Thursday, March 27, 2008

Q1 Goal Status Update

Here it is!

First, let's get this writedown out of the way.

The crux of the matter is that I co-signed for 2 student loans for an erstwhile friend who was in dire straits. The idea was that this would cover this person for a full year of studies, long enough to put other plans in place for a longer term solution. When the loan came due, the borrower would be responsible for paying it back, in full; thus, I was donating my credit score to this person so they could get the loan which otherwise would be completely unattainable. This is the kind of thing I have been known to do for my friends, as many of my closest friends are well aware.

However, you'll notice the wording above is "erstwhile friend", as this person has done some things outside the spirit of the agreement we made when we took out these loans. It has been a huge violation of trust which lacks integrity (using my personal definition of integrity, not a morality based definition). So at this point, I just wrote off the full amount of the loans; I am considering them liabilities in full. Now, I have implored (and will continue to implore) this person to remember the agreement and make sure they pay back the loan when the time comes. I pray that this happens. However, being a realist, I know that it may not. I knew that going in and I accept responsibility, in full, for the outcome. However, considering the investment in trust and that no one, not even blood family, was willing to step up and support this person in their time of need, I am hoping that this person will fulfill the commitment they originally promised themselves too. If not because of the relationship we used to have, then in the interest of making their words actually mean something, for their word to carry weight in the physical world. Doing what you said you would do when you said you would do it is how I define integrity. We'll see how it turns out, but right now, that $35,000 counts against my net worth.

Now that THAT story is told, let's move on to the interesting stuff.

First, the power of re-balancing has been in full effect. While my retirement accounts have suffered along with everyone else's, they are doing reasonably well in the current environment. I re-balance frequently, usually once per month to once per quarter, depending on circumstances. As I said a loooong time ago, I am fundamentally an asset allocator. I consider my overall strategy to be an alpha overlay, or "core and explore", if you will. So while I am looking at adding some commodity exposure into my portfolio (as part of the overall asset allocation), I consider that exposure to be a fundamental component. My planned option strategies, however, would be alpha overlays, looking to add incremental alpha to the betas - alternative and market - within the portfolio.

Anyway, I see that re-balancing again is in order, but I am seeing strength in the old 401(k) that my employer used to offer before it was, in turn, acquired by a larger competitor. Even my current 401(k) is showing signs of being up about 9% more than I was expecting. It was a pleasant surprise to note as I was updating my spreadsheet.

My next move will be to start getting my existing credit card debt a lot lower, and implementing some covered call and put strategies on selected stocks. I've also had my eye on a small semiconductor firm that has some interesting prospects. I haven't finished my research, but instead of picking up the stock directly, I think I may just use a call strategy for now. The leverage is just to great to ignore.

As things stand, my net worth is just shy of $71,000 which aligns with the last net worth update I wrote, since the last $11,000 of the $35,000 was moved out from the shared bank account setup with by my friend-cum-acquaintance. Since I took that $11,000 out of the assets column of my personal balance sheet and made it into a liability, my net worth decreased by the same amount.

At this point, you're probably wondering if there is anything GOOD to report now. I would answer that question in the affirmative. First, my asset allocation appears to be performing as desired, if not expected. While I've felt the market's recent downdrafts, I haven't taken the hits nearly as hard as I might otherwise due to the broad diversification in the portfolio and the frequent re-balancing. I also accomplished one of my personal goals for the year on Thursday, 13 March by taking my last 2 snowboard runs of the season on a green trail, Sneaky Pete, at Liberty Mountain. This was awesome personally because I sat out most of the season for health reasons, recovering just in time to get back on the slopes early this month. I also just did not expect myself to ride greens until the new season starts in December.

I'm also progressing very steadily toward my goal of amassing $20,000 in emergency funds by the end of the year, having only $6500 to go (approximately). I increased my Direct Deposit into that account by $150/month since I chose not to renew my membership in my real estate investment association. I can re-join at the same level in the future, when I am prepared to dedicate the time to real estate investing. With regard to building my cash savings (which is always critical at times of market turmoil such as what we've experienced lately), I am looking at some ways to goose my returns with minimal risk - that is, to increase my risk-adjusted absolute returns on my cash. I think I've found the right vehicle, as it is something I've talked about in the past. I'll unveil it later, once I've put some funds to work.

