Investing Archives - Lazy Man and Money

Expect Your Investments to Grow 5% For The Rest of the Year?

November 4, 2019 by Lazy Man 1 Comment

I usually like to write a couple times a week, but we’ve had some logistical problems last week. I didn’t even get one article published. I’ve been busy with a long-distance, condo turnover and multiple Halloween parties for the kids. To top it off, it rained all last week. The change of season always gets me down.

The good news is that I have this article and half of another one already done.

Last week, Marketwatch had an article that claimed we can expect markets to go up another 5% by the end of the year. It’s Monday as I write this and the market has already realized a percent or more of that it seems.

Why did Marketwatch’s Mark Decambre believe that the markets will go up another 5%? Did he have insight into further Fed rate drops? (No likely insight, or drops.) Did he have insight into the China tariff situation? (I don’t think Cassandra knows what’s going to happen there.)

Decambre has past performance to go by. That’s part of the warning that they always tell investors not to use – “Past performance is no guarantee of future results.”

It’s not your typical past performance, though. In this case it uses data going back to 1950.

The criteria? Look at when the market has gone up 15% YTD by the end of October, the market generally continues to go up another 5.55% on average. That sample size consists of 15 years.

Why Should We Believe The Market Will Go Up?

I’ve already highlighted a few reasons why we shouldn’t believe in this indicator: past performance, China, no more Fed rate prop ups. Let’s think of a reason or two why it WILL go up.

There’s an economic theory that you should Sell in May and come back in November. There are a number of research papers on whether that is valid or not. I don’t have the space to cover it here. I will say that it passes my “smell test” because I can understand why the markets wouldn’t go up much during the lazy summer months.

Perhaps just as importantly, by coming back in November, you get to capture all the gains from all the good news of consumer spending for the holiday season. You don’t get a lot of companies coming out and saying, “We expect our sales to do terribly” in November. They’ve usually already warned that in October, or are gathering data through the sales season to make the determination after the New Year. It certainly doesn’t spread any good holiday cheer to give warnings during the holidays.

Finally, if the market has done well through October, the economy is likely doing well (or being propped up enough to appear well). Maybe “an economy in motion tends to stay in motion unless acted upon by an outside force?” With people making holiday plans, maybe there’s no outside force to act upon it.

Final Thoughts

Did I convince you one way or the other? Are the markets going up or going down over the next couple of months?

I know that I’m unlikely to make any major investing moves either way. The only move I’ll make (as I always do) is to shift my allocations a few percent more to bonds or more to stocks when I feel that the markets are too expense (sell stock, buy bonds) or too cheap (sell bonds, buy stocks).

What do you think? Let me know in the comments.

What WeLearn from WeWork

October 24, 2019 by Lazy Man 4 Comments

Around six weeks ago, WeWork was looking to go public with a $47 billion valuation. Investors started to ask all the right questions such as, “Why would pay this much for a company with no profits?”

From there things went south quickly. I remember reading a story at FinCon on Sept. 5th that they lowered the valuation to $20 billion:

Who cares about $27 billion? It's a round-off error. https://t.co/kWJKujcJ1Y
— LazyManAndMoney (@LazyManAndMoney) September 6, 2019

It seems that people did care about that $27 billion dollars change. Journalists did more research and dug up new information. The founder-CEO found himself in trouble and was ousted by the company.

The entity with perhaps the most informed knowledge of WeWork is a company called Softbank, one of their investors. Yesterday, SoftBank decided WeWork was worth $8 billion dollars. They invested $5 billion to bring their total to around 80% of the company. It’s been reported that without that money the company would be out of money next week.

One way to look at it is that everyone involved tried to scam the public into paying $47 billion for something they deemed worth only $8 billion. There may be other ways to look at it, but they currently escape me. In my opinion, a company without profits, money, and a lot of debt on the books certainly shouldn’t have been worth billions.

The ousted CEO walked away a billionaire. Imagine being so spectacularly rewarded for such spectacular failure. Yet, that’s the crazy CEO-world we live in.

It’s this kind of thing that makes me value the company that I bought into a lot more.

