Howdy msf,
Thank you for the followup article link. There are circumstances for some folks where these products have a position in their overall financial structure. Folks should know that there are alternatives with annuities, and this list provides some other paths.
We've had several discussions here about the "other" annuities. The type with the high fees and surrender fee charges. ARGH !!!
I suspect a substanial number of "boomers" find themselves involved with distributions from their parent's estates these days. Many of these "boomers" no longer have an active tax sheltered investment path via 401k's, IRA's, etc. These types of annuities in the list provide a possible option for tax sheltering; and to let the taxation be what it may into the future, upon withdrawal(s) time.
I am somewhat familiar with the Fidelity product; as I have discussed their plan with several folks I know. For about .75 - 1% total fees (includes fund(s) expense); one has some decent fund choices. Fidelity's annuity, however; does limit fund exchanges per year, to four; if my recall is correct. But, this should provide enough flexibility for most folks.
Wondering how many lotto winners (the larger sums) are aware of these products.
Thanks again and take care,
Catch

Watsa has been considered Canada's Buffett for a while. Fairfax actually did very well in 2008 because he bet against subprime and financial stocks.

Reply to @cman: Thank you for your reply.
A few odds/ends thoughts.
I think it's not that people will abandon real estate ownership, but it's a question of whether or not people will ever want en masse what is right and appropriate for them. I'm not saying that everyone goes too far when buying a house, but I just see so many people (on HGTV or wherever) that are shopping for a place based on their wants and not their needs. Maybe I'll be proven wrong, but I do think in terms of real estate, what does well in the next 5-10 years will be what would make "a great rental." Is it close to basic needs, transportation, etc? Is it efficient? Easy to maintain?
Again, I thought 2008 would be a lesson that would cause more people to stop and maybe live within their means a bit more. I don't think that happened, I don't think it will happen. I've come to the conclusion that we are a consumption-based society until that totally breaks someday. I think what fuels that, to some degree, is that it is encouraged. You're never going to hear government tell people to live within their means. Financial media keeps saying that "Oil going from $100 to $95 is a like a tax cut for the consumer" (who can now apparently go out in that SUV and BUY BUY BUY because gas is a little cheaper!) and other such nonsense.
Additionally, people are always going to have that emotional response to buying things or try to come up with reasons why they want things they don't need. "I REALLY NEED that new phone, it lets me do 10 things at once instead of 9." Do they really? Most likely not.
It's the same thing with stocks. I've said before on this board that you're never going to have strong financial literacy in this country for many reasons, but beyond that you're never going to have a majority of the population able to quiet their emotional impulses. People are always going to have moments where they sell at the wrong time because they can't take it anymore. People are going to have a bad day and spend too much money on something because it felt good in the moment. People are going to have a long day and break their diet because it feels good. Whatever example you want to use.
Financial literacy would help, certainly - would be a huge help, but it's immensely difficult to quiet one's emotional response when it comes to financial matters.
People want what they want and they want it yesterday, you have this need for immediate gratification in this society. The "right here, right now" nature of things has, I think, only added to people living beyond their means. Now that everyone has their mobile phones, they don't even need to get home first. Sitting in an airport, in a museum, whereever the impulse strikes, someone can buy that latest whatever whereever.
No one thinks about what may happen if the idea of a consumption-driven society one day can't be bailed out again. There's no grand plan, no outline, just a government that looks to the Fed.
Every year, people have that financial hangover after holiday spending and the bill comes. And you know what? Next year they'll do it all over again, same hangover.
This consumption-driven economy is not sustainable but when it breaks again, it will likely be taped up, glued back together, bailed out and sent on its way again until, sometime down the road, it might break down for good. The attempt to figure a way forward if that happens is not going to be pretty.
I own credit card companies and I sit there and I think, every second, someone somewhere is using their credit card and the credit card company is making money. It's not a bet on high-end coffee or trendy yoga pants or anything specific. It's someone using it to buy anything from a new stereo system to a pack of gum. I worry about regulatory issues, but I like worrying about regulatory issues more than I like worrying about a store that didn't stock some dopey fashion. At least in terms of regulatory concerns, there's an army of lobbyists for that.
Otherwise, I hold a lot of real assets. Railroads, oil royalty stocks/oil co's, real estate (particularly things like healthcare and apartments.) In the end, I think useful, productive assets are what will work best. Things that are needed and aren't going anywhere. If someone can trade trends and fads, more power to them, I just have no interest in that kind of thing anymore.