I have not found a new, rewarding and fulfilling employment as yet, but I have managed to make my existing job more rewarding. How, you ask? Well, given that my employer is a big Cisco Systems partner/customer, I am taking advantage of that relationship to bolster my professional experience. For years, I've wanted to earn my Cisco Certified Networking Associate (CCNA) certification; I am not in the process of pursuing it. I plan to have it in hand by 30 June 2008. So I guess the new job goal has been supplanted by earning my CCNA, although I am still looking and I will make the jump for a really great opportunity.

On the investment front, I am also looking to wade back into the futures trading pool. I'll probably open an account with a broker that has a good reputation in this arena -- Lind-Waldock comes to mind -- and start out slowly. Again, this is an alpha overlay strategy, even though commodities are supposed to represent 9% of my portfolio. Futures trading is inherently riskier than purchasing a gold or metals ETF and holding, and the leverage just adds to the excitement. So I want to get my overall core portfolio tightened up before getting into this. It will likely be a project for the second half of the year.

Wow! That was a hefty update. See, I haven't been slacking (entirely). I'm really focused on unwinding these other ventures, namely the consulting and real estate partnership, along with my CCNA studies. I'm also winding down my volunteer activities with the student run computer lab I work with, and that is taking quite a bit of energy on my part too. Combine all of that with my regular work schedule and re-instituting a regular workout schedule, and you see that things are still hectic with the K. Energy has neither been created nor destroyed, simply redirected. I am a living example of the physical law of conservation of energy.

Until next time, boys and girls....


Rachel @ Master Your Card said...

Wow you certainly have been busy. I thought thta my financial matters were complicated having a mortgage which I am paying off quickly using some stocks, bonds and savings but yours sound massively complicated but very well thought out.

jarin said...

I might be wrong but isn't it better to clear all credit card (and other unsecured) debts before you start building up large savings? Unless you're constantly chasing "0% interest on your balance for x months if you switch" credit card offers (like many people here in UK do), surely interest rates on savings are significantly lower then on credit card. Worst case scenario, you can always use your credit card as an emergency fund.

Khyron said...


Yes, but in this case, my credit card is an American Express charge card. Pay in full at the end of the month. However, I am on the "pay the minimum" plan, ostensibly because I've had such a good payment history.

While it is counterintuitive to continue stacking funds while I have a few thousand in CC debt, I have my reasons. Mostly, I am able to cover the monthly charge out of my cash flow, and I've been working it down over time. I think I explained somewhere else that a lot of the spending came from events of last year.

Anyway, I'm also expecting a return of principal from an investment that did not go through last year. That will give me $2500 toward the card, so I plan to pay off large chunks of it over the course of the year.

Finally, as I think I said previously, I am not doing the kind of spending that got me into this situation. The biggest hit on my CC is my rent, and I'm willing to trade for the points and the extra month until the bill comes due. I also had a bad habit of dipping into my savings last year, which seriously impacted the rate at which I was accumulating funds. So I'd prefer to hit my 20K goal there, then redirect those funds back toward paying down the debt.

Now, is this strategy for everyone? No. And I would normally be leery of this myself. However, I'm forcing myself to get to the 20K for emergencies before I finish off this debt. As I am on punishment this year, and thus not taking any foreign trips, I have a lot of incentive to get this resolved quickly but not at the expense of this goal.

I would also say that you may not want to try to apply logic to this. Money is an emotional topic as well as a logical one. There is a method to my madness, but I'm probably the only person who gets it. Honestly, I'm the only person I expect to get it. And at the end of the day, I'm the only person who has to get it, as its my money and my situation.

jarin said...

Ok, fair enough. I agree that managing personal finances can be quite emotional and as far as you have a plan that works for you, it's all that matters. Being an investor myself, I'm always trying to be as rational about money as possible but it's a constant battle.
Anyway, I've been reading your blog for a while now and I find your entrepreneurial drive quite inspiring and I wish you all the best.

Khyron said...


Thanks. Keep reading. Tell your friends. Tell your enemies. Tell any- and everyone! I know I don't update the blog quite as frequently as I could or even - gasp! - should, but I want to make sure people find value here. This is a learning experience for all involved. I learn from you and hopefully you learn from me.


Its not as complex as it looks. But like everything with any degree of complexity, it takes systems. I need to build more systems, to manage the complexity more efficiently. As for being well thought out, let me say "Thank you!". Its not quite as well planned as I'd like, but I'm refining things as I find better ways to structure my plans. Thanks for reading and please continue!