*sigh*
Not that I think the Paulson plan is THE solution. Or even A solution. Or that the Fed is the right agency to carry it out. Not even close.
The rating agencies need less power, distributed over more firms (competition) and a system for rating varying products differently instead of the needlessly confusing manner they have been rated.
The SEC needs more oversight power and more investigators, and needs to be able to pay them more. Merging the CFTC with them is a good idea, and the merged organization needs the power to put someone's nuts on the chopping block and make a wish when they fuck up. Going the other way -- to the CFTC's weakened oversight -- is WRONG.
The Fed needs to be destroyed, central planning Communist cocksuckers that they are.
Did I miss anything? Probably but that's what comments are for! :)
Until next time...I'm still catching up on reading and thinking about this self-directed IRA paperwork...
Monday, April 07, 2008
Friday, April 04, 2008
Thoughts on Portfolio Reconstruction
I recently finished reading Teresa Lo's excellent series on building your own portfolio. Now I find myself rethinking my portfolio's construction even more intently than I already have been.
Its not that I think my portfolio is poorly constructed, but it is an amateur's portfolio. I know it has weaknesses, the biggest of which (in my opinion) is the number asset classes. It really is too many. As Teresa excerpted from David Swensen's book, Pioneering Portfolio Management, a theoretical ideal floor may be 10% of assets per class. I have experienced this problem within my asset allocation, and it has irritated the hell out of me. Many of my re-balancings tend to be done outside of the portfolio entirely, mostly because I want to invest more in the under-performing or under-invested classes. As many of my asset classes stand, they are underrepresented within the portfolio, which dilutes their impact. So reducing the number of represented asset classes would tend to simplify the entire process.
The other big problem I find myself facing is that I like the "core and explore" approach, with alpha overlays on top of a core portfolio. However, I've never been quite sure what the complexion of the core portfolio should be. All I've known, in the back of my head, is that I have too many asset classes which I consider core which really aren't. In fact, I'd go so far as to say that most of them have been considered "core". Teresa's series really covers this issue well, and I must say it was a breath of fresh air for this amateur.
The "money shot", so to speak, is part 4 of the series. However, part 4 cannot be taken in a vacuum, so I recommend starting at the beginning and working your way through. It won't take very long.
I think Teresa's series is the best prose, short or long form, that I have read on the subject to date. That's why InVivo Analytics is joining my recommended blog list immediately. I mean, I've caught some of her work from the powerswings.com site, but this series sold me completely. Simply explained, well reasoned, quantitative, and with solid results. I also am totally on board with the idea of frequent re-balancing. The average investor who knows little about investing (and is happy as such) can keep the annual re-balancing schedule. I, however, find various asset classes going way over their target allocations far to frequently. I also like to capture those moves to my advantage, and the only way to do so is frequent re-balancing. The best example I can give of the benefit of frequent re-balancing has been performance in my old 401(k) due to the recent run-up in Treasury prices (a so-called Flight to Quality). I used this opportunity to let go of a nice sized piece of my Treasury allocation, and the resultant strength in the remaining asset classes has helped keep my old 401(k) buoyant. (Even though no new funds have been added in 2 years, that account keeps growing steadily. The only explanation I can come up with for its performance is the regular re-balancing. Good asset allocation probably plays a role as well, but it is still a bit too diversified.)
Now, there are some other things out there I plan to read. For starters, Investopedia has a guide to portfolio construction. And it goes without saying that reading Swensen's book moved up several notches on my to do list. But for the money and time, Teresa Lo has the best practical guide to portfolio construction I've seen. She put into words things I could only say I've assumed or "felt" (that is, instinctively known).
I think that, with a little bit of effort, I can come up with a suitable re-balancing model that will work for me. Having direct access to Teresa's model doesn't interest me beyond the educational value. The theory is well established with me, so its not a matter of implementation, and every implementation will vary because every investor has different goals.
Now to formalize what I've learned in the last few hours! Woo hoo! There will be more on this topic in the future.
Until next time...
Note: The above link to Pioneering Portfolio Management is a sponsored link. Yes, I'll be rewarded if you purchase via that link. I think I get 1/200th of a cookie or something like that.
Its not that I think my portfolio is poorly constructed, but it is an amateur's portfolio. I know it has weaknesses, the biggest of which (in my opinion) is the number asset classes. It really is too many. As Teresa excerpted from David Swensen's book, Pioneering Portfolio Management, a theoretical ideal floor may be 10% of assets per class. I have experienced this problem within my asset allocation, and it has irritated the hell out of me. Many of my re-balancings tend to be done outside of the portfolio entirely, mostly because I want to invest more in the under-performing or under-invested classes. As many of my asset classes stand, they are underrepresented within the portfolio, which dilutes their impact. So reducing the number of represented asset classes would tend to simplify the entire process.
The other big problem I find myself facing is that I like the "core and explore" approach, with alpha overlays on top of a core portfolio. However, I've never been quite sure what the complexion of the core portfolio should be. All I've known, in the back of my head, is that I have too many asset classes which I consider core which really aren't. In fact, I'd go so far as to say that most of them have been considered "core". Teresa's series really covers this issue well, and I must say it was a breath of fresh air for this amateur.
The "money shot", so to speak, is part 4 of the series. However, part 4 cannot be taken in a vacuum, so I recommend starting at the beginning and working your way through. It won't take very long.
I think Teresa's series is the best prose, short or long form, that I have read on the subject to date. That's why InVivo Analytics is joining my recommended blog list immediately. I mean, I've caught some of her work from the powerswings.com site, but this series sold me completely. Simply explained, well reasoned, quantitative, and with solid results. I also am totally on board with the idea of frequent re-balancing. The average investor who knows little about investing (and is happy as such) can keep the annual re-balancing schedule. I, however, find various asset classes going way over their target allocations far to frequently. I also like to capture those moves to my advantage, and the only way to do so is frequent re-balancing. The best example I can give of the benefit of frequent re-balancing has been performance in my old 401(k) due to the recent run-up in Treasury prices (a so-called Flight to Quality). I used this opportunity to let go of a nice sized piece of my Treasury allocation, and the resultant strength in the remaining asset classes has helped keep my old 401(k) buoyant. (Even though no new funds have been added in 2 years, that account keeps growing steadily. The only explanation I can come up with for its performance is the regular re-balancing. Good asset allocation probably plays a role as well, but it is still a bit too diversified.)
Now, there are some other things out there I plan to read. For starters, Investopedia has a guide to portfolio construction. And it goes without saying that reading Swensen's book moved up several notches on my to do list. But for the money and time, Teresa Lo has the best practical guide to portfolio construction I've seen. She put into words things I could only say I've assumed or "felt" (that is, instinctively known).
I think that, with a little bit of effort, I can come up with a suitable re-balancing model that will work for me. Having direct access to Teresa's model doesn't interest me beyond the educational value. The theory is well established with me, so its not a matter of implementation, and every implementation will vary because every investor has different goals.
Now to formalize what I've learned in the last few hours! Woo hoo! There will be more on this topic in the future.
Until next time...
Note: The above link to Pioneering Portfolio Management is a sponsored link. Yes, I'll be rewarded if you purchase via that link. I think I get 1/200th of a cookie or something like that.
Wednesday, April 02, 2008
Balance Sheet Adjustment
So before I go to bed tonight, I just want to briefly touch on some balance sheet updates I'm preparing to make.
First is the self-directed Roth IRA that I am planning to open for 2007. I should probably bump this priority up since 15 April is right around the corner. I figure I'm going to have to do an extension anyway, and I definitely won't owe this year. However, once I leave my current employer, I plan to roll over my old 401(k) accounts into this Roth IRA. We don't know what the future holds tax-wise. (I do believe that the Roth will probably lose its tax advantaged status at some point, personally.) So for now, its the best bet considering that almost any position I take in the future will likely offer a 401(k). Between the 401(k) and the Roth IRA, with its immense flexibility for contributions, its really a handy combination of abilities. I also plan to investigate the Roth 401(k) a bit more closely, but I don't see as many advantages there just yet so that's a much lower priority option.
I've also finally re-obtained the forms to add equity options trading to my brokerage account. This is so long overdue that I'm somewhat upset with myself. However, as I touched on in a previous post, adding options trading and possibly some futures trading will give my portfolio a bit of extra bit of alpha while helping to hedge some of the weakness in my other accounts. We're not swinging for the fences here, just looking to add a few points on the upside. And we're definitely not looking to pick up nickles in front of steamrollers. I'll re-focus on this after I get the self-directed Roth IRA setup, as that is a bit more pressing.
So that's it. A few small things that will hopefully allow me to tweak the composition of my asset mix and add some alpha. Nothing major, at least not yet. Of course I'll keep you posted on how things unfold.
And I didn't get those re-balancing trades done today. From around 2:30 PM EDT until 11:00 PM, I was knocked out. I blame the melatonin and the Simply Sleep that I took. I needed the rest anyway. So I guess I'll get up around 5:30 AM to work out and get started on my day. Which means, it is now time to go.
Later!
First is the self-directed Roth IRA that I am planning to open for 2007. I should probably bump this priority up since 15 April is right around the corner. I figure I'm going to have to do an extension anyway, and I definitely won't owe this year. However, once I leave my current employer, I plan to roll over my old 401(k) accounts into this Roth IRA. We don't know what the future holds tax-wise. (I do believe that the Roth will probably lose its tax advantaged status at some point, personally.) So for now, its the best bet considering that almost any position I take in the future will likely offer a 401(k). Between the 401(k) and the Roth IRA, with its immense flexibility for contributions, its really a handy combination of abilities. I also plan to investigate the Roth 401(k) a bit more closely, but I don't see as many advantages there just yet so that's a much lower priority option.
I've also finally re-obtained the forms to add equity options trading to my brokerage account. This is so long overdue that I'm somewhat upset with myself. However, as I touched on in a previous post, adding options trading and possibly some futures trading will give my portfolio a bit of extra bit of alpha while helping to hedge some of the weakness in my other accounts. We're not swinging for the fences here, just looking to add a few points on the upside. And we're definitely not looking to pick up nickles in front of steamrollers. I'll re-focus on this after I get the self-directed Roth IRA setup, as that is a bit more pressing.
So that's it. A few small things that will hopefully allow me to tweak the composition of my asset mix and add some alpha. Nothing major, at least not yet. Of course I'll keep you posted on how things unfold.
And I didn't get those re-balancing trades done today. From around 2:30 PM EDT until 11:00 PM, I was knocked out. I blame the melatonin and the Simply Sleep that I took. I needed the rest anyway. So I guess I'll get up around 5:30 AM to work out and get started on my day. Which means, it is now time to go.
Later!
Income Statement Adjustment
Man, have I been busy!
So in the spirit of my dedication to being wealthy, I have spent time over the last 2 days normalizing my life.
First, I updated my spreadsheet with new net worth information. Things are progressing steadily there, although as I write this, I get the feeling I won't be able to re-balance and execute trades before the end of today's trading. Oh well.
I then adjusted my 401(k) contributions. While not changing the percentage this time, I changed the elections to be a bit more aggressive. While I'm well aware of Warren Buffett's admonitions that future earnings on equities will likely be in the mid to low single digits annually for some time, I think this holds less overseas. Thus, I increased the money market contribution to 15% (so I have some more dry powder); moved 20% to the emerging markets option (401khelp.com's recommendation); moved 20% to the international company index fund (401khelp.com recommended 30%); moved 20% to the small company fund and 20% to the large company index fund. I can't remember 401khelp.com's suggestions on those but I believe I'm in line with them. They recommended 10% in the REIT selection, while I ratcheted down from 10% to 5% there. (That's where the money market increase came from.) We'll see how this goes. All of this year's performance has come from contributions, both individual and employer. I'm down a bit over $2000 just on market performance.
I also checked my pay stub and found that my next check will be a bit larger due to the reduced 401(k) contribution. Most of this will either end up directed into a new savings account for investment, or toward my credit card debt. Even after all of this, my spreadsheet is showing $500 which is unallocated and basically unaccounted for.
I also restarted tracking my expenses in my spreadsheet again. I'd been off this through February and March, to my chagrin as I now have catching up to do. This will show me if I really have that extra $500 every month; I expect to fill in March just to get a recent baseline. If I do, I'll apply most of it to the credit card (maybe 80%) and the remainder to savings or fun. Most likely it will be fun since I have a bunch of plans for enjoying the summer with my friends and family.
The extra $500 in monthly income is a bit unnerving, however. I say that because I feel as though I'm on the edge financially, or at least closer than I'd like to be. Maybe that's because of my aggressive savings goal due to my underfunded emergency savings account. However, I think the bigger concern is that I haven't tracked expenses for the last 2 months so I'm just nervous about how much I may be overspending. It's all in your head, right?
There will be a few other changes coming, so stay tuned...
So in the spirit of my dedication to being wealthy, I have spent time over the last 2 days normalizing my life.
First, I updated my spreadsheet with new net worth information. Things are progressing steadily there, although as I write this, I get the feeling I won't be able to re-balance and execute trades before the end of today's trading. Oh well.
I then adjusted my 401(k) contributions. While not changing the percentage this time, I changed the elections to be a bit more aggressive. While I'm well aware of Warren Buffett's admonitions that future earnings on equities will likely be in the mid to low single digits annually for some time, I think this holds less overseas. Thus, I increased the money market contribution to 15% (so I have some more dry powder); moved 20% to the emerging markets option (401khelp.com's recommendation); moved 20% to the international company index fund (401khelp.com recommended 30%); moved 20% to the small company fund and 20% to the large company index fund. I can't remember 401khelp.com's suggestions on those but I believe I'm in line with them. They recommended 10% in the REIT selection, while I ratcheted down from 10% to 5% there. (That's where the money market increase came from.) We'll see how this goes. All of this year's performance has come from contributions, both individual and employer. I'm down a bit over $2000 just on market performance.
I also checked my pay stub and found that my next check will be a bit larger due to the reduced 401(k) contribution. Most of this will either end up directed into a new savings account for investment, or toward my credit card debt. Even after all of this, my spreadsheet is showing $500 which is unallocated and basically unaccounted for.
I also restarted tracking my expenses in my spreadsheet again. I'd been off this through February and March, to my chagrin as I now have catching up to do. This will show me if I really have that extra $500 every month; I expect to fill in March just to get a recent baseline. If I do, I'll apply most of it to the credit card (maybe 80%) and the remainder to savings or fun. Most likely it will be fun since I have a bunch of plans for enjoying the summer with my friends and family.
The extra $500 in monthly income is a bit unnerving, however. I say that because I feel as though I'm on the edge financially, or at least closer than I'd like to be. Maybe that's because of my aggressive savings goal due to my underfunded emergency savings account. However, I think the bigger concern is that I haven't tracked expenses for the last 2 months so I'm just nervous about how much I may be overspending. It's all in your head, right?
There will be a few other changes coming, so stay tuned...
Fun with Home Equity
Ha ha ha ha ha ha ha!!!!!
Isn't that just perfect? I can't wait to hear stories about these audits. Gotta find out more about this!
Isn't that just perfect? I can't wait to hear stories about these audits. Gotta find out more about this!
Tuesday, April 01, 2008
Stop Wasting My Oxygen!
The title of this post is a quip I've liberally borrowed from various posters on a mailing list I am a member of. It has been said countless times by any number of people who used to work for the same company I did (and still do work for, in the loosest sense). I think it also reflects how I feel about stupid people and their bitching and moaning about their own stupidity. I hate the welfare and entitlement mentality, and personally, I think all stupid people should be taken out back and shot. Literally. Yes, I feel that strongly about it. Stupid people ARE a waste of resources, and they cause more problems than they can ever solve.