Reply to @Junkster:
Hi Junkster, Hi Mark,
Thank you for your informed additions to this topic. I appreciate your enthusiastic and fair participation.
Although we differ on a few points, overall we share many common perspectives. Investing decisions are rarely fully Black or totally White. And there surely is no singular golden pathway to financial Valhalla. I believe my last post on this matter strongly drives home that specific position. Allow me to repeat part of the closing paragraph from that submittal:
“Being a successful investor is not such an easy task. It demands a mix of a little statistical knowledge and a little more of emotional control. I really never meant to imply that mathematical sophistication was the end-all to successful investing matters.”
Earlier in the post I mentioned that experience was still another contributing element. This is certainly not a hard-over stand for only statistical analyses. Each investor must adopt a philosophy and a methodology that takes advantage of his unique talents and gives him comfort. I would never impose my style on anyone else. To each his own.
The IQ issue is controversial and has attracted some research. Before exploring it, I was of the opinion that an IQ above some threshold level would not benefit an investor because of the future’s uncertainty. High IQ doesn’t necessarily map into blazing forecasting brilliance.
But some studies just might show otherwise and force me to reassess my thinking on the subject.. I am not an expert in this arena, but here is a Link to a Robert Shiller review of one such study:
http://www.nytimes.com/2012/02/26/business/what-high-iq-investors-do-differently-economic-view.html?_r=0
Professor Shiller is very fair in his assessment of the research work, and clearly records his reservations about its merits. The study subjects were Finnish men of draft age.
Regardless of its shortcomings, the study did conclude that high IQ individual investors: diversify more, choose small cap and value oriented stocks, buy more mutual funds, are more cost sensitive, and are more likely to invest in equities than their lower IQ counterparts. It is not clear why this is so since none of the given preferences require a high IQ. It seems like much more work is needed in this evolving field.
The bottom-line reported by Shiller, as extracted from his review of this provocative study is that: “The results are that people with high I.Q.’s build portfolios with better risk-return profiles than their lower-scoring peers.”
I feel that the jury is still out on this topic.
Just as I abstain from making specific investment recommendations and I constantly reject divulging my specific portfolio holdings on the MFO forum, I also refuse to release my IQ score. I suspect that it is likely not what it once was. I have never and do not consider myself a superior investor. My investment record is evidence enough of that conclusion. However, I do credit myself with being a very patient and persistent investor. The payoff has been marvelous.
Like the conventional financial wisdom suggests, it is not market timing, but rather time in the markets that matters most.
I would encourage you guys to not corrupt your investment decisions with political and environmental issues, biases, or preferences. That’s an explosive mixture that can only do your wealth harm.
Best Wishes and Happy New Year.

Reply to @scott: You have hit on a very important distinction. It is financial decision making that matters, not just financial literacy. The former is much broader than the latter.
Your conclusion as well as David's reaction above is the expected response to the point of the post - a caricature of the logical extreme of the premise of the thread that mass financial literacy is good within the system that is designed around mass ILLITERACY.
You either get the confused incoherence of David with his brain screaming "it doesn't compute" or the thoughtful conclusion you come to which is that mass financial literacy to that logical extreme will never be a reality and the system we have to live in is based on that whether we like it or not.
If you think about, this is just a broader version of a similar thought experiment, what if everyone became a long term buy and hold investor in index funds which is after all considered a prudent approach. Our current market system based on price discovery would collapse as prices would be determined entirely by net flow in or out of money as people got in or out for their needs with a rising or falling tide behavior.
The responses to that experiment would be similar, incoherent lashing out or a rationalization that would never happen rather then entertain the possibility that the very premise of the system we have is counter to what we might consider as wise behavior.

