Lazy Man and Money

The Three Tinas of COVID

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How many Tinas do you have in your life? I have a couple in real life, but I hadn’t had much interaction with them due to COVID-19. Instead, they’ve been replaced by three new Tinas. Two, I will briefly mention, but the third Tina is what we are all here to focus on today.

Giratina

Tina

Giratina is one of almost a thousand Pokemon. The kids love Pokemon. We recently watched a movie starting this character. It’s one of the more important Pokemon in their Pokemon Go games.

Each Pokemon has its own brief description and fittingly, Giratina’s is, “This Pokémon is said to live in a world on the reverse side of ours, where common knowledge is distorted and strange.”

Tina Rex

Sometime during COVID (no one knows the timing for sure because time ceased to exist), Cartoon Network inked a deal to show one million episodes of The Amazing World of Gumball. That last fact is probably not true, but it would seem true if you had kids who were a fan of the network as they grew out of Nickelodeon, PBS, and Disney.

Tina Rex, a Tyrannosaurus Rex, is a side character in the show. She’s the school’s bully.

You didn’t come here to read about cartoon Tinas. You (hopefully) didn’t even come here to read about bullying or living in a world where common knowledge is distorted and strange. We’ve got enough of that in 2020, right?

Maybe you’ll be more interested in my investing friend, TINA:

There Is No Alternative

While “There Is No Alternative” can be used in many different contexts, it’s often been used in the investing markets.

Loosely, it means that one has to deal with a sub-optimal asset allocation of investing because other investments aren’t very viable or unappealing. For example, putting money in a savings bank for a number of years hasn’t paid very much interest. Many 2-year Certificate of Deposit rates earn about 0.75%. That’s far less than the typical annual inflation.

Interest rates in bonds are down too. My go-to bond fund is the Vanguard ETF (BND). It’s paying a 1.16% SEC yield. I don’t completely understand the bond markets, but from what I do understand it seems like a very bad time for them as well.

You can look at alternative investments. Gold is up 27% this year. It’s close or at its all-time highs. Bitcoin is also close or at all-time highs. Real estate may be an option, but buying physical houses is competitive with all-time low mortgage rates. REITs (Real Estate Investment Trusts) may be better, but I’m worried about the long-term effect of the lockdown. It’s not an easy time to be asking people or businesses to pay their rent on time.

You could invest in commodities. However, earlier this year the value of oil went negative. It cost more to store oil than get someone to buy it from you to use it. It’s still a messy situation and will probably continue to be one until travel picks up.

That leaves stocks. The S&P 500 is hitting new highs. Markets internationally are doing well too. Everything almost seems to be at highs. There are some stocks that are still in difficult shape. For example, airlines and cruise ships are notably not doing well. However, they aren’t doing as bad as they used to be. Many have anticipated travel to ramp up around the middle of 2021 with better weather, vaccines, and leaders looking to take charge.

As I look at my portfolio, I see a true TINA situation. I have investment games of 20% this year, which has been compounding on investment games from the previous 10 years. I want to be more conservative because these markets scare me. However, it’s hard for me to go to investments with so little upside.

I look at the markets like it’s a Magic Eye poster waiting for the perfect answer to appear. The closest I’ve come are the solutions in my recent article about income investing. I’ve been steadily moving more investments more to dividend funds. For now, that’s about the best I can do to feel a little safer. Other people may find paying off their mortgages to produce a better return. A rational person would tell me to stop looking at the markets and my portfolio and do something to bring in more money. (So far efforts to bring in more money haven’t worked out very well.)

Is anyone else looking at their investments and thinking, “Where do we go from here?”

P.S. I should have mentioned this TINA I love, but it didn’t fit with the article.

Gold vs. Bitcoin – Who You Got?

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I saw that Miranda from Planting Money Seeds wrote about how gold was killing her investment portfolio. I had a little chuckle because years ago I asked if gold is just yellow metal. I think I’m in a minority who just don’t understand the value of gold.

I really hadn’t thought about gold as investment in quite some time. However in thinking about it now, I realized a good way to explain how I feel.

Hello bitcoin! (… and any other cryptocurrency out there)

It seems like a majority of people I talk to laugh at bitcoin. Some even call it a Ponzi scheme waiting to collapse. I don’t have a single friend who owns a single bitcoin… or even a fraction of one.

I think it is safe to say that if I were to support bitcoin, I’d be in the minority.

The strange thing to me is that bitcoin and gold are very similar.

Bitcoin has no intrinsic value. Gold, while being an awesome semiconductor, has very little intrinsic value. If both disappeared from the Earth tomorrow you could go about your day with almost no change. That’s different than if oil or corn disappeared.

Bitcoin and gold only have value because we agree they have value. We’ve agreed that gold has had value for a long time in a historical sense. However, it seems that the world is moving away from that agreement and more towards digital representations of wealth. For example, I don’t see too many people asking for stock certificates nowadays… instead we simply press a button on a website to buy and sell.