Now, what has me up in arms now? Its this fuckin' retarded ass story from CNNMoney.com. As soon as I got to the fourth paragraph, I wanted to shoot both of these morons.
Let's start at the top. How in the hell do you have $10,000/month in expenses??? Are you fuckin' stupid? (Yes, you'd have to be, but the rest of the article will show that.) First and foremost, the home equity line. If that isn't a code word for "I am so stupid I don't deserve to live", I don't know what is. (I bet we'll find good alternatives later in the article.) So you buy an expensive ass house in San Clemente and cash out the equity? And before having at least $60,000 in liquid savings for an emergency too?
Fucktards!
Moving on, we have gems like this one -- "...they've made cutbacks: trading in Kent's Corvette for a Suburban...". I know I'm not the smartest person on the planet, but just reading that snippet gave me a headache. Someone, for the love of God, please explain to me how exchanging a Corvette for a Suburban is trading down. PLEASE, ANYONE, EXPLAIN THIS!!! I don't think its possible to explain that away, unless you inhabit some fantasy land. So you traded down from one gas guzzler to another? What is this supposed to solve? You already live in one of the regions with the highest per-gallon fuel costs in the nation. Trading down means that you go from a Corvette to a Toyota Corolla, or Honda Civic, or a Prius, but not to a damn Suburban. THAT defies all logic and again, I don't see how anyone can make any justifications for that. Its just stupid.
Now, the article doesn't mention which model year of either vehicle that Kent owned/owns. However, I'm sure that a quick check over on www.fueleconomy.gov will show that they made a huge error on this trade. In fact, from the 2007 numbers, the Corvette is MORE fuel efficient on both city and highway. On the highway, its dramatically more fuel efficient! So clearly this couple lacks basic reading and comprehension skills. WTF? The one advantage I could see the Suburban having, if any, is lower insurance costs. There is a possibility the Suburban has better maintenance costs as well, IF the Corvette is an older model. However, on the face of it, this looks to be one of many absurd decisions these former 6 figure financial geniuses made.
Continuing...
So it seems that in order to keep this dream house, which, given how things are going, they will probably lose anyway, they have blown through all of their savings and Mysti's 401(k). Without harping on the tax implications of that move, what is the point of this delusional attempt to maintain a lifestyle? The whole effort was doomed to failure from the start, but clearly these former executives couldn't see that. They should have immediately tried to short sale the house and found a place to rent, if they didn't have the savings in place to last at least 6 months. (A year would be better, and you have to save even more to account for the fact that they live in Orange County, CA which is ungodly expensive. I know because I lived in OC for 2 years.) This next sentence really encapsulates the naivete of these people's thinking:
You don't say! Maybe you should plan BEFORE you hit the wall? Of course, why should we even expect people who couldn't plan in advance of their problems to plan out their strategy for addressing those same problems? They don't even seem to care. If you're that non-chalant about the whole situation, with no sense of urgency, the all I can think to myself is that you're a completely hopeless.
I think what pisses me off the most about this is the fact that Kent is 59 years old. He's 2 years younger than my father. That means he was old enough to experience the horrific, well documented stagflation of the 70s. The key part of the word stagflation, as it relates to this post, is "stag". You're describing an economy in which there was stagnant growth (and actually, 2 recessions occurred during that decade). Now, if after living through that, you don't have a modicum of foresight or the slightest inclination to say "I'm not going to allow myself to be that exposed to a recessionary economy", then all I can say is that you really get what you deserve. Kent has lived through the 70s, the early 80s recession induced to kill the 70s inflation, the recession of the early 90s, and the recession in the wake of the dot com boom. You're telling me after all of this life experience, he had not yet learned to put away substantial sums in case of emergency?
Even his wife, being only 5 years older than me, should have learned that lesson. Where was she during the early 90s recession or the 2000 - 2002 recession? Obviously she learned nothing from those experiences. I cannot fathom how people just blithely and unconsciously wander through life like this. I mean, this is your life - your "dream home", your child's future, your lifestyle which presumably you've worked up to over the course of years if not decades.
Oh, here's another good one -- they both worked in the same industry! Now, I don't know how many financial advisers and writers have spoken on the topic of income diversity, but this one takes the least amount of intelligence to "get". Clearly, getting over that bar was not within this couple's abilities either. If they sat idly by and watched the industry implode around them, without making any changes or preparations for what the impact of said implosion would be on them, all you can conclude is that they both knew this was coming and they were comfortable with that fact.
The Mortgage Lender Implode-O-Meter dates New Century's bankruptcy filing as 2 April 2007, as does the accompanying CNNMoney.com article about "Subprime's Ghost Town". That means Kent had a good 4 month window between New Century's failure and his own layoff. In that time, it never occurred to him that since he was in the same industry, his job might be at risk? He's just watched his wife's employer, the professed second largest subprime lender in the nation, collapse and he couldn't see the writing on the wall for his own firm? At that point, I figure scratching my head in wonderment and disbelief is a waste of energy. This couple literally stood by and watched their life crumble without lifting a finger to prepare for what was an inevitable future.
Finally, for all of you socialists out there, we have this bit of entitlement drivel:
Sheesh! If you hadn't noticed, I haven't a bit of respect or sympathy for this formerly dual six figure income couple. I fail to see how they deserve it; they deserve to be punished for their lack of intelligence. They literally have made innumerable financial blunders, and from what little I can tell, they expect someone else to save them from themselves. Please, someone put these boneheads out of their misery. People like this couple are exactly why I am against bailing anyone out. If you make bad choices, then you need to learn not to make bad choices, and the best way to learn that lesson is to have to deal with the repercussions of your bad decisions.
Now, I know some of you are probably going to come down on me for coming down on the Copes. That's fine. I admit that there may be some missing information, and I've written this response based solely on the material found in the CNNMoney.com article. There could be other factors that were outside of their control which have contributed, if not had a material impact, on their situation. I agreed to all of that. However, everything this article mentions was either directly or indirectly a factor within their control, and they screwed the pooch in their handling of these events.
Starting with not being prepared when 3 decades worth of experience and southern California's high cost of living should have told Kent the importance of being prepared, to waiting until the layoffs occurred before doing ANYTHING, to trading a sports car (sort of) for a hulking SUV as a way to trim gasoline expenses (WTF?), their response to the situation they found themselves in has been downright inane and stupid. I'd really like to hear how anyone could think otherwise.
Until next time...
P.S.: Maybe its me, but I swear that there is just something wrong with the name Mysti. I think some of you probably know what I mean. This is completely irrelevant to the conversation above but I just needed to get that off my chest.
Now, what has me up in arms now? Its this fuckin' retarded ass story from CNNMoney.com. As soon as I got to the fourth paragraph, I wanted to shoot both of these morons.
Let's start at the top. How in the hell do you have $10,000/month in expenses??? Are you fuckin' stupid? (Yes, you'd have to be, but the rest of the article will show that.) First and foremost, the home equity line. If that isn't a code word for "I am so stupid I don't deserve to live", I don't know what is. (I bet we'll find good alternatives later in the article.) So you buy an expensive ass house in San Clemente and cash out the equity? And before having at least $60,000 in liquid savings for an emergency too?
Fucktards!
Moving on, we have gems like this one -- "...they've made cutbacks: trading in Kent's Corvette for a Suburban...". I know I'm not the smartest person on the planet, but just reading that snippet gave me a headache. Someone, for the love of God, please explain to me how exchanging a Corvette for a Suburban is trading down. PLEASE, ANYONE, EXPLAIN THIS!!! I don't think its possible to explain that away, unless you inhabit some fantasy land. So you traded down from one gas guzzler to another? What is this supposed to solve? You already live in one of the regions with the highest per-gallon fuel costs in the nation. Trading down means that you go from a Corvette to a Toyota Corolla, or Honda Civic, or a Prius, but not to a damn Suburban. THAT defies all logic and again, I don't see how anyone can make any justifications for that. Its just stupid.
Now, the article doesn't mention which model year of either vehicle that Kent owned/owns. However, I'm sure that a quick check over on www.fueleconomy.gov will show that they made a huge error on this trade. In fact, from the 2007 numbers, the Corvette is MORE fuel efficient on both city and highway. On the highway, its dramatically more fuel efficient! So clearly this couple lacks basic reading and comprehension skills. WTF? The one advantage I could see the Suburban having, if any, is lower insurance costs. There is a possibility the Suburban has better maintenance costs as well, IF the Corvette is an older model. However, on the face of it, this looks to be one of many absurd decisions these former 6 figure financial geniuses made.
Continuing...
So it seems that in order to keep this dream house, which, given how things are going, they will probably lose anyway, they have blown through all of their savings and Mysti's 401(k). Without harping on the tax implications of that move, what is the point of this delusional attempt to maintain a lifestyle? The whole effort was doomed to failure from the start, but clearly these former executives couldn't see that. They should have immediately tried to short sale the house and found a place to rent, if they didn't have the savings in place to last at least 6 months. (A year would be better, and you have to save even more to account for the fact that they live in Orange County, CA which is ungodly expensive. I know because I lived in OC for 2 years.) This next sentence really encapsulates the naivete of these people's thinking:
"We're going Mach 1 into a wall. When we run into it, then we've got to decide what to do next."
You don't say! Maybe you should plan BEFORE you hit the wall? Of course, why should we even expect people who couldn't plan in advance of their problems to plan out their strategy for addressing those same problems? They don't even seem to care. If you're that non-chalant about the whole situation, with no sense of urgency, the all I can think to myself is that you're a completely hopeless.
I think what pisses me off the most about this is the fact that Kent is 59 years old. He's 2 years younger than my father. That means he was old enough to experience the horrific, well documented stagflation of the 70s. The key part of the word stagflation, as it relates to this post, is "stag". You're describing an economy in which there was stagnant growth (and actually, 2 recessions occurred during that decade). Now, if after living through that, you don't have a modicum of foresight or the slightest inclination to say "I'm not going to allow myself to be that exposed to a recessionary economy", then all I can say is that you really get what you deserve. Kent has lived through the 70s, the early 80s recession induced to kill the 70s inflation, the recession of the early 90s, and the recession in the wake of the dot com boom. You're telling me after all of this life experience, he had not yet learned to put away substantial sums in case of emergency?
Even his wife, being only 5 years older than me, should have learned that lesson. Where was she during the early 90s recession or the 2000 - 2002 recession? Obviously she learned nothing from those experiences. I cannot fathom how people just blithely and unconsciously wander through life like this. I mean, this is your life - your "dream home", your child's future, your lifestyle which presumably you've worked up to over the course of years if not decades.
Oh, here's another good one -- they both worked in the same industry! Now, I don't know how many financial advisers and writers have spoken on the topic of income diversity, but this one takes the least amount of intelligence to "get". Clearly, getting over that bar was not within this couple's abilities either. If they sat idly by and watched the industry implode around them, without making any changes or preparations for what the impact of said implosion would be on them, all you can conclude is that they both knew this was coming and they were comfortable with that fact.
The Mortgage Lender Implode-O-Meter dates New Century's bankruptcy filing as 2 April 2007, as does the accompanying CNNMoney.com article about "Subprime's Ghost Town". That means Kent had a good 4 month window between New Century's failure and his own layoff. In that time, it never occurred to him that since he was in the same industry, his job might be at risk? He's just watched his wife's employer, the professed second largest subprime lender in the nation, collapse and he couldn't see the writing on the wall for his own firm? At that point, I figure scratching my head in wonderment and disbelief is a waste of energy. This couple literally stood by and watched their life crumble without lifting a finger to prepare for what was an inevitable future.
Finally, for all of you socialists out there, we have this bit of entitlement drivel:
"We were New Century. We were a large corporation. We were the No. 2 subprime lender in the industry," she recalled. "You figured someone would come in and want to invest and take it over."
Sheesh! If you hadn't noticed, I haven't a bit of respect or sympathy for this formerly dual six figure income couple. I fail to see how they deserve it; they deserve to be punished for their lack of intelligence. They literally have made innumerable financial blunders, and from what little I can tell, they expect someone else to save them from themselves. Please, someone put these boneheads out of their misery. People like this couple are exactly why I am against bailing anyone out. If you make bad choices, then you need to learn not to make bad choices, and the best way to learn that lesson is to have to deal with the repercussions of your bad decisions.
Now, I know some of you are probably going to come down on me for coming down on the Copes. That's fine. I admit that there may be some missing information, and I've written this response based solely on the material found in the CNNMoney.com article. There could be other factors that were outside of their control which have contributed, if not had a material impact, on their situation. I agreed to all of that. However, everything this article mentions was either directly or indirectly a factor within their control, and they screwed the pooch in their handling of these events.
Starting with not being prepared when 3 decades worth of experience and southern California's high cost of living should have told Kent the importance of being prepared, to waiting until the layoffs occurred before doing ANYTHING, to trading a sports car (sort of) for a hulking SUV as a way to trim gasoline expenses (WTF?), their response to the situation they found themselves in has been downright inane and stupid. I'd really like to hear how anyone could think otherwise.
Until next time...
P.S.: Maybe its me, but I swear that there is just something wrong with the name Mysti. I think some of you probably know what I mean. This is completely irrelevant to the conversation above but I just needed to get that off my chest.
Monday, March 31, 2008
NYT Interview with Paul O'Neill
A brief interview in the NY Times Magazine. I liked this guy when he became Treasury secretary, and I still like him. The best quote is the last one, about his being fired.
On Why I Have Not Yet Purchased a House
I'm not sure how I originally came across this article, probably from a blog I was reading the other day, but it was a must read. So once I finally got around to it, all I can say is that I've found my long lost brother!! Finally, a short but thorough explanation of the myths around home buying. I just have to comment on these points, and this post will become an eternal reference for anyone that tells me to buy a house. That way I can avoid telling them to fugg off.
Let's look at #1 and #3 together. I swear that so few people actually do the math on owning a house. I actually sat down and created a simple model, based on a rough estimate of costs for my parent's house. While it was not perfect -- no model is -- it gave (and continues to give) me a good sense of how all the pieces fit together. That is why I refuse to buy a house until the cost of owning, on a monthly basis, is within 10% of my complete rental expense. (That might be too tight a window, but I'm open to re-considering it.)
Continuing with this thought, I really don't see how so many people missed the fact that increasing home prices would lead to increased tax assessments. We can forget the fact that assessments generally occur at intervals of 2 - 3 years for most jurisdictions. (I know there's got to be a jurisdiction somewhere that assess annually but I don't know of any off of my head.) Even if you own your house outright, the taxes have to be paid every year. There's no escaping that; its a fixed. (Fixed in that its not going away, although clearly the assessment can change or be challenged. Go Larry Ellison!)
Myth #5 really pisses me off. Unfortunately, I'm going to paraphrase Robert Kiyosaki here, because this is one area where I agree with him. Your own house is a liability. Nothing more. It surely is not an investment. Now, the house may be the largest "asset" that most people own, and ever will own, but a house is not an investment. I'd be hard pressed to even count it for most purposes, once you consider the illiquidity of a house, but I guess we can let that one slide for accounting purposes. At no point, and in no way, should a house be considered an investment if YOU live in it. Its shelter. Like any other purchase, it should be evaluated based on its cost effectiveness at providing that. Now, if you have the incremental income or marginal wealth to afford the excess cost of the more expensive house, by all means, go for it. I would. But if you just need a place to live, then a house should considered purely on that merit.