Reply to @MJG: I will not argue that a working knowledge of statistics and probability may enhance an investors chances of success but I will say that they are not absolutely required as you insist. I dare say that the world is full of successful investors who just knew that 1) you have to save a little, 2) you can't spend more than you earn and 3) subtract what you need from what you earn and that's what you have available for savings or investments.
I love math and probability. I tolerate statistics and use it in my writings where appropriate and I can make it make sense. What I can't do is cram it down my daughters throats for the life of me but they do know that if they buy a share of Harley Davidson, or McDonalds or P&G now and again instead of blowing it on pizza and beer they may see those shares increase in value over time and that 4 times a year those companies put money or additional shares back in their hands. Now if only I could teach them how to balance their checkbooks or make sure they don't over run their ATM cards. We work on it but their artist eyes always glaze over.
Lastly, the cited article was about the lack of financial literacy and not about becoming investing savants. Stats and probability are tools and not the holy grails.

Hi Hank, Hi mrdarcey,
You do me great honor by reading and replying to my post. Thank you for your attention.
You are very much aware from my torrent of earlier submittals that I am a persistent warrior with respect to the use of statistics and probability theory when making investment decisions.
As Warren Buffett observed “Investing is simple, but not easy”. I do not contest in any way the quote often attributed to Albert Einstein that “Everything should be made as simple as possible, but not simpler”. The last part of that quote is where the rubber hits the road when investing.
It would be terrific if investing were so simple that arithmetic would suffice as the only requirement on the mathematical tool belt. But such is not the case.
Investing deals with future prospects which immediately demands some forecasting skills. But as Yogi Berra said: “It is hard to make predictions, especially about the future.” The historical financial database is a rich source to shed some light on this challenging task.
Statistics and probability theory are tools that organize and add structure to this huge database, and provide some guidance for an individual investor. Therefore, some rudimentary understanding of statistics and probability principles are requisites for successful investing.
You need not be an auto mechanic to become a winning race driver, especially if you practice accident avoidance tactics. Before rolling the investment dice, it would be a good habit to roughly know the odds and likely payoffs, as well as the downside risks for any candidate investment.
The financial marketplace is awash in statistical records. Any investor is doomed to the poorhouse if he fails to take advantage of these data. Not much statistical sophistication is needed.
To illustrate, an investor must recognize that performance scatter, as measured by standard deviation, is a razor sharp determinant of end wealth accumulation. When confronted with a choice between an investment with a 10 % annual rate of return with a standard deviation (sigma) of 20 %, or an investment with a 9.5 % return rate with a sigma of 14 %, the likely better end performer choice is the latter because of compound return considerations.
That’s because return’s volatility functions to erode compound returns according to the following algebraic relationship: Compound return (also called geometric return) equals average Mean return minus one-half times Sigma times Sigma. For the cited example, the compound return for the 10 % Mean annual return case is reduced to 8.00 %; for the 9.5 % mean return case, the compound return is 8.52 %. This sample choice problem really demonstrates one of the advantages of an adroit asset allocation portfolio construction.
For this same example, probability Theory can be used to capture the likelihood of a negative returns year. Using the Table for Normal Distributions, the 10 % Mean annual return option has a 30.8 % likelihood of a negative year because of its large standard deviation. The 9.5 % annual Mean return option has a lesser 24.9 % probability of a losing year because of its reduced volatility.
These few numbers clearly demonstrate the superiority of the portfolio with smaller volatility prospects over the alternate option. Just a little statistical and probability know-how permit the investor to enhance his prospects. It gives him a small edge.
But an investor is not a robot. I surely do not believe that mathematics are the sole answer to successful investing. It is merely one ingredient in a complex mix. Experience is yet another factor. Typically, emotions are a disruptive influence.
An investors emotions are an integral part of his decision making process. So, emotional control is an essential. In the last decade, the Behavioral researchers have identified a plethora of prejudices and bias that operate to compromise investment decisions. Taking time to engage the reflective (slow) segment of the brain to moderate our quick acting reflexive (fast) tendencies is necessary.
Simply having the discipline to do a few statistically based calculations before making a final decision serves to accomplish the needed slowdown. Being a successful investor is not such an easy task. It demands a mix of a little statistical knowledge and a little more of emotional control. I really never meant to imply that mathematical sophistication was the end-all to successful investing matters.
Thanks again for giving me an opportunity to elaborate on my original post.
Best Wishes and Happy New Year.

