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Financial Samurai

Slicing Through Money's Mysteries

The Good Times Are Back Again – The Indulgent List Of Things

Updated: by 62 Comments

A top 0.01% income earner's yachtLook around.  What do you see?  I see packed buses, traffic jams, busy open houses, expensive restaurants with only 9pm seatings, and friends finding new jobs again.  Double dip recession?  I don’t think so. With the Dow over 22,000 and the S&P 500 over 2,400 post Trump victory, it’s time to live it up!

Yet, it is exactly during good times, when we must be more diligent about our finances. It’s so easy to forget how bad things were and stray.  Rather than spend more money, save more money during upswings so that we can spend more money during downturns.

When times are good, it’s not necessary to spend more money to create any sort of additional fulfillment or pleasure.  We’re getting paid more, the opportunities for promotions are greater, and the demand for our services surpass our supply.

In essence, we feel good because we feel wanted again.  It’s when a downturn hits when money can help balance the mood out a little with some retail or food therapy, or maybe even a vacation.  In essence, spend money counter-cyclically for better returns.

DAY DREAMING TO RELIEVE DESIRE

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Charles Farrell of “Your Money Ratios” Speaks About Retirement And Investing,

Updated: by 20 Comments

As I wrote in my review of “Your Money Ratios”, Charles’ book sings to me. Charles has the ability to simplify complicated financial topics for the average reader to understand. His book is seriously one of the best books I’ve read on personal finance in a long while.

One of the keys to progress is learning from experts in their various fields.  Charles is gracious enough to answer some follow up questions I’ve been burning to ask after reading his book.  This will be a two part post due to the 2,800 word length of the interview.  In part I, we discover Charles’ motivation for writing his book, strategies for early retirement, and his conservative and debatable 50%/50% investment split between stocks and bonds.  In part II, we discuss the much maligned 401K, personal income taxes, why Social Security will survive, and why the flat tax is the right way to go!  Please enjoy!

WRITING “YOUR MONEY RATIOS”

Question: Was there a particular lightning bolt reason why you decided to write this book? For aspiring authors, what suggestions do you have to get your worked published in this ultra competitive field of business?

Answer: I wanted to write a book that would help average readers understand the most fundamental and critical relationships among one’s income, capital and debt, and how those things must be managed throughout your working career to build financial independence. So I took what are often quite complicated topics and figured out a way to present them in a very simple format that anyone can follow. I would like more people to enjoy the benefits of financial independence, and I hope this book does that.

As far as writing, all I can say is write about what you believe in. Hopefully, if you believe in it strongly enough, you’ll develop some expertise and then seek out ways to spread your ideas. Try to develop some niche that is reflective of your expertise. So I developed the ratios and they came out of my background in tax, finance and also working with individuals.

Think about what you do that is a little different and try to focus on that unique nature of what you do. It is a tough slog because the field is very crowded and often the least valuable information gets the most press. But you have to accept that reality and still push ahead. And then you need a little luck. Your message has to somehow get into the hands of people who appreciate and understand it. And that is hard to predict, which means you need a little luck to get it out there. So if you are going to pursue that path, I think you need to accept those realities of the marketplace.

EARLY RETIREMENT

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The Katana: Help Haiti If You Can 1/17/10

Updated: by 15 Comments

So far over $7 million has been raised to help Haiti by just texting the word “HAITI” to 90999.  You’ll get a confirm receipt from your mobile carrier once sent. Please consider donating!

This week on Financial Samurai, we’ll share our thoughts on the latest government rhetoric, highlight a guest post by Flexo, introduce a new fun challenge, and perhaps discuss one of the key things to consider for job seekers.

THE SAMURAI FUND UPDATE: +3.85% vs. S&P 500 +1.88% as of Friday, Jan 15th. 203 basis points of outperform puts us in the Top Tier of all funds.

Stars: Lenar +25%, Toyota +8%, GE 9%, Harmon +7.4%,, Calgon +7%, Big Lots +7%.

Dog Poops: Lumber Liquidators -7%, Berkshire -1.6%, Steris -1.25%, ABM -1%, Monsanto -1%.

Looks like there’s some good demand from new entrants, and investors who want to give us several hundred million more to build new positions!  Contributors, please provide an update on your name in the TSF page above, especially if your name is sucking wind.  Will be making room for new names in February.

Week In Review: Let’s Help Haiti

The 2010 earthquake in Haiti was a devastating 7.0 magnitude natural disaster. The epicenter was near Leogane, about 16 miles west of Port-au-Prince, the capital of Haiti.

It’s estimated 3 million people in Haiti were affected. And several hundred thousand people died in the tragedy. Haiti is asking for emergency aid to help survivors.

SAMURAI WEEK IN REVIEW

* People now realize that converting to a ROTH IRA is pretty ridiculous as Kevin M reminds us that the first $18,700 (equivalent to $470,000 in pre-tax funds at 4%) you withdraw from your retirement funds is tax free. 

Meanwhile, JoeTaxPayer highlights that if you retire with $2.17 million in today’s dollars, you only have to pay 15% tax!  You’ll have to retire with more than $5 million dollars to average a 25% tax rate, based off a 4% income return. 

$5 million is only 50X your $100,000 “average” income. Always good to dream big for those of you who’ve justified your ROTH IRA contributions.  Joe, you made my day!

