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Nelson Smith

Freelance writer. Contrarian investor. Watcher of baseball. Owner of financialuproar.com. At least my mom thinks I'm funny and/or handsome.

Jul 312015
 
If you look closely, it kinda looks like the chart is flipping you the bird.

If you look closely, it kinda looks like the chart is flipping you the bird.

If you were anything like me in 2010-11, you were probably single, eating a lot of chips, and spending more time in Wal-Mart than your average slack-jawed yokel. Ah, what a time to be alive. I kind of miss those days, except for the not single part.

You were also probably predicting a sharp increase in interest rates would be coming, and soon too. The U.S. economy was well on the road to recovery, yet the bankers at the Federal Reserve were pumping money into the system at an unprecedented pace. All that money in the system would lead to inflation, which would then cause interest rates to spike. WAKE UP SHEEPLE ARMAGEDDON WILL BE SOON UPON US WHERE ARE MY CANNED GOODS?

Okay, I wasn’t quite that crazy, but I did call for interest rates to start heading up sometime in 2012 or 2013. I even went as far as predicting that folks should lock into a 10-year mortgage, like a moron. At least I didn’t rush out and put all my money into gold, because investing in gold is worse than syphilis.

That should really be my tagline, actually.

Obviously, I got the higher rates call wrong, at least so far. But at least I wasn’t alone in making that terrible prediction, since a lot of people joined me by saying rates were bound to go up. Even now, we can all name investors who refuse to invest in bonds because they’re certain rates will go up and crush that asset class like I crush cheeseburgers and the weak-willed.

But I’m not sure that’s going to happen. Take a look at the chart I posted at the top of this article. You’ll notice that between 1930 and the mid-1950s, the Federal Reserve rate in the U.S. never surpassed 2.5%. That is a long-ass time for rates to stay super low.

If you need any evidence that such a thing can happen today, I invite you to look at Japan’s interest rates for the last 20 years.

What gives anyone the confidence to declare that we’re not at the beginning of another 25-year cycle of rates staying this low? What evidence do people who think rates are going to hike soon have besides that they’re really low currently, and we’re about due for a rate hike or seven?

Right now, I’m not seeing any evidence that interest rates are about to start marching upwards in a meaningful way. Yeah, the U.S. looks poised to raise rates in the next month or two, and then might raise again in early 2016. But really, you can make the argument that the U.S. doesn’t really need to hike rates at all. Inflation is barely above zero, and it’s not like anemic bond yields in Treasuries are giving the Fed a huge message that the market is pricing in higher rates.

In fact, you could make the argument that hiking rates could be very bad for the U.S. economy, because it’ll cause the U.S. Dollar to go up even further, which will lower earnings for U.S.-based companies with a lot of foreign operations. That would probably be bad news for U.S. stock markets.

Stop trying to predict rates

I brought this up a few months ago, but it bears repeating. If the smartest minds in the investing world can’t predict interest rates with any sort of regularity, the chances of guys like us doing it is virtually nil.

Which is why most investors shouldn’t even try. They should just focus on owning the assets they want to own and call it a day. If somebody feels comfortable 100% in stocks, then that’s what they should do. Like I care if you blow your brains out at a market top. Those of you reading who aren’t 100% stocks will at least have some dry tinder when the next buying opportunity comes.

(By the way, the Canadian Bond ETF [TSX:XBB] has outperformed the TSX 60 ETF [TSX:XIU] by about 4% so far this year, before dividends. Still think you don’t need even a few bonds?)

If you’re a stock picker like me, just focus on finding value and forget about what the market is doing. When the market is high, finding value will be tougher, thus limiting your investment choices. I’m starting to see some interesting stuff out there, but I’m still mostly staying away.

The conundrum for debt holders

We can’t talk about rates without talking about what mortgage holders should do.

I’m not going to give advice like last time. I have no idea whether you should lock into a 5-year, 10-year, or 149392-year mortgage.

Figuring out what mortgage to choose depends on your risk tolerance. If you don’t want to take on rate risk, then opt for the fixed rate. And if you hate the idea of having debt, it probably makes sense to throw a little extra at the mortgage, even at a sub-3% rate. There’s value in making yourself feel better about your largest debt.

But when choosing a mortgage, or choosing between plunking cash down on a mortgage or investing it, you can’t look too far into the future. You have to make the decision based on what the alternatives are now, and not 5 or 10 years from now.

That’s sort of the crux of the argument. Right now, when compared to bonds yielding between 2-3%, stocks with an earnings yield of 5% look attractive. Ignoring risk, equities will always look more attractive than bonds. Investors are getting a risk premium for just that reason.

What would I do? At least for my portfolio, I’m just assuming that rates will stay the same for a long time. I still hold a healthy bond component, and I’m sitting on some cash as well. I still think the market can decline while bonds pay next to nothing in yield. It happened plenty of times during the 30s and 40s.

I’m not doing this because I’m making a prediction that rates will continue to stay very low. I’m doing it so a) I have cash available to invest during the next downturn, and b) because I want a little insurance against the next big decline. I’m sitting on about 5% of my total assets in fixed income, or about 20% of the money I invest in equities sitting in a combination of debt and GICs.

That’s how I’m playing today’s low interest rates, by assuming they’re here for good. I have no idea whether they are or not, but it sure beats trying to guess.

Jul 292015
 

Ladies, I’m going to talk about baseball for a couple of paragraphs. HEY. I SAW THAT LOOK. Don’t worry, it’ll be over soon.

