefits as their straight counterparts. Married gay couples can file joint federal income taxes for the first time, and as spouses they won’t have to pay inheritance taxes when one partner dies. But as a recent Associated Press article notes, “the decision still leaves a lot of unanswered questions. What do couples who move to states that don’t recognize gay marriage do? Can they file taxes jointly? (Thirteen states — California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont and Washington — and the District of Columbia allow same-sex marriage.)” Gay married couples will be checking in with their financial advisers. For an overview of the impact of the Supreme Court’s decision to strike down the Defense of Marriage Act (DOMA); a preliminary checklist of areas to address with same-sex clients; and a list of additional resources, see: “Financial Planning for Same-Sex Married Couples.” (Tom Tillery’s blog)
- Here’s something that many professionals wrestle with: email overload. And as a recent NPR story points out: “In the high-profile civil case against Wall Street titan Steven Cohen, federal authorities accuse the hedge fund head of allowing insider trading within his ranks. Cohen’s lawyers offered up a defense fit for the digital age: They claim he didn’t see a key, incriminating email because he gets too many messages — an estimated 1,000 a day, and opens only 11 percent of them.” That got the journalists at All Tech Considered wondering “about the people who probably get much more email than the rest of us — CEOs and entrepreneurs — and their systems for managing their inboxes.” For some ideas, read or listen to: “The Reply To Email Overload? Prioritize — Or Turn It Off.” (NPR)
Retirement
- “The Power of Diversification and Safe Withdrawal Rates” (Advisor Perspectives)
- CFA Institute recently released an audio webcast in which D. Don Ezra, coauthor of The Retirement Plan Solution: The Reinvention of Defined Contribution, discusses the decumulation phase of the financial life-cycle and explains a dynamic yet basic approach to asset allocation and investment strategy: “Protecting The Boomers? Savings from Going Bust: What Advisors are Missing During the Decumulation Phase.” (CFA Institute)
- BlackRock (BLK) launched a new index the firm says will help savers calculate how much they need to have saved in order to generate a specific lifetime income starting at age 65. (Wall Street Journal)
- “7 Things Clients Must Know to Stay Solvent in Retirement: Evensky“(ThinkAdvisor)
Philanthropy
- Peter Buffett, son of Warren Buffett, published an op-ed in the New York Times that railed against the state of philanthropy, saying there is “a crisis of imagination” and many donors are guilty of “conscience laundering.” See: “The Charitable-Industrial Complex.”
- As one would expect, the op-ed unleashed a torrent of critiques, including “The So-Called Charitable-Industrial Complex” by Matthew Bishop, US business editor and New York bureau chief of The Economist (Philanthrocapitalism); “Responding to Peter Buffett’s Call to Arms: Can Philanthropy Raise More Risk Capital?” by Tom Watson (Forbes); and “What Peter Buffett Gets Wrong about Philanthropy” by Howard Husock. (Forbes)
- And for some insight into the philosophy of America’s most famous philanthropist, see:
Andrew Carnegie, ruthless industrialist and grand philanthropist. Great profile of a complicated man. http://t.co/26NTrxYCRk via @nprnews
— Jennifer R. Curry (@JenRCurry) August 1, 2013
And Now For Something Completely Different
- The influence of Pythagoras on baseball: “Rays’ Sudden Rise Supports Thinking Inside the Triangle.” (New York Times)
- On what drove Hervé le Gallou to base jump, and the price he paid: “‘It’s More Like a Suicide Than a Sport’.” (New York Times)
- Also, if you are interested in extreme sports, you may enjoy viewing the 20 most inspiring entries in Red Bull’s epic photo contest. (My Modern Met)
- Print is dead, long live print! “E-Book vs P-Book” (The New Yorker)
- And last, but certainly not least, Martin Scorsese on the magic that is the movies: “The Persisting Vision: Reading the Language of Cinema.” (The New York Review of Books)
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
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