Thursday, May 31, 2007

The rich don't save either

As part of my "Save For Retirement" series, I am obviously poking and prodding you to save for retirement! The goal is to get to a point where you're rich enough to stop working, do what you want to do with your time, and have financial security no matter how old you live to be.

Should rich people save money? "Rich" is obviously a relative term, but I would say that the rich should at least maintain a certain level of net worth and not ever see it go down year-over-year. I've often thought that's how I'd handle myself if I won the lottery. In order to avoid become one of those boobs that squanders away the entire prize, I came up with this - If I received $20 million or so in cash after taxes, my pledge would be to only grow my net worth each year, and never see it go below $20 million due to frivolous spending or careless investing. Perhaps a good way to live anyway, huh?

Not enough Americans are saving for retirement. However, I read this article on how the rich aren't really saving either. In fact, a full 34% of people earning over $250,000 said that paying everyday bills was an obstacle to saving. And 49% say they're not saving more because they just "want some spending money." I suppose once you're earning $250,000 instead of $50,000, your lifestyle gets ratcheted up 500% as well!

Wednesday, May 30, 2007

Save money for retirement - avoid these pitfalls! Part III

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the third pitfall that I believe you need to avoid on your road to retirement:

3. Counting on an inheritance

There is a danger in changing your current saving and investing behaviors because you think you may inherit some money. This is terribly dangerous - there are so many things that can happen that could reduce your prospective inheritance to zero. Your parents could get sick and be racked with medical bills, or even long-term care bills. (My grandpa paid $5,000/month to be in a nice long-term care facility. Ouch!). They could live to age 100 - I'd be 75 by that point! I'd better have my retirement secured all by myself by then! They may end up deciding, through dementia or not, that it's their money and they're going to spend it how they see fit. They could get scammed out of the money. They might decide to give some or all of their money to charity. And due to any of these above reasons, they could end up running out of money, which could potentially have you supporting them during their final years.

Wow, lots of ways to have that inheritance slip through your fingers, huh?

Here's my situation. My parents are in their early 60's. My dad is retired, while my mom works 4 days a week. They have about $1.5 million. My wife's dad died penniless (very long story, he had millions, bad things happened). Her mom has a few hundred thousand maybe, maybe half a million, and owns two houses outright. Beyond that, it's hard to pinpoint how much she has. My wife's aunt and uncle, neither of which had children, own two farms totalling 200 acres, and also own 5-10 rental properties, some outright and some with mortgages. They live very frugally and have done very well for themselves. Their money, along with my mother-in-law's money, would be passed down to my wife and her two brothers. My mother-in-law has a will, while I don't think the aunt and uncle do. The ownership structure of these farms and rental properties is unclear to me - they do not keep airtight books (nothing illegal, they just sort of fly by the seat of their pants).

We're talking about a few million bucks in play here. I hope I never inherit it, which means that everyone lives to a very ripe old age. But if some of them should die before me, I cannot tell a lie - it would be nice to inherit some of that money. My $210,000 net worth could use a shot in the arm, right? I have to admit that I think about it sometimes.

But it is nothing I can count on, and I know with my current plan, I can get to retirement without inheriting any money. Put together a plan that can do the same thing for you.

Tuesday, May 29, 2007

Save money for retirement - avoid these pitfalls! Part II

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the second pitfall that I believe you need to avoid on your road to retirement:

2. Believing it's OK to start investing later in life - waiting to begin saving.

You've heard it said a million times - the magic of compound interest is the key to amassing the money you need for retirement. Still, many people, for many reasons, delay saving until some time later in life. One reason might be that they have material things they'd rather spend the money on now. Another related reason might be a general lack of discipline with regards to money. Still another related reason might be a lack of a vision for the future, a lack of a plan for retirement.

My favorite reason for delaying retirement saving is psychological - "I'm young, I can only save $200/month, and that's nothing! I'm not going to get anywhere saving $200/month - why even bother????? I save $200/month, and I end up with a measly $2,500 or so after a year? Big whoop."

As I am a CPA, I turn to my trusty spreadsheet - run one using the scenario of your choice and amaze yourself with the results.

Here's mine: imagine you're 25 and you begin investing $200 a month, assuming an 8% return per annum. With annual compounding (not monthly), you end up with $728,000 by the time you're 65. $200 a month, a conservative 8% return, and you have over $700,000. Keep in mind that the average return of the stock market is over 10%, and you're very likely to be able to save more than $200/month as you age and advance in your career.

Now, assume that you wait until age 30. You wait just 5 years. That's a cumulative $12,000 over 5 years that you did not invest. Instead of $728,000, you end up with $485,000 at age 65, or $243,000 less than if you had started at 25! Holy crap, what happened? Simple - thru this so called magic of compounding, it is beneficial to have your money grow for 40 years instead of 35 years.

What if you wait until 35? At 65, you end up with $320,000, or $408,000 less. Wait until 40, you end up with $207,000.

These results are OK if you want to work well into your 80's! But if you're like me and want to retire in your 50's or 60's, you simply should not wait until your 30's or 40's to begin investing.

What if you do wait? Let's say you wait until you're 40, and you want to get to that $728,000 nest egg that you would have had if you had started saving at 25. You would need to sock away $700/month instead of $200. For many working professionals, this is entirely possible. But why bother waiting? If you're able to start saving earlier, no matter how much it is that you can save, it only makes that retirement pile of money bigger.

Here's my favorite scenario that I use to encourage young people to invest - start at 25, invest $300/month in the stock market. You cross the million dollar mark at age 64. It can happen, if you start early and prove yourself a consistent saver.

Wednesday, May 23, 2007

Save money for retirement - avoid these pitfalls! Part 1

As previously stated, due to an uncertain future of tax rates, health insurance costs, college costs for kids, changing government regulations, and increased life expectancies, I believe it is near impossible to predict how much we'll actually need to save for retirement. Therefore, the amount you need is A WHOLE LOT! That's all you need to know - you need A LOT. And if you need a large pile of money for retirement, you need to start saving now. The sooner you make the pile of money "sorta big," the bigger it will be upon retirement.

Here is the first pitfall that I believe you need to avoid on your road to retirement:

1. Don't prepay on your mortgage.

I expect heat for this, especially since I once was making prepayments on our mortgage. And I would actually encourage a discussion amongst my readers - if you disagree, or if I'm making any specious arguments, please let me know!

If you have excess cash each month, you have a choice. You can prepay on your mortgage, you can invest the money for retirement, or you can do a mixture of the two (or you can spend it willy nilly, not a choice for Q!). Here is what you need to know: investing for retirement should be the winning choice if you can invest the cash for a rate of return greater than what you would save by paying off the mortgage early.

For example, I have a 5.5% 30-year mortgage. We currently itemize on our taxes due to the large amounts of interest we're paying on two mortgages (principal residence and lakehouse). Because we itemize, we get a tax break on this interest. I believe we're in the 28% tax bracket, so the net damage to our finances due to paying interest on our mortgage is actually about 4%. So I am in effect earning 4% on any money I place towards prepayments on our mortgage. As we lose the ability to itemize (not sure when this will happen, but it will happen), my return would them shoot up to 5.5%.

Can you beat 5.5% by investing your excess cash instead? Currently, it couldn't be any easier! An FNBO Direct Savings Account will do the trick. If you decide to lift a finger and put even a little effort in to investing the money, you should be able to earn 8% a year. If you get aggressive, you can probably average a 10% return a year (reduce this rate of return if in a taxable account, do not reduce the rate of return if your retirement funds are in a Roth). Heck, I don't think it's sustainable, but my basket of small cap stocks earned 32% in the last year, doubling the return of the S&P 500. (Lord, why isn't that sustainable?!?!?)

Clearly, investing your excess cash is the winner. When running the numbers on yourself, your percentages will obviously vary based on your mortgage interest rate and your tax bracket. But in most cases, you should be able to generate a higher return by investing than in owning your house more quickly. A 10% return wallops a 4% return! For example, on $50,000 invested in year 0, with no further monies invested, an annual 4% return would leave you with $162,000 after 30 years. A 10% annual return would leave you with $872,000. To quote Shaggy, "ZOINKS!" Another eye-opening example is down lower in this column.

Therefore, risk factors and all other things being equal, always choose the higher rate of return.

Why, then, do people choose to prepay on their mortgage?

