IPOs For The Everyman

In August I received an invitation by mail – complete with an offering prospectus and stock order sheet – to subscribe for shares in the initial public offering (IPO) of Ponce de Leon Bank, a Bronx, NY-based savings institution where I have a CD.

IPOI’ll admit upfront I barely know anything about Ponce de Leon Bank. I walked into a bank branch in northern Manhattan in 2002, specifically hoping that one day I’d be invited to participate in their IPO. My plan worked, a mere 15 years later.

In September I put in my order for PDLB at $10 per share.

The stock opened at $14.90 on October 2nd. Go me!

I don’t want you to think I normally get invited to participate in IPOs, which are generally reserved for institutions and extremely high net-worth people. Like, normally if you don’t have $100 million with a brokerage firm, it’s not worth asking about getting into the offering. The key to participating in this IPO is that I am a depositor, and Ponce de Leon Bank was a “mutual bank.”

Of the estimated 5,787 FDIC-insured banks in the United States an estimated 577 of them are mutually-owned banks , which means they were not founded by private or public investors, but rather by depositors.

That means that when the bank management of a mutually-owned bank decides to go public – as quite a few banks decide to do each decade – the first people in line with rights to buy shares are its depositors. Like me. Also interestingly, although I opened just a $1,000 CD at Ponce de Leon Bank back in 2002, the offering prospectus gave me (and every depositor) the right to order up to $300,000 worth of shares. I didn’t, but the cool possibility is that I might have. A boy can dream, right?

Normally I’m opposed to even attempting to participate in IPOs, since the information-disadvantage between buyer and seller is too great. What I mean by that is that when startup owners and private equity owners of companies decide to sell shares in an IPO, they generally know far more about the business than do the purchasers of shares. Since the insiders are selling – the very definition of an IPO – it seems illogical to be overly excited as an outsider to buy. Even Warren Buffett agrees with me. Ok, more like I agree with him, when he wrote that “It’s almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less knowledgeable buyer (investors.)

initial_public_offeringBut at least in this respect mutual bank IPOs are different. There is no “insider-owner” who decides to sell shares, since the owners are the depositors of the bank. The management of the bank – the board, president and key executives – is a kind of insider-group, but they also generally line up to purchase shares in a mutual bank IPO. They are certainly not selling. They can’t, since they are not owners.

As always, investing involves risk, and buying shares in a bank I don’t know anything about isn’t something I’d normally recommend. And yet, mutual bank IPOs that I’ve participated in since 2002 have a positive track record overall.

Third Federal Savings and Loan (renamed TFS Financial Corporation, TSFL) popped from $10 to 11.8 on its the first day in April 2007.

North East Community Bank (renamed Northeast Community Bancorp, NECB) traded to 11.25 on the first day in July 2006.

Atlas Bank, purchased by Kearny Financial (KRNY) ended its offering on the first day 10.9 in 2015.

I managed to lose money on Sound Community Bank (SNFL) in January 2008 and Cape Bank of New Jersey (CBNJ) in March 2008. I explain those anomalies as “everything risky lost money in 2008.” Those IPOs both opened below $10 per share, and I sold shares in both at a loss.

There have been a half-dozen others I’ve participated in since 2002, all up something after the IPO except for those two in 2008.

As with all investing opportunities that diverge from my 6-word investing mantra – Buy equity index funds! Never sell! – I’m not saying you should necessarily do this. There’s a real hassle factor involved in this mutual bank IPO hack. Bank statements and privacy notices fill up my post office box throughout the year. My accountant thinks I’m bizarre, collecting and reporting tiny amounts of interest from numerous banks. If I keeled over and died tomorrow, would my wife be willing or able to track down the 31 different CDs and savings accounts I have at mutual banks scattered around the country?

For the record, I own none of these shares now, nor do I own any individual stocks in my portfolio for that matter. With mutual bank IPOs, I generally sell at the earliest possible moment because, like I said, I don’t know anything about these banks.


Please see related posts:

Facebook IPO

Twitter IPO

How To Invest – Keep It Simple



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Check Out This Acorns Thing


I downloaded a fin-tech app called Acorns a few weeks ago. I recommend you drop this blog post now, text your favorite twenty-something, and make sure they’ve downloaded this thing already. I am now an evangelizing convert.

Here’s a short list of problems many people have in getting started investing and building wealth.

  1. No money (duh, obviously)
  2. No time to figure out investing
  3. No interest in following stock and bond markets
  4. No confidence navigating investment choices
  5. No plan for ongoing automation of investments
  6. No experience avoiding high-cost service providers

Each of these problems afflicts twenty-somethings even more than the rest of us.

