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 302014
 

A few weeks ago now, I went on the Twitter and asked my followers a simple question:

Do you think I’m sexy?

Wait. That’s not right. Besides, we all know the answer is yes. I’m sexy as all hell. Just call me Captain Sex Handsome, MD. Or Esq. Either or.

The other question I asked was how many stocks you guys think should be in a portfolio. The results I got were basically all over the map.

Robb from Boomer and Echo sent me two competing papers which said, respectively, that investors should have as many stocks as possible and 20-25. Robb himself tends to side with the second opinion.

JT, formerly of Money Mamba (where he still drops in from time to time), thinks the number should be somewhere between 6-12 names.

A reader on Twitter who is apparently nameless (can’t say I blame him), owns 41 different names, but admits he’s having trouble keeping track.

And finally, Liquid from Freedom Thirty Five Blog admits he holds 58 different securities, along with a bunch of other assets. That dude is all over the good debt thing, almost to the point where I’m concerned. But that’s neither here nor there.

We have answers from all over the map. Who’s right? Just how many stocks should you own, anyway? Essentially, there are two schools of thought.

1. Own as many as possible

This is your average couch potato investor. He thinks that it’s impossible to consistently beat the market, and that investors shouldn’t try. I’m sure he has a very average house with a very average looking wife. He’s a little overweight and has exactly 2.1 children. Geez, why do you have to be so average. Jerk.

I kid, of course. For a lot of you reading this, couch potato investing is the way to go. Just break down your investments into about 4 different ETFs, and keep plowing money into each. It’s easy to do this, just sign up for a Questrade account, where they let you buy ETFs for free. You’ll still have to pay to sell them (as little as $4.99), but they’re free to buy. It’s a great option for investors looking for simple portfolios with lots of diversification.

Of course, the ETF crowd has a point. By owning the whole market, you take away company specific risk (also known as operational risk). If you own 25 stocks and two are duds with inept management, that’ll drag on your returns. By owning individual stocks, investors take on both market risk and operational risk. More risk can be bad, especially during times of volatility.

2. The case for a concentrated portfolio

Meanwhile, in the other how many stocks should you hold corner, in the blue trunks, we have the concentrated portfolio folks!

Get a pen kids. That’s my worst joke ever. Write it down and hold it forever, preferably close to your heart. You’re not gonna want to let me forget that one.

The rationale behind a concentrated portfolio is pretty simple. If you’re spending the time researching and following the market, chances are you know a thing or two about it. So why dilute your best ideas? Find your top 10, or 20, or whatever number of stocks, and take a position in each. By putting more of your money in your best ideas, you’ll increase your chances of doing well, at least in theory.

Hell, I have a fund that has a stated goal of only having 10-12 positions in it. So far, I’ve got approximately 24% of the fund’s assets in 3 different stocks. You can probably see which side of the ledger I’m on.

Aside: Read about the newest Uproar Fund purchase.

But just how concentrated should a concentrated portfolio be? Am I the smart one by putting my money in just a few stocks, or are the folks who hold 20, or 30, or even 60 stocks the smarter ones? I can see the case for 20-25, but I think any more than that is too many. There’s one simple reason why.

Staying informed.

Investors everywhere are plagued by not researching enough. We don’t bother to read annual reports. When a company comes out with earnings, the only time we notice is if the price moves a lot. I know a person who admits to following stock tips on Twitter without following through on research. Those are all bad things. I’m not saying you should research to the point of inaction, but at least crack open the latest annual report, and maybe the last couple quarterlies too.

If you own any more than 25 stocks, you simply don’t have enough time to keep abreast (heh) of what’s going on. Imagine reading 50 annual reports each year of just stocks you own? Add in the 30-40 I read each year for research purposes, and I wouldn’t have time for a damn thing. You guys would go without my witty Uproar-isms, possibly leading to greater productivity and people seeing the sun more. This cannot happen.

So, how many stocks should you own? I like the concentrated portfolio, and will end up having 10-15 names in the Uproar Fund. I’m even okay with 20-25. But any more than that? I can’t approve. You just don’t have the time to properly stay informed. And if you aren’t informed, you’re a lousy investor.

 

 

 

Jul 292014
 

Who wants to hear about my banking situation?

(No hands raise. One person slowly puts up his hand, but the crowd all look at him disapprovingly. His hand goes back down.)

WELL, TOO BAD SUCKERS.

It’s simple. I do the majority of my spending either using cash or my one credit card. There are a few bills to pay (namely the credit card, but also stuff like power and water, things they won’t automatically take off my credit card), which gets done once a month on this very laptop, usually in between video games and goofy kitty videos. Good thing it doesn’t take very long.