Yesterday, the Toronto Blue Jays made headlines by agreeing to acquire Troy Tulowitzki from the Colorado Rockies. Tulowitzki and reliever LaTroy Hawkins were sent to Toronto for three pitching prospects, including one that was the 9th overall pick in the 2014 draft. Jose Reyes was also shipped to Colorado in the deal.

What made the Tulowitzki trade interesting is it was pretty much the opposite of what the team was expected to do. Toronto’s offense is the best in the majors, scoring almost a half run per game more than the next best team. It’s the team’s pitching and defense that are suspect, with just about everyone predicting the team would aggressively go after a pitcher.

But the more I think about the move, the more I like it. Instead of making a marginal move in a position where the team was weak, GM Alex Anthopoulos decided to make the team’s strength even stronger by acquiring one of the better bats in the game. For a shortstop, Tulowitzki’s bat is about as good as it gets.

So what does this trade have to do with your life? Plenty, actually, even if you’re not a baseball fan.

Stop trying to be well-rounded

There’s a common refrain in the world of self-help that goes a little something like this.

If you improve your weaknesses, you’ll be a more well-rounded person. And if you’re good at everything, you’ll be better somehow. Everyone likes the guy who’s pretty good at everything.

But in reality, that’s such bad advice. It’s so bad I’m refusing to let bullshitters self-help gurus give it anymore. Yes, I will hunt these guys down and tackle their asses. Like anyone’s going to shed a tear when a life coach gets knocked down.

Oh, you’re a life coach? What, the REAL JOB factory wasn’t hiring? Clown.

There are skills I can work on forever and not get much better at. I am possibly the worst artist in the world. I don’t know what colors go with what. I decide on whether I like a painting depending on how much it looks like the thing it’s supposed to be. I have to ask my girlfriend’s opinion on visual things because I just don’t know whether something looks good.

Sure, I could learn it, but it would be a struggle. I’d be bored the whole damn time. I’d want hard and fast rules, even though the world of art is filled with subtlety. It would not be a good use of my time.

Which is why I don’t even try. I’ll leave the world of art to the artists. When I need a logo or something done that’s arty, I’ll just hire a guy. The $50 or $100 I’d spend on such a thing would be immensely well spent, which would leave me plenty of time to tackle something I’d both enjoy and do well. Spending four hours on a logo that looks like regurgitated ass isn’t high on my priority list.

Specialize, yo

If there’s one piece of advice I’d give to anyone in any industry, it would be to specialize as much as possible.

It’s great that you’re good at accounting. Being a general accountant might give you all sorts of fun projects to do. But I’m willing to bet being the best tax auditor in the city will end up being far more lucrative.

(Is this even a good example? I know nothing about accounting)

Examples like this are in every industry. Hell, even the doctor who does rhinoplasties or boob jobs is better compensated that the general guy, and they’re more frivolous than stuffed chicken breasts. AREN’T WE MR LA DE DA? If I’m hiring you to make my nose smaller, I couldn’t give a crap if you can figure out if I have cancer or not. Just reshape my schnoz, dammit.

Think about the last time you dealt with an expert that you had to deal with. Even if he’s an asshole, you’ve still got to suck it up and be nice. Nobody cares if the guy is nice or not because you need him.

I’m not saying you should actually be mean to people. All I’m saying is that if you’re really good at what you do, people will still seek you out in spite of your faults. And just exactly are you supposed to get really good at something if you’re too busy off improving yourself in other areas?

Forget about your weaknesses. Instead, focus on making your strengths better. Become so good at your strengths that people just gloss over the weaknesses.

Jul 272015
 

All work and no play makes Jack a dull boy, so jack needs to let loose once in a while. Games provide a valuable outlet for escapism and release that can help stressed out people kick back and have a good time. No matter what type of game you play, there’s always going to be the financial burden of an actual purchase, unless you’re heavily into illegal downloads.

But what makes more sense for you to do from a financial standpoint? Buy used video games or borrow? Go to a brick and mortar gaming store and buy new games on a DVD or download it online from sites like Steam? Let’s take a gander.

  • Buy Brand New Games

If you go to a physical gaming store, you can purchase just about any finished game cleared for release. You might even fine some old titles lurking around the aisle nobody ever goes to. Games sold here are usually from the big boys – EA, Ubisoft, Rockstar Games, and SEGA (to name a few). AAA masterpieces that have gone through QA testing and championing the importance of hiring a software testing company to squash all the bugs and polish the finished product.

Still, the big boys drop the ball once in a while and release an unplayable, bug-riddled game desperately in need of a new patch. Now lets talk practicality. Just like any physical store, some items will be on sale, but it’s always cheaper to buy games online on eBay and Amazon. The best part about buying games on a DVD is you can sell them when you’re done.

  • Buy Used Games

Buying brand new games often gets you special gear or other special add ons, but in all honesty, it’s not really worth the extra cost. Buying used games is still one of the best ways to get your game on. You can get quality used games on Amazon, eBay, Craigslist and Overstock. Again, you can re-sell the used game you just bought, maybe even for the same price. You can even bundle another game and raise the price a bit to make some money. You can also check out JJgames and Glyde for more selections and vintage titles. Another option is to just borrow games you haven’t played yet. Just be sure to return it.

  • Buy Games Online

The last option would be to buy a game online and download it to your PC. Digital download titles are a little cheaper because you won’t be paying for shipping and the production costs of the DVD, case, cover etc. Websites like GOG and Steam have great AAA titles and a lot of cool indie game developers that make their unfinished (early alpha) games available for a small fee, with the promise of a full download when everything is finished.

