My certificate has arrived. It turned up damaged unfortunately but not badly enough that it’s worth my time doing anything about.
Every bike shop is stacked to the rafters with expensive accessories. But, wanting to be frugal, I rejected the idea that you needed them. I bought a bike and nothing else. No accessories at all. I refused to be pulled into this expensive world.
And then the real world hit me, and I realised how wrong I was.
This is my story. A story of how you actually do need a bunch of accessories, and will massively regret it if you don’t get them.
True, you don’t really need these. Just like you don’t need a cup even if someone is going to kick you in the genitals over and over again. But any sustained time on the bike and you’re going to start getting sore.
I managed one ride. By the end of the first hour, my bottom was regretting it. Padded shorts are well worth the investment.
Human beings literally die if they don’t get water on a regular basis. Even by re-using a sports bottle that I already owned, I still had to buy a cage to put it in.
Oh, you want to fit that cage to your bike? Too bad, because the Allen key size doesn’t quite match the six different ones you have left over from Ikea. So, you have two options. One is to go cap in hand around to your dad’s every time you want to change your saddle height. Or two is to buy a multitool.
I tried to get away with option one. But my parents go on holiday too often for it to work.
Great, so, I’ve now got my water, but nowhere to put an energy bar. Or my wallet or keys, or basically anything. This is because if you have a regular pocket on a bike, things fall out of it. So, you either need to use shorts or trousers will jip pockets (of which I do not have loads), or buy something with pockets.
Like a jersey. Which has three. For things like keys. It’s that or use some kind of elaborate wave system to try and tell your wife you’re home and want to be let back in.
On my fifth bike ride, my back wheel fell off. I don’t know how to change a wheel. But even if I did, it wouldn’t have been much use because I don’t own a pump or a spare inner tube. Useful purchases, then.
Oh, you want to have those things for when you need them in an emergency? Looks like you will be buying a saddle back to store them in, then.
Now we’re rocking and rolling. Sure, we’ve had to give in and buy seven accessories, but now we’re set, right?
Well, yes, unless you have any friends. Or want to ride your back to any kind of location. Because if you wanted to do any of that, you’re going to need a bike lock to lock it up at your destination.
Again, you have options.
You could get your friend to use their bike lock to secure both your bikes, for example. In which case, hope you have a generous friend with a suitably flexible bike lock.
Or you could move to Oxford, where nobody really uses them.
Short of that, you will be investing in an expensive lock because even the expensive ones only provide about a minute’s protection from determined thieves. And one lock is pretty much a starting point: you will want to get a second one to try and hang on to your wheels as well.
Now your bike is covered in expensive things in a country where it rains all of the time. Maybe you have an indoor storage area. We live in a flat, so the bikes have to live on the balcony. That means investing in a rain cover.
I don’t bother with a helmet because the evidence for them is mixed. But a lot of people look at my weirdly. And if I want to ride any organised events or competitions, a helmet will be mandatory.
Lights are optional, unless, of course, you ever plan on commuting on your bike. In which case, you best hope you only work 10 am to 3 pm, otherwise, you’ll be riding to and from work illegally.
Glasses aren’t required unless you want to a) see where you are going in the sun and b) ever ride near a canal or river. If you do want to ride by a waterway, you have the choice of either wearing some glasses or repeatedly being hit in the eye by insects until you blindly ride your bike into said waterway.
You can live without gloves unless you want to be able to use your hands at the end of the cycle. For example, being able to use a keyboard in the office or operate your keys to unlock your front door when you get home.
In either of these scenarios seem likely, you will want to ensure there is at least some heat left in your hands when you arrive at your destination.
I don’t care about getting muddy when I go cycling. However, if you ever plan on riding when anyone else, you might start to care. And, if you go out with a cycling club, they are likely to be mandatory.
There is one thing you genuinely don’t need to buy for your bike, and that is a computer. The one thing that is actually fun and interesting. Which really digs the claw in. If you want to be frugal, you need to buy every single cycling accessory except the one you actually want.
People sometimes say that you should avoid spending a fortune on cycling accessories.
However, that is a little unrealistic. I tried it. I bought zero accessories for my bike. But, one after another, I was forced to invest in them. Cycling is a tricky thing to do on a budget.
The Big Short: Inside the Doomsday Machine is a 2011 book by Michael Lewis. It is one of his best, perhaps second only to Flash Boys. I reviewed it in 2014. I recently watched the film adaptation. Coupled with The Blind Side makes me look like I am on kind of Michael Lewis-film binge, which I only noticed afterwards.
