Personal finance wisdom

Great interview of financial advisor Less Antman (via David Henderson). Read the whole thing; here are a few tidbits:

Eventually, I found a sure-fire timing strategy involving naked option writing and reliance on the Elliott Wave, which made money like clockwork until October 19, 1987, on which day I managed to lose everything I had accumulated in my entire adult life except for my IRA.

Commodity futures have a strongly negative correlation to stocks over intermediate time frames, and are the only equity investments with such a relationship. ... I wasn’t that enamored of commodity futures initially, because I confused them with commodities, and didn’t realize the critical differences (gold futures and gold are not identical investments).

I think at least 80% of someone’s long-term assets belong in set-it-and-forget it lazy portfolios. For those who want to try and beat the market with timing or trading, put up to 20% in a trading account and have a blast, but only if you actually ENJOY doing it.

I started out a Graham and Dodd stock picker, became a market timer, and then a committed diversifier, all before starting to manage other people’s money for a fee. The main changes in my strategy have been tax-motivated, as I started developing individual stock strategies that actually produced higher after-tax returns than index funds, especially for clients with other gains needing offsets, and later I started using margin, but only to the level needed to offset investment income, so that expected returns stayed about the same but income taxes diminished further.

It takes patience to be a saver, patience to accept the uncertainties of equity investing, patience to diversify and give up the possibility of a quick killing, and patience to wait the several years it takes before equities become as close to a sure thing as you’re likely to find in the real world.

And here are Antman's top financial mistakes:

The most serious non-investing financial mistake, bar none, has involved the choice of living quarters. This is related to my difficulty in bringing down the spending of some clients, because they committed to houses that were too expensive, or bought when they should have rented, or rented luxury apartments in the best areas when they should have lived in a slum next to a pig farm. Many people now facing foreclosure will find out it was the best thing that ever happened to them.

Going without disability insurance is second on my list, since disability is the one event that can truly destroy a person’s life, and disability insurance is the one insurance that can become impossible to obtain after a single incident involving illness or injury, so delaying can mean never obtaining it.

Doing their own tax returns is third. While not a problem for the simplest situations, there are things I’ve learned from my client’s tax preparer that I never would have learned from them, and people constantly miss deadlines for filing, contributions, and estimated payments because they insisted on doing it themselves. By the way, I don’t prepare tax returns for clients anymore.

Carrying credit card balances, not maxing out on tax sheltered savings opportunities, not spending $40 and a few hours at the computer to prepare some basic legal documents, buying cash value life insurance and variable annuities when not appropriate, and buying an SUV just to have a bigger purse, have all cropped up from time to time.