Both websites have daily deals of up to 80% off or more on choice titles and you can save a fortune on the games you really want. The downside? You can’t sell your games or give it away as a gift. Selling your account is also not possible.

My Take

From a financial standpoint, being able to sell the games you already own makes a ton more sense in the long run. Buying a cheaper digital download video game online is great for now, but when you consider the fact that you’ll get stuck with it forever is a bummer. If you buy a new game for $50 and sell it used for $25, you get half your money back. If you buy the same game on steam for $10, that’s money you can’t recoup.

The silver lining of having an account with Steam or GOG? All your games will live on in the cloud, destined to last until you have an active account. This is good news when you think about it. Do you really want to play checkers in the retirement home or would you rather re-live your days playing Fallout 4? I choose the latter, thank you very much, with a mug of Ensure and a slice of pudding.

Jul 272015
 

Mythbusters

But wait, Nelson. You’re a value investor. Hell, you even have a whole blog dedicated to value investing. The whole point of value investing is exploiting an inefficient market.  How can you say with a straight face that the the whole notion of market inefficiency is just a myth? Have you pulled an Andrew Hallam and decided to go to the world of indexing once and for all? Oh please, just tell us and stop with this introduction that’s going on way too long!!!!

Geez, relax straw man. Have you tried booze? I don’t normally recommend it, but still. You should try it.

If you spend as much time as I do reading Seeking Alpha, Motley Fool (WHOO! REPRESENT!), Value Investors Club, Gurufocus, and the 31 other investing blogs I check from time to time, you’ll notice a few patterns, especially from the folks who exclusively dabble in the world of large-cap stocks.

Value investors, dividend growth investors, and momentum investors seem to universally love the same stocks. Fiat is more recommended in the value investor community than a mediocre chain restaurant is to tourists. We’ve already talked about how dividend growth investors LURVE the same 40 stocks. We get it guys, you like Coca-Cola. And for whatever reason, growth investors are actually quite okay paying 303030303030303 times earnings for Amazon.com, because by the year 2022 you’ll actually be able to log on and buy yourself love.

When it comes to market inefficiency, there’s the big problem. The vast majority of investors spend most of their working on the 500 biggest stocks in the market. If you combine that with all the pension funds, hedge funds, and mutual funds that are limited to the largest stocks out there because of their size, you have a universe of stocks that’s very well covered.

There’s so much competition in the world of large-caps that you have to be a special kind of delusional to think you have an edge. Hedge funds have all the money in the world to spend on research. The big mutual funds have dozens of research analysts who have already forgotten more about finance than the average investor knows.

Not only are you competing with all of those guys, but you’re also competing with all your peers. Add all that up, and there are probably millions of man hours dedicated each year to trying to figure out whether Johnson & Johnson will outperform McDonald’s. And you really think you’re going to get ahead in this world?

This is why it cracks me up whenever I hear investors who live exclusively in the world of the S&P 500 (or the ~150 largest companies in Canada) talk about market inefficiency. They’ll talk about Exxon Mobil like they have an opinion on it that matters, and it’s so, so, cute.

This is one of the reasons why I hate dividend investing so much, specifically the dividend aristocrats. Not only is it survivorship bias at its finest (spoiler alert: when you drop all the crap from an index, you tend to outperform it), but it’s essentially a bunch of work for no additional result. Since the dividend aristocrats consist of many of the U.S. market’s largest stocks, it’s essentially an index matching exercise with perhaps the benefit of a little lower downside when the market blows up.

No, if you really want to go somewhere where there’s an inefficient market, you have to venture into the world of small-caps.

Go small young man

Let me bold and italicize this next sentence, because it’s really important. If you’re going to pick stocks and you’re not investing in primarily smaller companies, your chance of beating the market over the long-term is practically nil. 

But here’s another TRUTH BOMB for you. Even in the world of small-cap stocks, most are efficiently priced too.

There aren’t as many people cruising the world of small-caps, which makes it more likely that they’re inefficiently priced. But there are still thousands of investors that have scoured the balance sheet of Reitmans or Yellow Media. Your chances of finding an undervalued gem still aren’t terribly high.

Then why value invest at all? Firstly, just because a stock is efficiently priced doesn’t mean it won’t go up. The economy tends to grow, and a management team who consistently tries to improve their business will most likely catch onto something. And secondly, most small-cap stocks are priced efficiently for the short-term, while the market discounts long-term trends.

Besides, buying cheap assets tends to turn out well, provided they aren’t encumbered by too much debt. The potential for upside tends to be bigger when you’re buying stuff that’s already on sale.

There’s a reason why I continue to say most people reading this blog should stick to indexing. It’s hard to find stocks that are inefficiently priced even if you know what to look for. By adding in the handicap of avoiding the small-cap universe, it’s virtually impossible to beat the market. And if you’re not beating the market, why try?

 

Jul 242015
 

In Canada, in 2015, being a landlord sucks.

I realize this probably sounds a little odd from someone who actually owns houses and rents them out, but hear me out. I’ll explain. OH GOD WHY WON’T YOU LET ME EXPLAIN?

No returns

Back in the day when I was buying real estate, the returns were succulent. Just how good? I was able to get 15-20% annually before expenses, or between 10-15% after I paid for everything — the taxes, insurance, repairs, additions to the sex dungeon in the basement, etc. I didn’t add in mortgage interest because the plan was to pay these properties off as fast as possible, not stay in debt for 25 years while pocketing the cash flow (i.e. the difference between the mortgage payment and the rent).

