Who Are Bankers Anonymous Readers? July 2013 Edition

hFB76FDE1Here I continue my ongoing analysis of Big Data to determine profiles of Bankers Anonymous readers, which I previously did based on May and June statistics from Amazon.com.

Readers of Bankers Anonymous in July 2013 mostly stuck to personal finance and Wall Street finance books, which makes perfect sense to me.  I’ve been focusing on these myself.

One reader bought a copy of 25 Myths You’ve Got to Avoid – If You Want to Manage Your Money Right, by Jonathan Clements, which I heartily endorse, and another reader (possibly the same one?) bought The Only Investment Guide You’ll Ever Need, by Andrew Tobias, which I also recommend highly.

The other books purchased include ones I’ve not yet read, so I’m pleased to see what else I might like to try next.

One clearly superior reader purchased Voltaire’s Micromegas, which is described as:

[A] short story by the French philosopher and satirist Voltaire. It is a significant development in the history of literature because, along with Voltaire’s story “Plato’s Dream”, it is a seminal work in the genre of science fiction.

The tale recounts the visit to Earth of a being from a planet circling the star Sirius, and of his companion from the planet Saturn.

In short, it looks awesome.

I’m sorry to say nobody purchased any Zubaz pants this month, but I do recommend them highly at least based on the product reviews to go with them.

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Guest Post: Getting Real on Estate Planning

pic-estate-planning

[Editor’s Note: Reader ToddR noticed, correctly, that I know very little about estate planning, despite my having written a post about it last week.  He offered up his real-life experience with the topic.  I’m pleased to have a great guest post on the issue of estate planning.  I am also doubly pleased since I’m on vacation this week!  – The Banker]

The Banker dangled the idea of elaborating on estate planning.  Thrillingly, I’m jumping at the chance to briefly upstage a Harvard man.  [1]

As was previously noted, this isn’t legal advice so, reader beware.  The Average Joe thinks that estate planning consists of calling a guy that your cousin recommended to have him draw up a “last will and testament,” and voila – estate planning can be crossed off of the to-do list.

This is both patently wrong and exactly how the estate-planning legal cartel actually wants you to approach the topic.  The facts are this:

1)     Estate planning needs to be thought out and executed when everyone involved is of healthy mind and healthy body

2)     Estate planning professionals will either make money on the front end or the back end

3)     Each member of the estate needs to have a basic understanding of wills and trusts (even if a trust isn’t selected)

4)     4) It’s not a one-time event, it requires a little maintenance.

 

So, I’m not going to analyze all of these rules.  In fact, I’m not going to analyze any of them.

Instead, I’m going to present a quick story that will hopefully illustrate all four (and perhaps even a few other) codicils when it comes to what can happen when someone dies and isn’t prepared.

In June of 1997, my father’s first cousin passed away.  She was a simple woman.  She never married and had no children, nor any siblings.  What she did have was a lot of money and as it turns out, a lot of cousins.

Few of these cousins were familiar to me until after the rich cousin passed away.  Then, those cousins’ names became regular features in our lives.

My father was the executor of the estate.  He quickly found his late cousin’s will, flipped to the very last page and called the number of the attorney who had prepared that will back in the 1980s.

That attorney was saddened by the news but promptly invited my father in to his office for the first of several meetings to settle the estate.  My unsuspecting father says that it wasn’t until the third or fourth meeting with the attorney that he figured out what was going on.  The attorney, my father alleged, was milking the estate with unnecessary meetings and discussions, all of which would be tallied and paid out, by the estate.

What a cash cow.  What’s more, this licensed professional failed to propose to my dad’s (now deceased) cousin that she might consider a living trust, IN ADDITION to a will.  So simple, but we’re confident that there was never even so much as a suggestion of this device.

Why might that lawyer have omitted introducing this simple technique?  Because with a trust, the people involved pass their assets privately and simply, and without the involvement of anyone.  Most notably, the estate skips (read: has no involvement with) the probate system.

What’s probate?  Something you won’t like if you’re an heir to the estate.  Probate is the judicial and administrative process whereby dead people have to pay off their debts and settle claims before the living people get their post-tax share.

This process typically involves a minimum of one judge, one court reporter, and you guessed it, one attorney.  All of those people require income to survive and guess who pays that income?  The deceased person’s estate.

But, pretend that the dead person had created a trust which collected and held all of his/her assets.  The judge, the reporter, AND the attorney would never even be made aware that someone had died.

The assets held by the trust (house, bank accounts, IRAs, cars, and everything else) would belong to the trust but be under the absolute control of the beneficiaries of the trust.

And the trust is like a little ghost who only takes instruction from the trustees.  When my dad’s cousin passed away, the moment that a doctor declared her no longer with us, all of her belongings would have immediately transferred to the people named in her trust – bypassing all of the legal roadblocks.

Beware, unless there are elaborate trusts, foundations, contracts, etc…the IRS will get their cut.  There’s just no way to get around the tax man.

But, there is a way to get around the lawyer.

That way is decent estate planning and that starts with a trip to the library.  A Dummies book will probably suffice to get you started.  Just please get started.

So, my father’s cousin’s estate was separated from many thousands of dollars.  The people on the receiving end (luckily) didn’t haggle with one another too much.  So, the divvying went smoothly.

But, if they had been hagglers and the estate hadn’t been given at least some forethought, it would have been a lawyers’ gravy train for some time to come.  Hit fast forward on this story – after this debacle was concluded, my parents sat each of the siblings down and reviewed their wishes with whatever remained after the last one of them passes away.

