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Fame and Fortune: I cash in when the market freaks out

STEPHEN DUBNER, who shot to fame with his book Freakonomics, says he dabbles in the stock market to test his theories.

The writer teamed up with the prize-winning economist Steven Levitt to explain in a quirky way how economic theories relate to everyday problems.

The book and its sequel, Superfreakonomics, became bestsellers and the authors continue to profit from the Freakonomics franchise. They have a weekly radio show and a blog, and they make money from public speaking.

Their latest book, Think Like a Freak, was published last month. They are also working with the British former world No 1 golfer Luke Donald on a project about the economics of the sport.

Dubner, 50, was one of eight children raised in rural poverty by a single mother, and later moved to New York to become a writer.

He lives in the city with his wife Ellen, a documentary photographer, and their children Solomon, 13, and Anya, 12.

How much money do you have in your wallet?
I have nearly $200 (£119) on me, but I don’t carry a wallet. I keep my money together with a binder clip — the ordinary stationery kind. I have tried money clips and none of them worked very well.

Which credit cards do you use?
I never wanted to have one, because I didn’t quite trust myself to not do stupid things with it. I am very careful with money, because I grew up with nothing. Instead I took out a charge card in graduate school so I would be forced to pay off my balance. I have never had trouble getting a loan, despite not having a credit card.


Are you a saver or a spender?
I do a lot of both, but if I had to say one or the other, I am more of a saver. I spend on my family or, if friends are fundraising for charity, I love being able to help — but I don’t spend much on myself. I invest in a fairly conservative, diverse set of mutual stock funds and bond funds and some cash. So not so conservative as to be out of the market, but I don’t trade currencies and I don’t gamble.

How much do you earn?
I pay the highest federal rate of 39.6% [for income over $406,750]. I also pay a high state rate and city rate, because I live in New York.

Have you been really hard up?
My childhood in a rural area of upstate New York was what people would call very poor, but I wouldn’t say I was hard up, because I associate that with poor and suffering.

I was the youngest of eight and my father wrote for a newspaper, but he died when I was 10. He was a war veteran, so we got by on social security benefits for him, but we lived extraordinarily frugally. We bought very little, grew most of our own food — we had a big garden for vegetables, chickens and a cow. The idea was to be as self-sufficient as possible. From the age of 11 I started doing farmwork, yardwork, selling seeds and carpentry. It was a happy childhood — I had good health and a pretty good school.

I graduated from high school at 16 and got a scholarship to study broadcast journalism at Appalachian State University in North Carolina. In college I mostly played rock’n’roll in a band — after which we got a record deal in New York. That is what got me to the city.

Excerpt from the 2010 documentary FreakonomicsDo you own a property?
We own our three-bedroom apartment in Manhattan. We purchased it over 10 years ago and a few years later bought the flat next door and combined them.

What was your first job?
I quit my dream of being a rock star while we were making our first record and went to graduate school at Columbia in New York and studied writing. I then got my first real job, working for New York magazine.

And your most lucrative work?
Writing the Freakonomics books, but that’s not typical — we happen to have sold a lot. For the first Freakonomics book, for example, I was paid a high advance but sales exceeded that — we have sold about 5.5m copies worldwide.

Do you invest in shares?
Yes, but very rarely and only small amounts. I do it to prove the panic and bad decision-making I think exist actually exist. There are companies that will get hammered; even when it is for a legitimate reason, people overreact. So, in the past few years American Airlines, BlackBerry and Bank of America have been hammered and then you would see the herd mentality when everybody would dump all they had. I love to buy a little bit of that and watch it bounce back.

What’s better for retirement – property or pension?
Both. I’m self-employed, so I had to set up my own pension at the cost of huge headaches, but it was worth it.

What was your best investment?
Education — not only formal, but also building human capital. Whether that means all the books I read or all the people I meet or the mentors I have had, that has easily been the best investment.

And the worst?
I invested some of the advance from Freakonomics into a poker-coaching business. I put in a low five-figure sum and it went to zero in six months. It was run by these big poker players and entrepreneurs. The project sounded sensible, but in retrospect it wasn’t at all. It was a great lesson, though.

Do you manage your own financial affairs?
I hold my investments and my pension plan with the broker Charles Schwab.

What’s the most extravagant thing you have ever bought?
Membership to a golf club, which is something I never thought I would do. It’s called St. Andrew’s and I love it to death. I only took it up a few years ago, so I’m not very good yet but getting there. They wouldn’t want me to disclose how much it is, but let’s say that to someone earning even double the US median income, it would be an outrageous sum.

What’s your money weakness?
Levitt tells me I tip too much. I look at it this way: if there’s a beggar and someone’s selling hotdogs and you have a dollar left over, who do you give it to? It’s a dilemma with no easy answer, but I would prefer to reward someone for working hard.

What aspect of the tax system would you change?
All of it. The number of random, accidental and circuitous manoeuvres introduced over the years is ridiculous. The more friction you introduce, the less fair it becomes, because you increase the incentives to cheat.

What’s your financial priority?
Saving for my family.

What is the most important money lesson you have learnt?
Money really does make you happy up to a certain level, at which point the returns are extremely diminishing.