And yet, as any fifty year-old who wakes up from a few decades working and paying down debts learns (when they finally make that appointment with an investment advisor) even small amounts of money socked away decades ago would have made the problem of retirement and wealth-building so much easier.

But how does anyone even begin? As I’ve mentioned before, beginning is perhaps the hardest part of investing. Enter Acorns.

Endorsing a product

Now, I really hate to endorse a specific product or company when I write about finance topics, because part of my whole “ex-banker in recovery” identity is to form opinions without the reality – or even appearance of – “selling a product.”

Having said that, I’m almost annoyed with myself to say: this is an awesome product and every investment beginner should be using it. The crazy thing about Acorns is that they’ve addressed all six of the problems I listed above.


No money?

The app invites you to begin with an initial $5 bank transfer. The app’s opening pitch is that it will invest your “spare change.” They use a technique Bank of America pioneered about 10 years ago, which was to “round up” little transactional odd-lots – the equivalent of pocket change you’d throw into a coin jar at the end of the day – and invest it for you. Acorns tracks these spare change amounts from all accounts you choose to link – such as a debt, credit, or checking account – and automatically transfers it into an investment account. Pretty clever.

No time?

The app took about 5mins to get started, and another 3 minutes that first day entering a bit of personal data and linking bank accounts. I never spoke to a live human, which is great. I never set aside time to do it. I set it up on my phone, in between my kids talking to me about their day.
“No, sweety, I didn’t really listen to your story about the turtle. Can’t you see Daddy’s moving money around with his phone? This is 2 minutes of sacred Daddy-time.” (I’m a really good parent.)

parenting with phone

No interest?

After about 2 minutes of entering personal information, the app suggests one of five portfolios on a risk spectrum from “Conservative” to “Aggressive.” Each of these is built from a blend of Exchange Traded Funds (ETFs) to get you exposed to bonds and stocks, but without having to know anything about these things. While I personally find markets fascinating, I think the ultra-simplification makes sense for everyone who finds stock and bond markets utterly dull.

No confidence?

With no investment choice to make beyond one of five portfolios on a risk spectrum, app users don’t get stuck by the deadly indecision-problem – what behavioral economists call “the paradox of choice” – in which we avoid something entirely because we can’t face the problem of choosing between too many options.

Based on my age, income and wealth, the app suggested the merely “Moderately Aggressive” portfolio for me.

Bitching Black Camaro because YOLO

“Are you calling me old?” I hissed angrily into my phone. I chose the “Aggressive” portfolio instead, like the middle-aged man who rents the black Camaro convertible because #YOLO.

No plan for automation?

This, right here, is the most powerful part of the Acorns app, since automation is the key to moderate-income people getting wealthy. The app continuously pestered me to commit to an automatic investing program, either daily, weekly, or monthly, and in any amount, from as little as $1 per transfer. It prompted me so many times that I finally agree to do it weekly, in an amount affordable to me.

By the way, nobody’s accumulating much money based on the “spare change” gimmick I described above, but this automated-invested feature is what will make a twenty-something a millionaire in the long run, with hardly any suffering along the way.

Cost avoidance?

Acorns charges $1/month until you get $5,000 with them, after which they charge 0.25 percent per year on your portfolio. This is the kind of rock-bottom robo-advisor fee that has the investment advisory business a little freaked out right now. I like it.

Acorns’ limitations

Can I come up with some criticisms of this thing? Of course I can.

  1. I personally wouldn’t choose a blend that includes even the 10 percent corporate and government bonds I got – despite the fact that I chose “Aggressive” as my allocation. Fortunately my “Aggressive” Acorns allocation is 90 percent risky, the way I like it.
  2. A person confident and informed about investments could do all of what Acorns does without paying the Acorns fees, obviously. Their fees are low, but yes you could do this yourself, fee-less.
  3. The simplicity of the app does not allow for a complete suite of investment activities. I happen to think simplicity almost always works better than complexity when it comes to our personal investments, but of course the entire money management industry is built on the opposite idea – the conceit that complex tools help us “beat the market.” Not only can you not execute butterfly call spreads or hedge foreign-exchange exposure with Acorns, but you can’t even buy individual stocks. Again, that’s a feature not a bug from my perspective, but shockingly not everyone sees things my way. (Not yet they don’t.)
  4. If you already have some wealth, and your system works for you without too much cost, Acorns seems mostly unnecessary. It’s definitely geared toward the “just getting started” crowd.

On the other hand, I’m not even the right demographic for Acorns, and I’m a total convert.