These days, the return is far less. Where I live, you’re looking at anywhere between 6-8% returns on a gross basis, or between 4-6% returns once you pay for all your expenses. And that’s actually pretty generous. There are thousands of “investors” in Toronto, Vancouver, and Calgary who are barely making enough to pay for the interest on their mortgage.

Investors delude themselves into accepting less return in a number of ways. They count on the value of the place to go up each year. They look at GICs paying 1-2% and are happy to accept 4-6% on a house. Some of them even just factor in the return on the invested money (minus the leveraged part) and declare the investment a success. And some just aren’t that good at math.

No knowledge advantage

You know why else being a landlord sucks? Because of Reddit. Okay, not really Reddit, but the site is sort of a representation of what’s wrong.

Whenever you enter into a business relationship, the person with more knowledge will always have the upper hand. In the landlord-tenant relationship, the person with more knowledge is just about always the landlord. If he’s smart (which most are, at least those buying before 2009), the landlord will know the various laws that surround tenancies. When I was in real estate and I would get a call about selling a house to a wannabe landlord, I’d print out a copy of the applicable law and tell them to read it.

These days, all a tenant needs to do is go onto the Google, and it’s filled with all sorts of strategies about how to screw over landlords, and how to use certain clauses in the laws to make an owner’s life miserable. A landlord who makes a reasonable request like “hey, don’t cover my walls in cancer air” is now shouted down as discriminating bastard. Screw that. My house, my rules.

I liked it better when tenants had no idea what the rules were. Most still don’t, but finding the out is a whole lot easier in the age of any moron having access to all the information in the world.

Just buy a REIT instead

There’s another reason why being a landlord sucks. It’s because you probably suck.

If I had a nickel for every landlord I met that didn’t do his paperwork correctly, or had no idea how to kick out a delinquent renter, I’d have enough to fund the latest season of The Bachelor. Don’t look so impressed, that show has a budget of $1.40 a year.

People trust their tenants. At the beginning of the relationship, it’s usually all fine and good. But then something happens. Maybe the tenant is constantly late on rent. Maybe the tenant is mad because the stupid stove doesn’t work right and GODDAMMIT WHY AM I PAYING $1500 PER MONTH FOR A STUPID STOVE THAT DOESN’T WORK GOD.

So the relationship breaks down. Some people are good about it, while others aren’t. And before you know it, you have a tenant who constantly whines about everything because you wouldn’t shell out $500 for a new stove.

This is why most people should just buy a REIT. RioCan is Canada’s largest REIT, pays a 5%+ dividend, and you don’t have to worry about a damn thing. Pick a couple more to diversify (I hold Dream Office REIT, personally, although it’s a little risky, and Extendicare, which I suppose is technically a REIT), and you’re in business. Getting an average yield of 6% is easy, and most of the income is from dividends, which are taxed much more favorably than rental income.

Plus, there isn’t all the risk associated with leverage. I don’t care how smart you are, borrowing 10x your investment to borrow something adds risk. I’m okay taking on risk for succulent returns, but not for something I can easily match my buying a couple of REITs.

This isn’t to say I’ll never buy physical real estate again. But because being a landlord sucks so much, I need to be compensated for my time and energy. At a 4-6% return after expenses, I’m not very excited. At between 9 and 12%? That’s much more attractive. Those opportunities will come once again, but at this point, I’d say not to bother. Just buy a REIT if you want access to real estate and call it a day.

Jul 222015
 
Eh, close enough.

Eh, close enough.

In the world of portfolio management, it’s commonly recommended that an investor needs to own bonds.

The usual formula is pretty simple, chances are you’ve seen it before. You take an investor’s age minus 100 or 110, and dedicate that percentage of portfolio to bonds. So a 60-year old would be approximately half bonds and half equities, while a 30-year old would be between 20-30% bonds.

But there are a lot of investors who don’t heed this advice, for a number of reasons. They might be an uppity millennial, always BREAKING THE RULES and just trying their own crap. Hey man, says the millennial, I don’t need no stinking advice from a SQUARE, MAN. I’m going to go 100% equities because I’m a CERTIFIED BADASS, YO.

Damn millenials. SMH.

There’s another group of folks who refuse to add bonds to their portfolios, and that’s a lot of dividend growth investors. These investors seem to think they don’t need the income bonds generate because they’re getting constantly rising dividends. And since the group’s favorite dividend growth stocks are somewhat conservative in nature, the dividend growth investor figures he won’t see much in volatility during the next market crisis. When stocks go down, folks rush to Coca-Cola and Proctor and Gamble for the perceived security, which insulates them from some of the capital losses, at least compared to Facebook or Tesla shares.

These investors are also convinced that ultra-low interest rates mean the next few years will be terrible for bonds. Rates will increase, which will push the price of the debt down, leading to lackluster returns. I don’t buy it, for several reasons. Suffice to say that the people who predicted the demise in bonds have been doing so for years with very little in success.

Portfolio theory works like this. During times of hardship for stocks, investors rush into bonds. This then causes the value of bonds to go up, which offsets some of the losses compared to stocks. These two asset classes work together to smooth out returns. Essentially, investors give up some potential upside during good times for less in downside during bad times.