What Does WeWork Mean to You?

Right now you may be thinking, “Cool story, bro. Why should I care?”

Investing in individual stocks is tricky. I experienced this first-hand this morning. I’ve had a lot of Twitter stock that I have held since it was very cheap. I had been slowly selling off a little of it, but it’s still more of my portfolio than it should be. Today, Twitter announced poor earnings and it lost 20% of its value. I’m trying not to care too much, because it is still worth double what I paid for it… and I locked in some gains with the sales I did make. Still, it doesn’t feel good.

At least Twitter is profitable and a household brand.

It seems like WeWork was just picking a number out of a hat for its valuation. When investors didn’t like the first number picked, they tried again. If WeWork had showed solid profits, we could have skipped the guessing games. If you are going to invest in individual companies with no profits, this is something to consider.

The best way to avoid this altogether is to invest in many companies through a mutual fund or ETF. Due to the diversity of the companies, they are much safer than depending on one company.

This is one time when I suggest the smart move is to do one thing, and I personally do another thing. Part of that is because I’ve actually done well with picking individual stocks. It’s quite possible that I’ve been more lucky than good. (Also, I tend to wait until a company has dropped a ton before I buy.)

When I do pick individual stocks, I am mindful about keeping 90% of my portfolio in index funds. Thus these small picks, whether they win big or lose big, won’t move the needle too much my portfolio. You could fairly ask why I do it all. If you did, I wouldn’t have a very good answer for you.

I Bought (a lot of) a Company!

October 22, 2019 by Lazy Man 9 Comments

Have you ever bought a company?

I know a few people who have a bought a money-making blog. That’s rare. It’s also possible to buy some real estate and create an investment property company. That’s mostly starting a company though.

Other than those cases, I don’t see people buying companies often. However, most everyone I know has bought parts of many companies by investing in stocks or mutual funds. Often they end up owning a millionth (or even less) of a single company.

Last month, I did something that was in the middle of both buying company experiences. I bought a double-digit stake in a company. It’s a small enough stake that I’m not expected to actively manage anything in the company. It’s a large enough stake that my suggestions will be heard and given a fair shake.

It’s not a public company. I’d be shocked if you have heard of it. The business is so extremely boring that I won’t describe it here for fear that you’d simply click away and never come back.

To make things easier, I’ll call the company WidgetTech.

WidgetTech has a lot going for it. Its customers need the service it provides. WidgetTech makes a profit. Just as importantly (to me), it has a profit sharing program.

I’m not going to share specific numbers such as how much I invested and what the return is. The WidgetTech owners know and read this blog. I presume they are a private company for a reason, and I respect that.

Instead, I will say that it is somewhat similar to one of our investment properties that we bought in 2013. We got it at a bargain price and it’s appreciated 60% since then. While we have currently a mortgage on it, in a few years, the rent minus the expenses (maintenance, property taxes, insurance, association fee, etc.) will earn us decent monthly check.

I like the WidgetTech investment more than the investment property for a few reasons:

Better Returns
The amount of income that I’m making for the amount invested is better. In other words, the yield is better. This is usually the most important thing for investors. Making more money while investing less is a win, but it is elusive.
No Work
Being a landlord can be a lot of work at times. Usually it’s somewhat passive, but it isn’t 100% passive unless you have a property manager. Paying a property manager cuts into profits. With a passive stake in WidgetTech, I’m not going to get calls at 3AM about a pipe bursting.
Recession Resistant
WidgetTech has customers from all over the world paying for the product. While the United States may experience a downturn, WidgetTech’s global audience could allow it to weather a slowdown better than some investments. It’s a different kind of diversity from our other investments.
The People
I’ve had some tremendous tenants. However, it would never occur to me to go grab a beer with them, much less go on vacation with them. That relationship is very strictly business – especially because it can get messy if you have evict them down the line. In contrast, I know the WidgetTech owners well and have a great relationship with them. There is very little direct client communication as long as things are operating well, so there’s no animosity there either.