1. I don't want to pay all of that interest. If you run a 30-year amortization table on your mortgage, you will see some scary dollars going to interest. I have always gone to Karl's Mortgage Calculator to run numbers on various apartment building scenarios. Plug some numbers in and look at the damage. A 30-year, $300,000 mortgage (assuming 20% down, this is a $350,000 house) will have you shelling out $347,515 in interest over 30 years - equal to the price of the damn house! But, if you prepay just $500/month, you will shave off $161,000 in interest. Sounds great, right? Instead of thinking in dollar terms, you have to think in percentage terms. $161,000 in interest savings sounds great right now because we're all dirt poor! But, if you invest that $500 a month and achieve a 10% rate of return, you'll have $996,482 in 30 years - almost $1 million! Here's the deal, plain and simple -- Don't live in a large house with massive mortgage payments unless you can afford it, get the lowest mortgage interest rate you can, and then don't pay attention to the raw dollars in interest you're paying because it will mess with your head.

2. I want to be free of my mortgage payment. It's the largest monthly expense for most people. Once your house is paid off, you're free. Waaa-hooo! I will not lie to you - it will be a grand day when my house is paid off. But I will not be free. I still need to invest my way towards retirement. Then I will have to navigate my way through an uncertain future, making sure I have health insurance, paying for college for two kids (should my wife and I wish to do that), and paying for two weddings. Ugh! Look at it that way, and realize that your house is not a vehicle to drive towards retirement. A very fat brokerage account is what you need.

3. How could it possibly be good to keep debt around? That's not what the experts say! It does seem counter intuitive to keep debt around, especially just so you can get the mortgage interest deduction. Of course, as demonstrated above, you're not keeping the debt around because you like it, and you're not keeping it around for the tax deduction. You're keeping it because you wish to continue to live in your house, and there is a demonstrably superior place to apply your excess cash.

Part deux to come. Continue saving!

Saving money on car insurance...

By switching to Geico? Hahaaa, maybe. But not the subject of this column.

Why are cars and everything related to them so confusing and painful to deal with? To wit:

1. Buying a car is usually a painful experience, unless you enjoy cutthroat negotiation where you rarely have the upperhand (especially if you get emotional about cars like me.)

2. Then you have to title a car, and get plates, inspections, and pay taxes on the car. I've always wondered why it can't be as simple as buying a TV. I don't have to title my TV.

3. Then the car depreciates quickly, especially if you bought new.

4. Then it breaks down. If you don't know anything about auto repair, you take the mechanic's word for it. I am positive I've been jacked around on an auto repair before. And if you're a woman, some mechanics will really take advantage of that.

5. Finally there's auto insurance - comprehensive this, collision that - one ticket and your rates go up. Insurance salesman are not a whole lot better to deal with than the car salesman you bought the car from - maybe a little better.

There are some ways to save on your auto insurance. Below are some tips:

1. Be a good driver. Bad drivers pay more. If you have an accident that's your fault, you can expect your rates to go up as much as 40%.

2. Don't let your friend drive your car. If he crashes your vehicle, you will have to file this through your insurance company, and your rates will go up. If your friend was uninsured, bad news... if he injures another driver, that driver can come after you for medical bills, etc.

3. Check for installment payment fees. Your insurance company may offer you the ability to pay for your insurance on a monthly, quarterly, or semi-annual basis. They can even withdraw the amount from your designated bank account via ACH. However, they may charge a fee for this, so check with your agent. I have my premium ACH'ed from my account monthly, which really helps for personal budgetary purposes. However, I do pay a fee. If you want to avoid such a fee, pay your annual premium up front.

4. You may not owe sales tax on a replacement vehicle. You will have to be proactive and ask your agent about this, but 28 states require insurance companies to pay the sales tax when you replace your totaled car. The states are Alaska, Arizona, Arkansas, California, Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Kansas, Kentucky, Maryland, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New York, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Vermont, Washington, West Virginia and Wisconsin.

5. Wait to add your teenager to your insurance until he or she is licensed. You do not need to add a young driver to your policy until they are actually licensed to drive. Of course, until they are licensed, keep them from getting behind the wheel. (I am guilty of this, when I was 17, I took my 12 year old brother driving in the cemetary. He got alot of driving practice before he turned 16! My mom was taken aback at how good he was).

6. When switching insurance companies, be sure to officially cancel. You cannot cancel by simply ignoring the next invoice. They will cancel your coverage, but that non-payment will be a blemish on your credit record. Call your agent and provide the date and time you wish to cancel. They will often send you a form already filled out - sign, date, and send back.

7. You will pay less for auto insurance if you have good credit. Huh? What's the connection? This is quite controversial, but studies have shown a direct correlation between your credit score and your propensity to file a claim. If you sign up for auto insurance, there is a high likelihood that the insurance company will pull your credit report. They use it to create an "insurance-risk score," which is one factor in determining your rates. So, if you have a low credit score due to late payments or credit card arbitrage/Apporama/0% balance transfers, you may be paying more for your auto insurance.

Tuesday, May 22, 2007

Investing success (or not) for 5/22/07

Today the markets were basically flat, and my TDAmeritrade accounts were up a combined $75. My accounts there are now above $95,000 in total, which is easily a new record for me. I have pumped some cash into them in the last few months, but the prospects for being able to do so in the next few months are looking pretty grim. Baby-related expenses, along with preschool for my almost 3-year-old daughter, are going to eat into the budget. My wife and I will both be receiving raises (me in July, my wife in September), which will hopefully offset these expenses to a degree.

Some interesting things happened in my portfolio today.

Investing success:
Planetout Inc. (LGBT) -- up 13.3%. This after being down throughout the day. This stock sucks so bad, where the hell is Rupert Murdoch to snap this company up and save me?!? Tell you what, since I'm already down huge in this stock (look at this one year chart!), this will be the last time I ever mention anything about Planetout in this column. Unless it goes up or down by more than 25% in a day.

Novastar Financial (NFI) -- up 7%. Another stock I don't care about. LGBT and this one are the two biggest dogs in my portfolio, so I actually hate listing them as successes. They did well today, but are an overall cancer on my portfolio. I think I'll stop listing this one too, unless it makes a 25% move. I see alot of bloggers stating, "Invest at your own risk, this site is for entertainment purposes only, I am not making official recommendations to buy stocks, don't sue me..." I can safely advise you to avoid LGBT and NFI. Just walk the other way.

Meritage Homes (MTH) -- up 4.6%. Home builders are a beaten down bunch. But these stocks cannot remain in the dumps forever. I bought this stock at a very unpopular time for homebuilding stocks, and I'm up 6.3% in total. I have hopes this will go higher.

Sadia (SDA) -- up 3.9%, and I'm up 80% in total on this stock.

Vail Resorts (MTN) -- up 3.3%. A ski resort operator has its stock go up in May? I know it's alot more complicated than that....

I had eight other stocks that were up between 1.5% and 3%.

Investing failures:
Kongzhong (KONG) -- down 25.8%. Oh dear. Out of my six Chinese holdings, this one is seriously underperforming. But down 25% in one day? KONG, you're killing me! I'm down 32% on this one overall.

Blackboard Inc (BBBB) -- down 6.5%. The stock fell on news of a downgrade from a single analyst. One guy dropped his rating to "Hold" from "Buy." One analyst. And he basically said the stock was approaching his $43 price target. The stock is now at $40.17. Does any of this add up? I don't think so. This is a prime example of how Wall Street overreacts to news - this is where you can profit. I did not add to my position today because of limited cash, but Warren Buffett's voice is ringing in my ear again... "Profit from folly rather than participate in it."

I am also still holding two $525 checks from my troublesome tenant. He gets paid on the 26th of each month, which falls on a Saturday this month. I assume he'll be getting paid on Friday then. I plan on calling him this week just to confirm that there's going to be $1,050 in his account ready to go.

Monday, May 21, 2007

Young people with money and their leeching friends

Imagine you're a 20-something successful lawyer, and you happen to be earning an annual salary that dwarfs those of your friends. What typically happens when you're out for a night on the town, and the check arrives? Well, either your friends kick in their portion of the bill, or they look to you to cover it.

Why would they look to you to pay their bar tab? As the person at the table with the greatest means, you'd have the greatest ability to pay it without feeling the financial impact. After all, you're earning all this money, while your friends are still 20-somethings with low-paying jobs (if they have jobs at all).

Moving from this phase of your life to one of financial maturity can be a very awkward time for young people, especially young people that happen to earn much more than their long-time friends. Along with spiritual maturation, having kids, and the like, financial maturation can test friendships and put a real strain on old relationships.

If you're a young person achieving more (at least financially) than many of your friends, you may feel a sense of obligation to those friends for sticking with you throughout your rise to the top. More likely, they may feel a sense of entitlement for cheering you on during that rise.

