2010 September » Financial Uproar

Stop Trying To Be Happy

Sep 292010

There’s been a lot of discussion on the few blogs I still read regarding how much money one has to make to be happy. Financial Samurai had a post saying that $200,000 per year is the magical number, earning anything above that is useless toward being happy. Meanwhile, a study from Princeton recently put that number at $75,000, updating previous studies which put the number closer to $55,000. Apparently happiness isn’t immune to inflation.

Let me be crystal clear: trying to establish an earnings number that will automatically make someone happy is pure hogwash. The amount someone needs to earn to be happy is based on so many factors that putting a arbitrary number on it cheapens the exercise. Everything from the income levels of your peers to your cost of living to your long term goals affects how much money you’ll have to make to be happy. That number would be different for me than it would be you, so the best researchers can do is take an average of the numbers.

Happiness isn’t a purely financial exercise. While I loathe the phrase “money can’t buy happiness”, the fact remains that someone can make millions of dollars a year but still be miserable due to factors like not finding love or losing a loved one. While happiness and money do have a relationship, they’re not directly correlated. One can very easily be happy without large amounts of money, as well as being unhappy with a fortune.

The main reason why I hate those types of posts is because of the expectation it creates. Imagine you’re a lonely internet surfer who happens to stumble upon one of those articles explaining to you just how much you need to make to be happy. You’ve been in a bit of a funk lately, maybe looking for something to change in your life. You read the post and suddenly you feel reinforced. Of course you’re not happy, you don’t make nearly enough money! If only you had more money!

These types of posts just encourage people to put a monetary value on happiness. I’m here to stop the madness. Lots of money will not automatically make anyone happy! Making enough money to ensure your family a comfortable existence is a worthy goal. Making a certain amount of money to ensure happiness is the recipe to a shallow and petty life.

Nobody should be the judge of what makes you happy. Happiness is not an external feeling. It cannot be spread, captured or replicated at will. No one can give you happiness, nor can you spread it to others. It comes from within. Stop trying to look to external stimuli to determine what makes you happy.

For me personally, I’ve gone one extra step. I’ve officially stopped trying to be happy. While I’ll still work towards things I want to work towards, I now spend zero time trying to determine what will make me happy. If I want something, I’ll work towards it. If I want a job, the salary will be the last determining factor to whether I take the job. I refuse to give in to society’s demands on what’s supposed to make me happy. I hope you’ll do the same.

Some Thoughts On The Movie Rental Business

Big Picture Stuff 1 Response »

Sep 232010

Renting movies is a bad business to be in, at least if you’re a traditional movie rental store.

Yesterday Netflix announced a limited version of their mail-order video rental service is now available in Canada. Rather than offering the full gambit of services, (mail order rentals and an online streaming service) Netflix decided to offer only the video on demand online service. This is an interesting choice, considering many Canadian internet service providers have bandwidth caps limiting the amount of video someone could watch.

Fittingly, yesterday Blockbuster officially filed for Chapter 11 bankruptcy protection. The writing has been on the wall for a long time, at least according to this observer. The debt was a bloated $1 billion, which is expected to be cut to about $100 million after the bankruptcy. The business model is broken, with competition coming not just from Netflix, but Apple as well, and to a lesser extent companies like Amazon (cheap DVDs) and movie theaters both in lowering their prices and investing in better screens and technology. Watching Avatar on IMAX is a pretty cool experience.

I explored this issue back in 2006(!) on a now defunct blog. Because I have no other friends, let me quote myself yet again:

This just in: Movie rental stores are going away. Forever.
Okay, anyone with any amount of common sense could have told you that. Why would you go rent a movie when Netflix or Blockbuster will send you one for the same price? A quick google search for “online movie rentals” brings up a half dozen Canadian companies that’ll send two movies to anyone with a credit card and a pulse

I wrote that regarding now bankrupt Movie Gallery back in February 2006. It was obvious to me even almost 5 years ago that the traditional movie rental place was going the way of the dodo. Fixed costs are too high. Staff get paid to do nothing. And regarding both Movie Gallery and Blockbuster, they both loaded up on crippling debt during the times when any company could get debt. The world around them changed and rather than change with it, they tried to become bigger versions of an outdated model. It was only a matter of time before they fell.

I’m sure you’ve noticed the small movie rental kiosks located in grocery stores and the like. The kiosks do a good job of only stocking the new, hot movies, rather than the large selection of older or lesser known films at the video store. I’m not sure what the revenue split is between the rental company and the store, but the owners of the kiosk have to be giving something to the store for the space. I’d be curious to see how profitable the model is, considering the kiosks I’ve seen rent a movie for 24 hours for only $1.49.

There’s always going to be a segment of the population that will rent movies as an impulse purchase. I don’t care enough about movies to have a Netflix account, even at only 8 bucks a month. Typically when I want to see a movie I either (a) go to the video store and rent it or (b) wait for the feeling to see the movie to go away until I see it on tv 5 years later. This happens about twice a year. I am not a good movie customer.

In the small town that I live, the video store owned by Movie Gallery recently closed. An independent owner has taken over the space, paying what I’m sure is an inflated lease price (the building is less than 10 years old) and trying to make a go of it. While inventory is about 1/3 of what the old store was- a good move in my opinion- I struggle to see where profit will come from. Will this store do enough volume to make it? I’d be surprised. I think the store may be forced to do some innovative things to make ends meet, or most likely, shut down after a couple years.

