Minding Mr Market

Another Bubblicious Post

2005-05-19T12:07:00.000-07:00

Yet another blog post relating to the "Bubble" in real estate. I am a believer that some areas are in bubble territory, but at the same time there are many areas across the US where prices have climbed at a more measured pace. I was glad to see this article with Sam Zell relating those same ideas. For those of you not familiar with Mr. Zell, he is the nation's biggest landlord and is widely respected for his opinion on the direction real estate is headed. Well worth the read.

Rubbin' Elbows with the Rich

2005-05-13T10:47:00.000-07:00

I think at some point and time we have all thought about where we would like to live when we are "Rich". Maybe a beach side retreat, or a cabin in the mountains is your fancy. Of course, with endless choices come dilemmas. When you can have anything, how do you decide? If you can afford to live anywhere, where do you live? Do you opt for mountains or mansions? Penthouses or palm trees?

Well Forbes magazine has put together a list of the top 10 places to "Be Rich". From expensive houses, to cultural activities, these cities all have one thing in common---there great places to have a lot of money (mostly due to the fact it would take a lot of money just to get your foot in the door).

Making a Purchase? Choose Your Month Wisely

2005-05-12T10:32:00.000-07:00

Most frugal car shoppers understand that you are more likely to get a deal if you buy at the end of the month or end of the year. Then you are dealing with salespeople motivated to make their monthly numbers, or a car lot motivated to move product to make room for the newest models. But did you know there are times of the year where the same kind of deals could be had on everything from Chocolate to Luggage? Check out the purchase planning calendar, before you buy that BBQ...You may be able to get a deal just by timing your purchase.

Millionaire in the Making

2005-05-11T14:24:00.000-07:00

From Money.com, another installment of "Millionaire in the Making". I especially liked this couple in that they are truly just working people who saved early and saved often. Plus they realize that the little things do count, and it could be the little things that give you a Million Dollar net worth or a sum substantially less than that. The save 10% of their pay, and carry no debt but good debt. Seems to be working for them, they have a net worth of $600,000.

Currently I save 65% of my take home pay. 3% of that is actually pretax in an employer's retirement account so I can get the match, but the other 62% is straight to my brokerage account each month. I am fortunate that I am young and have relatively little expense. I split most monthly obligations with my long term girlfriend whom I live with, and have a very low student loan payment. Other than that all debt I have is in real estate, which is tax deductible, and the rentals are paying for themselves. I am hoping that by starting young, and keeping with my aggressive savings plan, I will one day be a "Millionaire in the Making".

To Bubble or Not to Bubble, and the Fate of Real Estate

2005-05-11T07:28:00.000-07:00

It seems like I can't turn on the TV, or read my favorite magazine without seeing something about real estate prices. It reminds me a lot of the go go years of the stock market, every newspaper, magazine, and barber was reporting on the state of the stock market. The similarities between this real estate market and the stock market of the late 90's to early 2000 are eery, however I do not believe there is a national real estate bubble. Sure there are areas of the country were something has to give (think CA, et al), but other regions are appreciating at a more measured pace, and prices are still affordable. I own rental property in Southwest Florida, and even though Fl gets a lot of press for being a "bubble state" on the Southwest Coast housing is still reasonable in most areas (think, not beach front in Naples!). The threat of a "bubble" in SW Fl does not affect my investment there for one simple reason, I have a cash flowing property. As long as rents stay reasonable, I should be able to rent my duplex and make the payments on my 30 year fixed loan quite easily. Would I buy right now in SW Fl? You bet, but I would need an adequate cash flow to hedge against any risk due to value pressures.

Here is an interesting article from USA Today regarding some Bubble Regions.

10 Places to Find Stock-Picking Ideas

2005-05-10T18:07:00.000-07:00

John Dorfman is the president of Dorfman Investments in Boston, and a columnist for Bloomberg News. Here is a look at his list of 10 Places To Find Stock Picking Ideas

The list does not appear to be ranked from worst to first, it should be viewed as a list of where people may find stock ideas. I would be leery of #10 and #7. And I would say that I have had some of my best returns with #2 and #1 on this list.

