Friday Reading List – 2 August 2019

Support for minimum wage hikes, food stamps, passive indexing, and free trade. I’m kind of all over the place this week. Plus an engraving of Adam Smith wearing one of those cool wigs like a boss.

Portrait of Smith by John Kay, 1790
This guy knows the case for free trade!
Portrait of Smith by John Kay, 1790

Cognitive Bias Series: Confirmation Bias

This is Part 1 of a series of posts about various cognitive errors that lead to poor investment decisions. Part 1 deals with confirmation bias.

I know that most men—not only those considered clever, but even those who are very clever, and capable of understanding most difficult scientific, mathematical, or philosophic problems—can very seldom discern even the simplest and most obvious truth if it be such as to oblige them to admit the falsity of conclusions they have formed, perhaps with much difficulty—conclusions of which they are proud, which they have taught to others, and on which they have built their lives.

Tolstoy, What is Art, 1897

The average investor isn’t very good at it

The modern middle class investor beginning their retirement savings has full access to the same investments as the wealthiest and most sophisticated investors. Index funds and ETFs provide a cheap way to invest in the vast majority of global liquid assets. This has made the playing field for investing mostly flat, for the first time in history!

Despite this historically flat playing field, most investors don’t come anywhere close to a “market return”. Blackrock has compiled some data from 1997-2016 showing annual individual asset returns compared to the average investor:

investor underperformance
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Financial Articles I’m Reading This Week – 17 May 2019

Here are a few financial articles that I found interesting this week. Let me know if I missed some!

Stock Buybacks Aren’t Evil

I have read several articles over the past year that include some harsh criticism of corporate stock buybacks. Most include a version of the argument: “President Trump’s tax cuts went primarily to wealthy Americans and corporations. Corporations squandered this windfall with stock buybacks to pump up their own stock price.” This sentiment is a little off-the-mark, but I understand the impulse. So I wanted to take a minute to work out the details on why stock buybacks are not so bad.

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Cowen has Misled Us On AOC’s Marginal Tax Rate Idea

Tyler Cowen is my favorite blogger. He is completely unique, brilliant, and infinitely curious. But he just wrote a really bad article for Bloomberg on how The Democrats’ Latest Idea on Taxes Will Only Help Trump. He is responding to the comments by Alexandra Ocasio-Cortez during a recent 60 Minutes interview where she expressed support for additional tax brackets on the high end of the income distribution and a significantly higher top marginal tax rate for those highest brackets.

Continue reading “Cowen has Misled Us On AOC’s Marginal Tax Rate Idea”