In Case You Missed It

September 5, 2012

 

We couldn’t decide between 2 captions this week:
a) She never took a toothbrush on tour, and things worked out just fine.
b) Who says British women are unattractive?

 

An unscheduled feature in which we fill you in on what’s happening with other personal finance blogs. Because after all, Control Your Cash doesn’t have a monopoly on good advice:

Bible Money Matters

The author is going to a blog conference this week. Because he writes his blog for other bloggers, rather than a general audience, it’s filled with minutiae of interest only to that tiny little subgroup. Imagine how much more popular Bill Simmons would be if he wrote about paragraph spacing and interview techniques in every column. Guess we’ll never find out.

That’s actually not fair. And we strive to be fair. Bible Money Matters has handy tips for anyone traveling to any kind of conference. Or traveling, period. Or leaving the house:

Photo ID: Planning on getting drinks at the conference after party, or flying? You’ll need a photo ID of some sort.

Bet you thought tooth decay was an inevitable part of traveling, didn’t you? Well, it turns out that it isn’t:

Assorted toiletries: Don’t forget all your assorted toiletries from deodorant and shampoo, to a toothbrush and toothpaste.

When other bloggers are reminding you to remember your toothpaste and toothbrush, there’s not much we can add. “Wipe”, e.g.

The author also suggests that you take your phone, just in case you were dead set on leaving it at home. Like most people do when they travel.

 

The Simple Dollar

Well, here’s the opening sentence, formulated for the Alpha Centaurians whom the site’s author usually writes for. It’s a good refresher for any extraterrestrials, really, who aren’t familiar with human living customs:

In most American family homes, you’ll find one or two adults, sometimes paired with some number of children.

Some of these homes also feature pets, such as a dog or cat, or multiple dogs or cats, or a single dog and multiple cats, or a single cat and multiple dogs, but now we’re getting into advanced-level course work.

This post features the most toothless word in English, “consider”. As in, “consider quitting smoking to reduce your risk of lung cancer.” No, just freaking do it. Or don’t do it, whatever. But to tell people to “consider” doing something is the equivalent of telling them nothing at all.

To summarize, the Hamm-fisted (hey-oh!) author suggests that you “consider an alternative living situation” to save money on housing expenses. Whereas a normal person would say “find a roommate”, “consider an alternative living situation” adds that spunk of impenetrability.

But wait, he’s not done. The concluding tip in this post?

construct a second home on your land. 

Yes! A months-long full-time project that will require you to hire a contractor and laborers! Why doesn’t every person who’s short on funds try this? Heck, we should all be rich.

The point is that none of this garbage – pack a toothbrush, build a house on the house-sized lot that you already own but never thought about improving – is actionable, worthwhile, or anything other than a waste of both the author’s and the readers’ time.

Here’s some advice:

  • If you live in Washington, Idaho, Nevada, California, or Oregon, buy your groceries at WinCo. Good God. Their prices make Walmart look like Whole Foods.
  • You have an emergency fund? What the hell for? Take that money and put it in a 401(k). Buy gold with it. Buy BHP Billiton stock with it (3½% dividend yield, trading at near a 52-week low, ridiculously profitable.) That emergency will never come. Then again, there’s every possibility that it’s happening right now and you’re too blindly optimistic to even notice.
  • Change your freaking oil. Buy a permanent air filter, too. You can install it in 30 seconds, without tools. A $7 AutoZone battery tester will help out too, unless you want to run the risk of your battery dying in traffic and you have your heart set on paying a premium to get it fixed then and there.
  • Buy a house. The big quinella of low interest rates and low home prices won’t last forever. It’s lasted for years, but we’ve reached the nadir. The housing market is having a sale. Everything must go. Make someone an offer. Unless you have a compelling professional reason for renting, stop giving 100% of your dwelling expenses to a big fat rich landlord. (Note: The CYC principals are neither big nor fat.)
  • Which brings up another point. The proverbial ounce of prevention is physical activity. You know how some old people can fill out a pair of shorts without completely nauseating everyone around them, while others have those thick purple ankles and feet that terminate in toenails you could use to harvest crops with? What do you think those folks were doing 40 years ago? The former were taking the stairs and lifting weights. The latter were watching All My Children with one hand in a bowl of dry Froot Loops. (Note: Example cited may or may not be drawn from author’s real family life.)
  • Spend an hour or two running the numbers before spending 4 years in college. Chances are, your university education will not pay off. For it to be a worthwhile investment, you need to major in something not meaningless. If the very idea of running said numbers intimidates you to the point where you don’t want to do it, that’s a pretty good indication that anything you’d feel comfortable majoring in is not going to be worth studying.