Reply to @cman: I agree to some degree on some of your points. In terms of number 4, I think you are right in that a lot of financial planners and others exist because people's lack of understanding of investing and how to go about it. However, there are some people who go to financial planners because they don't have the time, don't have the desire or, for whatever reason could manage their money but have the luxury of hiring someone else. Let's put it this way: I don't think that the industry would collapse, but I think it may be geared more towards the high-end. A lot of it would be in some degree of trouble.
6. Teens are going to play video games if they aren't on social media. Teens haven't learned the value of time in ... ever. I don't know if financial literacy would change that. Speaking of video games, people can play against someone in another country from the comfort of their own home. If you go on XBOX Live or PSN, you often hear other languages. Stuff I could never imagine 25 years ago playing Atari 2600 and Nintendo.
5. Retail banking is going to go in the toilet anyways, but I think it's to some degree due to people's dislike of their basic banking services (fees, for example.). The credit card companies are going after the "unbanked" in a big giant way, with Amex's Bluebird and other efforts (which they are promoting with the warm and friendly term, "financial inclusion."). The amount of people with a phone but no bank account in the world is rather remarkable (from Visa at the link below: "In 2012, an estimated 1.7 billion people will have a mobile phone but not a bank account."). I think there will still be a desire for loans and credit, but I think within this decade, you will see a substantial drop in bank locations and "basic" banking done at a location. Still loans, done at less locations.
Visa even has a "fact sheet" about "financial inclusion": http://corporate.visa.com/_media/financial-inclusion-fact-sheet.pdf
Look at Capital One's 360 Cafes. It's a Starbucks crossed with a bank and they're quite popular in the cities they're in. Long financial tech (FIS and maybe FISV again at some point.)
2. After 2008, it has become clear to me that people are never going to learn to spend within their means. After 2008, there wasn't anything about changing behavior or learning lessons, it was "how quickly can we reboot to what things were like a couple of years earlier, whatever it costs?"
People don't spend beyond their means because of lack of financial literacy in many instances. They do it because they want it (whatever it is) - it's an emotional need to buy something to get a little happiness, to keep up with their friends or for any number of reasons. People having financial literacy may help this a little, but you're still going to have people buying things to fill any number of emotional holes/needs. I don't see this changing. You have social media's popularity and while that has been positive in some ways, it's been a negative in many others and you see people who have to broadcast every.little.freakin.moment.and.thought. I find this need for acceptance and confirmation from others to be a little dismaying in ways. I know no one gives a (blank) about what I had for lunch. I feel like there's a greater level of emotional need and - to some degree, emptiness - in this world right now than any time that I can remember. It's sad.
Anyways, long story short, people's desire to spend beyond their means isn't going to go away with increased financial literacy. Long credit card companies and despite the volatility in these names, I sleep well with them. This is a consumer-driven economy and that's clearly the goal whether it's healthy or not and people are going to continue to move away from cash to electronic transactions in general.
1. I don't know what happens with real estate, but I think what's astonishing to me is that, if you watch episodes of "House Hunters" and other such things from 2007, you see people in their 20's who have to go big - a couple starting out talking about how they have to have a ridiculous amount of space. You watch these shows now, nothing's changed, people not looking for a house at all from the standpoint of utility and practicality. I do think what does best in the years ahead are places that would "make a great rental" - nice, easily maintained, efficient and location, location, location - one doesn't have to drive to everything.
In the end though, as you note, I think mass improvement of financial literacy is extraordinarily unlikely.

Reply to @cman: Wow! What a cynical and unsophisticated view from someone who poses here, or comes off, as an informed financial sort. Good grief. Do you really believe that if people were financially literate they would not want or need loans? Credit? I guess you do so believe. Apple would go out of business? There is so much else to respond to, but upon rereading I now detect the scent of serious ... Randian/libertarian? antilibertarian? utopian? Something fantastic and quite out of touch with human reality. And who does not know teens, even in other centuries.
I sensed from some earlier exchanges that while you were clearly an eloquent writer you were perhaps not so thoughtful or subtle a reader or thinker. This seems to be proof. Surely I will regret posting these thoughts.