So…basically…like, download this thing right now.

A version of this post ran in the San Antonio Express News.

Please see related posts:

Getting rich slow through automation and small regular contributions

Getting started is the hardest part of investing

Automation may be the most important feature of your investment program

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100 Percent Risky Even In Retirement

99_percentI’m only writing this for the 99 percent of people who are not yet wealthy.

If you are already wealthy, you can choose to ignore this advice, or follow it or whatever, but I realize you have other choices. If you are not already wealthy, however, ignore the following advice at a high risk to your wealth prospects.

Before I tell you my advice, however, I should mention that it stems from this First Principle: The only way to (legally) achieve wealth in your lifetime is to own (a) profitable business(es).

For people who already own a business – whether startup entrepreneurs, partners in a law firm, or inheritors of Daddy’s machine shop – you’ve already got your business ownership. You own your ticket to wealth already. My advice applies less well to you.

For the rest of us not yet wealthy types, we need to buy pieces of other people’s businesses to get there. The easiest place – not the only place, but the easiest – to buy these little pieces is in the stock market.

100% Stocks?

Ok, from that first principal, I can now get around to the point of this post, which is to answer the frequently pondered question: “What percentage of my retirement funds should I dedicate to stocks, instead of bonds?”

My answer: 100 percent.

stocks_vs_bondsYou may now be tempted to ask me if I say 100 percent stocks because I ‘like the market here.’ Or, aren’t I worried about current market levels and the coming correction? No. I don’t mean that at all. This has nothing to do with any current views of stocks. I have zero opinion about all that. That’s all irrelevant daily noise generated by the Financial Infotainment Industrial Complex.

Play the odds

My argument in favor of 100% equities rests on one foundation:

Probability theory.

Stocks (I mean diversified, not individual, stocks) go up most of the time, and they go up more than bonds, most of the time. The more time you have to leave your money to grow – such as with retirement money, which is by definition “for the rest of your life” and possibly beyond – the more the laws of probability work in your favor.

Stocks beat bonds 60 percent of the time in any given year, 70 percent of any 5 years, 90 percent of the time in any 10 years, 95 percent of the time in 15 years, and nearly 100 percent of the time in any 20-year period. And the ‘beating’ is huge.

Retirement money, even for a retired person at aged 65, probably needs to last for 20 more years, so I still think 100 percent stocks are still the best bet, even in retirement.

Not a bond hater

And by the way, I don’t hate bonds.

I’m a former bond guy. I love bonds for what they do decently well, which is to preserve nominal wealth. So, if you already have enough wealth – as I mentioned at the beginning – go ahead and buy those bonds.

Also, to clarify – some bonds are in name only. I used to traffic in emerging market bonds and distressed mortgage bonds. These are “bonds” in name and structure only, but are really like stocks in their risk, volatility, and potential returns. So when I say 99 percent of us can’t afford to own bonds in retirement accounts, I really mean bonds of the plain-vanilla riskless variety. Also, when I say bonds, I really mean to include bond-equivalents, like cash, money markets, CDs and annuities. Ok, that’s all the clarifying I’ll do for now.

Arguments Against Me

Almost all investment advisors disagree with my 100 percent recommendation, and the smart ones have powerful voices on their side.

Hedge fund “quant” Cliff Asness published an influential paper in 1996 in which he argued that a blend of 60 percent stocks and 40 percent bonds (which pretty much all investments advisors endorse) will perform better than a portfolio of 100 percent stocks, because you get more return for every unit of risk in the portfolio. To most efficiently get a return from your units of risk and achieve an even higher return than would be available with 100 percent stocks, Asness further argued, you could theoretically use borrowed money to purchase more stocks – using ‘leverage’ in finance parlance.

stocks_bonds_since_1801Josh Brown, a writer and investment advisor I admire, made the case earlier this year for diversification with bonds, on the strength of the idea that few people can stomach the wild ride of 100 percent stocks.

He joked that the only people who should have 100 percent stocks are people “in a coma of indeterminate length,” or people who are “going to be living on a desert island for two decades without access to TVs, radios, the internet or Barron’s.”

Math and Psychology

Combining Asness and Brown’s views, we can see the arguments against 100 percent stocks in retirement are both mathematical and psychological. Mathematically, Asness says, a “units of risk” analysis suggests diversification through bonds to invest at the efficient frontier of risk and return.

To which argument I would reply that non-hedge fund people don’t buy beer in retirement with “units of risk,” but rather with actual money. And your money will grow faster, over twenty years, in 100 percent stocks.