* Family seems to be the number one reason why people choose to freeze during the winter, and melt during the summer. FYI, it is possible to make friends in paradise folks. It’s also possible for your family to fly out and visit you on the beach. If you’re miserable, don’t limit yourself! Just think about how much easier it is to travel now vs. 300 years ago.

* The “Get Financially Naked” book giveaway ends on Saturday, January 23rd. It’s a great little book for couples who feel they need some help in improving their communication as it relates to finance. With all our book giveaways, we’d like to share them with those who’d like and need them the most.

* Americans really shouldn’t complain about our finances since we’re wealthier than 99% of the rest of the world. That said, it’s all relative, and if everybody is wealthy, then it’s really hard to feel special. The key seems to be to amass your wealth, and move elsewhere!

Further Reading

Keigu,

Sam Samurai – “Slicing Through Money’s Mysteries”

Follow on Twitter @FinancialSamurai and subscribe to our RSS Feed.

Book Review & Giveaway: “Your Money Ratios”

Updated: by 27 Comments

your-money-ratios

Your Money Ratios is a book by Charles Farrell. Your Money Ratios can help you get a better handle on your finances.

Publisher: The Penguin Group.  Hard cover. 257-pages. Price: $26.

Author: Charles Farrell, JD., LL.M., investment adviser with Northstar Investment Advisors, in Denver. He writes the “Retirement Roadmap” column for CBS Moneywatch.

Review: “Your Money Ratios” sings to me!  For someone who loves using ratios such as the 1/10th rule for car buying, and 30/30/3 rule for home buying, I absolutely adore this book. Charles’ writing style is very balanced and easy to understand. When it comes to math, many people, including myself fall asleep. But, if you can just do simple division and multiplcation, this book will keep you on the right path towards financial security.

Charles’ “Unifying Theory of Personal Finance” is his core philosophy that all decisions you make should help move you from being a laborer to being a capitalist. In other words, make money work for you, and not the other way around. It’s important that with every single monetary decision you make, you ask yourself will this help you become a capitalist or not.

Let’s go through Your Money Ratios with the key money ratios from the book.

Capital To Income Ratio

The first ratio Charles introduces is the Capital to Income Ratio (CIR). Capital is defined  as the savings in your 401K, IRA, annuities, CDs, cash value of your life insurance, savings, equity in commercial and rental real estate, and the fair market value of any business interests. 

Capital does not include the equity in your primary residence because it does not generate income.  The real return of your home is the rent-free use of the property once you pay off your mortgage.

The underlying goal is for everyone to have a CIR of 12 by age 65 i.e. $1.2 million in capital if you average $100,000. With a CIR of 12, one should be able to retire financially secure while living off 80% of your pre-retirement income due to the returns from capital and social security. While working we probably live on about 60% of your actual income due to expenses such as one’s mortgage, which will no longer be there when we retire.

Your finances hit a tipping point when your Capital to Income Ratio hits 2. At a CIR of 2 your earnings from you capital will generally add more to your wealth than the amount you save each year. Over a 40yr savings cycle, you contribute 30% 70% are from earnings.

See: Ranking The Best Passive Income Streams

The Savings Ratio

To get to a Capital Income Ratio of 12, Charles highlights on two savings rates: Save 12% of your annual income ever year from ages 25-40, and save 15% every year after wards. The math works, and obviously the math works even better if you can save more of your annual income.

To clarify, the Charles’ 12% and 15% savings ratios include your 401K contribution..  Charles believes that your 401K is key to financial independence due to employer matches and tax free contributions.

I challenge readers to max out their 401K and save an additional 12-15% of their gross income. Mentally write off your 401K amount, and pray it’s there at age 59.5. My strong belief is that your net worth is an illusion, except for the cash and most liquid of assets.

Also see: How Much Savings You Should Have Accumulated By Age

Your Debt Ratios

One needs to differentiate between income-producing debt and income-reducing debt  When you take on debt, you need to leave enough for you to meet the savings ratio 

Owning a home and paying of your debt increases your retirement income and helps move you from laborer to capitalist.  “Deemed Income” is the investment income you get to keep in retirement because  you don’t have to use that income to pay a mortgage or rent.

Education debt, is good debt, but aim to keep it to 75% or less of your average 10 year gross income.  Financially, it is better for your kids to take on the debt than you provided they stick to the Education Debt Ratios.

Charles, like others believes there is an education bubble. Tuition costs are ridiculous and will eventually fall because income growth doesn’t support the cost. Charles advises not saving for your kids education before you save for your own! If you don’t save enough for yourself, your kids inherit your financial burden and have to take care of you. Your financial independence is a great gift to your kids.

Your Investment Ratio

It’s all about playing offense (stocks) and defense (bonds) to come out ahead. Charles recommends a permanent 50%/50% allocation your entire working life. I find this too conservative. I like following your age as a percentage to allocate to bonds i.e. if you’re 35, somewhere around 35% of your investments are in fixed income securities.

Charles is super risk adverse because he wants to avoid big losses. As an investment adviser, and given his age, I have a feeling he has seen tons of carnage over these past two investment cycles. A 50% portfolio decline requires a 100% increase to get back to even. A 80% portfolio decline requires a 400% increase!

