Why do regular people always under-perform investment advisers, who in turn under-perform the market? It’s tempting to say it’s because the pro’s know more, are better educated, have more money, and/or better access to information. These advantages certainly make a difference, but really only on the margin. The real reason was identified back in 1949 by one of the founding fathers of modern security analysis, Benjamin Graham, who wrote “The investor’s chief problem, and even his worst enemy, is likely to be himself.”

This week’s theme is all about investing, and how keeping your emotions under control, ignoring whatever the hot investment of the day is, and sticking to your long term plan is the best way to ensure a prosperous future.

The Intelligent Investor: Saving Investors From Themselves (Wall Street Journal)
This article talks about how difficult it is to keep a level head when everyone else is losing theirs. Whatever the hot investment of the day, it’s very hard to stay away from it when everyone else is making money.

Five things I try to do on this Blog (The Irrelevant Investor)
The biggest danger an investor faces when investing in the stock market is not staying invested. Investors who try to time the market, sell at the bottoms, and buy near the tops. After repeating this pattern for a couple of cycles, they give up and label stocks “dangerous”. It’s when things look really bleak that keeping a steady head, and doing what at the time feels wrong, is most important.

Correlations aren’t Constant (The Reformed Broker)
This one is a bit on the technical side but the message is the same. Investors who patiently stay with their asset allocations over the long term, by buying “losers” and selling “winners”, tend to do very well. Everyone knows this but yet very few can actually do it. It’s extremely hard to sell that high flying fund that’s making you feel happy, and use that money to buy that dog that’s making you sick to your stomach every time you look at it.

The subprime mortgage crisis wasn’t about subprime mortgages (Fortune)
This article may seem out of place at first glance, but it very much belongs in this list. There was a time when the vast majority of people in the US truly believed that real estate could never go down, never-mind actually crash. This is the belief most Canadians have today. The arguments as to why this time is different are countless and eerily similar to the ones heard in the US. One argument heard a lot these days is how Canadian banks are far more responsible than US banks, and how the US crisis was caused by loans that are not even available in Canada, so no reason to worry. This article throws some cold water on that idea by describing exactly which mortgages caused the crisis. Real estate has a place in an investment strategy, just like any other asset class, but it needs to be kept within those limits. I know I won’t convince die hard wanna-be real estate magnates, but maybe I’ll give a pause to one or two people before they make some terrible mistakes.

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I have been a bit busy with my wife getting oh so very close to giving birth to our second son. However, I am working on a new original article and will be publishing it early next week. In the meantime please enjoy the following round up of great articles I’ve read recently.

It appears that being a United States Senator does not mean you have to be particularly good with your money. You can lecture people on their finances and get paid to give speeches on being fiscally responsible, while yourself binging on debt by buying multiple properties and luxury cars you cannot afford. Who knew? OK — not exactly an earth shattering surprise that a government official can’t manage finances, but the degree of fiscal irresponsibility is more than I would have expected.

However, let’s start with some positives examples of making good choices regardless of income and/or wealth.

Good lifestyle choices don’t change much whether you’re rich or poor

• One family’s downsizing strategy to live within their means (Globe and Mail) – I like this story because it really illustrates how important the choice of where to live is to a families financial health. The biggest difference, between this family and the struggling family I mentioned in one of my previous articles, is that this family chose a place to live that matched their budget and their actual needs. No amount of saving on anything else can fix the monumental mistake of buying too much house.
• Millionaires Who Are Frugal When They Don’t Have to Be (New York Times) – The habits that make you sustainably wealthy do not just disappear as soon as you hit some particular wealth level. There is no number at which a frugal person turns into a Marco Rubio (more on that below). It’s amazing how much self-made financially secure people have in common with each other.

On the other hand bad choices lead to financial ruin regardless of income

• Marco Rubio’s Career Bedeviled by Financial Struggles (New York Times) – maybe Marco isn’t exactly financially ruined but he does remind me a bit of a ponzi scheme. The more money is given to him the more he needs to keep going. I believe his situation is actually very similar to many middle and upper middle class families, which is why I started this blog. Still, the level of ineptness here is epic, I just couldn’t help hearing the Benny Hill Show music in my head as I was reading this article.

So where does travel fit in?

