Onto the next rule:

“We pay disclosed compensation.  We pay undisclosed compensation.  We don’t pay both disclosed compensation and undisclosed compensation.”

I didn’t originate this rule, and I am not sure who did.  I learned it at Provident Mutual from the Senior Executives of Pension Division when I worked there in the mid-’90s.  There is a broader rule behind it that I will get to in a moment, but first I want to explain this.

There are many efforts in business, particularly in sales, where some want to hide what they are truly making, so that they can make an above average income off of the unsuspecting.  At the Pension Division of Provident Mutual, the sales chain worked like this: our representatives would try to sell our investment products to pension plans, both municipal and corporate.  We preferred going direct if we could, but often there would be some fellow who had ingratiated himself with the plan sponsor, perhaps by providing other services to the pension plan, and he would become a gateway to the pension plan.  His recommendation would play a large role in whether we made the sale or not.

Naturally, he wanted a commission.  That’s where the rule came in, and from what I remember at the time, many companies similar to us did not play by the rule.  When the sale was made, the client would see a breakdown of what he was going to be charged.  If we were paying disclosed compensation to the “gatekeeper,” we would point it out and mention that that was *all* the gatekeeper was making.  If the compensation was not disclosed, the client would see the bottom line total charge, and he would have to evaluate if that was good or bad deal for plan participants.

Our logic was this: the plan sponsor would have to analyze the total cost anyway for a bundled service against other possible bundled and unbundled services.  We would bundle or unbundle, depending on what the gatekeeper and client wanted.  If either wanted everything spelled out we would do it. If neither wanted it spelled out, we would only provide the bottom line.

What we would never do is provide a breakdown that was incomplete, hiding the amount that the gatekeeper was truly earning, such that client would see the disclosed compensation, and think that it was the entire compensation of the gatekeeper.

We were the smallest player in the industry as far as life insurers went, but we were more profitable than our peers, and growing faster also.  Our business retention was better because compensation surprises did not rise up to bite us, among other reasons.

Here’s the broader rule:

“Don’t be a Pig.”

Some of us had a saying in the Pension Division, “We’re the good guys.  We are trying to save the world for a gross margin of 0.25%/year on assets, plus postage and handling.”  Given that what we did had almost no capital requirements, that was pretty good.

Most scandals over pricing involve some type of hiding.  Consider the pricing of pharmaceuticals.  Given the opaqueness is difficult to tell who is making what.  Here is another article on the same topic from the past week.

In situations like this, it is better to take the high road, and make make your pricing more transparent than your competitors, if not totally transparent.  In this world where so much data is shared, it is only a matter of time before someone connects the dots on what is hidden.  Or, one farsighted competitor (usually the low cost provider) decides to lay it bare, and begins winning business, cutting into your margins.

I’ll give you an example from my own industry.  My fees may not be the lowest, but they are totally transparent.  The only money I make comes from a simple assets under management fee.  I don’t take soft dollars.  I make money off of asset management that is aligned with what I myself own.  (50%+ of my total assets and 80%+ of my liquid assets are invested exactly the same as my clients.)

Why should I muck that up to make a pittance more?  It’s a nice model; one that is easy to defend to the regulators, and explain to clients.

We probably would not have the fuss over the fiduciary rule if total and prominent disclosure of fees were done.  That said, how would the brokers have lived under total transparency?  How would life insurance salesmen live?  They would still live, but there would be fewer of them, and they would probably provide more services to justify their compensation.

Even as a bond trader, I learned not to overpress my edge.  I did not want to do “one amazing trade,” leaving the other side wounded.  I wanted a stream of “pretty good” trades.  An occasional tip to a broker that did not know what he was doing would make a “friend for life,” which on Wall Street could last at least a month!

You only get one reputation.  As Buffett said to the Subcommittee on Telecommunications and Finance of the Energy and Commerce Committee of the U.S. House of Representatives back in 1991 regarding Salomon Brothers:

I want the right words and I want the full range of internal controls. But I also have asked every Salomon employee to be his or her own compliance officer. After they first obey all rules, I then want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be read by their spouses, children, and friends, with the reporting done by an informed and critical reporter. If they follow this test, they need not fear my other message to them: Lose money for the firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless.

This is a smell test much like the Golden Rule.  As Jesus said, “Therefore, whatever you want men to do to you, do also to them, for this is the Law and the Prophets.” (Matthew 7:12)

That said, Buffett’s rule has more immediate teeth (if the CEO means it, and Buffett did), and will probably get more people to comply than God who only threatens the Last Judgment, which seems so far away.  But I digress.

Many industries today are having their pricing increasingly disclosed by everything that is revealed on the Internet.  In many cases, clients are asking for a greater justification of what is charged, or, are looking to do price and quality comparison where they could not do so previously, because they did not have the data.