Doesn’t a digital representation of wealth sound a lot like bitcoin to you? It does to me. The problem is that we haven’t agreed that bitcoin has value for very long. We also seem to change our view of what that value is quite a lot. Then there’s the pesky problem of wealth just getting deleted with a company goes under (it has happened a couple of times).

There’s a lot wrong with bitcoin, but Silicon Valley is pouring billions of dollars into companies to build up the infrastructure. If I had to buy one and hold it, I think I’d go with bitcoin. (Again, I thin I’m in the minority here.)

What about you?

Gold: Just Yellow Metal?

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Jim Wang of Bargaineering highlighted an article that caught my attention last week. The author, Henry Blodget, wrote: Gold Prices Collapse As Everyone Remembers It’s Just Yellow Metal.

Two thoughts came to mind:

1) Yes it’s that Henry Blodget from the Internet bubble days of around 1998 and 1999. It seemed like whatever stock he wrote about suddenly jumped a ton. He’s probably most famous for saying that Amazon should be a $400 stock and it jumped over 100% to fulfill his prophecy.

2) I feel like I’ve written this article before… maybe even a couple times.

Almost 5 years to the day, I wrote about how I invested my IRA money. Each year I take reader suggestions on investing ideas and a few readers suggested gold. My response to the suggestions was:

“I simply hate gold as an investment. I don’t like how it’s not a basic necessity of life in today’s modern world. It makes as much sense to me as investing in tulips. I know it’s stood the test of time, but I think times were different before flat panel TVs and flashy cars. People would use their gold collection to show off their value in society. Today, people use other possessions. I don’t see a trend toward people selling their useful possessions for a hunk of gold. If anything it’s the other way around.”

(I always cringe a little when I read things I wrote a few years ago.)

Bloget’s article covers the conventional wisdom that gold “would protect the value of your savings from the ravages of out-of-control government money printing” and is “free from the accounting shenanigans, corruption, fraud, and operational uncertainty of stocks and companies” and thus would continue to rise.

However as prices are down 30% from their peak about two years ago, it is clear that just like any other commodity, there’s no guarantee it is going go up indefinitely. In fact, you can almost always plan on a crash on at some point… especially if it has gone up a lot over a long time like gold.

Blodget writes something that I tried to get at when I wrote about comparing investing in gold with investing in tulips:

“If this were mere ‘volatility’ — if gold had some fundamental value that it would likely eventually return to — then the price drop would be no big deal. But there’s no solid theoretical way to ‘value’ gold, so its price could do almost anything… The only thing that determines the price of gold is what someone is willing to pay for it.”

Doesn’t that remind everyone of BitCoins?

Announcing the Winner of the $25 “Invest Lazy Man’s Money” Game

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Last week, I decided to try something a little new and offer $25 for people to give me ideas on investing my money. I purposely left the guidelines a little loose. Investing is extremely broad to start with. It’s also extremely personal. A successful recommendation would have to know my risk tolerance as well as my existing asset allocation. In addition the best suggestions would have been following along with my blog for the last 5 years to know that I have strong feels against certain investments. These are all things that I couldn’t reasonably ask – especially for only $25.

I’ll go through the suggestions in order make a comment on them.

  1. Matt (with The Online Budget) suggested that I short a gold ETF. This was a strong first suggestion. He went with my ETF preference. However, he also nailed it in two other areas. One is that he went for something that has appreciated quite a bit, so it could be seen as in a bubble. That would making shorting it a potentially wise move. The other is something he probably didn’t know… I don’t like gold very much as an asset. It feels antiquated to me and it doesn’t have much useful value as commodity. People tend to store it away. Soybeans or oil on the other hand, well people really need those. If 99.99% of the world’s gold disappeared, human kind might not be any kind of danger. I don’t know if I could say that of other commodities.

    The only thing that I didn’t like about this suggestion is shorting a stock. I’m uncomfortable with the long-term risks associated with it.

  2. Tom suggests that I don’t try to time the market. I’m going to “bah-humbug” on that one. I have come very close to calling bottoms in 2001 and 2008 and if I had acted on them rather than not trying to time the market, I would have made 50% on that money right away – maybe even close to 100%. Instead my investments have gone down and back to where they were about 12 years ago. I’m not saying you shouldn’t try to time the market, but it does make sense to take advantage of buying opportunities.

    As for the rest of his suggestion of 50% in VTI and 50% in VEU, that looks similar to what I suggested in my lazy portfolio in September of 2007. Though I was going to diversify more with real estate and bonds rather than be in all stocks. It’s a good suggestion, but considering that I already have my portfolio heavily weighted in those stocks, I’m looking for something a little different.