Finance, Math, and Texas Hold'em

2005-05-10T09:00:00.000-07:00

Being a rather frugal financial type, it seems counter intuitive for me to be writing on the topic of poker. Any personal finance purist would scoff at the idea of throwing money away at a casino, and so would I, however over the last couple years my love affair with one certain card game has blossomed. That one game would be Texas Hold'em, which I avidly play online, for play chips only of course. I think what hooked me about the game was the mathematical side of it, and it's similarities to investment decisions I make routinely. For one to be a truly successful Hold'em player you must be able to calculate odds given a set of known and unknown variables, calculate expected return given the odds, decide how much capital to allocate, and then take into consideration the human aspects of the "game".

Take that last statement in and of itself and it could hold it's own in any personal finance book "you must be able to calculate odds given a set of known and unknown variables, calculate expected return given the odds, decide how much capital to allocate, and then take into consideration the human aspects of the "game".

Recently there was a Texas Hold'em tournament with some of the best financial minds on Wall St. See how the Investment Guru's faired!

Just Another Manic Monday

2005-05-09T10:11:00.000-07:00

Well here we are again staring down another week! Good news is I am seeing green again with regards to my portfolio, and the market is up modestly. One good thing about investing the way I do, that is focusing on the businesses and really understanding them, is that I can be relatively unaffected by what is happening in the market. True a rising tide does lift all boats, and a falling tide the opposite, but over the long run a good business should ride out any storms. I love being able to answer the question "What do you think of the market?" with a "Don't know, and really don't care"...as long as I keep to my own buy and sell discipline I can be ambivalent to the general market, which even when the sky is falling helps one sleep better at night.

Here's to a great week to all.

High Prices, Unhappy Returns

2005-05-08T16:35:00.000-07:00

The fastest-growing companies don't provide the best rewards, says Jeremy Siegel, for the simple reason that investors overpay. Over the past nearly 40 years, the fastest-growing firms had the worst subsequent returns: 9.36% per year, vs. 10.7% for the S&P 500 index. And the slowest-growing had the best returns, at 13% per year. The fastest growers didn't perform poorly because they stopped growing quickly. In fact, the fastest-growing stocks continued their above-average growth over the next five years. But investors paid way too high a price for the growth, and returns were poor.

Read the entire Business Week article here

Why Retire Young?

2005-05-07T17:00:00.000-07:00

Some interesting data on retiring young

Consider this:

Age at Retirement	Average Age At Death
49.9	86.0
51.2	85.3
52.5	84.6
53.8	83.9
55.1	83.2
56.4	82.5
57.2	81.4
58.3	80.0
59.2	78.5
60.1	76.8
61.0	74.5
62.1	71.8
63.1	69.3
64.1	67.9
65.2	66.8

More encouragement to leave the working world behid.

Money Masters Directory

2005-05-06T11:41:00.000-07:00

Full breakdown of investment principals for each of these "Money Masters" can be found here. Concisely laid out in one page summaries.

Risky Strategies Are Rarely Worth It

2005-05-06T09:46:00.000-07:00

One of the central tenets of investing - one that financial planners repeat endlessly - is that risk and reward are positively correlated.

Rate Hike Winners and Losers

2005-05-05T18:18:00.000-07:00

When the Federal Reserve speaks, financial markets listen -- producing both winners and losers.

Your Comments

2005-05-05T18:17:00.000-07:00

Your comments on this blog are greatly appreciated. You add value in that I am able to provide content of interest.

Thanks!

