A Free Education

. December 5, 2011

Reading as a form of self-education becomes more important the older a person gets. After college, reading becomes the primary form of self-education.

One of the best ways for a job applicant to elevate himself to the #1 position is to maintain a blog with book reviews and articles on topics related to the field the person wants to work in.

Getting good grades in college shows that the applicant has read in his field, but maintaining the blog shows that it is likely that he will continue to read widely and educate himself. It's an education with no tuition for the employee and no cost to the employer: a win for both.

Since one of the keys to self-funding is to earn more and spend less, preferably in a career where you can find fulfillment through service, it makes sense to make the most of your opportunities when applying for jobs.

Great Reads: A Flood of Trading Links

. November 15, 2011

Don't say I didn't warn you.

Trading and Investing

The Ivy Portfolio vs. Ivy League endowments last year. (Mebane Faber)
Trend-following indicators reduce downside volatility. (MarketSci)
When momentum is poor, sell out. (Research Puzzle
Ideas about volatility-adjusted relative strength. (CXO Advisory)
Individual stocks mean-revert from month to month; industries trend. (SSRN)
Anomalies like momentum and value to go in and out of style. (CXO Advisory)
Selling puts or calls according to trend. (CXO Advisory)
Managed futures can save your tail. (Steven Koomar)
Investors allocate to the wrong asset class at the wrong time. (Mebane Faber)

A Softer World: 703
Software and brokers for options trading. (Condor Options)
Yes, bonds can be volatile instruments. Surprised? (ETF Replay)
Investing lessons from a pianist. (Marc Faber)
How to explain short selling to your mother. (BC Lund)
Are you a deranged trader? (Surly Trader)

In complex transactions involving a lot of people, be cynical. (Aleph)
"Never, ever take counterparty risk." (Reformed Broker)

It may be cheaper to buy ETF's than mutual funds. (Mebane Faber)
"Funds of funds face a huge hurdle because of the high fees." (Mebane Faber)
Can active managers add value when everything is correlated? (ETF Replay)
Commodity indices behave like mostly energy. (MarketSci)
Asset classes are becoming more correlated. (MarketSci)

Some of hedge funds' returns come from liquidity risk. (CXO Advisory)
Be careful about shorting that VXX. (MarketSci)
The state of short-term mean reversion. (MarketSci)
What happens to P/E ratios when rates and inflation change? (Mebane Faber)

Average market performance on the last day of the quarter. (MarketSci)
Average market performance on the first day of the quarter. (MarketSci)
The stock market tends to be strong in the fourth quarter. (MarketSci)
Dividend payers: less volatility and a significantly higher return. (SurlyTrader) 

Affordable Living

If you were a millionaire, would you act like one? (Reformed Broker)

An emergency fund can indirectly provide a good return on the money. (Aleph)
How to extend the life of laptop batteries. (Education Tech News)
Affordable ways to create gifts for men. (She So Crafty)


Blogging is like working out. (The Basis Point)
How to find a job in finance. (Aleph)

Man Links

The importance of trusting men in your circle. (The Art of Manliness)
Are you a spectator or a doer? (The Art of Manliness)
Leaders lead people through fear. (Donald Miller)

Stop living for the approval of women. People-pleaser. (Art of Manliness)
Don't live for your mother's approval, either. (Art of Manliness)
Men, stick to your guns. (Art of Manliness)

How to improve your posture. (Art of Manliness)
The power of morning and evening routines. (Art of Manliness)
How to be the perfect party guest. (Art of Manliness)
Ten cheap date ideas she'll actually love. (Art of Manliness)

Marriage and Family

The personality types that make the best matches. (Personality Page)

Society and Worldview

Churches, are you sure you want your young adults back? (Immerse Journal)

Hypothesis: the efficient market hypothesis led to the financial crisis. (Aleph)

It costs 2% to 5% of GDP to file taxes. Not pay, just to file. (Dan Dascalescu)
Washington, D.C. is booming. What recession? (Reformed Broker)

The Facebook Gross National Happiness indicator. (Facebook)
Welcome to the genomic revolution. (YouTube)

Christian Living

How to stop worrying. (Max Lucado: part 1 and part 2)
"God understood Elijah's weary despair, and he let him sleep." (CCEL)


Get rid of line breaks that bother you when you copy from the Web. (Text Fixer)


Why go to college? (SurlyTrader)
Watch out! (Signs of Danger)

Scary church signs. (Ed Stetzer)
How different Christian denominations see each other. (Ed Stetzer)

How to win at Monopoly: buy the orange properties. (BBC)

Penguins attack:

Life is the Adventure


I volunteer for Habitat for Humanity on the weekends. I may not enjoy painting my own house, but I like doing it for others.

What words would you use to describe a short-term mission trip? Perhaps not fun, but worthwhile? Difficult? Significant? Memorable? Exciting?


The word adventure sums it up for me. We team up and face challenges, overcome them, and come out the other side having achieved a memorable goal. We rescue people. Maybe someone even gets the girl.

Why do we compartmentalize life? Painting is a chore, but Habitat for Humanity is fun. Preparing a lesson is boring, but a short-term mission trip is a thrill. Playing with the kids is tiresome, but soccer is real football.

It's tempting to grind through life waiting for the next great thing. Besides being tedious, the problem with this is that life today may be a preparation for that great thing, but you're not enjoying it.

Some of us may even find that life itself is that great thing, that it was right in front of us all along, and that we can change the world right where we are.

Whistle While You Wait

Time produces compound growth, both for money and for wisdom. If you save money and wait long enough, you'll eventually be able to fund a great adventure.

In the meantime, think about what makes adventures fun. What can you do to make painting the living room more like Habitat for Humanity? Maybe you can bring in a big group, serve them lunch, and let them debate philosophy while splashing paint on each other.

How can playing with your kids become more like a soccer game for you, not just for them?

What if life is the adventure?

Book: Mr. China

. November 10, 2011

Those of us who thirst for adventure get more than we bargain for. Such was the case for Tim Clissold, who moved to China in 1990 in the wake of Tiananmen Square, learned Mandarin, and raised more than $100 million of Wall Street's money with the intent to profitably transform Chinese businesses.

