Blog posts on Investing

Posts selected fromManagement Blog - Engineering Blog - Investing Blog and other blogs

• Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible

  Financial Independence/Retire Early (FI/RE) is about creating conditions that allow you to focus on what you value. Some people do focus too much on saving money quickly as though the goal is to save as much as quickly as possible. But that isn’t what FI/RE means. FI/RE doesn’t mean make yourself a slave to saving quickly in order to remove yourself from being a slave to a job until you are 65.

  To me what is most important about FI/RE is examining the choices you make and taking control of the decisions instead of just floating along as so many people do without considering the choices they make.

  continue reading: Use FI/RE to Create a Better Life Not To Build a Nest Egg as Quickly as Possible
• 30 Year Fixed Mortgage Rates and the Fed Funds Rate

  There is not a significant correlation between moves in federal funds rate and 30 year mortgage rates for those looking to lock in mortgage rates. For example, if 30 year rates are at 6% and the federal reserve drops the federal funds rate 50 basis points that tells you little about what the 30 year rate will do.

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• 10 stocks for 10 years

  The 10 stocks I came up with are (closing price on 22 April 2005 – % of portofilo invested):

  • Templeton Dragon Fund (TDF – 16.40 – 16%) – a closed end mutual fund investing in China, Hong Kong, Taiwan, Singapore… This one doesn’t fit the criteria but does a great job of filling out the portfolio in my opinion.
  • Dell (DELL – 36.43 – 12%)
  • Toyota (TM – 72.42 – 12%)
  • Google (GOOG – 215.81 – 12%)
  • Pfizer (PFE – 27.22 – 8%)
  • Amazon (AMZN – 33.04 – 8%) They are only just starting to generate cash but I like their prospects.

  ...

  ["I should have picked Apple instead of Dell but even with that mistake the fund did very well - I did add Apple in 2010" John, Oct 2017]

  continue reading: 10 stocks for 10 years
• Stock Market Capitalization by Country from 2000 to 2016

  One way to view the dominance of mega-companies is that the market cap for the top 4 stocks exceeds the market cap of all of Canada’s stocks (Apple $807 billion + Alphabet $687 billion + Microsoft $588 billion + Facebook $507 billion = $2.589 trillion). The next, Amazon $477 billion, bring the total for the top 5 to over $3 trillion (and surpasses the UK market cap, leaving only USA, China and Japan as larger markets).

  The USA market capitalization was at 46.9% of the global market cap in 2000 and fell to 31.6% in 2000 before rising to 42% in 2016. China grew from 1.8% of world stock market capitalization in 2000 to 6.9% in 2012 and 11.2% in 2016. Adding Hong Kong to China’s totals shows 3.7% in 2000 with growth to to 12.2% in 2012 and 16.2% in 2016.

  You may be surprised to learn that 26% of USA equities are owned by investors outside the USA.

   

  continue reading: Stock Market Capitalization by Country from 2000 to 2016
• Should GM be Removed from the DJIA? (2005)

  I agree removing GM makes sense, though I see no reason to wait. Whether to replace it with Toyota (market cap: $167 billion), DaimlerChrysler or something else is an interesting question. Of course the whole idea of the Dow Jones Industrial Average pretty much outlived its usefulness decades ago. The S&P 500 has long been far better measure of the stock market...

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• How Not to Convert Equity

   In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000.

  ...

  The way to convert some of your asset to something else is to sell that asset (or a portion of it or hedge it in some way though for a house this is not easy or maybe even really possible). 

  continue reading: How Not to Convert Equity
• Saving for Retirement

  Saving for retirement is not complicated, it is just a matter of priorities. Most people care more about a Startbucks coffee each day (or season tickets, or new shoes, or a new car every couple of years or…) today than saving money for retirement. In a capitalist society we believe in letting people make their economic choices. The choices most of us make (in the USA) lead to the results above (few saving enough for retirement).