Finally, myth #2. I'm not sure which myth I hate the most, but it probably is this one. The mortgage interest deduction is a DEDUCTION. Its not a credit! That means you have to spend more to increase the amount of the deduction, as the deduction is calculated by multiplying your marginal rate times the amount of the mortgage interest you paid. To put what the author said in a different way, how much money are you saving if you pay $1.00 to make $0.30 (or $0.38 even)? If you can't figure out THAT math, you deserve to be broke.
Whew! Such an emotional topic. It really shouldn't be. Either the numbers make sense or they don't, and they haven't made sense in a long time - at least since 2002 if not longer. So now, when some bonehead tells me to buy a house, I can point them here. Yay!!!
A house is to be lived in. Whatever you do in the location you call home, that's fine. But please do not confuse that structure to be an investment, or even a good deal. When the total cost annually -- principal, interest, taxes, insurance (so-called PITI), maintenance, and utilities -- is reasonably close to the cost of renting -- in my case, rent, a parking space, and utilities -- then I'll jump in with both feet, but not a moment sooner.
Let's look at #1 and #3 together. I swear that so few people actually do the math on owning a house. I actually sat down and created a simple model, based on a rough estimate of costs for my parent's house. While it was not perfect -- no model is -- it gave (and continues to give) me a good sense of how all the pieces fit together. That is why I refuse to buy a house until the cost of owning, on a monthly basis, is within 10% of my complete rental expense. (That might be too tight a window, but I'm open to re-considering it.)
Continuing with this thought, I really don't see how so many people missed the fact that increasing home prices would lead to increased tax assessments. We can forget the fact that assessments generally occur at intervals of 2 - 3 years for most jurisdictions. (I know there's got to be a jurisdiction somewhere that assess annually but I don't know of any off of my head.) Even if you own your house outright, the taxes have to be paid every year. There's no escaping that; its a fixed. (Fixed in that its not going away, although clearly the assessment can change or be challenged. Go Larry Ellison!)
Myth #5 really pisses me off. Unfortunately, I'm going to paraphrase Robert Kiyosaki here, because this is one area where I agree with him. Your own house is a liability. Nothing more. It surely is not an investment. Now, the house may be the largest "asset" that most people own, and ever will own, but a house is not an investment. I'd be hard pressed to even count it for most purposes, once you consider the illiquidity of a house, but I guess we can let that one slide for accounting purposes. At no point, and in no way, should a house be considered an investment if YOU live in it. Its shelter. Like any other purchase, it should be evaluated based on its cost effectiveness at providing that. Now, if you have the incremental income or marginal wealth to afford the excess cost of the more expensive house, by all means, go for it. I would. But if you just need a place to live, then a house should considered purely on that merit.
Finally, myth #2. I'm not sure which myth I hate the most, but it probably is this one. The mortgage interest deduction is a DEDUCTION. Its not a credit! That means you have to spend more to increase the amount of the deduction, as the deduction is calculated by multiplying your marginal rate times the amount of the mortgage interest you paid. To put what the author said in a different way, how much money are you saving if you pay $1.00 to make $0.30 (or $0.38 even)? If you can't figure out THAT math, you deserve to be broke.
Whew! Such an emotional topic. It really shouldn't be. Either the numbers make sense or they don't, and they haven't made sense in a long time - at least since 2002 if not longer. So now, when some bonehead tells me to buy a house, I can point them here. Yay!!!
A house is to be lived in. Whatever you do in the location you call home, that's fine. But please do not confuse that structure to be an investment, or even a good deal. When the total cost annually -- principal, interest, taxes, insurance (so-called PITI), maintenance, and utilities -- is reasonably close to the cost of renting -- in my case, rent, a parking space, and utilities -- then I'll jump in with both feet, but not a moment sooner.
Saturday, March 29, 2008
Life is Giant Lego Set
Yes, it is. You can create whatever outcome you desire, you just have to put all the pieces together in some creative way. The onus is really on you to build and create whatever you want for your life. The only person you can hold responsible for the condition of your life, whether your life looks the way you'd like it to (or not), is you.
I just had to throw this up on here, as this saying came to me discussing the future with one of my students the other day.
Okie, I go now...
I just had to throw this up on here, as this saying came to me discussing the future with one of my students the other day.
Okie, I go now...
Thursday, March 27, 2008
DB9 Sighting
I just had to throw this one in, because this happens so infrequently these days. When I lived in SoCal, I'd see some exotic car every day, usually a Ferrari or a Lamborghini. But even Aston Martins were definitely more prevalent in the car state than they are in the Washington, DC metro area - DEFINITELY!
Yesterday morning, Wednesday, 26 March, I was making a run up Interstate 95 to one of the local big, well known malls. Around the exit for MD Route 32, a white car merged into traffic. At first, I thought it was simply a Jaguar XK, which is nothing special, even with the new body. However, after a quick second glance, I realized I was in the presence of a far more gracious auto - an Aston Martin DB9.
Anyway, at first, I wasn't sure which Aston I was seeing. Given that the Vanquish is gone, and the Vantage looks to be the entry level model, I had to choose from between the DBS and the DB9. I dropped back just enough to see the DB9 markings on the tail. I will admit, the car is very sweet to look at. This particular vehicle was a convertible with a beige top. Very nice for the mid-range Aston, if a bit unassuming. I think I'll have to test drive one ASAP. Alas, I did not follow him very long as he seemed to be taking a leisurely pace to his destination, while I was a it more intentional with my driving. That said, I will definitely be on the lookout for Astons, as I have noticed a small uptick in their numbers, even in DC. Will the trend hold? We shall see!
It is disturbing that the new Vantage is a platform car, based on the same fundamental engineering components as the new Jaguar XK. Now that Aston is free of Ford, I hope the design teams over there are cranking up the luxury of that model. Mistaking a low end Aston Martin for the top of the line Jaguar should never happen. Both nameplates have too much history, but until recently they were both tied together under the same dying parent. I can't wait to see what comes out of Aston on the low end in the future.
On that final note...good morning, gentle readers...
Yesterday morning, Wednesday, 26 March, I was making a run up Interstate 95 to one of the local big, well known malls. Around the exit for MD Route 32, a white car merged into traffic. At first, I thought it was simply a Jaguar XK, which is nothing special, even with the new body. However, after a quick second glance, I realized I was in the presence of a far more gracious auto - an Aston Martin DB9.
Anyway, at first, I wasn't sure which Aston I was seeing. Given that the Vanquish is gone, and the Vantage looks to be the entry level model, I had to choose from between the DBS and the DB9. I dropped back just enough to see the DB9 markings on the tail. I will admit, the car is very sweet to look at. This particular vehicle was a convertible with a beige top. Very nice for the mid-range Aston, if a bit unassuming. I think I'll have to test drive one ASAP. Alas, I did not follow him very long as he seemed to be taking a leisurely pace to his destination, while I was a it more intentional with my driving. That said, I will definitely be on the lookout for Astons, as I have noticed a small uptick in their numbers, even in DC. Will the trend hold? We shall see!
It is disturbing that the new Vantage is a platform car, based on the same fundamental engineering components as the new Jaguar XK. Now that Aston is free of Ford, I hope the design teams over there are cranking up the luxury of that model. Mistaking a low end Aston Martin for the top of the line Jaguar should never happen. Both nameplates have too much history, but until recently they were both tied together under the same dying parent. I can't wait to see what comes out of Aston on the low end in the future.
On that final note...good morning, gentle readers...
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....
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....
Tuesday, March 25, 2008
Dereliction of Duty
Yes, I know I've been out of it recently. I apologize. Life caught up with me.
I'll be back later today with some new stuff. And looking around the blogosphere, I'm seeing a lot of goal status updates. I guess I'll throw mine into the mix, which includes a bit more on the personal writedown I'm taking and its impact on the net worth figures. (Ugly!)
Until next time...I haven't gone anywhere...
I'll be back later today with some new stuff. And looking around the blogosphere, I'm seeing a lot of goal status updates. I guess I'll throw mine into the mix, which includes a bit more on the personal writedown I'm taking and its impact on the net worth figures. (Ugly!)
Until next time...I haven't gone anywhere...
Sunday, March 16, 2008
Argh!!!
Eyelashes are falling out again. Dammit!!
We now return to you to your previously scheduled broadcast, already in progress...
We now return to you to your previously scheduled broadcast, already in progress...
Wednesday, March 12, 2008
Talking Down the Book
Woo hoo!
Ajit Jain is talking about increased defaults in municipal bonds, calling Vallejo, CA and Jefferson County, AL as the "tip of the iceberg" among municipalities. Now, that's true. If defaults across fixed income products are at record lows, then it makes sense that defaults will increase in all of these products - RMBS, CMBS, corporates, high yield, municipals, what have you. Its basic math. However, how great is it that he goes before Congress and says this? I'll have to see what tomorrow's action looks like in the closed end municipal funds. Sounds like an opportunity to accumulate one of my longer term holdings.
(For the unfamiliar, Ajit Jain is one of the top honchos at Berkshire Hathaway on the insurance side. It appears he is now the head of Berkshire Hathaway Assurance Corp., the new municipal bond insurer that BRK built to siphon off business from MBIA, FGIC, and all the other monolines.)
Speaking of accumulating, I picked up a few bucks worth of SPXJX the other day, just in time to see a nice pop. Now, its a Japan value fund so it doesn't make sense to trade it. This is a long term investment, and I didn't want to burn up all of my dry powder on SPXJX. Especially since I'm digging into a new small cap tech stock and I want to be able to pick up a few hundred or even a thousand shares of that one. I'll speak on that investment a little more in the future, after I make the move (or not), because it looks like a really nice opportunity.
I know I've said a few times that I like Japan on a long term basis. It is a really long term investment. So I plan to continue accumulating when opportunities present themselves and there are no other worthwhile investments I can make at the time. We'll see if I fall into a value trap. And if I find a better fund, then I'll trade out of SPXJX into it but so far, I haven't found any other Japanese value funds that I find compelling.
Until next time...
Ajit Jain is talking about increased defaults in municipal bonds, calling Vallejo, CA and Jefferson County, AL as the "tip of the iceberg" among municipalities. Now, that's true. If defaults across fixed income products are at record lows, then it makes sense that defaults will increase in all of these products - RMBS, CMBS, corporates, high yield, municipals, what have you. Its basic math. However, how great is it that he goes before Congress and says this? I'll have to see what tomorrow's action looks like in the closed end municipal funds. Sounds like an opportunity to accumulate one of my longer term holdings.
(For the unfamiliar, Ajit Jain is one of the top honchos at Berkshire Hathaway on the insurance side. It appears he is now the head of Berkshire Hathaway Assurance Corp., the new municipal bond insurer that BRK built to siphon off business from MBIA, FGIC, and all the other monolines.)
Speaking of accumulating, I picked up a few bucks worth of SPXJX the other day, just in time to see a nice pop. Now, its a Japan value fund so it doesn't make sense to trade it. This is a long term investment, and I didn't want to burn up all of my dry powder on SPXJX. Especially since I'm digging into a new small cap tech stock and I want to be able to pick up a few hundred or even a thousand shares of that one. I'll speak on that investment a little more in the future, after I make the move (or not), because it looks like a really nice opportunity.
I know I've said a few times that I like Japan on a long term basis. It is a really long term investment. So I plan to continue accumulating when opportunities present themselves and there are no other worthwhile investments I can make at the time. We'll see if I fall into a value trap. And if I find a better fund, then I'll trade out of SPXJX into it but so far, I haven't found any other Japanese value funds that I find compelling.
Until next time...
Going Short
It would be very nice to find an efficient way to short Treasuries. Gotta look into that a bit. I don't know that I have the capital for that kind of trade, but MAN do I think its a short term winner. Negative real rates + dollar devaluation would seem to make this a no-brainer. I think all along the curve there is opportunity, but probably more so at the middle of the curve out to the long end.
Whatcha think?
Whatcha think?
Tuesday, March 11, 2008
EconWeekly's Look at How Spanish Mortgages Work
An interesting look at how the Spanish RE market is different. Sensible, I think, is a more accurate word, at least with regard to capital constraints and securitization. I love this kinda of stuff!
More to come. I'm getting caught up on my backlog. Watch for the hook...
More to come. I'm getting caught up on my backlog. Watch for the hook...
Tuesday, March 04, 2008
Subprime Meets Inflation
I'm sure some of you have seen this one over at Barry Ritholtz's blog already, or wherever it was originally published, but in case you haven't, here's the link. This is an instant classic! I'm not even sure how I feel about this, or how I should feel. All I know is that I don't think I'd want to be either the banker or the homeowner. I wonder if the poor guy can get a Euro denominated loan from Jay-Z. Even worse, in a historical sense, is the wheelbarrow remark. If that doesn't show the US headed in the direction of Weimar Germany, I don't know what else does. (Yeah, Barry's got the link to the original over at The Big Picture.)
Wednesday, February 27, 2008
Your Money or Your Life
I began writing this several months ago, as the story of my dying real estate partnership was beginning to unfold. It was really an exercise in venting, but after the latest developments, let it serve as a warning to anyone considering partnering with anyone in any venture.
OMFG! For the love of God, don't do it! Your money or your life? It might just be the latter. Or worse, it might end up being the next MF's life, when you have to kill his dumb ass for causing you to lose money and sleep.
*sigh*
Its not supposed to be this difficult. Why do humans insist on complicating simple and straightforward matters?
Some months ago, some of you may recall that my real estate partners and I decided to dissolve our LLC. We just had too many disagreements about strategy, direction, and how to DO this business. A real estate business that buys one house in a calendar year is a not a real estate business. You can't even deny that away. I've come closer to doing more deals on my own, in the last 6 months, than the LLC has in the last 15 months. Its pretty pathetic, actually.
So now we find ourselves trying to extricate ourselves from further self-inflicted damage, in the form of losing every penny of our initial investment of $11,200 each. Now, I've come to terms with this money being gone. Personally, I'd rather just get out and be happy then drag this monster along any longer. Needless to say, I have my accountant on the case as to how to profit (or at least benefit) from losing $10,000 again. Now, I'd love to find a way to get something back, but I am not at all attached to this outcome. My sanity just isn't worth the price.
Anyway, it seems that every property gets vacated by the crappy tenants, usually leaving behind a few thousand dollars in damages and no revenue coming in. So we end up spending what little money we have getting each house back in rentable condition. Since December, we've lost 2 tenants, sold the best property (to one of the partners, no less), and had the last property inspected multiple times by Section 8 (each leading to failure) because the previous owner was a slumlord. 3 properties generating no revenue. How much worse can it get? I'll tell you how - having to put in more cash to keep this monster alive.
My goal at this point is to get out with as little additional out of pocket expense as possible. Right now, we're scheduled to have a meeting -- the first in months -- next week to discuss the current situation. I've already recommended that someone call our loan servicers and start negotiating some agreement so that we don't risk foreclosure. Of course, our loans were securitized so dealing directly with the lenders is nigh impossible. Once I can get a straight answer on our asking prices, I'll start posting online ads for each property. I hope that doesn't take too much longer. Finally, I've been tapping my network of friends and investors to see if anyone knows someone looking to acquire properties in Baltimore. They all require some work, but keeping this in mind, we're willing to adjust the sales prices accordingly. Somehow, it seems like I'm the only one concerned. I guess that means I won't be asked to put up any cash later on; everyone else seems to have that covered.