He discovered that the Chinese weren't numbers on a spreadsheet. They were real people, full of guile and greed. Successful business in China meant breaking contracts, speaking in half-truths, secretly moving money around, and staying one step ahead of a controlling but disorganized Communist government.

Chinese businessmen took Wall Street's money and then drove their factories into the ground, moving the capital to other bank accounts so they could start their new, competing factories. They had learned to live by their wits in a Communist world. Why treat these American foreigners any differently?

In the end, Clissold got taken, but so did all the American efforts to invest in China. The fund he helped manage lost money, but it was the only China fund to survive the 1990's intact. Meanwhile, local Chinese companies went public, China's stock market soared, and the standard of living rose rapidly in the coastal cities.

What Can We Learn From This?

As an investor, stick to what you understand. Clissold had a thesis that China was on the verge of a capitalist transformation. He was right, but he lost money. Buying private businesses in a foreign country and trying to improve the management is a venture fraught with difficulties, since there are so many variables to control and even more that we can't see.

If you have an investment thesis but not extensive expertise, it can make more sense to express that thesis by trading liquid markets (stocks, funds, and futures) than to start a business. Managing a business also concentrates your risk. Unless you have a high net worth, it ends up concentrating all your risk in one place, and you can't get out easily if you decide it's not working out.

I used to romanticize the idea of going overseas, as I'm sure many others do. After years of working in China, Clissold's fund lost money, but he learned to appreciate the Chinese as a people rather than just an investment. If this is the main lesson you learn while overseas, will you be satisfied with your life? Yes is a good answer but not an easy one.

I'll leave you with an excerpt from the inside flap:

The idea of China has always exerted a pull on the adventurous type. There is a kind of entrepreneurial Westerner who just can't resist it: red flags, a billion bicycles, and the largest untapped market on earth. What more could they want? After the first few visits, they start to feel more in tune and experience the first stirrings of a fatal ambition: the secret hope of becoming the Mr. China of their time.

In the 1990s, China went through a miraculous transformation from a closed backwater to the workshop of the world. Many smart young men saw this transformation coming and mistook it for their destiny. Not a few rushed East to gain strategic footholds, plant their flags, and prosper. After all, the Chinese had numbers on their side: a seemingly endless population, a thirst for resources, and the tide of history. What they needed was Western knowledge and lots of capital. Or so it seemed...

Mr. China tells the rollicking story of one man's encounter with the Chinese. Armed with hundreds of millions of dollars and a strong sense that he and his partners were -- like missionaries of capitalism -- descending into the industrial past to bring the Chinese into the modern world, Clissold got the education of a lifetime.

The ordinary Chinese workers, business owners, local bureaucrats, and party cadres Clissold encountered were some of the most committed, resourceful, and creative operators he would ever meet. They were happy to take the foreigner's money but resisted just about anything else. At every turn, the locals seemed one step ahead of Clissold's crew threatening to take the Westerners for all they were worth.

In the end, Mr. China isn't a tale of business or an expatriate's love for his adopted land. It's one man's coming-of-age story where he learns to respect and admire the nation he sought to conquer.

Book Review: How Women Help Men Find God

. October 23, 2011

Jesus wasn't a nice guy. And neither should you be.

Few of us have heard the above sentiment expressed in church, let alone explored. Yet, after reading the gospels, it's hard to come away with the impression that Jesus was a safe, predictable person who would have made a good churchgoer.

Can you imagine one of your church's deacons grabbing a flesh-eating whip and creating instant pandemonium in God's house of worship, driving out money changers and overturning their tables?

What Would Jesus Do?

Here's a selection of Jesus' "nice guy" stories from Mark 11 alone: 

He curses a fig tree and says, “May no one ever eat fruit from you again.” Peter notices later that the fig tree has withered.

After driving the money changers from the temple, he says “Is it not written: ‘My house will be called a house of prayer for all nations’? But you have made it ‘a den of robbers.’ ” This definitely isn't perceived as a nice saying, as it prompts the religious authorities to fear Jesus and begin looking for a way to kill Him.

Instead of answering a question, Jesus shoots back more questions. When His questioners fail to answer, Jesus ends the conversation on His own terms (vv. 27-33).

What Have We Done?

According to David Murrow's book How Women Help Men Find God, we've spent the past half century making church a safe, predictable place where families can gather and children can be protected from a cruel world. The unintended consequence is that men now perceive church as a place where women can be safe and successful, and they've shifted their lives to center around things that are culturally perceived as manly, such as work, hobbies, and sporting events.

Murrow thinks that women can help bring men back by being gentle witnesses and by making sacrifices to make church more appealing to men. We can change the decor, create volunteer opportunities men can feel fulfilled in, make our churches more theologically oriented (and make arguing about theology okay), and intentionally encourage discipleship between men.

While all this is important, it dances around something more central, which is the what that is passed down by good theology and man-to-man discipleship. That something is what it means to live the Christian life as a man.

The Art of Manliness

I've written about this before: for example, check out How to Trade Like Zorro. When I step back, though, I think we are rushing to catch up with what those outside of the church have realized for a while now. We no longer live in a culture that understands what it means to be a gentleman, an honorable guy who defends others but has the strength to stand up for the interests of his own family.

We're happy to tell our sons to be nice like Jesus was (whatever that means). Then they get married and feel they have to bend over for that life insurance salesman who pushes the most expensive policies so he can get a big commission up front. We teach our men to be nice, but they're suddenly supposed to summon supernatural courage to share their faith at work or do the right thing at a great cost.

Dave Murrow's books are a great start, but they're also a late start, as the case usually is when the church tries to address a contemporary problem. Non-Christian sites like the Art of Manliness provide a wealth of insight about being men in this relativistic culture. The effort we put into taking every thought captive to the obedience of Christ will be worth it.

If you're really brave, take a look at this parody of our Christian-ized view of masculinity:

Mad Markets

Growing in masculine maturity has a side benefit: It will make you a more effective trader and investor. Markets are driven by fear, greed, and crowd behavior. This creates profit opportunities for us, but only if we're willing to go against the crowd at turning points in the market.