Hi Guys,
Rather than the basic finding from this research project, which is not particularly a shocking or recent observation, I am more concerned with the fundamental cause for this shortfall without falling too deeply into the weeds.
My conclusion might well be too simplistic, but I am a True Believer that most folks are financially illiterate because of mathematical innumeracy. Many of my MFO postings are directed at addressing and/or improving this shortcoming.
One long standing demonstration of this actionable shortfall is the Cognitive Reflective Test (CRT). I’ve posted this test earlier, but here it is once again:
1. A bat and a ball cost $1.10 in total. The bat costs $1.00 more than the ball. 
How much does the ball cost?
2. If it takes 5 machines 5 minutes to make 5 widgets, how long would it take
100 machines to make 100 widgets?
3. In a lake, there is a patch of lily pads. Every day, the patch doubles in size. 
If it takes 48 days for the patch to cover the entire lake, how long would it take for the patch to cover half of the lake?
Take the CRT if you wish. I’ll provide the answers at the end of this post. Just a little algebra and some patience will generate a perfect 3 score.
The reason I included the CRT is because it is a common test administered to a large body of diverse groups. Scores are typically very disappointing.
When the inventor of the test, Professor Shane Frederick, initially gave it to 3500 victims, only 17 % answered all three questions correctly, whereas 33 % got all three wrong. The best group score of 3 correct answers was registered by 48 % of MIT students. Financial folks recorded 3 correct at the 40 % level. That’s not especially encouraging if you seek advice from that cohort.
Using Daniel Kahneman’s “Thinking, Fast and Slow” decision making concept, the lesson here is that far too many folks use too much of their reflexive brain elements and not enough of their reflective mind components when problem solving. The Behavioral researchers might classify this as an overconfidence bias. Regardless, our reflexive overuse tendency puts our wealth and retirement at risk.
The fundamental flaw is that most citizens are not adequately educated in the mathematical discipline. Their tool belt doesn’t contain enough mathematical skills. As one wag told it: “Most can not distinguish between Monte Carlo and Monty Python”.
I will continue the march to encourage investors to slowdown, and to do a little independent analysis. The power of “The Wisdom of the Crowd” is compromised when that independent analysis and deliberate thinking is abandoned in favor of mob rule. That’s one of the primary causes of bubbles and panics.
Enough said. I’ve wandered far from the referenced article's chief conclusion.
As promised, here are the answers to the CRT quiz: (1) 5 cents, (2) 5 minutes, and (3) 47 days. I’m sure many MFOers scored a perfect 3. For those few who didn’t answer all 3 questions correctly, don’t be discouraged; many financial advisors are also in this category. The good news is that if you patiently apply a little algebra that goal is easily achieved. Good luck to all.
Best Wishes and Happy New Year.

Be careful of what you ask for. US economy is built to a large extent on financial illiteracy and serious lack of future planning. Trying to change that will have significant impact on the economy requiring a redesign of consumption based economy, the treatment of capital vs labor, etc.
Every one of us here who are benefitting from the capital markets and depending on it for retitement are doing so arbitraging the inefficiencies of illiteracy. Good news is that educating the masses is not an achievable goal.
In a world where financial literacy is the norm:
1. Real estate markets would collapse when people really understood leverage and effective rate of return without being hindered by emotional feeling regarding home ownership.
2. Retail economy would go into deep recession as people realized how little they can afford to spend the way they are spending now and realize how they can live with much less so they can sock away more and convert human capital to financial capital as quickly as possible to play the only game in town.
3. Favored treatment of capital over labor in taxation and policy would be reversed as masses realize how depending on human capital for retirement was futile and that everyone cannot acquire sufficient financial capital unless they earned more and not just saved more. Margins for consumptive goods would collapse as companies get a double whammy - increasing labor costs and decreasing consumption. Apple would go out of business.
4. Industries based on managing other people's money would collapse as only a few would feel the need to outsource it.
5. Retail banking as it exists would be destroyed as people deleveraged and started to live within their means and demand for loans and credit disappeared.
6. Technology sector would be decimated as venture capital would find itself over invested in companies with no exits and advertising that requires financial illiteracy to create value would no longer support companies' business models. Teens would no longer idle away their time on social media as they learnt the financial value of time. Snapchats would themselves become ephemeral as companies.
The world after getting through the above might be a better place than what we have but getting through that will be worse than living through a nuclear war for a whole generation.
But the chances of that happening are miniscule since mass financial literacy is an unachievable goal. You should be thankful for that.