Also, Asness’ recommendation about using leverage (borrowed money) in order to maximize your return as well as to efficiently maximize ‘units of risk’ isn’t so relevant for non hedge-fund investors either, for whom leverage may be either unavailable, or downright dangerous.

Psychologically, Brown argues, hardly anybody can stomach the ups and downs of the inevitable market booms and busts, and our inability to ‘do nothing’ in the face of the roller-coaster will undo our portfolio gains. I agree with Brown that many can’t handle the volatility. I’m unconstrained by that psychological component, however, when giving advice here.

What I mean by that is that I’m not your investment advisor. I don’t worry about losing you as a client, and therefore some of my own income. I can tell you the ‘right thing’ for long-term wealth and not worry about whether we’ll have a difficult fight half-way through our relationship when the crash happens and you want to bail out of stocks, and fire me as your advisor. (FWIW: Don’t bail! Never sell!)

You want to know what I really think about 60/40? My cynical view of the investment advisory business – if you catch me in a grumpy mood – is that the 60/40 split that everyone advocates is about client retention rather than maximizing client wealth.

Since you’re not paying me, ironically enough I’m freed up to say what you should really do. I’ve got nothing at stake if you take my advice or not. If you want the most money in the end, you have to be psychologically steeled for the roller-coaster ride in your investment portfolio. It may feel horrible. But that may be what is required to get wealthy over your lifetime.


A version of this ran in the San Antonio Express News


Please see related posts:
Ask an ex-Banker: Should I also own 100% stocks?

The case for stocks over bonds


A video discussion of this post here:


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Never Sell! A Disney and Churchill Mashup

In November I took my five-year-old’s life savings (mostly tooth-fairy money and birthday gifts) and bought her 4 shares in Disney stock via a custodial (UTMA) account.

Fellow readers of If You Give a Pig a Pancake will already be familiar with the idea that certain actions lead inevitably to reactions. You see, if you give a pig a pancake, next thing you know she’s going to want syrup. And if you give her syrup, she’s going to get all sticky and ask for a bath.
And if you buy Disney shares with your five year-old’s tooth-fairy money, next thing you know you’re going to walk into her room to say good night, and…


“Yes, Sweety?”


“I want to sell my Disney shares.”

“Um, what? No. No! NO! Stop!”

“But I don’t like that all my money is gone from my bank.”


You see, right there, that’s the problem with five-year-olds and their stock portfolios. They buy the thing and then they want to sell it.

Actually, no, that’s not the problem of five year-olds.

That, right there, is the problem with all people and their stock investments. They want to sell them. They don’t like that the money leaves their bank account. And the value can go down. I’m here to say: Don’t sell. No matter what.

The whole darn thing won’t work if you sell.

Magical Fairy Dust

You see, stocks produce magical pixie dust if you treat them right. Buy them in diversified bundles (like a mutual fund!) Then treat them with benign neglect over the next, say, thirty years, and you will be rewarded with a pot of gold at the end of the thirty-year rainbow. Tinkerbell herself couldn’t produce anything more magical than your diversified – hopefully low cost! – mutual fund.


Ok, let me stop here for moment. Maybe pigs, pancakes, pixies and pink castles are not getting the message of NEVER SELLING across strongly enough.

Let me change the channel so abruptly you will be left breathless. For our next analogy, let’s go to the darkest moment in Western Civilization over the past century.

Never Give In

I’ve been reading a lot about Winston Churchill’s life lately. I can’t recommend William Manchester’s three-part biography series The Last Lion highly enough. Summarizing 3,000 pages of Manchester’s biography into a three-word motto for Churchill’s life would go like this: “Never Give In.”

In 1940, when the Nazis controlled all of Europe between Norway and Greece, with America isolationist and Russia in a cynical alliance with the Nazis, and only the British, alone, standing against Hitler, Churchill never gave in. As he said in 1941, before the US entered the war:

Never give in, never give in, never never never – in nothing, great or small, large or petty – never give in except to convictions of honour and good sense.”

The Nazis embodied the darkest, mostly beastly version of humanity. They built the greatest military force Europe had ever seen, fueled by sadism, racist ideology, and terror. First Czechoslovakia, then Poland, then Norway, Holland, Belgium and finally France succumbed in mere weeks to brutal blitzkrieg invasions. Imagine today’s ISIS, only they had already conquered all of Europe, with the largest and best-trained army in the world, led by a charismatic psychopath fulfilling his long-promised destiny of racial genocide.

England, with Churchill at the head, stood alone. Prominent members of the British government in 1940 called for making the best peace compromise possible with Hitler. Hitler himself assumed Britain would ask for a peace settlement, so he could focus on conquering his next goal, Russia.