In the moments when we're most tempted to buy or sell, it takes a lot of internal strength to do the opposite. If you're a people-pleaser, you'll always face the strong temptation to do what others tell you to do, even if your trading systems tell you otherwise. Markets are rough on nice guys: just ask Sir Isaac Newton.

Like Zorro, you can follow the crowd when it suits you and buck the trend at the right time. The less other people are able to manipulate your beliefs, the more control you'll have over how you respond to the markets.

I'll leave you with an excerpt from the back cover of How Women Help Men Find God:
Millions of married women worship alone every Sunday. Mothers grieve as their teenage sons abandon the faith. Single women search in vain for godly men.

In this dynamic follow-up to his best-selling Why Men Hate Going to Church, David Murrow speaks directly to women to help them understand the real reasons men resist Christianity. It's the first book of its kind - written to help women reach all the men in their lives - not just their husbands. With straight talk, personal stories, and a dose of good humor, David shows women how to draw men to Christ - without guilt, manipulation, or pushy evangelism.

Volatility Does Matter

. October 1, 2011

On the whole "volatility doesn't matter" thing: Yes, it does.

Imagine if you had a guarantee that your stocks or silver or whatever would be worth in ten years at least what they are worth today. They can't go down.

This Is Indexed: Learning Curves
on Winding Roads
You'd probably feel more comfortable increasing your risk somewhere else. You might start a business, buy a rental property, or take a vacation.

Lower market risk makes you feel more comfortable about taking risk in other areas, and rightly so. People even pay for this privilege: it's called a put option, a form of financial insurance.

If you had a strategy that could keep you out of high-volatility periods of the market, would you use it?

That's what trend-following, a form of momentum trading, does. The market tends to have high volatility when it's going down. Momentum strategies avoid being in the market during those times.

What Happens After the Market Goes Down?

. September 23, 2011

When the stock market has upward momentum, it tends to keep going up. However, downward momentum, like we've had since August, tends to be followed by sideways movement with high volatility, as this post from the MarketSci blog shows. 

It's better to be in Treasury bills than in the market when there's negative momentum. This is both for the lower volatility and to earn interest.

For small investors, this could mean moving to a money market fund until the stock market starts going up again. 

To learn more about momentum, start here.

Great Reads: Should You Buy When the Market's Up or When It's Down?

. September 18, 2011

Trading and Investing

Should you buy when the market's up or when it's down? (CXO Advisory)
A two-year mean reversion effect. (CXO Advisory)
More on mean reversion. (Mebane Faber)

Option selling doubles volatility-adjusted returns. (Mebane Faber)

Do financial firms sell to your rationality or your psychology? (CXO Advisory)

Strategies that short battle the rest of the financial universe. (Slope of Hope)

Old methods of diversification are becoming less effective. (Reformed Broker)
On performance chasing. (Reformed Broker)
The market is becoming more volatile. (Reformed Broker)

The Greek one-year yield was triple digits last week. (Zero Hedge)

Free finance and commodity widgets to put on your Web site. (Oil Price)


On effective promotional marketing. (Internet Marketing Fire)

Twenty-five quotes from Margaret Thatcher. (ListVerse)

"The best writing advice I've ever received." (Donald Miller)

Affordable Living

"How can I afford to stay home with my baby?" (Baby Center)

How to shop for your own health care. (CNBC)

The student loan bubble, illustrated. (Reformed Broker)

Edmond, OK tops CNBC's "Best Suburbs" list. (Edmond Sun)

Walking with God

Dealing with the death of a parent. (Fabs Harford)
Tired of being 'gospel-ed'. (Fabs Harford)


A postman's revenge. (YouTube)

Abstruse Goose: Get it?

Book Review: The Total Money Makeover

. September 17, 2011

In this book, Dave Ramsey lays out a brilliant plan for getting out of debt.  It's brilliant because any rational human being would see it as sub-optimal, but Ramsey realizes something important about human nature. We're not rational.

A rational plan for paying down debt would be to tackle the highest-interest debt first, keeping only what you need for one month in a savings account. An emergency fund would make little sense, as you could borrow from credit cards for that purpose.

Ramsey, on the other hand, realizes that most of us don't have the discipline to follow that plan. If we did, we wouldn't be heavily indebted in the first place. A cash emergency fund meets our psychological desire for security. Paying down the smallest loan first, regardless of interest rate, gives us the chemical rush that comes from successfully getting rid of the first loan payment.

Total commitment to the plan is necessary to override our cultural desire to keep up with the Joneses. The Joneses borrow to maintain their lifestyle. Getting rid of debt requires that we do the opposite. The key phrase in the book is, "If you will learn to live like no one else [frugally], later you can live like no one else [wealthily]."


My one quibble with the book, and it's a major one, is his investing methodology. Ramsey claims that you can make a 12% annual return by buying and holding mutual funds with the best long-term track records. He recommends this asset allocation (p. 157, 2007 edition):

25% Large cap stocks
25% Mid cap stocks
25% International stocks
25% Small cap/emerging market stocks
It's not the 12% that I disagree with. There are simple trading methodologies, such as momentum, that achieve compound annual returns in that neighborhood with low volatility. A market with a high return (momentum) over the past 12 months tends to produce a high return in the following 12 months.

The kicker is that the momentum effect disappears if you look back more than a year. Markets that had strong returns two years ago tend to underperform going forward. This is called mean reversion.

What if a large-cap manager got his track record by investing in a sector that happened to outperform large-cap stocks in general? If that sector mean-reverts, his outperformance will turn into underperformance. Think about home prices, which moved steadily upward from World War II until 2005. Those who bought real estate based on that track record suffered large losses from 2006 to 2009.

If a fund manager uses trading strategies, mean reversion might not apply. Strategies like value (buying "cheap") and momentum (following trends) don't disappear permanently the way the railroad, utility, and communications booms did. But these strategies aren't part of Ramsey's asset allocation.

A long-term track record is only an asset if you have a good reason to think that the manager's outperformance will continue.

Recommended, with Caveats

If you're in debt right now, Ramsey's approach is psychologically tailored to get you financially free. I recommend the book for that purpose. Borrow it for free at the public library.