In the meantime, I often won’t check my bank balance for weeks at a time. It stays remarkably stable, since almost no transactions go through it. Some of you balance junkies just fainted, didn’t you?

My bank is one of Alberta’s largest credit unions. To be honest, there’s nothing special about it. I used to think the girls were attractive, but I am forbidden to think that anymore. Besides, it’s the truth. Most have either left or gone to roles where they’re not stuck talking to guys like me on a daily basis. Still, I like the fact that most people there know my name, and I get treated well the 3 times a year I walk into the branch.

My account used to be a straight pay-per-transaction deal, but the bank recently implemented a policy that everyone between 22 and 60 has to pay two bucks a months to keep their account active. I was pissed at the time, but quickly grew apathetic. Two bucks a month is only two bucks a month. It’s not very much money.

Plus, I’m still paying 50 cents per transaction. I average three or four withdrawals a month, so let’s say for easy figuring that I’m spending four bucks a month on bank fees.

Cue the outrage

If I was any other personal finance blogger, this would be the worse than a puppy getting cancer. I’d be practically foaming at the mouth in excitement to fix this hole in my budget, or some other such nonsense.

Next week, I’d probably come up with some post comparing all the chequing accounts out there.

The week after, I’d come out with another post on which free chequing account I chose. Spoiler alert! It was ING Direct Tangerine.

I understand why the average personal finance blogger (and reader) is so obsessed with their chequing account. It’s the low hanging fruit. Anybody can realize that $4 or $11 or $15 or $x is greater than zero, so that’s what they cut. If you’re at all comfortable with the internet, you’re hardly visiting a branch anyway. There’s no good reason to pay.

These reasons all exist, but that doesn’t mean they matter.

Say you made $3,000 per month, after taxes. If you pay $4 per month in bank fees like me, you’re paying a little more than 0.1% of your budget on bank fees. Even at $10 per month, it’s about 0.35%. As in, it’s basically nothing. Most people could easily cut back a $10 per month bank fee to a $5 per month deal with the same bank, just by getting a different plan, too.

We focus on the tiniest of details while forgetting the big picture all the time.

We tell people to cut back on coffee, when a simple step like moving closer to work can save $500 a month.

We spend more time researching which hotel to stay in during our weekend getaway than searching for potential investment opportunities.

We convince ourselves that doing stuff like buying a MacBook Pro (which costs $500 more than a comparable Windows machine) is really “frugal,” even though all we do it putz around on the internet.

There are a million more examples of this, but you get the picture. Just about everybody reading this has a way to cut hundreds of dollars out of their budget. They don’t, for whatever reason. Maybe moving is a pain in the ass. Maybe earning more is hard. Maybe cutting a vehicle out of the equation might slightly inconvenience everybody. But those are where the big wins come from, not something stupid like bank fees.

And while I’m at it, your investment fees hardly matter either. Do you know how much time I see dedicated to discussing switching out of an iShares ETF for a Vanguard one because the fee is 0.1% less per year? There’s a case to be made if you’ve got six figures invested in such a fund, but if you’re the average 20-something investor with a cool five Gs in the thing? Congratulations, you just saved yourself $5. Don’t spend it all in one place, slugger.

There are certain moves you can make to drastically improve your finances. Worrying about your bank fees isn’t one of them. So just don’t bother.

Jul 282014
 

Because apparently all I invest in is retailers, the newest stock in the Uproar Fund is Danier Leather (TSX:DL).

Danier Leather is Canada’s leading retailer of leather outerwear, accessories, handbags, etc. The company has 90 locations, split between malls and dedicated buildings it refers to as “power centers.” Approximately 2/3rds of revenue comes from shopping mall locations, while 1/3rd comes from power centers.

Unlike many companies in the clothing industry, the company owns all its own manufacturing facilities in China. This allows it to continue to supply high quality stuff, and control the quality of the merchandise in house. This is a big deal with you’re selling something high end like leather products.

It also means that the company has to invest in the factory every now and again. It did so in 2013, which led to some less than stellar earnings numbers. The company sees an opportunity in selling leather handbags for under $200, which is all part of its grander strategy — to increase sales of its accessory business from 25% of its revenue to 40-50% of total revenue. Accessories might not have quite the sticker price that coats do, the lower price tag seems to be working. Sales were up 5% in 2013, compared to a decrease of 6% in 2012 and 4% in 2011.