Whether in financial product prices, healthcare prices, or other places where pricing has been bundled and secretive, the ability to hide is diminishing.  For those who do hide their pricing, I will offer you one final selfish argument as to why you should change: given present trends, in the long-run, you are fighting a losing battle.  Better to earn less per sale with happier clients, than to rip off clients now, and lose then forever, together with your reputation.


The Word of God is powerful, as it says in Hebrews 4:12.  That’s why even those that do not believe the Bible will use it on occasion to buttress their positions, whether it is:

  • Cults that use Psalm 46:10a (“Be still, and know that I am God”) to tell people that they are really God themselves.
  • Muslims that try to tell us that the promise of the Holy Spirit in John 14:15-27 really promised Mohammed.
  • Advice columnists that can only misapply the verse, “Judge not, that you be not judged.” (Luke 6:37)
  • Liberation theologians that appeal to the Exodus as a motif for taking revolutionary action to overthrow oppression.
  • Lenin, quoting Paul, “If any man will not work, he shall not eat.” (2Thessalonians 3:10)
  • Satan, who quoted Psalm 91:11-12 to Jesus in Luke 4:10-11.

The same is true of Vermont Royster when he wrote “In Hoc Anno Domini,” which has been run on the Wall Street Journal Editorial Page in late December every year since 1949.  In that piece, he cites the Bible seven times, but always in a way that twists it.  He takes the Bible out of context to support his view of politics.

The Bible says a lot about politics, but that is not its primary thrust.  For the rest of this piece, I will show how Mr. Royster abuses Scripture.  After describing the one-world tyranny of Rome, he writes:

Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar’s and unto God the things that are God’s.

He cites Matthew 22:21, Mark 12:17, and/or Luke 20:25.  In the full context, Jewish leaders ask Jesus whether it is right to pay taxes to Caesar or not.  The question was a trap, because the Zealots and Jewish authorities had opposite positions on the question.  Jesus answer rebukes everyone, because he implies, “Yes, pay taxes to Caesar, but don’t give Caesar the allegiance that is due to God.”

Jesus was not directly opposed to the political rule of Caesar; indeed, the early church did nothing to protest the rule of Caesar, even as they were persecuted by the Roman Empire.  Royster continues:

“And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.”

Here he cites Matthew 25:40 and Acts 1:8. Without any support, Royster says that Christ defied Caesar, and offered a Kingdom where all men would not have to bow to Caesar, or anyone else.  Is this the same Jesus that said “You have heard that it was said, ‘An eye for an eye and a tooth for a tooth.’  But I tell you not to resist an evil person. But whoever slaps you on your right cheek, turn the other to him also.   If anyone wants to sue you and take away your tunic, let him have your cloak also.  And whoever compels you to go one mile, go with him two.” (Matthew 5:38-41)  Here Jesus encourages submission to the Romans, who would occasionally shake Jews down, and make them carry burdens.  They certainly did many evil things to the Jews.

Royster misapplies Matthew 25:40 and Acts 1:8 – Jesus did not come to bring political and economic freedom to the common man.  His gospel was not one of political liberation, but that He was the Messiah, the Lamb of God, who came to take away the sin of the world. (John 1:29)  That was the message that the apostles would take to the ends of the Earth, at the cost of their lives.  Royster then adds:

So the light came into the world and the men who lived in darkness were afraid, and they tried to lower a curtain so that man would still believe salvation lay with the leaders.

But it came to pass for a while in divers places that the truth did set man free, although the men of darkness were offended and they tried to put out the light. The voice said, Haste ye. Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.”

Royster alludes to John 8:32 and cites John 12:35, both out of context.  When Jesus said, “And you shall know the truth, and the truth shall make you free.” in John 8:32, it was in the context of believing all of the teachings of Jesus.  It’s not the truth in abstract that makes one free, but the truth as taught Jesus, who said, “I am the way, the truth, and the life. No one comes to the Father except through Me.” (John 14:6)  Also, it is neither political nor economic freedom, but freedom from sin.

When Jesus said in John 12:35, “Then Jesus said to them, ‘A little while longer the light is with you. Walk while you have the light, lest darkness overtake you; he who walks in darkness does not know where he is going.’” he was speaking of His upcoming death on the cross for the forgiveness of sin.

Royster continues:

“Along the road to Damascus the light shone brightly. But afterward Paul of Tarsus, too, was sore afraid. He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.”

He alludes to Acts 9 and Genesis 25.  In Genesis 25, Esau trades away his birthright (inheritance) for a bowl of pottage (stew).  Esau is not trading away something political or economic.  He would have been the inheritor of the promises made to Abraham, which undergird salvation.  He gives up on the faith of Abraham.

Royster says some more and then closes with:

“And so Paul, the apostle of the Son of Man, spoke to his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:

Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.”