Once you're out of debt, you can use the income that used to go to debt payments toward self-funding a ministry dream. For this, Mebane Faber's book on momentum investing, The Ivy Portfolio, is a good read. I've also written a post on how momentum works. 

I'll leave you with some excerpts from Dave Ramsey's book The Total Money Makeover:

Having been a millionaire and gone broke, I dug my way out by making a decision about looking good versus being good. Looking good is when your broke friends are impressed by what you drive, and being good is having more money than they have.

Are you starting to realize that The Total Money makeover is also in your heart? You have to reach the point that what people think is not your primary motivator. Reaching the goal is the motivator. Do you remember the circus game where you swing the large hammer over your head to hit the hit the lever to send a weight up to a pole to ring the bell? You reach the point that you want to ring the bell! Who cares if you are a ninety-eight pound weaking with gawky form? The girls are still impressed when the bell is rung. When the goal, not how you look, begins to matter, you are on your way to a Total Money Makeover. (p. 33, 2007 edition)
 Here's a quote from the inside jacket:
Instead of promising the normal dose of quick fixes, Ramsey offers a bold, no-nonsense approach to money matters, providing not only the how-to but also a grounded and uplifting hope for getting out of debt and achieving total financial health.

Ramsey debunks the many myths of money (exposing the dangers of cash advance, rent-to-own, debt consolidation) and attacks the illusions and downright deceptions of the American dream, which encourages nothing but overspending and massive amounts of debt. "Don't even consider keeping up with the Joneses," Ramsey declares in his typically candid style. "They're broke!"

He gives sure-fire ways to build up savings for emergency funds, for your kids' college, and for your retirement, and he supplements this wisdom with heartfelt stories from real people just like you - people who were once languishing in debt but are now flexing their strong fiscal physique.

The Total Money Makeover is all about "renewing your mind," using God's ways of handling money (over 800 scriptures deal with money) to be "transformed" (made over). It's a plan to stop being "conformed" to the ways of the world and as ridiculously broke as the rest of our culture.

And this isn't theory. It works every single time. It works because it is simple. It works because it gets to the heart of the money problems: you.

Book Review: How to Retire Overseas


How to Retire Overseas is the best book I've seen on making a permanent move to outside the United States. It lists fourteen countries where it's possible to have a comfortable, safe middle-class life for less money than in the U.S.

The book rates each country on cost of living, cost of housing, climate, health care, infrastructure, accessibility to the U.S., language, culture/recreation/entertainment, taxes, special benefits for foreign retirees, and education/schools.

The author, who has lived and raised children abroad for twenty-five years, gives specific advice for people in various life situations. She provides details about buying health insurance, which areas are suitable for raising and schooling children, and three countries where it's possible to retire without paying local taxes.

My favorite chapters are the ones about settling in and overcoming challenges and cultural differences. Despite its high cost of living, the United States is still best place for Americans to fit in and get work done. Overseas, it can be a hassle to do simple things like open a bank account, navigate city streets, and make utility payments. Most places don't have the combination of work ethic, infrastructure, and freedom to do business that we have. Despite this book's title and aim, I've become more convinced that there's no place like home.

If you've always wanted to be a missionary but haven't been able to raise the funding, one possible path is to self-fund. For this purpose, I highly recommend reading How to Retire Overseas.

I'll leave you with an excerpt from the inside jacket:

Imagine yourself at home- on the front steps leading to a sandy white Caribbean beach, sitting atop a balcony overlooking the streets in a bustling Latin American city, or inside a hillside villa in Europe- the retirement of your dreams. With a dash of adventure and an ounce of planning, you can turn your fantasies into reality- on any budget, without increasing your bills or sacrificing your lifestyle.

In this definitive guide, author Kathleen Peddicord uses over twenty-five years of experience to show anyone how to retire overseas, with or without retirement income. By providing critical questions for readers to answer, Peddicord helps determine where your ideal overseas home is located. Once you know where you're headed, she outlines how to handle the move itself, and guides you through the process of establishing yourself in a foreign country, including how to:

*Find and rent or own a home
*Research and understand your tax liability
*Establish secure bank accounts
*Obtain health insurance and medical care
*Make friends in your new home
*Avoid common pitfalls and mistakes

With advice from the author's own experience living abroad as well as personal stories from the hundreds of retirees she's helped achieve their retirement goals, this essential guide helps anyone plan for and enjoy a new life overseas- for less money than a traditional retirement in the United States.

How to Trade Like Zorro

. September 11, 2011

Have you heard this song? "Billy, don't be a hero; don't be a fool with your life."

Tom Sosnoff quotes this song to describe traders who put on too much risk and lose everything when the market goes the wrong way. But is there a Christian heroism that involves taking smart risks?

Simmering ideas about heroism came together for me yesterday while I was watching The Mask of Zorro.

Let me list some of the myths about heroism first:

  • "Heroes take control of their environments."
  • "They bend others to their will."
  • "They never run from a fight."
  • "They take insane risks and glory in it."
Keep these myths in mind as you watch this fight scene from the movie:

Do you see the contrast between Zorro and the myths described above?
  • Zorro doesn't brutally take control of his environment. He doesn't force others to obey. Instead, he sets up situations where people play into his hands. He anticipates what they're going to do and makes plans that seem risky but actually have a high probability of success. "[Captain Love] will come into your circle soon enough. You need not chase him."

  • Zorro is not afraid to run from a fight. He always engages others on his own terms. Sometimes this means running, sometimes it means letting others attack, and sometimes it involves laying traps. He hides in the shadows and shows himself when he's ready. He breaks his attackers apart into small groups and tackles those groups one at a time.

  • Zorro takes smart, well-planned risks. His goal in this particular battle is to strike fear in the hearts of his enemies. He takes the necessary risks necessary without going overboard. He escapes while he's ahead.
Live to Fight Another Day

As a one-man show, Zorro absolutely cannot afford to get crippled. Everything depends on his staying alive. This is a lot like trading. If you depend on trading as an insurance policy or the means to fund a ministry dream, you can't afford large losses.

My own trading strategy allows for a lot of unexpected problems. I know that eventually I'll be wrong, face bear markets, deal with high volatility, and encounter market crashes. I get to pick and choose the right trades for each set of market conditions. I can't control the market, but I can choose trades on my own terms.

