Perry Glasser

Archive for the ‘Personal Finance’ Category

WIZARDRY EXPOSED

In Business, Economy, EDUCATION, Finance, Personal Finance, Wall Street Journal on January 6, 2015 at 1:42 pm
WIZARD OF FINANCE

WIZARD OF FINANCE

Financial Wizards feel compelled to offer explanations for any and all stock market perturbations. After all, what’s the point of being a Wizard if you possess no magic?

Besides, how can a Wizard separate a Citizen from hard-earned cash by offering sage advice despite being clueless?

Cohorts of Wizards are in the business of blowing red smoke, green smoke, and blue smoke to impress the rubes that the world of finance is too mysterious and hard to understand for mere mortals, a falsehood that precipitates money.
Nevertheless, smoke remains smoke.

Wizardry Exposed

Wizard advice comes in four flavors:

Subjunctive Mood Mavens: Solemn pronouncements in subjunctive mood are consultant-speak, the language of baseless prognostications, crystal ball gazing bank economists, and other members of  the OUIJA board school of investment advice. They can never be wrong. Dollar$ notes for those who need a grammar refresher that subjunctive mood expresses an idea that is untrue or a wish. Subjunctive mood is especially helpful when waffling. The stock market may go down this year is an utterance that suggests it may also go up. Subjunctive mood is a favorite of the Wizard Street Journal headline writers who have the odious task of filling column inches on days when there is no financial news — which is most days. Greece May be Forced from the Euro Common Market!  Yes, well, it might not be, too.

Hysterics: We pay for slasher movies because we like a good scare; we ride rollercoasters for the same reason. The Wizard who cries “Wolf!” on a near daily basis, unlike the boy in the story, will always find listeners. Like the owner of the clock that stopped who bragged his timepiece was correct twice each day, Doomsayers gather an audience despite being wrong most of the time. Readers who doubt this may want to note that even adjusted for inflation, the Dow Jones Industrial Average, the measure by which most people assess stock the US markets, has gone from below 4,000 in 1994 to hover near 18,000 now. Even adjusted for inflation, any schmuck should realize listening to Doomsayer Hysterics can cost a bundle. If Henny Penny urges you to make your appeal to Foxy Loxy because the sky is falling, don’t be surprised if you turn into Foxy Loxy’s main dinner course.Henny_penny

Snow-Blowers: Ruminating over arcane charts and using an esoteric vocabulary about cups, cliffs, breakout and support levels, peaks and valleys, Snow-Blowers sell unwary Citizens advice based on the premise that graphical patterns in the past will repeat in the future. Such soothsaying is about as accurate as your average racetrack tout who examines past performances. While racetrack touts and technical analysts will leave you equally broke, racetrack touts use a transparent vocabulary. You might also consult the entrails of birds.

Screamers:  When you have to fill a 30-minute TV time slot for five days each week, the only way to maintain an audience is to scream at them.  That’s 200 days each year, a total of 100 hours of annual financial advice. When every study shows that the best way for investments to thrive is a modest, infrequently varied buy-and-hold investing approach, it’s hard to imagine just what there is to scream about, other than trying to draw the audience that draws the advertisers.  I mean, what can Cramer do? Name seven stocks every January and shut up for a year? His bad calls are legendary, but he does not have to be right, he has to be loud.  It’s just show-biz, folks.kramer7

 

 

 

IT’S BOOM TIMES IN AMERICA

In Business, Economics, Economy, EDUCATION, Finance, Personal Finance, Political Economy, Wall Street on December 23, 2014 at 8:58 pm

Dollar$ is back after an absence: the rarest thing is cyberspace is a blog with nothing to say. But it is time.

Many a financial prognosticator makes a living by predicting gloom and doom. People like a good scare. The problem is, this is no time to be terrified.

Things have never been better. There, I said it.

The oil price war going on between OPEC and the US is about market share. Oh, and be sure to understand it is a price war. Sweaty Wizards will call it a collapse in the market, but OPEC and the US are going toe to toe to own exports to China and Europe.

The beneficiary of this price war are Citizens. We are usually screwed, but we also put gasoline in our SUVs and warm our homes in winter.

It’s boom times in America. That’s no equivocation. It is fact.

Citizen

Citizen

Once again innovative technology befuddled Malthusian nitwits. We are not running out of natural resources before next week. Movies based on this mythology, notably the Mad Max series with Mel Gibson, were based on the popular notion that civilization would collapse for lack of energy resources. It had to be true. Didn’t Tina Turner sing about it?

Thomas Malthus, an early Wizard, in 1798 predicted the world would eventually starve because while population increased geometrically, food supplies could only increase arithmetically.

Ponder that as you sink your teeth onto your next pizza. Get it gluten-free, if you must, and but note no people driving are dune buggies across the desert and warring for women except in the wanker fantasies of adolescent boys.

Frack!

Frack is not a profanity left over from Battlestar Galactica.

Now it happens that fracking to withdraw oil from shale is a process more expensive than simple drilling, so if you were a Saudi Arabian sheikh and terrified that the US was about to once again become an oil exporter, you’d be hoping to squeeze those Allah-be-damned cowboys in North Dakota out of business. You’d drive the price down. You’d drive the price down by producing more oil than the world needs. You’d create a glut of dead dinosaur juice and put it on the open market at prices not seen in a decade.

You’d not-so-incidentally screw over Iraq and Iran, two places where fundamentalist loons pack their asses with C4 and wish they had atomic bombs for atomic bums. It’s not polite to say ill of those loons, but no one expects Saudi Arabia any time soon to invite fundamentalists into the holy cities of Mecca and Medina. Since Iran and Iraq have nothing to offer their populations, they feed them a steady diet of hatred for Israel, far less nourishing than building an economy, but also far easier. The chief exports of the region–other than petroleum–are pistachio nuts.