We’re all clear on how things will go down when that day arrives.  The advice that was also imparted to us is listed above, in facts one through four.

Don’t take it lightly.

When someone dies, everyone is bummed out for a while.  Sitting down with bummed out people and trying to divvy up that person’s property is completely the wrong way to do it.  It needs to be planned out so that the exchange is smooth and doesn’t even become a topic during funerals, wakes, and sitting shiva.

Realizing and reflecting on the fact that you, me, our collective parents (and cousins), and everyone else is going to die, is heavy subject matter.  But I would much rather have a Nietzschean-meaning-of-life crisis when people are alive than when I’m mourning a loss.

So, please, get reading and start reading about estate planning.

 


[1] Editor’s Note: Here’s where I remove the pipe from my mouth, dust the tobacco ash off my v-neck cardigan sweater, and chuckle softly to myself.  “You know ToddR” I say, “you can always tell a Harvard man, but you can’t tell him much.”

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Book Review: Systems of Survival

I like to return to certain books that gnaw at me.  I found great pleasure this week returning to Jane Jacobs’ Systems of Survival – A Dialogue on the Moral Foundations of Commerce and Politics.

I remembered that Jacobs explained so much about the confusing divide in our contemporary dialogue on politics and business, but I didn’t fully trust my memory.  Is this book as good and important as I thought it was, 20 years after I first read it?

Answer: Yes it is.

Why are some government actions instinctually abhorrent to me, even though I carry no particular resentment toward governments?  Why do we recoil from the actions of certain financiers or large companies?  What unwritten moral codes define good and bad behavior, even in seemingly contradictory ways?

Two syndromes, or systems of survival

Jacobs identified two ‘syndromes’ or ‘systems of survival’ of inter-related moral precepts.

The first syndrome corresponds to a “commercial” mindset, which could otherwise be understood as Bourgeois values, or the profit-oriented values of entrepreneurs, traders and salespeople.  For-profit businesses embrace the first syndrome, as do, in many respects, scientists.

The Commercial syndrome

These mutually reinforcing precepts are:

Shun Force

Come to voluntary agreements

Be honest

Collaborate easily with strangers and aliens

Compete

Respect contracts

Use initiative and enterprise

Be open to inventiveness and novelty

Be efficient

Promote comfort and convenience

Dissent for the sake of the task

Invest for productive purposes

Be industrious

Be thrifty

Be optimistic

 

As I reviewed this list, I found myself embracing them as values I grew up with, reinforced every time I read the newspaper (well, in particular, the Wall Street Journal).  I’m thoroughly bourgeois and instinctivey profit-oriented.  At first glance, I found that the second set of precepts not only contradicted these, but also, sounded less attractive.

The second syndrome corresponds to what Jacobs terms a “guardian” mindset, which overlaps with Aristocratic values, as well as military and government values.  Government employees, ranging from police and fire services, to regulators, to judges and courts, to diplomats and elected officials, follow the second set of precepts.

The Guardian syndrome

These mutually reinforcing precepts are:

Shun trading

Exert Prowess

Be obedient and disciplined

Adhere to tradition

Respect hierarchy

Be loyal

Take vengeance

Deceive for the sake of the task

Make rich use of leisure

Be ostentatious

Dispense largesse

Be exclusive

Show fortitude

Be fatalistic

Treasure honor

 

While I was not raised in a military, aristocratic, or political household, after reading Jacobs’ explanation, I began to see that these precepts are in fact indispensable to the guardian function.

While ‘Be ostentatious’ does not at first sound like a virtue, it explains why our courthouses and statehouses are designed to inspire awe.  While my thrifty approach to life clashes with ‘dispense largesse,’ Jacobs points out that much of successful government depends on this function for societal cohesiveness.

As children, we absorb guardian values of loyalty and honor every time we stand in school to pledge allegiance to the flag.  Clearly something important and valuable is happening here.

Like everybody who lived through 9-11 in New York City, I found myself weeping in the days following the attacks when police and fire trucks passed through the desolate streets – deeply moved by the combination of NYPD and NYFD virtues such as “adhere to tradition,” “respect hierarchy,” “be loyal,” “take vengeance,” “fortitude,” “fatalism,” and “treasure honor.”

 

Reinforcing each other

Each syndrome Jacobs argues successfully, reinforces and supports the other.  Both are valid and effective systems of survival.

All professional activities can be characterized as belonging to one or another system.

Some of the overly simplistic critiques of contemporary society stem from folks not recognizing the validity, and co-dependency, of the two systems of survival.

Extreme free-marketers on the right wing, for example, in their ‘privatize everything’ fetish, fail to give sufficient weight to the essential role of guardians in enforcing rules and regulations, thereby creating space for private enterprise to thrive.

Extreme pro-government folks on the left wing, for their part, in their plea for government mandates to solve all societal ills, often discount the essential role of trade and free enterprise to encourage innovation and expand production, which raises economic output for everyone.

Even if most contemporary political and economic arguments occur well inside these two extremes, left versus right arguments would benefit from an acknowledgement of the internal validity of these co-dependent syndromes.

Moral monstrosities in the ‘cross over’

What I found most compelling 20 years ago, and again, upon re-reading Jacobs, is the two-system framework for understanding how morality can go horribly wrong.

Jacobs illustrates how individuals and groups operating within one syndrome should not ‘cross over’ to the other syndrome.  To cross over creates moral monstrosities that we instinctually recognize as wrong.