There's also a time to run away in trading. When the favorable conditions for a trade go away, I close the trade out, sometimes at a loss. This is preferable to taking the risk of larger losses with no statistical profit advantage to justify that risk. The most important thing is to live to fight again tomorrow.

Don't Be a Hero

People tell me all the time that trading is too risky. But I see those same people spending all of their liquid capital putting 20% down or less on a house. That, to me, is risky: if the house goes down in value or the owners can't make their payments, the owners lose all of their money. They may even end up in foreclosure and then bankruptcy. How will they support their children then?

When the movie ends, there's only one Zorro. If he dies, there won't be a sequel. No one will get the girl. Would Zorro take the kinds of risks that most homeowners do?

Zorro as a Type of Christ

If the idea of Zorro as a trader isn't bizarre enough, imagine Zorro as a representation of Christ.
  • Jesus had the power to take control of His environment, but He took on flesh and came into a sin-corrupted world as a helpless baby.

  • He didn't force others to obey but made His points through intelligent arguments and Scripture. Depraved human beings hated Him for it.

  • Jesus engaged others on His own terms. He answered questions with more questions or complete silence. He told parables instead of explaining things directly. After a while, no one dared to ask Him any more questions.

  • Jesus didn't feel obligated to fight. He slipped away from crowds and sometimes refused to do what people requested. He knew when people were trying to trap Him and only allowed it to happen on His own terms: at the cross.
A better understanding of Christian heroism and the nature of Christ will make us better traders. There's a lot at stake. Dream big, take smart risks - and get the girl.

Great Reads: Sir Isaac Newton as a trend-follower?


Trading and Investing

What if Sir Isaac Newton had been a trend-follower? (Mebane Faber)
Missing the "ten best days" isn't such a bad thing. (Mebane Faber)

September is a weak month for the stock market. (Surly Trader)
Positive feedback loops and market crashes. (Surly Trader)

What happens to bond prices as interest rates change? (Mebane Faber)

Stock market valuation models: P/E ratios. (Mebane Faber)
"Cheap" is not always cheap. Huh? (Reformed Broker)

Recession odds at 50%? (Reformed Broker)

Which countries will dominate the global economy in 2030? (Economist)
Economic indicators color-coded on a world map. (TradingEconomics)

What are options good for? (Condor Options)
The spread between volatility indices has interesting information. (Option Pit)

How good is published academic research? (Marginal Revolution)


Who lost work during the Great Recession? (New York Times)

How do you successfully market to your best customers? (Seth Godin)
Expensive advice isn't necessarily better. (Seth Godin)
Is your work environment still organized using a factory model? (Seth Godin)

Comparison of video hosting services. (Wikipedia)

Watch out for conflicts of interest. (Dilbert)
Watch not just what you say, but how you say it. (Dilbert)
On making decisions without thinking. (Dilbert)
Did you mean that? (Dilbert)
Creativity? (Dibert)


Cornelius Van Til: downloadable audio and courses. (Gospel Coalition)

Marriage and Family

One hundred must-see movies for men. (Art of Manliness)

What would happen if you let your defenses down? (Boundless Line)


We're still figuring out how to send files to people. (xkcd)

xkcd: Are interest rates low enough for you yet?

Life as Mission


In America, leisure is treated almost as if it's a human right. We grow up in a youth subculture which feeds and celebrates distinctly childish interests. Remember this "Toys 'R Us" commercial from the 1980's?

Then we have eight-hour work days, mandatory breaks, weekends and some three-day weekends, vacation, and even a retirement that's supposed to be funded by the government.

The printing press,
an early robo-slave
This is the result of increased productivity. Each generation has an increasingly efficient set of robo-slaves that does our laundry, waters our lawns, and even deposits our paychecks for us. There are robo-slaves at work that make copies, ding our co-workers' phones with text messages, and do complex analytical work. As computers become more capable, we don't have to work as hard.
With all this leisure time, why aren't we happier?

Part of the reason is that we are built for mission. God gave Adam work to do. Unproductive leisure is not the kind of joy-filled work Adam did before the Fall.

I suggest three ways to bring mission back into the work you do.
  1. Redeem the work you're already doing. What can you do to love God and love your neighbor in the responsibilities you've already been given? Can you be an agent of change in your workplace's culture?

  2. Replace some leisure time with short-term mission. You don't have to go overseas to do this. If you're going to take a three-day weekend anyway, is there something your family can do that would be both enjoyable and Gospel-centered? Helping others might bring your family more happiness and fulfillment than a weekend lounging around playing video games.

  3. Cultivate long-term mission-oriented goals. Again, this can integrate into your existing plans. Are you saving for retirement anyway? Can some of those funds be used to make your retirement a period of service and not just leisure? Are you saving and investing enough to have a reasonable chance of getting there?
I'll leave you with a few quotes from Fabs Harford's read-worthy blog post, Why Am I Weary?
Maybe the reason we’re weary is not because we’re pouring our lives out for others, but because we aren’t.

Life can feel like a chore if we aren’t on mission....

Want to be refreshed?  Want to be like a watered garden?  Want to be satisfied and guided continually?  Care about people.  Pour yourself out for them...

What if God ordained mission for us; to provide energy and joy; and what if satan has kept us from that great stream of grace by convincing us that mission is a threat to our energy and joy?

Or, maybe there’s another way Satan could sabotage the design of mission.  There are no shortage of us who are pouring ourselves out without the promised result in Isaiah because when we do engage in mission, we act as if we’re doing God a favor.

Life feels like a chore because we serve out of duty and not delight.
 Read her full post here.

On Being Wrong


Admitting we're wrong takes character. It means denying our own supposed omniscience and sovereignty. We live in a world which is uncertain and seems to make a habit of pointing out our mistakes.

Trading is one of those areas where our unwillingness to be wrong costs money. Do you remember when the S&P downgraded the U.S. credit rating in August? Nearly everyone I knew, including I, was saying that this downgrade would inevitably lead to higher long-term interest rates and that it was a great time to short bonds. As it turns out, the opposite happened. Long-term interest rates are lower today than they were in August.

