Financial Samurai

Slicing Through Money's Mysteries

Your Net Worth Is An Illusion, Sorry To Spoil Your Delusion!

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Net Worth IllusionUnless your house is fully paid for, and unless you can access your retirement accounts today, your net worth is an illusion.  Although we’ve recovered quite a long way over the past 18 months, I don’t think we can really count on property, stocks, and private equity investments to be there when we need them.  The recent market volatility reminds us to get realistic!

The only thing we can really count on is cold, hard cash.  I find it very misleading, as well as a little disingenuous that some say they are millionaires, when 70% of their net worth is tied up in an illiquid asset called “home equity.” Your home is only worth as much as someone is willing to pay for it.  Even your 401K and IRA are suspect because those accounts can easily collapse.

A TYPICAL ASSET SIDE OF A NET WORTH CALCULATION:


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Get Rich In September & Buy Nothing!

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Valuations Gone Wild

Valuations Gone Wild

I declare September frugality month  If I’ve learned anything from my 20+ years working, it’s that September and October are generally dicey months for people’s fortunes. 9/11 wasn’t good, neither was last September 15th when Lehman declared bankruptcy.  Since 1928, studies show that September is by far the worst month in the calendar year for performance at minus 0.7%.  Sentiment turns on a dime, and when markets rally 50%+ into the months of September and October, our risks are greater than our rewards.

The stock markets are close to record highs in 2015, and volatility is back.

Even if the markets continue to rally and we aren’t fully invested, we still win because the labor market tightens, wages go up, and job security increases.  That said, I plan to spend money on nothing except for food and shelter this September.  No clothes, no new gizmos, no unnecessary strolls to the mall.  September is austerity month, and I’m going to bank all disposable income away!  Who’s with me?

RECOMMENDATION

Be Your Own Fund Manager: For your after tax investments, Motif Investing allows you to build a basket of 30 stocks for only $9.95, instead of spending the normal $7.95 for each position ($230+ commissions). There’s no need to pay expensive and ongoing active management fees for mutual funds again. Once you build your own portfolio, or purchase one of the 150+ professionally created motifs, you can simple dollar cost average with one click of the button every time you have money to invest. You can even buy retirement Horizon motifs, that act like target date funds, except you don’t have to pay the 1% management fee either. Finally, you get up to $150 in free trading credit when you start trading with Motif Investing. Motif Investing is truly the low-cost, efficient, and most innovative way to invest today.

Updated on 2/8/2015. Let the bull market continue!

The Most Overrated Businesses – Restaurant Is #1

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Here are some of the most overrated businesses to start according to Kelly Spors and Kevin Salwen from the Yahoo Small Businesses page:

  1. Restaurant
  2. Direct Sales From Home
  3. On-line Retail
  4. High-End Retail
  5. Independent Consulting
  6. Franchise Ownership
  7. Traffic-Driven Websites i.e. Financial Samurai, but also Facebook!

Almost 7 million have lost their jobs since this recession began, and the stock market doesn’t care about you. I do, and I’m worried that if 7 million new people can’t find steady income, and unemployment hits 11%, we will derail.  You derail, we derail and our plans for becoming independently wealthy early goes down the drain.


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Does Bernie Madoff Win In The End?

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There are press reports that Bernie Madoff has cancer and doesn’t have many years left to live.  If this is the case, does Bernie win in the end?  For decades, Bernie has been pilfering his clients for millions, and living far beyond his wildest dreams.

Let’s say that through an honest living, he could have made $50 million over the past 30 years of work.  However, through his devious ways, he makes $450 million more.  Even though he’s in jail now, and spends 5 years before he dies at age 76, doesn’t he come out ahead despite getting the book thrown at him?


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Everybody’s A Financial Genius!

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Over at one of my favorite blogs, “Get Rich Slowly”, site owner JD writes how he successfully invested more money in the stock market earlier this year.  He wasn’t bragging, he was just stating a fact.  JD is very influential, especially given he has 68,000 subscribers!

What’s interesting to note is the commentary that follows his entry.  There are about 125 posts so far on the topic today alone.  Not bad, considering the 75% commentary range is between 60-90.  After reading every single comment here at home, it surprises me that over 80% of the readers have outperformed the S&P drastically and have made a lot of money.  80% compares favorably to studies which show that only 6% of active fund managers outperformed the S&P 500 over the last five years!

In one of the greatest stock market turmoils in our lifetimes, apparently the majority at GRS didn’t lose much money, didn’t capitulate at the bottom, and made some timely investments earlier this year to ride the rocket ship!  


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Be Your Own Venture Capitalist & Build A Broad Portfolio

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By the time Baidu, the “Google of China” went public, Venture Capital firm Draper Fisher’s 28% stake was worth over $1 billion dollars by the end of the trading day. Not a bad return considering their likely sub-$50 million investment just years ago! In a world full of strikeouts, it just takes one home run to win a ball game.

The Financial Samurai reader is savvy enough to know that strong work ethnic and good morals are key pieces of the success puzzle. Sometimes you just need to be in the right place at the right time. When Venture Capital firms fund startups, they are looking to take equity stakes in companies in a robust industry, lead by visionaries who can execute towards enormous profit potential. The majority of investments go bust, and the successes often take years and tons of selfless involvement before returns are seen. Eventually, the exit strategy is for their investment to get acquired or IPO.

We have the opportunity to be our very own individual venture capitalists everyday. Many of us may take for granted the people we meet, but not you. After all, all it takes is one billionaire to give you one million dollars before you’re rich right? Receiving an opportunity is what it’s all about. You’re reading this post essentially because like me, you want to be financially independent sooner, rather than later. The ability to be financially independent by 40 is the reason why we work so hard now. If the deadline was 20 years longer, where’s the fun and challenge in that?