He cites Galatians 5:1Galatians 5 summarizes Paul’s argument, and says that if you try to go back to keeping the Law in order to be saved, rather than accept Jesus’ sacrifice for sin in faith, you will go to Hell.  You will not be saved from your sins.

The liberty that Paul speaks of is freedom from sin, and ultimately freedom from the penalty for sin – it is not economic or political liberty.

Summary and Request

Vermont Royster, for whatever reason, used the Bible and a Christmas motif to justify his political views.  When he first wrote it in 1949, there were worries that totalitarianism would take over the world.  I understand the fear.  There is a greater thing to fear, though, as Jesus said in Luke 12:4-5: “And I say to you, My friends, do not be afraid of those who kill the body, and after that have no more that they can do. But I will show you whom you should fear: Fear Him who, after He has killed, has power to cast into hell; yes, I say to you, fear Him!”

This is the prime message of the Bible, together with the promise that those that trust in Jesus will inherit eternal life, and be spared Hell.

I am not against political or economic freedom, and neither is the Bible.  It is good to promote those.  Indeed, Protestantism gave birth to strong forms of both freedoms that we benefit from today.

That said, it is wrong to publish the distortions of the Bible that Vermont Royster concocted, and even worse to do it yearly.  Editors of the Wall Street Journal, please cease doing that.

Photo Credit: Alfred Shum

Photo Credit: Alfred Shum

At this time of year, people often do holiday posts.  I’ve never done that.  I’m going to do it this time, and then probably never do it again.

Close friends of mine know that at the Merkel household, we are Christians that don’t celebrate Christmas.  The main reason is that it is a human holiday, and not a God-appointed one.  There are other reasons, too, but that is a topic for another place.

I write this because of an editorial that has been published in the Wall Street Journal since 1949.  It’s called “In Hoc Anno Domini.”  It was written by a longtime editor of the Wall Street Journal, Vermont Royster, in a time where many in the US feared Communism and other forms of totalitarianism.

In that editorial, he cites the Bible seven times without attribution, and every time takes the part of the Bible out of its context to support economic and political freedom, and oppose totalitarianism.  It’s horrible from an intellectual standpoint, because the Bible is not trying to say anything like that at that point.  I could write an essay showing how the Bible encourages economic and political freedom, and opposes totalitarianism, but I would quote very different Scriptures, but do so in their proper context.  But you may as well get Lex Rex by Samuel Rutherford, which influenced Locke and many others.

I’ve looked around the web, and I have yet to find a critique of this editorial.  I find many posts praising it, probably because its rare to hear something that sounds vaguely Biblical in a major publication.  But to me, it really grates.  Here’s why:

Many people may have a favorite author, or a personal hero who writes a book.  Well, imagine that someone quotes and makes significant allusions to your hero’s book and does so in a way that ruins the original meaning, and replaces it with a meaning of far lesser value very different from the original meaning.  How would you feel?

Well, I feel annoyed, and my response to that editorial will be in the next blog post.  If you don’t like Christian reasoning, skip the next post.  A reduced version of it will be submitted to the Wall Street Journal as a letter to the editor.

The remainder of this post republishes “In Hoc Anno Domini” with a few explanatory notes, to point out what Royster was citing, and clarify some of the language from the King James Version of the Bible.  (An excellent translation, but the English is dated.)

With no further ado, here is an annotated version of “In Hoc Anno Domini” (In the Year of Our Lord)  My comments are marked with a DM.


When Saul of Tarsus set out on his journey to Damascus the whole of the known world lay in bondage. There was one state, and it was Rome. There was one master for it all, and he was Tiberius Caesar.

Everywhere there was civil order, for the arm of the Roman law was long. Everywhere there was stability, in government and in society, for the centurions saw that it was so.

But everywhere there was something else, too. There was oppression—for those who were not the friends of Tiberius Caesar. There was the tax gatherer to take the grain from the fields and the flax from the spindle to feed the legions or to fill the hungry treasury from which divine Caesar gave largess to the people. There was the impressor to find recruits for the circuses. There were executioners to quiet those whom the Emperor proscribed. What was a man for but to serve Caesar?

There was the persecution of men who dared think differently, who heard strange voices or read strange manuscripts. There was enslavement of men whose tribes came not from Rome, disdain for those who did not have the familiar visage. And most of all, there was everywhere a contempt for human life. What, to the strong, was one man more or less in a crowded world?

Then, of a sudden, there was a light in the world, and a man from Galilee saying, Render unto Caesar the things which are Caesar’s and unto God the things that are God’s.

[DM: Citing Matthew 22:21, Mark 12:16, or Luke 20:25]

And the voice from Galilee, which would defy Caesar, offered a new Kingdom in which each man could walk upright and bow to none but his God. Inasmuch as ye have done it unto one of the least of these my brethren, ye have done it unto me. And he sent this gospel of the Kingdom of Man into the uttermost ends of the earth.