Re: "Millions of Americans Lack Basic Financial Literacy ..."
Quoting John Boehner: "Oh Really!" :)

Until financial literacy is on the college entrance exams, it won't be taught.
Articles like these, full of non sequiturs and hidden assumptions, get my dander up.
A few counter-statements:
1. 20-year-olds should be investing heavily in themselves: education, developing emotional maturity, figuring out their trajectory in life.
2. Students are mired in debt because college costs are very high and jobs are very few.
3. Ppl don't pay off their miring debt because the real unemployment rate is twice the gov figures and working a service job doesn't budge the mire. Failure to cut down on the mound isn't necessarily behavioral, as the article wants everybody to believe. (There's quite a lot of Puritan heritage in the article, BTW; maybe all debtors should be shunned and publicly dunked?)
Grr.
Max, the best thing you can do for your son is to buff up your network of connections to help him get a well-paying job after graduation.
PS: I'm sure some of those who thought stocks were safer than stock mutual funds had parents or grandparents who bought stocks with nice dividend rollouts over the decades. It all depends.

FYI:
Regards,
Ted
http://www.latimes.com/business/la-fi-financial-literacy-20131228,0,2727404,print.story

Wow, what a mess of a fund. It should be possible in some cases like this to sue for breach of fiduciary duty or just gross negligence. Too bad inflicting financial harm is treated so different from inflicting even emotional harm.
Wonder what their "adaptive" investment strategy was. Looking at the performance chart of this fund, it seems like whatever they did worked in the 2008/2009 meltdown, so they probably used a long/short strategy. But, it seems like in the middle of 2011, when the market started a correction, they went all in hedged in the opposite direction just when the market took off to the upside and never looked back. Seems like they never recovered from it as if they were too emotionally vested in the strategy to make a correction.
Stretching the neck out too much in an investment thesis and not having a risk management strategy. Dangerous combination.

Hi Guys,
Its been a good investment year so I have little to grumble about. But grumble I will although the gripes are not of a very serious nature.
Earlier this year I expressed my displeasure with those who reference statistical data and only report some vague average value. I am sometimes also guilty of this sin.
If statistics are cited, they should be more completely reported. A more complete and useful report should include the number of observations, the mean value, the median value, the standard deviation to quantify data scatter, the outlier maximum value, and the outlier minimum value. It is a more cumbersome disclosure, but it is a more comprehensive characterization of the data itself.
Today, as I was reading the weekend edition of the WSJ, I identified a second investment numerical representation gripe. In today’s media coverage it seems to be a common practice that a financial expert’s credentials are mostly established by solely referencing his Assets Under Management (AUM). The video and audio media do the same. A large AUM says nothing about the investment acumen of the person touting that number.
The AUM really only measures the cumulative salesmanship skills of the person being interviewed. It does not quantify his abilities as a money manager, stock picker or economic market forecaster.
A more meaningful introduction would report the annual return rates that his clients received under his management contrasted to some market standard applicable to the expert’s investment style. Has he generated Alpha (excess returns) or, if he is defensively risk oriented, how did he dampen losses in down markets? His actual performance record over a specified timeframe should be an integral part of any introduction.
Fat chance that either of these gripes will be soon implemented. But I can always grumble and dream.
As one of my New Year’s resolutions, I will pledge to not permit these minor gripes to trouble me. They are just not worth my ire. Nor are they worth your ire either. Sorry for injecting my personal gripes on your goodwill and time.
Best Regards and Happy New Year.

Hi Guys,
Here is a Link to a nice weekend article in the WSJ titled “The Best Financial Advice I Ever Got (or Gave)”:
http://online.wsj.com/news/articles/SB10001424052702304244904579276963442898436
The article summarizes wisdom from 22 successful investors, professors, market researchers, and business giants. I believe there is something of value in this year-end piece for everyone who participates in the MFO forum.
I particularly liked the advice offered by Morningstar’s Joe Mansueto. We all are victims of some behavioral bias influences, and Mansueto’s perspectives serve as a Confirmatory bias to my own investment philosophy, preferences, and prejudices.
Enjoy the article.
Best Regards and Happy New Year.