 

Guardians gone Wild

When we hear of ‘guardians’ such as politicians, or judges, or policeman profiting from their position of power, that’s a clear violation of the guardian precept to ‘shun trading.’

Similarly, we impose limits on regulators for example who move from a recent post overseeing markets to one in which they can materially benefit from relationships and knowledge developed on the ‘guardian’ side of the wall.[1]

More subtly, I have a deep mistrust of municipal, state, and national governments that frequently seek to encourage ‘economic development.’  Jacobs’ two-syndrome framework explains why.

Successful and sustainable economic development depends on a commercial mindset, with precepts such as ‘use initiatives and enterprise,’ ‘compete,’ ‘dissent for the sake of the task,’ and ‘be efficient.’

Yet governments – in their guardian function – operate with an opposite, unhelpful set of precepts for the task of economic development.  ‘Adhere to tradition,’ ‘respect hierarchy,’ ‘be loyal,’ and ‘dispense largesse,’ to name a few virtues in the guardian sphere, lead to failure and moral hazard in an economic development context.

Whenever I read about my city spending money or offering tax breaks to promote particular companies or industries, or when I read about my state generously dispensing largess in the name of economic development, I get that queasy feeling.  I’m sorry to say this, but guardians are just not that good at encouraging commerce, while they are very good at extracting loyalty and taking vengeance.

When I hear about economic development encouraged by governments my first thought is of the opportunity for influence peddling by public officials, and the moral monstrosity of guardians acting outside of their set of moral codes.

Commercial Corruption

For-profit companies that cross over into the guardian sphere similarly create the potential for moral mischief.

The classic profit-oriented mafia group is easily identified as monstrous when they take on guardian-type functions, such as using force, to extract profits

More subtle, however, is the inherent danger of Blackwater-type operations.  They operate as private businesses, but engage in protection, enforcement, and military operations, in other words, classic guardian functions.  Privatized military operations, of the type encouraged by the Cheney administration in post-2003 invasion Iraq, lead quickly to corruption.

Ugly colonial history is rife with the corruption inherent in for-profit companies which took on government-type functions, such the United Dutch East India Company in Indonesia (1602-1800), the British East India Company (1770 to 1857) in India, and the United Fruit Company in Central America (1900-1960), and we are right to be worried about that mixture of functions.

President Eisenhauer’s parting warning in 1961 about the creeping power of the Military-Industrial Complex describes exactly this distorting mix of the commercial profit-motive with the guardian function.[2]

Jacobs offers an interesting and subtle warning about scientific inquiry funded largely by governments.  Scientists, she argues, adhere to the commercial moral code, with its emphasis on competition, dissent, and openness to invention and novelty.

But when a government, with its guardian mind-set, funds most scientific endeavors, the result may be a perversion of the scientific approach.  What if scientists come up with ideas threatening to the status quo?  If scientists funded by government show insufficient loyalty or respect for hierarchy, will funds be withheld, or will vengeance be enacted?[3]

Too Big To Fail

Finally, why do we recoil so much from the moral failure of the 2008 government bailout of the TBTF banks?

Jacob’s two-part framework helps.  Wall Street banks hold a special place in society as exemplars of the commercial system of survival – they are innovative, efficient, competitive, and industrious.

At one point in September 2008, however, their imminent, collective and sudden demise threatened the stability of society – a clear guardian problem.

Instead of sticking with the commercial moral code that the banks and their defenders espouse, suddenly a whole new set of guardian concepts came in to play.

A strict adherence to the commercial code would have allowed for a market solution rather than a political solution.  Ruthless and innovative failure, without regard for hierarchy, loyalty, or discipline might have led to a very different outcome, for better or for worse.

Instead, the public was left wondering about the imposition of ill-fitting guardian precepts during that episode, such as the use of ‘deception for the sake of the task,’ ‘exclusivity,’ and ‘largesse,’ for some firms and some corporate leaders, but not others.

Did Hank Paulson – a product of the commercial world but acting in the ultimate guardian function as Treasury Secretary at the time – allow his concepts of loyalty to determine the winners and losers among the Wall Street firms?  Did he in fact extract vengeance on Bear Stearns for their disloyalty during the Long Term Capital Crisis of 1998, withholding a bailout through public funds that he offered other firms?[4]

Did loyalty to his long-time deputy John Thain play a role in Paulson pushing Treasury and the Federal Reserve to essentially underwrite Bank of America’s ill-advised purchase of the desperately weak Merrill Lynch in December 2008?

Did loyalty generally, to his Wall Street peers and colleagues, blind him to the clear moral hazard of allowing taxpayer-bailed-out Wall Street firms to pay extraordinary bonuses to employees at the end of 2008?[5]

Most crucially, are the nation’s largest banks, right now, subject to the consequences of a commercial system which rewards investment, thrift, contracts, honesty, competition, and initiative?  Or are the largest banks largely protected – by virtue of their systemic importance – by a gross hybrid system that encourages regulatory capture, deception, exclusivity, exerting prowess (power-brokering), loyalty, and tradition?

Even the most pro-Wall Street people know that this gross hybrid – most clearly exemplified by TBTF banks – really sticks in the craw.

I like frameworks

I don’t know all the answers to any of this speculation, but I do know the uncomfortable mixture of commercial and guardian moral codes lies at the root of my obsession with the ongoing TBTF moral catastrophe.

There’s something about a moral framework for understanding our complex world that is catnip for me.  Jacobs’ two-part system allows for that complexity.  She acknowledges two entirely different but mutually dependent world-views where both can be right, each according to its own moral precepts.