[DM: citing Matthew 25:40 and Acts 1:8, but the phrase “Kingdom of Man” is nowhere in the Bible – it should be the Kingdom of heaven or Kingdom of God. Geek note: the book of Daniel uses the phrase “Kingdom of men” in chapters 4-5, but was used to show that God ruled over all, even Babylon.]

So the light came into the world and the men who lived in darkness were afraid, and they tried to lower a curtain so that man would still believe salvation lay with the leaders.

But it came to pass for a while in divers places that the truth did set man free, although the men of darkness were offended and they tried to put out the light. The voice said, Haste ye. Walk while you have the light, lest darkness come upon you, for he that walketh in darkness knoweth not whither he goeth.

[DM: “divers” means various.  Cites John 12:35]

Along the road to Damascus the light shone brightly. But afterward Paul of Tarsus, too, was sore afraid. He feared that other Caesars, other prophets, might one day persuade men that man was nothing save a servant unto them, that men might yield up their birthright from God for pottage and walk no more in freedom.

[DM: Alludes to Acts 9 and Genesis 25]

Then might it come to pass that darkness would settle again over the lands and there would be a burning of books and men would think only of what they should eat and what they should wear, and would give heed only to new Caesars and to false prophets. Then might it come to pass that men would not look upward to see even a winter’s star in the East, and once more, there would be no light at all in the darkness.

And so Paul, the apostle of the Son of Man, spoke to his brethren, the Galatians, the words he would have us remember afterward in each of the years of his Lord:

[DM: An apostle is never referred to as an “apostle of the Son of Man” in the Bible.]

Stand fast therefore in the liberty wherewith Christ has made us free and be not entangled again with the yoke of bondage.

[DM: citing Galatians 5:1]

This editorial was written in 1949 by the late Vermont Royster and has been published annually since.


Tonight’s topic comes from a note sent to me by a friend. Here it is:

David, I have heard you say that you have entered into partnerships in the past.  What are your rules for partnerships, who will you enter with?  I have a neighbor who is interested in starting a business, the start up cash is small $5000.  I think there might be good opportunity, but I am concerned for good reason about my time availability, as well as Not being “unequally yoked”.  What business relations do Paul’s words govern.  do you have different rules for minority, majority, or controlling shares?

I appreciate your thoughts.

I have two “partnership” investments.  One is very successful and is an S Corporation.  The other is a limited partnership, and I wonder whether it will ever amount to anything.  Both were done with friends.

There are a few things that you have to think about with partnerships:

  1. Is your liability limited to the amount of money you invested, or could you be on the hook for more if there are losses/lawsuits?
  2. Are there likely to be future periods where capital might need to be raised?  Under what conditions will that be done?
  3. What non-capital obligations are you taking on as a result of this?  Labor, counsel, facilities, tools, etc?
  4. How will profits and losses be allocated?  Voting interests? How will it be managed? When will the partnership end?  How can terms be modified? How can partnership interests be transferred, if at all?  Etc.
  5. Do you like the people that you will be partners with?  You may be partners for a long time.
  6. Be ready for the additional tax complexity of filling out schedule C, or a K-1, or some other tax form.

Go into a partnership with your eyes wide open, and check everything.  If your partnership interests have limited liability, and the economics are structured similar to that of a corporation, then things are clearer, and you don’t have to worry as much.

Take note of any obligations that you might have that don’t fit into the “passive provider of limited capital with proportionate ownership” framework.  Those obligations are the ones that need greater scrutiny.  Include in that how those working on the partnership get compensated for their labor.  Parties to the partnership may have multiple roles, and there can be conflicts of interest — imagine a partnership where one partner works in the business and receives a large salary, thus depressing profits for the non-working partners.  How does that conflict of interest get settled?  (Note that the same problems that exist in being an outside, passive, minority public stock investor reappear here.)

Also be aware of how ownership interests can change, and whether you may be forced to add more capital to maintain your proportionate interest in the business.

Try to have a good sense of the skill of the partner or employee managing the business.  That makes all the difference in whether a business succeeds.

Most of what I say here assumes that you will not be a controlling majority partner, and that you will have limited influence over the business.  If you do have control, the problems of getting cheated by someone else go away, but get replaced with the problem of making sure the business is run adequately for the interests of all partners.  Your ethical obligations also expand.

You mention the “unequally yoked” passage from Second Corinthians 6, verses 14 and following.  In one sense, that doesn’t have much more application here than it does in all investing if one is a Christian.  Don’t involve yourself in businesses that of necessity involve you in things that you would not do yourself as a Christian.  Don’t invest in enterprises where it is obvious that management does not care about ethics — you can see it in their behavior.  This will be a little clearer and close to home in a partnership with a friend — you will know a lot more about what is going on.