We're Limited

Because we're human beings and not God, we have only a limited ability to take in and process information. As a result, we tend to think that whatever information we have is a comprehensive picture of the world, when in fact other things we haven't considered may be more important.

Why did interest rates go down in August? In retrospect, maybe the Euro zone crisis or the possibility of a recession in the emerging markets caused capital to flee to U.S. Treasuries, causing interest rates to fall despite the credit downgrade. It takes character to admit that we don't really know.

Follow Momentum

Using momentum as a market timing tool helps us admit when we're wrong. We buy in when upward momentum appears and sell when that momentum goes away. We admit that whatever our opinions about the world are, the potential cost of being wrong is far higher than the potential cost of selling too early. People who bought stocks in 2001 and early 2008 because the market was "cheap" and "couldn't go down any further" paid the price in a big way.

Because admitting that we're wrong requires humility, following a trading plan based on momentum takes character. We have to be willing to let mathematically calculated trading signals override our own opinions.

For more about momentum trading, start here.

Take a look at the TED talk below for more about the importance of understanding our fallibility.

Most of us will do anything to avoid being wrong. But what if we're wrong about that? "Wrongologist" Kathryn Schulz makes a compelling case for not just admitting but embracing our fallibility.

Great Reads: People Listen to Stories, Not Facts

. September 4, 2011


People listen to stories, not facts. (Seth Godin)
Two earthquake-related thoughts about crowd behavior. (Seth Godin)
You can either seek to get more out of an opportunity or less. (Seth Godin)

Will tomorrow's business stars come from agriculture? (Reformed Broker)

Keep shortcuts to commonly used Web pages on your desktop. (Ask Leo)

If you could have any super-power, what would it be? (Reformed Broker)

How to handle excellent and/or devastating news. (This Is Indexed)

In the information age, information is no longer precious. (Seth Godin)
Is the Internet empowering or censoring citizens? (YouTube)

Trading and Investing

All strategies, including buy and hold, involve forecasting. (Strom Macro)
Teachers of "buy and hold" may have a conflict of interest. (Reformed Broker)

An interesting take on momentum investing metrics. (Vector Grader)

Hedge funds have delivered positive alpha since 1995. (Institutional Investor)

Marriage and Family

Divorce rates: things can be more complicated than they seem. (Boundless Line)


Which way is the market going? (Abstruse Goose)

Depth perception. (xkcd)
"I'm sorry." (xkcd)

Things that make your skin crawl. (This Is Indexed)

Logic. (Dilbert)


Schools kill creativity.

Book Review: Just Do Something

. August 28, 2011

In this little book, Kevin DeYoung addresses a big problem: the tendency to remain paralyzed by indecision because we can't figure out what God wants us to do.

We can live without total peace about the future. Even though we don't know what's going to happen, God is in control. He's already revealed what we ought to do: live by His Word, which is given to us in the Scriptures.

Quoting both cessationist and Pentecostal scholars, he shows that the two groups have a lot in common. Both acknowledge that God can work in miraculous ways, but those miracles are rare times when God wants to communicate with us in a special way. We make the vast majority of our decisions through God-given wisdom, not supernatural surprises: and when those surprises do occur, they never take precedence over Scripture.

My favorite part of the book is the last two chapters. Major decisions can be a lot less agonizing than most of us think. DeYoung provides a four-step process: Search the Scriptures for wisdom, get wise counsel, pray, and then make a decision. He then tells the story of his grandfather, who like others of his generation lived through the Depression and didn't have unrealistic expectations out of life. Here are a few quotes from the final chapter of Just Do Something:

[Grandpa Van] got a full-time job building church furniture during the Great Depression for the princely wage of forty cents an hour. "We were rich," Grandpa told me.

Within a few years, Grandpa owned and operated several service stations in town. He was only twenty or twenty-one at the time - the age most "kids" today are still playing video games, sneaking off to parties, and trying to "find" themselves. In talking with my grandpa about his life, I asked whether he wrestled with God's will, or remembered waiting for a sense of direction before taking so much initiative in life as a young man. "No," he said. "I felt like God was waiting for me to get involved." I wonder how many of us are just the opposite - waiting for God to tell us what to do rather than assuming He's waiting for us to go out and be obedient....

Not long ago I asked my grandpa, "Is there anything you think younger generations of Christians have lost that your generation understood?"

"Oh, yes," he said quietly.

"Like what, Grandpa?"

He thought for a moment. When he opened his mouth, he didn't answer the question directly, but I got his point, and it was a good one. "I started with nothing," he stated. "What right did I have to hope for all these things that fell into place? Hard work, sure, but I knew it was from God."
I've seen a lot of Christians, including grown men past middle age, agonize over decisions and never come to peace about what they should do. This indecision has hurt not only them, but those under their leadership waiting for something to happen. Kevin DeYoung has taken some bold and needed steps to bring Scripture to bear on these situations. The book is worth reading if only so we can recognize these situations better and do something about them.

I'll leave you with an excerpt from the back cover.
Hyper-spiritual approaches to finding God's will don't work. It's time to try something new: give up.

Pastor and author Kevin DeYoung counsels Christians to settle down, make choices, and do the hard work of seeing those choices through.

Too often, he writes, God's people tinker around with churches, jobs, and relationships, worrying that they haven't found God's perfect will for their lives. Or - even worse - they do absolutely nothing, stuck in a frustrated state of paralyzed indecision, waiting... waiting... waiting for clear, direct, unmistakable direction.

But God doesn't need to tell us what to do at each fork in the road. He's already revealed His plan for our lives: to love Him with our whole hearts, to obey His Word, and after that, to do what we like.

No need for hocus-pocus. No reason to be directionally-challenged. Just do something.

Getting Beyond the Efficient Market Hypothesis

. August 27, 2011

If you're beginning to question the efficient market hypothesis and the buy-and-hold investing style it engenders, here are some links to whet your appetite for further research. They're organized from tame (Eugene Fama) to positively frightening (irrationally mispriced options).

"Markets are Efficient, but Investors are Under-Diversified"

Eugene Fama, the father of the efficient market hypothesis, promotes maximum diversification. (I do too, but I go further than that.)