 

Please also see my review of Jane Jacobs’ classic The Death and Life of Great American Cities.

and please see my review of Jane Jacobs on the importance of cities in economic life: Cities and the Wealth of Nations.

Please also see related post: All Bankers Anonymous Book Reviews in one place!

Systems of Survival
Systems of Survival

 


[1] Which is why I’ve been pleased so far that Tim Geithner did not immediately join Goldman, upon leaving Treasury, as I had feared.

[2] When I think about the scariest things about the US in 2013, it‘s my fear that the profitability and commercial power of companies in the extended defense industry will prevent any diminution of our military spending, even if we manage to wind down the Cheney administration’s wars of choice in the Middle East.

 

[3] Climate change skeptics believe this is already happening on a grand scale, but we can imagine different times and places where this also applies.  Autocratic regimes certainly quash scientific inquiry, and religious authorities in Copernicus’ time did not embrace his innovations – but this happens more subtly than those obvious examples, even now.  As the husband of an NIH-funded researcher, I see that governments and their guardian mindset have a heavy-handed influence on what scientists pursue.  And not all of that influence is benign, from the standpoint of pure scientific inquiry.

[4] I haven’t yet reviewed Roger Lowenstein’s excellent When Genius Failed – The Rise and Fall of Long Term Capital about the Long Term Capital Management hedge fund failure that served as a dress-rehearsal for 2008.  When the New York Fed successfully invited all the Wall Street firms together in September 1998 to ‘bail-in’ a failing hedge fund and thus save themselves from systemic risk, only Bear Stearns refused to come up with additional capital to fund the private sector solution.  For some, this betrayal by Bear Stearns made their demise less than 10 years later coincidental and poetic justice.  For others, this betrayal explains Paulson’s treatment of Bear Stearns in March 2008, as Paulson co-headed Goldman Sachs in 1998 and would have naturally reacted to that betrayal with extreme prejudice.

[5] I don’t even mean to speculate that Paulson made any of these choices in a consciously immoral way.  Rather, I think the idea of ‘cognitive capture,’ in which his mindset reflected the mindset of Wall Street, explains most of his actions.  The fact that he, by virtue of his guardian position, had to make guardian-type decisions on a failing commercial system led inevitably to horrible “lesser-of-two evils” decisions.

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Estate Planning for the Bourgeoisie

downton abbeyLike most of you, I am busy today updating my will, following the birth of the Prince of Cambridge.  I, too, want to ensure that he grows up in the world wanting in nothing.

Naturally it is only just and right that I designate a portion of my entail to His Royal Highness.

That got me thinking about whether I had any advice for the bourgeoisie regarding estate planning.

If you can afford it, please don’t take estate planning advice from a blogger

If you will have sufficient funds at your death to require sophisticated estate planning, you will serve yourself well by hiring a specialized attorney who can advise you on up-to-date, optimal strategies for leaving money in a way that matches your values.

But if you can’t afford it, read on…

If you do not now have – or do not yet have – sufficient funds to pursue sophisticated advice on estate planning, here’s some basic principles to keep in mind.

Make a Will

Even if you are too young to have ever felt death’s breath upon your neck, everything can change in an instant.  Writing down your wishes, having a witness, signing it, storing it safely, and notifying family members of its existence is an act of kindness for all who love you.

Retirement Accounts

You should know that when you open your IRA and 401K accounts, you designate a beneficiary (or beneficiaries) upon your death, and that furthermore, that choice trumps anything written in your will.

Which is why smart estate planners advise you to check your IRA and 401K beneficiaries periodically to be sure they reflect your current wishes.

So, you may have named the cute barista at your favorite coffee shop as a beneficiary to your 401K as a joke when you were 23 and unemployed, but if you don’t change that 70 years later, you may be giving money away on your death to a total stranger, albeit one who made amazing cappuccino foam hearts once upon a time.

A more likely scenario, and hence more worrisome: the 100% IRA beneficiary designation you gave to your first child – because you thought “one and done” – no longer reflects your larger brood of seven additional children and their 43 grandchildren when you die.

Pro tip: Do not create 50 enemies within your own family, cursing you in the grave because you forgot to update your IRA beneficiaries.

Tax Planning

The only thing I want to say here is that my old rule on taxes still applies: If you are going through extraordinary legal and financial hoops to avoid paying taxes, you may be missing the big picture.

Keep it simple – or as simple as you can – and be wary of complicated tax avoidance plans.  The more effective they are, the more likely it is that the IRS will declare them void in the future.  At which point, you’ll owe a lot of money and need to pay more fees to undo the plan.

The more intricate the tax avoidance plan, the more likely it is you’ll create headaches to be undone in the future, albeit with additional expensive fees – of course – for lawyers and advisors.

If it seems too good to be true, like all investments, it probably is.

Letting heirs know your plans

The more I study estate planning, the more I understand that the biggest mistake people make is to keep their plans to themselves.

If your worthy children will not get anything from your estate – which is fine with me because the expectation of inheritance can be a cruel corruptor – then it makes sense to let your heirs know ahead of time.

If your unworthy, rascally, children will not get anything from your estate – which is fine with me if that reflects your values and they’re jerks anyway – then they should know that before you die.

If some children will get more than other children – for whatever valid reason which trumps equal treatment – for goodness sake give everyone a warning and a reason for your choice.