You accept a little civil unrest to stay in power, so instead of throwing the rascals out, the legions of unemployed fire automatic weapons into the air, lately killing each other in a contest to see who is crazier to keep 21st century mores away from people who have never experienced the Enlightenment, keep their women kept covered, and, because vagina’s are dangerous and mysterious, still ritually mutilate their daughters.

The OPEC strategy is to make fracking too expensive. Pump oil, pump more oil, keep pumping oil. The cost of a barrel of liquid dinosaur has dropped 40% in months!

Meanwhile, the US consumer will pocket about $500 per year not being spent on gasoline. They’ll spend that cash at restaurants, Disneyworld, at the movies, maybe buy that new refrigerator—all those products called consumer discretionaries. We will enjoy this for a while.  Cruise liners should be lowering prices; so should airlines. Buy stock—don’t be a dope. It’s boom times in  America.

Wizards, a timid lot for whom equivocation is a habit, at first believed the drop in oil was the harbinger of evil, the precursor of worldwide deflation. They advised the very rich, the kinds of people who throw billions at hedge funds, to sell. If everything was about to get cheaper, you’d want cash, too. World markets wobbled, but quickly recovered.

Wizards are still advising caution, but anyone attuned to Wizard-Speak will note how often the words, if, may, and perhaps show up in Wizard epistles. “Yes, we at Binkwater Investments are fairly sure that if the markets don’t go down, they may go up. Make your check payable to Binkwater! Subscribe to our newsletter!”

Deflation is indeed evil, but note, too, that Wizards hate the US Weasel in Chief. That sumbitch won’t deregulate! There’s money to be made, dammit, and just because we nearly bankrupted the world economy in 2007, that sumbitch won’t forgive and forget!  Wizards would choke before publically taking note that  the US economy is just grew 5% in a single quarter, faster than any time in the past eleven years, that employment is going up, and that consumers have all just gotten a bonus in the form of cheap oil. The stock market is at record highs.

It’s hard to find bad news for American investors.

True, the US economy is moving in the opposite direction of the rest of the world. China’s growth rate is slowing; Japan’s is still flat-lining, Europe may be in trouble.

In other words, the market for oil is adjusting to world economies that need lower prices while the only place in the world offering significant growth and low risk is the United States.

Call it American Exceptionalism.

ESCAPE THE STUDENT DEBT TRAP??

In Business, Economics, EDUCATION, Finance, Personal Finance, Wall Street Journal on June 14, 2014 at 10:04 am
St Milton, Nobelist  in Economics, Doyen of the Right.

St Milton, Nobelist in Economics, Doyen of the Right.

Finding new ways to pump money into education as Miguel Palacios seeks to do in today’s Wall Street Journal, is no more than leaning on the bicycle pump with greater vigor to inflate the tire. We saw it in real estate with substandard loans: now we are seeing it again with financial schemes that do little more than bleed profit from students ill-equipped to endure debt no matter how it is structured. Income-share agreements a la Milton Friedman will not rescue higher education until higher education rescues itself, and higher education will not rescue itself until it has incentive to do so. Friedman’s idea was fine, 5o years ago, but the pump today is attached to a balloon already stretched to contain trillions. How much longer can it inflate?

First, let’s address the proliferation of “professionalized” administrators whose experience of classrooms is nil, and let’s limit their compensation to a single-digit multiple of teaching personnel. We can do this at any US school accepting US money—which is all of them, public and private. Should any private school express horror, all it needs to do is stop accepting Federal funds in the form of student loans: then the Trustees can then pay a president anything they wish.  If it is good enough for Harvard, it is good enough for Oral Roberts University.

Second, let’s reconsider what we want higher education to be. Do we have the courage to stop equating “education” with “training?” Are our children empty vessels to be filled so they may take their places at the machine, or do we want to train our children to be thinking leaders?

Third, outsourcing job training to prospective employees has to stop. “Hit the ground running” is a metaphor drawn from images of troops dropped into combat from helicopters, but business leaders whose strategic horizons rarely extend beyond the next quarter have to close their copies of Sun Tzu and stop thinking of employees as conscripts. At these prices, youth will eventually not enlist. When that happens, business throughout America will go into a death spiral. Who will be buying the goods and services when an entire generation is already so underwater no one can borrow to buy houses and cars? Before we demand that youth borrow tens of thousands of dollars to mold themselves to a vision that business itself will discard in a heartbeat, and before telling laid-off employees to “retool,” let’s see the return of ad that read, “College grad wanted. Will train.”

Another productive college grad.

Another productive college grad.

Fourth, scrub campuses clean of cruise ship personnel, those pleasant folks who for 10 months each year deliver non-teaching services to students. They account for more payroll than all teachers. Can’t a campus go forward without offices devoted to diversity, racial and ethnic education, and the rest of the panoply of politically correct educational goals with no cognate in the real world? Can an academic year pass without barbecues, fairs, or Frisbee competitions?No wonder kids are lured into majoring in Women’s Studies or Conflict Resolution: they’ve gotten the notion that such careers exist.

Finally, for those of us who demand American employees be competitive and fear they are not, consider the long view on American education. Literacy meant mandatory education through 6th grade, then 10th grade, then 12th grade. Do we have the vision to acknowledge that American prosperity and security at this time requires a population that can access education through the 14th grade? Are we brave enough to say it? — education is an entitlement because it promotes a public, widespread good.

The question is not whether we can afford it, but whether we can continue to pretend that we cannot.

FINANCE FOR THE CLUELESS: INVESTING –THE EIGHT DO’s

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on April 23, 2014 at 12:17 pm

If you are unsure you should dip your trembling toe into investment waters, reread FINANCE FOR THE CLUELESS: INVESTING – THE DON’TS right here at Dollar$.

 CAUTION TO THE HARDHEADED 

If you are persuaded that the game is rigged and that age hates youth, deliberately having made money management and life-planning a cruel losing joke, consider that the bad guys will someday kick the bucket.  When they do, will you be among ageing schmucks still claiming injustice or do you want to position yourself to take your place as a leader?