It's very similar to what I call the "Lottery Syndrome." Have you ever noticed that folks that earned $10 million through business ownership are bothered alot less for money than folks that won $10 million through the lottery? For whatever reason, many of those lottery winners feel compelled and are almost excited to respond to these overtures. "I'm going to do something with my money." At the same time, the business owner has quietly put a financial plan in place, not in any hurry to start doling out money (while hopefully giving to favorite charities over the years).

How to keep the friends you want and at the same time maintain sane, mature finances?

First off, be understanding of friends that don't have as much money as you. If you don't want your friends to expect you to pay for dinner, don't choose an expensive restaurant to dine at. Dine where your friends would dine. Maybe this is not your lifestyle anymore, but you can hardly expect your less wealthy friends to be able to pay for an expensive meal just because that's what you can afford. Second, you hopefully have friends that will be understanding of your situation. I have some friends that make more than my wife and I do, and we've simply had to say "no" a few times. Finances were tight, I had investing goals for the month, whatever the reason. I just had to say, "No, we can't join you tonight, money is tight." Finally, you hopefully have a group of friends that are not just hanging around you for the money. But if you do, you may feel forced to realign your relationships. Or put another way, ditch some of those so-called friends.

Friday, May 18, 2007

Buying stocks at the right price

If you'll have a gander at my latest net worth update, you'll see I have about $100,000 in equities. Nothing to sneeze at, but nothing to write home about. To get to $1 million, I have to multiply that pile of money by 10. I have some work to do!

One of my credos that I will repeat until I'm blue in the face is to stay diversified, and I define diversification as not having any one position in my portfolio comprise more than 5% of my holdings. My two exceptions are my real estate, and my S&P 500 index funds - two safe risks, in my opinion.

Because of my 5% rule, I own alot of stocks. And since I don't have alot of money to invest, the positions I usually take in stocks are small. I own $4,000 of some companies, $300 of other companies. If I'm not sure about a particular stock, I will open up a $300-500 position. I pay $9.99 per trade, and I'm not concerned with this. If my stock doubles, that $10 is nothing in the grand scheme of things. And I have 21 stocks that are up 25% or more in the past year. I paid $209.79 to get into those 21 stocks. That's worth it to me.

Now, because I'm buying small positions, I'm not buying alot of shares. If a stock is at $30, and I'm buying $300 worth, I'm buying a measly 10 shares. The question is: With a long term hold strategy, and with the small amount of shares I'm buying, does the price paid for the shares really matter? I mean, if I pay $32 per share instead of $30, is that a big deal?

My answer is: YES! Here's why: Buying stocks is a learning process for me. I find a company I like, and I review its 1-month, 3-month, 1-year, 2-year, and 5-year charts. I try to determine what I'd like my entry point to be. And then I stick to it. I decide what I want to pay for the stock, and then I do not deviate from that decision. But why bother when it's only a few extra bucks here and there to buy the stocks I want?

I might only have $100,000 now, but I might (will!) be in control of $1 million, maybe $2 million some day. Instead of buying 10 shares of a stock, I'll be buying 1,000 shares. When purchasing 10 shares at $32 instead of $30, I paid an extra $20, but I really paid 6.7% more than I should have. When it comes time to buying 1,000 shares, it's the same 6.7%, but now my overpayment is $2,000! By sticking to my guns now, by keeping my emotions out of the equation (buy now before it's too late!), I am training myself to not only buy stocks at the right price, but to avoid jumping in at the wrong price.

So even a 50 cent spread is a big deal, no matter how many shares you're buying. Train yourself to act with discipline now when you're not throwing alot of money around, and you'll be well prepared to handle greater amounts in the future.

Thursday, May 17, 2007

Update on knucklehead tenant that owes me money

As stated yesterday, I am having a problem with one of my tenants. Since we purchased the building back in 2004, he has paid rent late every single month. However, he has consistently paid between the 12th and the 15th, which has done us no real financial harm. Consistency + no bounced checks = happiness for now.

But, in reviewing a few of my previous posts, you'll note that he's starting to stretch my patience. A few bounced checks, a request to hold his April rent check until April 26th (four weeks late!), and now another request to hold May's rent until the 26th. I still have that April check - my bank told me it wouldn't clear, so I called up Mr. Tenant and told him so, and found that cash in my mailbox.

I patiently waited until the 26th last month, but decided to push back this month. Receiving his rent four weeks late every month is just not acceptable. And it cuts the timing of my mortgage payment on the building pretty close. Now, I cannot get this guy to pick up the phone when I call, and he will not call me. No matter how many times I tell him to "Call me to discuss," he never does. He works the night shift, so what he does is write me notes and drop them in my mailbox. The guy simply will not pick up the phone to call me. My wife pointed out that maybe he didn't want to call me because he knew he'd lose his patience and yell at me. Thanks honey.

I dropped off a letter in his mailbox yesterday, asking to be paid immediately. I also told him we need to get back on track, and I wanted to hear how he's going to do this. I provided him all of my phone numbers, and told him to call me. I asked him if I should use this old April check for May's rent, and I needed to know when I could take it in for deposit. Needless to say, I laid my head on my pillow last night wondering if there would be a note in my mailbox.

The note was there this morning. A long rambling letter, along with a check. (another check?). Here's the note (sorry Mr. Tenant if you're a reader of my blog - start paying me on time, and I won't have to drop your pants in public again):


I received your letter and I am truly sorry for any inconvenience I have caused you and your family. Without going into alot of detail, there have been a couple of personal setbacks for me but those are not your problem.

To address the issue at hand, this is how I propose to you to get back on track. My pay periods at work have changed to once a month on the 26th of the month. (aaahh, so that's where this 26th of the month thing is coming in). I have direct deposit so the money is electronically deposited in to my account. Last month, when you left me a message that the bank wouldn't clear my check, the money was there when I called and I went there, withdrew the cash and brought it to you.

Q, here is a check for June that I am giving you now so you can have it on the 26th. You will be able to take it to the bank on that morning and I will make sure you have all future rent checks by the 26th or 27th of each month. Again, I am sorry for the inconvenience and do appreciate your patience.

I know that paying the rent even a few days late is unacceptable, but if I could ask you for your understanding one more time. If you could please wait until the 26th to deposit both checks, it will be the last time I will need this favor from you and in all future months you will have all rent checks by the 26th or the 27th. I know it is a burden you don't need but your understanding in this matter is greatly appreciated.

Thank you,


So, what do you guys think? Am I getting taken for a ride by this guy?

Wednesday, May 16, 2007

Investing success (or not) for 5/16/07

Today the Dow, Nasdaq, S&P 500, and Q were all up! No more mixed markets like the last few days - all markets were up, and so was I. Today my TDAmeritrade accounts were up $715. I got paid yesterday, but was unable to pump any money into the market - mortgages, bills, and school uniforms for my daughter sucked me dry! I get paid again on the 31st, and a great portion of that will be invested.

Today's investing success:
Guangshen Railway (GSH) - up 5.5%. Look at this 5-day chart for GSH. That's a thing of beauty!

Blackboard Inc (BBBB) - up 4.4%. My position is up 69% in total.

Sadia (SDA) - up 3.7%

Rofin-Sinar Technologies (RSTI) - up 3.5%

China Unicom (CHU) - up 3%

Today's investing failures:
Planetout (LGBT) - down 4.9%. I now own $77 worth of this stock. F you executives at Planetout, get this stock out of the dumps! Look at this crappy 1-year chart.

My apartment building - out of my 4 tenants, one is causing trouble. We bought the building back in 2004, and this guy has paid his rent late every single month since then. We usually get his check between the 12th and the 15th of the month. However, as described here, we have not rocked the boat with the guy because we just can't be bothered with it right now. Just too busy to mess with him. If I get his check consistently by the 15th, it does no harm to our finances.

But lately he has been slipping. First he bounces a check back in February. Then he asks me to hold his April check until April 26th (long story, again described here). Since he paid me cash last month, I still have his April check. I just need to know from him when I can cash it. So I call him, leave him a message telling him to call me with information. This morning there's a note in our mailbox asking if I can hold that check until the 26th AGAIN. I asked the guy to call me to talk to me about his situation - I need to know what's going on with this guy's finances. If he talks to me, perhaps I'm willing to work with him. No call, just these sneaky notes in my mailbox.

The answer is no, I cannot wait until the 26th. I wrote him a letter and dropped it in his mailbox, stating that I need my money now, and I want to know what the hell is going on with him. I said that if I don't get my money, and I don't hear from him, I'm going to have to start eviction proceedings. I guess I didn't want to rock the boat, but I'm really rocking it now!

Stay tuned.