What a mistake! Don't do it, guys. Just save yourself the hassle. Partnerships are a losing proposition. I'm not sure what the winning answer is, but I can tell you quite a bit about how not to do it. Don't partner with people you haven't personally known for some time. Start with a small project, work it all the way through, and see how everyone responds. Ideally, from your interaction, you'll know that the partners all think almost identically about the business and how it should be conducted.
Better yet, just go it alone.
OMFG! For the love of God, don't do it! Your money or your life? It might just be the latter. Or worse, it might end up being the next MF's life, when you have to kill his dumb ass for causing you to lose money and sleep.
*sigh*
Its not supposed to be this difficult. Why do humans insist on complicating simple and straightforward matters?
Some months ago, some of you may recall that my real estate partners and I decided to dissolve our LLC. We just had too many disagreements about strategy, direction, and how to DO this business. A real estate business that buys one house in a calendar year is a not a real estate business. You can't even deny that away. I've come closer to doing more deals on my own, in the last 6 months, than the LLC has in the last 15 months. Its pretty pathetic, actually.
So now we find ourselves trying to extricate ourselves from further self-inflicted damage, in the form of losing every penny of our initial investment of $11,200 each. Now, I've come to terms with this money being gone. Personally, I'd rather just get out and be happy then drag this monster along any longer. Needless to say, I have my accountant on the case as to how to profit (or at least benefit) from losing $10,000 again. Now, I'd love to find a way to get something back, but I am not at all attached to this outcome. My sanity just isn't worth the price.
Anyway, it seems that every property gets vacated by the crappy tenants, usually leaving behind a few thousand dollars in damages and no revenue coming in. So we end up spending what little money we have getting each house back in rentable condition. Since December, we've lost 2 tenants, sold the best property (to one of the partners, no less), and had the last property inspected multiple times by Section 8 (each leading to failure) because the previous owner was a slumlord. 3 properties generating no revenue. How much worse can it get? I'll tell you how - having to put in more cash to keep this monster alive.
My goal at this point is to get out with as little additional out of pocket expense as possible. Right now, we're scheduled to have a meeting -- the first in months -- next week to discuss the current situation. I've already recommended that someone call our loan servicers and start negotiating some agreement so that we don't risk foreclosure. Of course, our loans were securitized so dealing directly with the lenders is nigh impossible. Once I can get a straight answer on our asking prices, I'll start posting online ads for each property. I hope that doesn't take too much longer. Finally, I've been tapping my network of friends and investors to see if anyone knows someone looking to acquire properties in Baltimore. They all require some work, but keeping this in mind, we're willing to adjust the sales prices accordingly. Somehow, it seems like I'm the only one concerned. I guess that means I won't be asked to put up any cash later on; everyone else seems to have that covered.
What a mistake! Don't do it, guys. Just save yourself the hassle. Partnerships are a losing proposition. I'm not sure what the winning answer is, but I can tell you quite a bit about how not to do it. Don't partner with people you haven't personally known for some time. Start with a small project, work it all the way through, and see how everyone responds. Ideally, from your interaction, you'll know that the partners all think almost identically about the business and how it should be conducted.
Better yet, just go it alone.
Saturday, February 23, 2008
2007 Federal Income Tax Prep
Ahhhh!
If ever there was a subject that people (or maybe just Americans) love to hate, taxes has to be it. However, in the last few years, as I have looked at the Federal income tax more closely, not only do I see and appreciate their usefulness, but I have actually found the tax system to be quite beneficial to me.
(I also think that the Federal income tax is part of a conspiracy that includes the Federal Reserve, to be clear, and that it equates to robbery of the citizenry. However, in the current environment, I look at them for what a Federal tax could accomplish, if it were implemented in line with the founding principles laid out of the US Constitution. I know it sounds contradictory, so maybe I'll tackle that in another post. Continuing on...)
Now, I hate the process of doing taxes. Its just too complex. However, if you're willing to take some time, there is really no justification for most people paying any Federal income tax in a given year, simply on the basis of the current tax law and average income levels. You just have to do your research and spend some time planning. (It does take effort.) For me, that takes the form of reading the tax columns that run in the WSJ every so often, even taking notes on interesting or potentially useful tips. It also helps that my accountant (aka my mother) has been doing taxes for others for years. I can quite easily bounce things off her, or ask her to research a particular topic for me. Now that she's working for a non-profit tax preparation group as well, she's exposed to even more tax information which is powerfully useful. If I can find a way to start using the official software that the non-profit she is working for uses (and is endorsed by the IRS, according to her), that might even give me more of a leg up. I try to understand the tax laws to a reasonable degree, so that I can figure out how to use them to my advantage.
Finally, the best thing I ever did to get comfortable with my taxes is sitting down, with a pencil and tax forms, and doing my taxes for tax year 2003 or 2004. I may have done it manually both years, but I can't recall exactly. However, having to read the stupid booklet that comes with the 1040 was very insightful. Since I did that, I think I've paid taxes 2 years in the last 4 or 5. Every year I get better at finding ways to get my money back. My biggest concern now is not turning it over in the first place! However, I recommend that everyone do their taxes by hand - no computer, no software, no websites - at least once. Read the book(s). Use a pencil to do a draft then once all the numbers look sane, pull out a second set of forms and do the real version in ink. Even with my moderately complex return in 2003 (or 2004), it only took about 45 minutes to do the whole thing. Even 2 hours of time is worth it. Doing the process by hand makes you much more familiar with the intricacies and all the little ways the IRS helps you avoid paying the US government. I was amazed at how many ways there were to reclaim my money and you will be too! With every iteration, you learn new, powerful ways to minimize paying that you hadn't considered.
For tax year 2007, I sat with my mother and went through my American Express year end statement, identifying every REI related un-reimbursed expense, every charitable contribution, everything that is potentially deductible, and boy is there is a lot. Combined with maxing out the 401(k) every year, which gets my adjusted gross income (AGI) down to the levels where I can contribute to a Roth IRA, these expenses are pretty much going to guarantee a decent refund. Even better, in some twisted way, is that I don't have the return completed for my real estate partnership yet, and with the losses we took last year, that should increase my refund even more! Woo hoo! (Uhh, umm, yeah.)
Anyway, I feel good to have started that process, so I can get it over with before April arrives. And I thank American Express for their beautiful web site and online functionality. Along with the reduced complexity of my investments in 2007, and a new accountant doing the books for the partnership, this should be a much smoother process with a happier ending. Go go un-reimbursed deductions!
Until next time...
If ever there was a subject that people (or maybe just Americans) love to hate, taxes has to be it. However, in the last few years, as I have looked at the Federal income tax more closely, not only do I see and appreciate their usefulness, but I have actually found the tax system to be quite beneficial to me.
(I also think that the Federal income tax is part of a conspiracy that includes the Federal Reserve, to be clear, and that it equates to robbery of the citizenry. However, in the current environment, I look at them for what a Federal tax could accomplish, if it were implemented in line with the founding principles laid out of the US Constitution. I know it sounds contradictory, so maybe I'll tackle that in another post. Continuing on...)
Now, I hate the process of doing taxes. Its just too complex. However, if you're willing to take some time, there is really no justification for most people paying any Federal income tax in a given year, simply on the basis of the current tax law and average income levels. You just have to do your research and spend some time planning. (It does take effort.) For me, that takes the form of reading the tax columns that run in the WSJ every so often, even taking notes on interesting or potentially useful tips. It also helps that my accountant (aka my mother) has been doing taxes for others for years. I can quite easily bounce things off her, or ask her to research a particular topic for me. Now that she's working for a non-profit tax preparation group as well, she's exposed to even more tax information which is powerfully useful. If I can find a way to start using the official software that the non-profit she is working for uses (and is endorsed by the IRS, according to her), that might even give me more of a leg up. I try to understand the tax laws to a reasonable degree, so that I can figure out how to use them to my advantage.
Finally, the best thing I ever did to get comfortable with my taxes is sitting down, with a pencil and tax forms, and doing my taxes for tax year 2003 or 2004. I may have done it manually both years, but I can't recall exactly. However, having to read the stupid booklet that comes with the 1040 was very insightful. Since I did that, I think I've paid taxes 2 years in the last 4 or 5. Every year I get better at finding ways to get my money back. My biggest concern now is not turning it over in the first place! However, I recommend that everyone do their taxes by hand - no computer, no software, no websites - at least once. Read the book(s). Use a pencil to do a draft then once all the numbers look sane, pull out a second set of forms and do the real version in ink. Even with my moderately complex return in 2003 (or 2004), it only took about 45 minutes to do the whole thing. Even 2 hours of time is worth it. Doing the process by hand makes you much more familiar with the intricacies and all the little ways the IRS helps you avoid paying the US government. I was amazed at how many ways there were to reclaim my money and you will be too! With every iteration, you learn new, powerful ways to minimize paying that you hadn't considered.
For tax year 2007, I sat with my mother and went through my American Express year end statement, identifying every REI related un-reimbursed expense, every charitable contribution, everything that is potentially deductible, and boy is there is a lot. Combined with maxing out the 401(k) every year, which gets my adjusted gross income (AGI) down to the levels where I can contribute to a Roth IRA, these expenses are pretty much going to guarantee a decent refund. Even better, in some twisted way, is that I don't have the return completed for my real estate partnership yet, and with the losses we took last year, that should increase my refund even more! Woo hoo! (Uhh, umm, yeah.)
Anyway, I feel good to have started that process, so I can get it over with before April arrives. And I thank American Express for their beautiful web site and online functionality. Along with the reduced complexity of my investments in 2007, and a new accountant doing the books for the partnership, this should be a much smoother process with a happier ending. Go go un-reimbursed deductions!
Until next time...
Friday, February 22, 2008
CMBX Says Commercial Real Estate Looking Dodgy
I don't think I'd normally mention this (WSJ sub req'd) if not for the deja vu I experienced on the way home tonight. While driving from DC into MD, a short simple drive, I heard an ad from the National Association of Realtors about how now is a great time to buy commercial property and how you should enlist a Realtor(TM) to do so. Heh! If this isn't a sign that the low default rates of the commercial RE market are not long for this world, I don't know what is.
Now, the WSJ article makes the point that default rates are at historic lows, and since the CMBX tracks prices on credit default swaps and not actual cash bonds, its a bit difficult to really say that this is an indicator of problems in the market. Fair points, true. The article also points how trading in the commercial cash securities has dried up, while speculators may be shorting the CMBX and thus driving the CDS prices higher. Finally, it talks about how the ABX indices showed similar behavior last year before all the oxygen got sucked out of that market (along with the liquidity).
Now, I am one to believe that even with speculators going short in this market, there is real stress (and thus opportunity) here. First, the best historical precedent for this behavior *IS* the cratering that ABX showed last year. The indices haven't existed long enough to have a history during times of market stress, so unlike the rating agencies and how they evaluated sub-prime derived securities, we can and should look at the performance of other similar indices to get a sense of what may happen. (Nothing is guaranteed, but some information beats no information any day.)
Also, if default rates are at historic lows, in a time of market stress, does anyone seriously think they are going lower? Mean reversion, anyone?!?!?! Now, the article talks about defaults climbing to 4x the historic average, which seems a bit high but we did just have a massive credit bubble so is it really so far fetched to think that 6 - 8% is outside of the realm of possibility? I think not. Maybe not probable, but definitely possible.
The NAR radio spot was the kicker, though? Why is the NAR advertising for purchases of commercial real estate on DC 101? I've heard some really dodgy ads on DC 101, admittedly, but this one screams "Sell!!!" Isn't this the same NAR that has been promoting that any and every time is the perfect time to buy a house? Not really, if you don't have 20%+ for your down payment and spotless, perfect credit. (1 out of 2 ain't bad :) Ha ha!) And while commercial may not yet be experiencing the kind of pain we've seen in residential, isn't there a well known lag here. I think Calculated Risk has put it at about 6 months, although that's clearly not a perfect number. However, I think it is about time for the cockroaches to start appearing in the commercial real estate kitchen. And where there's one...
Just my thoughts. If you happen to hear the ad (or similar ad), let me know what you think. Until next time...
Now, the WSJ article makes the point that default rates are at historic lows, and since the CMBX tracks prices on credit default swaps and not actual cash bonds, its a bit difficult to really say that this is an indicator of problems in the market. Fair points, true. The article also points how trading in the commercial cash securities has dried up, while speculators may be shorting the CMBX and thus driving the CDS prices higher. Finally, it talks about how the ABX indices showed similar behavior last year before all the oxygen got sucked out of that market (along with the liquidity).
Now, I am one to believe that even with speculators going short in this market, there is real stress (and thus opportunity) here. First, the best historical precedent for this behavior *IS* the cratering that ABX showed last year. The indices haven't existed long enough to have a history during times of market stress, so unlike the rating agencies and how they evaluated sub-prime derived securities, we can and should look at the performance of other similar indices to get a sense of what may happen. (Nothing is guaranteed, but some information beats no information any day.)
Also, if default rates are at historic lows, in a time of market stress, does anyone seriously think they are going lower? Mean reversion, anyone?!?!?! Now, the article talks about defaults climbing to 4x the historic average, which seems a bit high but we did just have a massive credit bubble so is it really so far fetched to think that 6 - 8% is outside of the realm of possibility? I think not. Maybe not probable, but definitely possible.
The NAR radio spot was the kicker, though? Why is the NAR advertising for purchases of commercial real estate on DC 101? I've heard some really dodgy ads on DC 101, admittedly, but this one screams "Sell!!!" Isn't this the same NAR that has been promoting that any and every time is the perfect time to buy a house? Not really, if you don't have 20%+ for your down payment and spotless, perfect credit. (1 out of 2 ain't bad :) Ha ha!) And while commercial may not yet be experiencing the kind of pain we've seen in residential, isn't there a well known lag here. I think Calculated Risk has put it at about 6 months, although that's clearly not a perfect number. However, I think it is about time for the cockroaches to start appearing in the commercial real estate kitchen. And where there's one...
Just my thoughts. If you happen to hear the ad (or similar ad), let me know what you think. Until next time...
Thursday, February 21, 2008
First Net Worth Update of 2008
Man, you wanna talk about a post that is overdue!
So how did I do in 2007?
In a word - crappy.
So let's take a look at where I am now. Most of this is relevant because I added some of these positions, or wrote off others, in the waning days of 2007. Until the recent re-balancing, nothing much had moved in my portfolio in a while.
The first major change is that I took on some debt. Technically, its not mine, I am just the co-signer. However, it would be a bit dishonest to leave it off entirely, since in the worst case scenario, I am responsible for paying back $35,000 USD in debt being used to fund a friend's college education. Its a real leap of faith, and I know all the arguments against co-signing on any one's behalf. I've watched my father perform many acts of financial bravery (stupidity?) helping out various siblings over the course of my lifetime. However, this person was in a very tight squeeze with no other options, and I decided to step up and lend my credit to their situation. Hopefully, I won't get screwed. Either way, $35,000 is a significant hit to a low six figure net worth, so as you can imagine, I am now back under $100,000 in net worth. That is counting the nearly $11,000 that is yet unspent, and hopefully will remain that way. In a pinch, being able to pay that back immediately will be useful. Now I need to find a good high yield savings account for that money. The FOMC cuts have seriously put a damper on my savings yield.