It is a reasonably good retelling of how it happened in the book. Not that you can do it justice in a two-hour film, but it is a good summary. Occasionally one of the characters would break the fourth wall and introduce celebrities offering sarcastic explanations of how the banks fucked us.
Speaking of fucking, the one thing that draws my attention was the phone call between Mark Baum and Greg Lippmann. I’m sure in the book Lippmann actually told Baum how he was going to fuck him, rather than the watered-down reconciliation in the film.
The film even had a moral point at the end, discussing how basically nothing has changed and we are just repeating the same old patterns. And that is why I am moving to Iceland in two weeks…
Why Smart People Make Big Money Mistakes – And How to Correct Them: Lessons From The New Science Of Behavioral Economics is a book with an obserdly long title. It’s written by Gary Belsky and Thomas Gilovich.
I first assumed that it was going to be about why professional investors do stupid things. I was incorrect, much to my advantage. It was about us, all of us. We are the smart people making the big money mistakes.
A lot of the content I already knew from reading A Random Walk and Thinking, Fast and Slow, but it was all a valuable reminder. Especially as I am still making many of the mistakes! Though as the book concludes, as fallible humans we are probably going to continually make them. It’s a fun book to read as you get scenarios and have to try and guess the right answer. Just like QI, you quickly learn to avoid the obvious answers.
Mental accounting is a classic example. A pound is a pound. Yet so often we sub-divide our money into different funds that are more or less valuable. I was in this exact scenario as I was reading it.
I had recently received some compensation for a car accident. I was thinking about buying a stand mixer with it. It’s bonus money, right? At the end of each month, I do a spreadsheet of all my bank balances and debts to see how much money I had on. In this case, I had even put a debit in to cancel out the effects of the extra money in my bank account, so that I could keep that money in a separate mental account.
But this is nonsense! I have that money, and it is just as valuable as any other money. If I can justify buying a stand mixer, I can justify it from my savings as much as from ‘found’ money as it is often called. If I can’t, then I shouldn’t be buying it. So I took the advice from the book – I removed the entry on my spreadsheet and I sent the money to my savings account. If I can justify taking it out, I can buy the stand mixer. If not, the money stays in my savings. Either way, all money has the same value.
The best way to avoid this issue is to put found money into your savings account, count it as part of your total savings for a while, then see if you still want to make the purchase.
Another example I fall pray to is using big purchases to hide additional extras. When I was going to buy my first desktop computer, I thought about buying a tablet to go with it. In the shadow of the cost of the computer, it wasn’t that much money. Luckily, my dad talked me out of it. I could have bought one later, but I never did because I could not really justify the cost on its own.
Contrast this with when I bought a piano. They offered to sell me a stool with it. It was a small cost in compassion to buying a piano. But did I really need it? I decided the sensible thing to do was wait and see if I really needed it, and could justify the purchase on its own. Six months later and I am still just using a dining chair, and it works fine. Better even, because a stool would get in the way.
Sunk cost fallacy is the idea that once you have spent the money it is gone, but people do not often actually believe this. The classic example is paying for a cinema ticket, or entry to a nightclub, getting bored, and then staying anyway to “get your money’s worth”. Of course, in reality, the money is gone and you are just wasting another valuable commodity, your time, by staying there bored.
This in itself doesn’t cost you money of course. However, other examples do. Take, for example, selling a house. People will often refuse to sell a house for more than they bought it for. Why? The buying price is irrelevant. If you need to sell your house, you should do so for the highest price you can get, rather than holding on to it because of an irrational psychological anchor. Yet, we’re all human, and I am sure I would try and hang on too, even though the rational part of my brain would be calling myself an idiot.
The book also talks about the ideal number of choices. Quoting the famous jam study. If you give people six choices, they are more likely to buy than if you give them 24. I mentioned this a few days ago in my review of the Happiness Hypothesis. It is worth noting that six and 24 were just the values that were picked for the experiment: it does not conclude that exactly six choices is the optimal number.
Insurance is an area that I am getting better at. I never took out extended warrenties and phone insurance anyway, but Daniel Kahneman has long since convinced me that I am correct not to do so. Insurance is a money making product, so if you could afford to replace it, you should not have insurance. I would be very annoyed if I smashed my £600 iPhone tomorrow and had to buy a new one. However, I could buy a new one, and the money I have saved over the past decade of owning a phone, not paying for insurance, and not smashing it, would still leave me in heavy profit.