How to use less gasoline

The price of gasoline has just hit a new all time high. Luckily, Q has a 3 mile round trip commute to work, and Mrs. Q only works Thursdays and Fridays. I have driven 30 miles a day for previous jobs, and I know some would scoff at that amount of driving as nothing. Supercommuters with daily round trips of 100 miles or more must be getting killed by these gas prices.

How to consume less fuel? CNN Money had a story on "4 gas-saving myths" that dispelled several popular notions about how to use less gasoline.


1. Additives. Not only do the liquid additives, pills, and magnets not really save much fuel, they cost money to use, thereby eliminating most if not all savings you realized by using them.

2. Don't use your air conditioning, but don't roll your windows down either. Running your A/C is a gas guzzler, right? And putting your windows down makes your car less aerodynamic? Not exactly true. In fact, during summer months, it's better to have your windows down in the city with no A/C, while rolling up your windows and running the A/C on the highway.

3. Fill up on Wednesday. Prices will have come down from their weekend highs. Not exactly so. Prices may be higher on the weekend, but there is no ideal day during the week to purchase gas. The price of gas fluctuates due to numerous external factors (station owners, refinery capacity, Middle-East tensions, etc).

4. Starting your car consumes lots of fuel. Not so for new cars. Fuel-injected cars do not use an inordinate amount of fuel when starting up. I do not agree with the notion that if you're sitting in a drive thru for 30 seconds that you should turn off your car. Too much of that and you're likely to wear out your starter!

So how can you really save on your petrol bill?

1. Inflate your tires to the proper PSI.

2. Do not unnecessarily haul around extra weight.

3. Use cruise control on longer highway trips.

4. Do not drive a gas-guzzling vehicle. We own a 6-cylinder Honda Odyssey, a vehicle that shuts off three cylinders when the engine is not being pushed too hard. It does not matter how I drive this thing - it sucks down the fuel. I love the vehicle for its versatility and know it will make hauling around my two daughters much easier, but it is a gas guzzler.

5. Drive slowly! No drag races off the line. No lighting up the tires for you youngsters! And when driving in city traffic, do not unnecessarily accelerate to the next stoplight. Driving the speed limit is very annoying and just seems too slow sometimes, but you will consume less fuel.

Tuesday, May 15, 2007

Investing success (or not) for 5/15/07

Another mixed day in the market, but another very lousy day for Q. My 5 TDAmeritrade accounts were down $606. The portfolio is bleeding a bit ... ..... tis but a flesh wound! The small caps I'm invested in are all fantastic companies, but they have bigger mood swings than large caps. Again, it just feels odd to be setting new records for the Dow while my net worth is taking a hit.

Today's investing successes:
Guangshen Railway (GSH) - up 4.3%. A nice three day run here.

Sadia (SDA) - up 3.8%. My position is up 76% here

Nuance Communications (NUAN) - up 3%. I am up 103% overall here.

Today's failures:
Peerless Systems (PRLS) - down 6.4%. My small position is now up 1%

Vaalco Energy (EGY) - down 4.3%. Tiny position, so I'm not concerned.

PlanetOut (LGBT) - down 4.1%. Surprise surprise. Read my rant here.

Scottish Re Group (SCT) - down 4.1%. I'm still up 30% overall with this stock.

Same as yesterday, I had well over 10 stocks that were off 2% or more. There are days like this, even when the Dow is up. This is no time to get discouraged. In fact, I am scouring my holdings looking for chances to add to my positions. I believe I'll find some buying opportunities, and I'll share what I've done once I've done it!

John Chow dot Com - who is this dot com mogul?

I started my personal finance and investing blog almost a month ago. My intention was to write about what I know - saving and investing all the way to a million dollars. As you can see, I have placed ads on my site in the hope that I'll make a little money while doing something I love (talking about investing).

Over the past few weeks, I have found so many wonderful personal finance and investing blogs, and have learned a great deal from these sites. I have noticed that some of the sites don't have ads. Some do, but say they're not in it for the money.

Regardless of your situation, as a blogger, you have the option of monetizing your site. For the time that you spend writing for your site, there is nothing wrong with getting paid for it.

There are quite a few successful blogs that discuss monetizing your blog. I have found no one more successful at this very thing than John Chow at John Chow dot com. A self-professed "dot com mogul," John's blog is about helping his fellow blogger make money online. I have found the site to be very informative, but there's something more to it. It's inspirational. If you are a blogger and want to monetize your site, there is nothing more inspiring than reading a post like this.

With a Google Pagerank of 6, who are any of us to argue? Even the very concept of enticing fellow bloggers to review his site, as I am doing, is pure genius. Each link to John Chow dot Com is only increasing the chances that his PR will climb.

I am very new at this game, and have really enjoyed persusing John's site. And his success has inspired me to keep at it.

If you're visiting from John's site, welcome! And please do come back. Cheers.

Summer car deals are right around the corner

With gas prices approaching $4/gallon and auto inventories creeping up, we are due to see the big auto incentives return this summer.

If you can avoid spending money on a car, please do so. Automobile expense is typically the second highest monthly expense for families, and it can even be #1 if you have two car payments! Automobiles are net-worth killers. If you have to buy a car, buy used - you will save thousands. But if you can continue to drive the car you already have, do it - the effect that saving (and investing) this money can have on your future portfolio is truly amazing.

Also, if you're able to pay cash for a car, that's fine. If you have to borrow, either get a great financing deal, or use your Home Equity Line of Credit (HELOC). Using HELOC money will make your interest tax deductible.

The Holy Grail of new car financing - 0% for 72 months - is coming back. It makes it super tempting to head to the car dealer, doesn't it?

A related article is posted at Yahoo Finance.

States with the priciest speeding tickets

If you've got a lead foot and a fast car, and you just can't help but break every speed limit, beware! MSN recently had an article on the states with the priciest speeding ticket fines.

First off, in the interest of frugality, driving slowly can be a real boon to your finances. Less wear and tear on your car and your tires, and better gas mileage. You can also avoid costly speeding tickets, and costly trips to an attorney if you decide to get your ticket fixed. I received two speeding tickets in two months right after turning 16. In the last twenty years, I've received two more tickets, both of which I got fixed. I now tend to drive very slowly, which isn't hard to do when you're driving a 4-cylinder RAV4. Having a little girl in the backseat tends to have you driving a bit safer, too.

Have a look at the list, and slow down in Illinois, Georgia, Nevada, New Hampshire, and North Carolina. Missouri and Nevada even have 6-month jail terms awaiting you. Please do not mouth off to your ticket-writing police officer, I guess!

Monday, May 14, 2007

Investing success (or not) for 5/14/07

The market was mixed today, with the DOW slightly up and the S&P slightly down.

My portfolio was decidedly down - my 5 TDAmeritrade accounts were collectively down $717. Nothing took a massive nosedive for me, but several larger holdings declined, while the ones that were up today happened to be much smaller holdings. Just a weird day for me, with the market being basically flat, to have the portfolio drop that much.

Today's investing successes:
Guangshen Railway (GSH) - up 3%. I have alot of faith in my Chinese holdings, and each of them has performed well, except.....

KongZhong Corp (KONG) - up 2.7%. I opened up a position in KONG, and it dropped 17%. I opened a second position, and it kept dropping. With today's move, my second lot is back to breakeven.

Today's failures:
OYO Geospace (OYOG) - down 5%

Novastar Financial (NFI) - down 4.6%. I don't even care anymore.

Buffalo Wild Wings (BWLD) - down 4.25%. This stock seems to be prone to wild price swings, but definitely with a propensity towards UP. This has been wonderful to me, so I don't complain about days like today.

Whole Foods (WFMI) - down almost 4%. I am really starting to regret purchasing this stock. I really like going to Whole Foods, high prices and all. Their steaks are kickass - awesome meat department. I really thought they had a niche with high barriers to entry. Who knew Wal-Mart would start offering tons of organic food? Who knew hundreds of other local grocers across the country would (and could) do the same thing? The stock price got juiced a bit by the Wild Oats merger announcement back in February. But the stock has fallen again, and my lot is down 18%. Ugggh.

I had ten other stocks that were down 2% or more. Rough day in Q's portfolio.

Saving For Retirement

When setting retirement goals, we often have alot of formulas and benchmarks thrown our way. Subtract your age from 100, and that's the percentage of your holdings you should have in stocks. You'll need to generate annual cash equal to 60-70% of your pre-retirement income. You will need 1.6 times your salary in savings at age 35, 3.5 times your salary at age 40 (and so on... check out the article at The Simple Dollar). Head spinning yet?