With a non-limited partnership, there is an additional way the “unequally yoked” passage applies.  You expose your entire economic well-being to risk when you are a general partner.  It is like a marriage — it is very difficult to negotiate your way out of the unlimited guarantee that you make there.  It is like being a co-signer, which the Bible says to avoid.

Of itself, that doesn’t expose you to the unequal yoke, but when you are in an economic agreement that binding, if your partner takes the business in an ethical direction you find dubious, you will be in a weak position to do something about this.  There is where the unequal yoke appears amid unlimited liability.

That’s all for now.  There’s a lot more to consider here, but this is meant to be an introduction to the issues involved in partnerships.  Hope it works well for you.

Here’s another letter from a reader.  If reading about my faith turns you off, stop reading now, because this will be thicker than usual.

Hi David,

 I’ve just started reading your blog, and greatly enjoy it. I noticed you integrated your faith with your perception of the world and economics/policy. I am a Christian who is attracted to the wonder of the financial markets. So many individuals making so many decisions being affected in so many ways; it can be overwhelming. My question regards how you view financial markets within your faith.

 I was originally going to work at an internship at a hedge fund in 2008. I thought it’d be the dream: making big money! But that summer, when all hell broke lose, the hedge fund closed down before I could even start. Fast forward six years, and I’m working in corporate finance at a non-financial company – nothing to do with the markets. I want to jump back in, but not as a trader. I feel there was some Divine Providence in how I’ve perceived my “close call” with the trading world. I’m currently trying to understand how I can approach careers involving the financial markets that don’t force me to leave my faith at home. How do you approach the world of finance with your faith?

 Thank you so much for taking the time to read this, and God Bless.


Dear Friend,

I went through a similar experience early in my Christian walk, because sadly, I ran into some Evangelicals who denigrated earning money – Evangelical Leftists were more common in the late ‘70s.  Thus, I turned against Finance though I was good at it.  My Master’s thesis anticipated price and earnings momentum, and most quantitative long-short equity hedge funds.  Too bad for me; I aimed at doing development work in the Third World.  As it was, when I figured out that development economics tended to inhibit growth, and its opposite encouraged it, I gave up.  I started a career in finance as an actuary.

When I did that, I realized that I must do many things:

Be a good example to those around me.

  • Be friendly and pleasant to my co-workers.
  • Oppose fraudulent practices.
  • Be honest with those with whom I dealt.
  • Apologize when I sin or make mistakes.
  • Avoid bad language.  That not only means foul language, but also cruel language, even if it is technically clean.
  • Work hard.
  • Learn, learn, and learn.  A dirty secret about Evangelical Christians is that we read more than non-Christians, and have more Ph.Ds per capita.  Okay, the Jews have us beat there, and badly.
  • Avoid working on the Lord’s Day [Sunday].
  • Don’t be afraid about using the Bible as an analogy or as an example.  After all, people cite all manner of garbage as authorities, and the Bible is not permitted?  Is it because the Bible claims universal authority that people want to ban it?  Yes, that is why.  No one wants the Owner of the Earth to remind us of His claims.
  • I was always honest with coworkers about my faith in moments where it was natural, but I never beat them over the head with it.
  • Love your coworkers, and those with whom you interact.
  • Avoid investments in companies that have sinful goals — gambling, illicit sex, etc.  Also avoid companies that try to cheat people.

Practically, the most important thing is to be honest, keep your word, aim for competence, and be faithful in your dealings with others.

Any vocation can be pursued in a worldly or Christian way – most of it is the attitude that you bring to it.  “Whatever you do, do it heartily, as unto the Lord.”

One final note: one time, I was given a very hard time by a boss who was under a lot of pressure.  Nominally, I was his assistant, and so the rest of the team was amazed with what he put me through, while I largely kept a good attitude (it was not perfect).  One of my co-workers, a Christian, came to me privately and asked how I was doing.  I said that I was fine.  She knew me well, and said that she was praying for me, and that the entire staff was astounded that I would put up with what the boss was doing.  I told her that he was the boss, under a lot of pressure, and that if I pushed back, it could do a lot of harm to all of us.  I was not doing it for me.

It made an impression on the staff, and though they liked me, when the boss left six weeks later, they chose me to run the unit.  Truth, management above chose me, but without their support and love, I would not have been half the leader that I was.