Fama is skeptical of active management, but he's convinced that the value and small-cap effects are real, as well as the benefit of diversifying into asset classes other than just U.S. stocks and bonds. By this measure, most investors are under-diversified.

He's on the board of the Dimensional family of mutual funds.

Eugene Fama's Bio at Dimensional 

"Trading Strategies Work Better than Buy-and-Hold"

This paper applies portfolio management to trading strategies instead of stocks and bonds. There are real risks that the paper doesn't deal with, especially tail risk, but it does point out that there is more diversification in trading strategies than in traditional asset classes.

Portfolio of Risk Premia

"Trading Strategies Work, and Normal People Can Use Them" 

Some trading strategies have become so easy to apply that they are now asset classes in their own right, with diversification benefits that are realistic for small traders to access.

The Betafication of Alpha

S&P Makes the News... with a Trend-Following Index 

"Investors Irrationally Overpay for Protection Against Crashes"

The Crash of 1987
People overpay for the protection afforded by index options. This is inconsistent with their high exposure to stocks and lack of diversification.

This first summary is dated and doesn't have any major bear markets. It does, however, include the crash of 1987. The paper itself is an interesting read.

Why are Put Options So Expensive?

The second summary includes the dot-com crash. The two underlying papers include an interesting analysis of tail ("jump") risk as well as investor risk-aversion and whether these justify high option prices.

Abnormal Returns from Selling Index Put Options?

The third article looks at the Japanese Nikkei index, which has been in a secular bear market for the entire (short) period of the study. The results are surprising.

Scandalously profitable option selling on the Nikkei 225
What Now?

I use some of the strategies mentioned in the papers and articles above. However, you don't have to do this level of research to be moderately successful. Start with momentum.

Great Reads: What a Down Trend Looks Like

. August 21, 2011

Trading and Investing

Diversify across strategies, not just asset classes. (SSRN)

Long-term moving averages confirm downward market trends. (ETF Replay)

Are stocks cheap? Bonds expensive? Both? Neither? (Reuters)
Growth is stalling in the core of Europe. (Reformed Broker)

Detroit is an example of why "rent vs. buy" math is too simplistic. (Barry Ritholtz)

An insightful list of trading positions that have short gamma. (Surly Trader)

Someone's smart. Doesn't mean he should run a fund. (Reformed Broker)

Michael Lewis on the Euro zone crisis: an interesting read. (Vanity Fair)


Another person unprepared for his interview. (Dilbert)


Wall Street stampede. (Reformed Broker)

"Thank goodness we fought foreclosure." (Surly Trader)

The "work from home" experiment. (Dilbert)
Plan. (Dilbert)
Intuition. (Dilbert)

Mathematics. (Abstruse Goose)

So hard to find. (This Is Indexed)
Et, tu, Brute? (This Is Indexed)

Just for Laughs Gags. This channel should win an award. (YouTube)


John Piper: Do something risky with your life.

Book: The Monk and the Riddle

. August 17, 2011

Since 80% or more of businesses fail, does it make sense to put your life on hold to make it big? Or is it better to find meaningful work that resonates with your values, helps others, and satisfies the soul?

This answer is not what I expected from the former CEO of LucasArts.

Here are some quotes from The Monk and the Riddle. You figure out the rest.

When we first left Mount Popa, I wanted nothing more than to get to my destination, but now I don't have the slightest desire for this trip to end. (p. 6)

There's nothing wrong with cashing out and making a lot of money - unless those 'other things' you intend to get to are what you'd rather be doing all along. My experience tells me if you do this for the money, you'll just end up howling at the moon. The money's never there until it's there. There must be something more, a purpose that will sustain you when things look bleakest. Something worthy of the immense time and energy you will spend on this, even if it fails. (p. 48)

I can't muster the energy for a company whose founders never hope to accomplish anything more than making some bucks. By setting your expectations low, you almost guarantee mediocrity. (p.49)

Business isn't primarily a financial institution. It's a creative institution. Like painting and sculpting, business can be a venue for personal expression and artistry, at its heart more like a canvas than a spreadsheet. Why? Because business is about change. Nothing stands still. Markets change, products evolve, competitors move into the neighborhood, employees come and go... Business is one of the last remaining social institutions to help us manage and cope with change. (p. 55)

Deferring your life on the chance that [you'll] hit it big is a huge gamble. The high odds of failure don't justify betting it will buy you the freedom you want. The course of your life and the course of [your business] are not unrelated. Figure out what you care about and do that. If you can do it in the context of [this particular business idea], do it from the start. Don't concern yourself with exit strategies.
At key points in my life, I've found it helpful to ask myself a simple question about what I was doing at that moment:
What would it take for you to be willing to spend the rest of your life on [this idea]? (p. 77)

Riding the highs and lows long enough, never being able to see beyond the next peak or the next valley, makes one realize there is only one element in life under our control - our own excellence.
Here's what I tell the founders in the companies I work with about business risk and success: If you're brilliant, 15 to 20 percent of the risk is removed. If you work twenty-four hours a day, another 15 to 20 percent of the risk is removed. The remaining 60 to 70 percent of business risk will be completely out of your control. (p.152)

If you're excellent at what you do and the stars are in alignment, you will win. Of course, you may run out of time first, but if you're excellent every day, you will have furthered your chances of beating the house as much as they ever can be. That should be your primary measure of success - excellence - not simply the spoils that come with good fortune. You don't want to entrust your satisfaction and sense of fulfillment to circumstances outside your control. Instead, base them on the quality of what you do and who you are, not the success of your business per se. Unless you understand what is truly outside your control, you are likely to make serious mistakes, misallocate resources, and waste time. (p. 153)

When I drill down, I inevitably find personal risks that need to be considered along with the business risks. Personal risks include the risk of working with people you don't respect; the risk of working for a company whose values are inconsistent with your own; the risk of compromising what's important; the risk of doing something you don't care about; and the risk of doing something that fails to express - or even contradicts - who you are. And then there is the most dangerous risk of all - the risk of spending your life not doing what you want on the bet you can buy yourself the freedom to do it later...
[Personal risk as opposed to business risk is] a different game of chance in which we have far more control. (p. 154)