Receiving less than a sibling from a deceased parent, without so much as a warning and a reason, is enough to guarantee inter-generational family strife for your kids’ remaining lives.  Be empathetic, and tell them what’s in the will.

His Royal Highness the Prince of Cambridge

In the meantime, God bless the little heir.  In the event of my untimely death, I hope he enjoys all of my hand-painted Dungeons and Dragons figurines as much as I did.

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All Bankers Anonymous Book Reviews in One Place!

books

“Five Years from now, you’re the same person except for the people you’ve met and the books you’ve read.”

On Inequality

The Market Wonders, by Susan Briante. A book of poetry that compels us to consider the value of the stock market when compared to our human values.

Unintended Consequences – Why Everything You’ve Been Told About the Economy Is Wrong, by Edward Conard.  I’m opposed to his politics but I must admit he offers the best description I’ve read of the mortgage crisis of 2008.  Made me more sympathetic toward inequality, because I’m a contrarian cuss.

Nickel and Dimed – On Not Getting By In America, by Barbara Ehrenreich.  Want to understand what it’s like to be part of the structurally poor in America?  No? Well you won’t ever see it depicted in mainstream media, but here’s a good place to start.

Plutocrats – The Rise of The New Global Super-Rich and the Fall of Everyone Else, by Chrystia Freeland.  I have a few quibbles on tone but this is a very interesting analysis of the extraordinary wealthy.

The Death And Life Of Great American Cities, by Jane Jacobs.  This classic on urban planning policy from 1960 struck me as entirely relevant today.  Jacobs writes convincingly on low-income housing policy, the problem with parks, the benefits of walkable cities, the importance of mixed uses, the essential nature of diversity in great cities.

Cities and the Wealth of Nations, by Jane Jacobs.  By switching the economic unit of analysis from nations to cities, Jacobs offers still-relevant insights into development, inequality, currency regimes, and the decline of empire.

The Making of Donald Trump by David Cay Johnston.  A review of thirty years of Trump’s businesses practices, associates, and personal style, from a Pulitzer Prize-winning journalist who covered him over the years. I wouldn’t say I was surprised by the revelations, but the details are important. Not a book about ‘inequality’ per se. But not entirely unrelated to the theme either, in the broadest sense.

Capital In The Twenty-First Century by Thomas Piketty. Sets the standard on data collection on wealth concentration in rich countries. Has a mathematical model that suggests ossification of aristocracy may be in our future, unless addressed through tax policy.

Words and Money, by Andre Schiffrin. A French-American from the traditional publishing world explains why for-profit behavior by media companies – in publishing, movies, book-selling, newspapers – are hurting society. Some proposed solutions which sound very European.


The Price of Inequality, by Joseph Stigliz.  I started out sympathetic to his politics but his style of argumentation – hammer, hammer, hammer – is tedious.  Also made me more in favor of inequality, because I’m a contrarian cuss.

On Personal Finance

The Automatic Millionaire by David Bach. A surprisingly well-done book on what may be simplest first two principles of investing: First, you DO have enough to invest. And the second principle: You HAVE to do automatic deductions.

Peace and Plenty, by Sarah Ban Breathnach.  The worst personal finance book I’ve ever read, by the narcissistic, materialistic, unreflective author of Simple Abundance, a popular book from the 1990s endorsed by Deepak Chopra and Oprah Winfrey.

Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich.  The authors translate Behavioral Economics research with memorable anecdotes and illustrations to help us understand why we make sub-optimal personal finance decisions.

The Four Pillars of Investing by William Bernstein. At this point a personal finance classic. Great writing, great reviews of all the big ideas, great guidance to what we should all be doing with our investment money.

The Delusions of Crowds by William Bernstein. Bernstein anticipated 2021 and nailed it with this historical review of both religious and financial nuttiness that we humans are apt to repeat over and over again.

The Richest Man In Babylon, by George Clason.  “Babylonian” fables written in the 1920s that retain timeless wisdom about of thrift, savings, skepticism, and self-reliance.


25 Myths You’ve Got to Avoid If You Want to Manage Your Money Right, by Jonathan Clements.  Useful contrarian advice bursting the ‘myths’ of personal finance, from a long-time Wall Street Journal columnist

Your First Financial Steps – Managing Your Money When You’re Just Starting Out, by Nancy Dunnan.  A personal finance book, from the mid-1990s, that did not age well.  Anachronistic. Amazon Link to “Your First Financial Steps”

 

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth, by T. Harv Eker. Some interesting points to make on psychological limitations we may have about money, along with cognitive behavior techniques to overcome those limitations, but unfortunately told by a seminar-upselling jackass.

The Way To Wealth, by Benjamin Franklin.  A greatest-hits of memorable aphorisms about thrift and industry by the founding father Benjamin Franklin, in his persona as Poor Richard.

Money Mindset – Formulating a Wealth Strategy in the 21st Century, by Jacob Gold. Probably a C+ from me. The ideas are fine (except he’s not directive enough on asset allocation) but the style isn’t that engaging.

Master Math – Business and Personal Finance Math, by Mary Hansen.  This book’s focus on just the personal finance math, rather than the advice, makes it quite useful.

Think and Grow Rich, by Napoleon Hill.  This personal finance classic offers ‘the secret’ to getting wealthy, and has inspired the world’s Dale Carnegies, Tony Robbins, Guy Kiyosakis. The ‘secret’ is not so hidden, and the prose is cheesy, but I’m willing to concede that the book could put you in the right mind-set for building wealth.

The Psychology of Money, by Morgan Housel. The best living finance writer with an instant classic of behavioral finance.