Social Security – The Point of Contention

Charles fears Congress will go overboard in fixing SS, and create one large wealth-transfer. Despite the “fix”, SS will survive. Lower paid workers get much more out of the system than higher paid-workers, based on their actual contributions. 

It’s important for everyone to understand the basics of SS, to not change the program from a long term retirement program into a welfare program.

Your FICA tax is 7.65% from you, 7.65% from employer of which 12.4% goes to SS, and 2.9% goes to Medicare. You need to work for at least 10 years for a covered employer before you can receive benefits. Cap is on $142,800 of the income you pay in 2021, thank goodness for many. 

SS adjusts for inflation is great. And if you’re married, your spouse has the right to benefits equal to the higher of his or her OWN benefit, or one half of yours. Not bad!

By the way, if you were born after 1960, the full-retirement date to receive social security benefits is 67! You can decide to take reduced benefits starting at age 62.

Your Money Ratios Conclusion

“Your Money Ratios” has the potential to be one of 2010’s best sellers in the personal finance space. I love everything about the book, from the tone of the author, to his simple instructions, to the way the book is packaged. 

There’s no doubt in my mind that if you follow Charles’ instructions, whether you are 25 or 45, you will be able to reach financial independence by 65. Go to your local bookstore or Amazon and check it out!

Go to www.yourmoneyratios.com, type in the code 778811 to check out your ratios and see where you stand!

Recommendation To Build Wealth

Manage Your Money In One Place. Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planner
Is your retirement plan on track? Find out for free after you link your accounts.

The Samurai Fund – All Hands On Deck!

Updated: by 31 Comments

With great pleasure, I announce the launch of The Samurai Fund!

Thesis: Through random selection based solely off permutations of reader’s names (personal or site title), we are able to create a long-only mutual fund that will outperform the S&P 500 index!

Fund Details: $1,672,003 billion launch, $100/share NAV, with 17 positions equally weighted.  Concentrated multi-strategy portfolio with defensive names in the alcohol and utility space, as well as higher beta names in technology and health sciences.  Small caps and large cap names included.  S&P 500 start value 1,115 benchmark.

Investment Outlook 2010: The stock market continues to rebound, but at a slower pace.  Inflation and interest rates remain benign, leading to a re-emergence of consumer spending.  Housing stabilizes with 30-year mortgage rates staying below 6.5%.  The government maintains record spending to stimulate the economy and the unemployment rate begins to fall in the second half of the year.  The S&P 500 increases by 10-15% with a blue-sky target of 1,322.

Update 2019: Record highs baby!

Duration & Rules: One year.  The bottom 3 performers will be up for review every quarter. To stay in the fund, one must write a convincing argument as to why we should not cut our losses.  Picks down more than 20% also will be re-evaluated.

Goals: To have fun, learn something about the stock markets, prove a theory that luck plays a big part in performance, and to build better relationships with the community.

Contributors: Please retweet and spread the word to any of the social media sharing sites below.  We need all the support we can get to outperform the professionals!  Contributors are encouraged to provide updates and commentary as the months progress.  If anybody wants to do a portfolio analysis below, please feel free to do so!

*** STOCK PICKS SUMMARY WITH CONTRIBUTORS ***

FINANCIAL SAMURAI

Company (Ticker): Boston Beer Company (SAM)

Market Cap: $668 Million at entry price $46.60.

Commentary: Love Samuel Adams beer, but with no dividend, lofty valuations and minimal earnings growth, it’s hard to see this defensive stock providing alpha to the fund.  People need to drink in good times and bad!

DAVID AT MBA BRIEFS

Company (Ticker): ABM Industries (ABM)

Profile: A building maintenance and facility services company.

Market Cap: $1.09 Billion at entry price $20.65.

Commentary: The stock doesn’t look like it’s going to do anything spectacular in the short term but ABM is predicted to have consistent earnings growth throughout the year and has beat the analyst’s estimate every quarter for the last 4 quarters.

ABM is currently trading at $21.14 and the 1 year target estimate is $25.50. Volume peaked at 700k shares the week before Christmas and then dropped way off, and its trading well above the 50 day and 200 day moving averages, so it’s hard to tell if the stock price is going to continue to rise, trade sideways, or drop this week.

Not exactly a sexy stock but facility services should be fairly recession-proof and should do even better now that we’re supposedly heading into a bull market.

CHARLIE

Company (Ticker): Harman International Industries (HAR)

Market Cap: $2.44 Billion at entry price $35.28.

Profile: Engages in the development, manufacture, and marketing of audio products and electronic systems in the United States and internationally.

Commentary: Don’t know a thing about the company but will be interesting to find out!

CREDIT CARD CHASER

Company (Ticker): Calgon Carbon CP (CCC)

Market Cap: $786 Million at entry price $13.90.

P/E: 20.26X

Earnings Growth 2010: 47.2%

Profile: Manufactures and markets products and services employed for separation, concentration, and purification of liquids and gases (huh?).  Drinking water and wastewater treatment, enviro remediation, and industrial process apps are its customers.

Commentary: Better than average predicted earnings growth for 2010 and trading right around the middle of its 52 week high so it could have some potential. I don’t pick individual stocks but this will be a fun one to watch!

DON AT MONEY REASONS

Company (Ticker): Monsanto Co (MON)

Market Cap: 45.03 Billion at entry price $81.75.