A sneakier example is insurance excess though. On top of the £150 mandatory excess on my car insurance policy, I have an optional £250. Sometimes I think I should get rid of this. However, as the book points out, that would be a bad move. I can afford the £400 excess I would have to pay if my car was in an accident, so it makes sense to take advantage of the reduction in premiums because most years I will not claim on my insurance. In my case, this is pretty academic anyway, as my insurance company doesn’t think my car is worth anything.
In short, this is a very useful book. It references a lot of Kahneman and Tversky, which is useful for the everyday money mistakes we make. It also talks a lot about retirement planning and stock market investing, which is less relevant to some people, but still useful to most.
Sebastian Mallaby’s book, More Money Than God: Hedge Funds and the Making of the New Elite, looks at the birth and rise of the hedge funds. Perhaps more interestingly, it seeks to answer the question of how those funds made money if you subscribe to efficient market theory (which you should).
A. W. Jones, the original hedge fund (or “hedged” as he called it) could explain it’s profits by an inefficient market. Before Jones, the concept of a hedge fund did not exist and he and his team began doing things that nobody else was doing. They were simply more efficient.
In the late 1960s and 1970s, Steinhardt, Fine, Berkowitz & Co. were the biggest players. This could be explained by two factors. First, they could have simply been lucky. By the time they came along there were 200 hedge funds, so the chance of one of them consistently beating the market was fairly high. Secondly, there was what you could argue was insider trading. Perhaps not to an illegal level, and it is unfair to level this claim just at hedge funds, however, it was clearly going on.
Over the next few decades, hedge funds continued to generate money. Can this be reconciled with efficient market theory? Yes and no. A lot of the profits came from exploiting loopholes and finding inefficiencies in the market. The fact that this was possible shows that markets are not always efficient.
However, if you take Malkiel’s argument that this might be there, but is just not useful, that view holds. Firstly, you have to keep exploiting new ideas because pretty soon everyone else copies you. Secondly, for an investor, there is no way to know in advance who will find the inefficiencies. It is easy to work out which hedge funds found them after the fact, but picking them in advance could well be impossible.
Also, while some funds do have amazing performance, most are not. In a 2006 paper, “The A,B,Cs of Hedge Funds: Alphas, Betas, and Costs” Roger Ibbotson and Peng Chen calculated that after adjusting for biases, the average return was 9%.
The book’s conclusion is generally agreeable. Index funds represent the best way forward for consumers, but hedge funds maybe represent good value for institutional investors.
Boomerang is almost a follow-up book to Michael Lewis’s The Big Short, looking at the fall out of the global recession across the rest of the world. And by the “rest of the world”, it is basically Europe.
He first looks at Iceland in which he talks to a fisherman that became an investment banker. The whole financial crises can be summed up in the following conversation.
“You spend seven years learning to be a fisherman?” “Yes.” “And after that, you spent months training at the feet of a master before you felt you were capable?” “Yes.” “So why did you think you could be an investment banker without any training?”
He then moves on to Greece and talks about how they got into their financial mess. He claims that almost nobody on Greece pays their taxes, every government official takes bribes and that public employees have completely overrun the government to the point where they now get paid two or three times what any sensible country would pay them. I do not know how true all of that is. He finishes up by discussing Ireland.
It is an interesting, and quite a concise book which made it pleasurable to read. Some of it seems rather shallow though. How much can you rely on the stereotypes of Icelandic and Greek people that are put forward in the book? Probably less than our narrative-over-statistics obsessed minds would allow by default. Especially when he begins to talk about the German’s apparent love of shit. I even read what I would interpret as a Holocaust joke. Several times.
Further, he seems to contradict his earlier writing. The final part of the book talks about how much Germany lost in the sub-prime mortgage collapse. In The Big Short he talks about how American banks created credit default swaps that they did not really understand and how one of the people who saw it coming was Greg Lippmann from Deutsche Bank. In Boomerang he proposes the exact opposite – that the American banks knew exactly what they were doing in selling worthless assets to German banks.
In fact, the more I think about it, the more I think that what Michael Lewis has written in this book is actually complete bollocks. The collective lesson I took from Silver, Watts, Kahneman and Taleb is that the financial crisis was too complicated to predict, but humans have a tendency to add a narrative after to try and explain it to themselves in simple terms. Then Lewis comes along and says the financial crisis happens because the Greeks are lazy, the Irish are stupid and the Germans have a shit-fetish.
