Forum Mailbag: Technical Analysis, Ideal Rent As Resident, Beating The Harvard Endowment, And More!

There is so much great information on personal finance forums. I participate on several message boards, including the Bogleheads and White Coat Investor forums. Here are some of the discussions happening around the internet.

1. Bogleheads: Technical Analysis

Question: Protagonist asks whether technical analysis is “all smoke and mirrors.”

WSP’s Take: Technical analysis is a very broad term that encompasses many different trading strategies. Technical analysis defined as the use of charts to predict future price movements is likely an exercise in spurious pattern recognition. I wrote about my experience with technical analysis in a guest post on the White Coat Investor blog. I previously was a practitioner of technical analysis until I realized that randomly-generated stock charts can appear to show many of the patterns that technical analysts use to interpret actual stock charts.

2. White Coat Investor: Ideal Rent As Resident

Question: Mr. MedSchool Money asks if there is an ideal rent as a resident. He is aware that WCI believes renting is preferable to buying, and there are rules of thumb for how much to pay in a mortgage payment, but there is no standard rule of thumb for how much to spend on rent in residency

WSP’s Take: There is no one “ideal” rent for residents, as it depends on many factors. It depends on your residency location — $1,000 in Manhattan will get you a room in an apartment that you will have to share with roommates, but $1,000 in the Midwest could get you a single-family home. Residents with a working spouse should be able to spend more on rent than those who are single or have a stay-at-home spouse. It’s also about how much you value housing as part of your overall budget — as we saw in a previous Forum Mailbag, some residents are willing to spend a very large amount of their budget on housing.

Remember that for a given home/apartment, what you would pay in a mortgage payment is lower than what you would pay in rent. Much of the costs of buying a home are not included in the mortgage payment. There are taxes and insurance costs. There are home maintenance costs. There are transaction costs from the buying and selling of a home. There is the opportunity cost of your home equity being invested in the home instead of in the stock market. In general, when someone purchases a home as an investment, the rent they will charge will be higher than the mortgage payment, in order to cover these other costs.

3. Bogleheads: Beating Harvard’s Endowment

Question: Mlebuf was curious about the community’s perspective on this article, where a 7-year-old who selected a portfolio of ETFs outperformed Harvard’s endowment from 2008-2017.

WSP’s Take: Having a 7-year-old with little knowledge in investing picking ETFs and beating the professionals reminds me of the old Wall Street Journal game where they would compare picks selected from throwing darts at the newspaper stock tables versus the expert picks of professional fund managers.

There is a little bit of selection bias in this article, as the child picked funds retrospectively, and the endowments have done relatively poorly over the past 10 years. David Swensen, Yale’s endowment manager, became the model for university endowment investing based on his stellar, market-beating investment performance from 1988-2007. But even if this article was retrospective, we know how a hedge fund manager fared prospectively against Warren Buffett in the infamous S&P 500 versus hedge fund bet, which may have inspired this child investment challenge in the first place.

4. White Coat Investor: Donating Stock Shares

Question: Drj37 is planning to donate some shares to charity. He was wondering whether there were any restrictions on his ability to purchase additional shares immediately after the donation. Presumably, he is concerned about wash sale rules applying to donations.

WSP’s Take: There certainly is no issue of running afoul of wash sale rules if you have gains on the investment. Wash sale rules are only related to investment losses. According to this Bogleheads thread, it does not appear that even if you donated shares with a loss that you would be subject to wash sale rules. Of course, readers note that if you have a loss on shares that you plan to donate, you should sell the shares for the loss and donate the cash for shares. Then you would be subject to wash sale rules and you would have to wait 30 days to re-buy the stock.

Wall Street Shares: 5 Articles To Read This Week

1. Senior Resident: Why Do Doctors Buy Big Houses? — This radiologist describes four reasons why physicians choose to purchase large houses.
2. ESI Money: Millionaire Interview 47 – ESI interviews Diverse FI in the latest edition of his millionaire interview series.
3. White Coat Investor: What You Need To Know About the Pass-Through Income Deduction — the pass-through income deduction was one of the most talked-about provisions in the 2017 Tax Cuts and Jobs Act.
4. Physician On FIRE: Cracking The Nest Egg – Decumulation Strategies in Retirement — PoF is entering the decumulation stage (sort of, given his blog’s success), and in this article, he discusses some topics related to spending money in retirement.
5. Rogue Dad, MD: The Financial Harm of the US Healthcare System — a pediatric emergency physician describes his personal experience of the byzantine and illogical system of medical reimbursement in this country.

What do you think? Do you agree or disagree with any of my responses? What’s your take on the topics in this week’s forum mailbag?