Archives for July 2012

Carnival of Wealth, Global Boondoggle Edition

July 30, 2012

 

Our co-ed relay team, if we had one. Taken at United States Olympic headquarters in Colorado Springs.

Every 4 years (well, every 2 years), a bunch of cities awash in something between pride and desperation mortgage their citizens’ children’s futures for a chance at hosting a glorified track meet. Thus the Olympics, which the London organizing (excuse us, “organising”) committee assured us will put their town on the map and in the global public consciousness.

Yes, because no one around the world has ever heard of London or visited it. But now they will. The Games of the XXX Olympiad already acknowledge a 101% cost overrun, again for a shindig that lasts 16 days.

The most ridiculous part of the Olympics is that it’s billed as a way for the nations of the world to cast aside their political differences and play nice. Except the Olympics are just about the most political thing on Earth. Let’s see:

  • Taiwan competing as “Chinese Taipei”, complete with an artificial flag, so as not to irk the Red Chinese.
  • Macedonia competing as the mellifluous “Former Yugoslav Republic of Macedonia”, because Greece has a neighboring province called Macedonia. This would almost be like New Mexico insisting that Mexico change its name to Former Spanish Protectorate of Mexico.
  • Palestine, which isn’t even a country, competing as one.

Every single Olympiad, with the exception of the 1984 Summer Games in Los Angeles, has lost money. (That Olympiad’s chairman, Peter Ueberroth, slapped corporate logos on everything and saved taxpayers untold millions.)

And let’s not forget the 1972 USA basketball team getting jobbed out of a gold medal, the same thing for Roy Jones Jr., and…well, basically everything non-drug-related on this list.

Still, this was pretty awesome.

Alright, the Carnival of Wealth. Personal finance blog posts from around said world. Some good, most awful, none dull. Shall we?

Lance at Money Life & More spent a few seconds writing a post about why should ask for more, but not be greedy.

Now here’s an idea we can get behind, for a post-2012 America whose chief executive will be either a guy who imposed socialized healthcare on the entire nation, or one who imposed it just on a single state. From Cameron at DQDYJ.net, a modest proposal: taxing fat people.

A wonderful recommendation whose time has come. The slow, aesthetically unpleasant, lazy, corpulent legions who infringe on our airplane seats, keep us waiting in the grocery aisle, and take up unwarranted mils in our field of vision have had their way long enough. If they ate intelligently and exercised, no one could make political hay out of a problem that wouldn’t need fixing. There are people who eat donuts for breakfast in this country.

(Wait. It was satire? Never mind.)

We were looking forward to Part IV in W at Off Road Finance‘s series on alternatives to investing. Instead, we’re treated to an interlude about correlation in the stock market. (“Correlation” in the mathematical sense, using the Pearson product/moment method.)

Did we lose some of you? Correlation, a way to boil two sets of corresponding data down to a single value between -1 and 1. Take two quantities like height and weight, and you’ll have a correlation close to 1. Alcohol consumption and brain function, that’d be more like -1. Years of education and number of pets owned? As far as we know those are unrelated, which means a correlation near 0. And movements in the S&P 500 and in Microsoft stock, .76 by W’s calculations.

(A post about why it’s important to have an emergency fund. We wish all the people who write about this would incur legitimate emergencies, just to see what would happen.)

We didn’t know there was a name for this, but Free Money Finance talks about the phenomenon of “showrooming.” You look at something in a store, then buy it cheaper online. Thankfully, most of the showroomers who went to the trouble of leaving comments on his post were unapologetic about doing so. A few sanctimonious Luddites whined about the shuttering of Main Street. And you wonder why we don’t allow comments, only trackbacks.

(Indian remote assistant-penned post. Thanks, but we’ll pass.)

Favour! Cheques! And other colonial forms of spelling! Check out Teacher Man at Young & Thrifty, who’s solved the rat race by going straight at the first turn and heading for small-town Canada. You know, for the folks who think that Winnipeg is too cosmopolitan.

Visited Winnipeg once. In winter. -50º without the windchill, and at that point the scale doesn’t matter because that’s so cold that the Celsius numbers are greater than the Fahrenheit ones. The women had sideburns, a genetic adaptation similar to black skin in the tropics or oversized lungs in the Himalaya. There was a story that teenagers would pass the time by walking without head coverings, to town from the suburbs, then go into a heated indoor area and see whose motor skills would warm up first and allow them to touch their fingers to their noses. Winnipeg. Great place.

Heard of Bitcoins? Sooner or later, you will. And Charles Davis at Wallet Hub has the most understandable explanation of them we’ve seen so far. Let the Yap Islanders use giant round stones for money. We in the First World are better than that.

