Money and Financial Business

Well, we're through week two on the Ten Dollar Project. I've experienced a minor setback in that I only managed to sell one of my pieces of jewelry on eBay, and that for the minimum bid of four dollars....

I have taken a little bit of flack for a few of the articles I've written here that advocate penny-pinching and saving over spending. Most of it is along the lines of, "What good is it to have money if...

This post shares a tip that may help you avoid hefty sales charges when buying mutual funds.

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My luck (read: skill) buying and selling individual stocks sucks. As best I can tell I am not alone. This post lists three reasons why, a number of years ago, I decided to leave the buying and selling of stocks in the hands of professionals (managed accounts and mutual funds).

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[10/10/2005 - This post was originally included in a series that I have decided to put on hold. It has now been reclassified to Money Saving Tips.] As a college grad in the late 70s, my starting salary was around $17,000. Yet only a few years later my net worth ...

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The man pictured below is Dr. Martin D. Weiss. He bills himself as “...this country's leading consumer advocate for financial safety.” His company, Weiss Research, claims to be one of the largest publishers of (paid) print and electronic financial newsletters in the U.S. Some running as high as $5,000 a ...

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This is from a newsletter published by Fidelity... “The amount you set aside today and each month is the single biggest contributor to reaching your retirement savings goals and enjoying a successful retirement.” I concur. What do you think? about - portfolio - feedback - disclaimer

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This post features four simple ways to keep day-to-day tabs on your stocks and mutual funds. If you know of others, please feel free to add a comment.

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If you are lucky enough to be part of the mass affluent -- that is a household with $100K - $1 million to invest -- you may be finding publications like Money & Smart Money sometimes too basic to really help with some of the issues you now face. So ...

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“Miracles do not happen in contradiction to nature, but only in contradiction to that which is known to us in nature”–St. Augustine

Similarly, Successful people do not have anything in contradiction, to what every human being is blessed with, but to the extent that they make the most purposeful use of what is given.

Every action of ours is influenced by 2 faculties – our thoughts & our feelings. What abridges these 2 faculties is the ‘argumentative conscience’. It is this conscience that determines the course of our action and, in effect, its rationality. This whole process is made complex by what we call as ‘emotion’ and terminated by leaving everything upon ‘fate.’ On fate, this quote by Thomas Jefferson seems most appropriate to me

“The more hard work I do, the more lucky I get.”

I shall try to simplify this complexity by rationalizing the causes and effects of the same.

Causes:
“Heart has its reasons, that reasons don’t understand” – Pascal.

This quote by Pascal, I feel, highlights the most vicious and most common cause of this complexity (i.e.) when what we feel is in contradiction to what we think.
Example: People know they should not smoke; yet they smoke.

What causes this disparity between our feelings and thoughts is the domination of our ‘emotion’ over our ‘intelligence.’ Just as an argument won by force is ‘fallible,’ emotion taking over intelligence is ‘irrational.’

Effect:
“The worst enemy of investor (man) is he himself” – Ben Graham.

The most common effect of this contradiction is ‘illusion.’ Example: Many people are ready to believe that Duryodhana walked on water, but may not accept that sun is star.

In short, the most common effect is ‘Faith becomes the shortcut for knowledge.’

Inner Discipline:
When we try to win this argument, instead, by rationalizing the disparity, we do justice to both our thoughts and feelings. Because in this fair battle, it is the action that is the winner. The neutral judge who helps decide is the argumentative conscience and the rule that governs it is ‘Inner discipline.’

The argumentative nature of our conscience is not realized because of the instinctive nature of our brain. This is often termed as instinct, hunch and very often as sub-conscious mind. This is where ‘inner discipline’ can play a pivotal role. Intellect governs our thought process and perception governs our emotions. So we can in effect develop a right inner discipline by providing our brain with appropriate intellect and our heart with rational perception about our intellect and its need.

Conclusion:
Just as a mother cares of her child, we should feel blessed that we have 2 faculties – thoughts & feelings, which may or may not agree upon common course, but work towards a common cause of taking care of prospective actions. It took me two pages to explain what Warren Buffett did in a line,

“Only when you combine good intellect with emotional discipline, you get a rational behavior.”

I really hate recurring charges. But having high-speed internet access is one luxury I simply can’t do without. But even here I found a way to save a few bucks.