So, serve for the good of others, and you will succeed.  “Love your neighbor as yourself.” [Lev 19:18]




A younger friend of mine sent me an email asking for investment advice.  Here is the redacted version of it:


I’m not sure if you are aware of a blog called mrmoneymustache.com. The guy who runs the blog retired in his late twenties just working a software development job. Granted, he was really fortunate to have graduated college and started his career in the dot-com bubble, but he didn’t have a really high-paying job by any means during that time. Anyways, his main strategy was saving 70-80% of his income and investing heavily into Vanguard index funds. He stopped contributing to his 401Ks early on and started putting the rest of his savings into taxable accounts with Vanguard (index funds) in order to retire early and withdraw his 4% from his portfolio every year for living expenses. I think it’s a pretty interesting blog and might be worth checking out if you had the time. I’d be really interested in your general thoughts about him and his blog and if you think he gives wise investing advice.

[Wife] and I both have IRAs ([Wife] has a traditional 401k and I have a Roth). [Wife] actively contributes to her 401k every paycheck and I think it has about $XX in it. I put the max contribution amount into my Roth every year, currently $XXXX, and it is at about $XX. I always hear it’s important to max out your tax deferred and tax free accounts before opening a taxable account. I think we’re at the point where I want to start investing in a taxable account. I like Vanguard and their low expense ratios and I know index funds outperform actively managed funds in the long-term.

 I was thinking about opening a vanguard taxable account and starting off small (5-6k) with my investments into VTSMX and VFWIX with a 50/50 split. Do you think this would be a wise move? I don’t want our money sitting in savings accounts and not even keeping up with inflation. I almost feel like it’s foolish not to invest as much as possible.

Anyways, looking forward to your response and thoughts on MMM and his blog.

Thanks Dave!

First, I want to commend you for making an effort to save and invest early.  Most people don’t do that, and it is a major reason why they never become financially secure.

Second, I want to thank you for introducing me to Mr. Money Mustache.  As one that has sported a full beard for the last 20+ years, I can appreciate the name.  He saved lots of money in his twenties, and invested it in stock index funds at Vanguard.  I am a Vanguard fan also, though I use them less often now, because my stockpicking has done well.

MMM reminds me of a more severe version of Dave Ramsey, minus the Christianity.  If you can deny yourself in the early years, work hard, keep expenses down, and build up a nest egg early, wow, do it.  Most people can’t do that.  You and your wife have already accumulated more than most have at similar ages.  Keep it up.  Having a bias against unnecessary spending is a good thing.  When my kids ask me why we don’t get new cars, I tell them that they run, and I will drive them until the cost of maintaining them is greater then the cost of buying and maintaining another car over the long run.

It is wise to avoid too much debt, and wise to pay it down early.  I have been debt-free for the past 11 years, including the mortgage.  Excluding the mortgage, 22 years.  It changes you, and frees you, because when you don’t have worries over paying debts, you don’t have the same degree of concern of are you going to run into financial trouble.

In inflation-adjusted terms, you are roughly as well-off as my wife and I were when we were your average age.  Good job, and keep it up.

Third, you are young, so investing 50/50 in US/Foreign Total equity index funds from Vanguard is fine, especially the Foreign part of it.  I say that because the US Stock Market is priced to deliver 5.5%/year returns for the next 10 years.  Foreign markets offer more return now.  When MMM was investing his savings the market was priced to earn 9-13% or so per year.

This brings up another point.  I don’t like earning nothing on my money, as it is with most banking and savings accounts, but sometimes that is the best option.  In September of 2000, the US stock market was priced to earn -2%/year returns for the next 10 years.  That was a time to throw stocks out the window.  I didn’t do that, and my value investing made money in 2000 and 2001, though I got whacked hard in 2002.

Not every moment in the market offers the same degree of opportunity to make money.  To the degree that you can, be ready to invest when markets have fallen, and things look bad.  If you want to be clever, after a severe fall invest after the S&P 500 is higher than its 200-day moving average.

But investing regularly to some degree immunizes market environments.  You will invest in good times and bad.  In the end, the discipline will benefit you.  You have saved, invested, and did not panic when things went bad.  You lived to prosper when things went good.

But, you might tilt your US assets to the US value index fund, and if Vanguard has a foreign value index fund, you might do that as well.  Value outperforms over the long haul, so do that if you can.  If small stock valuations weren’t so high now, I would tell you to look for small cap value, but I won’t, it doesn’t make sense now.

Fourth, yes, start the taxable brokerage account with your excess money.  I started mine at age 29, and the economic help it has been to me has been significant.  I would not have been able to start my business in 2010 if I had not done that.  Or survive the low earnings years 2008-2012.

Fifth, all that said, I have one more insight to add.  I’m sure that MMM enjoys his life and works, even though he is “retired.”  The Bible warns us about not wearing ourselves out to get rich, in Proverbs and Ecclesiastes.  Hey, it is nice to live off of a passive income, but the Lord made us to work six days, and rest on the seventh.  Work is an ordinary part of life even if you are managing your assets, and it is to be enjoyed.

