Random thoughts on investing

I have a lot of thoughts on money, which in my case center not so much around how to spend it as how to save it. I rely heavily on my own prejudices, which are heavily influenced by my cynicism as an auditor who sees crooked finance and operations people every day at big multinational oligarchic companies. And I was heavily influenced by Rich Dad, Poor Dad (although some of my earlier infatuation with Kiyosaki has lessened as I thought more about his advice – more on that later).

Saying there is nothing urgent about saving money for the future is, to put it mildly, famous last words. Better to deal with things when you can do it in a calm and relaxed manner rather than needing to scramble when you’re 65.

I am a believer in the US market primarily because there is no real alternative for a corporate employee who has to put most of his savings in a tax-advantaged 401(k) that only really allows cash (money market-type holdings), bond funds and mutual funds as investments.

I have held individual stocks for most of my investing life, but no more. Why? Here’s an example. I was holding Wal-Mart stock. I got it when it was selling at 6. It split 4 or 5 times, went up to 50, and then stagnated for years, paying an awful 3% in dividends which were reinvested.

I took a look at Cigna, a major holding of my very elderly grandparents, recently. I personally think it is utterly crazy for retirees in their eighties to have so much money in a single stock. Cigna right now has a .04/share yield, which considering the $163/share price is effectively $0 yield per year: therefore they are losing 5.25% on 100,000 per year, or 5250. So if there was a capital gains tax hit of 15%, it would take 3 years to get in the black (and that’s simplified since I’m not considering taxes on interest). From a risk perspective, I think an insured money market would be far safer and significantly more liquid. The instant liquidity of cash principal may be important soon, and if they were forced to sell Cigna when it WASN’T selling at near its 52-week high, they could take a huge (imaginary, since it never really existed as a “gain”, only on paper) loss. Cash will not go down (except via inflation, blah blah blah, but that can be effectively hedged with a TIP or a money market, since inflation is not running at 17% – yet). CDs, barring some economic meltdown, are safe and insured.

However, it will take 3-4 years to be in “profit” mode selling off a huge stock holding like that, so it might not be worth it from that perspective. But in the long run at 5-6% in a CD/online savings account they could squeeze out another $5000 or so of cash a year.

The general fragility of the US economic system is a big bugaboo for Bubelah (my wife, at least what I’ll call her on this blog) and me. We have spent some time trying to figure out how to legally open a Euro bank account to start shifting our money out of the US. People put a great deal of reliance, for example, on the Chinese not calling their 500 billion in loans to the US. And I got really spooked by our stock-concentrated savings a couple of years ago – actually maybe a year and a half ago – watching a documentary about Enron. They were issuing “buy” recommendations on that while unbeknownst to the analysts, regulators, etc. Jeff Skilling was dancing around drunk telling his staff to make up fake invoices inflating sales. Is any other company out there as bad as Enron? Beats me. Could be. Maybe not. Maybe so. Probably so, in fact – human nature being what it is there’s always a guy out there who thinks he can game the system.

My thinking with finances has therefore been that rather than trying to think I can outsmart the thieves, the traders, the investment banks with their Crays making 8.2 million trades per second, better to plow everything into high-return cash and mutual funds that mimic the market, and then forget about it. If the US crashes, we’re in a bad spot, but if 5 of the Fortune 500 turned into Enrons tomorrow it would only be 1% of our portfolio. If someone holds a half dozen stocks, it’s 15% of theirs.

It’s tricky. Obviously I’m not retired and living off my investment income in Bermuda so it’s not like I know it all.

High school athlete, or how to set the table for massive weight gains

I am not a dietician, a nutritionist, a doctor, a trainer, etc. Please consult a doctor before beginning any diet program.

OK, now that’s out of the way. When I was younger I wasn’t particularly athletic but I wasn’t particularly non-athletic, either. I spent the usual amount of time running around playing and didn’t really eat to excess – maybe I had a weakness for chips and French fries but it’s not like it was served every day around the house, so I wasn’t eating much except what went on the table.

Tennis

When I was about 14 or so (basically 9th grade) I took up tennis. I had never really played any organized sports up to that point, so that was a bit of a shock at first. I took it up casually since my friends were doing it, and then got serious about it when it was apparent that I was good enough to make the high school team. I went to camp, I started running with the team, and even sporadically began lifting weights. However, the most important aspect of all of this was that I started playing tennis – a lot. We had two seasons, fall and spring, and throughout the summers my friends on the team and I would get together and play 3 or more sets each night of the week. This was in Mississippi, where I grew up, so I was playing tennis at a competitive teenage male level 6-7 nights a week throughout the 100 degree summer, not to mention competitive tennis matches throughout the spring and fall combined with the usual training regimen of sprints, practices, etc.