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When it comes to insurance, my philosophy is to self-insure for the small stuff. Today I present three reasons why I believe this approach could help many people save money over the long run.

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Last night I returned from a four day weekend in New York City. The guy sitting next to me on the plane just happened to live in a pricy lake-front development where I once owned investment property.

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As you have probably noticed, this site has changed quite a bit. The table of DRIPs has finally been formatted correctly and I have added some liks to various DRIPping resources for those people who wish to explore the idea further. As well, there are links to several other Canadian blogs where people talk investing.

My goal with this site is to post DRIP news weekly. Depending on the news of the week, posts may appear more often so please check back often. I want to develop the largest list of CDN DRIPs on the web but I cannot so it without you. So, thanks to everyone for their tremendous feedback and your additions to the list. That being said, when you post a new DRIP please give me as much information as possible eg. Name, Symbol, does it have a DRIP, does it have a SPP, is there a discount, etc. This will help get the information on the site as quickly as possible.

So, this week I have added two new DRIPs: Cathedral Energy and NAV Energy. Cathedral was mentioned through a post but I was unable to find any information about their plan on their website. If anyone DRIPs this, please post the missing information.

Thanks and happing DRIPping,
Ken

While home sales are still extremely brisk, the inventory for sale has climbed 30% since February, which is leading to longer market times and more competition for price, marketing and condition by sellers.  Interest rates have started to creep up as well, however they are still about the same as they were last year at this time.

Prior to coming up with the solution below, I found it difficult to know whether I was within budget for any given month. My problem was two-fold: (i) Credit card bills often contained job-related expenses that would eventually be reimbursed, and (ii) Occasional expenses like the annual property tax bill ...

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I think, "Fear is a consequence of doubt. Doubt is in contradiction to purpose. And contradictions do not exist"

Very often, I hear people quote one-liners just as if it contains all the answers to a given problem. The problem is not in the one-liners, but the way people end up using them.

The people who can’t differentiate between rationality and irrationality are naïve, but those who try to rationalize the irrational end up making fool of themselves.

I shall try to list few such one-liners and the misuse there in:

Fortune favors the brave:
People often use this when somebody is reluctant to go ahead with something. Instead of analyzing the odds of it and deciding upon it, they say to themselves (and if unlucky, the guy next door reminds) "fortune favors the brave". Sure it does, if braveness is not in contradiction to rationality.

Take care of the means & the end will take care of itself:
Sure it does, if the means chosen are not in contradiction to the end desired.

This time its different:
Market people love this when they read this (in substance) in the newspaper. They feel vindicated. I shall like to explain the fallacy of this one using a one liner
"Appearance can be deceptive"


Better luck next time:
Only when somebody has done everything right this time and its only the odds, like a player in coin toss game, that s gone against him. But quite often this is not the case.

Believe in yourself:
Surely we all should believe in ourselves. But not when the belief is in contradiction to rationality.

God will look after you: (The most widely used)
If God is up there or not, nobody can answer. Even if He exists, He would certainly not look after somebody who’s means lead him to hell. He would, rather, drop him up to hell.

Conclusion:
"Learn from your mistakes and you’ll end up being wiser, at the least" said somebody. But ever since people commit the same mistakes, only the form is changed substance remains the same. The reason, I think, behind this is that people end up trying to rationalize the irrational.

(Here the common man represents to the guy who tries to beat the market day in and day out.)

Scene Infinity:
Mr. Bull and Mr. Bear are two guys who do the following things with a stock named ‘Prediction, Inc.’. Mr. Bull buys it for Rs. 225, hoping to sell it back at Rs. 240. Mr. Bear goes short on it at Rs. 225, hoping to buy it back at Rs. 210.

Now Prediction, Inc unaware of the positions of Mr. Bull and Mr. Bear just starts swinging. It goes to Rs. 235. Mr. Bull at this point time grows in confidence, for his contention is supported by validity and grows greedy. On the other hand, Mr. Bear loses confidence for now fear reigns higher than Greed and closes his position.

Prediction, Inc got bored and swung the other way. It now quoted at Rs. 215. Mr. Bull realizes that he was greedy and can’t help but close his position. They both leave thinking that they were right in some sense. After all no loser agrees that he is incompetent. If he does that he might be asked to leave the field.