Personal finance is as simple or as complex as you want it to be. As a general rule, the more complex it is (and the more you rationalize), the worse off you’ll be.

Filed Under: Bad Examples, Finance, Investments Tagged With: , , , , ,

Both Sides of the Ball

August 29, 2012

Watson knows offense

 

One of our favorite new discoveries is 6400 Personal Finance, whose author has zero patience for people who insist on living their financial lives passively; being done unto instead of taking charge. He recently said something so pithy, so brilliant, that we’re angry we didn’t think of it first. Paraphrasing, he says building wealth is offense. Saving and conservation are defense. It takes both to win.

Yet if you listen to most people – self-styled experts, your peers, the man on the street – almost all of them concentrate on the subtractive side of the ledger. Defense. How to save money. How to cut your expenses. How to cram 4 people into a house barely half the size of a basketball key.

How did we get here? If you’ll excuse another sports analogy, there’s an old bromide that “90% of baseball is pitching and defense.” Which makes as much sense as saying that 90% of a magnet is its north pole. Most adults who take that axiom on faith don’t realize that it’s a lie intended for children. When you’re 8 years old, swinging a bat and being the center of attention is fun. Standing in left field waiting to make a play on a ball that might never come is less so. Therefore Little Leaguers need to be convinced that focusing on the latter will help them win games. The kids won’t internalize the saying, but if you repeat it enough then hopefully it’ll tip the scales a little and the kids will start hustling when they’re in the field.

Even those of you who didn’t play organized sports are conditioned to act defensively. To refrain from doing the dumb activity, as opposed to undertaking the smart activity.

Somewhere along the line, people twisted the definition of “economize”. It used to mean doing as much as possible with what you have. Now, it seems to mean doing as little as possible with what you have. Just read this sturdy fellow who apparently has decent income, a reasonable net worth and zero debt, yet spends his free time collecting rocks by the side of the road because it doesn’t cost anything.

Why are people so reluctant to build, rather than to preserve? Because offense isn’t immediately easy to grasp, as defense is.

Defense is reactionary. Defense means anticipating what’s coming, and plotting to combat it and minimize any damage. Offense is creative. It means relying on your skills, expertise and experience to do something remarkable. (You have to rely on yours, as opposed to anyone else’s, because God knows no one else is going to go out of his way to help you build wealth.)

Is offense riskier than defense? Of course it is. But the great irony about shifting your focus to offense is that if done correctly, playing offense shouldn’t take any more effort than playing defense does.

Playing good defense means:

  • Making sure your boss sees you come early and stay late, even though you’re getting no immediate reward out of it.
  • Doing everything that’ll result in a good performance review, in the hopes that the next promotion has your name on it. Which it well might, assuming that your boss’s fraternity brother’s unemployed daughter doesn’t decide that she might like to try her hand at whatever it is you do for a living.
  • Economizing for its own sake. Having the wherewithal to afford a nicer house or a better car, but refusing to just because you’d rather hold onto the money. Even though you have no idea what to do with said money. 

Playing good offense means:

  • Taking those extra uncompensated hours you would have spent at the office, and using them to learn about the stock market. Even having the Fox Business Network on in the background while you passively listen to the hosts and analysts will give you at least the basis of an idea of what building wealth entails, and expose you to the jargon. Ask the folks at Rosetta Stone – total immersion is the only way to learn a new language.
  • Getting pre-approved for a mortgage. You can’t buy your first house without one (unless you pay cash, which probably means you’re already rich.) Nor can you buy your second house without one. In the first case, you’re throwing off the tyranny of renting. In the second, you’re making it easier to eventually build another investment that, if done correctly, will mean far more to your bottom line than will pleasing your superiors at your place of employment.
  • Setting up a limited liability company (Hey, we have a book about this)
  • Taking the money you’ve saved via your commitment to defense, and doing something with it that requires more thought than just sticking it in a savings account. Or even a CD. Or even a 401(k).