The choice is yours.

If you are a twenty-something ready to grow up, or a thirty-something ready to take your share of the American Dream, you have  come to the right place.

Dollar$ will not equivocate. Here is what you must do to GET RICH SLOWLY.

Should you discover you need to get rich quickly, Dollar$ urges you to bet on race horses. At any racetrack, you will breathe fresh air, find friendly company, free parking, and can probably purchase a half-decent meal. You will quickly go broke, of course, but during the 1:12 it takes for a decent thoroughbred to run 6 furlongs you can scream yourself silly and dream of riches. Quarter horse racing is even faster!

OPEN AN ACCOUNT

Choose a brokerage like Schwab or Ameritrade, any organization that fits your digital lifestyle. Investigate apps or web sites; choose the brokerage that seems most navigable to you for research, purchasing, and tracking your holdings. You will want more as you learn more, but you need to be comfortable with an interface.

The Internet has leveled the cost of doing business, about $7.95 for any online stock trade, so in terms of costs brokerage firms are interchangeable.  At issue for you is service and minimums.

Most brokerages require a minimum amount to open an account: as this is written, Schwab is asking for a measly $500—perfect for the Clueless.

FEATURES

  1. Options. If you can get approved for Options trading, get it.  You will not use this until you have considerable wealth, but it costs nothing to check a box.
  2.  Margin.  Again, check it off and leave it the hell alone until you know what the hell you are doing, and even then think very, very, carefully about borrowing money from your broker to make an asset purchase—which is what Margin trading is about. Remember, your broker is not your partner. Your gains are your gains alone (W00t W00t!), but your losses are your losses alone. If you owe a margin debt, you will owe what you owe no matter what happens.
Margin accounts may have uses, but can be dangerous.

Margin accounts may have uses, but can be dangerous.

You know Tony down at the docks? The guy who lends money to people with no collateral? He is happiest when you pay him, but he does not care if your team lost, the deal went south, or your honey made off with your boodle—he only wants his money and interest back. When he does not get it, he becomes surly. He makes you sell your car, cash in in your kid’s college fund, and if necessary persuade you to these measures by realigning your knee caps with a baseball bat he keeps handy for just that purpose.

Think of your Margin account as Tony. Don’t let anyone get medieval on you.

3. Check Writing. Take it.  Add a measure of liquidity to your assets. You can write an emergency check if you need to—which you should not, but shit happens.

4. Reinvest Dividends. Absolutely. Dividends are how companies share profits with shareholders. Dividends are not interest, but in effect, reinvesting dividends is how your account will draw compound interest.

“He who understands compound interest , earns it ... he who doesn't ... pays it.” Einstein

“He who understands compound interest , earns it … he who doesn’t … pays it.”
Einstein

 

THE EIGHT DO’S AND WHY

1. Buy stock in at least 3 companies traded on either the New York Stock exchange or the OTC (Over the Counter) markets. Be sure these companies are in very different economic sectors. In other words, do not buy 3 media companies, or 3 retail companies, or 3 technology companies, but perhaps buy 1 of each.

You require a measure of diversity. You can buy diversity in a mutual fund, of course, a basket of stocks managed by professionals, but then you pay fees for professional management. Dollar$ cautions the clueless, who by definition are starting small, that the fees will bleed you white. Why start your financial life with a tapeworm?

Diversity is insurance against misfortune. While one sector of the economy may take a hit from unexpected circumstances—such as a change in a government regulatory posture or a political event in a faraway country— the only circumstance that will affect all 3 of your sectors are changes in the overall economic picture, such as a change in interest rates.  For the investor who wants to GET RICH SLOWLY, those dips can be shrugged off because unlike you and me, companies that sell goods and services can within limits raise their prices to recoup what was lost. The price of lumber goes up, the furniture business takes a hit, but next year the price of furniture rises. It’s not as though people will start sitting on the floor.

What constitutes a sector is very subjective. Is Walt Disney a service company or a media company?  Different online research will yield different sector guides. Here is one website that will allow you to bore down to Market Cap leaders by sector.

The final arbiter of what is what is you, Binky, so give special considerations to companies that are conglomerates. General Electric, the oldest company in the Dow Jones Industrial Average, founded by Thomas Edison, makes washing machines, jet engines, and runs an insurance business.  What sector is that?

2. Buy stock in companies that are at least 20 years old.

Ten-year-old companies have a modest track record of survival; twenty-year-olds are even better.

Yes, Dollar$ is aware that young companies are set to grow quickly, but they frequently are headed by untried management and are closer to going broke. Most corporations live little more than a person’s lifetime though the exceptions are remarkablebecause they embrace a culture of change and innovation. 3M Corporation was founded in 1902 to make sandpaper; now they make Post-It notes and Scotch Tape.

Young companies will also gather imitators, which mean ever-increasing competition will drive revenues, but not costs, downward. Someone is bound to improve on the original idea.  If the good Lord in 1985 had whispered in your ear, “Computers,” you may have chuckled at the Divine Wisdom that loaded your portfolio with Kaypro, Atari, Commodore, and Wang. Like last winter’s snow, those companies are now gone.

Avoid the bleeding edge.

3. Buy stock in at least two companies that are multinationals.

DSC_0230Doing business in places where general economic growth is not dependent on the value of US currency is simply prudent. Dollar$ would never bet against the financial muscle of the United States, but Dollar$ is aware that infrastructure build-out in the 3rd world is inevitably followed by consumer demand for a higher standard of living. You do not have to buy stock in a Chinese company to participate in the Chinese economy; you do not need to need to buy stock in a Chilean company to participate in the Chilean economy.  Logos and trademarks Americans see every day are all over the world: UPS, Disney, Starbucks, Pizza Hut… the list is endless.