Holding Your Mortgage In Your RRSP

Mortgages 5 Responses »

Sep 202010

Did you know that you can hold your mortgage in your RRSP? Up until earlier this year, I wasn’t aware that you could. All the interest that gets paid every payment goes toward the RRSP, giving the borrower a guaranteed return that is a pretty secure investment. Before you can implement this strategy, a few things have to be noted:

Contribution Room: If you don’t have enough contribution room for the entire value of the house, you’re pretty much screwed with this strategy. This means that most young people simply won’t have the contribution room to implement this strategy. It’s much better suited to a middle aged individual.

Financial Institution: There are only a handful of financial institutions that will implement this plan for a customer. It will cost quite a bit to get started as well, with an appraisal and CMHC mortgage insurance being mandatory fees, as well as having to pay a self administered RRSP fee every year.

Mortgage Rates: With mortgage rates sitting at record lows, there may be better returns to be had in other investments. Another factor to consider is that your RRSP has to charge you a mortgage rate that is comparable to what you’d get in the open market. Sure, you’d naturally make that rate as high as you can get, but these days you wouldn’t be getting any more than 5-6%.

Lack of Diversification: This strategy is pretty much the definition of having all your eggs in one basket.

I’m making this strategy sound pretty bad. It’s not all bad though, here are some advantages:

Simplicity: For someone who is either skittish or lacks understanding about investing can benefit greatly from this strategy. Mortgage rates will always beat GICs, giving the holder a return similar to fixed income over time.

Rental Property: If you have the RRSP room and want to buy a rental property in middle age, this strategy can be very effective. Remember, as an investment, the interest you’d pay to your RRSP would be tax deductible. This would be a great way to supercharge RRSP returns, assuming you’re okay with the other downfalls of owning rental property.

Paying Yourself: Another advantage of this strategy is knowing that you’re paying yourself interest, instead of paying it to the “evil” banks. This is mostly a psychological advantage, but this could be very important to the RRSP holder.

Basically Guaranteed: Thanks to CMHC making it mandatory for mortgage insurance for this strategy, the mortgage holder (the RRSP) has their principal guaranteed. This guarantee can be priceless for the risk adverse investor.

Do any readers have experience with this? Care to weigh in?

Benj Gallander Is On Market Call

Contrarian Investing 5 Responses »

Sep 172010

One of my favorite guests is Contra The Heard’s Benj Gallander. He’s a deep value contrarian investor, having very similar investing methods and philosophy that I do. He looks at broken, beaten down names that have been around for at least 10 years, that are so beaten down that target prices are often more than double the initial purchase price. Often he’s had his eye on a company for years before pulling the trigger on a position. This post will be a summary of his appearance on Market Call Tonight.

Before we begin, (it’s a commercial anyway) am I the only one who thinks Martin Baccardax looks like Michael Hainsworth’s older brother?

Benj has just been asked about New Gold. He thinks gold still has some room to go higher, but says you have to be wary. His largest position is a gold company (Richmont Mines) comprising 17% of his portfolio. This is what Contra The Heard does- they buy something like gold when it’s out of favor and then hold until the market falls in love again.

Benj is intrigued by Manulife, but isn’t ready to pull the trigger on it yet. He’d like it to go lower before he’ll buy it. He doesn’t like the amount of debt and equity the company has issued lately. He has no qualms about the dividend. The next question was related, talking about shorting the Canadian banks. The dividend makes this extra risky and Benj wasn’t in love with the strategy.

The next caller is Sam from Toronto who is the slowest talker ever. He wants Benj’s opinion on Flextronics. Benj likes the company, good management, but the debt load is somewhat excessive and they need to deal with it. Still has a target of $20 for the stock.

The next question is on RIM. It is absolutely amazing how far it’s fallen from the top. RIM’s balance sheet looks great, there’s just a risk that they’ll get hammered by a competitor’s better technology.

Here’s a thought: maybe one should look at the frequency of guest questions on Market Call to judge a market top. Lots of questions would indicate a top, while not so many would indicate a time to buy. If that’s the case, avoid gold at all costs. That’s two questions on the precious metal hitting record highs- to the contrarian guest.

And now, it’s time for the top picks. What happened to the rest of the show? Turns out I didn’t feel like typing for the whole hour.

Top pick #1 is Motorola. Their new android phones are starting to take off. They are looking to split the company into two, which Benj likes. Debt load is coming down, partially thanks to the sale of some assets to Nokia. I think this company has a lot in common with Nokia, they both need that kick in the pants to get back to former glory.

Top pick #2 is Yahoo. Benj thinks management is very overpaid, as well as the company has just slipped to third place behind Bing and Google. Even though the company’s short term prospects look bleak, he likes the long term outlook considering the clean balance sheet.

Top pick #3 is Liquidation World, but Benj didn’t have enough time to get into it. So you’ll have to do your own research on that one. One warning about Liquidation World though: it isn’t very liquid. (Pun totally intended)

Two Movies You Should Check Out

Other No Responses »

Sep 152010

This is my first iPhone post, so bear with me if there are typos or whatnot.

Two somewhat financial movies have sparked my interest lately.

The first is about the creation and growth of Facebook, titled Social Network. I’ve read the book written by Ben Kweller about the same topic and I enjoyed the crap out of it. The story is filled with betrayal, intregue and all sorts of interesting characters. Mark Zuckerberg is clearly a genius, there are just some issues to how he rose to fame.

The second is, quite predictably, is the sequel to Wall Street. Since I haven’t even watched the first one, I guess I have some catching up to do.

Hopefully I enjoy both of these flicks more than Capitialism from everyone’s favorite financial expert, Michael Moore. I should really do a post on how much I hated that movie.