P/E: 21.75

Dividend (yearly): 1.30%

Earnings Growth 2010: 34.7%

Profile: Monsanto Company, together with its subsidiaries, provides agricultural products for farmers in the United States and internationally. It has two segments, Seeds and Genomics, and Agricultural Productivity.

Commentary: Monsanto has been beaten down pretty badly (it was at it’s high, over $145 per share), so it has some room to rise! People need to eat, and MON has some of the best engineered seed available.

FREE FROM BROKE

Company (Ticker): Berkshire Hathaway (BRK-A)

Market Cap: 152.89 Billion at entry price $99,099.

Profile: a holding company owning subsidiaries engaged in a number of business activities. The most important of these are insurance businesses conducted on both a primary basis and a reinsurance basis. Berkshire also owns and operates a number of other businesses engaged in a variety of activities.

Commentary: Can you bet against the Oracle of Omaha? Until recently, Berkshire has done remarkably well year after year, investing in well known companies such as Coke, American Express, and P&G.

STEF AT 151 DAYS OFF

Company (Ticker): Steris Corp (STE)

Market Cap: $1.65 Billion at entry price $27.97.

P/E: 14.56

Dividend: 0.44 (1.60%)

Estimated Growth in 2010: 4.1% (ouch!!)

Profile: Steris Corp develops, manufactures, and markets infection prevention, contamination control, microbial reduction, and surgical support products and services to healthcare, pharmaceutical, scientific, research, industrial, and governmental customers worldwide.

Commentary: With the hysteria of swine flu in the past and Lord knows what kind of mutation it will bring in the future, the company will stand strong in years to come. Medical tech stock tends to be a defensive stock during the bear market and move steadily in a hot market. You would DEFINITELY want it in your portfolio!

DANIEL AT SWEATING THE BIG STUFF

Company (Ticker): Big Lots Inc (BIG)

Market Cap: $2.42 Billion at entry price $28.98.

P/E: 13.88

Earnings Growth: 11.5%

Profile: Big Lots, Inc. operates as a broadline closeout retailer in the United States.

Commentary: As a discount retailer, it does well when the economy struggles. In 2010, as the economy only begins to improve, Big Lots should continue to have success in the discount market.

THRIFTY GAL AT CHASING PROSPERITY

Company (Ticker): PG&E – Pacific Gas and Electric (PCG)

Market Cap: $16.89 Billion at entry price $44.65.

P/E: 11.86X

Earnings Growth 2010: 7.6%

Dividend yield: 3.7%

Profile: PG&E is a public utility company that provides electicity and natural gas to northern and central California.

Commentary: Pop culture reference: villan in ‘Erin Brokovich’

LEAN LIFE COACH

Company (Ticker): Toyota Motors (TM)

Market Cap: $140 Billion at entry price $84.16.

P/E ratio (ttm): Nada – They’ve been losing money for the first time in over 50 years!

P/E ratio (fwd): 25X

EPS Growth: Yahoo lists 1200%? From zero that won’t be too hard!

Profile: One of the largest car companies in the world.

Commentary: Challenged by some quality issues they will likely continue to suffer for a few more months but I believe their commitment to continuous improvement (Kaizen) will help them out of this rut.

The continue to build good cars that have generic styling that appeals to a wide market. They are coming out with some new technology including plug in hybrid and are revamping the Lexus brand to draw in the younger crowds. If you like fast cars check out the Lexus all carbon body LFA!

PATRICK AT CASH MONEY LIFE

Company (Ticker): Compellent Technologies, Inc. (CML)

Market Cap: $704 Million at entry price $22.68.

P/E: 146.90

Earnings Growth 2010 (estimate): 31.0%

Profile: Compellent Technologies, Inc. is a provider of enterprise-class network storage solutions. The Company’s storage center is a Storage Area Network (SAN), that is designed to significantly lower storage and infrastructure capital expenditures, reduce the skill level and number of personnel required to manage information and enable continuous data availability and storage virtualization.

Commentary: Aggressive earnings estimates for a company that has yet to register large profits. I guess my entry will mimic the elements of the S&P that drags down the rest.

LEN PENZO

Company (Ticker): Lenar Corp (LEN)

Market Cap: $2.4 Billion at entry price $12.77.

PE: N/A (divide by zero – never a good sign)

Dividend Yield: 1.2%

Earnings Growth 2010 (est): showing losses

Profile: A leading home-builder in America.

Commentary: As I mentioned earlier, I think housing is on very flimsy stilts. The current anemic upturn (if you can call it that) only propped up due to government subsidies and bailouts so I would never recommend a home builder as a stock pick in 2010. But the rules are the rules, and as such I expect this component of your honorable Samurai fund to weigh it down like an old rusty boat anchor. LOL

EVOLUTION OF WEALTH

Company (Ticker): Edwards Lifesciences (EW)

Market Cap: $5 Billion at entry price $86.85.

P/E: 24X

Earnings Growth 2010: 17%

Profile: Edwards Lifesciences provides products and technologies in treating cardiovascular disease. They are a leading provider in a growing sector.

Commentary: If you believe America will continue to be fat this could be a good investment. Was that mean?