:(
On the plus side, I should be able to eliminate the vast majority of my almost $12,000 in credit card debt in a few weeks. Its about that time for 2007's bonus to be paid, and since I don't yet have that new job I've been searching for, I'll be collecting from my current employer. That will be a significant boost to the net worth position. Most of that debt was incurred on a spending spree starting back in October 2006, and most of it was spent trying to cheer myself up from the rather disgustingly painful year of 2007. While some of that spending did lead to some decent memories, as is the case for most shopping-as-therapy, there is nothing substantial to show for it. Some of it also represents other investments, such as Gold level membership in the DC Real Estate Investors Association (DC REIA) and payment for credit management services from Success Credit Services. So not all of it represents feckless, reckless spending, just *most* of it. There won't be any more of that in 2008. (And since I have (had?) a legitimate interest in a real estate investment company, both of those will be deductible, un-reimbursed expenses for 2007!)
Obviously, with the market turmoil of the past few weeks, my 401(k)'s have taken it in the ass. We're not talking about balls deep, like the Nasdaq plunge of 2000 - 2002 (78%), but the head is securely in. The flip side is that this same turmoil made for some great entry points (no pun intended) for the closed end municipal bond fund, emerging market bond fund and emerging market equities fund that I picked up last week. I'm a bit overweight in all 3 categories now, but I will just bulk up in other asset classes over the coming weeks and months to re-establish balance. I still have a hole in the international fixed income allocation, but I think my next target is commodities. I am severely underweight my target exposure to commodities. I plan to get some metals and agricultural exposure. I think I'm a bit light on cash as well after the most recent purchases, so I'll work that back up. Thankfully, my emergency fund has been rebuilding all along - slowly.
I'm still overweight Japan. I know you're probably wondering "Why Japan of all places?" but I think there are some good value opportunities in Japan. Nothing is guaranteed, of course, and it could end up becoming (being?) a value trap. However, we're looking long term here, and I am clipping a small coupon along the way. Value investing + dividend investing = better downside protection + increased total return. This weighting will re-balance as I direct funds into other assets over time. Of course, my 401(k) contributions do a lot of the heavy lifting in this arena automatically.
My CD ladder is still chugging along at sucky rates of return. 1 more rung expires in a few weeks, and that money will either get directed toward some commodity investments or paying down the remainder of the credit card balance. Most likely, the latter.
I've turned down the contribution rate on the 401(k) to 10% from maxed out so I that have a bit more funds available to handle this debt, and eventually, possibly move out of my current apartment. I'm not sure how that will work out quite yet, but if I do move out, then I want to be able to get a new apartment for myself (alone) while (somehow) handling my responsibility to cover the expenses of this current apartment. This stems from some of those same personal issues from last year. That one is still up in the air, so I won't get into too much detail as yet. Hopefully, it won't come to that since it will have dramatic impact on my savings rate until September. That would be most unfortunate given my aggressive savings goals for this year. I'm not sure about subletting, but it is an option I could and should discuss with my roommate if things come to that.
Update: As of right now, moving out appears highly unlikely. I've got a nice Mexican standoff with my roommate.
Overall, we're copacetic. While this new debt is a bitch, most other things are in good order and silently plugging away. The high yield savings account will get a reprieve, as I expect to tap it less for emergency funds. I won't be taking any trips anytime soon; I don't think I've scheduled to take any this year. The 401(k), while not building as aggressively, will still be putting away a significant percentage of my pre-tax earnings. I'll re-balance regularly, as usual, to take advantage of extreme valuation swings, like those we've seen in Treasuries since the middle of last year.
My current allocations are 20% US small cap equities, 15% international mid cap equities, 8.5% US large caps, 10% international small caps, 7.5% US fixed income, 5% international large cap equities, 7% emerging market equities, 5% international and emerging market fixed income, 5% US inflation protected fixed income, 9% commodities, 2.5% REITs (real estate securities - I could go higher here since I don't own any real estate for personal or business reasons but I've been a bit overweight for years), 3% cash and 2.5% municipals. I know its very diverse and seemingly unwieldy, but I've designed the portfolio to scale; I want it to be prepared to be BIG even though right now it is small.
So the net worth tally is, as of this writing, on 21 Feb 2008, $82334.94. That is a decrease of 13.33% from my first net worth post of last year. Completely unacceptable! You've seen my ideas for recovering from this cock-up, but I'll recap here: [1] new, better paying job, [2] rein in spending, especially trivial spending related particularly to travel, and [3] stop performing acts of financial bravery/stupidity on behalf of others. I can definitely get back above $100,000 in net worth this year, but it will require commitment and focus.
Until next time...
So how did I do in 2007?
In a word - crappy.
So let's take a look at where I am now. Most of this is relevant because I added some of these positions, or wrote off others, in the waning days of 2007. Until the recent re-balancing, nothing much had moved in my portfolio in a while.
The first major change is that I took on some debt. Technically, its not mine, I am just the co-signer. However, it would be a bit dishonest to leave it off entirely, since in the worst case scenario, I am responsible for paying back $35,000 USD in debt being used to fund a friend's college education. Its a real leap of faith, and I know all the arguments against co-signing on any one's behalf. I've watched my father perform many acts of financial bravery (stupidity?) helping out various siblings over the course of my lifetime. However, this person was in a very tight squeeze with no other options, and I decided to step up and lend my credit to their situation. Hopefully, I won't get screwed. Either way, $35,000 is a significant hit to a low six figure net worth, so as you can imagine, I am now back under $100,000 in net worth. That is counting the nearly $11,000 that is yet unspent, and hopefully will remain that way. In a pinch, being able to pay that back immediately will be useful. Now I need to find a good high yield savings account for that money. The FOMC cuts have seriously put a damper on my savings yield.
:(
On the plus side, I should be able to eliminate the vast majority of my almost $12,000 in credit card debt in a few weeks. Its about that time for 2007's bonus to be paid, and since I don't yet have that new job I've been searching for, I'll be collecting from my current employer. That will be a significant boost to the net worth position. Most of that debt was incurred on a spending spree starting back in October 2006, and most of it was spent trying to cheer myself up from the rather disgustingly painful year of 2007. While some of that spending did lead to some decent memories, as is the case for most shopping-as-therapy, there is nothing substantial to show for it. Some of it also represents other investments, such as Gold level membership in the DC Real Estate Investors Association (DC REIA) and payment for credit management services from Success Credit Services. So not all of it represents feckless, reckless spending, just *most* of it. There won't be any more of that in 2008. (And since I have (had?) a legitimate interest in a real estate investment company, both of those will be deductible, un-reimbursed expenses for 2007!)
Obviously, with the market turmoil of the past few weeks, my 401(k)'s have taken it in the ass. We're not talking about balls deep, like the Nasdaq plunge of 2000 - 2002 (78%), but the head is securely in. The flip side is that this same turmoil made for some great entry points (no pun intended) for the closed end municipal bond fund, emerging market bond fund and emerging market equities fund that I picked up last week. I'm a bit overweight in all 3 categories now, but I will just bulk up in other asset classes over the coming weeks and months to re-establish balance. I still have a hole in the international fixed income allocation, but I think my next target is commodities. I am severely underweight my target exposure to commodities. I plan to get some metals and agricultural exposure. I think I'm a bit light on cash as well after the most recent purchases, so I'll work that back up. Thankfully, my emergency fund has been rebuilding all along - slowly.
I'm still overweight Japan. I know you're probably wondering "Why Japan of all places?" but I think there are some good value opportunities in Japan. Nothing is guaranteed, of course, and it could end up becoming (being?) a value trap. However, we're looking long term here, and I am clipping a small coupon along the way. Value investing + dividend investing = better downside protection + increased total return. This weighting will re-balance as I direct funds into other assets over time. Of course, my 401(k) contributions do a lot of the heavy lifting in this arena automatically.
My CD ladder is still chugging along at sucky rates of return. 1 more rung expires in a few weeks, and that money will either get directed toward some commodity investments or paying down the remainder of the credit card balance. Most likely, the latter.
I've turned down the contribution rate on the 401(k) to 10% from maxed out so I that have a bit more funds available to handle this debt, and eventually, possibly move out of my current apartment. I'm not sure how that will work out quite yet, but if I do move out, then I want to be able to get a new apartment for myself (alone) while (somehow) handling my responsibility to cover the expenses of this current apartment. This stems from some of those same personal issues from last year. That one is still up in the air, so I won't get into too much detail as yet. Hopefully, it won't come to that since it will have dramatic impact on my savings rate until September. That would be most unfortunate given my aggressive savings goals for this year. I'm not sure about subletting, but it is an option I could and should discuss with my roommate if things come to that.
Update: As of right now, moving out appears highly unlikely. I've got a nice Mexican standoff with my roommate.
Overall, we're copacetic. While this new debt is a bitch, most other things are in good order and silently plugging away. The high yield savings account will get a reprieve, as I expect to tap it less for emergency funds. I won't be taking any trips anytime soon; I don't think I've scheduled to take any this year. The 401(k), while not building as aggressively, will still be putting away a significant percentage of my pre-tax earnings. I'll re-balance regularly, as usual, to take advantage of extreme valuation swings, like those we've seen in Treasuries since the middle of last year.
My current allocations are 20% US small cap equities, 15% international mid cap equities, 8.5% US large caps, 10% international small caps, 7.5% US fixed income, 5% international large cap equities, 7% emerging market equities, 5% international and emerging market fixed income, 5% US inflation protected fixed income, 9% commodities, 2.5% REITs (real estate securities - I could go higher here since I don't own any real estate for personal or business reasons but I've been a bit overweight for years), 3% cash and 2.5% municipals. I know its very diverse and seemingly unwieldy, but I've designed the portfolio to scale; I want it to be prepared to be BIG even though right now it is small.
So the net worth tally is, as of this writing, on 21 Feb 2008, $82334.94. That is a decrease of 13.33% from my first net worth post of last year. Completely unacceptable! You've seen my ideas for recovering from this cock-up, but I'll recap here: [1] new, better paying job, [2] rein in spending, especially trivial spending related particularly to travel, and [3] stop performing acts of financial bravery/stupidity on behalf of others. I can definitely get back above $100,000 in net worth this year, but it will require commitment and focus.
Until next time...
Monday, February 18, 2008
Regaining Perspective II
So what is left after my last post? What else do I have consuming my time now that I am freeing myself of the other obligations I have built up in the last 5 years?
Well, first is a new employer. I think I have expressed in previous postings that I am quite dissatisfied and unfulfilled in my current employment situation. Not only have I spent 5 years doing what I have been doing, with no real change in the technical aspects of the work, but I have watched a lot of good people leave as the overall technical ability of the group I work in degrades. I've passed up opportunities for promotion that can hardly be considered opportunities; longer hours for less pay, with only title inflation, is hardly an opportunity. To paraphrase what my mentor told me last week, NEVER, under any circumstances, move backwards in compensation or responsibility.
I realized that I seek the opportunity to actually have an impact on organizations. It is close to impossible to have an impact on an organization that has over 400,000 employees. You're just another cog in the wheel. That's not the level I want to play at. Also, there is HUGE cultural gap between what I desire and what I have. I have worked in much smaller enterprises, and even a startup, and I like the small, dynamic, hungry environment much more than the bureaucratic, political, large company environment. I don't do politics, as anyone who knows me can attest. In a small company, you can have a direct impact on the survival and success of the organization. You interact with everyone - executives, middle management, technical staff at all levels, customers, vendors - out of necessity. I love that! So that's where I plan to return -- to an entrepreneurial, startup environment.
Another important facet of this career shift is making a move into a sales oriented role, preferably pre-sales engineering. The reason for this change is twofold: [1] a pre-sales engineering position will allow me to interact closely with customers, helping to solve their problems and really having an impact on their success and [2] such a role will enable me to be compensated at the level I believe I deserve to be compensated at. Sales is completely performance driven, and while I am not a salesperson nor do I wish to be, I wish to be involved in the sales process. Sales is the most highly compensated group in any company. However, I want to also remain technically oriented and hands on to a certain degree; pre-sales appears to be the best way to straddle these 2 worlds.
Outside of the search for a new career, the other major project I have in my life is my software company. I believe I previously described the state of this endeavor, and it is the subject of the tag entitled "The Business". However, recently I parted ways with my partner, due largely to the fallout of the personal issues (of my own creation, admittedly) which erupted last year. However, I think this is a good thing. While my ex-partner is very talented and intelligent, it is critical that whomever I work with will be willing and able to work with me. At times, the business will be stressful. It will require focus and commitment. It also requires trust, and unfortunately, she and I parted due to concerns about integrity and ethics. Thing that I did, which I had apologized for and attempted to clean up with those I hurt, did not sit well with her, and I became evil incarnate in her eyes. Such is life. However, now I have the time to focus on the vision as I see it living, and I can bring in the resources that I think are appropriate. Also, my partner was a bit inexperienced, and while that may not have been a problem given how intelligent and thoughtful she is, I do know that now I have access to very deep talent benches across the technology industry, people that I have known for years who are proven and experienced. There won't be any "stepping on toes" if I bring in outsiders; I don't have to worry about offending or disrespecting her technical ability or judgment.
This is a real "swing for the fences" startup opportunity, and its going to force me to get my hands dirty in a lot of ways - writing code; doing server stuff; negotiating partnerships, advisory relationships and the like; seeking funding; and all the other various startup type activities. But now, success or failure is squarely in my hands and I look forward to the challenge. I have a few advisors in mind, people whom I've called on since the beginnings of this project back in 2006. I also have a few contacts who might be willing to lend a hand to implementing this project on several mobile platforms. So now, I have to finish the design work and start assembling the prototype. Wish me luck!
I have a few other software projects I am working on, some of which could probably turn around very quickly and could possibly be built into enterprises -- either software product companies or consultancies. The first focus of my attention is the FIX (Financial Information eXchange) protocol. I want to try some things and see if I can get them to market to address some perceived weaknesses in both the market and the product. We'll see how this goes. Lots of documentation reading lies ahead.
So that's what I'm up to, filling the space I have created by reducing my involvement with the blood-sucking activities that have been killing me (by choice) for the last few years. Maybe blood sucking is a harsh description, but they weren't adding value to my life in any significant way, and hadn't in a long time. Sort of like corn ethanol, they have required more energy (or vitality, enjoyment, or time) as input than they were creating as output.
Anyway, its time to get back to work. I have some documentation to read. Until next time...
Well, first is a new employer. I think I have expressed in previous postings that I am quite dissatisfied and unfulfilled in my current employment situation. Not only have I spent 5 years doing what I have been doing, with no real change in the technical aspects of the work, but I have watched a lot of good people leave as the overall technical ability of the group I work in degrades. I've passed up opportunities for promotion that can hardly be considered opportunities; longer hours for less pay, with only title inflation, is hardly an opportunity. To paraphrase what my mentor told me last week, NEVER, under any circumstances, move backwards in compensation or responsibility.
I realized that I seek the opportunity to actually have an impact on organizations. It is close to impossible to have an impact on an organization that has over 400,000 employees. You're just another cog in the wheel. That's not the level I want to play at. Also, there is HUGE cultural gap between what I desire and what I have. I have worked in much smaller enterprises, and even a startup, and I like the small, dynamic, hungry environment much more than the bureaucratic, political, large company environment. I don't do politics, as anyone who knows me can attest. In a small company, you can have a direct impact on the survival and success of the organization. You interact with everyone - executives, middle management, technical staff at all levels, customers, vendors - out of necessity. I love that! So that's where I plan to return -- to an entrepreneurial, startup environment.
Another important facet of this career shift is making a move into a sales oriented role, preferably pre-sales engineering. The reason for this change is twofold: [1] a pre-sales engineering position will allow me to interact closely with customers, helping to solve their problems and really having an impact on their success and [2] such a role will enable me to be compensated at the level I believe I deserve to be compensated at. Sales is completely performance driven, and while I am not a salesperson nor do I wish to be, I wish to be involved in the sales process. Sales is the most highly compensated group in any company. However, I want to also remain technically oriented and hands on to a certain degree; pre-sales appears to be the best way to straddle these 2 worlds.