Perhaps the most simplistic formula to follow is "Save 10% of your gross income." (I have also seen 15% discussed as the number to save.) This keeps it simple - you're not having to sit down and draw up a pro-forma budget for 30 years in the future. It's not alot of complex math. It doesn't even take into account your asset allocation. Just save 10% of your gross income.

Will this work for you? In a word, maybe. If you begin religiously saving 10% of your income at the very beginning of your career, and invest wisely, there is the distinct possibility you'll have a comfortable retirement. Real life doesn't always work that way. To wit:

  • Did you start saving 10% right away, in your early to mid 20's? (I didn't.)
  • Will you stick with it consistently for FORTY YEARS STRAIGHT?
  • What will happen when emergencies occur? Busted furnace, car accident, you have a special needs child, roof is leaking, etc etc. Will this throw off your ability to save 10%?
  • Could you possibly have any clue how much money you're going to need to live your daily life 30-40 years from now? Can we even predict how much health insurance and college tuition will cost? How much will our government tax us in the future?
People want a simple answer to know that they are saving enough to retire. While I will not pretend to know what life is going to cost me in 30-40 years, I will preach the following:
  • Start now! No matter what your age, begin saving immediately. If you are in your 20's, start saving yesterday! I wish I could appear as an apparition before myself back in the 90's - I would haunt the 20-year-old version of myself and spookily say "SAAAAAVVVE." Save anything you can - any amount, no matter how small. It adds up!
  • Invest aggressively. I have invested in an apartment building, index funds, and small cap stocks (these stocks being the very aggressive part of my portfolio). Bonds are not for me - history shows their return is inferior to stocks, and as I'm only 36, I cannot afford to be conservative at this time.
  • Track your progress. Create a spreadsheet outlining your net worth, and update it at the end of each month, just like businesses that run month-end statements. Print it out and review it. Talk about it with your significant other. Shame yourself into never looking at a month-end statement that's lower than the previous month.
  • Set annual goals, and don't fall short. My goal is a 20% increase in net worth every year. This is very easy to achieve initially, as increasing your net worth from $5,000 to $10,000 yields a 100% increase! As you accumulate wealth, your percentage increases will drop. However, I have committed to myself that the percentage increase will never be below 20%. I haven't missed an annual goal yet.
Realize this - if you do not start saving early, the annual amount you must save goes up. The money you're saving in your 20's will seem like a pittance. It is not - save everything you can, because it adds up. If you do not start saving early, that 10% number goes up big time! If you're 50 years old, making $80,000 a year, but you haven't saved anything, that 10% savings figure is now 30% - probably impossible to achieve.

Start saving now.

The 100th Carnival of Personal Finance is up

The big-top is up over at My Open Wallet - the 100th Carnival of Personal Finance. And my first carnival... good times. Check out my submission here. And check out the rest of the submissions - just a wonderful wealth of information. The C-Note edition is worth checking out!

My favorite pub has burned

This has nothing to do with personal finance, but my favorite pub in the whole world has burned. The Perch, in Binsey, Oxford England, has had a devastating fire. I have been to Oxford several times, visiting a friend that was schooling there. This was a wonderful place to throw back a pint. Stories about it, including pictures, are here and here.

Luckily there are still at least 50 other awesome pubs to drink at in Oxford!

Saturday, May 12, 2007

Benchmarking your holdings against the S&P 500

Mutual fund managers, investment portfolio managers, and individual investors want to know if they're "beating the market." The benchmark they often compare themselves to is the S&P 500, a basket of the 500 largest large-cap, mostly American stocks. Many times, this is not even the benchmark you should be comparing yourself to. For instance, a small cap mutual fund should benchmark against the S&P 600 SmallCap Index or the Russell 2000 Index.

For simplicity's sake, if I want to know if I'm beating the market, I compare my investment performance to the S&P 500. Comparing my portfolio to this benchmark tells me if I'm doing better with my money than if I had simply dumped all of my funds into an S&P 500 index fund, which is the advice you'll get from many retirement gurus. I do have some of my money in index funds, and recommend that young folks start out their portfolio with index funds. But I also hold over 40 small cap stocks, and I don't want to waste my time researching them and pay hundreds in commissions unless I'm "beating the market."

To compare your performance over any particular time period, you can go to Yahoo Finance and pull down the daily closing prices of the S&P 500 (or any stock, for that matter). You can enter in any date range you like and get daily, weekly, or monthy closing prices. You can then dump the info into an Excel spreadsheet and calculate returns over any time period you like.

Also of note is a post over at All Financial Matters entitled, "S&P 500 Fun Facts." JLP looked at the seventy-seven 5-year holding periods between 1926 and 2006. Besides learning a little more about this famous benchmark, you'll note that over those 77 periods, you would have made money 67 times, and lost money 10 times. You make money 87% of the time. And the average annualized return over those 77 periods is 10.41%.

While the market might be frothy right now, and while you might be nervous and think it's overpriced, history proves that the markets are the best place to keep your money, and that you'll make money over the long haul. Look at these historical charts - I wonder what people in 1987 were thinking - they were staring at an S&P 500 that had risen from 62.34 in late 1974 to 335.89 in 1987. I'll bet many an investor had thought the market had topped out, that it was peaking, time to get out. Truth be told, Black Monday did take a nice chunk out of the market - the S&P 500 dropped as low as 223.91. But just look now - we're topping 1,500 again. From 223 to 1,500! To have the foresight and courage during a difficult 1987 to continue to invest in the market would have you sitting on a large pile of money today.

Friday, May 11, 2007

Investing success (or not) - new feature

Today I'm going to start a new regular feature called "Investing success (or not)." On days where significant things happen in my portfolio, I'll write about it. I may also share updates on the apartment building in this new feature.

With this blog, I want to steer young people (and middle-aged folks too, if you haven't started) towards saving and investing. There are plenty of articles to write about that subject. But I also want to communicate with investors that invest primarily in mutual funds, or even money market funds. I am not recommending the stocks that I own and will consequently talk about. But I will be candid about what I own and which stocks are doing great and which ones are killing me. I hope that it opens the eyes of my readers to the wonderful world of small cap stocks - I have been buying them for almost a year now, and I have killed the market. My 12 month return on my portfolio of small cap stocks is 31.6%, versus 16.6% for the S&P 500 and 11.9% for the Russell 2000.

So take a look at these stocks, if you like. Do your own research and invest at your own risk. Here goes.....

It was hard not to have success today! The DOW was up over 110 points.

Today's investing success:
Novastar Financial (NFI) -- up 8.2% today. I'm hardly jumping for joy, as my lot is still down almost 87% - easily the worst stock I have ever owned, without peer! But any up days with this dog are welcome news to me.

Guangshen Railway (GSH) - up 6.3% today, up 41% over the last year.

Dawson Geophysical (DWSN) - up 5.7% today.

iShares FTSE/Xinhua China 25 Index Fund (FXI) - up 5.5% today

China Telecom (CHA) - up 5.25%

Today's failures:
PlanetOut, Inc. (LGBT) - down 6.82%. This after being down 29% yesterday. LET ME TAKE THIS MOMENT TO PUBLICLY FLOG THIS STOCK. I wrote here about LGBT, and that you want to keep emotions out of your decision-making. Now that my small holding in this company is down 77%, I say the hell with that. I hate this stock! PlanetOut is a media and entertainment company that caters to the lesbian, gay, bi-sexual, and trans-gender community; hence, their LGBT stock symbol. I read somewhere that this company could be a takeover target for News Corp. And I have nothing against the LGBT community, certainly nothing that would keep me from investing in a micro-cap stock. So I opened up a small position, just a few hundred dollars. Well, this one has been nothing but a total disappointment. I have no plans to sell, since I'd reap so little cash by getting out.

Peerless Systems Corp (PRLS) - down 7.19% today, up 8% from where I bought it. This one languished down near $2 before recently rebounding to above $3.50. My position is very small, so I'm not really fretting this one.

The upsell - you can say no, save your money!

Have you ever called Customer Service at your bank or credit card company, only to find yourself in the middle of a sales call? Several months ago, I had to call American Express to dispute a charge - I purchased a Nikon D50 digital SLR from an unscrupulous NYC camera outfit, only to receive a gray market version - a camera built for the Japanese market! Needless to say, I was furious, and instead of trying to negotiate with the folks at this company, I disputed the charge immediately (AMEX is extremely helpful in this regard). Five minutes into the call, I'm being offered fraud protection, travel programs, etc etc.