Liar’s Poker is the first book Michael Lewis published and the one that transformed him from a bonds salesman to a writer. It tells the tale of how he came to work at Salomon Brothers and key figures at the company that oversaw rise and fall. It’s an interesting insight into the excess of Wall Street.
The Big Short is a book by Michael Lewis that tells the story of the 2008 financial crises and some of the people who saw it coming. Lewis is a great writer. He takes a subject which is fundamentally rather dull and boring, and tells stories in such an accessible and engaging way that it is difficult to put it down.
It preaches a similar story to that of his later book, Flash Boys. That is that almost nobody in the banking industry really knows what is going on. They churn out new products and new systems so fast that none of them really understand it. Their, and our doom. But at least it makes good reading.
Two of the books I have read recently, Everything Is Obvious and The Signal and the Noise, made references to Burton Malkiel’s book “A Random Walk Down Wall Street”. They pointed out that the stock market is entirely unpredictable and therefore investment bankers are just guessing. I was curious to read more, so I picked up the book itself.
An index tracks stock market movements. For example the FTSE 100 tracks 100 companies on the London Stock Exchange, while the Standard & Poors (S&P) 500 or Russell 3000 track a far more broad range of stock prices. These therefore provide a good indication of whether the stock market moves up or down.
Now take a mutual fund – these are professionally managed funds that the general public put their money in for someone to manage on their behalf. The benchmark here is not whether they can grow their investment, but whether they can grow their investment at a better rate than the index (because the stock market generally moves up anyway). If they were just guessing, you would expect 50% of mutual funds to beat the index, and the other 50% to fail, in both cases just due to chance.
However, the research, as discussed at length in A Random Walk Down Wall Street, shows that only 40% of mutual funds can beat the index! This is not just guessing – this is worse than guessing. Professional investment managers not only do not add any value to the funds they are managing, they actually subtract value.
You could make the case that there are just a lot of bad fund managers. However, the research refutes this too. As Malkiel describes, if you take the top performing funds over a five year period they almost invariably fail to beat the index over the next five year period.
This should not actually be that surprising. The Wall Street Journal has long shown that throwing darts at the stock listings produces a better return than the experts; a noticeably better return once you adjust for risk. To see it in practice (I include this as an anecdote to make the facts more believable) just watch the BBC documentary Million Dollar Traders in which eight complete notices only lose 2.5% in a period where their multi-millionaire master-of-trading coach loses 5%.
Of course it is hard to believe. Why are all these people employed if they add no value? That is a fact I find hard to reconcile. Surely if we are talking about efficient markets, at least one bank would have realised they could fire all these traders and replace them with monkeys? Counter arguments to this suggest that the average trader actually earns a pittance, and that because it is in the interest of traders (justifying their own job) and brokers (getting rich of the transaction fees from all this needless trainers) to maintain the illusion that they actually do something, the industry keeps selling these products to the general public who simply don’t realise.
The evidence, at least if Malkiel is to be believed, is clear. You should invest all your money in an index tracker with the lowest fee you can find. That produces the most consistent returns compared with a mutual fund that charges you higher fees to produce a lower return. Nate Silver says the same thing.
In the final part of the book, Malkiel goes on offer some investment advice for those who do not want to use an index fund. He also hints that he picks individual stocks too. This is odd as it goes against a lot of what the evidence he has presented says, but is consistent with what the psychology says – that we have a really hard time accepting what the scientific evidence says when it contradicts our own pet theories, achievements and so called “common sense”.
This week, George Osbourne rolled out The Budget. Norm described it as a budget he found “impossible to get angry about.” But I disagree.
The increase in the personal tax allowance is great, thumbs up there, well, on the most part. I’m not too bothered by the granny tax either, as state pensions have in fact gone up quite considerably in a time when many working people’s pay have been frozen despite the ever marching climb of inflation. Not to mention is that all that is happening is that their personal allowance is being lowered to match that of working people.
However, when it comes to the top tax bracket, it is nothing moe than a traditional Tory budget. There is little justification for giving 14,000 millionaires a tax break given the financial crisis we are in.
One of the clearest messages we have received from this government is that the previous one has left them with a huge hole in the budget and that strong austerity measures would need to be put in place. So, if it so important to plug the hole in the budget and pay back some of our borrowing, how can we afford to give tax breaks to the rich?