From the indomitable Neal Frankle at Wealth Pilgrim comes a post on how to create income using mutual funds. Not just appreciation, income. The growth/stability trade-off, subjected to quantification. Comprehensive and easily understood, with actionable advice and no endless first-person whining. Why can’t every post be like this?

In our book (available on Amazon!) we bemoan parents’ refusal to discuss money with their kids. Kids get the sex talk, the alcohol talk, maybe even the drugs talk, but never the money talk. David Marotta at Marotta on Money shares our lament, and implores you to stop what you’re doing and at least discuss Roth IRAs with your precious little snowflake.

Or you can just let your kid take out a student loan to study something useless and then spend decades paying the loan off. Your call.

We just read David’s bio. We’ll have to check the records, but we’re pretty sure he’s our first submitter to have played chess with Edward Teller. Apparently, the U.S. State Department has a chess team. Also, David’s favorite number is e. We’re big Euler-Mascheroni constant people ourselves.

John at Nerd Wallet asks, rhetorically, if you should open a personal joint checking account. Here’s a handy, not-at-all obvious summary culled from it:

Do NOT open a joint bank account with anyone that you do not completely trust.

(Boldfacing and italics his.)

Andrew at 101 Centavos is another guy with a permanently reserved table at the CoW. His directive this week is to RTFC. The c stands for “contract”, the rt for “read the”, and if you bought a house without taking into consideration what might happen if you failed to make your mortgage payments, you deserve to lose it and should thank your repossessing lender for saving you from subsequent failure. Just about every economic misfortune we’re suffering, individually and in the nation and world at large, could be cured if people went to the trouble of understanding what they were getting into.

But it’s complicated!

Then hire a professional to decode the documents for you before you sign. And understand that attaching your signature to something is more than just a way to show off your penmanship.

John at Wallet Blog is infamous around these parts for giving us the heads-up on portentous news. This week, he illustrates how an upcoming reduction will shrink the gift tax exemption from $5 million to $1 million. Yeah, yeah, what do you care, that’s for the Mitt Romneys of the world, whatever.

You’re missing the point. We should make it as easy as possible for rich people to move capital around. That way, they can do something productive with it, instead of looking for tax shelters that add little to the world stock of value. The Cayman Islands didn’t ask to be an offshore haven: countries like the U.S. prompted the Caymans to fill that role.

And just like that, it was over. Again, we’re after quality here. If you want a carnival with lots of entrants, none of which you’re going to read, there are more inclusive ones out there that are easier to find, if not to digest.

As for us, we’ll be back with new posts every Wednesday and Friday, a new CoW every Monday, and occasional fits of genius on ProBlogger, Investopedia and elsewhere. See ya.

Filed Under: Carnivals Tagged With:

Financial Retard of the Month: The Simple Dollar Does It Again

July 27, 2012

This picture will make perfect sense in our next expose

 

He’s making it too easy for us. That self-important oracle, Trent Hamm of The Simple Dollar, created another fictitious mailbag out of the myriad emails he receives. Or as he puts it on his main page:

I do receive hundreds of questions per week,

Or as he put it a few weeks ago,

I’ll go very quickly through the thousands (yes, I do mean thousands) of emails built up during the week 

In this feature we’re not just going to make fun of the dull or pointless things he says, because if we did there’d be no room for anything else. Instead, we’re going to focus strictly on the dumb and the false. Here’s an email Trent recently concocted received:

I’ve read that you shouldn’t pay more than 25% of your monthly take-home pay for housing costs.

Background info: I have an emergency fund of $7,000, I have no debt, I am 26, female, and I currently rent (living alone), paying $860/month for a one-bedroom apartment.

We’re not sure why “her” sex is relevant, or why “she” mentioned it at all, especially since “she” signed off with a woman’s name. Anyhow, “she” also gives some other information about her finances, and as women and Trent do, takes 4 paragraphs to get to the point: wanting to know if she should rent or buy a place to live.

Trent’s sage advice includes:

From my perspective, if you’re putting much more than 25% of your income toward your housing, you’re starting to put yourself in a risky situation.

No way! “Lauren” repeated a piece of folkloric homespun wisdom, and Trent seconded it exactly! Kind of like the time Control Your Cash ran a question from the woman who’d heard that male personal finance bloggers are extremely well-endowed, and wanted confirmation.

Anyhow, Trent recommends that “Lauren”

get a mortgage quote, then run some calculations on it. 

Really? So if a person wants to choose between items A and B, and knows how much A costs, you believe she should determine how much B costs before she proceeds?