There was an article recently on MSN Money entitled "Just say no to the upsell," and its premise was that companies find it much easier to sell additional services to their existing customers than to spend marketing dollars chasing new customers. Back in high school, I worked at JC Penney in the mens' dress shirt department. Upsell! My boss would say, "Q, if someone is looking for a dress shirt, upsell them. Show them a tie that nicely complements their shirt purchase. Take them to belts. Perhaps they need a handkerchief."

Everything is a commercial now - sales pitches are all around us (many of these blogs, including this one, are loaded with ads). Where there was once outrage and disdain among Americans regarding this saturation of ads, there is now a dull, numb acceptance. And it is not exclusive to the U.S. Whereas our baseball and football uniforms are free of advertising (except the occasional Nike swoosh), European soccer teams' uniforms are adorned with ads.

The upsell barrage continues because it works. And when an upsell is successful, the margin is usually fat. But, did you really need what they sold you? During a time of distress, like calling your credit card company to report a stolen card, an offer of credit report monitoring might make sense (while at the same time striking you as horribly opportunistic). I had some trouble with my DirecTV service - first time in 7 years I had a problem of any kind. The phone rep sold me hard on the service plan, which for xx dollars a month would make service calls free. I never had a problem in 7 years, and it's their satellite service that's broken, not mine. I kindly talked them into fixing it for free, and asked them to keep their service plan.

Many consumers feel obligated to listen to these prewritten scripts, and some even feel compelled to buy. You do not have to buy, and you do not have to listen! You can even remain polite while regaining control of the conversation (I am unfailingly polite on the phone, Mrs. Q even laughs about this). Your time is precious, and you don't have time to listen about the latest gizmo guaranteed to enhance your banking experience. You may wait until the schpiel is over, or you may kindly interject.

"Sir (or ma'am), I have something cooking on the stove, may we please complete our business here?"

"Sir, I have to put my daughter to bed, may we conclude our business?"

Please do not feel compelled to buy - your bank, credit card company, etc - they are there for you, not the other way around. Any money you spend on an upsell could be invested for retirement. Save your money.

Wednesday, May 9, 2007

5/9/07 spin on the blog carousel

Advanced Personal Finance says he doesn't have a large emergency fund. I'm right there with you, buddy - I lean on the Home Equity Line of Credit when an emergency occurs - and they don't occur very often. I sweep all available cash to my 5 TDAmeritrade accounts, or pay down my HELOC - excess cash drives me nuts.

The Simple Dollar has a guide to eyeglasses. I have had awful vision since I was a kid, and am scared to get laser eye surgery. I bought an $800 pair of Koh Sakai eyeglasses back in 1997 (when that was a TON of money for me ... wait, it's still a ton of money!) and they have lasted me for 10 years. I truly got what I paid for.

Get Rich Slowly says blogging is not a quick path to wealth. Some poor fellow lost his job and wanted to start a blog to earn enough quick income to keep his house. Ouch. I sincerely hope to pull in a few hundred bucks a month some day, and while I do plan on blogging for many years to come, I can't imagine it will ever be my main source of income. He did mention John Chow, who seems to be the extremely rare exception to the rule.

Speaking of John Chow, here he details his amazing rise to Interwebernet prominence, including a whopping payday for the month of April. Holy phreakin cow, this guy is good!

Binary Dollar says taking a defensive driving course can sometimes save you money on your auto insurance. You should check with your insurance agent first to make sure taking the class will lower your rates (or if you desperately need to learn how to drive, take the class anyway!)

Diversify your stock holdings

Once I create labels and categories for my blog, this will get the "Duh!" label!

When I talk diversification, I do not speak of holding xx% in bonds, xx% in muni bonds, xx% in international holdings. I don't own any bonds - well-picked stocks will always outpace bonds. And I'm 36 and feel I'm too young to be conservative. Diversification for me means ensuring that no one position comprises more than 5% of my portfolio. I make two exceptions: 1.) I own Vanguard 500 Index (VFINX) and the S&P 500 SPDR (SPY), and together they currently comprise 9.3% of my holdings. I recommend that young investors start out with a nice base of index funds, and then move on to stocks and mutual funds, and 2.) I own an apartment building and a lakehouse that currently comprise 49.3% of my portfolio. That number is dropping as I refocus on pumping cash into my 5 TDAmeritrade accounts. I am very unconcerned about this number, as real estate is an extremely safe place for my money.

Why do I apply this 5% rule to my portfolio? Take a look at Dendreon Corp (DNDN) this morning. It's off a whopping 58% on bad news. Now take a look at the Yahoo Message Boards for DNDN (warning: if you've never been to the Yahoo Message Boards, it can get a little "randy" in there, so if you're offended by foul language, do not click the link!). There is a thread with over 60 posts entitled "my life is over. God bless." The person that started the thread is claiming to have lost one million dollars, plus another million on margin.

As previously stated, the Yahoo Message Boards are, needless to say, a little wacky, so take it all with a grain of salt. But has this not happened to countless investors before? Some folks that worked at Enron had all of their eggs in one seriously shaky basket. If this investor at Yahoo Message Boards was worth $100 million, then this 58% price drop in DNDN is no big deal. If this person indeed lost everything (at least on paper), then this person was not diversified the Q way.

Monitor your portfolio and ensure that no one position makes up more than 5% of your holdings. Then, when bad news strikes one of your stocks, the stress will roll right off your back, you won't panic, and you'll keep your focus on your long term investing goals.

Tuesday, May 8, 2007

Great top 5 lists at

132 submissions on the first day! Wow..... I was perusing the list of first-day entries for Darren Rowse's Top 5 Group Writing Project. Great stuff.. here's a sampling:

And there's still several days left - many more lists to come. Stay tuned.

Top 5 good reasons to sell a stock

Sell or hold? We've all struggled with what to do with a particular stock, whether it's risen 90% or plummeted 90%. Darren Rowse at is hosting a Top-5 Group Writing Project, so I would like to discuss the good reasons to part with a stock holding.

1. You need the money.
For me, this seems like the worst of the good reasons listed here. But there are situations that mandate a sale. If you are a retiree, it might be time to liquidate some holdings to generate some cash. Or you may want to reinvest in an investment vehicle that can generate income for you (dividend paying stock, for instance). Maybe you're a father or mother and it's time to pay for college. Or maybe you're younger and have hit a money crunch (please set up your personal finances in a way so that this can't happen to you!) But sometimes, no matter what you do, you may get into a crunch, and if you absoultely need the money and have no place else to turn, you may have to sell.

2. You have a superior investment that you can make with the money. For me, I would only sell in this instance if I didn't have available cash laying around to make that superior investment. That's one reason I sold NRGY. I had invested most of my cash and needed some funds to invest in a stock I really liked. So I sold half my position (50 shares) and invested the cash in my new stock. Also, the stock had risen over the years and I just didn't want to own that much of it anymore. I originally bought it because of its dividend, but never really did alot of research on it. So I sold half for a gain and generated some cash. As I said though, for me the decision would have been tougher had I had some excess cash laying around to invest in the new stock - I would likely have held on to all 100 shares.

3. You need to rebalance your portfolio. Come to think of it, my NRGY sale also sort of fits here. I owned almost $3,500 of it, while many of my small cap stock purchases are for amounts between $500 and $1,000. I just did not feel the need to own that much of NRGY (besides the fact that the stock had been good to me). If one of your holdings rises 1,000% and starts to represent over 10%, 20% of your overall net worth, you might feel better about your portfolio if you sell some or all of it and rebalance. Of course, I hope you're not selling the next Wal-Mart (WMT) -- that's scares the bejesus out of me and it's what keeps me holding on to the majority of my small caps -- hope that I'm holding that next superstar stock. So besides my NRGY sale, I haven't had to or done much rebalancing. But it's not a bad idea.

4. The company you've invested in has changed. You bought into a company because of its story, but for whatever reason, times have changed. Circuit City (CC) was actually featured in the cultish business book Good to Great, but look at it now. Its price is lower than it was 5 years ago. AOL was once a stratospheric stock .... need we say anything at all about it now? If the story has changed, that is OK - time change, people change, hairstyles change. Get out if you must.

5. Your stock has risen to what you think it's truly worth. For me, this also means that you don't think it's going to go any higher, that it's leveled off. For the value investor, I think it would mean that there is no longer hidden value to be unearthed in the price and it's time to move on. Either way, if you feel like the stock is worth a price that is just perfect for you, whatever that may mean, it may be time to sell.

How billionaires invest

Motley Fool (via had an article that spoke directly to my investing strategy. It talked about the top three richest people in the world. Number 2 and number 3 on the list are Warren Buffett and Carlos Slim. Two guys that built up $50 billion fortunes investing with nothing very exciting- Coca Cola, Altria, Saks 5th Avenue.