Outside of the search for a new career, the other major project I have in my life is my software company. I believe I previously described the state of this endeavor, and it is the subject of the tag entitled "The Business". However, recently I parted ways with my partner, due largely to the fallout of the personal issues (of my own creation, admittedly) which erupted last year. However, I think this is a good thing. While my ex-partner is very talented and intelligent, it is critical that whomever I work with will be willing and able to work with me. At times, the business will be stressful. It will require focus and commitment. It also requires trust, and unfortunately, she and I parted due to concerns about integrity and ethics. Thing that I did, which I had apologized for and attempted to clean up with those I hurt, did not sit well with her, and I became evil incarnate in her eyes. Such is life. However, now I have the time to focus on the vision as I see it living, and I can bring in the resources that I think are appropriate. Also, my partner was a bit inexperienced, and while that may not have been a problem given how intelligent and thoughtful she is, I do know that now I have access to very deep talent benches across the technology industry, people that I have known for years who are proven and experienced. There won't be any "stepping on toes" if I bring in outsiders; I don't have to worry about offending or disrespecting her technical ability or judgment.
This is a real "swing for the fences" startup opportunity, and its going to force me to get my hands dirty in a lot of ways - writing code; doing server stuff; negotiating partnerships, advisory relationships and the like; seeking funding; and all the other various startup type activities. But now, success or failure is squarely in my hands and I look forward to the challenge. I have a few advisors in mind, people whom I've called on since the beginnings of this project back in 2006. I also have a few contacts who might be willing to lend a hand to implementing this project on several mobile platforms. So now, I have to finish the design work and start assembling the prototype. Wish me luck!
I have a few other software projects I am working on, some of which could probably turn around very quickly and could possibly be built into enterprises -- either software product companies or consultancies. The first focus of my attention is the FIX (Financial Information eXchange) protocol. I want to try some things and see if I can get them to market to address some perceived weaknesses in both the market and the product. We'll see how this goes. Lots of documentation reading lies ahead.
So that's what I'm up to, filling the space I have created by reducing my involvement with the blood-sucking activities that have been killing me (by choice) for the last few years. Maybe blood sucking is a harsh description, but they weren't adding value to my life in any significant way, and hadn't in a long time. Sort of like corn ethanol, they have required more energy (or vitality, enjoyment, or time) as input than they were creating as output.
Anyway, its time to get back to work. I have some documentation to read. Until next time...
Sunday, February 17, 2008
Regaining Perspective I
It is amazing how much drudgery and stupidity one can allow themselves to get snowed under with. Anyone who has been reading this blog since early last year is well aware of how much shite has been going on in my life that was effectively pointless, or worse. Now that I have begun a systematic process of eliminating all of this non-supportive, non-productive activity, I find myself with increasing amounts of time to actually create value for myself and others. Its great! Just in the last few days, I've been able to sit down and look at several projects with some degree of depth. I've been able to much around on with them, read documentation and release notes, download software libraries, think about architecture, and other things I have been angry at myself for not doing because I didn't have the time. (More accurately, I didn't create the time, but that's a different conversation.)
I urge everyone to spend some quality time really thinking about everything in your life, every project or activity, every commitment, every membership, and honestly evaluating how much that project/activity/membership contributes to your life. Does it support your personal, professional, spiritual, social, family or other goals? I mean, does it really promote and advance these areas of your life?
If not, its time to dump it. Maybe it did support your goals - once. Once. But it might not anymore. Maybe you'll find that your involvement, which you and/or others originally viewed as a positive, has become detrimental instead. Maybe its just out of alignment with your values. Whatever the case, it is now a liability and should be eliminated. Will it be easy? Probably not. Especially once your ego chimes in and starts telling you why you shouldn't give up, just hang in there, cajoling you about what others will think, etc. Honestly, who gives a damn? If its not supporting what you're about, you need to get rid of it and find people, activities, and commitments which are supportive.
This is just my recommendation, speaking as someone who is digging out of a failed real estate investment partnership; no longer performing somewhat lucrative computer consluting (not a typo) outside of my regular employment; and is cutting back his "volunteer" role with the university computer lab which effectively trained him as a technologist, where he seeks (sought?) to share his expertise with a new generation of budding engineers.
Why?
Because as warm and fuzzy as it sounds to volunteer to teach a new generation of students about technology, to provide guidance and mentoring for them, it really just became a time sink with no visible reward. For personal reasons, my presence became polarizing and divisive instead of unifying, causing promising students to stay away instead of drawing them in (or so I was told). There were other "issues" to arise out of it, but what I've described here is a significant part of the situation. After 5 years, I can't say that I have anything to show for the time. I don't know if any of the students "got it", although I imagine 1 or 2 have. However, I'm going to be completely authentic here and say that 1 or 2 isn't really worth it. It sounds nice and good to say "as long as I have had an impact on 1 student's life, then it was worth it". That's total bullshit! If I only wanted to impact 1 person, I could have just sent some money to a charity, I could do that online with a credit card in very little time, and its tax deductible. To boot, that money would probably be able to help more than 1 person. So its a crock; the point was to impact tens of students lives, if not hundreds. 1 or 2 is NOT enough to make the expenditure of time and effort worth it. Sorry.
As nice as it was to make $80 per hour working on relatively simple computer problems for a dentist (never mind how helpful it was during times of personal financial crisis, or even just to juice my savings efforts), its not what I want to do with my life. I find no joy working on Windows, or anything remotely Windows related. I hate Windows. $80 per hour couldn't, and never will, change that. Add to that all the hours spent during days when I had to go to work that night, and the amount of lost sleep (with the corresponding deleterious effects on my health), and it just is not worth it. (Mind you, that last description was for a different customer, my most troublesome customer, not the "Golden Client" who was paying $80 per hour.) Supplemental income is all good and fine, but some things really are more important. Physical health and mental wellbeing are two things which fit that description.
As much as the idea of being a real estate mogul sounded good, as good as the prospects looked at the outset, and as tempting as the idea is of building a real estate dynasty which could be passed down to our progeny, it became clear that this group was as good as dead. Two of us wanted to make lots of offers, lowball offers on as many properties as possible, and negotiate from there. The other 3 wanted to only make offers they knew they would win. However, if you're winning every offer, you're likely overpaying. If I wanted to overpay for real estate, I'd have bought that $350,000 townhouse across the street from Ft. Meade in August 2006 and called it a lifetime. Investors are supposed to be smarter than that. The same 2 of us wanted to come up with a set number of offers we would make - as a group - every week. The other 3 were unwilling to even commit to that! Hell, I could have accepted if some of them had said "the number I commit to is 0". At least that would have been a number. But as soon as the question was asked -- "how many offers will you commit to making every week?" -- people got defensive and angry, as if being asked to commit to something was a burden. However, if you're unable to put constraints around your goals, then you're not serious about them. Deadlines, parameters, and definite tangible results are designed to enforce accountability. So these 3 partners didn't even want to be held accountable for doing what real estate investors do, which starts with making offers on properties! Even in breaking up, the same 2 partners were willing to simply be bought out, while the other 3 again claimed "all or nothing" - either its all 5 of us, or none of us. WTF?!?! That is an unhelpful way of being. Its not like we're talking about jumping on a grenade to save your comrades here. This is business. If they wanted to continue the business, they could have just bought us out, or had new partners do so. A completely unnecessary situation has ensued. But considering that its seemed that not only were my views (as 1 of the 2 partners who wanted to follow the local RE guru strategies) deemed irrelevant, but I was the person being called on to handle grunt work during the day. Why? Because all of the other partners have day jobs and families. So not only was I not being listened to, I'm also awake in the middle of the day, accelerating the breakdown of my health, while my partners are at work. Then I'd try to go to my job at night. This in particular has led to the health problems I've dealt with for the last month. Disagreement on strategy, disregard for one's health, and failure to act like investors is a not a recipe for success, which is why this endeavor had to get deadpooled. So I am going to lose $11,200 but my sanity is worth far more. (Yes, I'd prefer to at least get my investment back, but as this is not likely, its not even worth thinking about.)
(NOTE: I'm pissed right now! Blogger took it upon itself to "disappear" the text I've already written. It would be nice of this autosave function had some sort of versioning capability. What I've written below is not nearly as good as what I originally wrote. Dammit!!!!)
The point is that life is too short. You really need to take a step back and evaluate whether the activities you engage in, the people you engage with, and the commitments you make, are really adding value to your life. (I contend that even when you are contributing to others, whether by volunteering in some way or working in your church or however you do it, there is some benefit you derive as well. It does not need to be financial. If you like the feeling of being able to help others, and volunteering gives you that, then you are benefiting.) If these activities, people and commitments are not adding value to your life, then you may want to consider reducing their presence in your life, or restructuring your involvement with them, or even cutting them out entirely. In life, you need to create an infrastructure that supports you, your goals and your life as you choose to create your life. Things which are not supportive of the life you are creating for yourself should be considered expendable, or as my man Gordon Gekko might say "The rest is just conversation." So take a look and figure out what works, what doesn't, what supports you and what impedes you, and then choose to get rid of it - or not. Its your choice to make. I'll say that for myself, the upside of this process has already been shown and dividends are already being reaped, after having just started in the last 2 weeks.
Believe me, its worth it.
As for what's left, and why, I'll make that the topic of another post.
Until next time, gentle readers...
I urge everyone to spend some quality time really thinking about everything in your life, every project or activity, every commitment, every membership, and honestly evaluating how much that project/activity/membership contributes to your life. Does it support your personal, professional, spiritual, social, family or other goals? I mean, does it really promote and advance these areas of your life?
If not, its time to dump it. Maybe it did support your goals - once. Once. But it might not anymore. Maybe you'll find that your involvement, which you and/or others originally viewed as a positive, has become detrimental instead. Maybe its just out of alignment with your values. Whatever the case, it is now a liability and should be eliminated. Will it be easy? Probably not. Especially once your ego chimes in and starts telling you why you shouldn't give up, just hang in there, cajoling you about what others will think, etc. Honestly, who gives a damn? If its not supporting what you're about, you need to get rid of it and find people, activities, and commitments which are supportive.
This is just my recommendation, speaking as someone who is digging out of a failed real estate investment partnership; no longer performing somewhat lucrative computer consluting (not a typo) outside of my regular employment; and is cutting back his "volunteer" role with the university computer lab which effectively trained him as a technologist, where he seeks (sought?) to share his expertise with a new generation of budding engineers.
Why?
Because as warm and fuzzy as it sounds to volunteer to teach a new generation of students about technology, to provide guidance and mentoring for them, it really just became a time sink with no visible reward. For personal reasons, my presence became polarizing and divisive instead of unifying, causing promising students to stay away instead of drawing them in (or so I was told). There were other "issues" to arise out of it, but what I've described here is a significant part of the situation. After 5 years, I can't say that I have anything to show for the time. I don't know if any of the students "got it", although I imagine 1 or 2 have. However, I'm going to be completely authentic here and say that 1 or 2 isn't really worth it. It sounds nice and good to say "as long as I have had an impact on 1 student's life, then it was worth it". That's total bullshit! If I only wanted to impact 1 person, I could have just sent some money to a charity, I could do that online with a credit card in very little time, and its tax deductible. To boot, that money would probably be able to help more than 1 person. So its a crock; the point was to impact tens of students lives, if not hundreds. 1 or 2 is NOT enough to make the expenditure of time and effort worth it. Sorry.
As nice as it was to make $80 per hour working on relatively simple computer problems for a dentist (never mind how helpful it was during times of personal financial crisis, or even just to juice my savings efforts), its not what I want to do with my life. I find no joy working on Windows, or anything remotely Windows related. I hate Windows. $80 per hour couldn't, and never will, change that. Add to that all the hours spent during days when I had to go to work that night, and the amount of lost sleep (with the corresponding deleterious effects on my health), and it just is not worth it. (Mind you, that last description was for a different customer, my most troublesome customer, not the "Golden Client" who was paying $80 per hour.) Supplemental income is all good and fine, but some things really are more important. Physical health and mental wellbeing are two things which fit that description.
As much as the idea of being a real estate mogul sounded good, as good as the prospects looked at the outset, and as tempting as the idea is of building a real estate dynasty which could be passed down to our progeny, it became clear that this group was as good as dead. Two of us wanted to make lots of offers, lowball offers on as many properties as possible, and negotiate from there. The other 3 wanted to only make offers they knew they would win. However, if you're winning every offer, you're likely overpaying. If I wanted to overpay for real estate, I'd have bought that $350,000 townhouse across the street from Ft. Meade in August 2006 and called it a lifetime. Investors are supposed to be smarter than that. The same 2 of us wanted to come up with a set number of offers we would make - as a group - every week. The other 3 were unwilling to even commit to that! Hell, I could have accepted if some of them had said "the number I commit to is 0". At least that would have been a number. But as soon as the question was asked -- "how many offers will you commit to making every week?" -- people got defensive and angry, as if being asked to commit to something was a burden. However, if you're unable to put constraints around your goals, then you're not serious about them. Deadlines, parameters, and definite tangible results are designed to enforce accountability. So these 3 partners didn't even want to be held accountable for doing what real estate investors do, which starts with making offers on properties! Even in breaking up, the same 2 partners were willing to simply be bought out, while the other 3 again claimed "all or nothing" - either its all 5 of us, or none of us. WTF?!?! That is an unhelpful way of being. Its not like we're talking about jumping on a grenade to save your comrades here. This is business. If they wanted to continue the business, they could have just bought us out, or had new partners do so. A completely unnecessary situation has ensued. But considering that its seemed that not only were my views (as 1 of the 2 partners who wanted to follow the local RE guru strategies) deemed irrelevant, but I was the person being called on to handle grunt work during the day. Why? Because all of the other partners have day jobs and families. So not only was I not being listened to, I'm also awake in the middle of the day, accelerating the breakdown of my health, while my partners are at work. Then I'd try to go to my job at night. This in particular has led to the health problems I've dealt with for the last month. Disagreement on strategy, disregard for one's health, and failure to act like investors is a not a recipe for success, which is why this endeavor had to get deadpooled. So I am going to lose $11,200 but my sanity is worth far more. (Yes, I'd prefer to at least get my investment back, but as this is not likely, its not even worth thinking about.)
(NOTE: I'm pissed right now! Blogger took it upon itself to "disappear" the text I've already written. It would be nice of this autosave function had some sort of versioning capability. What I've written below is not nearly as good as what I originally wrote. Dammit!!!!)
The point is that life is too short. You really need to take a step back and evaluate whether the activities you engage in, the people you engage with, and the commitments you make, are really adding value to your life. (I contend that even when you are contributing to others, whether by volunteering in some way or working in your church or however you do it, there is some benefit you derive as well. It does not need to be financial. If you like the feeling of being able to help others, and volunteering gives you that, then you are benefiting.) If these activities, people and commitments are not adding value to your life, then you may want to consider reducing their presence in your life, or restructuring your involvement with them, or even cutting them out entirely. In life, you need to create an infrastructure that supports you, your goals and your life as you choose to create your life. Things which are not supportive of the life you are creating for yourself should be considered expendable, or as my man Gordon Gekko might say "The rest is just conversation." So take a look and figure out what works, what doesn't, what supports you and what impedes you, and then choose to get rid of it - or not. Its your choice to make. I'll say that for myself, the upside of this process has already been shown and dividends are already being reaped, after having just started in the last 2 weeks.