We can’t argue as to whether Trent or “Lauren” is the bigger imbecile, since they’re the same person. However, we can have a legitimate debate as to whether Trent/”Lauren” or Trent’s average reader is stupider. Anyone who finds any of the advice in Trent’s mailbag to be actionable is clearly forgetting to exhale once in a while.

He’s not done. Here’s the next (and final) line, with nothing omitted:

The housing market is depressed enough right now that I would not look at a home as an investment in the short term.

YES, BECAUSE WHY WOULD ANYONE WANT TO BUY WHEN PRICES ARE LOW? Does his helper monkey even proofread this stuff for logical coherence before pressing “Publish”?

How about loosening another belt notch on your husky Today’s Man slacks and writing something that makes sense? Don’t worry, we’ll do it for you:

The housing market is depressed enough right now, and mortgage rates similarly low, that there will never be a better time to buy a house. Or houses. A passive income stream will do more for your bottom line than all of my penny-shaving recommendations combined.

In any other blogger’s mailbag, that’d be the most laughable response of the week. But this is Trent Hamm, proprietor of The Simple Dollar. He probes depths that the bathyscaphe Trieste wouldn’t plunge to:

My 75 year old mother is in mediocre health. She’s losing the place she’s living in and needs to move in the new year.
…
I will be earning a big chunk of money in the first part of the new year and would like to buy a home for her to live in…

Pretty straightforward, right? Well, it’s straightforward if you edit out all the irrelevant details that Trent puts in to make the “reader” sound more human. This one’s another female, by the way. Why any woman would seek his advice after he told the entire distaff half of the species to swim in their underwear, we have no idea. Anyhow, he tells “Sheila” not to worry because time is on her side:

I would rent an apartment for her. If her health is slipping, it’s likely that the period of time you would rent would be limited.

We’ll get to the obvious objection in a second, but is Trent’s reading comprehension so awful that he can’t remember what his own blog said just a few lines earlier? “Mediocre” means average. It’s static, and doesn’t imply a direction. Trent took it to mean “slipping”, which makes us wonder exactly where he graduated among the cab drivers and slaughterhouse workers in his ESL class.

And oh yeah, he just told a reader that a great way to save on housing expenses is to wait for your mother’s imminent death.

We’ll ask this now, before the inanity of The Simple Dollar becomes a weekly feature: is this all an intricate joke, and we’re the patsies? If you were a resourceful online comedian who wanted to create a parody of an everyman dispensing financial advice, wouldn’t you give him a forgettable work history, a green golf shirt, 2.3 kids and a home in Nowhere, Iowa? No real person can be this earnest, this humorless, this insipid, this cheap, and this consistent about it.  Here, read an entertaining mailbag instead.

Filed Under: Bad Examples, Financial Retard of the Month Tagged With: , ,

What Makes A Stock Drop Like A Hailstone?

July 25, 2012

NOTE I: 

Welcome to our ProBlogger readers, wondering what you stumbled upon and whether it applies to you. (Unless you’re a trust-fund brat, it does.) This is the one personal finance blog that will not only help you build wealth, but periodically enrage you while doing so. More here. 

NOTE II: 

To our regular readers who didn’t understand the previous paragraph, we wrote a piece on ProBlogger. Does it apply to you? Absolutely it does! It’s the detailed explanation of why we don’t allow comments on the site. If you want to contact us, try Twitter. Or Facebook.

_______________________________________________________________________

Let’s look at Monday’s biggest percentage losers, among companies with market capitalizations of at least $1 billion:

Multiple choice quiz time. What single event could cause a company’s stock to lose 28% in a day?

  1. CEO strips naked, runs into local TV studio during 5 pm newscast.
  2. Company executives plead guilty to multiple counts of fraud and embezzlement.
  3. Customers develop necrotizing fasciitis after touching company’s product.
  4. Lawsuits, or the threat thereof. And government regulation, or the promise of same.

Based near Grand Rapids, Michigan, Gentex makes auto-dimming rear view mirrors, and rear cameras for you people who think clueless children riding on tricycles behind parked cars are worth saving. Gentex also makes dimmer switches that are supposed to replace the shades on airplane windows. The company got its start in the 1970s by selling smoke alarms.

A month ago, Gentex got sued by a competitor who claimed that Gentex infringed on a patent for improved car headlamps.

Furthermore, Gentex was banking on the promise of those dead and dismembered children. The National Highway Traffic Safety Administration was supposed to mandate rear cameras on all new cars, an obvious windfall for market leader Gentex. And an obvious hassle for the rest of us, who’d each be paying $200 or so more for a new car. But the NHTSA hasn’t made a decision yet, and doesn’t plan to until the end of the year. (As for what backover accidents have to do with a government bureaucracy whose name implies a mandate for highway traffic, we’re not sure.)