The Problem:
The inherent problem with Mr. Bull and Mr. Bear is that they wanted to seek value (or) make money out of predictions rather than the business that the stock represented. Also not being able to stick to that prediction highlights characteristics of human fallibility (I will discuss that in next paragraph). Everybody when speaking in a group agrees, “Markets, or life for that matter, are anything but predictable”. Yet when left to themselves they try to predict the unpredictable.

‘Only a beggar can stick to their predictions and hold on, not out of confidence but only because they have nothing to lose’. When the elements of apparent ‘real risk’ are combined with irrational action, it eradicates the confidence out of the irrational predictor. (This somehow qualifies as a tautology as far as I am concerned).

Purpose:
The purpose of this write up is certainly not to discuss the stupidity of people, for I am not smart enough to do that, but to discuss the impact this stupidity has on the markets. All the advocates of EMT say that a stock price discounts everything that is known about the company. If they do that or not nobody can say, but I will like to say that they discount ‘predictions’ of this sort into their price, which in effect, nullify all the other factors that can make a difference.

Having said that I will also like to say that I tried to explain the way markets work in a short span of time. But in the long run they work in a completely different way, which I don’t wish to discuss in this write up. May be, the following words will explain much more brilliantly what I may not have been so good at,
“In the short run markets are voting machine, but in the long run they are weighing machine”

Hi All,

As you can see, the formatting has been fixed. It now all appears without having to scroll down.

If you have any additions or corrections to the list, please reply to this public thread and I'll update the list ASAP.

Thanks,
Ken

Let’s say there’s an aspect of personal finance, investing or your career that you find new or a bit confusing -- here’s something to consider... Find a mentor. That is someone who can give you advice without wanting to sell you something. Certainly family and friends are a good place ...

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(Here the uncommon man refers to value seekers and those who can manage to sleep well)
Scene:
(By nature, Mr. Value never gets tempted whereas Mr. Market is very enthusiastic)
Today, Mr. Market is negatively enthusiastic and offers to Mr. Value a Rs. 100 worth of note for Rs. 60. Mr. Value picks it up and goes into deep slumber. Meanwhile Mr. Market consults a doctor. He advises him to take anti-depressant. Being an enthusiastic person by nature Mr. Market takes over dose of that and now he is singing in the rain.
He is excited about everything. So he goes on a buying spree. He goes back to Mr. Value and wakes him up from his slumber. Mr. Market offers Rs.120 for the same Rs. 100 note. Mr. Value being a good fellow keeps his friend happy, by selling the note to him. And goes back into sleep just having doubled his wealth.

Inference:
The complexity about ‘value investing’ lies in understanding the simplicity of the same. The scene above only highlights the simple idea behind the whole concept of value investing and using markets to seek value. But there are few complexities that make this simplistic approach very hard to implement.

Complexities:
I shall divide the complexities into 2:
i) Competence
ii) Human Behavior

i) Competence:
Mr. Value might suffer from bad eyesight. He may get duped by believing that the note is worth Rs. 100 just because Mr. Market promised it to be. What I mean to say is that the meaning of value is subjective. What may be considered as value now, might turn out to be self-delusion in hindsight. Just because Mr. Market throws a business at throwaway prices does not make it cheap and similarly just because Mr. Market quotes high price does not make it expensive. Value as such is not related to price and as an investor one has to have that competence to understand that.
ii) Human behavior:
Mr. Value might end up being awake and asleep at wrong times. On a more serious note, we often mistake Mr. Market irrationalities (or) sporadic movements for values. And anybody who tries to rationalize the irrationalities will be caught napping. I personally feel that human behavior is the hardest nut man will ever, if at all, crack.

Conclusion:
At various times, the frenzied behavior of Mr. Market makes business quote below (or) above its ‘intrinsic value’. I don’t see any other reason as to what makes a stock rise or fall. If we can manage to buy good business for less than what it is worth and hold on until Mr. Market gets enthusiastic, we can manage profits. I all together avoided discussing economic and geo-political factors, but in short this provides the foundation for the type of mood Mr. Market gets in. (Just the foundation which at times is very weak).
The purpose of this write up was to touch upon the things that I think can help one understand the mood of the markets. I also wanted to touch upon that it pays to being able to sleep well (i.e.) to be patient. I shall like to end the write up using Ben Graham’s Immortal words,

"Enthusiasm can be an advantage in any activity but not in investing"

The other day I was thinking to myself ‘What makes a successful investor?’ I found a clue in the words of Warren Buffett “Only when you combine sound intellectual with emotional discipline, you get rational behavior”. The emotional discipline, I feel, determines if a man with sound intellectual is successful or not.

