Blog – Page 101

James Buchanan played a killer flute

You heard it here first: Martin O’Malley, the guitar player, will be the 2016 Democrat nominee for President (assuming there’s still a Republic.)

Why? It’s easy:

To be the nominee, you almost certainly have to be a sitting governor or senator (or Vice President).
The current Democrat governors and senators are overwhelmingly ancient, physically unattractive, mired in scandal, or female. The current Vice President is the ridiculous Joe Biden. Besides, he’d be 74 on the day of a 2017 inauguration.

That leaves Maryland governor O’Malley, and almost no one else, even though 5 years ago he wiped his feet with the Constitution. No idea who the Republican nominee will be. The GOP has a habit of giving the nomination to the guy who finished 2nd the previous time, which would mean Rick Santorum.

Oh my God! Look at all those submissions! We couldn’t believe how many we received this week, after filibustering our way through the previous Carnival of Wealth.

Carnival of Wealth, you say? Yes. Personal finance blog posts from across the globe, organized into a cohesive if not coherent whole. Our prolog finished, let’s get started:

Andrew at 101 Centavos goes first, because his post made our blood boil the quickest. This post is so good it doesn’t deserve to be truncated into a synopsis, but here goes:

All you idiots who insist on not only going to college, but financing your education via Sallie Mae, take heed. And think about whom you’re enriching with each loan. Andrew’s post is about Sallie Mae’s investment potential, but he couldn’t help but pull back the curtain to see how the student loan company’s executives manage to make do when their customer base is a bunch of impoverished students. Exceedingly well, it turns out. Andrew includes a link to a Baltimore Sun story about the private golf course the company’s chairman is building:

[CEO Albert] Lord, 62, is steering $15 million toward Anne Arundel Manor, a 7,100-yard, par-72 course for him and up to 100 members in Harwood. During the past three years, the Annapolis resident has assembled about 335 acres with the goal of playing golf his way.
“I hate rules,” he said.
…
Wealthy enthusiasts across the country are putting up millions to build private sanctuaries. Few, though, are spending more than Lord…
What he has not liked is the hassle of waiting for several county and state approvals, although he understands the intentions of the inspectors. As in business, he said, instead of becoming frustrated, “I learned that I just have other people who interact with them.”

He has people. It gets even more detached and imperious from there. Read the article, in addition to Andrew’s piece. If you were to substitute “Mitt Romney” for “Albert Lord” in the narrative, the not-quite-Rhodes scholars at Money After Graduation would be assembling a lynch mob. Assuming any of them are handy enough to tie a hangman’s knot.

We’ll be the first to poke fun at bad English here at CYC, but only if the post comes from a native anglophone. Dutchman Stefan of Skuzet gets a pass. Stefan is in the middle of a series about the lives and philosophies of some of history’s greatest investors. This week his subject is Benjamin Graham, author of the indispensable Security Analysis and The Intelligent Investor, and mentor of Warren Buffett.

From J.P. at Novel Investor, the interest rate paradox. To simplify, bonds (and bond funds) have enjoyed decades of rising prices. The Fed now keeps rates artificially low, thus encouraging people to put even more money into bonds. Investors seeking returns thus look into lower- and lower-rated bonds, pushing their prices higher, and…your bond fund might not be as safe as you think.

Few things are as depressing as a rhetorical question from PKamp3 at DQYDJ.net. This week he asks what a rental meltdown would look like. Remember collateralized debt obligations, the financial derivatives that caused the housing market to bubble and then burst? Imagine the same concept applied to rental payments made on foreclosed homes. And watch the fun were rents to do what home prices spent the last 5 years doing.

Some (hopeless) people think that presidential campaigns should be funded by taxpayers. Don’t like a candidate? Disagree with every plank of his platform? Under such a scheme, you can give him your money anyway! Until we reach that point, Odysseas Papadimitriou at Wallet Blog recounts the absurd amounts of money spent by the Obama and Romney campaigns to win a job that pays $400,000 a year. Treat your own funds a little more conservatively than the various political action committees and SuperPACs, and you’ll be on your way to greater self-determination and peace of mind.

New submitter Aussie Investor explains how a dividend reinvestment plan works.

