The Super Bowl, Lady Gaga’s Hair Color, Investing, Temptation, and the Marshmallow Test

1: Trumps angers real estate industry

If you are looking to buy a new home, you likely need a mortgage. If you are getting PMI (Private Mortgage Insurance) you may have been counting on a reduction in the fees charged for PMI. Former President Obama had enacted a plan which was to decrease the fees on PMI. However President Trump has “suspended indefinitely” that cut which angers the real estate industry. The Obama administration announced the cut Jan. 9, and it was supposed to take effect this Friday. It would have reduced the annual insurance premium on most new FHA mortgages to 0.6 percent from the current 0.85 percent. That quarter-point cut would have saved someone with a $500,000 mortgage $1,250 per year.

2: Al Michaels on investing

I was fortunate enough to have the opportunity to listen to Al Michaels speak yesterday. Mr. Michaels is the legendary sports broadcaster, probably most famous for his “Do you believe in miracles” phrase when the USA beat the Soviet Union in ice hockey during the 1980 Olympics. Michaels mentioned that he speak to Mike Eruzione — the USA player who scored the winning goal in the game — on a fairly regular basis. Eruzione said that whenever he’s feeling down, he watches the replay of that game winning goal and it always cheers him up.

Mr. Michaels was speaking to UCLA students and investors about investing. The key takeaway is that investing does not need to be gambling.  There are far too many people today offering stock tips. My suggestion is that most people are simply better off just investing the vast majority of their invest-able funds into index funds. As I’ve mentioned numerous time in the past, upon his demise, Warren Buffett plans to have his wife’s money invested as follows: 90% in the S&P 500 and 10% in cash. If you are going to take investing advice from one person. Buffett’s not a bad choice.

3: Doomsday preppers for the super rich

You’ve probably seen the TV show about doomsday preppers; those people who are preparing for the end of the world. Well, apparently prepping is not just for societal extremists. There are wealthy people who are preparing for the end of the world. Take Steve Huffman for instance. Mr. Huffman is the co-founder and CEO of Reddit, which is valued at six hundred million dollars. He recently had laser eye surgery performed. While many people have been having this procedure done for years now, Mr. Huffman is not having this procedure done for vanity reasons or for convenience. No, he’s having the procedure done as he prepares for a doomsday event. If there is a major catastrophe, be it natural (i.e. earthquake) or man-made, he wants to be prepared. After such an event, it might be difficult to find new glasses. Without eyeglasses, he would have a difficult time getting around.

He’s not the only one. Many affluent people in Silicon Valley and New York City, technology executives, hedge-fund managers, and others have been preparing for the worst. In private Facebook groups, wealthy survivalists swap tips on gas masks, bunkers, and locations safe from the effects of climate change. One member, the head of an investment firm, said, “I keep a helicopter gassed up all the time, and I have an underground bunker with an air-filtration system.” He said that his preparations probably put him at the “extreme” end among his peers. But he added, “A lot of my friends do the guns and the motorcycles and the gold coins. That’s not too rare anymore.”

I am not prepared for the worst. If there is a revolution one day and things seem dire, my wife and I will be headed for our garage. I guess we’ll have to keep a gasoline powered car for a few more decades. But where will we find the gas?

4: Peak Millennial?

When you walk around in DTLA (that’s Downtown Los Angeles) or nearby areas, you can see continued growth. There are new apartment buildings and condos going up seemingly everywhere. It’s not just in LA. Many major cities in America have seen incredible growth in recent years as young people have flocked to these cities for jobs. A recent report in the LA Weekly and an article yesterday in the NY Times suggests that we may have reached “peak millennial” — the saturation point when the cities have reached capacity and young adults will no longer be flocking to these cities. A USC professor actually coined the phrase in his 2015 report suggesting that the growth of young people moving towards these cities has flattened. Is it no longer cool to live in big cities? Are these folks simply starting to age and are getting married, having kids, buying a house and moving to the suburbs?

5: Super Bowl

The Super Bowl is upon us. The day when more people watch an American football game than any other during the year. For me, it’s the saddest day of the year. The end of the football season. It is projected that roughly 117 million people will watch the game. The 2015 Super Bowl between the New England Patriots and Seattle Seahawks set a new mark, averaging 114.4 million viewers per minute on NBC’s Sunday night broadcast, becoming the most watched event in American TV history. Why do people tune in? Some people watch because it’s the championship game. Some simply watch to see the commercials. Last year ad spending for commercials during the game totaled almost $380 million. This year the cost of a 30-second spot exceeds $5 million, more than double what it was 10 years ago. And that’s just the cost for airing the commercial during the game, that doesn’t include the cost of the production: creating the ad, paying the writers, editors, actors, set designers and special-effects artists involved. Will there be more than 140 million people watching the big game? I suspect that since Lady Gaga is the featured halftime entertainment, I think that number may be a but in the low side. Wanna bet? You can!