The balance sheet

Like just about every stock I buy, Danier Leather has a practically sexually arousing balance sheet. The company is sitting on $15 million in cash, compared to a market cap of just over $35 million. Total assets are over $68 million, with just a hair less than $12 million of total liabilities. The company doesn’t have any debt.

This gives it a book value of $14.35 per share. As I write this, shares are at $9.15. That puts shares at a 37% discount to book value. If you don’t get excited about that, you’re probably not a value investor. Go buy some Vanguard fund or something.

The income statement

I’m too lazy to look this up completely, but Benjamin Graham (you may have heard of him) argued for using something called “normalized earnings” when valuing beaten up companies. I think Graham suggested that you use the average of 10 years worth of earnings to figure out what the company earns in a typical year. I’m kinda lazy, so I go with five. Here’s Danier Leather’s last five years’ net earnings.

  • 2009 – ($0.37)
  • 2010 – $1.28
  • 2011 – $1.55
  • 2012 – $0.83
  • 2013 – $0.33

Average earnings over the last five years — $0.72

Right now, shares trade at about 12.5 times normalized earnings. You’re also getting a company that trades at less than 65 cents on the dollar. If the stock just recovers to book value, you’re looking at 50% upside.

The kicker

I’d look at buying Danier Leather just for those two reasons alone. At some point in the next few years (I’m thinking soon, if the accessories business takes off), the market figures out that shares are cheap, and some catalyst sends them forward.

But wait, Nelson the Shamwow guy says, THERE’S MORE.

Danier is aggressively buying back shares. Let’s look at average share counts over the last five years.

  • 2009 – 5.1 million
  • 2010 – 4.6 million
  • 2011 – 4.7 million
  • 2012 – 4.6 million
  • 2013 – 3.8 million

The company has eliminated about 25% of all shares outstanding over the last 5 years, and currently has pledged to buy back 145,000 shares in 2014. The reason why so many shares got repurchased in 2012 was because management did something called a “dutch auction,” where they asked shareholders to sell their shares back to the company at somewhere right around the 30-day average. Quite a few investors participated, as you can see.

Let’s assume that the company continues to buy back 145,000 shares a year over the next five years. You’d be looking at a share count of approximately 3.1 million, give or take a few. Both book value and earnings per share would increase by 20%, without doing a thing. Meaning, you’re buying a company that in five years has a potential book value of nearly $18 per share, and earnings potential of about 95 cents.

Or, to put it another way, you’re getting the equivalent of a 4% dividend, just in the form of buying back shares. Normally I’m pretty meh about share buybacks (since companies tend to do them when the market is high), but I’m quite okay with this one. Buying back shares at 63% of book value is a pretty good use of capital.

My position

As a reminder, The Uproar Fund is a $100,000 portfolio, which will end up being invested in 10-15 worthy companies. So far, Reitmans is approximately 12.6% of the fund, and MRRM is approximately 5.5% of the fund. Click on either of those two links to read the write-up on each company.

I purchased 600 shares of Danier Leather, for an average cost of $9.11 each. That gives the company a weighting of approximately 5.5% of the fund.

The current three positions make up just less than 24% of the total assets of the fund. The rest is held in cash.

Many pundits are calling for a market correction. I’m generally one of them, I think shares of a lot of different companies are a little frothy. But overall, I don’t care about the market. There isn’t a whole lot of value out there, but I’m finding some. As long as I can find it, I’ll continue to invest in it.

Jul 272014
 

Now that I’ve been in the country a few days, I’ve noticed a few things about the land of Korea (AKA Japan’s bitch). Here’s the lowdown, just in case you ever come and join me. That’s not an invitation, dammit.

  • I was told before I left that folks would stare at me in the subway, like I was some sort of weirdo type foreign guy. This happened a bit (especially with young kids, they love foreigners), but what really struck me was how a lot of the older generation seemed annoyed with me. Somebody even cut in front of me in line while I was waiting to buy a train ticket. It’s a very interesting experience being a minority, something I’ve never even gotten close to feeling.
  • For all the attention that Seoul gets as being this hip new city and all that jazz, I thought it was very old and dreary feeling. This is partly my North American talking, since most cities in my neck of the woods are barely a century old. Also, that city is confusing. I kept getting lost.
  • Ulsan, meanwhile, is a beautiful city. It’s surrounded by mountains, and everything is quite new and spread out. It is much more the Korea I imagined — i.e. an Asian version of North America.
  • We went to a nitrogen infused ice cream place. They served liquid nitrogen with the ice cream, pouring a little in your cup where it snapped and crackled. I thought this was the coolest thing, and was convinced that I should take this new technology to North America. Vanessa Googled it and found out there’s a half dozen already in Canada, one in every major city. Whoops.
  • I went to the War Memorial while in Seoul. It was deeply moving and stuff, but the most interesting part? Korea is terrible at wars. Japan made Korea its whipping boy for about 700 years, before the North (backed by the Soviets) invaded in 1950. If it wasn’t for the Americans, all of Korea would be North Korea. Korea is the France of Asia. It loses every war.