If you have qualms about such things and think they are imperialistic, ask the folks in Red Square how they like burgers at McDonald’s, or ask Chinese citizens if the prefer iPhones to ‘Droids.

4. Buy stock in companies that pay dividends or, even better, have a history of raising regularly dividends.

Many companies do not share their profits with shareholders via dividends because managers hoard cash for future business investment. While Dollar$ respects the managerial strategy, Dollar$ notes such companies do not suit a strategy to get rich slowly. The Clueless want an opportunity to have their dividends accrue ever more stock.

Better yet, companies that pay dividends suffer less in a downturn because their dividends offer investors a yield, a cushion against losses.

5. Buy and Hold—even if it means going white-knuckled.

On September 16, 2008 the general stock market as measured by the Dow Jones Industrial Average crashed 10 percent in a single day. The Buccaneers who ran major financial institutions were competing to take greater risks for greater profits than any responsible bank should, fudging on what “banking” meant. On Sept 12, 2008 the DJIA was at 11,421.99.  By November 21, it was down to 8046.42 a breathtaking loss of 29 percent in 6 weeks.

Iceland went broke, Lehman Brothers went out of business, and for the first time ever, US citizens heard the phrase, “Too big to fail.”

Anyone who sold to defend his or her assets for fear of total ruin took themselves out of the game. They may have felt safer, but by doing so, they gave up any chance of recovery.

As Dollar$ writes, the DJIA stands above 16,000—which means sellers in 2008 have missed 100 percent gains measured from then, only six years. By selling into a panic, they gave up every opportunity to gain back all they lost and more.

True, if you owned stock in Lehman Brothers you took it in the neck, but if you had a diversified portfolio, over all, you survived and may have even made money.

A wise man once said, “You can’t go broke on a small profit.”

6. Buy shares and add to your portfolio regularly.

Ideally, you may be able to invest with a check-off system from your salary, an arrangement that will allow even those of us lacking personal discipline to take advantage of the maxim: Pay Yourself First.

Regular investing will allow you to take advantage of “dollar-cost averaging.” When stocks are up, you’ll buy fewer shares: when stocks are down, you’ll buy more shares. On average your cost will be somewhere in between. Free yourself from trying to guess if today or tomorrow are better days to buy; let time be your friend.

If your companies thrive and move steadily upwards, your average cost will always be below their current price level.  Over the long haul, stocks historically have gained 7-9 percent annually. Never try to time the market—just be a steady buyer and Get Rich Slowly.

7. Buy Mid and Large Cap companies.

“Cap” refers to capitalization, the sum total of the value of all the shares issued by a company.  Every company issues a different number of shares, so a company floating a million shares priced at $100 per share is worth $100 million dollars, but a company with 5 million shares priced at $50 per share is worth $250 million.  That’s right, the company trading at the lower price is worth more.

Large Cap companies are slow as battleships, but not likely to sink quickly; Mid Cap companies are more nimble and want nothing more than to grow to be Large Cap. They will take more risk, but have a record for taking risks and winning because they really were once Small Caps.

There are plenty of Small Cap companies, and investing in them is a respectable strategy, but Dollar$ does not recommend that to the Clueless: one needs a larger portfolio to overcome the inevitable losses small companies encounter. While a few Small Caps will experience spectacular growth, more will fail or stay stagnant. On average, an investor might do well, but only if the investor has a sufficiently diverse portfolio, unavailable to the Clueless without professional management—which must be paid for.

8. Sell when the reasons you bought a company change or the fundamentals of the business change.

You selected  XYZ company for your portfolio for reasons. Maybe you personally liked the product or the service; maybe liked the company’s competitive position; maybe you liked the company’s record for paying dividends; maybe you read and were persuaded by  the company’s strategic plans; ideally, you liked some combination of all of those.

But if those any of those change, why are you still holding the company? Never fall in love with a stock; review your portfolio regularly, at least every 3 years. Save your loyalty for a lover.

NOW WHAT

Discovering companies that fit the Dollar$ profile from the universe of thousands of companies is, in fact, easy.  You chose your broker because it offered digital tools for Research. Try the “screening” or “filtering” system—pick an economic sector, indicate your requirements in terms of dividends, choose from Large Cap or Mid Cap, etc.

  • Read about the company’s businesses. If you do not understand what they do, go no further. Invest only in what you understand.
  • Invest only in companies that sell services or products you would buy whether you were a business or a consumer.
  • Buy shares in companies that are ranked first or second in their industries.  
  • Be disciplined. Avoid trendy and hot stock tips, whether from your Uncle Fred or a TV pundit who is obliged to scream “news” at an audience every evening. Near term, they may be right: let someone else make that money while you sleep soundly.
  • Invest and relax—let your money work while you sleep and pay no attention to daily, monthly, or even annual trends. You are going for the long haul, and the long haul is steadily upward and has been for hundreds of years.

PERSONAL FINANCE FOR THE CLUELESS: INVESTING, THE CAPITAL MARKETS

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on March 26, 2014 at 12:27 pm

Dollar$ is well aware of the gazillion resources online where some union of Wizards and Buccaneers blow rhetorical fog that is an alleged explanation of stocks and bonds.

Dollar$ submits that these explanations are deliberately arcane, part of the investment community’s strategy to hunt and bag the Clueless. After making what is simple appear complicated, up pops a talentless sales goon who for a small fee offers to manage your money.

 

WHERE WIZARD HIDE

WHERE WIZARDS LURK

Dollar$ seeks to dispel the fog.

When the Clueless understand what anyone can see, the Clueless are no longer clueless. No situation terrifies Buccaneers and Wizards more.

These are the same stalwarts that over a generation persuaded America that job training is a cost to be borne by the trainee and that education and job training are synonyms. An entire generation has accrued so much debt that they are indentured servants.

It is time to turn the table on the bastards.

Leap beyond the jargon of P/E ratios, large cap, small cap, technical analysis, book value and all the rest, grasp the basics, get started, refine your wisdom as you accrue wealth, seek financial and emotional independence.