Besides betting on who wins the Super Bowl game or how many points are scored, you can bet on a host of different proposition bets, anything from who scores first, to whether a kicker misses an extra point, to whether or not there will be a Hail Mary pass. (Since Aaron Rodgers won’t be playing, the odds are likely lower on that one…) It’s not just football that you can bet on either. There are halftime prop bets too. You can can bet which song Lady Gaga will sing first, whether or not she will say the word “Trump,” or will she have a wardrobe malfunction.  My favorite is which hair color will she sport:

Blonde/Yellow -170
Brown +200
Green +1000
Pink +1500
White +1500
Blue +1500
Purple +2000
Orange +2000

To explain the betting numbers. The odds of her hair being Blonde or Yellow are -170. That means that if you wager $170 on this prop and that is the color of her hair, you will win $100…  you will receive back $270. Alternatively, if her hair is purple and you bet on that, a $100 wager will return $2,100.

While I’m not suggesting that anyone wager their hard earned cash on such frivolous activity, it is fun to consider.

6: Stress and city life

Every now and then when I was gainfully employed, work got to be too much for me. The stress and frustration were more than I could stand.  I’d say to my wife, “I’m quitting and I’m going to pump gas instead.” Needless to say, this didn’t go over too well. Everyone suffers from stress. For some people, it’s family issues. For others it’s work. For many people it’s money related. I grew up in New York, but left decades ago. When I go back to visit, my wife and I frequently “vacation” in Manhattan. The constant din — cars honking, the seemingly constant ambulance siren — all day and all night is more stress than I can bear. I make sure to sleep as far from the busy streets as I can when I’m visiting. Whatever your stress issues are, you need to get them under control. Stress is a real issue. Something to be taken seriously. Stress has long been linked to cardiovascular disease and weakened immune function, and UCSF researchers are now uncovering how this happens on a cellular level. If you are thinking about packing it in and leaving city life to become a farmer, you might want to read this: So You Want to Flee the City and Become a Farmer.

7: Trump and the marshmallow test

Are you familiar with the test? The Stanford marshmallow experiment was a series of studies on delayed gratification in the late 1960s and early 1970s led by psychologist Walter Mischel, then a professor at Stanford University. I was reading about this test in the latest Michael Lewis book, “The Undoing Project.”

Behavioral physiologists have been using this test for years. They offer young children two choices: you can have one marshmallow now or if you wait a while (usually 15 minutes) you can have two marshmallows. This test has fairly accurately shown how people will behave later in life. Can you delay gratification? If you are an investor (note: NOT a trader) you are delaying gratification; taking some money that you have today and investing it for your future instead of spending it all now. Given that 62% of Americans retire with $1,000 or less, few of us are good at delaying our gratification. Remember, the longer you can delay your gratification — invest money now and reap the rewards later — the more money you will eventually have. Simply invest $5,000 every year for 40 years in an S&P 500 account (historically this has returned 9.70% annually including dividends) and you will likely have over $2 million. Do you still want to eat the marshmallow now?

The New Yorker magazine satirized President Trump:

“You can eat the one marshmallow right now, or, if you wait fifteen minutes, I’ll give you two marshmallows and swear you in as President of the United States.”

source: New Yorker

8: Temptation

What would you do if you found a wallet on the street? Would you return it? Most people would say they would return it. What if there was a note in the wallet with instructions? Michael Batnick discusses this in his latest article Influence, Temptation, And Persuasion.

Columbia University researchers placed wallets on the ground in various locations around midtown Manhattan to observe what would happen when they were found. The wallets all contained $2.00 in cash, a $26.30 check, and various information providing the name and address of the wallet’s “owner.” In addition to this material, the wallet also contained a letter that made it evident that the wallet had been lost not once, but twice. The letter was written to the wallet’s owner from a man who had found it earlier and whose intention was to return it. The finder indicated in his letter that he was happy to help and that the chance to be of service in this way had made him feel good.

How do you think most people responded? Read the article. It not only discusses this, but it parallels people behavior regarding investing. This is definitely worth reading.

9: On Frugality

Frugality helped me to become financially successful and has allowed me to retire early, a goal I set many years ago. As I mentioned above, if you start saving early, invest regularly, you can reach your financial goals, and maybe even retire early. To do this, most of us need to forego some of life’s material goods. I’m not suggesting that you need to go without a car, but I am suggesting that maybe you buy a car that’s easily affordable; maybe a used car. I’m not saying that you can’t have nice clothes, but maybe you can’t buy an entire new wardrobe every year and be a slave to fashion.

My wife shares my views on frugality. Perhaps she’s more frugal than I am. She insists on keeping the thermostat higher than I would in winter and lower than I would in summer. This morning, here in Los Angeles, the temperature was 39 degrees. We used extra blankets and are wearing extra layers in the house. A little discomfort perhaps, but when the bill arrives, we’re comfortable.

10: Seeking Financial Independence

Real incomes have increased roughly 4x in the period since the 1950s. And yet the evidence suggests that happiness in The West has pretty much flat-lined since then.  This disconnect indicates that spending does not equal happiness. They just ain’t the same thing….nor are they causally related.  In other words, more spending doesn’t lead to happiness (after you have food and shelter etc) in any sustainable or meaningful way.

You are financially independent when you have  more than 25 times your annual required spending invested wisely in real, wealth generating assets. That’s why its 25 times more powerful to reduce recurring spending by one dollar than to earn an extra one dollar. As Shakespeare himself may once have said:

How can thou know thyself, if thou knowest not thy spending?

11: Chart of the Day

Infographic: The U.S. Cities With The Most Homeless People | Statista
You will find more statistics at Statista

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