Believe me, its worth it.
As for what's left, and why, I'll make that the topic of another post.
Until next time, gentle readers...
Monday, February 11, 2008
Timing
Woo hoo!
I feel smart!
I just decided to coast on over to WSJ.com just in time, it so happens, to find this little gem from Brent Arends in the R.O.I. column, suggesting just the move I made this morning. Although I didn't pick up a BlackRock closed end muni fund, a closed end muni fund I did purchase. I think I'll compare mine to his and see which one looks better. If I take a haircut on mine while I hold it, I probably won't bother with the wash sale. Its really not that big a deal for me.
Now I just wish bonds were a wee bit easier to trade for small investors like me. There might be some real treasures out there in the municipal market waiting to get discovered!
Oh well.
I feel smart!
I just decided to coast on over to WSJ.com just in time, it so happens, to find this little gem from Brent Arends in the R.O.I. column, suggesting just the move I made this morning. Although I didn't pick up a BlackRock closed end muni fund, a closed end muni fund I did purchase. I think I'll compare mine to his and see which one looks better. If I take a haircut on mine while I hold it, I probably won't bother with the wash sale. Its really not that big a deal for me.
Now I just wish bonds were a wee bit easier to trade for small investors like me. There might be some real treasures out there in the municipal market waiting to get discovered!
Oh well.
Rebalancing Day is here!!
This one has a been quite a bit overdue, but I've been massively procrastinating with my health issue. Fuck, that even sounds like a cop out to me!
Since it has been a quiet night at the office, I decided to go through my investment holdings. I know that the Pimco funds have been racing ahead as the subprime, mortgage, credit market, whatever-the-hell-you-wanna-call-it crisis has been oozing through the financial system. Given their extensive holdings in US Treasuries, it was time to harvest some profits on those funds, and pick up some of the weaker players in the old 401(k). The new 401(k) is pretty crappy, so I haven't quite matched their investment options against real bloody funds.
Damn you, employer, damn you!!!
Once markets open, I'll be able to put in 3 buy orders for some funds to round out my bond exposure outside the retirement accounts. I found a nice closed end muni fund that I think I'm going to pick up some shares in, and 2 international and emerging market bond funds. My fixed income exposure has been weaker than I'd like. Also, international rates will probably be slower to fall than in the US, so those holdings still have some time to benefit from declining rates overseas. Its a longer term play, probably about where the Pimco fund holdings were a year or so ago.
In a soon-to-be-written post, I'll discuss my actual method of rebalancing. I haven't automated it yet, but I should look into doing so. A computer could probably do a much better job of figuring this stuff out, or at least a faster one.
Until next time...
Since it has been a quiet night at the office, I decided to go through my investment holdings. I know that the Pimco funds have been racing ahead as the subprime, mortgage, credit market, whatever-the-hell-you-wanna-call-it crisis has been oozing through the financial system. Given their extensive holdings in US Treasuries, it was time to harvest some profits on those funds, and pick up some of the weaker players in the old 401(k). The new 401(k) is pretty crappy, so I haven't quite matched their investment options against real bloody funds.
Damn you, employer, damn you!!!
Once markets open, I'll be able to put in 3 buy orders for some funds to round out my bond exposure outside the retirement accounts. I found a nice closed end muni fund that I think I'm going to pick up some shares in, and 2 international and emerging market bond funds. My fixed income exposure has been weaker than I'd like. Also, international rates will probably be slower to fall than in the US, so those holdings still have some time to benefit from declining rates overseas. Its a longer term play, probably about where the Pimco fund holdings were a year or so ago.
In a soon-to-be-written post, I'll discuss my actual method of rebalancing. I haven't automated it yet, but I should look into doing so. A computer could probably do a much better job of figuring this stuff out, or at least a faster one.
Until next time...
Saturday, February 09, 2008
A Victory for the Credit Rating Market
Just a few days ago I wrote this, and now the WSJ surprises me with this piece (sub req'd). I recalled hearing that Egan-Jones had become a "nationally recognized statistical rating organization" or NR-SRO. This is the pass that Moody's, S&P and Fitch alone had until recently. My understanding is that if you are an NR-SRO designated credit rating firm, you effectively cannot be sued for providing inaccurate ratings because the act of providing your ratings is considered a public service.
This is joyous news! It would be ideal if at least 1 new NR-SRO were chosen. The more competition in the space, the better, as I previously stated. Egan-Jones' business model is much less controversial, since they are retained by their clients to rate credits. They do not get paid by the issuer, as the Big 3 do, so there is no conflict of interest or "ratings shopping" when dealing with them. Also, Egan-Jones just provides their rating - which as Moody's and S&P have stated throughout the subprime debacle, is just an opinion - without having a vested interest in their client's use of that rating. Whether the client is going long or short on the credit that they hire Egan-Jones to rate is unimportant.
So now maybe we'll see some real competition in this market. It won't be easy, but Egan-Jones has been fighting to obtain NR-SRO status for years. Their business model is different and there will be some adjustment required by the market. However, it should be clear that this is a positive development. Look at what happened when the market relied only on ratings from 3 firms, all of whom take payment for their ratings from the issuers of the debt they are rating. While not being the only culprit in this financial calamity, the Big 3 played a central role due to the laziness of investors and the blind faith put into their ratings. Hopefully, now things will start to shift back in the direction of meaningful, trustworthy ratings.
This is joyous news! It would be ideal if at least 1 new NR-SRO were chosen. The more competition in the space, the better, as I previously stated. Egan-Jones' business model is much less controversial, since they are retained by their clients to rate credits. They do not get paid by the issuer, as the Big 3 do, so there is no conflict of interest or "ratings shopping" when dealing with them. Also, Egan-Jones just provides their rating - which as Moody's and S&P have stated throughout the subprime debacle, is just an opinion - without having a vested interest in their client's use of that rating. Whether the client is going long or short on the credit that they hire Egan-Jones to rate is unimportant.
So now maybe we'll see some real competition in this market. It won't be easy, but Egan-Jones has been fighting to obtain NR-SRO status for years. Their business model is different and there will be some adjustment required by the market. However, it should be clear that this is a positive development. Look at what happened when the market relied only on ratings from 3 firms, all of whom take payment for their ratings from the issuers of the debt they are rating. While not being the only culprit in this financial calamity, the Big 3 played a central role due to the laziness of investors and the blind faith put into their ratings. Hopefully, now things will start to shift back in the direction of meaningful, trustworthy ratings.
Sunday, February 03, 2008
Three is Not Enough
I'm all for personal and corporate responsibility, with regard to investments. If you don't know what you're buying, you shouldn't be buying it. Thus, if you take a loss, you deserve it for getting in over your head.
However, seeing something like this lets you know that the oligarchy of S&P, Moody's and Fitch must be broken. It amazes me that these corporate treasurers would be allowed to keep their jobs. However, I think so many companies are going to end up writing off investments which are backed by RMBS, CMBS and derived structures that they'll all be able to keep their jobs since everyone will be guilty. Lawson or Sun or Ciena or Bristol-Myers -- all of them would end up hiring from the same pool of treasurer candidates who all put their previous firms' cash into these mortgage backed investments which had better yields than Treasuries and "are almost as good as cash".
Ha!
So really, I don't get why FASB doesn't take responsibility for this issue. We need more credit rating firms than this troika. There needs to be more competition in this market. (Just as there needs to be more competition in the market for auditors; they need to take up that argument as well IMO.) Too many people, at too many levels, have gotten away with "well, it carried a AAA rating from...", and personally, they deserve the losses they are facing for basically doing no research. However, if these 3 companies actually had to earn their keep, instead of it being given to them by Federal government mandate, maybe the ratings would mean something right now and fewer poor schlubs would be staring down losses on the back of such a pathetic excuse.
Hmmm. This topic leads me to another question. Where are the HFs? We know distressed debt is attracting lots of capital these days. I wonder if any funds are slipping into the treasurer's office to negotiate away some of these packages of auction-rate securities, at steep discounts of course? Or at the companies just holding on to them after writing them off (off, not just down) and looking for the recovery? Just curious!
Citadel, anyone?
Until next time...
However, seeing something like this lets you know that the oligarchy of S&P, Moody's and Fitch must be broken. It amazes me that these corporate treasurers would be allowed to keep their jobs. However, I think so many companies are going to end up writing off investments which are backed by RMBS, CMBS and derived structures that they'll all be able to keep their jobs since everyone will be guilty. Lawson or Sun or Ciena or Bristol-Myers -- all of them would end up hiring from the same pool of treasurer candidates who all put their previous firms' cash into these mortgage backed investments which had better yields than Treasuries and "are almost as good as cash".
Ha!
So really, I don't get why FASB doesn't take responsibility for this issue. We need more credit rating firms than this troika. There needs to be more competition in this market. (Just as there needs to be more competition in the market for auditors; they need to take up that argument as well IMO.) Too many people, at too many levels, have gotten away with "well, it carried a AAA rating from...
Hmmm. This topic leads me to another question. Where are the HFs? We know distressed debt is attracting lots of capital these days. I wonder if any funds are slipping into the treasurer's office to negotiate away some of these packages of auction-rate securities, at steep discounts of course? Or at the companies just holding on to them after writing them off (off, not just down) and looking for the recovery? Just curious!
Citadel, anyone?
Until next time...
Saturday, January 26, 2008
2008 Goals
Here it is, a bit behind schedule and long overdue, but I finally did it! Woo hoo!
This year, I see my goals as being a lot more personal. I know that I'm in a much different place, and I'm a different person from who I was a year ago. Hugely different. I really want my goals to reflect that, which I think they will just by virtue of the fact that the "new" me has crafted them. I also commit to updating my progress on working toward completion of these goals over the course of the year. Doing so in this public forum will help keep me accountable
Regular Goals --
Personal: Learn to snowboard with enough proficiency that I can tackle a green trail by 31 Dec 2008.
Personal: Accumulate $20,000 in emergency funds by 31 Dec 2008.
Personal: Achieve $150,000 in net worth by 31 Dec 2008.
Personal: Save $15,000 for a house down payment by 31 Dec 2008.
Personal: To find and accept an offer on a new, rewarding and fulfilling job by 29 Feb 2008.
Business: Unwind my real estate investing partnership by 30 Jun 2008, including all asset sales.
Business: Hand off my consulting customers to responsible, attentive, competent person with high integrity by 30 Apr 2008.
Business: To ship a prototype of our application running on Windows Mobile and the iPhone by 30 Sep 2008.
Stretch Goals --
Personal: Read 50 books by 31 Dec 2008.
Personal: Accumulate $30,000 in emergency funds by 31 Dec 2008.
Business: To have a beta release of our application running on Windows Mobile and the iPhone by 31 Dec 2008.
You'll notice some carryover from the 2007 goals, as the goals which came across are very important to me from a quality of life standpoint. This year, I want to seriously look at acquiring a piece of real estate to make my home. While I plan to keep an eye out for real estate investments, my interest has waned due to the problems I've had with this existing partnership as well as a desire to focus on building my software startup. I had to make some major changes there, parting ways with my partner, and I'm looking to really rev that project with input from a group of advisers that I trust and respect. That can be considered fallout from the year that was.
You'll also notice that several of these goals are what might considered "negative" or "inverse" goals. Unwinding my partnership and handing off consulting clients are efforts to really focus my energy into those areas that are the most rewarding and supportive of my overall life goals. I have made them goals here because I want to be free and clear of these obligations as quickly as possible, as all time spent addressing these areas means time that is not available to work on mobile software development, networking, or building my new career.
If anyone knows a competent, underemployed Windows expert who might be interested in taking on some side consulting work, by all means, have them contact me. They must be local to the Washington, DC area, as my clients are located in the DC metropolitan area and Baltimore. I will conduct a test (or possibly a series of tests) to determine competence and integrity. Since I consider all of my clients to be friends, I have to be comfortable with whomever I recommend to take over my duties. This person will be entrusted with the "keys to the kingdom" with regard to each of these businesses.
Finally, anyone who is interested in purchasing investment property in Baltimore should contact me. These are all rentals in the standard Baltimore mold - 3 bed, 1 bath rowhouses. You can get a good deal on pricing because we have equity in all three, but honestly, we're looking to get out of them as quickly as possible. All 3 can be purchased as portfolio, or individually, although clearly the best room for negotiating a deal will be in buying multiple properties. I am also accepting referrals to other interested, serious investors as well. This is the real albatross around my neck, and the most urgent pain point in my life right now.
Anyway, let me press publish on this. If you're interested in either offer, let me know. Until next time, good people...
This year, I see my goals as being a lot more personal. I know that I'm in a much different place, and I'm a different person from who I was a year ago. Hugely different. I really want my goals to reflect that, which I think they will just by virtue of the fact that the "new" me has crafted them. I also commit to updating my progress on working toward completion of these goals over the course of the year. Doing so in this public forum will help keep me accountable
Regular Goals --
Personal: Learn to snowboard with enough proficiency that I can tackle a green trail by 31 Dec 2008.
Personal: Accumulate $20,000 in emergency funds by 31 Dec 2008.
Personal: Achieve $150,000 in net worth by 31 Dec 2008.
Personal: Save $15,000 for a house down payment by 31 Dec 2008.
Personal: To find and accept an offer on a new, rewarding and fulfilling job by 29 Feb 2008.
Business: Unwind my real estate investing partnership by 30 Jun 2008, including all asset sales.
Business: Hand off my consulting customers to responsible, attentive, competent person with high integrity by 30 Apr 2008.
Business: To ship a prototype of our application running on Windows Mobile and the iPhone by 30 Sep 2008.
Stretch Goals --
Personal: Read 50 books by 31 Dec 2008.
Personal: Accumulate $30,000 in emergency funds by 31 Dec 2008.
Business: To have a beta release of our application running on Windows Mobile and the iPhone by 31 Dec 2008.
You'll notice some carryover from the 2007 goals, as the goals which came across are very important to me from a quality of life standpoint. This year, I want to seriously look at acquiring a piece of real estate to make my home. While I plan to keep an eye out for real estate investments, my interest has waned due to the problems I've had with this existing partnership as well as a desire to focus on building my software startup. I had to make some major changes there, parting ways with my partner, and I'm looking to really rev that project with input from a group of advisers that I trust and respect. That can be considered fallout from the year that was.
You'll also notice that several of these goals are what might considered "negative" or "inverse" goals. Unwinding my partnership and handing off consulting clients are efforts to really focus my energy into those areas that are the most rewarding and supportive of my overall life goals. I have made them goals here because I want to be free and clear of these obligations as quickly as possible, as all time spent addressing these areas means time that is not available to work on mobile software development, networking, or building my new career.
If anyone knows a competent, underemployed Windows expert who might be interested in taking on some side consulting work, by all means, have them contact me. They must be local to the Washington, DC area, as my clients are located in the DC metropolitan area and Baltimore. I will conduct a test (or possibly a series of tests) to determine competence and integrity. Since I consider all of my clients to be friends, I have to be comfortable with whomever I recommend to take over my duties. This person will be entrusted with the "keys to the kingdom" with regard to each of these businesses.
Finally, anyone who is interested in purchasing investment property in Baltimore should contact me. These are all rentals in the standard Baltimore mold - 3 bed, 1 bath rowhouses. You can get a good deal on pricing because we have equity in all three, but honestly, we're looking to get out of them as quickly as possible. All 3 can be purchased as portfolio, or individually, although clearly the best room for negotiating a deal will be in buying multiple properties. I am also accepting referrals to other interested, serious investors as well. This is the real albatross around my neck, and the most urgent pain point in my life right now.