A Fantasy

Suppose you are downloading 3 seasons of the Walking Dead because you are far too cool to watch broadcast TV at scheduled times, planning a long weekend of beer, pizza, a fluffy blanket, and a lover watching monsters eat brains. What could be more romantic?

Suddenly, as if in a vision, you imagine a way to supply the world with a new and better widget. Your lover shows up, you describe your plan, and your lover enthusiastically says, “We’ll need some money to get started, but eventually we will make wheelbarrows of dough.”

Hot damn!

Nothing comes easy, but after two years of running the business on a shoestring at 16 hours per day, you’ve proven the concept. You can make and deliver a quality widget for less. You need now to expand enough to get out of the basement. You want to hire some old-school experts in widgetry, and you need 10 employees. You are figuring with the profits that are forthcoming, eventually you will have 10,000 employees. The sky is the limit.

Scariest start-up ever

Scariest start-up ever

Do not laugh. This is how Amazon.com started, with Jeff Bezos sitting on the floor wrapping packages. This is how Facebook started, with Mark Zuckerberg gathering a cadre of code-writing geeks in a Harvard dorm. This is how Hewlett-Packard began—in a garage in Palo Alto. Maybe the scariest start-up in recent history was Fedex: on the first day in business in April 17, 1973, Fedex required 14 jets and 389 employees to deliver 186 packages to 25 cities. The idea was to compete with the US Post Office by charging MORE.

What lunatic would invest in that????

Ideas turn into goods and services that make our lives rich and our wallets fat. This is the miracle of America capitalism.

Capital Markets – Access the Money!

Participation in the public capital markets are the only way for Citizens to partake in that miracle.

Businesses go to the Bond Markets to borrow money. When a Citizen participates in the bond market, the Citizen becomes a lender. Lenders are guaranteed income determined by the face value of the bond, interest based on the rate of return, and an eventual return of principal at a predetermined date. Since part of the investor’s risk is the bankruptcy of the issuing organization, the rate of return (interest) is determined by how solid the issuing organization is.

Note that the investor does not participate in the growth of the issuing organization.

Note, too, that some organizations are not businesses promising interest based on future profits, but are municipalities promising interest payments based on future tax revenues.

Dollar$ hastens to point out that bonds are appropriate for investors with low risk tolerance—the aged and the nervous.

 

Citizen

Citizen

Dollar$ also points out that no investment is without risk. Ask Citizens who held bonds issued by the City of Detroit. Mostly, those bonds are held by large organizations such as labor union pensions funds, but when the fog lifts, those are Citizens. Instead of interest and eventual payment of principal, investors in Detroit’s bonds hope to get twenty cents on the dollar.

Businesses go to the Stock Market to sell shares in the company to willing investors who expect or hope that the good idea will make the value of the shares rise with the good fortune of the company. At some point, if the shares of stock are traded, the investor makes a gain or, if the value of shares goes down, incurs a loss.

For citizens to participate in the stock market requires only that the citizen have a broker, a clear idea of the advantages and disadvantages of different stock investment vehicles, and an investment strategy.

Dollar$ will be writing more soon.

FINANCE FOR THE CLUELESS: INVESTING #2 – BURN YOUR PILLOW CASE

In Economics, Economy, EDUCATION, FINANCE FOR THE CLUELESS, Personal Finance, Wall Street on March 19, 2014 at 12:30 pm

“OK, Dollar$, I have a few bucks in the bank, I have no significant consumer debt, and I have steady cash flow from a secure job. I have measured my risk tolerance in terms of my age and psychology, and I am persuaded that I want to get rich slowly to meet specific long term goals, such as buying a house, putting as yet unborn children through college, preparing for my own old age.”

Congratulations, Bunky! You are a grown-up! Its time to take your money out of a pillowcase.

photo-92-e1319326132194Tell your broke-ass friends who insist that the rich own the system and that they know they cannot get ahead that you have decided to join the Dark Side. Dollar$ adored Occupy Wall Street for its goals–who can argue with Justice? but Dollar$ sadly notes the “movement” lasted less than a year. So why not become one of those degenerate rich? While your friends bitch and moan, lusting for the next video game unit, having succumbed to the Consumer Culture that pollutes the mind by implanting false needs, you have decided to take control, take responsibility ad will rise above that.

You will never spend money frivolously or self-indulgently—that’s what children do—but you have goals, you have ambitions, and like it or not, all of us live in the sea of financial life.

You can choose to drown, float, or construct a ship to set sail.

Dollar$ wants you to set sail.

First, you’ll need to build a ship.

Save or Invest?

If you meet the Dollar$ profile, it will be plain that simply saving will have you sink not far from the dock. You work hard, so should your money.

Money in the bank is not working hard; however, it is totally liquid. You need to have some there for ordinary bills and expenses.

Dollar$ Recommendation: a balance of at least 3 months for the young (under 40), and as much as 6 months for the not very young. The Book of Ecclesaistes tells us:

I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.

Or, as Dollar$ interprets The Good Book: Shit happens.

So DO Insure and save against the ay you will have bad luck. Everyone does. Do not let time and chance happenth on your watch.

Say you are minding your own business at a stop light when you get your leg crushed by a cement truck with failed brakes. If you have a disability policy or disability rider on your auto policy that kicks in after 6 months, it is a LOT less expensive than a policy that kicks in after 6 weeks. No sweat for you if you have some liquid assets in the bank, but a disaster if you are living check to check.

If you believe you are trapped, read Dollar$ on how to save more.

The Name of the Game is Averages

If someone offer you Magic Beans and a quick rich scheme, run. But the simple fact is that stocks show an average return of near 10 percent per year over the long term.  In this chart, the red lines are averages: notice, however, that some years are awful, and others are terrific.

Now you know what AVERAGE means.

avg-mkt-rtns-1926-2008-600x409

Some years are dogs; some are stellar.