JT at ETF Base looks at options, specifically the ratio of calls to puts in the market. If more people are buying options that allow them to sell a stock at a fixed price than are buying options that allow them to buy a stock at a fixed price, we’ll have one exceedingly unwieldy sentence. Seriously, the option ratio is a way to quantify investor sentiment. When people are loading up on puts, it’s a (stock) buyer’s market.

Zero. Teacher Man at My University Money asks how much you should borrow in student loans.

Sponge off family members, work, go to a trade school. There are so many college graduates, and such a tiny fraction of them with the capacity to understand that for the average one, that degree is a losing financial proposition. Stop reciting the mantra about how “college graduates earn x more over their careers than high school dropouts do.” Instead, compare yourself to the kids who graduate high school without going to college. Next, measure the median rather than the average. Which is to say, stop relying on each heart surgeon and chemical engineer who’s pulling up the value of x, and instead look at the corresponding dozens of retail salespeople and preschool teachers whose net worths are firmly in the red.

Of course, no one’s going to listen to this advice. Teacher Man himself even does the rhetorical trick of saying, “I don’t nominally approve of a certain thing, but here’s a way to take advantage of its existence.” In this case, it’s taxpayers covering debtor students’ losses. There’s a Canadian province that forgives student debt over $26,000. If you’re going to fail, fail big.

If someone owes you money that you formally lent them, the civil servants at the Consumer Financial Protection Bureau will see to it that receiving said money will be as hard as possible. That’s the news from Liana Arnold at Card Hub who tells us, long story short, that large debt collectors (that’s debt collectors that are large, not necessarily collectors of large debts) will now have to prove that they’re playing nice when contacting debtors. Keep records, etc. More work mandated by the federal government, only this time it’s redundant. After all, every state has similar consumer protection laws on its books. Freedom from tyranny doesn’t mean freedom from bureaucracy.

Speaking of artificial manipulation of interest rates (it was a few paragraphs ago. How short is your memory, anyway?), some needed advice from our philosophical sibling Ken Faulkenberry at AAAMP Blog. What do you do when the President, his lieutenants, the Fed chairman and complicit senators decide it’s time for taxpayers to own car companies and borrow money at rates divorced from supply and demand? This post is every bit as bleak, and as critical, at J.P.’s.

From our friends at Becoming Your Own Bank, a YouTube clip! It’s about what to do now that President Obama has won a 2nd term. We already did you the favor of adding a time code that incorporates the Wadsworth Constant to the video. It has 12 views as of this morning, so do them a favor and watch it.

Nelson at Financial Uproar has deigned to grace us with a submission this week. Even though he’s a lifelong bachelor (Ed. note: Not a euphemism for homosexual, as far as we know. He’s just never married), Nelson has decided to offer advice regarding prenuptial (or as they say in British Columbia, “prenupital”) agreements. It’s more education than advice, really. Don’t think that you can stash assets going into a relationship and assume they’ll be there once your marriage fails, which it probably will. Marriage as a “partnership” means exactly that. You all remember how Juanita Jordan won 3 NBA titles with the Chicago Bulls, right? And how Heather Mills wrote half of “Hey Jude”? (Well, one quarter, along with McCartney, Lennon and Ono.) The courts seem to think they did.

How do you find out about junior oil producers before the investing public does? The best place to start is by reading Mich at Beating the Index, a man who knows more about the Canadian energy industry than anyone alive (or at least, any of our submitters.) This week, Aroway Energy, a company trading at a miniscule 40¢ per BTU per day. If Aroway can continue drilling and striking oil throughout the winter, that price could rise.

Dividend Growth Investor tells us why he’s obsessed with dividend stocks. He checks his accounts daily, which isn’t something we’d normally recommend but in his case, it’s to free him from the inanity of a regular day job.

Our Extremely Tangential Submission of the Week? None other than this one from Harry Campbell at Your PF Pro, who reviews kitchen knives. That’s a personal finance topic, isn’t it? After all, knives are goods that can be exchanged for money. Not only does Harry have fascinating things to say about his new cutlery:

The set included: an 8-inch chef’s knife, an 8-inch slicer, a 7-inch santoku knife, a 5-1/2-inch boning knife, a 5-inch utility knife, a 3-1/2-inch paring knife, and six 4-1/2-inch steak knives, plus a pair of shears. Now the only knives I really use out of that set are the steak knives and the slicer(bread knife)

So do his commenters:

Due to allergies and a desire to not eat anything processed I cook 2-3 meals per day for my family.