Now I wanted to answer, “What is this emotional discipline?” One thing was for sure that it dealt with dealing with ones intuitive responses to the various unpredictable situations. Does this mean that we have no control over that faculty? I, rather, concluded that the problem lies in the fact that not many people are able to recognize the problem rather than not being able to solve it. Recognizing this problem can help one control this faculty.

If so how should, I as an investor, go about recognizing this problem or becoming more emotionally disciplined? I divided the whole process in 2 parts:

(i) Emotional discipline and ‘Buy’ decision
(ii) Emotional discipline and ‘sell’ decision

I also feel that the “emotional discipline and ‘sell’ decision” is much more important to comprehend. Because once we buy a security we develop various types of subconscious attachment to our earlier decision. We develop a desire to prove ourself right.

Warren Buffett said, “Being a reasonable creature, human beings can rationalize anything they set themselves upon”

I also recognize that once we can see that we are developing that kind of attitude we can deal with the problem. But it is much easier said than done. All I can think of now is recall Ben Graham’s word, “The worst enemy of an investor is he himself”

Ben Graham is absolutely right but leaving it that way will be like faking the reality. We should rather use this knowledge to find support towards helping out ourselves.

Now I thought of the possible attitudes an investor can develop after committing himself to a particular stock. I was able to think of 2 possible attitudes (or) syndromes. And I would call them as:

(i) Hail me syndrome
(ii) Masochist syndrome

Hail me Syndrome:
This leaves an investor with a burning desire to prove himself correct to ‘himself’, primarily. This he does by convincing others that he is right in committing himself to a particular stock. He starts to discount all the good news and say that he foresaw this and that (in hindsight, of course). What about the bad news? He goes about finding counter evidence (real or unreal) to a seemingly real problem.

In its extremity, this syndrome can be similar to a patient who has cancer but does not accept it until he faces Mr. Yamdoot.

Masochist Syndrome:
When somebody is suffering from this syndrome he is too self-critical and worries a lot about all the bad things that might happen (he does not see things in terms of probability). Also he does not speak about his commitment in public fearing reproach. What about good news? He sleeps well for a night or two.

In its extremity, the investor decides to give in that he was wrong and get rid of the commitment on any of the minor dips caused by speculative drive.

How to deal?

Which syndrome is bad among the two is not the question. Both the syndromes in their extremity cause severe loss. Also I think everybody suffers from either of the two syndromes, it is the magnitude that varies.

I think that having recognized this problem is very much the solution in itself. Whenever we conclude that a particular stock is to be sold, we need to answer the following questions

“Am I acting in favor of my financial well being?”
“Am I acting rationally based on facts, rather than illusions?”

The first question requires one to be intellectually sound and second one requires one to be rational. Again the degree of difficulty in answering the above question determines if one is successful investor or not.

As of emotional discipline and ‘buy’ decision I think it very much depends on his perception about his own intellectual and the realistic expectation that he prefers to seek from the commitment. Moreover I have not bought any stock in my life as yet to be able to comprehend this in its entirety. (May be this is an excuse for I have not sold any stock either)

For decades people have spend there lifetimes in trying to understand how the human mind works. I, rather, feel that if we can understand our own mind we will be much better served.

I would like to conclude this write up with Keynes words “It pays to be partially correct than being precisely wrong”.

The owners manual for my car* recommends Premium Gasoline at an Octane Rating of 91 or Higher. With gas prices on the rise, about a year ago I hit the Web to determine if I really needed high octane. I found several articles supporting the fact that high octane was ...

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Next time you take your car in for wheel alignment, ask the dealer if they offer a Multiyear Wheel Alignment Service. Recently I bought a five-year agreement from NTB. And the breakeven point was somewhere around 2-3 alignments. NTB also sells one and three year packages.

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This is the second in a series where I review my personal finances over the past 25 years (read Part 1). This post is confined to investment return over the last decade, and answers the question: How has my investment portfolio performed compared to the benchmarks? Note: If you are ...

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This post seeks answers to these questions: - Assuming full retirement age, what is the theoretical maximum for today’s social security benefit? - About how much have I forgone by retiring in my late 40s? Recently I called the Social Security Administration to request an update to my estimated benefits ...

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