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Government Employee Entitled to A $100,000,000 Bonus!

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Yes, I know I’m being a tad bit facetious here, but not really. After getting US$45 billion in government aid, the US government and we the people of America own roughly 36% of Citigroup. The interesting debate is whether Citigroup employee, Andrew J Hall should be paid his $100 million bonus as described in his contract.

Most initial responses are with a vehement “HELL NO!” Who on earth deserves to get paid that much, people must think. However, what if Andrew Hall was responsible for bringing in $1 billion in revenue? Is it so egregious to pay the man responsible, a 10% cut? After all, $900,000,000 sure does employ and pay for many other Citigroup employee’s salaries! Should Citigroup risk not paying their star, and his team of employees for the overall sake of the firm and shareholders? As one colleague aptly put it, “RB, we live in America not North Korea!”


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Survey Says: Get 1,300 on Your SAT’s and a 3.9 GPA And You’re Set For Life!

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A very interesting article in the New York Times highlighted PayScale’s survey of 1.2million college graduates to find out what they made right out of school, and 10 years after graduation. If you look at the picture, it’s interesting to note that the majority of schools are: 1) Private Schools, and 2) Highly Ranked in US News & World Report and other popular college rankings.

The average SAT and GPA scores of these 20 schools are roughly 1,300 and 3.7, respectively. Hence, one could argue that the key to making a six figure income 10 years out of school is simply high test scores and good grades! As such, it behooves all incoming 9th graders to recognize their grades accumulate from 9th to 12th grade, and not to mess their chances up of getting into Dartmouth, UPenn, and Yale.

IN THE LONG RUN

I really used to think education was not very useful since we forget much of what we learn. But, as I grow older, it becomes apparent that many of the most successful people we know have been very well educated. Barack Obama went to Columbia for his BA, and Harvard Law School. George Bush Senior went to Yale, and even Bush Junior went to Harvard. Say what you will, but anybody who becomes the President of the Free World is successful in my eyes. In the long run, the cream rises to the top, be it whip cream or sour cream.


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How High Can Unemployment Go Before We Derail?

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The S&P 500 index has rallied 40%+ from its March 2009 low, and is up 8% Year To Date. Despite this solid performance, unemployment has surged to 9.7%, and many forecast the increase will continue until 11-13% unemployment. We’ve got 12% unemployment here in California already.

The question I have is: How high can the unemployment rate go before the bull market derails? Is the level 15%, or is the level as high as 20%? I cannot imagine being unemployed and desiring employment in this market. There’s just so little out there and the competition is tremendous. For those who are already employed, things seem hopeful that with earnings rebounding from 2008 and less people to pay, 2009 could be a big year.

Is the market currently being driven by the “90% employed” segment of the population who thinks the other 10% doesn’t really matter to the economy’s bottom line? With consumer spending consisting of 70% of GDP, how can we ignore the fact that 1 out of every 10 are not working, and likely another 10% are underemployed and looking for more work to survive? Am I looking backwards, since unemployment is a lagging indicator, and the stock market is a leading indicator?

It absolutely perplexes me that euphoria is back in the markets. We shouldn’t be surprised if we double dip in 2H09, and see a long drawn out recovery until mid 2010. Personally, I’m raising cash by pulling money out of the market. We’ve had a great rebound and I don’t want to get greedy.

Readers, where do you think unemployment levels are heading and what are your arguments if you think the markets are going higher?

Update: At 10.2% unemployment as of Nov 7th, 2009, apparently very high!

Keigu,

Financial Samurai – “Slicing Through Money’s Mysteries”

The Less You Have, The Less You Lose

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In October of 2008, Warren Buffet lost about $9.6 billion on paper. Put it another way, that’s a freaking a lot of money! To also put it another way, in my chase to match Warren’s wealth, I caught up to him by about $9.599 billion dollars.

Many of us have lost a lot of money in this market, but we could have lost more if we were already very wealthy. I am absolutely positive that it hurts much more for some poor rich CEO losing $50million of his net wealth, vs us losing $50,000 of our own.

Now is absolutely the best time to be relatively young and buy all the assets we can. And since we have such a wonderful opportunity, it makes wasteful spending that much more expensive because of the potential returns down the road.

Who knows whether we are going to double dip in the 2nd half as unemployment marches to 11%+. What I do feel strongly about is that if we don’t buy some distressed asset now, we are going to be kicking ourselves in 20 years. Personally, my site is set on a vacation property in Nevada, Lake Tahoe. I hope to pick up a foreclosure that is 50% off of peak values, and that can provide a 8% rental yield vs. the current government risk free 10 year treasure of 3.54%. In 8-10 years, i plan to move there and pay 0% state income tax, vs. 9.6% here in California.

INVESTMENT PLATFORM RECOMMENDATION

Be Your Own Fund Manager: For your after tax investments, Motif Investing allows you to build a basket of 30 stocks for only $9.95, instead of spending the normal $7.95 for each position ($230+ commissions). There’s no need to pay expensive and ongoing active management fees for mutual funds again. Once you build your own portfolio, or purchase one of the 150+ professionally created motifs, you can simple dollar cost average with one click of the button every time you have money to invest. You can even buy retirement Horizon motifs, that act like target date funds, except you don’t have to pay the 1% management fee either. Finally, you get up to $150 in free trading credit when you start trading with Motif Investing. Motif Investing is truly the low-cost, efficient, and most innovative way to invest today.

Updated on 2/8/2015. Let the bull market continue!