Churchill never wavered.

On June 4th, 1940, having lost ally France in a matter of weeks, and having barely escaped with the tattered remains of the British Expeditionary Force from Dunkirk, Churchill never considered capitulation to the Nazis. He relayed the defeat to the House of Commons, but said:

“We shall go on to the end, we shall fight in France, we shall fight on the seas and oceans, we shall fight with growing confidence and growing strength in the air, we shall defend our island, whatever the cost may be, we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall never surrender.

Never Sell
Bucked up by that example of Churchill’s spirit, let me re-summarize my approach to stocks: “Never Sell.”

“Never, never, never, sell.”


Can I be any clearer?

But, but, but

But interest rates are going up!

But the Democrats (or Republicans, or Trumpians or whomever) might win and everything’s going to collapse!

But oil prices!


Stop being a five-year-old. Be Churchill.

Incidentally, at times, she unveils her stubborn Churchillian resolve to never give in, like when I ask her to put on her shoes when we’re already late to get somewhere.

Can you picture me, scaring the living daylights out of my five year-old with this Churchillian bedtime story about never never never never selling? Don’t worry, I didn’t do that. (As far as you know.)

I can assure you of this: She will not be selling her Disney stock.


Please see related posts:

Tiny person owns tiny piece of a big company

Daughter’s first stock investments

Mutual funds v ETFs

How Much Do Costs Matter?




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Book Review: The Richest Man In Babylon by George S. Clason

My taxi driver to the airport – upon hearing I was a ‘finance guy’ – told me all about The Richest Man in Babylon by George S. Clason, a book which changed his life.  From this one book, my driver told me, he had built his life plan for savings, investments, and wealth creation.

I had never heard of the book, and, of course, the fact that my taxi driver told me about the book reminded me of the classic sign of a frothy stock market: Be very cautious, for example, when the doorman in your building starts swapping stock tips with you.

I needn’t have worried, and I’m glad I set aside my initial snobbery and skepticism to read this. 

Clason wrote and distributed a series of “Babylonian parables” in the 1920s in pamphlet form,[1] stories that later gathered wider distribution through banks and insurance companies throughout the 1930s.

The parables read like traditional biblical tales – like the Fishes and Loaves, or the Prodigal Son –  full of Thy And Thou, Giveth and Taketh.  We meet slaves and camel-traders, brick layers and money-lenders, soldiers and scribes.

Like all good parables, the stories are short, simple, and may be summed up at the end with a pithy phrase.  They are also memorable, credible, and true. 

In one chapter Dabasir, the camel-trader, relates the story of his long journey from slave to camel-trader to fat merchant through luck and determination, but most importantly the habit of living below his means.  Beginning from poverty and deep indebtedness, Dabasir figures out how to live on 70% of his income, dedicating the remaining 20% to paying his creditors, and 10% to “paying himself,” through savings and eventually investment.  The result, over time, is a debt free and eventually prosperous living.

The parables’ simplicity does not imply banality, but rather the permanence of a set of basic laws about money.   Although Clason wrote them nearly one hundred years ago, it’s not absurd think that wealthy Babylonians, three thousand years ago, could have actually passed on these stories contained in The Richest Man in Babylon. 

The plain fact: Financial wisdom doesn’t really change from millennium to millennium.

The vast majority of us go through life wishing we had a simple, memorable set of rules on complicated topics like love, faith, death, personal fitness, and of course, money. 

Because these topics seem to combine mysterious, personal, taboo and embarrassing elements we gather information from weird, flawed sources.  We trust pop songs to learn about love and sex.  We consult people like Deepak Chopra on faith.  We pretend, against all evidence to the contrary, that death is avoidable, or some kind of failure of life. We let some guy with great abs on late-night TV and a set of unproven nutritional supplements or an exercise gadget determine our fitness regime.

Our relationship to money is the worst of these failings, because we’re all such easy marks.  The Financial Infotainment Industrial Complex knows that people who think they need more money (that’s all of us), with a fundamental ignorance about money (that’s most of us) are easily separated from our money.  Most of what the Financial Infotainment Industrial Complex has to say about money is the opposite of wisdom about money.

It’s wrong, expensive, and misleading.

Can I give you some advice about money? 

Turn off the damn television, lower the volume on the radio, peel your eyeballs away from the Interwebs for a day, and read some Babylonian parables.  There’s more simple goodness here than a year of the other crap. 

After you finish, pass it on to a young person who can use the advice too.

You’re welcome.

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


[1] The early 20th Century version of a financial blogger!

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