So if you thought you knew everything there was to know about the physical constitution and eating habits of commenter thestarvingartistcanada, you didn’t.

We’re on ProBlogger this week, and Investopedia every day it seems. Join us back here next Monday. Well, join us here every day. You can’t stop the new content, because the new content never stops.

Don’t count your chickens before they come home to roost, or something

Because there just aren’t enough stories about Apple as an investment, we’re adding our own. Why not? Apple is to personal finance as Tim Tebow is to ESPN First Take. Even if nothing of note is happening with the subject at hand, we still need to not only talk about it, but do so until the readers/viewers weep and beg us to discuss any other topic.

You’re going to have to wait a couple more days. In the last few months Apple has gone from in danger of passing ExxonMobil to become the biggest corporation on Earth, to passing ExxonMobil, to Apple’s stock price setting an acme, to it losing 10% off that high and therefore still being a topic of concern. You know, because no stock in the history of the world has ever reached its lifetime peak and then fallen 10%. Only Apple. Groundbreaking as usual.

A couple of weeks ago USA Today used an effective gimmick for a) attracting readers and b) continuing to give Apple undue attention: the misleading headline. Even better, USA Today posed the headline as a question so that no one could accuse them of sensationalism.

Do too many people own too much Apple stock?

Which not only has less zing than

Too many own too much Apple stock

But isn’t even news. Heck, it isn’t even research. The writer, Matt Krantz (subject of a recent post), starts with a conclusion and works his way back to the premises. Which is what journalists all too often do.

Sparing you from Mr. Krantz’s breezy introduction, we get to the meat of his “argument” a few paragraphs in. (This isn’t an inverted pyramid, it’s a pyramid that’s been ransacked and left to rubble.)

(I)nvestors have found that zeroing in on this one company is their ticket to a big Wall Street score. The stock has been a winner despite its recent decline, which briefly pushed it into a 10% correction. At its close of $635.85 Tuesday, it’s still up more than 50% this year, which compared with the 15% gain in the broad Standard & Poor’s 500 index makes it a runaway winner.

Get rich from a single stock? Without having bought it before everyone else did? Sure, sounds at least as solid a strategy as playing blackjack is. Diversity is overrated, anyway. Here’s the next fanciful line:

“I don’t want to diversify that much when I have one stock doing just fine,” says Matt Loud, a 28-year-old security worker in Bellingham, Wash., who has upwards of 38% of his retirement accounts in Apple.

We were going to track down Mr. Loud and ask him if what he said is true. Failing that, we’d find Mr. Krantz and ask him how he just slipped that into his story without asking Mr. Loud how hard a surface the delivering doctor dropped his head on. Fortunately, Twitter did the work for us.

Here’s a Tweet from @MatLoud to @MattKrantz dated October 2 (before the story ran, but whatever):

@mattkrantz apple plays a key role in my investments but I don’t have a substantial amount of outright shares.

So what does the USA Today quote even mean? How can you have 38% of your retirement savings in a company’s stock but “(not) have a substantial amount of (its) outright shares”?

Using Aristotelian logic, the only possibility is that Mr. Loud was referring to Apple stock in absolute terms, rather than relative ones, in the tweet. A standard lot of Apple stock is 100 shares, which would be worth $63,585. That’s 38% of $167,328, which would be a snappy nest egg for a 28-year-old unskilled worker with a disjointed Twitter account.

The other possibility is that Mr. Loud made the numbers up and/or doesn’t know what he’s talking about, and a journalist with a deadline and a conclusion needed something to flesh out his story.

Loud is part of a crowd of investors who have become infatuated owners of Apple — and richly rewarded as a result.

Then why wouldn’t you tell us how much he bought his stock for? Sounds like an important point, doesn’t it? Is he dollar-cost averaging? Did someone will him the stock? Did he buy it at its 2002 bottom? No, none of this is important.