Song I like and therefore you should too

It’s been a while since I recommended this song, but it’s important that you actually listen to it.

It’s a great mini economics lesson is just 7 minutes. Plus it’s rap music, which I hear the kids quite like.

Simpsons quote

Ralph Wiggum: This is my sandbox. I’m not allowed to go in the deep end. And that’s where I saw the leprechaun. He tells me to burn things.

Thing you should watch

There are more than a million millionaire Chinese. Where did they come from? How did they get rich?

The answers may… surprise you. Or not, depending on how much knowledge you have about said thing, I suppose.

Post you might have missed

The best part about Korea? It might be that they don’t tip. Do you know how glorious it is to go into a restaurant and not have some server show up and make small talk in exchange for a few extra bucks after? It might be better than sex dipped in chocolate.

On that topic, one of my very first popular posts was back in 2010, where I pointed out just how stupid tipping is. A server with a brain figures out in about a minute and a half that she’ll get tips no matter what (especially if she’s attractive). So why not just increase the price of everything and use it to pay servers more?

Nelson’s so funny

Actually, Nelson has kind of been the opposite of funny all week. He’ll work on that.

Actually, I take it back. Not my worst effort, by any means.

Funny picture

Guys named Larry suck.

larry

Seems like a bit of a harsh punishment for Larry, but I guess God really does hate guys named Larry. Just look at Larry Flynt.

Dirty word in Words With Friends

I played ‘sext’ and immediately my opponent came back with ‘oral.’ And by came back with, I mean… ah, never mind. We’ll just leave that really dirty sounding.

My username is ‘nelsmi’ but none of you play because apparently I’m the only one left who isn’t all about crushing candies or some other junk.

Babe loosely related to finance

Anybody notice how Jennifer Aniston is a little too into showing people she’s still hot? Her character in Horrible Bosses was barely this side of a sexual predator, and in Meet The Millers it was like they especially wrote in the stripper scene so she could prove she’s can strip.

jennifer_aniston

I mean, I approve, but still.

Time for links

I didn’t have a whole lot of time to read stuff this week, but let’s see what I can track down.

Hey, it’s friend of the blog the ol’ JT, formerly of Money Mamba, the site named after a snake. Like me, he writes a lot for Motley Fool these days, where he pointed out how one little change from universities can cut down the amount a student borrows by about 10%. Definitely an interesting piece.

I can’t believe I’m linking to a book review, but Kyle over at Young and Thrifty makes a book called Capital in the 21st Century sound incredibly interesting. Summarizing a summary is probably the worst thing since cancer, so I’ll just let you guys go read it.

Want a look into the business behind one of the big sports websites? This piece is great, even if it is about 3,000 words too long.

Oh hey, it’s my weekly token link to Boomer and Echo. This week it’s Sandi Martin making a guest appearance, pointing out the fallacies in trying to time interest rates.

And finally, here’s a piece I did over at VOSA, about how our debt problem is far more complex than you think. Not to toot my own horn, but it might be the greatest thing in the history of the internet.

Have a good week everyone.

 

Jul 262014
 

There are a few things I miss about Canada, now that I’m an intrepid world traveler hanging out in the land of kimchi and singing appliances.

I miss all the Canadian food. My tummy isn’t so happy after a lot of Korean food. (I think it’s a shrimp/crab thing, which I’m allergic to. The internet says seafood is used as a base here a lot.)

It’s hotter than the surface of the sun here. I miss being able to go outside without sweating my ass off.

And I miss my television, especially the large amounts of Blue Jays baseball and BNN I used to watch.

Fortunately, there are solutions to all these problems. The number of American restaurants in Ulsan is sufficient for my needs. They’ve got McD’s, Subway, Burger King, Pizza Hut, Dominos, Dunkin Donuts, and so forth. Hell, there’s even a TGIFridays. Guy Fieri approves.

As for the hotness thing, let’s just say me and the air conditioner are becoming good friends. If it wasn’t for that, I would probably have been reduced to a puddle of goo by now.