While I wrote “no work” above, I want to put more work into WidgetTech. If you’ve watched Shark Tank, you’ve seen how the sharks work to promote their companies. That work improves the profits and value for all owners. I’d like to do something similar and I think there’s room to do it.

As you can tell, WidgetTech seems like a superior investment. That’s why I’m excited about it. However, you rarely get something for nothing when it comes to investing.

There are downsides to this type of investment:

It’s Not Liquid
If you put your money in a savings or a checking account, you can get it back out easily. You might not earn a good interest rate, but you have great access to your money. If you bought stocks or a mutual fund, you could sell and get your money out easily as well. You might have to pay more taxes, but you’d still be able to get your money.
With WidgetTech, my underlying investment money is hard to get back. It would require a very significant emergency to try to get it back. I’d be looking to exhaust all my other options first. This is another reason I consider it similar to the investment property. While I could take a loan out on the property, for the most part, the money is spent. I could sell the property, but it’s not easy and I find the costs to sell often prohibitive.
Sometimes having an investment that is not liquid is a good thing. It prevents me from making rash/emotional decisions.
Risk of Company Failure
Few companies last forever, right? If the company falls on difficult times or business landscape changes, the investment could be in trouble. I feel strongly about WidgetTech’s chances to last a long, long time.

In both investment cases, I know that I’m making a financial decision that isn’t for Lazy Man today, but for Lazy Man tomorrow. In today’s world of YOLO culture, this may not make sense to some people.

However, it’s easy for me to focus on the financial picture tomorrow. I’ve personally seen how the financial decisions over the last 20 years have put us in a great financial place today.

Alternative Income and Net Worth Reports

For the last few years, I’ve been publishing my alternative income which is passive and “passive-ish” income. This investment converts a large sum of money that was earning minimal interest in a money market account into something that generates significantly more through the profit sharing plan.

That’s going to give my alternative income a good boost. It will show up in the dividends category which is essentially what this is (even if the tax treatment is different). It’s certainly close enough based on it being the income return from investment in a business.

One the net worth side, I’m going to keep the underlying money that I invested as an asset. As I wrote above, it is possible to sell even if it’s difficult. This will give our net worth a boost going forward because the income earned is much better than what the bank’s money market was paying. In a number of years, this income will be worth the same as the underlying investment (if all goes according to plan), which would effectively double the value of it in our net worth.

This is no different than buying an investment property and keeping the value of the property on the books while collecting monthly checks.

Final Thoughts

When I started this blog back in 2006, I did it with the idea of coming up with a way to create passive or alternative income that would allow me to at least equal what my wife’s military pension will be. Life has a number of roller coaster ups and downs and twists and turns over a 13 year span.

With this investment, I can confidently say that the blog’s goal has been accomplished. (Just wait until you see what happens over the next 13 years of this blog.)

More Fees, More Fees, and… No Fees?

October 10, 2019 by Lazy Man 8 Comments

Over the past week or so, I couldn’t help but notice that there’s been a cluster of news reporting around fees. What I found interesting is that two industries’ fees keep going up and up… and the third industries’ fees have gone to zero. Specifically, ATM and cable company fees continue to rise, while brokerage trading fees are disappearing.

As consumers of these services, being aware of these trends can help us make wiser financial decisions. Of course, it’s not always clear what’s going on behind the scenes, so let’s take a look at each in more detail.

ATM Fees Keep Rising

ATM fees have reached a new all-time high. According to this this USA Today article, the average cost of an ATM withdrawal is $4.72. That’s crazy.

I haven’t been following ATM fees too much because, as the article notes, fewer people are using cash nowadays. My bank, USAA, reimburses us for ATM fees since they don’t have a network of their own. However, for a significant percentage of people, this can be a pretty big hit. That’s why I recommend having a bank that reimburses some or all of the ATM fees if at all possible.

Cable Companies Hide Increasing Fees from Consumers

The headline from Ars Technica was shocking, Cable companies use hidden fees to raise prices 24% a month. Or maybe it’s not shocking since we are talking about the cable industry here. I’ve written about Cox’s banana pants pricing, anti-competitive behavior, and shady pricing tricks.