• How we quit our jobs to travel (BBC) – I am certainly not advocating this as a career strategy for everyone, however, it illustrates the importance of understanding your goals. Too often people focus on the progression of their careers and ticking off all the proverbial life-achievement boxes dictated by mainstream society. Others focus on achieving financial independence or a comfortable retirement without a good idea of what they’ll do when they get there. It’s critical to clearly understand why you are pursuing your goals, and what you plan to do once you achieve them, as early on as possible. You may realize you can actually “retire” to your dream activity right now.
• Why I love the world (BBC) – The more I learn about Chris Hadfield the more I like him.  On the surface this may not appear to have anything to do with personal finance, but I believe there is a very important message here. It goes back to the myopia that drives us to pursue things simply because others around us think they’re valuable. Travel opens your eyes to ways of living that you would have never imagined or thought possible. It reminds you that a large number of concerns everyone in your community is so obsessed with, are actually very specific to the time and place you happen to be living in. They are just distractions that keep you off course. There are values that are universal (same across cultures and geographies), and there are values that are fleeting, and knowing the difference can be extremely positive for your finances.

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This week was great for articles on budgeting and cutting back spending. There are some really good ones I linked to below. My favorite article though is Anthony Bourdains tips on how to find great food while travelling. I couldn’t agree more with all of them! This is exactly how me and my wife find awesome cheap food while we’re backpacking.

Budgeting/Lifestyle

• This article discusses 5 things that new grads should do as they enter the working world. The temptation to go nuts when you finally get a steady paycheque is hard to resist. I mean you’ve been cutting back and getting by while in school so now that you actually have money coming in it’s time to splurge. Not so! While loosening up a bit is understandable this is the time to really save because your costs are usually still pretty low and your are used to getting by on very little. You may even be still living with your parents rent free. If you can continue living as if you were still in school while receiving a full time paycheque for at least a few years after graduation you can really set yourself up for life.
• Too often we make financial decisions based on what everyone else is doing rather than based on the math. This article discusses 3 things that are often considered very virtuous that you should really put off until your retirement savings are on track. The sooner you start saving the less you will actually need to save due to the power of compound interest.
  “The most powerful force in the universe is compound interest” – Albert Einstein
• I will often speak of “grounding” yourself on my blog. This blogger does an excellent job describing what that means. It’s amazing how much less we need when we start with the assumption that we don’t need anything and build up rather than start with everything and try to cut down.
• Lastly I’ll point you in the direction of my last post in case you missed it. It really is the origin story of the Unassuming Banker and will help you understand where I am coming from when I write the things I do.

Fun

• Some great advice from Anthony Bourdain on how to find the best eats while travelling!

  “There was a sinister-looking dude wearing a dirty t-shirt, grilling chicken in a sort of sawed-off 50-gallon drum,” he says. “Mangy dogs were walking around. But we sat down at a table under a bare lightbulb and ordered that chicken.”Everything about it was unexpected, but it came together,” Bourdain continues. “The beer was cold, the right song — something by Peter Tosh — came on the radio. It was a happy accident, and it was the best jerk chicken I’ve ever had. There’s something to be said for letting great meals just happen to you.”

  Go read the whole thing!

• Ooops creationist finds a 60 million year old fish fossil in his basement.

I post all these articles throughout the week so if you don’t want to wait until the Weekly Links I invite you to follow me on my Facebook page, Twitter or Google +.

In addition to writing my own posts I will try to post a weekly roundup of articles I found interesting or educational in the past week. I haven’t decided whether to pick a particular day every week or just go with the flow so for now I’ll stick with the latter.

Don’t worry a new original article is on the way and I plan to get it published by tomorrow! Promise!

In the meantime some interesting things I’ve read this past week.

Lifestyle

• Matthew McConaughey is a great actor but not someone I would generally think of when I think life guru. However this article, which is a transcript of a speech he gave, is really great and filled with some excellent insights. I especially like #13 and the idea of getting perspective on life by temporarily disconnecting from it. I’ve been to those mountains in Peru, though it could be really anywhere as long as it’s remote, and I get it. I completely understand why he feels the need to go to these places and get “lost” in them. Great job putting into words one of the main reasons I travel so much. Check out all 13 lessons learned.

Investing & Retirement

• What makes so many people so susceptible to financial fraud? Josh Brown from The Reformed Broker has some good suggestions on how to keep yourself out of trouble.
• You may have heard of the 4% withdrawal rule . It essentially states that you can safely withdraw 4% per year in your retirement from your investment accounts and never run out of money. This article in the New York Times is a good discussion on whether that rule still works.

Fun

• The New Yorker did some research and used science to prove something I’ve been feeling for a while. Could this be true? I really can’t see any other explanation.