Buffett is generally regarded as one of the greatest investors of all time, but Carlos Slim just passed him on the billionaire list! His net worth gained $19 billion last year. "Cigarettes, real estate, soda bottling, auto parts, and insurance" - not exactly flashy businesses.

These guys are doing two things: 1. They are identifying wonderful businesses, and 2. They're not overpaying for them. They are buying great stocks when no one else is interested - Slim bought businesses during Mexico's 1982 economic crisis. When everyone else was panicking, he was buying.

Look at this chart of Volcom (VLCM), the clothing distributor. Almost one year ago, I got in at $33. Then look at what happened in late July 2006 - one of their main customers, Pacific Sunwear (PSUN), had a bad second quarter, and Volcom took it on the chin. Hard - it dropped down to $18, losing almost half its value. I reviewed the numbers, and it just looked like typical Wall Street overreaction - one of Volcom's customers was having a rough go of it, but it didn't look like a permanent issue. So I bought in at $20, and that lot has more than doubled.

Note this
- at the time I had about $15,000 in cash in an IRA, and I actually considered putting $10,000 into Volcom. This would have been a huge risk - it would have been a seriously oversized position in my portfolio. Look what would have happened had I done it! Oh well, I still made very decent money off the stock, and I still hold it today. Knowing that I could have made over $10,000 in about 8 months time at least gave me confidence in my investing thought process.

The moral of the story is my favorite quote from Warren Buffett - "Profit from folly rather than participate in it." Buy on the dips - when others are panicking, get in.

Monday, May 7, 2007

5/7/07 spin on the Blog Carousel

My Money Blog talks about trying to avoid lifestyle inflation. Similar to my article on buying the right size house, a smart financial life involves moderation and common sense. He does talk about being realistic about cars, which is so smart, but so very very hard!

Consumerism Commentary takes up the discussion on how renting makes you richer. As I stated in my article of yesterday, not every purchase you make in life has to be by the numbers. I would simply rather live in a house, a place for my family and I to call our own, so that's what we did. They say "the numbers never lie," but I choose to take a broader approach to this question.

All Financial Matters says young people are ignoring retirement planning. As I have stated and will continue to state, start now, start early, save often! It may not seem like a lot of money you're saving right now, but it will add up!

Get Rich Slowly discusses easy ways to spend less on your computer. Not buying more processing power than you need, taking advantage of free software, and even using Linux are all ways to save yourself some cash.

The Simple Dollar ranks 26 personal finance books, from worst to first. I spend most of my time reading the Wall Street Journal, and now PF blogs! I see a few Cramer books on there - the guy is a genius, but why don't humans come with a volume knob? :-)

Advanced Personal Finance says he pays more at Target than at Wal-Mart, and he does it on purpose! Bravo for this post - as I said in the comments section there, I wish I had posted that. Wal-Mart is a degrading experience.

Mighty Bargain Hunter asks "Is having an extra car worth it?" I say no, even though there have been numerous occasions where a 3rd car in our family would have really helped out. I cannot justify the expense, especially right now when my job is one mile from home.

The Sun's Financial Diary and Plus 6 Personal Finance both discuss the 7 net worth killers. My theme of the day seems to be real estate, so I will again point out the obvious - do not use your main residence as a retirement vehicle...... which means don't buy too much house.

Housing -- Renting is not better than buying

I have a Chinese friend that I used to work with. He's maybe 24, graduated from college 2 years ago, brilliant guy. I've been counseling him on investing, and he's doing pretty well. First off, he's actually setting aside money from his paycheck. Always a grand first step! And he's now buying stocks, and doing pretty well, I believe. We trade investing advice - he's the one that convinced me to steer clear of investing in NFLX, which I now thank him for.

He emailed me regarding this article, which basically postulates that renting an apartment instead of purchasing a residence will leave you in much better shape over the long haul. He lives in an apartment and wanted my advice on this issue.

Renting or buying - I have seen this issue tackled by many a blog, and I will not rehash what they said, nor will I address the calculations put forth in the linked MSN article.

What I will tell you is this - do not think of your main residence as an investment. First and foremost, an investment should be a tool you use to reach retirement. Your primary residence, as discussed here earlier today, should not be used as a vehicle towards retirement. It's a place to live - a place to while away your time when you're not at work. More romantically, it's a place to have candlelight dinners with your wife, to host your family for Christmas. It's a place to raise your kids, to watch them take their first steps, to read them stories. It's a place to make memories that last a lifetime.

Can you do these things in an apartment? Yes. And do you leave those memories behind when you move, as many homeowners do? Yes, perhaps.

My wife and I have no plans to move, and we actually own an apartment building, so I come at this from a different angle than some. But I am a sappy romantic - I love our house and already have so many great memories in the 6+ years we've lived there.

Why can't you do the same things in an apartment? First off, in many ways you cannot make an apartment your own. Many landlords do not allow you to paint (I don't allow painting - the walls stay white). I do not allow my tenants to affix DirecTV satellites to my building, so they're stuck with cable or broadcast television. My building has hardwood floors - if you want wall-to-wall carpeting, you'll have to move. Light fixtures, bathroom fixtures, appliances - you're often stuck with what's there. You can't add a room or renovate to your tastes.

Many apartments don't have much of a yard to play in. My daughter would be crushed if she didn't have her Little Tykes playground to play on. And if there isn't a yard or common area at your apartment complex, where are you going to BBQ?

While the house next store can still throw a wicked party, you're much more likely to be disturbed by your apartment neighbors - noise comes through those walls, even plaster walls. And if you live below someone, hopefully they don't walk around in their hard sole shoes, because trust me, you can really hear that! And if you're really (un)lucky, you might hear the couple in the next apartment doing "other things."

And apartments, all other things being equal, are not as permanent as a home. As long as you make the payments on your home, and don't live near the latest highway-widening project, your home will be yours forever. In an apartment, your rent can be raised. If your apartment is in a very nice area, the rent could get raised to levels that you cannot pay, forcing you to move. Or the building could be turned into condos - unless you buy your unit, you're out. Many people don't want this uncertainty.

So without running the numbers (and the numbers on home ownership aren't even that bad), I posit that owning a house wins hands down! Just buy a bit below your means, and your finances upon retirement will still shake out just fine.

A bigger house does not guarantee a richer retirement

I have seen alot of discussion on various blogs about the virtues of renting vs. buying -- should you buy a house, or should you rent an apartment, ostensibly for a lower monthly cost and a much lower down payment.

Another twist to the home ownership discussion is "Should you buy big or small?" Or, "Should you buy beneath your means, at your means, or above your means?" There are some people that actually use their primary residence as the main part of their retirement strategy - buy a very big house, hoping that the real estate boom continues (ooops), and then trade down to a smaller house at retirement, living off the gains of your big house. Let's explore whether this will work or not.

In our example, you're 35, you have a $400,000 home, and have a $300,000 mortgage. "The small house strategy" would have you staying in this house, paying down that mortgage over the next 25 or so years, investing your spare cash in stocks, mutual funds, and the like. Your other option would be "The mansion strategy." You sell your small house, roll the $100,000 in equity into a $1 million house, leaving you with a $900,000 mortgage. At age 65, you would then sell your mansion and move back into a $400,000 house.

Which strategy would leave you more prepared for retirement? The numbers are as such: on the mansion, you're going to have a monthly payment of approximately $5,700/month. Remember that borrowing $900,000 easily qualifies as a "jumbo mortgage," which carries a higher interest rate than a conventional mortgage. When selling the small house, you would incur commissions on the sale, somewhere north of $20,000. Also, when selling your mansion in the future, unless the real estate world gets turned totally upside down, you'll be incurring commissions to sell that house too. In 25 to 30 years, your $1 million house would be worth, let's assume, $1.8 million. So you would incur almost $100,000 in commissions on the sale of the mansion (perhaps you could swing a deal to lower that). When it's time to trade down 25-30 years from now, your $400,000 will likely cost at least $700,000, assuming a 5% annual appreciation (many of us are not getting that now, but it's the historical average).

Overall, with the big house strategy, you'd be left with roughly $1 million for retirement. That's before any capital gains you'd have to pay on the sale of the mansion, and it's before any mortgage interest tax deduction that you received over the years. $1 million! But the picture is not so rosy. First off, you will face a gargantuan mortgage payment each and every month. If you can truly afford that, good for you. But if you're using this large home as a retirement vehicle in the first place, you are probably going to scraping by. I also didn't take into consideration the additional cost of upkeep on a mansion. You'll pay higher taxes, homeowner's insurance, utilities, yard care, maintenance, etc etc. Everything will cost more with the mansion, and probably proportionally more than it would with the small house.