LL AT INVESTOR JUNKIE

Company (Ticker): Lumber Liquidators (LL)

Market Cap: $730 Million at entry price $26.80.

P/E: 24X FY2010 with 40% YoY earnings growth.

Profile: Lumber Liquidators, Inc. operates as a specialty retailer of hardwood flooring in the United States. It offers an assortment of hardwood flooring that includes prefinished premium domestic and exotic hardwoods, engineered hardwoods, unfinished hardwoods, bamboo, cork, and laminates. The company also provides flooring enhancements and installation accessories, including moldings, noise-reducing underlay, and adhesives. It offers its products primarily under Lumber Liquidators and Bellawood brand names.

EVAN AT MY JOURNEY TO MILLIONS

Company (Ticker): Jones Apparel Group (JNY)

Market Cap: $1.4 Billion at entry price $16.06.

Profile: Jones Apparel Group, Inc. is a designer, marketer and wholesaler of branded apparel, footwear and accessories. The Company markets its products to the consumers, through a chain of specialty retail and stores and through the e-commerce Web sites. The Company also markets costume jewelry under the Givenchy brand licensed from Givenchy Corporation, footwear under the Dockers Women brand licensed from Levi Strauss & Co., and apparel under the Rachel Roy brand licensed from Rachel Roy IP Company, LLC. The Company operates in five business segments: wholesale better apparel, wholesale jeanswear, wholesale footwear and accessories, retail, and licensing. The brands of the Company include Jones New York, Nine West, Anne Klein, Gloria Vanderbilt, Kasper, Bandolino, Easy Spirit, Evan-Picone, l.e.i., Energie, Enzo Angiolini, Joan & David, Mootsies Tootsies, Sam & Libby, Napier, Judith Jack, Albert Nipon and Le Suit. On June 20, 2008, the Company completed the acquisition of GRI

Commentary: Look at those brands this company is going to be fine! Not sure its going to be a homerun, but its going UP!

PAUL AT FISCAL GEEK

Company (Ticker): General Electric Co (GE)

Market Cap: $162.5 Billion at entry price $15.13.

P/E: 14.1X

Commentary: With the recent pending sale of NBC Universal to Comcast this might be an interesting stock as GE attempts to get leaner, but really how lean can you make a company that has more than 323,000 full time employees. I suspect GE won’t be outperforming much other than say GM.

MONEVATOR

Company (Ticker): Monster Worldwide (MWW)

Market Cap: $2.2 Billion at entry price $17.40.

P/E: 42X

Earnings Growth: 167% for next year

Profile: Monster.com, a popular job search and placement site.

Commentary: I am picking this stock to keep with the play-on-the-blog-name theme, but I actually am pretty bullish on economic recovery so this recruitment giant isn’t entirely unattractive. I haven’t looked at the accounts or the balance sheet etc, though, and I’m not wildly familiar with US stocks (though I know many of the companies superficially) so I recommend it only for the FS fund, nothing more!

When will the government shutdown end?

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Recommendation To Build Wealth

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planner

Is your retirement plan on track? Find out for free after you link your accounts.

Updated for 2019. Let the bull market continue with stocks at all-time highs!

Financial Samurai 2010 Predictions And Resolutions

Updated: by 46 Comments

It’s amazing how quickly time goes by and that I’m already writing my 2010 predictions and resolutions.  Usually, I get nostalgic this time of year, reminiscing about all the memories over the last 12 months.  Not this year.  Let us remember that we went through an economic blitzkrieg in 2009, and I am so glad it’s over!

The one thing I am really hopeful for is a rebound in employment. Over the past 3 months, I’ve encountered so many positive job data points in my industry from friends and acquaintances on the job front, I’m absolutely hopeful those who are seeking jobs, or better opportunities will find them in 2010.  Companies always over fire during downturns, and therefore have to scramble to rehire in this upturn. Below are five more predictions you don’t even have to think won’t come true!

FIVE 2010 PREDICTIONS THAT MOST CERTAINLY WILL COME TRUE

Here’s a look at my 2010 predictions:

1) Inflation remains tame and therefore interest rates remain low. There’s really only one figure I check frequently, and that’s the US 10-year government treasury yield. The 10-year yield tells us so much: sentiment of the bond and stock market, inflation outlook, fear or greed, mortgage rate direction, and what foreigner’s are getting in return for funding our debt.  The 10-yr yield will not breach 5% this year, and credit will therefore continue to be very cheap.

2) The US dollar strengthens. Literally nobody agreed with the post “A Weak Dollar Doesn’t Matter Folks!” and that’s fine by me.  Now you know why a weak dollar doesn’t matter, because I’m bullish on the dollar, and the weakness is only temporary!  Look for the USD to strengthen against the Euro and the Yen in particular.  Given the Yen will weaken to 95-100, I’m bullish on Japan as a macro trade as well.  And no, I’m not biased because of the word Samurai!

3) The US markets do not double dip.  Instead, they continue to rebound. Specifically, look for the S&P 500 to rise 13% to 1,265 and the Dow to 12,000.  There is still hundreds of billions of dollars in money market funds which have missed this rally, and 2010 is when liquidity rushes into the markets.  You don’t have to be too cute in this market recovery, since it is largely liquidity driven.