For most investors, this is a good thing. Think back to 2008, when stocks were down 30-40% in the year. But if you would have had a healthy bond component (which actually went up in 2008), you’d be looking at a loss of between 20-30%, depending on how much you had in bonds. That’s a much better result for the vast majority of investors who cannot psychologically handle a year where they’re down 40%.

But smoothing out returns isn’t the only reason why you need to own bonds. In fact, owning bonds could be the key to you outperforming the market over time, and all without having to spend hours of your time picking and choosing individual stocks.

Why you need to own bonds

Assume you’re a 30-year old investor with $100,000 stashed away. You have a 70% equity and 30% bond portfolio.

Say the stock market falls 25% one year, while the bond market gains 5%. Suddenly your $70,000 equity position is only worth $52,500, while your bond portfolio is worth $31,500. Total worth is $84,000, which means you just lost 16% instead of 25%. So far, bonds are doing their job.

But now you’re left with a conundrum. Stocks have fallen 25%, which just about guarantees they’re undervalued. You have only $10,000 in new money to invest, which is your TFSA contribution for the year. You’d like the opportunity to invest more money into undervalued stocks, but don’t have the capital.

But wait, you do have the capital. You have a bond component that has increased in value during this whole meltdown. If you sold half of your bonds to put into stocks, you’re practically guaranteed to outperform the market over time by buying more of a beaten-down asset.

Then what you do in subsequent years is buy bonds with those contributions to get the portfolio asset allocation back to the desired levels. And in theory, bonds will be cheaper during those years, since the market will have recovered and investors will be more attracted to stocks. You’ll be putting money in bonds during the right time.

Andrew Hallam (author of The Millionaire Teacher) advocates a very similar approach. Say you own three ETFs — one Canadian equity, one international equity, and one bond fund, all with a 33% weighting. Each year, when you contribute your cash into the investment, just put it into the asset that underperformed. It’s the same sort of deal I just talked about, but even simpler.

How do I know when to sell bonds?

As the expression goes, you gotta be buying when there’s blood on the streets.

Many investors think they’ll know a good buying opportunity when the time comes. If 2008 taught us anything, it’s that most investors are likely to get paralyzed with fear when the market truly corrects.

When I buy an individual stock, I like to set a selling price before I even plunk down my cash in the first place. This makes me more disciplined and less greedy when the time comes to exit. I’m also ensuring I make the decision when I’m calm, and not in the heat of the moment.

It’s the same thing when deciding to sell bonds. Say you think a 20% haircut in the value of the S&P 500 would represent a good buying opportunity. So you set the rule now, when you’re calmly thinking about it. It’ll be hard to pull the trigger when it hits that magical number. Everything in your being will be telling you not to hit that buy button.

Bonds are great for minimizing a portfolio’s loss. But they’re also nice to have as a cash substitute when markets really sell off. That’s the real reason why you need to own bonds.

Jul 202015
 
Actually pictured: me

Actually pictured: me

Throughout my life, I’ve basically refused to learn to cook.

Like any entitled millennial, I dealt with it by eating out a lot. When I was a chip guy, I went to Subway so often that I’d make eye contact as I was coming in, head to the bathroom, and come out 60 seconds later to a completed sub. Between that, grilling stuff on the barbeque, making pasta, and befriending people who liked to cook, I managed to eat pretty well throughout my 20s.

Yeah, it cost me a lot of money, but I compensated in other ways. Pasta was one of my go-to meals, which is ridiculously cheap if you don’t add any meat. I never did — n0t because I didn’t like it, but because I didn’t know how to brown hamburger without giving myself the diarrhea.

God, I was pathetic.

I always was okay with my eating out because I was always moving ahead when it came to the money. Yeah, I might have spent $500 per month just eating out, but I was cheap enough with everything else that I was still making all sorts of progress. I’m sure that there are many other people who justify it in the same way as I did. Plus, y’know, I’m a millennial, and therefore DESERVED it. Yes, we are a despicable generation.

But now that I’m in my 30s and I want to apparently end up with all of the money, I’ve been forced to drastically cut back my eating out. The lady and I might go once or twice a week now, but that’s about it.

At first I decided that I would just sit around and let her cook, offering to clean up afterwards. That was all fine and good for a few days, before I realized something. She works until 5:30, which means dinner wouldn’t be until 6:30. As a man who wants his dinner NOW, DAMMIT, this wouldn’t do.

So I was forced to learn to cook. And surprisingly (at least to me), it’s really easy. Like, damn easy.

Now before y’all accuse me of being the next Gordon Ramsey, let me say that I’m hardly a master. Honestly, even the worst of housewives would probably scoff at my inability to accurately even identify what a soufflé is, let alone properly bring out the taste in preparing one. But I know the basics, and, if I can handle them, then I’m pretty sure a trained farm animal could. So what’s your excuse?

How much can you save?

The amount of money spent dining out can really add up.

Let’s take old Nelson as an example. He’d spend $10 on lunch five days a week, and $15 for dinner four days a week. That’s $110 per week of delicious, gooey, boner inducing food served by sexy waitresses who at least had to pretend to be nice to single me. Say I also spent $100 per month on groceries.

Compare that to now, where I’m spending about $20 per week on food outside of my house, and about $200 per month for my share of the groceries. Altogether, I’m saving about $270 per month in food, and it takes me approximately two extra hours a week to prepare things and do the dishes afterwards. Since that’s time I would have probably squandered anyway, let’s value it at nothing.

$270 per month in food savings works out to $3,270 per year less I’m spending on food. Let’s use the handy compound interest calculator to see what this money can do if I invest it at a 10% return over the next 50 years.