Personal finance is useless unless you quantify. It’s not “I feel pretty good about my 401(k) balance.” It’s “I’ve got $145,342.99 in there, split between Vanguard’s Admiral Treasury Money Market Fund and its 500 Index Admiral Shares Fund. I contribute $1,950 monthly and my employer matches it.” If you don’t quantify, you don’t have any business investing.

Imagine Al Michaels telling us, “It seems like it’s been a lot of games since Drew Brees didn’t throw a touchdown pass.” Or Paul Ryan saying, “Our national deficit sure is big.”

It gets much worse. The author interviews a 35-year-old San Francisco housewife who claims she first bought Apple in 2007 (it ranged from $85 to $200 that year) and now holds ¾ of her portfolio in it. This is assuming she’s telling the truth. Later in the story she says she doesn’t like the new 9-pin connector, and what that has to do with investing, rather than consuming, we’re not sure.

The same housewife “worries…how much higher can it go”, then contradicts that worry by claiming that if it hits $750, she’ll sell. And will then have at least 78% of her portfolio in cash, assuming her other investments stay constant.

There’s a similarly depressing story about a retired soldier who has “nearly 40%” of his portfolio in Apple.

At Control Your Cash, we treat journalists with slightly less disdain than we do pederastic college football coaches. Check your sources? Not when there’s popular folklore to reinforce. We don’t believe that any of the interview subjects indeed have the listed percentages of their retirement savings in Apple, because we doubt the interview subjects even know what buttons on the calculator to press to divide their Apple holdings by their total holdings, let alone know how much Apple they hold.

The lies don’t stop there, either:

Nearly 17% of all individual investors own Apple shares

According to SigFig, a site Mr. Krantz contacted for his story.
Really? Every 6^th individual investor in the country holds AAPL?

From Apple’s latest 10-K, and if you don’t know what a 10-K is, just buy our book already:

As of October 14, 2011, there were 28,543 shareholders of record.

Which would mean that there are only about 168,000 individual investors in the country. Also from the 10-K,

929,409,000 shares of Common Stock Issued and Outstanding as of October 14, 2011

Okay, now we’re the ones playing with facts. There are more than 28,543 individuals who own Apple. It’s just that most people own their shares via brokerage accounts. As far as Apple knows, your shares are under the name “Morgan Stanley” or “Charles Schwab”, not “Jane Doe”. As are your neighbors. It’s impossible to tell exactly how many people own Apple at a given time.

But we can estimate, and we can start by comparing apples to apples. Microsoft has 128,992 shareholders of record. Alcoa has 319,000. Exxon Mobil has 486,416. Apple isn’t America’s most widely held stock, or anything close to that.

We could pick apart more of this story, but that’s not the point. The point is –
Alright, one more folkloric quote:

Apple investors, on average, have nearly 17% of their portfolios riding on that one stock.

That’s either impossible, or it includes the Apple directors and officers who have enough of the stock that they’ll be rich no matter what. (We’re guessing SigFig didn’t interview them.) Commonplace, you-and-me investors don’t have anywhere near 17% of their holdings in Apple. And if they did, the examples cited in the story wouldn’t be remarkable.

Alright, we’re back. The point is that if you read the financial news, even from a trusted outlet, even from the nation’s biggest newspaper, be skeptical. Nowhere near 1/6 of individual investors have a piece of Apple. No one who has ¾ of her money in Apple knows anything about anything, especially if she’s a dilettante with no coherent investing strategy.

And to answer the author’s rhetorical query? No, not too many people own too much Apple stock. Not even close. After 3 decades, the stock finally started paying a dividend, which will reduce liquidity. It’s trading at less than 15 times earnings, which is not only less than the S&P 500 average but hardly indicative of a bubble that’s reached maximum surface tension.

Would we buy it? No, because the $63,585 initial investment is a little too much for us to commit to when there are other investments available. Doesn’t mean you shouldn’t bite, though. Nor does it mean you shouldn’t invest in a mutual fund that prominently features Apple. Like PowerShares QQQ Trust, which is comprised 20% of Apple and is up 19% this year.

Question everything. Think about whether a quantitative claim makes any sense. And don’t take investment advice from 20-something security guards, impulsive housewives, nor the journalists who indulge them.

Carnival of Wealth, Martin O’Malley Edition

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