What MMM suggests may be harder to bear than many people are capable of bearing.  We should appropriately enjoy life and not be misers.  The Larger Catechism in talking about the Eighth Commandment encourages us to enjoy what God has given us.  As we prosper, we should thank God for it, and enjoy it.

You have a wonderful wife, and that is reward enough.  But save and invest in good times and bad, and it will work out far better for you than those that don’t do so.

This article was spurred by this article in the Wall Street Journal: Financial Scammers Increasingly Target Elderly Americans.  The elderly are indeed a target because of three reasons:

Seniors are targets, and not just by those who are regarded as fraudsters.  I had an older friend who was approached by the sales professionals of a major bank to manage her $3 million portfolio, which was already well-managed.  They made all manner of promises of what they would do for her, in exchange for a fee on assets — 3%/year.

At that level of expense, there are a lot of things that could benefit the Senior in question, but the nice-looking, unctuous people from the bank sell an expensive mirage.  I’ve never seen a bank that was genuinely good at asset management, and certainly not to the degree of charging a 3% fee.

Every elderly person needs a younger skeptical friend who is sharp enough to be able sense when a deal is sketchy, and the elderly person needs to have the discipline to run things by their younger friend.

As I so often say, “Don’t buy what someone wants to sell you.  Buy what you have researched for yourself.”  The elderly should develop a hatred of marketers.  Hang up on anyone who is offering something that is “too good to be true” because it almost always is too good to be true.

To those who Lead Churches

I am an elder in my Reformed Presbyterian congregation.  I have served my denomination on the boards of its college, denominational trustees, finance committee, and pension board.  In my congregation, we watch out for our elderly members.  We make their requests a priority.  If they need financial advice, I give it to them for free.  God rewards those who aid widows.

I encourage Church leaders who have enough financial sense to be able to know when something financial “feels funny” to gather their elderly congregants, and tell them to call you if they are tempted by slick-talking salesmen to make them part with money.

To those who Love Elderly Family or Friends

Take the time to tell them to be careful, and that you are available to help them whenever someone calls them out of the blue, where that party will benefit from money from the senior, no matter what it is.  This isn’t as tough as telling them to give up the car keys (been through that once).  But they do need to be sensitized to two things:

  • There are people out there who want to cheat them, and
  • You love them, and will help them in any situation like that.

We’re supposed to take care of and honor elderly people anyway.  Societies that don’t do that tend to fail.  So look out for your elderly friends to the degree consonant with your relationship to them.

One of the great things about the US is that people give their time and effort for things that benefit society.  It is a secular offshoot of the Puritan idea of creating a Holy Commonwealth.  We are out to save the World from itself, but now, without anything like Yahweh/Jesus telling us to do it.

I must admit that I serve in both spheres — I am an elder in my Bible-believing Presbyterian congregation.  I also serve on the Baltimore CFA society’s board, and may become a part of the board that oversees the pension plans for Howard County, should the county executive so choose me.  (As an aside, I applied for similar posts at the Maryland State level, but I fear that I am either too controversial, or too qualified.  I suspect that they don’t want people who really know the business.)

When I came to Baltimore, my boss had a number of things to teach me:

  • When someone asks you for help finding work, give him help.
  • Break off time to aid the broader interests of your industry, in this case, the CFA Society.
  • Where you have the opportunity, favor the local financial community if it doesn’t cost a lot to do so.
  • Help students and young professionals where you can.

I have made an effort to do this.  I aid people who are looking for opportunities, and I advise them.  I may not be the best, but I have been around the block a few times.  I really enjoy aiding people to find jobs in investing.  I love spending time with students, and encouraging them to think broadly about how investing works.  It is not a simple formula.

Thus I find my time pulled many different directions, and my dear wife wonders at how I do it.  The truth is, I don’t do it.  I have as many hours as all those who are alive.  It is just a question of the distractions that you block out in an internet era.

Thanks for reading me, and as Program Chair for Baltimore CFA, if you have any great speaker ideas for me, please send them to me. Thanks.

All hail the CFA Institute.  They are trying to inject more ethics into the market through their “Future of Finance” initiative.  I largely agree, but think they are overly optimistic in some areas.

Here are their basic ideas: http://www.cfainstitute.org/learning/future/about/Pages/statement_of_investor_rights.aspx

Here are their dreams: http://www.cfainstitute.org/about/vision/serve/Documents/integrity_list.pdf

My main problems are with the dreams.  Yes, I eventually want every investor to work with someone who has a fiduciary interest in his well-being.  But many people don’t want to take the time to find the people who have their best interests at heart.  There are many things we can overcome, but we cannot overcome the laziness of investors, both retail and professional.  This laziness is part of the nature of man; a few cure it through consistent effort, but most don’t.