Screen Shot 2015-07-19 at 9.35.16 PM

Well hey, that’s not bad, even if I cherry-picked the duration a bit. Still, I think we could all use an extra $3270 per year.

The secret to easily cooking anything

I feel bad putting that into a headline, since the secret to learn to cook is really easy. I’ll break it down into steps.

1. Crack open Google.

2. Search for “(thing you want to cook)”

3. Click on the first link

4. You know how to read, right?

5. Okay, now this is getting ridiculous

That’s how simple it is. If you limit your searches to things like meatballs, ribs, or fancy new ways to do potatoes (I recommend roasted, but that’s because it’s really easy), you’ll be met with recipes that offer five minute prep times. I can prepare the food, pop it in the oven, and be back to wasting time on the internet in no time.

Other ways to save money on food

If you’re not satisfied with just regular grocery store savings compared to eating out, here are some other things I do to save money on food.

Almost expired meat

One of the advantages to living in a small town is our grocery stores aren’t busy enough that they’re constantly selling out of meat. This leads to discounts of the soon to be expired stuff. You better believe that ends up in my cart, and then in my freezer.

Shop around

This one is obvious, but still needs to be said. And since 3 of my town’s grocery stores are within a 3 minute drive of each other, shopping around is ridiculously easy. Enjoy your 20 minute drive to hit 3 grocery stores, city suckers.

Shoppers Drug Mart

It obviously doesn’t carry any produce or meat, but Shoppers has some of the best sales in Canada for packaged stuff. Go early on Friday for the best selection of their special 3 day sale stuff.

Liquidation World

It’s not around anymore, but man I loved Liquidation World. They had so much cheap food it was unbelievable. I remember loading up on enough $2 frozen pizzas that I could eat for a month.

Any other suggestions on how to save money on food, or how you learned to cook? Comment away, bitches.

Jul 192015
 

Something interesting happened on Monday, if you’re a follower of the Canadian real estate market.

Home Capital Group — which is Canada’s largest subprime lender — pre-released second quarter results that were terrible. Mortgage originations were down considerably year over year, partially because of a slower market and partially because the company booted a bunch of its mortgage broker partners.

There’s two ways you can look at this. This just might be a bad quarter, and things will return to normal next time the company reports results. Or, this could mark the peak of the Canadian real estate bubble, and Canada is due for a worse ride than a two-year old not strapped in properly on a roller coaster.

Long-term readers know I think Canada’s real estate market is in a massive bubble, especially Toronto and Vancouver. I went on the record making that prediction back in 2013 and stand by it today.

But I’ve also largely left it at that prediction. I might talk a little about it on Twitter sometimes, or mention it in a post or two, but that’s about it. There’s a very big reason for this, and it’s why I’ll probably be pretty silent about it throughout what I view as an inevitable correction.

You know how nobody likes the guy who brags about getting stuff right? I PREDICTED IT are pretty much the most useless three words in the English language. It’s gloating for the sake of gloating, for the sake of telling your peers how smart you are.

So imagine doing that when the wealth of millions of Canadians is evaporating around you. Most of these Canadians will have done nothing wrong except following the wrong advice on how to build wealth. How is practically cheerleading as the whole market craters helpful? How is “shoulda listened to me, chumps” advice anything but a giant middle finger to the affected folks?

The speculator who keeps cashing out equity to consume won’t get much sympathy from me. The guy who scrimped and saved to pay down his mortgage only to see the value of his house fall 30% sure will.

I still think the market is due for a lot of pain. But you won’t see me cheer when it goes down.

Song I like and therefore you should too

Geez, that was kind of a bummer, huh? Let’s have something a little more happy.

So who’s going to bring up the uncomfortable fact that Lesley was a bit of a fox back in the day?

Oh, wait. That’d be me. Doing the Lord’s work, guys.

The Office quote

Michael: The concierge is the Winnipeg equivalent of a geisha.

Post you might have missed

The nice thing about only doing these link dumps once in every 2058295928529 weeks is the previous choices are a lot easier to make. With that in mind, let me randomly find some crap I did three years ago that I’ll pretend was good.

Here’s a post I did in 2013 challenging people who have the basics of personal finance down pat to elevate their knowledge and get into the more complicated stuff. Two and a half years later, I can safely say such advice was ignored. Still worth my time though. Somehow.

Nelson’s so funny

Oh, those millenials!

The more you know

Humphrey’s Restaurant & Tavern (also referred to as Humphrey’s or Hump’s) is a college bar near Saint Louis University, at Laclede and Spring Streets, that was the basis for the 2001 film One Night at McCool’s, written by Stan Seidel, but the movie was not shot here as it was considered not appropriate for filming. Seidel, who died just prior to the film’s debut, was a frequent customer at Humphrey’s before writing the film.

A restaurant that’s commonly referred to as Hump’s? What are we waiting for? ROAD TRIP.

Kevin O’Leary’s stock pick

Each Link Dump, current BNN personality and Shark Tank investor Kevin O’Leary is kind enough to give us his favorite stock pick. Take it away, Kevin.

kevin-olearyThanks Nelson. I’m sure all of your readers know since it was the biggest news item since 9/11, but I have officially launched my own ETF. It’s called the O’Shares FTSE U.S. Quality Dividend ETF, and it trades under the ticker symbol OUSA. Say what you want about the stupid “O’Shares” pun, but hey. At least it beats interchanging the words “cents” and “sense”.