The other option would be to stay in the smaller house. You'd be socking away your excess cash in stocks, mutual funds, IRAs, and your 401(k). You'd probably end up seeing about a 7% average annual return on these investments. But even if your returns were a mere 2% above inflation (currently at 3%), you'd still end up with almost $2 million at age 65. Twice as much as the big house strategy! If you did earn that 7% return, you'd have roughly $3 million at age 65.

True, with the smaller house, you'd have a smaller mortgage interest deduction. But you'd have a larger deduction by maxing out your 401(k), something we're assuming you could not do if you were living above your means in the mansion. And you would have ongoing expenses and a mortgage payment, just like you would in the mansion. But they would clearly be more managable. My uncle lives in a big house on a few acres, and the upkeep on the place is killer. Not only the yard and the pool, but just the upkeep on the systems of the house. Great house, but you truly have to be able to afford it to live there.

There is one big plus of going with the mansion strategy - you get to live in a mansion for the next 30 years. But our example assumes you'd have to leave that place in your mid 60's, and would you honestly be able to do that and not miss living that way?

So the small house strategy wins big here. Do not buy above your means - at least buy a place at or below your means, and leave yourself a healthy chunk of cash each month to invest. The markets are the ticket to retirement, not a large house.

Friday, May 4, 2007

7 tips for making a better Kentucky Derby bet

Gambling is the last path to financial independence, but if you're so inclined to bet on tomorrow's Kentucky Derby, at least make a good bet. Marketwatch offers lucky seven tips for making a better Kentucky Derby bet. I am not a gambler - I have been to gambling boats twice in my life and didn't really enjoy much besides the free drinks. My feet did stick to the floor alot, though.

I lose whenever I play Hold 'Em with friends. I always think my superior math skills will allow me to clean them out. It never works out that way. :-(

Mint Juleps for everyone! Have a great weekend.

Lower your gasoline consumption

Yahoo Finance recently posted an article on how to lower your gas consumption. My offices are directly across the street from a Phillips 66, so we can watch the price fluctuate (GO UP) every day of the work week. The other day, regular unleaded went from $2.96 up to $3.16. I was over there filling up before work, and I saw a woman there that works with me. She is a young black woman, drives a really big old Caprice, and since I'm Controller of the organization, I know that she barely makes $20,000. I asked her "How much does that thing hold?" She wasn't sure of the tank size, but she said it cost her about $70 to fill up. She also said it only runs on premium, and that was $3.36 a gallon.

She lives quite a ways away from work, too. I live 1 mile from our offices, so I don't burn thru alot of gas. Nevertheless, there are some things you can do to save a bit on gas:

1. Walk! I should be doing this. I need the exercise, and I could go an entire week without driving. But I usually just want to get to work and get as much done as possible, so I don't feel like setting aside the 20 minutes to walk to work.

2. Buy cheap gas. Some cars simply require premium. Funny, my lawn more runs like crap if I don't use premium. But neither of our cars require it, so we don't use it. Read the owners manual for direction on this.

3. Drive slowly. You are not Mario Andretti, and it's not a race. Take off slowly from a dead stop. Not only will this save gas, but you will save your car from wear and tear.

The article outlines quite a few more tips. I am very concerned that our economy will not be able to absorb $4/gallon prices this summer - not to mention my weekend trips to the lake are suddenly going to be super-expensive!

Microsoft buying Yahoo???

Google is scaring the dickens out of Microsoft! Two newspapers are reporting that Microsoft is aggressively pursuing a purchase of Yahoo. The best line from the article: "Microsoft has complained that the acquisition of DoubleClick would give Google almost monopolistic powers in search advertising online, with the power to dictate terms to online publishers and service providers."

Irony can be pretty ironic sometimes, no? Or as Ted Striker said in Airplane - "I guess the foot's on the other hand now!"

24/7 Wall St even thinks Google could buy Yahoo.

Thursday, May 3, 2007

The 4-Hour Work Week

Problogger Darren Rowse has published a multi-part interview with Tim Ferriss, author of The Four Hour Work Week - Escape 9-5, Live Anywhere, and Join the New Rich. Ferriss' book has hit the Amazon best seller list - I have yet to read it, and frankly I'm afraid to. I've heard that this book will turn your view on work upside down, and I'm not sure I'm ready for such upheaval at this time! :) Frankly, I think a 4-Hour work day would be something to shoot for! So the theories espoused in this book sound incredible.

It's a great interview. The best part - it was conducted via IM. You gotta love technology.

BBBB on the way up

Blackboard Inc. (BBBB) is up over 9% this morning on a 13-fold increase in Q1 profit. This was one of the first small cap stocks I bought. I got in almost a year ago, and my holding is up 60%.

Go small caps!

Free credit reports

I read two fellow personal finance blogs this morning that discuss credit reports, and I wanted to pass along the info.

Plus6 Personal Finance discusses how to dispute any item on your credit report, including how to obtain a free credit report, how to start the dispute, how to escalate the dispute, and concludes with a friendly reminder to not use a "credit repair clinic."

The Sun's Financial Diary offers information on how to get your free credit report, and also offers some helpful information on credit monitoring services. I have never used such a service - if anyone has and would like to offer an opinion, please leave a comment.

Wednesday, May 2, 2007

Take out a mortgage, or pay all cash for a house?

Jack Guttentag has a great article at Yahoo Finance answering a reader question about purchasing a home. Should you pay cash for your home? First of all, you son-of-a-gun, if you can pay cash for a house, you're a richer man than I am!

The math is simple - proceed to the article for a specific example with numbers. The long and short of it is that if you earn a rate of return on your investments greater than your mortgage rate, taking out a mortgage leaves you better off in the long run. The mortgage on my main residence is at 5.5%, so I do believe I would have to make some pretty horrible investing decisions to not beat that percentage. Therefore, I borrowed.

Mr. Guttentag also offers some deeper advice, which I completely agree with. Assume you want to pay cash for your house, and you want to see how much more or less money you'll have in 15 years. The example assumes that, if you pay cash for your house, you save and invest exactly the amount of money you would have paid in a monthly mortgage payment.

But, would you really do that? Many people prepay on their mortgages, or pay cash for a house, because they want to feel free. I have to admit - I really look forward to the day I make that last payment on our house (and on our lakehouse, and on our apartment building... ... Sheesh!). It's going to feel like Christmas time when that mortgage is gone! Imagine you feel this way as a young person in your 20's or 30's. You might feel rich, and you might consequently act that way, spending money in ways that you wouldn't have had you had a mortgage hanging over your head.

It seems counterintuitive to some people that borrowing is good, but in this case, you should be able to consistently earn a rate of return on your investments greater than the interest rate on your mortgage. So I think it makes sense to borrow, and leave your nest egg intact.

Two of my stocks are rockin' today

Buffalo Wild Wings (BWLD) up 14% on great quarterly news.
Chipotle Mexican Grill (CMG) up 15% on a 56% increase in profits.

5 TDAmeritrade accounts up $1,400 so far today. Wheeeeeeeeeee!

Oh yeah, and Novastar Financial (NFI) is down 6%. Oh well, it's already down 90% for me! You can't draw blood from a turnip!

Big sale at fivecentnickel - everything must go!

Actually, Nickel over at is having a contest. To celebrate his 2nd blogging anniversary, he's giving away iPods, USB Microdrives, and other great prizes. This is very sporting of him! Do yourself a favor - please proceed directly to his site and enter today.

Nickel is enjoying his Blockbuster Total Access service so far. I don't watch movies all that often (sports, sports, sports!), so I don't think I'd get my money's worth out of such a service. But, I received an email from a friend yesterday inviting me to try Netflix for one month free. He has been a member since Xmas 2006 and can't say enough good things about it. Netflix is allowing him to give away one month free to his friends, so I may give it a try.

I have actually been contemplating investing in Netflix (NFLX). The price has been oscillating between $20 and $30 for almost two years now, and it looks attractive at its current price. But then I talked with another friend of mine who has Blockbuster Total Access. He is a fellow investor - we trade stock picks and advice all the time. He cautioned me against investing in Netflix, as he thinks Blockbuster Total Access has them beat. Netflix has introduced a new download service, but it has not been enough to entice me to invest. Peter Lynch once said, "Buy what you know." I use neither service, but it seems Blockbuster has a huge competitive advantage now. The winds seem to be blowing Blockbuster's way.

Thanks again to Nickel for throwing a great second birthday party!