Reply to @Charles:
Hi Charles,
Indeed, Nobel prize recipient Paul Samuelson invested with Warren Buffett early in his hugely successful, multi-faceted career. He recognized a shrewd and perhaps unique financial wizard and wisely joined his ranks as a long term investor. That’s another piece of evidence that Samuelson was a cut above and beyond most economists. By many measures, he was a brilliant man.
Even a totally efficient market does not mean that all investors will equally share the wealth produced. All it means is that with a large number of participants independently (not acting as a herd) making choices, the likelihood that an efficient closing price will be satisfied. In the end, each day supply and demand are balanced. There will surely be winners and losers as diverse opinions are registered by buying and selling pressures.
In his early years, Samuelson actively sought Alpha (excess returns) with astute investing. Some credit him as the originator of the Hedge fund concept. In the 1970s he recognized Warren Buffett’s singular talent and invested in Berkshire Hathaway.
He acknowledged that “Experience makes me think that a few folk do have an intuitive flair for making money by sensing patterns of momentum”. I see no inconsistency in believing in market efficiency that allows for a distribution of winners and losers.
Samuelson was smart enough to pick a real persistent winning money manager. Buffett’s investment philosophy falls more closely to the buy-and-hold (B&H) side of the investment spectrum as opposed to the day-trader end. Most of Buffett’s success can be allocated to patience, compound interest, extended timeframe, and his actively involved management attributes. Mutual fund buy-and-hold advocates practice three out of four of these characteristics.
Many B&H wizards say that “Timing the market is a fool’s game, whereas time in the market is your greatest natural advantage”.
One of a zillion Buffett quotes (only partially practiced) is that “Our favorite holding period is forever”. One of Paul Samuelson’s equally famous quotes is that “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 (an inflation adjustment is needed here) and go to Las Vegas”.
Given these similar investment philosophies, it is certainly not surprising that Samuelson wisely chose to invest with Buffett.
Charles, I agree that the article was entertaining; I merely wish it was more balanced, especially when addressing statistics data and when assessing the flexibility that B&Hers really do practice.
Best Wishes and Happy New Year.

Hi Mark,
Thank you so very much for posting the Morningstar Article by Samuel Lee.
The article clearly demonstrates the market wisdom that when prices are extremely low, the likelihood of oversized returns is very high.
The article is basically an uncluttered, focused review of an impressive body of statistical market data sets. That’s great. However, the author’s interpretation of the data is surprisingly and disappointingly incomplete.
Whenever presenting statistical data, it is always a good policy to include some measure of the dispersion in the data to supplement the commonly cited Mean and/or Median statistic. The data’s standard deviation is the usual dispersion measurement. Quoting some average value is simply not enough.
A quick scanning of the 3 graphs displayed in the referenced article plainly shows that the data scatter is rather large for a major portion of the collected data range. Lee failed to even mention this significant observation. Perhaps it works to weaken his main theme.
To illustrate, just concentrate on Figure 1 which presents the correlation of forward 5-year real returns as a function of Shiller’s inverted Cyclically Adjusted Price to Earnings ratio (CAPE). The data set is fundamentally a wide cloud up to an inverted CAPE value of approximately 12 (P/E ratio of about the 8.3 level).
It is not an exactly new concept that if the P/E ratio is so low that a highly profitable opportunity exists to buy into equities with a high likelihood of huge future rewards.
Similar dispersed cloud formations exist within the other two figures. The dispersion aspects within each of these data sets should have been highlighted in the text. It is always a meaningful part when interpreting any statistical data.
The author also tends to overstate the rigidity implied by the Buy-and-Hold market strategy employed by many market participants. Buy-and-Holders never believe that it is a forever pledge. If it were, profits would never be realized.
Most Buy-and-Holders, myself included, just avoid the daily noise created by frantic media coverage and an overly aggressive trading cohort who actively seek quick rewards without hard work. That cohort are the natural experimental subjects for the Behavioral researchers. Overconfidence is a representative characteristic of this group who do a great service in making the marketplace more efficient.
Buy-and-Holders have divergent financial goals that not only depend on their ages and purposes, but also on market dynamics. It is a cardinal sin to characterize that cohort as a single, inflexible mass with a uniform timeframe. Things are never that simple.
Mark, regardless of my reservations, I really enjoyed the referenced piece. I learned from it. I love these big picture, meta-analysis. I truly appreciate your effort in bringing it to my attention. Thank you once again.
Best Wishes and Happy New Year.