The ETF owns 145 different stocks, all of which pay daddy generous dividends. Top holdings are companies like Johnson and Johnson, and Exxon Mobil. The current yield of the portfolio is 3.2%, and it has a management fee of 0.48%. Where else can you get such quality? Vanguard? MORE LIKE LIVEINAVANGUARD. Eat your heart out, Robert Herjavec.

Will I bring up this ETF 14 different times each Shark Tank episode? I think we all know the answer to that. If there’s one lesson I want to teach you, it’s how to be shameless.

Babe loosely related to finance

Her dad is crazy and will be inevitably replaced by a more suitable Republican candidate. But hey, it’s a good excuse to ogle Ivanka Trump.

ivanka-trump

 

As much as we laugh at Donald Trump, he is at least 50% responsible for Ivanka, so let’s cut him some slack.

Time for links

After five weeks of not doing one of these, you’d think I have a lot of stuff to link to. Let’s see if that’s actually true.

Let’s start things off with Net Net Hunter, a value investing website that would really be a lot better if it didn’t try to sell you on its paid service every 3rd paragraph. It really distracts from the content, which is great. They feature a very lengthy feature on Walter Schloss, who is rapidly becoming my new favorite value investor.

Boomer and Echo consistently delivers interesting, intelligent, and actionable blog posts. This one on how the mutual fund industry and restaurants use similar tricks is definitely worth a couple of minutes of your time.

Over at My Pennies My Thoughts, Janine makes a pretty credible case that you’d be better off acting like the 1%. And no, she’s not just talking about making more money, either.

Over at LowestRates.ca, I wrote about going to the Calgary Stampede. Alas, I was not there to spot the infamous threesome in the alley. Seriously though, who films randoms having a threesome in an alley? Those situations are pretty much the whole reason why God invented rocks.

Vanessa’s Money points out that, GASP!, it’s not always better to buy an unlocked phone. Sometimes, the phone company gets a better rate when it buys several thousand phones at once than you do when you buy one. This is not surprising to people with brains, but hey, it’s still an interesting read.

I wrote about the Toronto real estate market for Motley Fool, and talked a little about what could happen to some of the riskier real estate stocks if the market crashed. (Scrolls up) What? I don’t see any irony.

Speaking of real estate, Holy Potato makes a really convincing case that the average person has no business buying pre-construction real estate. I say let’s take this a step further. How about we just don’t let the average person buy anything? I mean, come on. They’re clearly morons.

Consider this your monthly reminder. Don’t Quit Your Day Job thinks it’s colossally dumb to hold an emergency fund if you’re in debt.

More Nelly over at Motley Fool time. Specifically, I wrote about why Canadian Pacific Railroad is a pretty poor stock.

Moneygeek thinks all the rumblings out there about a big oil glut are silly. Here’s why he thinks the price of the commodity is headed higher.

That’s about it. Have a good week everyone.

Jul 152015
 
Deliaoverhead

Oh man. I’m sooooooooooooo high.

This is an overhead shot of Delia, Alberta, which is about a half an hour away from the Financial Uproar’s world headquarters in Drumheller. It’s about as happening as it looks.

When I was a chip guy, I used to deliver to the only grocery store in Delia. It was an old converted house, with approximately 1,000 square feet of retail space, and two of the nicest owners you could ever find. When I’d show up every Thursday morning, there would be a half dozen farmers milling about, talking about everything from corn to wheat. They made up for their lack of culture with niceness, anyway.

So why am I mentioning Delia, besides for nostalgia reasons? Recently the village made the news by offering building lots in a new subdivision for just $10 each. Delia isn’t the first place to try this, but it’s a smart move. The town gets some free publicity, and hopefully some fresh blood and a few more houses paying property taxes.

Although I don’t know the details of this particular offer, I suspect it goes a little something like this. You can have the lot for $10, provided that you build a house on it in a specified amount of time, like a year. These lots used to be for sale for $30,000, but after seeing no takers, the village cut the price drastically, thinking that they’d make it up in property taxes over the years.

But the issue remains that it’s Delia. While the community does have a school, a store, a couple of restaurants, a bank branch, and arena, it’s lacking in a bunch of other ways. Unless you can work at home, you’re looking at a commute of at least a half an hour to work. That’s not bad — at least, compared to Toronto or Vancouver — but it’s certainly not ideal. One of the reasons why I like living in a small town so much is the two minute commute. Even if you do happen to find a job in the village, you’ll still be driving for stuff like groceries or going to the hospital.

There’s also the lack of entertainment options. If you’re a homebody this isn’t such a big deal, since TV looks the same no matter where you watch it. But if you want to do anything more exciting than go to the park or have a barbecue with the same four people you had a barbecue with last week, then you’re out of luck.

There are advantages to living in Delia. If your idea of a busy night is having three cars drive past your place, Delia is the ticket. It’s the kind of place where nobody locks their doors and random dogs run up the street. And if you just look at living costs without the associated commute, it’s definitely cheaper to live there than Drumheller, and much cheaper than Calgary. I don’t know exactly what it would cost, but I suspect you could build something pretty decent on your $10 lot for an additional $200,000, especially if they’d let you bring in a modular home. That’s not bad, especially compared to the city.

Still, we have to factor in commuting costs. Say we’re looking at 50¢ a kilometer including gas, depreciation, and 300 pairs of racing gloves per year. Round-trip from Delia to Drumheller is 94 kilometers, a journey we’ll assume gets made five days per week. Suddenly, we’re looking at almost $250 per week just in driving costs alone, and that values your hour on the road each day at nothing. Yeah, you’ll have commuting costs wherever you live, but certainly not to the tune of $250 per week.