I don’t mean to single out Cox, Comcast wasn’t any better when I had them as a cable service. Consumer satisfaction surveys repeated show that people hate their cable provider. The system was designed to eliminate competition, so most consumers must accept whatever pricing and terms they can get if they want high-speed internet.

I’ll now step off that soapbox and get back to the news of the 24% increase a month. The news mostly comes down to disclosure, but there’s some interesting fees in there too. For the disclosure part, if a company sells you on a service for $99 it should be $99. If there are government taxes involved, they could clearly state exactly what those are up-front in the advertisement. It shouldn’t be, “$99, plus fees that happen to be ~25% more.”

The interesting fees that I mentioned above are not necessarily government fees. For example there’s broadcast TV fees, which is what you pay to watch NBC, ABC, CBS, etc. that you could get for free with antennas. This is a touchy subject for me. I don’t think I should have to pay for something free just because of a technology hack.

Another fee mentioned is the regional sports fees. I watch a lot of regional sports, so I don’t mind paying for it, but they used to be part of the cable package. For people who don’t watch regional sports this is just wasted money. An easy solution would be to make it a package you can optionally buy. However, why give people the choice when you can just charge them all?

It’s worth reading the full Consumer Reports PDF here.

Brokerage Fees Go Zero

In the last couple of weeks, a group of brokerages have eliminated fees for trading stocks completely. It seems like it started with Interactive Brokers Group, but I’m not familiar with them. The big news was Schwab going commission free. TD Ameritrade and E*Trade followed suit. Then Ally Invest joined the party. Literally hours ago (as I write this) Fidelity decided they’d go commission free too.

I’m old enough to remember when a stock trade could cost hundreds of dollars. Typically it was done over a phone call (gasp!) with a stock broker. You had to deal with messy fractions. With the expansion of the internet in the mid-late 1990s, E*Trade and other brokerages brought stock trading to the masses with commissions that ranged from around $10-15 a trade.

I feel this movement to commission-free trades is another revolution. I hope that it encourages more people to invest. Some people are very fee adverse (*raises hand*) and this removes that. It’s also one less thing to explain to someone new to investing.

Part of the reason of the drop to zero commission fees is the success that Robinhood has had. It’s hard to get someone to pay for something when someone else is giving it away free. That’s specifically why I opened a Robinhood account for my kids years ago. As we’ve learned in other areas of technology, something free sometimes costs you in other ways.

Consumer Reports highlights a couple of the catches:

They are trying to get new customers to sell them products with higher fees. That’s something to be aware of.
You may not earn a good interest rate on the spare cash in your account. The brokerages can use all that money and earn more interest. The good news is that with zero commissions, you could invest almost all the extra cash into a very conservative investment like Vanguard Total Bond Market ETF (NASDAQ: BND) paying a 2.5% yield (or interest rate for practical purposes). That’s what I’ll be doing.

I don’t mind these catches at all since I can control both cases well.

Final Thoughts

I find it interesting how all these fees are trending. The cable company fees are going up because of a lack of competition (among other things). The brokerage fees are going down because of fierce competition. This isn’t a surprise, but the contrast of the two industries makes it clear that regulation matters greatly.

The outlier is the ATM fees. They are going up because fewer people are using cash. It seems like that would mean that they have to physically fill the machine with cash less often. That’s logically what the fees should go towards. If that’s the case, the fees shouldn’t have to increase. I suppose the fees should also cover the rent for the physical space they take up which is a fixed cost.

The movement of these fees have been gradual over time. If not for all the news coming out at the same time, I wonder if I wouldn’t have even noticed it? Sometimes, it’s helpful to step back and look at something fresh and think about how we got to where we are.

What’s Your True Investment Rate?

July 31, 2019 by Lazy Man 6 Comments

Usually, when I start an article, I have an idea where it’s going until the end. This is not one of those articles.

Part of the reason is that things have been busy over the last couple of weeks. I’ll explain more in the monthly report, but our dog sitting has reached new records. At the same time, my wife has been spending more time office. I honestly feel like my kids, at age 5 and 6, are more competent than their camp director or counselors (but I try to go easy on them as managing many kids can’t be easy.) Finally, I’m feeling that summer is passing us by as it does every year. It will be back to school in about a month.