I had done some due diligence on these companies last year when VC money was pouring in. My quick summary is that they have over-promised and under-delivered both to customers and to investors but it is still early in the automation game for investing. They need a breakthrough product or feature to revolutionize the investment planning. Traditional RIAs don't have to sleep over them yet.
They are unlikely to be of much value to people on this forum who is not their target customer base and already know more than what these companies can offer.
Wealthfront has had a long history with several business model iterations or pivoting as it is called in startup world. Started as Ka-ching on Facebook for social investing with virtual portfolios, almost a game. People created virtual portfolios and shared with others. The platform kept track of performance.
Then they moved outside of FB to make this into a real portfolio tool. Initially , they kept the same model of having people creating portfolios in the market and people could see the portfolio and follow them. If you liked the performance and wanted to duplicate a particular portfolio and keep it synced with what the portfolio creator was doing in buys and sells, the platform allowed you to do that easily for a fee which was shared with the portfolio creator. The idea was that people who can do good portfolios and beat the markets would rise to the top and have a lot of people mirroring it.
But the predictable performance chasing killed it. One portfolio would do well for a short period and then it would underperform in a different market cycle and people were disappointed. There was no quality control and so portfolios that took a lot of risk and got lucky attracted more followers until it crashed and burned.
They pivoted to a version where the platform would create the portfolio for you and select mutual funds to beat the markets. That didn't deliver either as the portfolios could not consistently beat the markets in all market cycles. Their customers expected way too much from these portfolios.
So, they pivoted again this time with a lot of VC money. The company got a huge makeover with the primary goal being to create a good exit. Sort of like manufactured California wines which is more industrial and chemical engineering to create a product that sells than the art of wine making. I believe one of the VCs himself became the CEO.
The key to a good exit was to get a huge number for AUM for the platform. As much money was spent on marketing as on technology. They got rid of all active funds, selected a few low cost index ETFs. They hired a strong team of names including Burton Malkiel of Random Walk fame as an advisor to leverage him and the efficient frontier buzz word that could be marketed.
Their chosen audience was the newly minted rich from the startups who liked the technology aspect over traditional financial planners who all wanted 1-2% fee to manage their new money. Wealth front promised to do this for a fraction. This audience would also help them increase their AUM at a faster pace for their exit than getting the money a few tens of thousands at a time.
They tried to come up with things that technology could do and provide value over human advisors but other than the tax loss harvesting that was relevant to the chosen audience, they really haven't innovated anything new or of much value. Their audience was also smarter than they thought. Many opened an account with less than $10k for the free portfolio management to try it out and didn't increase it to pay a fee and/or duplicated that portfolio for themselves at Fidelity or Schwab without having to pay a recurring fee on AUM.
The basic problem was their audience did not like the concept of a recurring AUM based fee for the value they received, still had to use financial planners for whole life planning of which portfolio construction is just a small part. So, they are kind of stalled without enough AUM to get a good exit and burning VC money (still I think) as the low fees generated wasn't sufficient to pay their bills but enough to keep them going with hopes.
Meanwhile, the competition is coming in from the RIA side with vendors trying to equip the RIAs with technology so they can scale up and offer more personalized services at lower cost than they did before. Large pools of advisors are being created sharing a technology platform to offer cost-effective services. Too soon to say which one will win out. RIAs have an embedded customer base already but with too many aging advisors that aren't willing to adopt technology quickly, don't want to perturb the AUM based fee structure especially for the mass-affluent target market.
The whole thing is ripe for disruption with technology but the entrenched and often incestuous financial advice/planning industry is a very difficult industry to disrupt. Meanwhile, these online companies are scrapping with each other for AUM as the total money coming in has pretty much stalled. The shrill voices heard in this linked article is their frustrations coming through.
It needs an Elon Musk to totally change it.