4) The most hyped IPO of the year will be Facebook, creating several new billionaires, and hundreds of new multi-millionaires in the San Francisco Bay Area.  SF-based Twitter doesn’t go public, but instead, gets bought out with the richly valued stock of Facebook or another media titan.  There’s no doubt once Facebook goes public, they will go on a buying spree, enriching even more innovative companies around the Bay Area.  SF-based LinkedIn is the dark horse, with a current perceived market valuation of $1 billion.  Seems pretty paltry compared to FB, and so I think they wait another year to ramp up more subscribers until analysts value the company closer to $2-3 billion.  SF property prices continue ticking higher as new wealth seeks multi-million dollar homes, and dollars fall from the sky!

5) The Samurai Fund outperforms the S&P 500 index by 300 basis points (3%)! The 15+ entries so far are wonderfully unique, and everybody has done a great job in putting their synopsis together.  With controlled randomness in picking names, each team member has a critical roll in keeping abreast of their names and providing opinions on whether to add to their positions or reduce.  Due to the outperformance, the Samurai Fund gets noticed by finance sites we never imagined would care about our tiny corner of the universe, and the team achieves fame!

GOALS FOR 2010

1) Make a million bucks. Yes, it’s a lofty goal that I’ve failed every year, but that doesn’t stop me from trying!  The income can come from private equity investments, stock market, salary, rental income, and other, such as winning the World Series of Poker!  Setting lofty goals forces the mind to constantly think of new ways of surviving, while motivating me to work hard everyday.

2) Win a tennis tournament. I got beat by a 60 year old (!), ex Davis cup player in the semi-finals of a tournament this year due to a right calf cramp.  If I beat him, I would have won the tournament.  Disappointing, because my opponent was about to keel over at 5-5 in the 2nd set and give up.  It’s not good enough to have skill, and mental fortitude if your body can’t hold up.  So really, winning the tennis tournament is a physical health resolution of eating right, working out, and staying injury free.

3) Meet 36 new people, or 3 every month. It’s really a joy meeting new people, be it in person or online and hear their story.  We can learn so much from others, no matter their background or age.  I will keep a log of who I meet, and write 3 things I’ve learned and admire about each new person.  The solution to “If I knew then, what I know now” is to simply seek people who’ve been where you are heading already and listen to them!

4) Try and always see the good in others. In “Everything Is Rational, The Answer To All Things Irrational”, I highlight a more peaceful way of thinking that soothes my raging soul.  It’s important to stop taking slights/rejections personally, and just keep having fun.  It’s very easy to be overly critical of others and act like a meanie, which is not the way I want to live my life.  We shouldn’t try and impose our will on others.  Avoid associating with “black clouds,” those people who are naturally pessimistic and grumpy by nature!

5) Stay consistent, but not obsessive with this site. Any publisher will tell you that producing consistent content over the long run is hard.  This is why I really admire all of you who have started a website, no matter how big or small, as well as those who comment regularly!  It’s also important not to get addicted to blogging to the detriment of family, friends, and work.  From 7am-7pm on weekdays my personal e-mail and Twitter account will continue to be off.

Guest post submissions are always welcome.  And even if they are declined, know that someone will accept it.  You can always publish on your own site too, like I plan to do for one of my rejected submissions from 3 months ago (too controversial they said)!  There are no subscriber, comments, revenue goals for the site.  The only thing I wish for is progress, my one word definition of happiness.

6) Put an acoustic album together of 10 songs I can play, sing and record. I’ve had my Martin Acoustic D-16 guitar for 10 years now, and it is in perfect shape because I don’t practice enough!  Current songs on the list include: Black Bird by Paul McCartney, Every Rose Has Its Thorn by Poison, Five String Serenade and Fade Into You by Mazzy Star, First Day of My Life by Bright Eyes, Nothing Left to Lose by Matt Kearney, More Than Words by Extreme.  Need three more!

7) Learn to cook three delicious dishes for each meal of the day and put together a menu. Breakfast is easy.  Lunch a little bit harder, and dinner the hardest.  A resolution I talked with my wife about two years ago since she was so gung ho about cooking then.  Unfortunately, the enthusiasm sputtered out, so I’m going to do it on my own, and hopefully inspire her to make her own menu.

8) Save at least 50% of my 2010 gross income and build the “Freedom Fund” to at least $200,000 by year end. You can consider the Freedom Fund as my net worth barometer.  The traditional net worth calculation is an illusion. Cash and cash flow are the only things that matters!

2010 Predictions And Goals Wrap Up

Thanks everyone for coming to visit my small piece of cyberspace.  It’s been extremely fun getting to know many of you.  The mutual knowledge sharing has been fantastic.  What are your 2010 predictions and goals?Please continue to challenge my thoughts until the blue fin tuna swims home, because without debate the mind will ossify.  May the majority of your goals come true in 2010!

Happy New Year!

Update – If you’re curious how my 2010 predictions and goals turned out, check out my 2010 Year In Review. Thanks!

Recommendation To Build Wealth

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planner
Is your retirement plan on track? Find out for free after you link your accounts.

Updated for 2021. Let the bull market continue with stocks at all-time highs!

The Katana: Lauching The Samurai Fund To Prove A Theory

Updated: by 46 Comments

The S&P 500 is at close to record highs in 2015. And, the bull market is more than five years in the making. Today we are launching The Samurai Fund to prove a theory. Details below.