Anyway, let me press publish on this. If you're interested in either offer, let me know. Until next time, good people...
Thursday, January 24, 2008
Investing in Death Redux
Death bonds. Mmmm. Yummy!
Now, some may consider that tacky and tasteless, and its possible that it is. But this is my blog, dammit.
I'm really in love with the idea of securitization and finding different cash flows to securitize, so this article on Bloomberg.com caught my eye.
Now, securitization is getting a bum rap lately due to the so-called Subprime Mortgage Crisis. I find that bum rap to be unwarranted, especially when you consider that an entire line of people in the chain made really bad decisions for which they mostly do not want to be held accountable for. Yes, fraud was a factor in a great many cases, but at the end, people chose to sign on the dotted line for a number of reasons and in many of those cases, they were bad reasons. However, if the lives of you or your family were not at stake, then you really have no excuse for the decision you made. Suck it up. Yeah, it hurts, but pain is one of the universe's way of letting you know that you did something detrimental, and hopefully you'll learn from the experience.
Anyway, getting off my soapbox and back into this conversation, I really wonder what the models look like. As the point was raised in the article, there hasn't been an extreme mortality event in a very long time. While the chances of such an even would appear to be rather low, even controllable to some degree (as much as the whims of humans can be managed), natural disasters look much more difficult to model from a risk perspective. I would think that anyone participating in the cat bond market would be looking very closely at death bonds. Of course, that human psychology factor probably scares off a lot of the potential investors, since psychology cannot be modeled well, if at all. Isn't the mark of a prudent investor that they know what they don't know?
So what untapped securitization markets are there? Catastrophe and death are covered. You have to wonder where the greenfields of securitization are. Hmmmm.
Until next time, friends. Look for 2008 goals soon, as I made a promise to a friend to get that up by 5:00 PM EST this coming Monday.
Now, some may consider that tacky and tasteless, and its possible that it is. But this is my blog, dammit.
I'm really in love with the idea of securitization and finding different cash flows to securitize, so this article on Bloomberg.com caught my eye.
Now, securitization is getting a bum rap lately due to the so-called Subprime Mortgage Crisis. I find that bum rap to be unwarranted, especially when you consider that an entire line of people in the chain made really bad decisions for which they mostly do not want to be held accountable for. Yes, fraud was a factor in a great many cases, but at the end, people chose to sign on the dotted line for a number of reasons and in many of those cases, they were bad reasons. However, if the lives of you or your family were not at stake, then you really have no excuse for the decision you made. Suck it up. Yeah, it hurts, but pain is one of the universe's way of letting you know that you did something detrimental, and hopefully you'll learn from the experience.
Anyway, getting off my soapbox and back into this conversation, I really wonder what the models look like. As the point was raised in the article, there hasn't been an extreme mortality event in a very long time. While the chances of such an even would appear to be rather low, even controllable to some degree (as much as the whims of humans can be managed), natural disasters look much more difficult to model from a risk perspective. I would think that anyone participating in the cat bond market would be looking very closely at death bonds. Of course, that human psychology factor probably scares off a lot of the potential investors, since psychology cannot be modeled well, if at all. Isn't the mark of a prudent investor that they know what they don't know?
So what untapped securitization markets are there? Catastrophe and death are covered. You have to wonder where the greenfields of securitization are. Hmmmm.
Until next time, friends. Look for 2008 goals soon, as I made a promise to a friend to get that up by 5:00 PM EST this coming Monday.
Wednesday, January 23, 2008
2007 Goal Review
Well, to keep it simple, I completely failed on 2007's goals. I completed not a single one. I'm not going to make any excuses. For all the stuff that was going on with me last year, there was nothing that rendered me physically incapable of completing those goals. Even the reading goal, if nothing else, I should have been able to make more progress with than I did.
Such is life.
Well, that definitely makes for a short post. In my upcoming 2008 list of goals, I'll see how many I carry over, how many I drop entirely and how many new goals I can conceive of.
The funniest part is that I put in more time and energy pursuing the first 3 stretch personal goals than all of the others combined.
Anyway, until next time...
Such is life.
Well, that definitely makes for a short post. In my upcoming 2008 list of goals, I'll see how many I carry over, how many I drop entirely and how many new goals I can conceive of.
The funniest part is that I put in more time and energy pursuing the first 3 stretch personal goals than all of the others combined.
Anyway, until next time...
Wednesday, January 16, 2008
The Definition of Welfare
How very fitting!
I thought it was hilarious, personally. Thanks to JLP @ AllFinancialMatters for this.
I thought it was hilarious, personally. Thanks to JLP @ AllFinancialMatters for this.
Thursday, January 10, 2008
Non-institutional Prime Brokerage
Looks like I was spot on about this concept. I guess a bit more digging is in order. If there is one, there are probably more. Kind of like cockroaches.
This whole arena seems ripe for competition, given the typical hedge fund concerns about front running by their primes. Also seems like the kind of area a technology oriented investor like Silver Lake, or even the PE or venture arms of some of the bulge brackets, would be looking to get into. They could always take the venture public, sell it off or spin it off it was successful. Hell, I could even see Citadel setting up an arm to do this, although, how many hedge funds would run trades through them?
Anyway, until next time...
This whole arena seems ripe for competition, given the typical hedge fund concerns about front running by their primes. Also seems like the kind of area a technology oriented investor like Silver Lake, or even the PE or venture arms of some of the bulge brackets, would be looking to get into. They could always take the venture public, sell it off or spin it off it was successful. Hell, I could even see Citadel setting up an arm to do this, although, how many hedge funds would run trades through them?
Anyway, until next time...
Friday, December 28, 2007
Life is an Optimization Function
Wednesday morning, I got out of a meeting with an older gentleman that I consider an informal mentor (but that will be changing soon). I have never felt so inspired to write a blog post as I did after that meeting.
That's when I began writing this.
In the 40 minutes or so that we spoke, he told me about his experience with a small-ish tech company that he joined after leaving the bureaucratic, sclerotic company we both used to work for (and that I still work for). I asked him what he learned from his experience, at which point he described, with an accompanying drawing, his experience over the last few years. It would be an understatement to say that I was blown away! Although I knew the stuff he told me, and I've heard it before, I've never heard it presented the way he did.
During the conversation, my will-be mentor drew 3 horizontally oriented boxes, side by side, with a line of progression through the first 2 leading into the last. In the first he wrote "Workers", although the word "Labor" would fit just as well. 80% of people fall into this group - those who go to their jobs, make payments on a mortgage or rent, raise their children and generally are blissfully unaware of the other 2 groups.
In the middle box, he wrote "Wealthy". This group makes up approximately 15% of those involved in economic activity - corporate managers and the like. They have some money, and have generally enough to live the kind of life they want to live. Nothing wrong with that, or with the "Workers" for that matter. However, the third box is where he and I both aspire to end up - "Investors". Calculating their percentage of the population is left as an exercise to the reader.
From there, we discussed some of the things he saw while with this small-ish tech company as a member of the management team. Lessons learned. Relationships formed. How money works. How this opportunity has allowed him to move from the "Workers" group into the ranks of the "Wealthy"; unfortunately, it has taken him a far longer amount of time than he would have liked had he been aware of these distinctions sooner.
Its just staggering, in a beautiful way. I literally had flashbacks to "Wall Street" after walking out of his office.
As I made my way back to my car to leave, I realized that life is an optimization function. It really is about maximizing every opportunity, every moment, every minute, and that, as Bud Fox told us in Wall Street, "Well, life all comes down to a few moments. This is one of them." Optimizing every single opportunity that presents itself should be your goal. That's what I'll be working on in 2008. I have 2.5 years to accomplish my biggest goal. Playtime is over. I get it now.
"Money never sleeps." Neither will I.
That's when I began writing this.
In the 40 minutes or so that we spoke, he told me about his experience with a small-ish tech company that he joined after leaving the bureaucratic, sclerotic company we both used to work for (and that I still work for). I asked him what he learned from his experience, at which point he described, with an accompanying drawing, his experience over the last few years. It would be an understatement to say that I was blown away! Although I knew the stuff he told me, and I've heard it before, I've never heard it presented the way he did.
During the conversation, my will-be mentor drew 3 horizontally oriented boxes, side by side, with a line of progression through the first 2 leading into the last. In the first he wrote "Workers", although the word "Labor" would fit just as well. 80% of people fall into this group - those who go to their jobs, make payments on a mortgage or rent, raise their children and generally are blissfully unaware of the other 2 groups.
In the middle box, he wrote "Wealthy". This group makes up approximately 15% of those involved in economic activity - corporate managers and the like. They have some money, and have generally enough to live the kind of life they want to live. Nothing wrong with that, or with the "Workers" for that matter. However, the third box is where he and I both aspire to end up - "Investors". Calculating their percentage of the population is left as an exercise to the reader.
From there, we discussed some of the things he saw while with this small-ish tech company as a member of the management team. Lessons learned. Relationships formed. How money works. How this opportunity has allowed him to move from the "Workers" group into the ranks of the "Wealthy"; unfortunately, it has taken him a far longer amount of time than he would have liked had he been aware of these distinctions sooner.
Its just staggering, in a beautiful way. I literally had flashbacks to "Wall Street" after walking out of his office.
As I made my way back to my car to leave, I realized that life is an optimization function. It really is about maximizing every opportunity, every moment, every minute, and that, as Bud Fox told us in Wall Street, "Well, life all comes down to a few moments. This is one of them." Optimizing every single opportunity that presents itself should be your goal. That's what I'll be working on in 2008. I have 2.5 years to accomplish my biggest goal. Playtime is over. I get it now.
"Money never sleeps." Neither will I.
Saw This Coming
Dammit!
I knew this would happen and I didn't write about it here!!! Damn damn damn!
I remember thinking about a week ago that Berkshire was in perfect position to move into the municipal bond insurance segment. It only made sense. Here's a company with $45B in cash that is looking for more cash generating businesses. Its primary line of business is insurance, specifically direct insurance on easily modeled quantities - autos (and now rental insurance, according to the Geico ads I heard on the radio recently), re-insurance, and probably some other things. No lives, no health, nothing with too many variables, as if there products Berkshire insures currently don't have enough variables already. So the question for me became when does Berkshire start insuring munis. The monolines are getting their asses kicked, he's got cash and is looking to both put what he has to use and generate more, and he already has the big brains on staff to model the products. It was a natural product line extension.
And here it is.
And you didn't hear it here first.
*sigh*
I knew this would happen and I didn't write about it here!!! Damn damn damn!
I remember thinking about a week ago that Berkshire was in perfect position to move into the municipal bond insurance segment. It only made sense. Here's a company with $45B in cash that is looking for more cash generating businesses. Its primary line of business is insurance, specifically direct insurance on easily modeled quantities - autos (and now rental insurance, according to the Geico ads I heard on the radio recently), re-insurance, and probably some other things. No lives, no health, nothing with too many variables, as if there products Berkshire insures currently don't have enough variables already. So the question for me became when does Berkshire start insuring munis. The monolines are getting their asses kicked, he's got cash and is looking to both put what he has to use and generate more, and he already has the big brains on staff to model the products. It was a natural product line extension.
And here it is.
And you didn't hear it here first.
*sigh*
Wednesday, December 26, 2007
Lessons from "Wall Street"
Wow!
I apologize to all of my readers for not posting at all in the last month. I have no excuse for it. I failed to honor my word. In the future, starting 1 January 2008, I will have blogging formally integrated into my weekly schedule. I am planning 2, maybe 3, 90 minute sessions per week where I only work on getting caught up on my blog writing and reading.
So in the last month, I went out and picked up the twentieth anniversary edition DVD of Wall Street. The more I watch this movie (again), the more I love it. The special features really tie it all together and are great in their own right. However, at the core, the movie is still pure perfection, even 20 years later. (While I was 12 when it came out and first saw it on cable when I was 13, I was already into investing and finance as a hobby by the time I did.)
"And if you need a friend, get a dog." -- Gordon Gekko, Wall Street
I don't like dogs, but I have seriously been considering getting one. The urge gets stronger every time I hear that line. Why? Because I have a vision in my mind that grows clearer daily, a vision of where I plan to take my life. Every time I watch Wall Street, and that has been almost every day since 17 December, the vision solidifies a bit more. And it looks like it may require me to ditch some of the people in my life, which I don't really want to do, but they're no longer supportive of me or my goals. I do like friends and my inner circle will remain, I'm sure, but there will be a clearing for a pet (much like the WASPs Gekko mentions to Bud Fox in the sauna). I can feel it in my bones.
Now, I'm very clear that Gordon Gekko is "the bad guy". However, I think the movie is instructional in other ways, besides promoting unbridled greed. Commitment. Drive. Persistence. Pushing yourself beyond your perceived limits. Being prepared. Knowing exactly what your goal is. Basic ideas, but the very ideas I've been grappling with for the bulk of this calendar year. This is what I see when I watch this movie. These all transcend the notion of intent; how you direct this energy is your choice, but being successful in any arena requires directing that energy at some goal. This movie is a classic, and it gets better every time I watch it.
Anyway, its time for me to go. I'll have a new post tomorrow about a great meeting I had earlier today. This meeting re-inspired me with regard to my blogging. And like Wall Street, it has helped focus my mind on my goals. 2008 is right around the corner. Its time to get ready!
"Money never sleeps, pal." -- Gordon Gekko
Until next time...
I apologize to all of my readers for not posting at all in the last month. I have no excuse for it. I failed to honor my word. In the future, starting 1 January 2008, I will have blogging formally integrated into my weekly schedule. I am planning 2, maybe 3, 90 minute sessions per week where I only work on getting caught up on my blog writing and reading.
So in the last month, I went out and picked up the twentieth anniversary edition DVD of Wall Street. The more I watch this movie (again), the more I love it. The special features really tie it all together and are great in their own right. However, at the core, the movie is still pure perfection, even 20 years later. (While I was 12 when it came out and first saw it on cable when I was 13, I was already into investing and finance as a hobby by the time I did.)
"And if you need a friend, get a dog." -- Gordon Gekko, Wall Street
I don't like dogs, but I have seriously been considering getting one. The urge gets stronger every time I hear that line. Why? Because I have a vision in my mind that grows clearer daily, a vision of where I plan to take my life. Every time I watch Wall Street, and that has been almost every day since 17 December, the vision solidifies a bit more. And it looks like it may require me to ditch some of the people in my life, which I don't really want to do, but they're no longer supportive of me or my goals. I do like friends and my inner circle will remain, I'm sure, but there will be a clearing for a pet (much like the WASPs Gekko mentions to Bud Fox in the sauna). I can feel it in my bones.
Now, I'm very clear that Gordon Gekko is "the bad guy". However, I think the movie is instructional in other ways, besides promoting unbridled greed. Commitment. Drive. Persistence. Pushing yourself beyond your perceived limits. Being prepared. Knowing exactly what your goal is. Basic ideas, but the very ideas I've been grappling with for the bulk of this calendar year. This is what I see when I watch this movie. These all transcend the notion of intent; how you direct this energy is your choice, but being successful in any arena requires directing that energy at some goal. This movie is a classic, and it gets better every time I watch it.
Anyway, its time for me to go. I'll have a new post tomorrow about a great meeting I had earlier today. This meeting re-inspired me with regard to my blogging. And like Wall Street, it has helped focus my mind on my goals. 2008 is right around the corner. Its time to get ready!
"Money never sleeps, pal." -- Gordon Gekko
Until next time...
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