Investing Demystified: How To Invest Without Speculation And Sleepless Nights, by Lars Kroijer.  A former hedge funder offers a simple, low-cost way to construct an effective global portfolio, keeping in mind the efficient market hypothesis (you don’t have an edge!) and the efficient frontier theory of portfolio construction.

A Random Walk Down Wall Street, by Burton Malkiel. The classic that launched the index fund market and popularized the efficient market theory. And its surprisingly interesting to read. You should read this!

How To Make Your Kid A Millionaire: 11 Easy Ways Anyone Can Secure A Child’s Financial Future, by Kevin McKinley.  A financial planner offers practical advice for using time, plus savings, to provide future material well-being.

Simple Wealth, Inevitable Wealth, by Nick Murray.  A personal favorite, showing how a calm and steady investment in equity mutual funds – over the long run – leads to inevitable wealth accumulation.

Behavioral Investment Counseling by Nick Murray. Another Murray classic, directed at advisors, to convince them that client behavior matters more than anything, and therefore how an advisors time, effort, and talent should and should not be allocated.

The Money Book for the Young, Fabulous, & Broke by Suze Orman.  Solid advice for the target audience but I had a hard time getting past her annoying, robotic, schtick.

Innumeracy: Mathematical Illiteracy And Its Consequences, by John Allen Paulos.  An interesting and entertaining book on the importance of mathematical literacy, although I don’t think one of the intended audiences – innumerates – would ever read it.

Women, Money & Prosperity: A Sister’s Perspective On How To Retire Well by Donna M. Phelan. A personal finance book for women. Despite the pitch, the advice in the end is quite non-gender specific.

Stocks For The Long Run, by Jeremy L. Siegel. A classic in which Siegel present the 200+ years of data to show the overwhelming advantage of stocks over ‘safe’ investments when it comes to building wealth.

If Your Money Talked What Secrets Would It Tell, by Gary Sirak.  Sirak offers real-life illustrations of his 8 Principles of Money, based on his career as a financial advisor for the last 30 years.  He also argues persuasively that most of our trouble with money is caused by our own personal beliefs about money.

The Millionaire Next Door – Surprising Secrets of America’s Wealthy, by Thomas J. Stanley and William Danko.  An influential (at least in my life) best-seller on the difference between having wealth and displaying wealth, and solid ideas on how to accumulate wealth.

The Millionaire Mind, by Thomas Stanley.  Attributes of wealthy folks, such as their frugality, monogamy, purchasing habits, entrepreneurship.

The Only Investment Guide You’ll Ever Need, by Andrew Tobias.  Funny and Useful, it’s a personal finance guide that actually lives up to its hyperbolic name.

My Vast Personal Fortune, by Andrew Tobias.  Funny, quirky, and revealing anecdotes on real estate and advertising.  Features Tobias’ obsession with auto-insurance.

Mathematics Standard Level for the International Baccalaureate, by Alan Wicks.  I didn’t actually review this book, but just referred to it in my discussion of compound interest.  The International Baccalaureate is how I learned about “Sequences and Series,” the mathematics behind compound interest.  Also, this was written by my high school advisor and math teacher, so you should buy it!

On Business and Wall Street

Bailout – An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, by Neil Barofsky.  Barofsky, a personal hero of mine, blasts his way out of Washington DC, where he served as top financial cop for the 2008 bailout known as TARP.

Bad Blood – Secrets and Lies in a Silicon Valley Startup by John Carreyrou. Best book on business in the past year and a great guide to how to spot fraud – which is a problem of our time.

 

The Contrarian: Peter Thiel and Silicon Valley’s Pursuit of Power by Max Chavkin. The first review in my series on our new billionaire philosopher kings. Peter Thiel has made some brilliant investments. He is also not a good guy. It’s his “nazi curious” leanings that make me particularly nervous. 

 

The House of Morgan, by Ron Chernow.  Fascinating history of the origins of JP Morgan, Morgan Stanley and Deutsche Bank (which absorbed the UK’s Morgan Grenfell).  Even does much more in a few short chapters on recent history to explain how Goldman Sachs “came to rule the world,” than does Cohan’s book by that title.

Money and Power – How Goldman Sachs Came to Rule the World, by William Cohan. Cohan doesn’t answer the question in the title, and he cherry-picks a series of embarrassing episodes from Goldman’s history to offer it up as a scapegoat.  The one useful section is his chapter on the mortgage department, in the years just prior to Crisis of 2008.

The ChickenShit Club: The Justice Department and Its Failure to Prosecute White-Collar Criminals, by Jesse Eisinger. Eisinger explains in detail why nobody went to jail as a result of the mortgage crisis, with specific focus on the weakening of the Justice Department’s will to aggressively prosecute individuals and companies after the Enron/Arthur Anderson debacles.

The Intelligent Investor, by Benjamin Graham.  My kids will be reading this when they get old enough, because, 65 years later, it’s still fresh, and it will still be fresh in another 15-20 years.

The Hard Thing About Hard Things, by Ben Horowitz. Horowitz led his company through harrowing crashes and extraordinary success. He describes the painful decisions and gut punches of being CEO during the bad times. The latter-half of the book is less interesting, but the first part is intertwining and useful.

Systems of Survival – A Dialogue on the Moral Foundations of Commerce and Politics, by Jane Jacobs.  This isn’t about Wall Street, but rather about two interdependent systems of survival.  Guardians (government functions) and Commercials (business functions) work well together but operate by separate precepts.  Each has its own internally consistent moral code, but the breach and mixing of precepts can lead to monstrosities.  I love this book as it practically explains everything you need to know about Left-Right/Democrat-Republican/Government-Business debates.