  Savings for retirement is difficult mainly because of our trouble planning for the long term, it is not at all a complex problem. The fable of the ant and the grasshopper illustrates this point very simply and it is really that simple. People need to do a better job of applying the lessons from that story to their retirement savings.

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• Financial Education

  The financial decisions we make have huge impacts on the quality of lives. This blog focus largely on management improvement: in such posts we often mention the importance of long term thinking and systems thinking. When planning our personal financial paths long term thinking and systems thinking (to optimize our long term financial well being given the options available in our individual situation) are necessary.

  Related: Curious Cat Investment blog - financial literacy posts

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• Employee Ownership

  I have always liked the idea of employee ownership. To me this can be a great help in creating a system where employees, owners, customers, suppliers work together. Alone an Employee Stock Ownership Plan (ESOP) does little. But as part of a system of management it is something I think can be beneficial.

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• Individual Stock Portfolio Investment Planning

  Early last year when studying my portfolio I decided my two biggest positions (Apple and Google – those ready the blog won’t be surprised due to my 10 stocks for 10 years posts) continued to warrant the large portion of the portfolio they held. I also decided that I would systemically sell say 1% of Apple and 2% of Alphabet a year (the Apple dividend was also paying about 1% – actually it was more then but is much less now).

  That was just a long term plan that helped me think about the long term portfolio management. But that, like all investment decision, was subject to revision. As both continued to soar I decided it made sense to sell more but maintain a similar plan, just maybe selling 2% and 4% a year...

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• The Future for Investors

  The subtitle captures the basic theme of the book. Investing in the boring old stocks that people are not excited about is what have performed best.

  His basic advise is still to buy the broadest market index fund (such as the Vanguard Total Stock Market Index Fund [the broken link was removed]). He also concludes with the advice that those returns have been beaten historically by focusing on stocks with high dividend yields and low price earnings ratios.

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• Improving the 401(k) System

  Many people don’t even take advantage of a 401(k) to save for their retirement. From a public policy perspective it creates a huge long term problem. The economy will end up with millions of people that didn’t save for retirement and will be a drain on those who did save for retirement and the rest of the economy.

  So Congress actually passed a good revision to the law. Employers will now be required to default to having employees save for their retirement in 401(k) plans. The employee still has the option to decline doing so, but now, without such a choice, they will automatically save for retirement. 

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• Warren Buffett’s 2016 Letter to Shareholders

  The fairly simple idea of hiring trustworthy, capable and ethical people and giving them freedom to manage for the long term seems too easy to provide an advantage. But it does. Warren Buffett is very careful to pick people that are more concerned with providing value to customers over the long term than promoting themselves and seeking massive short term rewards for themselves. This simple act of hiring people that are willing to put customers and shareholders before themselves allows your organizations to function in its long term best interest.

  In so many other companies short term incentives destroy value (Warren’s point 4 above). This failure can extend to companies Warren is significantly invested in: such as the long term and deep seeded mismanagement at Wells Fargo due to very poor leadership at that company for years. But in general, Berkshire Hathaway is much better at avoiding these toxic behaviors driven by very poor executive leadership when compared to other companies.

  continue reading: Warren Buffett’s 2016 Letter to Shareholders
• “Explaining” Random Variation

  When I was a reporter covering Cisco Systems Inc. in the late 1990s, it was my job to talk to several analysts a day to find out the latest bit of news that might move the networking company’s share price.

  If the stock moved more than 2% on any uptick in volume, I had to write a story explaining why. After dealing with that every day for about three years, I realized the overwhelming majority of analysts had no better clue than I did about what was moving Cisco’s stock.

  The “explanations” you hear from media often are just as useless as horoscopes. A bunch of meaningless words presented in the hopes you don’t realize they are empty words.

  The talking heads (and writers) need to say something. It would be much more useful if they took the time to do some research and put in some thought but they seem to be driven by the need to fill space instead of the need to inform.

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• Short Term Investing Focus

  Decades ago Dr. Deming said short term focus was one of the seven deadly diseases of western management. Unfortunately we have made very little progress on the deadly diseases.

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