My QuikSilver Experience

2005-05-05T10:11:00.000-07:00

I noted in an early post that my net worth took a pretty good hit in the month of April, due to some pressure on my majority holding QuikSilver. I saw it drop from around $33 to $27 after they announced the acquisition of Rosignal (That's a $354M dollar haircut to the market cap). One of my reasons to sell is when management does something stupid, and in this case the market obviously thought they had. However if you consider they were buying nearly $600M in revenue for a little over $300M and the expectation is to add .04-.06 cents per share to the bottom line this year, this deal starts looking better. Couple that with a management team who has a history of quality decision making, and a brand in Rosignal that resonates with Skier's (I think Skier's/Snowboarders and surfers are very similar as far as a "market" are concerned) and you have another exceptional purchase. I took the opportunity to buy more in the $27's and the stock is trading about $30 today...I'll take a 11% gain over a couple of weeks any day. Of course this is a long term hold, and I wouldn't consider selling until the low to mid $50's based on intrinsic value.

14 Years and Running

2005-05-05T09:13:00.000-07:00

Bill Miller's Value Trust fund has beaten the S&P 500 14 years in a row now. It's an understatement to say investors would bode well to heed his advice.

Q&A With Bill Miller

Buffett's Thoughts on Current Events

2005-05-04T20:21:00.000-07:00

Investment guru expounds on reforms in corporate America, trade deficit and terrorism against U.S.

Buffett's Interview

Everything You Need to Know About Investing

2005-05-04T09:36:00.000-07:00

I think these quotes from Warren Buffett come pretty close to giving you all you need to know about investing.

Selling Rules (Know when to Fold'em)-Long Post

2005-05-04T09:32:00.000-07:00

The hardest part of managing your own stock portfolio is knowing when to sell, and what makes it so hard is that it seems like it would be easy! Here is my selling methodology, which over time have developed, but I still on occasion deviate, most often with adverse consequences.

Sell when my stock drops 7% from initial purchase price
This is my #1 rule, and like I said before has saved me more money in the long run than any other selling rule on this list. I can be wrong, and if a stock drops 7% under my buy price chances are I am wrong and need to re-evaluate. This also ensures I don't end up with the next dot.com bust, or looser that I am "hoping" will rebound. This rule I NEVER waver from.

Sell when management does something "stupid"
Sorry for lack of a better word than "stupid", but so much fits under that heading I had to use it. Stupid could be building a new executive suite for $200 million, when the company nets $50 million. Stupid could be a change in business strategy such as acquiring a paper mill when your company is involved in aeronautics, etc. Stupid could be inconsistent management, saying they will do something (such as buy back shares, open new stores, develop new products, etc) and then consistently doing something else. "Stupid" is very subjective, but so is stock picking.

Sell ½ at 25%
I normally sell ½ of my position at the first 25% gain. I can hear you say "But that stock could be the next Microsoft and you'll loose out on $$$ gains". Chances are it's not the "next" anything, and I book gains when I get them.

Any 50% gainer gets a stop loss set at 10% below that price
Once my stock hits a 50% gain, I'm a happy camper and I start setting stop losses at around 10% below that price. Again, when I have a gain I like to keep it.

Forget the tax man
This is not to say that you should sell 1 day before going long term capital gains, but it you have a good gain 6 months into a position don't hold just to escape the taxes, you may see a gain turn to a loss over the next 6 months. Would you rather sell and pay the taxes, or write off a loss? I will pay the tax man every time.

Sell when the security reaches, or is at a premium to intrinsic value, and other more lucrative investments can be identified
Once a stock reaches what I feel is it's intrinsic, I keep a close eye on if other investments offer better returns. It's not an automatic sell, but if the stock is trading at $50, and I have it's value pegged at $40, how much more return am I likely to get from ownership? I start looking then for the stock trading at $20, that's worth $40

These are my basic rules of selling. As you can see a couple are subjective and a couple are more concrete. Over time I have learned to covet any gains, and my selling philosophy is in line with that. Most of all I can't stress enough that you really have to know a company to hold it long term, the more you know the more you can identify "stupid" and the more comfortable you will be holding on for big gains.

Pay Off Loan, Or Invest, That is the Question?