  3. Financial Uproar suggested iShares Mortgage REIT ETF (ticker symbol REM). I like the 8% yield. Here’s what I don’t like: It hasn’t really been beaten up this year – it’s been around this price since late 2008. As Financial Uproar says, “it should do well as the housing sector recovers, whenever that is…” That is a bit of a problem for me as I’ve read that losses are expected for at least another year (using comments made in a previous release of the Case-Shiller Index). I don’t study these things with as much zeal as I used to, but I’m going to pan this suggestion. It may be a great hedge against rising house prices in the future however. That’s food for thought.
  4. Contrarian suggested that I look at the stock Forex. He then went on a complex talk that made my head explode. After I gathered the pieces and Humpty’d Dumpty’d my head (the King’s men weren’t good at puzzles), I nodded my head and thought, “There’s something to this.” It’s a good suggestion. However, I might go him on better on his suggestion. Having gone to Finovate yesterday, I saw a company called Currensee that allows you do currency trading.

    Contrarian was right that currency trading is difficult stuff and not for the faint of heart. So Currensee allows you to cheat by duplicating the trades of other top performing traders. It’s high-risk stuff, but I think it could be a new asset class like P2P lending offering a different kind of diversification. Currensee deserves a full article.

  5. Cynthia Rafler suggested that I buy gold. She specifically said, “people are profiting from end of the world fears and if the world changes, it is likely gold will become currency.” I’ll take the risk of the world not ending. As for gold becoming the currency, I don’t see it happening. I believe a bucket of apples or my bag of peanuts will be more important to you than your gold. You’ll may disagree, but let’s wait until you get hungry.
  6. Pkeller3 suggested lithium. That’s not a bad idea. My concern here is if rechargeable batteries go in another direction. It seems to be a very specific bet that could backfire.
  7. kosmo @ The Soap Boxers suggested that I look for stocks getting beat down by investors. He gave a couple of examples like Ford and BP. It seems like dangerous territory to me. I remember making similar bets on Worldcom and Enron after I had thought they had been beaten down by investors. I don’t know if I trust myself to know the situations of an individual company enough to make a bet like that anymore.
  8. Brian suggested international ETFs including countries like Singapore and Brazil. I kind of like that idea. The Brazil mention reminded me that it has been a long time since I looked at investing in BRICs (Brazil, Russia, India, and China). It doesn’t qualify as much of a bargain price right now, but the growth is likely to be there in those countries for a long time.
  9. Sandy @ yesiamcheap says she’s been watching fertilizers. That sounds a little close to my PowerShares DB Agriculture Fund (symbol: DBA) holding. I like the suggestion in general, but I think I’ll stick with the diversification I have in that area.
  10. Kent suggested two stocks that he admitted were “fairly risky for many reasons.” The first was a REIT, which I’ve addressed earlier. The other a pharmaceutical company with a potentially promising medication. Both seem a little too speculative for what I’m looking for.
  11. Mike Zoril says that silver is the way to go. He makes a good pitch about there being a current pricing inefficiency. It was one of the most interesting posts and well worth the read. This makes sense to me. The only thing is that I’m not sure I want to follow the closing of the gap. There’s something about just buying an investment and letting it sit without having to babysit it.

In the end, I think I’m going to give Mike Zoril’s suggestion a try. Hence he’s got $25 coming to him. However, I’m also going to give Contrarian a $10 honorable mention because I’m likely to give the currency trading a try (though through a different avenue than buying the Forex stock). Keep an eye for my email folks.

How I Invested My Roth IRA This Year

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About a month ago, I asked you to help me invest my money. I got a lot of great recommendations. As he did last year, Get Rich Slick had the most creative idea, involving options trading. Like last year, I’m sure it will do fantastic. I’m currently not entirely comfortable with options at this stage. I understand the basics of how they work, but I would essentially be putting my money in something that I don’t understand. Doesn’t Warren Buffett say that you should invest in what you know?

I looked at the other suggestions. A few people mentioned investing in gold. I simply hate gold as an investment. I don’t like how it’s not a basic necessity of life in today’s modern world. It makes as much sense to me as investing in tulips. I know it’s stood the test of time, but I think times were different before flat panel TVs and flashy cars. People would use their gold collection to show off their value in society. Today, people use other possessions. I don’t see a trend toward people selling their useful possessions for a hunk of gold. If anything it’s the other way around.

I do recognize that gold has become a way to hedge inflation and the falling dollar. However, there are other ways to do that with assets that are required in the modern world. The rising price of oil is one such example. If all the gold disappeared from the earth, we could likely make due with copper wiring. If oil disappeared, much of the modern society would have great difficulty recovering. Another example is the raising cost of food. Again, it’s a basic necessity that people are required to buy.

For the above two reasons, I heavily considered oil (Powershares DB Oil Fund – Ticker: DBO) and food ETFs (Powershares DB Agriculture – Ticker: DBA). However, in the end, I decided that they were too expensive for me at this stage. They’ve simply appreciated too much in a small timespan. DBO is up 80% in the last year while DBA is up 45%. So I went with expanding my international exposure. I purchased 75 shares of Vanguard FTSE All-World ex-US ETF (Ticker: VEU), which is essentially unchanged over the last year. I felt I was underweight global stocks in what has increasingly become a global economy.

I want to thank everyone for their help. I found there was tremendous value in reading about different investment strategies.