None of this is hard, but it’s out of the ordinary. It comes with the possibility of greater rewards way in the future. So far off in the future, in the eyes of the unimaginative, that they can’t see it. Better to apply yourself to what you know and stay in your comfort zone. Even though that doesn’t come with any guarantee, either.

If you think that your income should derive solely from the sweat of your brow, you’re living in the wrong millennium. Rich people don’t feel guilty for leveraging their time and money. They can’t. They understand that it’s the only way to get rich.

We’ve said this before, but here it is again using a different example. Sergey Brin started with nothing extraordinary, and is maybe 100,000 times richer than you. Does that mean he works 100,000 times as hard as you do? No, that’s impossible. Does it mean that he’s been allotted 16,800,000 hours each week, instead of the 168 the rest of us get? No. But it does mean that he isn’t relying on his salary, handsome as it may be, to build wealth.

Make it a moral imperative to find other sources of income, rather than to merely cut back. Any idiot can squeeze a penny, or tell you how to, and plenty of idiots do.

Unfortunately, the English language is limited in that what we’re advocating is known to the world as “passive” income. From one angle, that makes sense. “Passive” as distinguished from “active”, referring to income earned directly from work.

But again, people have misinterpreted what should be obvious. They take “passive” income to mean that they don’t have to do anything to earn it. Or that passive income isn’t even truly “earned” in the conventional sense. Even the IRS agrees with this assessment, having classified an entire set of income as “unearned” and implemented a structure for taxing it.

Passive income takes plenty of effort to achieve. It requires not just some higher-order thinking, but the fortitude to see that thinking through. It means disabusing yourself of the idea that the two most important things in the universe are a) avoiding getting fired and b) spending as little as possible.

Spending as little as possible is swell, if you want to live a boring life. Worthwhile things, both goods and services, cost money. Buying some of them will result in no discernible increase in your net worth (e.g. a trek to the Central African Republic, a new ensemble at Chico’s.) Buying others will (e.g. the services of a fee-only financial advisor, a house with a greater potential for appreciation than a cheaper house that you’d otherwise buy.) But again, this post isn’t about saving money, especially not as an end unto itself. It’s about learning how to build more wealth, and not relying on external forces to do it for you.

Download one of our ebooks to get started. It’ll take less time to read than the hours you’d lose by working through lunch a couple of times.

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

Money Won’t Find You. You Have To Meet It Halfway.

August 24, 2012

Emulate this cat’s investment strategy, if not his look

 

The CYC principals work at home and thus employ the Fox Business Network as much of the soundtrack (and in our male half’s case, the visual stimulus) for our daily lives. While listening and desultorily watching, we hear the same corporations mentioned again and again. Lately it’s been the ones you’d expect: Facebook and its declining stock price, Apple and its historic book value, Nike (about to release an expensive new shoe), Best Buy (just hired a new CEO, the equivalent of the Doña Paz hiring a new captain after crashing into the Vector), etc.

All of them are famous, with much of the companies’ values deriving from their brand names. That’s why they’re featured so prominently in the media; or perhaps vice versa.

Name recognition is, without question, the worst possible criterion for determining the worth of a stock. In our above examples we have:

  • A pop-culture leviathan that’s effectively eliminated all its competition, and an advertising vehicle that millions of people lock their eyeballs onto daily.
  • A iconic company that not only makes elegantly designed and famously reliable gadgets and computers, but one that’s discovered how to sell slightly upgraded versions of said gadgets to the same loyal customers year after year.
  • Another icon with a devoted following (albeit slightly less devoted than Apple’s), and which, like Apple, sells a lifestyle and a state of mind as much as it sells products.
  • A retail chain whose death throes are almost audible. A decade ago, it was a legitimately cool place to buy toys: today, it’s a prehistoric version of Amazon. Or of the Apple Store.