2005-05-04T07:18:00.000-07:00

Should you pay off that loan or invest the money?

I currently have a student loan that is at an absurdly low rate (3% Fixed), and have chosen not to pay it off to invest the difference elsewhere. I am doing this becuase I can get a return greater than 3% risk free elsewhere. Now, if this were credit debt at 20%, I would immediately pay it off, and take what amounts to as a 20% return.

Historical Look at Fed Funds Rate

2005-05-03T12:46:00.000-07:00

History keeps everything in perspective. Here is a look at how the federal funds rate has moved throughout the 2000's. For more information about historical federal funds rates check out this website.

Anytime we think interest rates are getting out of hand, just look at the decade of the 70's and you'll feel much better.

Cheap Magazine Subscriptions

2005-05-03T10:22:00.000-07:00

I love websites that do the comparison shopping for you all in one place. Sites such as Pricegrabber.com or FatWallet.com search for everything from books to computers across the web to find you the best deal. I figure I save two fold using these search engines, 1) in a cheaper price for the product, and 2) In the time it saves me from searching to find the best deal. I just ran across another such site devoted to Magazine subscriptions. It will find the magazine you are looking for, any discount coupons for that subscription, and show you the best overall deal. I currently subscribe to Kiplinger's, Money, Smart Money, and Barons. I will definitely be using this service when I renew...a sample subscription: Rolling Stone Magazine, 78 Issues, $5.97 TOTAL price (Not per year, per issue, just $6 bucks and you are set for 1 ½ years).

Magazine Price Search

Net Worth as of May 1st, 2005

2005-05-03T07:20:00.000-07:00

My net worth took a hit in April due mainly to 2 factors. One was a rather large tax bill ($5,000) that was paid out of my brokerage account. Second, a stock that I own dropped about 7 points or nearly 25%. The stock is QuikSilver the surf clothing maker, who annouced it was buying French Ski company Rosignal. It initally was viewed as a negative, but the stock is currently rebounding as investors mull over the possibility of this aquisition. QuikSilver is a great company with A+ management. In all their previous aquisitions the purchases have been acreditive almost immediately and I have no doubt Rosignal will be also. I consider purchasing $600 million in revenue for $300 million and adding .04-.06 cents to the bottom line in fiscal 2005 a good deal. QuikSilver has price targets in the high $30's to low $40's, from a current $28.80

Dow 100,000 by 2024?

2005-05-02T18:05:00.000-07:00

How about Dow 100,000 by 2024? Doesn't look impossible by this spreadsheet, sure it'll take better than the paltry returns we've seen of late, but a lot can happen in 20 years!

Click on the spreadsheet for a larger image

Speculation

2005-05-02T16:32:00.000-07:00

I've heard this quote a dozen and one times, but I still like it:

"Speculation is like being a judge in a beauty contest where the objective is not to pick the prettiest girl, but the girl the other judges pick." ~ John Maynard Keynes

Tycoon in the Making

2005-05-02T13:57:00.000-07:00

I enjoy reading these articles on CNN Money called "Tycoon in the Making", which profile real estate investors from across the U.S. Another good column on CNN Money is "Millionaire in the Making" which profiles individuals with varying net worth's who save and invest diligently. Both columns are good reads...it's interesting to see how others approach saving, personal finance, and investing.

Check'em out if you don't already, I'll keep posting links to them here.

Stock Selection Methodology

2005-05-02T10:54:00.000-07:00

The following are my parameters for selecting a stock to add to my long term portfolio:

High ROE. I look for at least 15% ROE average for the last 5 years. Since a conservatively financed operation can only grow at a rate near the historical ROE, this is a good indicator of prospective earnings growth (Actually called sustainable growth rate, which factors out any dividend payouts). For a good sustainable growth rate primer, here is an article to read.
Steady, and predictable earnings growth over the last 7-10 years. Love to see a long trend of increasing earnings
Debt/Equity ratio less than the industry average D/E.
Profit margins greater than the industry average profit margin
Reasonable P/E given growth. I can stand a P/E in the 20's, greater than that and I get nervous. Basically I'd be looking for a PEG ratio less than 1.5, or paying .5 times greater than the growth rate from a P/E perspective.
Products and services I can understand. I cannot stress enough that for the common investor, being able to explain simply and concisely how the company makes money is a must. If you are the least bit confused by where the revenue/profit source is coming from you are at a disadvantage to those who understand fully the business model.