Metabolism swings

So the result of this was that my metabolism cranked up to a pretty high level. I think there were about three main reasons, one obvious, one normal, and one abnormal. First, I was a teenage male doing a lot of exercise at a very high level. Second, I started eating more, which in a weird way, due to the massive amounts of exercise, probably cranked my metabolism up even more. I wasn’t eating lots of junk food yet, so the meat/veggies/etc. were just more fuel for the fire. Third, I switched from drinking juice and the occasional Coke to drinking diet Coke. I think that was very significant although I didn’t realize it at the time. More on that in a future post.

So my metabolism was cranked up to the point where I was always hungry, always drinking diet Coke, always putting something in my mouth to keep up with the near-constant need for fuel.

Basketball ankle injury

I forget the exact date, but I think it was New Year’s Eve 1986 when I agreed to meet some of my friends and play a pickup game of basketball early in the evening. We did this pretty frequently as a way to break the monotony of (for most of us) tennis training, but there were a few non-tennis guys too. We usually played pretty hard, as competitive teen guys do, and had no rules about body checks or 3-second rules or anything that made basketball a non-contact sport.

Anyway, to the best of my recollection I went up for a rebound, or a shot, or something, and when I came down someone stepped squarely on my ankle, bending (but not completely breaking) it sideways. I thought it was OK for a second, but when I stood up – BAM – I went right down again. It hurt, badly, and it started swelling up right away. I wasn’t going to be able to drive my stick-shift Mercury Comet, so I called my parents and they took me home.

Being New Year’s Eve, there wasn’t a doctor easily available and it was pretty clear that while I had badly damaged my ankle, it wasn’t a break (which as you will read later will teach you, the non-doctor, not to assess injuries). So I propped it up, watched it swell up purple, and waited a couple of days before going to the doctor, hobbling around the house. When I finally had a doctor look at it, he recommended I walk on crutches for a few weeks, wear an air cast (basically a hard plastic cast with inflatable sections that made it rigid), and not play sports.

Tennis scholarships (or lack thereof)

So of course taking the long term view, I stayed off my feet for about two weeks, then started playing tennis with the air brace stuffed in a hightop sneaker to hold my ankle steady. I had dreams of becoming the #1 player on the team, getting tennis scholarships, etc. It wasn’t to be. I had a disappointing senior year, playing worse than I did as a junior, and never really fully recovered from the ankle injury. I got a few tennis scholarships, but they were small nominal scholarships to private schools ( i.e. $1000 per year off an $8000 tuition at the time). I didn’t have any major schools looking for me to play for them, certainly, and not even any serious interest from minor schools. So much for my dreams of tennis glory. My biggest achievement was beating a guy who would later become the #1 ranked player in the southeast US, and at least hanging in a match briefly with a guy who would later play at Wimbledon (I think I lost 6-0, 6-0, but I managed to ace him once or twice).

So I graduated from high school as a former athlete, eating large amounts, going away from home to live on my own for the first time, newly discovering beer and diet Coke, quitting organized exercise in the form of team practices and competitive play, and coming into a large amount of money by virtue of a humungous academic scholarship and generous parents and grandparents.

Relaunch

Well, I am sure everyone will be a-twitter over the relaunching of Brip Blap. If you visited the site before, you know that I wrote a vitriolic and often rage-filled political blog for about four years. It really peaked around the 2004 election, when it basically became a nonstop bloodbath of derisive comments about the Republicans.This time I don’t intend to talk about politics, although I’m sure that may come. Instead, this will be a more introspective blog, focusing more on me. Why? I am often asking myself that question. I feel like a dull person sometimes, yet, in the last ten years, I have:

  • Lived in Russia
  • Traveled to 27 different countries
  • Lost over 100 pounds through diet and exercise
  • Managed to go from a guy who got winded on a single flight of stairs to someone who has placed in the top 5 in my age category in competitive 5K races
  • Gone from being a confirmed bachelor to a happily married man with a superstar of a baby boy (update 2010:  now a big boy who now has a little sister, born in 2008).
  • Managed to go from being a workaholic nonstop business traveler to someone making in the mid-six-figures doing more or less nothing on a day-to-day basis
  • Completely 100% shifted my worldview on politics and the news and the world around in less than 6 months.

So, I don’t know – I hope that from all of that I can draw some topics for posting. Plus, I read a lot and have a lot of strong opinions on what I read – personal finance, childhood education, history, geography, famous quotations, self-help books and movies, movies, movies. Football, when I have time (J-E-T-S). And finally I am an enthusiastic twiddler in the Web 2.0 world (more on that later). So, subscribe, comment, and I hope this is interesting to someone besides me, but if not, that’s OK.