Next up is DeVry, which announced that it’s getting harder to lure students. For one reason, the other for-profit colleges are ramping up admissions. Also, after decades of cluelessness, traditional colleges are figuring out that they can offer online education without compromising their precious accreditation.

Bruker is a German manufacturer of x-ray machines, spectrometers and stuff. Bruker committed the least forgivable sin of all, failing to meet analysts’ expectations. A single disappointing earnings report led to Monday’s fall, illustrated here:

 

Elan is an Irish drugmaker. Why did its shares fall by 1/6? One word. Bapineuzumab! Or if you prefer, C6466H10018N1734O2026S44. 

It’s an Alzheimer’s treatment, and it hasn’t done so well in recent trials. Alzheimer’s patients didn’t respond any better to bapineuzumab than they did to placebos, even among the patients who thought the placebos were jelly beans and tried to shove them in their ears. Elan produced bapineuzumab in conjunction with Eli Lilly, Johnson & Johnson and Pfizer (OMG collusion!) all of which took smaller if still significant hits.

And Lexmark you’ve probably heard of. Based out of Lexington, Kentucky, they make printers. (And would presumably be named “Virginmark” if they were based out of Virginia Beach. Not funny? Go to hell.) Lexmark got wounded by the same problem that hit Bruker – either weak results or unduly optimistic analysis by the forecasters.

Lexmark’s 3rd-quarter profits were 75-85¢ a share. This for a stock that trades around $18. In a vacuum, that sounds pretty good. In a world where analysts have determined that Lexmark should have made 89¢ a share this quarter, it’s cause for panic. Fleeting panic, anyway.

What’s the point? 2 points, actually:

  • It’s still a marathon and not a sprint. Unless you’re 98 years old, in which case we take it back, it’s a sprint.
  • Don’t let analysts make decisions for you.

Meeting projections is what Soviet central planners did. A relatively free economy doesn’t lend itself to narrow projections, especially among independent analysts to whom a public company is an abstraction, a prospectus, a series of symbols.

If your question is which stocks to avoid, understand that a stock only becomes worthless when the market renders the underlying company obsolete (Research in Motion, any minute now), or if it turns out that the emperor never had any clothes to begin with (Enron). And dying companies don’t die suddenly, at least not on run-of-the-mill news like one of many new products not doing well in tests. Or 3rd-party expectations not being met.

Gentex remains a market leader, and the NHTSA’s refusal to mandate rear cameras seems like a mere deferment, rather than a policy change. (“What? You just want children to die?!”)

Elan is still in a burgeoning industry, one that won’t be going anywhere until we learn how to genetically engineer babies in the womb. Lexmark is still profitable, and trading at barely 4 times earnings. (At a 3-year nadir, no less. Just like Gentex.)

DeVry has an attractive price-to-earnings ratio too, under 7, and it’s easy to see its low price (a 7-year nadir) as a buying opportunity. But it’s also the only company on the list of today’s biggest losers whose business model might be getting rapidly outdated. (Apollo Group, the parent company of the University of Phoenix, is in a similar position.)

DeVry enrolment is down 20% from last year, which we’re taking as a good sign – fewer people will spend a semester at night school when there’s the possibility of actually working instead. For-profit graduates are also learning, for lack of a better word, that a DeVry degree in justice administration or business communications just doesn’t mean what it used to.

(Which is a joke, of course. It never meant anything.)

Traditional colleges don’t have that problem. They’ve managed to convince kids and parents that there are irreplaceable benefits to a college education, and that belief is a hard one to uproot. Furthermore, traditional colleges have endowments, legacies, and football programs that make money without having to pay the players. Also, such colleges don’t have shareholders. If the University of South Florida (or more aptly, Penn State) had a board of directors instead of regents, the liquidation would have started a while ago.

Which isn’t to make this a jeremiad against higher education. We do that often enough as it is. Instead, we implore to never invest without thinking. And to understand the difference between a daily blip that’s ultimately meaningless, one that will soon be forgotten; and the recognition of a major shift in a particular economic sector.

THINK. While you’re at it, stay emotionless. If you’re among the poor unfortunates who own Gentex stock, think of today as an opportunity to engage in some dollar-cost averaging. If we’d lost on DeVry stock (or on Apollo Group), we’d bail.

Filed Under: Investments, Making Smart Choices, Net Worth Tagged With: , , , , ,
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