The tipping point in your 401K, where performance starts outweighing a maximum $19,500 annual contribution is roughly $200,000. Once you have $200,000, the real juice comes from performance where an 8% return equals roughly the maximum contribution you can make every year.

There are two lessons to be learned in 401K land:

1) Contribute the max to your 401K every year. And in 10 years, you will likely have $200,000 given company matches, and performance (even in this past decade).

And 2) Once you reach $200,000, you’re going to hurt like no other if you lose 40%, or $80,000 of your portfolio, so diversify! The sword cuts both ways.

IN SEARCH OF LUCK WITH FORESIGHT

I’ve only had a couple big stock hits in my life, and I attribute it all to LUCK. Of course, I also attribute all my loss making ideas to BAD LUCK, and not to poor timing, bad fundamental analysis, and generally not understanding what the hell I’m investing in!

Essentially, I believe with a lot of luck and a little bit of effort we can outperform the markets.  Hence, let’s see if the PF community can outperform the S&P 500 with our own randomly unscientific stock picks based on permutations of our own names and blog titles!

Launching The Samurai Fund

This is going to be a lot of fun! Here’s what’s entailed in launching The Samurai Fund.

THE SAMURAI FUND – CONTRIBUTION GUIDELINES:

* The stock idea/ticker you come up with must solely come from your name or blog site. For example, my stock pick is ticker symbol SAM, or Boston Beer Company! If your name is Credit Card Chaser, your ticker is CCC, or Calgon Carbon CP etc.

* Your idea can be a stock, or ETF of anything if the ticker makes sense. Once you get your idea, please provide a brief description of the security, market cap (of at least $200 million to make it realistic), P/E ratio, dividend yield if any, earnings growth where available, and your own personal opinion. Yahoo Finance is a good place to go for info.

* The Samurai Fund will consist of around 10 names for a total value of $1 beeeleon dollars! I’m assuming there won’t be a flood of entries since it’s the holidays, and entries take a bit of effort, but we shall see.

* The picks will be equally weighted in the fund i.e. 10 picks will each have an initial position size of $100 million, with a purchase price based off this Thursday’s close.

* The fund performance will be reviewed once a month, highlighting every person’s pick, with an individual performance ranking and underperformance / outperformance vs. the S&P 500.

POSITION #1:

Company: Boston Beer Company

Ticker: SAM

Market Cap: $668 million.

P/E: 24.6X

Earnings Growth 2010: 11.3% vs. 29% for the S&P!

Personal Opinion: Love Samuel Adams beer, but with no dividend, such lofty valuations and minimal earnings growth, this is not a defensive stock that is expected to outperform in 2010!

The goal of this exercise is to just have fun and help prove the theory that anybody can outperform the market with a litle bit of luck and thought.  Once we have a diverse enough portfolio, as explained by the Modern Portfolio Theory, we should be able to compete with the likes of Warren Buffet and Bill Miller!  Entries close this Thurs, Dec 31st.

Further Reading

Recommendation To Build Wealth

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planner
Is your retirement plan on track? Find out for free after you link your accounts.

Updated for 2021. Let the bull market continue with stocks at all-time highs!

The World Stock Markets Are Crashing & You’re Going Shopping?!

Updated: by 46 Comments

Back in November 2009, the world stock markets were crashing. I wrote this post back then because I kept coming across people who were not clued into what was happening in the global economies. They were busy going shopping for unnecessary things instead.

Who would have thought that one of the most glitzy countries in the world would have trouble paying their own debt on time? The fear of systemic contagion is real as investors sell first, and ask questions later.

If Dubai can’t pay their debts, who else can’t? The US of course, but that’s OK! Everybody will fund our debt as you observe the US dollar and US treasuries strengthen. Don’t believe me? The 10-yr US treasury yield has dipped below 3.25% again. What inflation? Cheap money forever!

Investors around the world can mock us, and debase our weak currency all they want! You shouldn’t care, because all you have to do is watch what investors DO and not what they say. Investors are rushing in to our arms today crying “We love you America! Give us shelter!”

Instead Of Going Shopping, Invest For Your Future Instead

So many have disagreed with our “A Weak Dollar Doesn’t Matter Folks!” thesis. Yet so many are going to shop till they drop for pieces of junk they shouldn’t be buying in the first place! It’s Black Friday every day at Ross, TJ Max, and Craigslist, so save your stress and relax! 

If you’re going shopping today, check your 401k and stock accounts when you return. You might just have to go back on Monday and return everything!

* CONTEST * Predict where the Dow Jones closes today (11/27/2009) and win a free pat on the back! I predict 10,288. I’ll also highlight the winner in my weekly Katana wrap.

Readers, are there any out there who are relaxing at home in their pajamas being entertained by the media coverage of shopping frenzy? Why don’t people just shop on-line instead, given similar deals? If you make $20/hr from work, but stand in line for 5 hours to save $100 on a laptop, doesn’t the bring you back to even?

Further Reading

Recommendation To Build Wealth

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planner
Is your retirement plan on track? Find out for free after you link your accounts.

Updated for 2021. Let the bull market continue with stocks at all-time highs!