From just the criteria above I can generate a list of candidates. Then I drill down on management competency (do they do what they say and say what they do?), and do some general intrinsic value calculations. Usually the stock that I buy is the one left on the list with the highest discount to intrinsic value.

A lot of stock picking is subjective, from the above criteria I may be left with a list of 100 securities...the artful part of the science comes from discerning the great from good companies, that are trading at a value discount to their worth, and whose prospects are better than the average. If you can find those stocks consistently you will beat the market. Keep in mind there are countless people looking for those same companies so you either need to be smarter, or more patient to reap full advantage...if I had to weight those elements patience would be far and away the most important.

A New Week

2005-05-02T09:19:00.000-07:00

I always seem to approach the start of a new week with a sense of optimism...it's like whatever happened last week stays there, and the slate is wiped clean. Some people hate Monday's and I guess I just approach them with a different perspective. For me it's a way to start over, no matter how bad things were last week (personal, financial, emotional, professional etc.) we are getting a chance to start over on Monday morning.

For those of you that follow the financial markets we've been in a funk as of late, but I am actually seeing green this a.m.. Ahead of the feds comments this week, I don't know how long this will last, but it is nice to start the week off in the positive. The majority of my net worth (over 80%) is tied up in stocks, so I keep a keen eye on our markets yet keep my trades to a minimum. This takes some discipline, yet over the years I have seen my % return increase with the decrease in activity in my account...I can't help but think there is a definite correlation there.

Here's to leaving last week behind us..

Posted This Picture Using Instant Messaging

2005-04-30T12:51:00.000-07:00

Trying out a service from Picasa picture software called "Hello". Picasa makes organizing and viewing your photos a snap, and Hello uses instant messaging to send photos to friends and family, or in this case directly to a blog post.

I know this has nothing to do with finance and investments, but if you are looking for a way to organize your digital photos check out Picasa

I'm not affiliated with this company in any way, just think they have a great product and it's FREE!

Net Worth By Age Group

2005-04-30T12:05:00.000-07:00

According to this article I am in the top 10% for net worth between the ages of 20-29. What suprised me was how low the median net worth was for people in the retirement age brackets...moral of the story is to save, and save early.

http://moneycentral.msn.com/content/SavingandDebt/P61280.asp

#1 Sell Rule

2005-04-29T17:07:00.000-07:00

I sell when my stock falls 7% from my initial buy price, no if's, and's or butt's. This one simple rule helps me preserve capital in down markets, and mitigates the risk of ruin. I'll post all of my portfolio methodolgies, including personal buy and sell rules, in the posts to come.

From a Mexico Vacation

2005-04-28T18:48:00.000-07:00

Took a vacation to Mexico last December. This is a photo from a place we stayed on the Yucatan. What a relaxing way to wrap up a year, very energizing...I think I want to make a year end trip to somewhere warm a tradition (If my finances will allow).

Tips for keeping your credit score up

2005-04-28T15:27:00.000-07:00

From Clark Howard's website, Tips for keeping your credit score up . Your credit score will cost you more money throughout your life than any other expense if you do not keep it in tip top shape. I wish I had of known in college how skipping a credit payment or two would have cost me in the years to come. I've rebounded and have a middle score in the low 700's, but I paid my dues in the form of higher interest rates in the meantime.