Flash Boys: Not So Fast by Peter Kovac. In insider from the high frequency trading world explains how Michael Lewis got so much wrong in his book Flash Boys.

I.O.U.: Why Everyone Owes Everyone and No One Can Pay, by John Lanchester.  Lanchester is a super-clear and entertaining writer who explains the 2008 Crisis better than most.


Boomerang – Travels in the New Third World, by Michael Lewis.  The silliest of Lewis’ Wall Street books, but nevertheless entertaining cultural snapshots of countries in the 2008 Crisis.

The Big Short – Inside the Doomsday Machine, by Michael Lewis.  Funny and accurate review of the 2008 Crisis, in which Lewis does what no other journalists did – he makes the short-sellers the heroes.

Liar’s Poker, by Michael Lewis.  The original classic.  Start your Wall Street reading here, about Lewis’ short stint as a bond salesman, at Solomon Brothers, in the mid-1980s.

The Lean Startup by Eric Ries. Redefining the metrics of startups, and a whole new way of thinking about them. Don’t start a company, instead start a series of experiments to test your business hypothesis.

Where Are The Customers’ Yachts? by Fred Schwed. I had not expected this to be as funny as it was. Somehow, it turns out I dig 1940s financial humor, with some sly lessons on how Wall Street really works.

The Green And The Black, by Gary Sernovitz. Funny, informed, complex – A great overview of the implications of the shale revolution, aka the fracking revolution in the United States.

Too Big To Fail, by Andrew Ross Sorkin.  Should be titled “Too Connected to Criticize” as Sorkin protects his present and future sources – the Wall Street CEOS of 2008 – from any criticism or real analysis of their responsibility for 2008.

Black Swan – The Impact of the Highly Improbable, by Nassim Nicholas Taleb.  Taleb explains how the unexpected tends to shape everything, and our models never see the unexpected before it’s too late.  Also, his timing on this book, right before the 2008 crisis, was awesome.

Fooled by Randomness, by Nassim Nicholas Taleb.  Taleb’s first book blasts the traditional Wall Street world-view with his empirical skepticism and brash, take-no-prisoners, style.

Fiction

The Lives Of Animals, by J. M. Coetzee. A challenging, only semi-fictional philosophical exploration of the moral relativity of animals, compared to humans. Are we perpetuating an unthinking Holocaust on animals? Accompanying essays help flesh out the ideas.

The Pickup, by Nadine Gordimer. A novel exploring the immigrant and emigrant experience, and maybe, the impossibility of true understanding between people.

The Mystery of the Invisible Hand by Marshall Jevons. Two economists write this series of murder mysteries in which an economist applies economic theory to catch the criminal. This one takes place in San Antonio TX so I had to read and review it.

Capital, by John Lanchester.  This book review, by Michael Lewis, contains great observations about English writing, and English attitudes towards capitalism.

A Conspiracy of Paper by David Liss. Explore 18th Century London stock markets just prior to the crash of the South Sea Company, as proto-private eye Benjamin Weaver investigates stock fraud and the death of his father. Fun stuff!

The Earl Next Door: The Bachelor Lords of London by Charis Michaels. American heiress Piety Grey battles scheming relatives and a literally falling-down London townhouse, while navigating the romantic pull of the Trevor Rheese, the Earl next door who thinks he just wants to live alone, unencumbered by responsibility for others.

Undermoney by Jay Newman. A prescient novel about Deep State power brokers, mercenaries, murderous kleptocrats in Russia and New York City. Newman somehow has the chops to describe their world in a way that feels like he knows what it’s like. Also, Newman is a bad ass hedge funder, so definitely has experienced some of this first hand. 

 

Going Going by Naomi Shihab Nye. I reviewed this young adult novel in part because it takes place in my neighborhood and in part because it gave me a great excuse to discuss some meditations on what makes for a good city, and a good life.

The Turtle of Oman, by Naomi Shihab Nye. We brought this young adult novel on a trip to Big Bend National Park, which happens to be the perfect place to experience Oman. My older daughter and I enjoyed this tremendously.

The Way We Live Now, by Anthony Trollope.  A book review by a friend, of a favorite book and favorite author, featuring the 19th Century British Bernie Madoff.

Theory of Knowledge

An Illustrated Book of Bad Arguments, by Ali Almossawi.  Almossawi’s online book is a pleasurably illustrated taxonomy of terrible logic, of the kind we so often hear from political pundits or members of the Financial Infotainment Industrial Complex.

An Illustrated Book of Bad Arguments
An Illustrated Book of Bad Arguments

Risk Savvy, by Gerd Gigerenzer. Ultimately disappointing book that has some points to make about the limitations of building complex risk models for highly complex systems. But too much seems to be culled from presentations to rooms full of doctors, or something, and I was bored. I’d prefer to go with Nate Silver any day.

Dark Age Ahead, by Jane Jacobs. One of my favorite authors, with a title that made me need to read it. Jacobs has a theory of what will break civilization apart, and its all plausible.

Help, Thanks, Wow by Anne Lamott. Not really related to finance or even theory of knowledge. Just a meditative book that struck me as important to read and review. I highly recommend it if you need a good cry.