Still, for this guy who works at home, the idea of Delia is a little bit appealing. Just how much longer until Amazon starts delivering groceries? If a cow wanders onto my land, does that make it mine? IT’S THE FARMER CODE, YO. If I could limit my trips into town to a couple times a week, I think the cheaper housing would end up winning out.

Anyhoo, I’ll turn it over to you kids. Would you live in the middle of nowhere (the safest part of nowhere, at least according to Futurama) in exchange for cheaper living? Although I like Delia and the people who live there and I’m a bit of a lame-o who doesn’t go out, I still think it’s a little too small for me. Still, cool idea to offer $10 lots.

Jul 132015
 

When I was 18 years old, I was working the night shift at a local grocery store, generally avoiding the ladies because they scared the crap out of me. I was very much into investing and growing my meager net worth because even then, I knew I wanted to be rich, dammit. I told this to people I worked with, and surprisingly they didn’t laugh at me. This makes them better people than I was.

So I set a goal. By the time I was 30, I wanted to be a millionaire. I figured if I had a million dollars I’d be so rich that that I wouldn’t need to worry about money ever again. I made it my all-consuming goal for years until I decided I’d rather get laid. It faded into the background, but was never forgotten.

Fast forward 14 years, and I have a confession.

I didn’t make it. I failed at my goal even after moving the finish line back a little.

At the risk of it sounding like I’m making excuses, I’m pretty okay with failing. I didn’t get to a million, but I got damn close. And that’s as close as I’ll come to revealing my true net worth, at least for now.

Once it became obvious that I’d hit $1 million at some point, I started to slack off a bit. I became okay with spending the money to buy a nice house to live in, even though that ultimately didn’t happen. I emphasized travel over making money. I took a job that gave me plenty of leisure time, and filled that time with unproductive nonsense. I pissed away a LOT of time on the internet while in Korea.

I started thinking about why my attitude changed, and a few reasons sort of jumped out at me. My decade of sacrifice worked out well for me, and a few minutes with a compound interest calculator made it obvious much of the heavy lifting was already done. All I really need to do now is not fuck things up, and I’ll end up hitting a few million eventually. It’s hard to stay motivated when you know it’s only a matter of time until you accomplish your goal.

And now that I have two incomes to invest while keeping living expenses relatively cheap, there will be even more money funneled into investments each month. Sharing fixed expenses is helpful.

So what should I do? Should I be content to spend my time watching television and underutilizing my potential, like some sort of early retiree? Hey, somebody has to be a helicopter parent to my future kids.

Hell no. Instead, I’m going to set another audacious goal. I want to get to a $50 million net worth in 40 years, which would put me at 72 years old. I think that’s a reasonable retirement age by the time 2055 rolls around.

I wanted to choose something that I thought I could achieve, yet something that was challenging. It’s not that I’m all about the money, I just think it’s a really convenient way to keep score. The person who ends up with the most money wins. In my world of investing, that’s how you measure success.

Many of you are probably scoffing at my goal, thinking I’m some sort of crazy dreamer who is more insane than a typical 17-year old girlfriend. And you might be onto something. But allow me to present the case that it’s actually easier than you might think.

Crunch the numbers, yo.

Let’s use the following conservative assumptions in my calculations:

  • Current nest egg – $500,000
  • Annual additions – $50,000
  • Rate of return – 10%

Admittedly the rate of return might be a little high, but I currently have more than the current nest egg at work and the amount added per year is bound to go up over time. I’m also not factoring in taxes, which will become more and more of an issue as time goes on. So I’m pretty happy with the tradeoffs I made.

Let’s see how the ol’ compound interest machine says I’ll do over the next four decades.

Screen Shot 2015-07-09 at 4.37.37 PM

Huh. Turns out that I’ll be pretty close, even using conservative future projections.

Let’s break down the projections a little farther. How do I expect to be able to save $50,000 annually?

It’s not hard, really. If I can make $80,000 per year from all sources and my lady can earn $40,000, that puts us at approximately $90,000 after taxes. I’d say our annual spending is closer to $30,000, leaving us a $10,000 annual buffer zone.

The 10% rate of return is where I’m probably going to get some flack. Stock markets have done that over the long-term and the short-term (at least in the U.S.), but there was a decade in there when returns did squat. I’ve also done better than that over time when investing in real estate.

If I re-run the scenario at a 7% return, I get a nest egg of just $22 million. That’s not bad, but a far cry from  the goal. But remember, I’m confident that my ability to save will continue to go up in the future, which mitigates some of that risk. But still, I need to be able to invest well.

There are a few reasons why I’m shooting for $50 million. I think it’s a good trade-off between achievable and too easy. It’s a nice round number. And it’s long-term enough in nature that we’ll have something to work towards for decades. It’ll also keep me from spending frivolously, since I’ll want to keep every penny to invest.

Typically, I’m not a fan of goals. I’ve always thought people spent too much time thinking about stuff they ought to do, rather than just realizing what they actually do is important to them — or else they wouldn’t be doing it. My advice has always been the same — figure out where you want to be or what you want to do, and then get at the plan. Focus on one or two really important things, and then forget about the rest.

I’ve always wanted to be rich. By crystalizing the goal into something concrete, I hope to increase my chances of success. I’m not sure it’ll work, since goals are really just a form of tricking ourselves. But hey, let’s give it a shot.