Compare that average to current bank account returns, which as Dollar$ writes are less than 1 percent. Taking on some risk to average 10 percent seems mandatory instead of accepting a pittance.

Since you are following the Dollars motto, Get Rich Slowly, year-to-year gains and losses are of mildly passing interest. If losses of 10, 20 or even 40 percent trouble you—reset your gauge of Risk Tolerance.

The Marathon

We do not quit running after 2 miles because of a leg cramp. Shooting for an AVERAGE of 8 percent each year is realistic, possible, and will make you rich—slowly.

Think not?

This chart from JP Morgan shows three investors compounding their investments over time. One of them, Susan, starts at 25 and quits at 35.  She still winds up with a mere $850,000, enough dough to rent a tennis pro or two.

Growth over time

 

Dollar$ RecommendationWHAT ARE YOU WATING FOR????

Reassuring the Nervous

Suppose you are 25 years old and are able to invest $2,000 each year, maybe in an IRA, maybe in stocks–just keep it out of that pillowcase.  And after five years, you look with pride at your tidy pot of money. You are now 30, but just then the stock market crashes. They are leaping out of buildings on Wall Street. It’s as bad as the Great Depression—maybe worse.  The Depression lasted 12 years; it was 15 years of investor misery.  What happens to your Dollar$ plan?

Well you are all of 45 years old, a good 20 years from a youngish retirement.  If you’ve maintained investor discipline, you’ve accrued 15 years of investments at bargain basement prices. When the stock market recovers–and it will, since the United States is not going bankrupt any time soon– you may be lucky enough to enjoy a year like 2013, a whopping 32 percent gain in a single year.

All those cheap investments you made for 15 years are paying off! Buy cheap; sell dear! as log as you are dedicated to Get Rich Slowly, down markets are a buying opportunity, Bunky!

The sissie who bailed in 2008-09 go screwed. Those were bad years, and those investors with short term vision took it in the neck. They ran for the exits and took permanent losses because they took the short term view.

Now before someone tells Dollar$ that they were protecting themselves and, perhaps, were too close to retirement, Dollar$ will remind readers that being 65 these days is not old. Folks who are retired should prepare for at least 20 years more of life and so accept judicious risk. Any investor was over 70 in 2008 and had a significant pot of cash at risk….why? What are you? Invulnerable?

For the Dollar$ reader, the Clueless who are not H0peless, the lesson is plain:  Buy and hold, and do not let the vagaries of the markets year to year bother you.

Take a lesson from Monty Python.

Never bury what ain’t dead yet.

Convinced?

Watch for Finance for the Clueless: Investing #3 – Nuts and Bolts

FINANCE FOR THE CLUELESS: INVESTING – BASICS 1

In Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Political Economy on March 15, 2014 at 12:45 pm
Get Rich Quick Wealth Generators

Get Rich Quick Wealth Generators

Dollar$ Disclaimer

Wall Street Wizards are touts. Touts are eager to sell you the names of winners. On Wall Street, thy will sell you the names of companies that will be fracking the shale deposits deep beneath Central Park once they obtain regulatory permission. They can supply you with the names of organizations accepting reservations for tourism to Mars; they have a list of companies exploring time travel. As wizards, they often use rhetoric that is in the subjunctive mood. They employ a lot of if, maybe, and might.Dollar$ will name no companies. If you want a tout, there are plenty online.Dollar$ Readers seeking to own a Caribbean Island before their 30th birthday are advised to select very wealthy parents or to take all their hard-earned cash and place it on a three race parlay of horses at odds of greater than 10:1, a payoff of a cool million with an initial wager of $1,000.  Bookies will welcome you! The Wolf of Wall Street, a film based on fact, details the life of a Wizard who preyed on investors seeking quick and extraordinary profits.Such investors in the trade are known as “Suckers”; such investment counselors are known as “Millionaires.”

Wall Steet Tout

Wall Steet Tout

Dollar$, therefore, suggests that the Clueless embrace two principles of investing:

Get Rich Slowly

Know It Ain’t Complicated

Indeed, Wizards’ claim to wizardry and Buccaneers guard their freedom to pillage the economically ignorant precisely because they seek to keep Citizens befuddled.

  • “Give us your money so we may guide you!”
  • “Buy shares in International Widget so we may be richer than gods while you struggle to make ends meet!”
  • “Pay us for financial education!”
  • “Do not ask for explanations: It requires higher math!”

Sounds familiar?

Dollar$ writes to  frustrate the bastards.

Should You Have Skin in the Game?

Money in a pillowcase is not secure. Never mind the risk of theft, that money draws no interest, and as such it decreases in purchasing value over time because of inflation.

Dollar$ notes that inflation is not, like Gravity, a Law of Nature. Japan for much of the past 20 years has experienced the opposite, deflation, a fearsome economic consequence of the untrammeled boom Japan enjoyed in the 1980s. Yen in a 20-year pillowcase can no buy more Tokyo real estate than it did two decades ago, which may seem like a great thing unless you bought your Tokyo condo 20 years ago, in which case it is now worth less than cheap sushi. In 2009 the US experienced a year of deflation—which (rightly) scared the piss out of people.

The Fed in the US has lately employed several strategies to avoid deflation tand maintain a comfortable inflation rate of around 3 percent. One strategy is to keep interest rates so low that businesses and consumers perceive Savings as having all the economic advantages of a pillowcase.

If you want more, perhaps it is time for you to consider Investing.

Drop that phone!

Investment Readiness

Not so fast, Bunky.

Investing means placing money at risk.

Never forget that risk-reward correlated. Your insured accounts have almost zero risk, and therefore pay near zero. Up to $250,000 in a US bank covered by FDIC cannot be lost. However, that 3-horse parlay of nags at 10:1 or more pays at so high a rate because it never happens. The true odds are 1,000:1. Someone may win the gazillion dollar lottery, but that’s called gambling, not investing.

