I’ve spent the past hour in awe of the excellent marketing during the first four days of “March Madness” done by Quicken Loans with their “billion-dollar” promotion that has gotten a lot of attention since this past Thursday. For people who are interested in Charlie Munger’s mental models and love to study how psychology affects society’s perception of things, the Quicken Loans billion-dollar bracket gives us a lot of lessons.
First off, it plays to people’s basic notions to think in terms of “larger reward must be better” rather than calculating the expected payoff of something. Sure, the ultimate reward is $1 billion if your bracket is perfect, but you have to adjust it for the fact that the odds of getting a bracket right are 9.2 quintillion to 1 (actually, your odds are a little better than that because the quintillion figure assumes that every team has an equal … Read the rest of this article!
I received a reader question asking whether the T Rowe Price Capital Appreciation Fund is a good selection for those of you that don’t have self-directed 401(k) options.
Over the past year, the T Rowe Price Capital Appreciation Fund has gone up 22% while the S&P 500 has gone up 32%. I’m not sure why I’m including this statistic, because one year performance has more to do with luck rather than the evaluative skill of the manager.
Over the past three years, T Rowe Price Capital Appreciation (PRWCX) has gone up 13.16% while the S&P 500 has gone up 16.18%. Over the five year stretch, the S&P 500 is up 17.94% per year while the T Rowe Price Capital Appreciation Fund is up 17.07% per year. Although the T Rowe Price Capital Appreciation Fund has beat the S&P 500 over the past ten years, that data isn’t relevant because David … Read the rest of this article!
The most dangerous financial shift that has occurred in the United States in the past thirty years has been the shift from the pension system to one dominated by 401(k)’s.
You’re going to get bad results when you expect the average guy on the street to (1) save appropriately, and (2) select the appropriate investments so that he can build long-term wealth for decades on end.
According to CNN: http://www.money.cnn.com/2014/02/13/retirement/401k-balances/ , the average 401(k) account for someone approaching his or her 65th birthday is $165,200. Even if you reach the conclusion that people should bear the personal responsibility to prepare for their own retirements, you still have to acknowledge that the society-wide result is going to carry a lot of unpleasant effects in terms of people unprepared to take care of themselves in their later years (at this point, it would become a political question of whether you’d find … Read the rest of this article!
Six years. That’s how long it takes financial institutions to start forgetting the scars and nightmares of the credit crisis that came out in full force in September 2008 and extended throughout much of 2009.
Wells Fargo, the strongest of the “Big Four” banks in the United States, has re-entered the market of subprime lending:
A less-than-perfect credit score is no longer an obstacle to buying a single-family home or townhouse in Southern Nevada.
Following a recent decline in demand for refinancings, Wells Fargo &Co., the nation’s largest mortgage lender, is easing some mortgage loan qualifications to boost lending.
Wells Fargo will drop its minimum credit score for loans backed by the Federal Housing Administration to 600 from 640. The change applies only to purchase loans, not refinances, taken out through its retail business.
“We are giving access to credit for the first time to low- and middle-income homebuyers,”
… Read the rest of this article!