Publicity is important for entertainers and their ilk. For corporations looking to make money in the long term (and their shareholders), being in the public eye could not be less important. Groupon has gotten more headlines than Cardinal Health every single day of the former’s existence, but it’s the latter that turned a $1 billion profit last year. And sold $100 billion worth of product (drugs, mostly). And employs 30,000 people. Cardinal Health held its initial public offering in 1983, back when Groupon’s managers and directors were barely alive. But there’s a larger point here than comparing daily deal sites to stodgy old pharmaceutical firms.

Listen. Investing is not supposed to be fun.

Check that. Investing should be lots of fun. It’s a far less laborious (and multiplicative) way to build wealth than is working for 8 hours a day. Maybe we’re unclear on how to define “fun”.

We’ve told you in the past not to buy a stock just because you happen to be a customer. But we can do better than just giving you subtractive advice, telling you what to avoid.

Embrace boredom. Invest in workable, quietly successful companies that the average mouth-breather traipsing his way down the street wouldn’t think twice about.

You know what publicly traded company has the highest profit margins? That is, among all of them? Apple is tops among the ones we’ve mentioned so far, but it’s only 24th among all public companies.

Devon Energy! You remember Devon Energy, right? Of course you don’t, you were too busy reading about that chick with the jacked-up teeth getting engaged to that Nickelback guy.

Devon Energy is a natural gas/oil producer based out of Oklahoma City. They own pipelines that are mostly in Texas but that stretch all the way to Illinois. Devon has operations as far north as the British Columbia-Northwest Territories border.

And you’ve never heard of them. The stock is trading at around $60, which is barely 10 times annual earnings. Last year each share paid 80¢ worth of dividends. Analysts think it’ll hit $77 a year from now. Both revenue and gross profit have increased 20% annually over the last few years, the kind of sustained growth that most better-publicized companies can only fantasize about.

(Notice we didn’t tell you what Devon Energy stock has done in the past year. That’s irrelevant to people who don’t own the stock, which presumably includes you.)

None of your friends will be impressed if you tell them you bought a standard lot of Devon Energy. Rather, they’ll get bored and want to leave the room. Fine. Let them.

Opportunities don’t go out of their way to get your attention. Never forget this. Facebook stock was never going to bring you untold riches. The newsworthy IPOs that would don’t exist.

What about Google?

Fine, you got us. Also, retroactively picking stocks is cheating. Google was enjoying healthy if not tropospheric profit margins from Day 1, unlike Facebook. Google was a relatively small player back then: its revenue has grown 38-fold since then, its profits 90-fold. (If you want to see how humorously ancient some business news stories from as recently as 2004 read, check this out.)

When you’re done reading Devon’s financials (a spirited way to spend a Friday afternoon), check out the public companies with the 2nd– through 5th-highest profit margins:

  • MGM Resorts, owners of half the fanciest hotels on the Las Vegas Strip, several in China and Vietnam, and a few bottom-of-the-market yet still highly profitable toilets in Detroit and on the Redneck Riviera.
  • VISA, the favorite creditor of personal finance bloggers across the country.
  • Corning, who probably made the glass your phone is encased in.
  • Gilead Sciences, makers of antiviral drugs. Tamiflu is their most famous one.

Admit it. You’ve never heard of at least one of those companies, and never gave the others a second thought.

We’re not going to do all the work for you. That’s part of the reward. Go to the general-purpose finance site of your choice (our favorite is Yahoo! Finance). Read the quarterly and annual financials, available to everyone, and take a freaking risk that your 401(k) doesn’t offer.

Columns of numbers. God, that sounds like a party.

Do you have to read interoffice memos? Or employee handbooks? Or TPS reports? What the hell’s the difference? Aside from how reading financial statements can make you money. You like money, right?

I don’t know how to interpret them.

Sure you do. Read this first.

You should all be rich, or at least upwardly mobile. The resources are at your disposal, waiting to be capitalized upon. The research is so easy even that dippy, chunky gal from So Over Debt can do it. (Mmm…dippy and chunky.) Stop reusing your paper towels and do something remunerative with your time. You’re welcome.

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