Summary of Assets-Liabilities-Net Worth-March 2005

2005-04-28T10:00:00.000-07:00

The goal is to reach $500,000 net worth in 7 years, so let's see where I am at currently. Here is the "fun" side of the balance sheet, the assets! This is for period ended March 31, 2005

You'll notice that I do not own my own home, currently I rent and use the excess cash to purchase investments. I do have a rental in Southwest Florida that I own with a partner, and I calculate appreciation at 6% per year (About a quarter of what appreciation has been running for the last couple years down there, but I wanted to use conservative numbers). Also, the "guaranteed return of down payment" column refers to the agreement between me and my partner that I receive all of my down payment money back when/if we sell, even if that means he has to cough it up out of his own pocket. Also you'll notice a line item called "ING Tax Savings" that is an account I just started where I will deposit money in order to pay my tax liability at the end of the year. Since I usually have capital gains each year it is hard for me to estimate my tax liability and this account will help pay any shortfall.

Personal Items:
Home $0
Checking Account $402
Savings $0
B of A Account $904
ING Tax Savings $0

Investments:
403b $2804
Stock $84,561
Investment Rental $113,602
Monthly Appreciation $565
Total Real Estate Value $113627
Return of Down Pmt $15774

Assets Total: $218,072

Now for the not so fun side of the sheet, the liabilities:

Real Estate Loan $112440
Student Loan $11680
Citibank Credit Card $1838

Liability Total: $125,958

Liabilities are pretty straight forward: My portion of the rental home loan, a student loan from my days at Portland State University (Bachelors in Finance), and some minimal credit debt which I am tackling with abandon and should payoff this year.

So by my calculation I have a current net worth of: $92,114. Only $407,886 to go, or $58,269 per year!

Principles of Net Worth Building

2005-04-27T19:24:00.000-07:00

Here is some interesting dialog regarding net worth, and the principles in building net worth. This post comes from a site called PFblog.com For those of you that aren't familiar with PFblog, check it out...you'll find some intersting stuff on there from time to time.

Personal Financial Goals

2005-04-27T19:16:00.000-07:00

So what exactly am I striving for in the realm of personal finance? I thought I would post what my goals are and then follow up with some ideas on how I will get there. Here is the list:

Net worth of $500,000 by the age of 35 (I am 28 now so that gives me 7 years)
At least 50% of net worth in liquid assets, the rest coming in the form of real estate holdings
Comfortably living of investment income from stock portfolio and rental property
The well being that comes from knowing I will be able to generate enough cash to carry on without huffing my butt to the office everyday.

Pretty straight forward I think, mostly my target is set on wealth creation. In my next post I will outline what I am starting with, and provide some insight on what I think it will take to reach the above goals.

What is a "Full Disclosure" blog

2005-04-20T22:13:00.000-07:00

I am dubbing this site a "full disclosure" personal finance web log. What exactly do I mean by that? Glad you asked...It is my hope to provide real time financial data as it pertains to my personal finances and investments. That means you will see my actual salary, what I am spending each month, how much I pay for car insurance, what interest rate I pay on my rental property, what kind of loss/gain I am seeing with regards to my stock portfolio, etc. Why would I want to put such personal financial information on the web for all to see? Well, it is my thinking that this sort of "see me naked" approach can only aide in my financial development. The way I see it "Full Disclosure" will provide the following benefits:

By not hiding behind fabricated numbers, or unwillingness to share actual figures I am forced to evaluate my financial situation as it is, not through smoke and mirrors
In a world of 5 Billion people many will be smarter than me when it comes to finance, and if only a couple comment on something they see that I could improve o,n this exercise will be a sucess.
Since my "real world" numbers will be out there for everyone to see, maybe I will be able to inspire some, provide reassurance to others, and learn something myself.

I'll end on that tonight, let's see how this thing shapes up!

Welcome!

2005-04-20T21:38:00.000-07:00

Welcome one and all to what I hope will be a worthwhile exercise for both me personally and for anyone who takes the time to peruse this blog. In my next few posts I will try to outline my intentions in starting this blog, and outline my philosophy as I progress down the path of financial enlightenment. Let's get blogging...