The Signal and the Noise: Why So Many Predictions Fail – But Some Don’t, by Nate Silver.  Silver argues that applying Bayesian probabilistic thinking to a wide range of complex phenomena like sports betting, weather, earthquakes, Texas Hold ‘Em Poker, and politics help us understand the present and forecast the future far more than most legacy models we work with.

Permanent Record by Edward Snowden

Snowden betrayed the US and the intelligence community for a higher cause. I find his arguments utterly compelling. We are not thinking hard enough about the implications of the new surveillance society and surveillance marketplace.

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Book Review: The Only Investment Guide You’ll EVER Need

It pains me to write this[1], but Andrew Tobias’ hyperbolically titled[2] The Only Investment Guide You’ll EVER Need actually lives up to the name.

Tobias delivers solid personal financial advice, but in a playful tone.

He enlivens an entire chapter on saving money – the world’s dreariest subject – with anecdotes about his own fetishistic ways to scrimp.[3]

In the chapter about beginning to invest, Tobias delivers the punch-line early on: Trust No One, while offering fairly hilarious ways in which his younger, more gullible self, failed to head his own good advice.

In the stock-investing chapter, he hits the essential notes which readers of my earlier posts and reviews will know by now:

  1. The vast majority of individuals, could do a lot worse than just buying low-cost index mutual funds and never selling, as advocated by Nick Murray in Simple Wealth, Inevitable Wealth.
  2. Some money managers out of a large group will appear to ‘beat the market’ for an improbable-seeming time, but this type of result can be replicated with a coin toss experiment, as described by Nassim Nicholas Taleb in Fooled by Randomness.
  3. The intrinsic value of a stock derives from an enterprise’s ability to generate current and future cash flow, as Benjamin Graham’s Intelligent Investor explains.
  4. Investing your first slug of savings through an IRA or 401K vehicle is a no-brainer.  But even outside of tax-advantaged vehicles, the tax code heavily favors stock investing as a way to get rich.

 

Tobias made money early in his life – through best-selling books and then more significantly through best-selling personal finance software – so he managed to quickly accumulate a lifetime’s worth of successful and unsuccessful investment experience.  He spins his unsuccessful experiences into memorable and hilarious ‘How-Not-to-Invest’ stories throughout the book.

But the best part of the book, Tobias saves for last.  He comes up with an amazing way to teach kids about the power of compound interest, a personal obsession of mine.

Tobias suggests three versions of a Cookie Jar Experiment, which over a month can viscerally and intuitively teach the magic of compound interest to your kids.

 

  1. Version One.  Offer your kid $1 on day one, and put it in the cookie jar.  Offer to add 10% per day in interest growth on that original $1.  Thereafter – Day 2: $1.10 in the jar, Day 3: $1.21, Day 4, $1.33.  After a month you’ve got $17.45 in the jar, which shows how powerful 10% compounding can be, even if you begin with just $1.  Tobias suggests you probably won’t continue the experiment to the end of Month 3 ($5,313) or Month 6 ($28 million) but of course, that’s up to you and your own resources.  While ‘real life’ doesn’t let you compound that quickly on a daily basis, the experiment lets you demonstrate the amazing power of compound growth. [NOTE: I have since done this experiment with my oldest daughter, which I wrote about here.  And then a follow-up post on the same topic here, as this allowance experiment is even better than I first realized.

 

  1. Version Two.  Between your two kids, you offer the same deal, with a twist.  If one of them is willing to skip the first three days of interest accrual, they can get something desirable like a chocolate bar.  After they finish fighting over the chocolate, you run the experiment for two months.  The kid who went hungry has $304, while the ‘lucky’ kid who got the chocolate only has $228 in the Cookie Jar at the end of 60 days.  Lesson: Start saving early because it’s the earliest accruing period that matters the most.

 

  1. Version Three.  Run the same experiment, but use the interest rate associated with many credit cards, like 20%.  Start adding money to the $1 at a 20% growth rate and label this ‘Credit Card’ growth.  On day 19 the ‘credit card’ account has grown to $32, versus the $6 that the original savings at 10% per day grew to.  If you run the comparison all the way to day 35, the difference is $590 for the credit card account versus $28 for the ordinary 10% growth account.  The key to this version is pointing out that some people scrimp and save and achieve some growth on their savings, while others pay huge amounts to credit card companies.

 

I taught a personal finance course last Spring, for bright college students, and I plan to do the same next Spring.  One of my frustrations was with the textbook we used, a dry-as-dirt tome written by CPAs, seemingly for CPAs.  My co-teacher and I ended up hardly ever referring to it, because how can you expect anyone to read such a thing?

Unless I can come up with something better real soon, the students will get assigned Tobias’ book.  I think it’s all they need.[4]

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

Only Investment Guide You'll EVER Need
Only Investment Guide You’ll EVER Need


[1] It doesn’t actually pain me to say this.  I use that turn of phrase to capture the sense of the Oscar Wilde aphorism “Every time a friend succeeds, a little something in me dies.”  And Tobias is not a friend, but rather, I am jealous because I’m attempting to write a personal finance book, and Tobias has done such a good job with his.

[2] Tobias is a fan of the hyperbolic title, such as his excellent and funny My Vast Fortune, which I reviewed last month.

[3] He apparently carries Crystal Light powdered packets when he travels to save on beverages, buys canned goods by the pallet at Costco, rarely accelerates his car (to save on gas), checks his bank statements for errors every month, and has substituted cubic zirconium for diamonds in any jewelry purchases he ever made.  In a related story, his net worth is above 99% of the people reading this right now.

[4] Until my book comes out, of course.

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