You have no right putting your money at risk until.

  • You have a secure job that supplies enough cash flow to meet your expenses.
  • You have NO consumer debt.  If you remain ignorant of the difference between consumer debt and leverage, Dollar$ forgives you, but insists that you reread Dollar$ on How to Spend. The math is simple: should you invest in pursuit of earning 7 percent, or pay off debt where you are forking over 20 percent?
    • For the record, student debt is leverage.
  • You have at least 3 months of expenses in liquid accounts. Liquid means you can get your hands on it quickly.
    • Everyone thinks their job is secure until they show up at the office and find the doors padlocked.
  • You have assessed your risk tolerance.

Risk Tolerance

Glad you asked. Your tolerance for risk consists of two factors that measure your willingness to experience catastrophic losses.

Age. The younger you are, the more willing you should be to undertake risk. If you are in your 20s, if the US goes through 20 years of hard times, such as the Great Depression or Japan’s Deflation Agony, you will be in your 40s when the sun breaks through the clouds, still two decades from anything like retirement, and if you have maintained the Dollar$ steady get-rich-slowly program, you will have amassed assets at bargain basement rates.

Psychology. Never invest in any financial vehicle that will force you to lose sleep. Let someone else make that fortune: you have a life to lead, and your lover, children, and co-workers do not want you to be some sleep-deprived zombie lashing out at them because the $1,000 you put into International Widget has fallen to $800.

Are you ready to go forward?

What to do and when is coming soon!

FINANCE FOR THE CLUELESS:  INVESTING – BASICS 2

PERSONAL FINANCE FOR THE CLUELESS– SPENDING #2 CREDIT

In Business, Economics, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance on March 14, 2014 at 12:00 pm

imagesKQE1806T

Credit Card?  Debit Cards?

Spending gets dangerous when the naïve, foolish, and young believe that the plastic in their hand is free money. The problem is so chronic in America that an industry has grown up to rescue people from the consequences of their own lack of control. Never mind that the lack of control is imparted by Consumer Culture.

This is America. If we get you in trouble, we will blame you, but we will always be eager to take your money to get you out of the trouble we put you in.

Dollar$ will save you the rant and the familiar charts, but instead give you the rules.

Never use a Debit card.

There is no exception to this rule because there are no circumstances where a debit card is accepted that a credit card is not.  In fact, those same places accept cash, as well. The less cash you carry, the less likely you will succumb to impulse-buying.

Vendors LOVE debit cards because they transfer your bank balance to their pockets instantly. But a credit card affords you as much as a 3 week float, the time delay between the moment you buy and the moment you pay. In that 3 week period, your money snoozes, perhaps makes your checking account free, perhaps draws interest. It may not be much, but isn’t that nickel better off in your pocket than somewhere else?

If you overdraw with a debit card, your bank will impose usurious fees;

A lost debit card carries large liability if you do not immediately notify the bank of its loss; After 2 days, if your debit card has been in use by a thief, your bank will only offer you suspicion and may hold you responsible for up to $500. But should you lose a credit card, by law, you are only liable for $50.00.

Never ever carry a balance on a credit card.

This is your life we are talking about. Fees and interest mount. The catastrophic results will cripple your economic life, cripple your romantic life, and harm your children as you struggle for years to pay for goods and services you only thought you needed because of the compulsions of consumer culture.

If you have self-discipline problems, throw your plastic away.

If you are carrying credit card debt, pay it off first

You have no financial obligation more pressing, not even saving for retirement. If the leeches are into you for upwards of 20 percent per year, you are like a runner in a marathon bleeding from an artery. The harder you run, the more you bleed. You will eventually drop dead and never cross the finish line. Close your wounds! Spend less until you are free.
There are no services that can pay off your debts other than debt consolidation, a plan that may put money in your pocket month-to-month, but extends the life of your loan. Use debt consolidation if you must, but it’s even better to PAY IT OFF!

Good Debt

Dollar$ make a distinction between taking on debt in a good way vs. taking on debt like a runaway teenager set loose in a mall.

Consumer debt. Borrowing money to satisfy the false cravings instilled by Consumer Culture is always a bad idea. The satisfaction is temporary; the object or service bought will quickly need to be replenished; the payments will go on long after the object is of any use or pleasure.

Leverage. Borrowing money to invest in ways that will create revenue at a faster rate that the interest accrues is always a good idea.  Dollar$ knows you are not General Motors, so we are not talking about durable goods that will pay for themselves by producing more cars sooner. However, Citizens can avail themselves of some opportunities.

untitledReal estate. You have to live somewhere, and mortgage interest is about the last substantial tax deduction available to a Citizen. Mortgage rates are historically low; do not buy a home unless you expect to live in it for more than 5 years. If you are buying residencies as investments with the expectation of putting in sweat equity, Dollar$ salutes you. If you are buying real estate in hopes of a quick flip because prices are soaring rapidly, Dollar$ reminds you of the vast tracts of empty homes in Las Vegas where speculators were left with unfinished projects because real estate boom was swamp gas.

Auto. You need a car, and it is indeed an asset that will enhance your revenue opportunities because it will take you to and from work. In some places, however, automobiles and parking spaces constitute luxuries. You don’t need a car if you live and work in lower Manhattan.

Education. There is no better investment than in yourself. Your earning power over a lifetime soars with a college degree. Dollar$ does NOT subscribe to the Buccaneer mantra that you learn the skills their businesses need right now because these loons cannot predict the future beyond the next quarter.

Dollar$ urges you to major in what you love, but minor in how you will make a living.  Become a Graphic Designer with a minor in Business. Study Literature and minor in Computer Sciences.

Commodities Speculator

Become a generalist: in the digital economy of the 21st century, you will have 6 – 7 careers. You will need to be flexible. If you study a specific vocational skillset, your job will, eventually, be either automated out of existence or outsourced to the 3rd World. Buccaneers will tell you otherwise, but they are the very same people who will be outsourcing your job, expressing regrets, and suggesting you borrow money to return to school to retool.