The topic of school is a large part of what I wanted to cover today, but first I want to review some FIRE basics. Most FIRE people would say that your savings rate is what impacts you the most about being able to FIRE (be Financially Independent and/or Retire Early). Some bloggers are saving as much as 50% of their income and investing it. With the power of compound interest and 10-20 years, they’ve got a nice nest egg to retire on. That would be a accurate, though oversimplified version of our financial situation.

Our situation is a lot more complicated with my irregular freelance, side hustles, and businesses (blogging and dog sitting), and our investment properties. For this reason, I don’t bother to calculate our savings rate. Instead, I’ve recented used a net worth growth to income ratio. They are both high numbers for us, so that’s a good thing. For most people a savings rate would be easier to calculate.

Spending vs. Saving vs. Investing

You’d think after blogging about these for 13 years, I’d be clearly able to delinate all these things. It’s not always so easy. In fact, there are mashups of them like “spaving”, which is loosely defined as spending money to save.

It possible to have a high savings rate, but not invest it. For example, maybe you love the safety of having cash in the bank, but it’s not paying a good interest rate. Technically, you may be investing on that savings account, but it’s called a savings account for a reason. A high savings rate doesn’t mean a high investing rate.

In our situation, we have a good savings rate. If anything, we may invest too much and it might be better to keep more liquid cash on hand.

I suspect that for most FIRE bloggers, once they get a nice cushion of liquid cash in their emergency, they invest a vast majority of the rest. When I read some blogs, it seems like most of that 50% gets invested. You’ll see the typical brokerage and retirement accounts mentioned: 401k, Roth IRA, SEP-IRA, TSP, solo 401k. Occassionally, you even see a 529 plan for bloggers with kids.

These are all great investment vehicles. We have them too. As explained above, we have a lot of unusual things about our financial lives.

What About “Invest in Yourself?”

For the last few years, we’ve paid around $30,000 a year for school. You may notice that I didn’t wrote “paid” not “spend.” What I really mean to say is that we invested an extra $30,000 in education.

With my wife graduating in about a week, we’ll be down to around $22,000 for the next few years for just the kids. My wife’s investment was for an MBA to add to her Pharm. D. (We’ve messed up our health system so bad that we are asking our pharmacists to have masters in business as well.) It’s too early to tell if that MBA will pay off, but the “powers that be” at her employment have seemed to change course on valuing it when it comes to promotion time. I could write another 3000 words on the topic, but it wouldn’t help anyone and possibly cause more problems.

If my wife moves on from the military to the private sector, the degree will have a large ROI. However, she may choose to just retire, now that she has her pension.

The other $22,000 is a private school for our two kids. We’re “spaving” a huge percent of the typical costs with my wife’s military status. It’s still a lot more than an average private elementary school. Obviously we think it’s an exceptional school. Would you pay half price if you got into Stanford or Harvard? It’s not an easy question at the elementary school level.

What if that money was put in a 529 plan? Almost everyone would agree that’s investing, right? So is this different? What if it leads to a scholarship down the line?

In almost all these cases, they qualify as the old adage of “investing in yourself”, except it’s literally the people closest to me.

It feels like the rest of the community would consider this as spending, no different than if we spent an extra $22,000 on a sports car.

However, if I were start to really calculate our savings rate and investing rate, I’d create a “True Investment Rate” that included school tuition. It’s not in a brokerage account, but that doesn’t mean it’s any less valuable.

What do you think? This is a complicated topic and I’m sure people have different feelings. I can see a lot of gray areas. Is a vacation to Paris museums an education investment? Are tennis lessons an investment?

In the end, I don’t think the characterizations matter. You are the judge of what’s the best value for your money. I find value internally knowing that the money is invested in personal development that matters deeply to us. For a long time, I felt like we should be saving even more in brokerage accounts or wondering why we don’t feel rich. Once I started to think of education spend as investing, my outlook changed dramatically.