Considering personal risk forces us to define personal success. We may well discover that the business failure we avoid and the business success we strive for do not lead us to personal success at all. Most of us have inherited notions of 'success' from someone else or have arrived at these notions by facing a seemingly endless line of hurdles extending from grade school through college and into our careers. We constantly judge ourselves against criteria that others have set and rank ourselves against others in their game. Personal goals, on the other hand, leave us on our own, without this habit of useless measurement and comparison. (p. 155)

If your life were to end suddenly and unexpectedly tomorrow, would you be able to say you've been doing what you truly care about today? (p. 156)

When all is said and done, the journey is the reward. There is nothing else. Reaching the end is, well, the end. (p. 173)

Great Reads: Leadership Links

. August 13, 2011


Strong leadership makes enemies. Deal with it. (Reformed Broker)

Are you giving up a relationship with your audience? (Seth Godin)

Wasting time poorly is not wasting time productively. Get it? (Seth Godin)

16 harsh truths that make us stronger. (Chess 'n Wine)

Trading and Investing 

Economists tend to be late in forecasting recessions. (Reformed Broker)

The world economy is overleveraged: too much debt. (Aleph Blog)

High volatility is associated with bear market bottoms. (Aleph Blog)

Affordable Living

Use PriceLine to save money when you travel. (CNN)

Marriage and Family

This is the next step away from the traditional family. (Boundless Line)

Thoughts from a new husband. (Boundless Line)


Averages don't always tell you what's really important. (xkcd)

Beautiful people are lonely. (Softer World)

Arsenic or aspirin? (This Is Indexed)

This is Indexed on unrealistic goals:

Is God Everything You Need? (trick question)


You have big dreams: Missions, or perhaps homeschooling or Christian schools for your kids.

Saving money, investing, and using the income to fund your dreams seems like an awfully human way to get there. Does relying on your investments reflect a lack of trust in God?

Let's draw some finer distinctions.

Something can be hyperbole in one sense and not in another. For example, the statement "You are everything to me" may be true in a romantic sense without implying that one's significant other is literally a source of food.

Similarly, saying that "God is everything" is hyperbolic in one sense: God is not literally our food. In another sense, it isn't: God is provider of the things we need, which glorifies Him as the Giver.

Is it possible to trust God and yet rely on the gifts He gives us? Take a look at Proverbs 31 (emphases mine):

10 An excellent wife, who can find?
For her worth is far above jewels.
11 The heart of her husband trusts in her,
And he will have no lack of gain.

 16 She considers a field and buys it;
From her earnings she plants a vineyard.

17 She girds herself with strength
And makes her arms strong.

25 Strength and dignity are her clothing,
And she smiles at the future.

30 Charm is deceitful and beauty is vain,
But a woman who fears the LORD, she shall be praised.
31 Give her the product of her hands,
And let her works praise her in the gates. 
Don't over-simplify. That tends to be a good hermeneutical rule.

How to Beat an Efficient Market


Imagine a perfectly efficient market. In this world, no human manager will consistently beat a properly diversified portfolio over time.

Even if the real-life market were efficient, and I don't think is is, you can still beat it. The key is in how people define the word market.

My Argument with a Stock Broker

Eugene Fama (left), father of 
the efficient market hypothesis
I recently had to attend one of those meetings where a financial company presents portfolios that are supposedly optimized for your age. It was the usual pitch about how most of your money should be in stocks when you're young and bonds when you're older.

I raised my hand and asked if there were ways to capture value from strategies other than buying and holding stocks: for example, momentum and volatility arbitrage. The speaker started saying how this was a very aggressive approach to investing when I interrupted and asked, "How is it aggressive? These strategies are not correlated with the S&P 500."

He said, "Yes, they are." And that was the end of my opportunity to ask questions.

Talking to him afterward, I found out why he thinks my strategies are aggressive. None of the funds his company offers has significant short exposure to the market. There is no protection for their 'optimized' portfolios when the market goes down.

Why don't they offer a broader array of funds? His said that investors will misunderstand and misuse the funds. Rather than risk getting sued, his company prefers to not offer the funds at all.

This is perfectly rational from their point of view. It would hurt both the company and their clients if they were sued. It's better to offer the same underperforming products as everyone else. If the market crashes and everyone loses money at the same time, they can chalk it up to bad luck.

Managers Can Best Each Other

Now consider an efficient market. There will be some benefit to having exposure to trading strategies as well as stocks, bonds, real estate, and commodities. There will be an ideal, perfectly diversified portfolio that a human manager will not be able to add any value to. But a manager can still add value relative to another manager if the other manager is not diversified enough.

I've written previously about a long-short momentum strategy that not only makes money when the market goes down, it has zero correlation with the S&P 500. The stock broker described earlier thinks momentum is risky because his company's philosophy doesn't allow him to go short. If he tries to trade momentum, he has no way to protect his clients if the broad market goes down. In other words,

"Since all the strategies we're allowed to use are risky, your strategies must be risky, too."

Most managers you meet will be like this. Because they're scared of being different from everyone else and consequently getting sued if something goes wrong, they're going to put you in 50% U.S. stocks, with most of the rest in U.S. bonds, with small slivers of exposure to international stocks, real estate trusts, and commodities.

Even from the point of view of a buy-and-hold investor, this is under-diversification. Real estate investment trusts have historically not been strongly correlated to stocks. Commodities have had zero correlation to stocks. Why don't they comprise a larger portion of the 'optimized' portfolio?

Be Willing to Diversify

You can best the vast majority of money managers simply because you're willing to diversify across asset classes and trading strategies. You can beat the market simply because the industry has conveniently defined the 'market' as the S&P 500, which is an under-diversified index of large-capitalization American stocks.

Mebane Faber's portfolio beats the 'market' because it diversifies in two ways most people don't:
  • into more assets (commodities and real estate investment trusts as well as stocks and bonds), and
  • into a momentum-based trend-following strategy.
His book, The Ivy Portfolio, is worth reading.

This post was inspired by Jez Liberty's read-worthy blog post about a new S&P trend-following index. The comments section has an interesting discussion about whether human trend-following traders still add any value if investors can access trend-following strategies through well-known formulas.