I Saved $2.1 Million On Lunch – A Sit Down With Warren Buffett

Updated: by 17 Comments

If I could have lunch with anyone, it would be Warren Buffett. His financial journey and investing prowess are inspirational. Alas, I don’t have any direct connections to Warren Buffett. Nor do I have enough wealth to buy a lunch meeting with him. But thanks to CNBC, I felt like I did in a great interview they featured with him and Bill Gates.

I thoroughly dislike watching CNBC for investing purposes due to all the noise. When the markets are up, they bring on every single pundit to talk about how the market is going higher. Then, when the markets are down, they bring on all the bearish pundits to tell you why the world is coming to an end. 

I remember when the S&P hit the ominous 666 level earlier this year, they brought in a “famed” technical analyst who said to expect S&P 200 by year-end. What was her name again? I forget. Anyway, I watch CNBC for entertainment purposes mainly, and a little bit of learning. Don’t watch CNBC to get rich.

An Interview With Warren Buffett And Bill Gates

Sometimes though, CNBC puts together something great. And that great feat was bringing Warren Buffet (Columbia B-School Alum) and Bill Gates together in a town hall with all their business school students to ask them questions.

Here are some of the most memorable lines paraphrased from the show:

“Work for someone or an organization you admire. When I moved from Nebraska to New York to work for Ben Graham, I didn’t care what my pay was. I had no idea. All I knew was that I admired Ben greatly, and was happy to be working for him.”

Warren Buffett’s response to what advice he has for anybody who doesn’t know exactly what they want to do?

“Buy and hold is not dead. This financial crisis has not deterred our investment philosophy at all. I don’t care about what happens tomorrow, next week, or even a year from now. Invest in the long term as good businesses are going to be worth more over time.”

Warren Buffett’s response to whether this financial crisis has changed his buy and hold investment philosophy.

“Run this business like this is the only business you can run for the next 100 years. Understand the motor of the business and its competitive advantages.”

Warren Buffett’s annual letter to his 70 managers when asked how he continues investing for the long term.

“Everybody says cash is king, but it is not. Cash is a terrible investment and will likely lose value over time. By the time you see the Robins sing in Spring, it’s too late.”

Warren Buffett’s response to whether he believes the latest rally is for real and whether investors should hold cash instead of invest in the market now.

“It’s 50 years of preparation and 5 minutes of decision. The good big decisions don’t take any time at all.  If they take any time at all, you’re in trouble.”

Warren Buffett’s answer when asked how he can make such quick and massive capital deployment decisions.

“There are a few magic moments where you have confidence in yourself. You have to have brash self confidence. Trusting yourself, and saying yes. These opportunities don’t come a long very often, so seize them while you can.”

Bill Gate’s answer to what one of his defining qualities are as a person to make him such a success.

“I’m good at making money, however, if you read Adam Smith’s book, it’s all about the specialization of labor. I know that Bill & Melinda, as well as my children are better than giving money away and helping others than I am.  That is why I entrust them.”

Warren Buffett’s answer to discussing his $30 billion charitable donation to the Bill & Melinda Gates foundation.

“If any student wants to sell their future stream of income, come see me after the show. I’ll buy them now for $1,000,000, or 10X your estimated yearly earnings. If you improve your communication skills, I’ll pay you 50% more!”

Warren Buffett’s answer to how he see’s value investing and the value of an MBA education.

“You bet!” and “On Margin!”

Bill Gates and Warren Buffett’s response to whether they’d buy the United States if it were a stock.

Conclusion

I can see now why someone bid $2.1 million to have lunch with Warren Buffet in 2008. He’s a smart, humble, and inspirational man. Bill Gates, you’ve changed from a tenacious business titan to a great philanthropist, so you ain’t so bad yourself. Thanks to both of you for your inspiration!

Questions for Readers:

* Warren Buffet went to business school and is the greatest and wealthiest investor of all time. Do you think business school has anything to do with his success? I ask because Bill is even wealthier and didn’t even finish college.

* Do you think Columbia business school students, and business school students in particular have a competitive advantage due to the access they receive? If so, why don’t more people apply to top business schools if they want to make more money?

* Who are other inspiration leaders and business men you follow and why?

Here is the full transcript of the Warren Buffett and Bill Gates town hall interview, “Keeping America Great” from 2009.

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A Weak US Dollar Doesn’t Matter Folks!

Updated: by 79 Comments

People have been freaking out lately by a weak US dollar.  I’m here to tell you it doesn’t really matter.  Did you know that 60% of Americans have never left the country and less than 25% of Americans own passports?  Most of the 40% who leave come back, so it’s only a temporary amount of time when their purchasing power may be relatively hurt.

An even better statistic states that only 20% of Americans speak a foreign language.  Hence, where the heck are the 80% of Americans going to go if they can’t communicate with the locals?  Ok, so they may understand what “I want a double quarter pounder with cheese please” in English means, but we aren’t going very far if we can’t speak another language.  Sure a vacation is fine, but it’s not like we Americans are suddenly going to relocate overseas and establish roots.

If you are an American who makes a US$ denominated salary, buys US$ denominated assets like property, consumes Levi’s jeans, and never plans to leave the country, what are you freaking out about? The US Dollar can depreciate by 90% against the Euro, and it still wouldn’t really matter.  The government is crushing our currency on purpose and you know the government would never, ever, ever do anything to harm the people they serve.

Read More…

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