The Brilliant Market Psychology Of The Quicken Loans Bracket With Warren Buffett

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 probability of beating each other in any given round, whereas the reality is that you can get some mileage out of always assuming that the 1 seeds will beat the 16 seeds and the 2 seeds will beat the 15 seeds). Of course, all it takes is a Mercer win here, a North Dakota State win there, and a Dayton “Sweet Sixteen” appearance to screw up 99% of people who participate in the exercise (on a personal note, this was an exceptionally poor year for my bracket. It’s hard watching the SF Austin-UCLA game with friends, and upon getting asked who I picked to win, answering “VCU”).

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Should You Buy The T Rowe Price Capital Appreciation Fund?

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 Giroux took over in 2006 and therefore the data set would include the work of his predecessor (incidentally, this is the logical fallacy that crops up in a lot of financial commentary. You’ll hear a pundit point to an excellent fund and say, “Aha! Reversion to the mean. Told you that no one can outperform the market forever.” People outperform the S&P 500, not namesake funds. If Peter Lynch stayed on at Magellan, the results would have been a lot better. But instead, people look at the proof of the reversionary tendencies after he left as some kind of indication that magic has been lost. You should follow the person, not the fund).

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This Lear Capital Commercial Is Terrible And Predatory

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 that permissive).

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2014: The Year Big Banks Returned To Trouble

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.

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Six Investing Principles From Warren Buffett’s 2013 Shareholder Letter

You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”

Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.

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