To that end, some blame belongs to the unintelligent investors who barge into a market without sufficient knowledge.  That’s how it should be, because in many areas of business those that try to compete with insufficient knowledge lose vitality because they don’t know the basics of the business.

You can’t protect people from stupidity.   Fraud is another matter.  Deception is different from dumb agreement.

But here is my main challenge to the CFA Institute: where do your ethics come from? Why are they right?  Are they God-given, or merely an agreement among men?

This matters a great deal, because if it is merely an agreement among men, many men will say, “So what! Why should I listen to you?”  If they are God-given, even if men argue with them, the answer comes back from God, “You are a sinner in many ways, including this.  When will you humble yourself to me, and trust in the sacrifice of my Son, which was the largest event in history?”

Ethics aren’t neutral; people disagree about what is right and wrong to a high degree.  Even in finance, there are considerable disagreements in what is the correct behavior:

  • Active vs Passive mangement
  • Value vs Growth
  • Does Technical Analysis work?  (Is there truly a single discipline there?  I don’t think so.)

That’s a considerable reason why it would be difficult to enforce the views of the CFA Institute over the markets.  There is no commonly agreed-upon view of how the markets work.  The views of the academics are ridiculous, and do not reflect market realities. But many asset allocators trust them, even though their results are poor.

Don’t get me wrong, I largely favor what the CFA Institute is proposing.  I just think it will be hard to turn it into public policy because of the large disagreements over how finance actually works.  Also, the degree to which neglectful parties buy into the markets through the persuasion of sellers, because they won’t look out for their own best interests directly.

So, look at what the CFA Institute is up to.  They are part of the “White Hats” in the market, like me, who argue for the good of investors.  My only difference with them is that their model of the market is not fully accurate.  Nor do they understand how men can err, even with detailed ethics codes.


After I finished last night, I realized I had a few more things to say.  First I need to correct what I wrote in part two regarding the separation of Buffett and Susie.  Here’s some help from one of my readers:

I do have a bone to pick with your review of the Snowball, part two: in describing the Buffett’s separation and arrival of Astrid Menks, you have substituted your own judgment for that of Schroeder and Buffett, without making it clear that it is your own viewpoint.  I certainly understand your assessment of the marriage and perhaps your desire to defend Buffett, as he is someone you clearly respect (as do I).  But Buffett’s own view, expressed in the book that Susie’s leaving was “99% [his] fault”.  Schroeder also indicates that Buffett was quite difficult, and of course, he was totally driven, and in any case, not terribly emotionally supportive.

The ethical judgments that I made in parts two & four were mine.  They were not those of Alice Schroeder, Buffett, or anyone in Buffett’s family.  That said, because of the role I play in my church, I have had to counsel some people on marriage.  My results have been good, bad, and indifferent.  Usually I think that I have been called in on the late side, when hope is almost non-existent.  Better to call in a counselor on the early side.

I have known many men, and some women who I would call “pieces of work,” where they are very difficult to get along with.  I’ve seen cases where the spouses of such people succeed, and more where they failed.  In marriage, it takes two to make a failure, leaving aside adultery and desertion.

My opinion is this: if Susie could bear with it for 20 years, she could bear with it for 40 or more.  Buffett was maturing emotionally, and was better able to interact with others.  Susie missed the best years of Warren.

As it is, children are affected even if adults when parents separate; they become more prone to divorce.  Buffett’s children had their own marital problems.  It also doesn’t help when you didn’t get a lot of attention from your father when young.

On the Patience of Buffett

Buffett does not have to deploy capital; he does not have to grow.  He can live with a lot of cash on hand, earning zero.  He knows human nature.  As a group, we tend to panic every five years or so.  Buffett picks up a lot of bargains, whether by sector, or across the market as a whole.  He finds good companies that are out-of-favor, and he gives them a good home.  This is very different than how most people invest.

Buffett waits until he sees a return on book capital with reasonable certainty that exceeds his threshold, and then he buys aggressively.  He can do that because he has a balance sheet, and he has simple goals for return on capital.   So long as he continues to be careful he never has to worry about insolvency — his balance sheet is conservative.

Final note on Religion

Because of who I am, I was interested in how Buffett’s and Susie’s parents viewed religion.  Buffett and Susie were a lot like my in-laws: raised in the church, but turned against God.  There was something in the era, as people sought bad interpretations of the Bible so that they could live their own way, and not God’s way.


Already expressed.  This is a great book if you are looking to read about the life of Buffett, rather than the aspects of Buffett’s investing that you can’t imitate.

Who would benefit from this book:  This book will not help you invest like Buffett, unless you are bright, and know all of the details that lay behind Buffett’s strategies.  This book is the best to help you know Buffett the man.  It is a great book.  If you want to, you can buy it here:The Snowball: Warren Buffett and the Business of Life.

Full disclosure: I borrowed it from the local library.

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