Screw them. Take control. Lead the happy and productive life.

BITCOIN IN WONDERLAND

In Business, Economics, EDUCATION, Finance, Personal Finance, Political Economy, Wall Street, Wall Street Journal on March 14, 2014 at 10:37 am

Curiouser and curiouser!’ cried Alice (she was so much surprised, that for the moment she quite forgot how to speak good English); ‘now I’m opening out like the largest telescope that ever was!

Bitcoin Speculator

Bitcoin Speculator

Just when Dollar$ though the Bitcoin story was dead and safely buried, someone nibbles a few crumbs of Bitcoin Cake and we are back in Wonderland.

Beware of strange substances that are labeled Eat Me.

The Wall Street Journal reports that a Silicon Valley startup called Xapo is trying to become “the Fort Knox of bitcoin.”

Start with how the Journal ought to employ fact-checkers. Xapo is headquartered in Hong Kong, safely away from pesky US regulatory agencies. Sure, they’ve got offices in California, but so does every other financial firm in the world.

Magic Beans

The bitcoin business proposition is like the story Jack and the Beanstalk. (When it comes to bitcoins, metaphors from fantasy and fairytales are unavoidable.) Give us your real cow, and we will give you magic beans! Overnight they will grow to the sky! When you get up there, you’ll meet a giant who wants to devour you! To survive the giant, you have to be a thief and run like Hell!

Bitcoin: Give us your real money! Bitcoin value will grow to the sky. All you need is the heart of a thief!

The Xapo Proposition

Xapo claims to have raised $20 million to construct physical vaults, “the company says are in mountainous regions.” The vaults are to be guarded 24/7. You’ll need an eye scan to enter. Once each day, employees will descend into the vaults to verify passcodes for daily transactions. Indeed, Xapo indicates it will require 24 hours to complete any transaction.

There are no physical coins, of course. What will be down there will be computers Xapo promises will never be connected to the Internet.  The mountain locations are, naturally, top secret. They may, in fact, be in the back of your Mom’s lingerie drawer. What could be more secure?

Xapo has several competitors, testimony to the idea that a lot of people sell snakeoil.

Liquidity

The bottomless credulity of the cyber-community originates with vitamin deficiencies caused by a steady diet of cold pizza and Red Bull for breakfast, watching Goldfinger too many times, the conviction that one can get rich without ever getting out of a chair, and an unshakeable libertarian belief that the arms merchants, sex traffickers, and drug dealers MUST have an untraceable non-government issued currency for money laundering.

Bitcoin Banker

Bitcoin Banker

Criminals are famous for patience and trust. What 3rd World potentate on the lam requires liquidity? Money launderers of all sorts will  have no issue with a 24-hour waiting period.

Security

Xapo’s website reads, “The Xapo Vault offers fully insured storage for long term savings.” The Xapo website indicates that the insurer is “Meridian Insurance.”

Dollar$ best efforts to find Meridian came up with a few casualty and auto business insurers in the Silicon Valley area. There is no chance that any of them could sustain a few million in claims should Xapo somehow go under, never mind the billions in catastrophic losses made possible by the disappearance of an exchange like the late unmourned Mt. Gox. Could Xapo be arranging employee dental care with Meridian?

But Dollar$ wonders most what currency Meridian or any other insurer will use for indemnification. Will your stolen bitcoins be replaced by dollars, yen, or more bitcoins?

Criminals will stick with fiat currency or gold. Only the naïve and stupid will pursue their bitcoin dreams in Wonderland.

PERSONAL FINANCE FOR THE CLUELESS– SPENDING #1

In Economics, Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance on March 13, 2014 at 12:24 pm

dollar20signWhat??!!!   Dollar$ thinks I need instruction on spending??? Madness.”

Well, yes and no. (Readers in search of a financial education will often see this wishy-washy maybe yes-and-no stuff; Dollar$ seeks to give unequivocal principles, usually. After that, Bunky, you are on your own, an independent Citizen, free to make your own choices).

Celebrity-Consumer Culture

The US is in the death-grip of consumer culture. Many of us know people who travel abroad and report other places feel “different.” Dollar$ suggests the difference people feel is relief from the unrelenting pressure of American marketing.

  • We buy stuff to feel good about ourselves;
  • We measure status by what we own;
  • We raise our kids striving to give them the best we can afford;
  • We wear clothes with status labels on the outside;
  • We fall in love with cars, cellphones, sexy kitchen appliances, computers, and fashion;
  • We care less about the achievement of celebrities than about the details of their lives, who they marry, how much they lost on a diet, how they raise their kids. Talent? Puhleeeaze…

America drifts on a sea of marketing and ads that like can rise up like a rogue wave to overwhelm us with false desires. No flat surface in America exists that marketers will not transform to ad space—the sides of buses, t-shirts, the seats of sweatpants, taxi-cabs, product placement in films, lunchboxes in elementary school. Dollar$ recommendation:

 Resist Celebrity-Consumer Culture.

 

Rules

Never go “shopping.” Buy stuff, but a journey to spend money is never a recreation.

THERE IS VERY LITTLE FOR SALE IN A MALL YOU CANNOT DO WITHOUT. A mall is a Temple of Consumerism, designed and conceived to separate you from your money.

Turn off your TV. Read a book. Play a sport—don’t watch it. Go for a walk in the woods. Play with your pet. Love people, not things.

If it is not food, clothing or shelter, you don’t need it. Even those necessities are only needed in moderation. We are fat, we have more clothing than anyone could reasonably wear, we lust to live in McMansions.

To modify your spending habits, modify your life.

Learn to feel good while keeping your wallet closed.

COMING SOON:

PERSONAL FINANCE FOR THE CLUELESS– SPENDING #2: CREDIT CARDS