And while I haven’t found any way to watch my Blue Jays (short of shelling out for MLB.tv), I found a way to recapture my business channel addiction, with the new BNN app.

bnn app

The BNN app is great. It has a week’s worth of shows all ready to go, including my favorites like Market Call and Market Sense. Sure, you’ve got to watch a few ads in front of them, but what streaming service doesn’t make you do that these days? It also has blogs written by some of the on-air personalities, as well as all the day’s top business headlines.

Oh, the BNN app has more. It also has a recommended button, which gives you the channel’s most popular videos. It also has a decent enough stock lookup tool, which gives a good amount of info about a company. It even gives you a peak as to what the channel will be showing that day.

Every Canadian investor with an iPhone should have the BNN app. For every minute that you don’t download it, a puppy gets a tummy ache. You don’t want to see puppies with tummy aches, do you? I didn’t think so.

So I missed this last week. Apparently I was traveling or some junk. So allow me to condense two weeks of fun into one half blog post. Think of it as the least sexy version of a corset, ever.

Remember, this is all stuff I do for Motley Fool. If you want my words on your blog, just scroll up and hit the contact me button.

Y’all like dividends? Of course you do. As you guys know, I could take em or leave em, but I recognize there are a whole bunch of you that want to hug and kiss them. That’s cool, so I wrote this piece on some large (but sustainable) dividends just for you guys.

Remember how everyone hated uranium after the Fukishima kerfuffle? I think it’s sufficiently beaten up that people should take a look at the sector. Plus, George Soros just bought a bunch of the stock, so that’s gotta be helpful.

Back in May, I wrote a piece predicting that two Canadian companies would be acquired. This week, one of them announced that it was accepting a deal to get bought out, while the other popped on news that a rival was considering a bid. I am officially a jenius. Considering my impressive track record, you should probably bet on these other 3 companies being taken over as well. It’s practically a sure thing.

I continue to think that interest rates aren’t going anywhere for at least a year or two, and maybe even four or five, especially if the stock market sells off. With that in mind, I don’t hate REITs at this point, so I went ahead and recommended three of them.

And finally, presented without comment, I wrote something called Should Investors Even Care About Dividends?. I like that piece, and I think you should click on it.

That’s it. See you guys tomorrow for the dump.

Jul 252014
 

Everyone wants to be a better investor, right? I’d probably rather be a better lover, but there’s no improving upon perfection. Or maybe I should improve my baseball throwing technique. ARE YOU SAYING I THROW LIKE A GIRL? It’s not my fault. My Dad can barely throw overhand. It’s true. He was a softball pitcher when he was younger, because apparently they wouldn’t let him play on the boys’ team.

Forget baseball. We’re talking about investing. Becoming a better investor should be the goal of everyone who takes the time to bother picking individual stocks. If you’re an index investor, go ahead and go do something else. I’d recommend sticking around this website though, because HOT CHICKS IN BIKINIS. And finance content. Those are listed in order of importance.

Okay, enough preamble. Here’s the one thing you need to do to be a better investor.

Read

I’ve heard other finance bloggers talk about how they don’t like reading about finance, limiting their reading to a select few blogs. I’ve never really gotten that attitude. I read everything I can get my hands on. I read blogs, investing websites, and all sorts of other things that interest me. And when I’m done that, I’ve got library books that need to be read and a Kindle with several unread titles on it, one of which totally isn’t 50 Shades of Grey. That’s still a thing, right?

I never went to college, which, according to some of you, probably makes any advice I give automatically moot. TOO BAD, I’M GIVING IT ANYWAY. But unlike some people who never crack open a book once their degree is completed, I read everyday. Most days, I spend at least an hour consuming words, and maybe the occasional picture. Lifelong education is important for anyone, but it’s even more important to becoming a better investor.

Warren Buffett does it

Warren Buffett famously comes into the office and has a stack of newspapers waiting for him. He puts on CNBC in the background, cracks out his first paper, and starts reading. He reads for hours, and then maybe he’ll do some work, or maybe go eat a Dilly Bar and drink a Cherry Coke. The dude is over 80, and he’s still learning.

In fact, in Buffet’s authorized biography, the author outlines Buffett spending countless hours in his study, poring over annual reports and investing materials, relentlessly searching for great investments. He also essentially ignored his kids as they grew up, but I’m sure they’re over it by now. Money has a way of smoothing over things like this. Or not.

To become a good stock picker you’re going to need to read annual reports. They are filled with all the good stuff, especially when you look in the back. You can’t research a stock properly without looking at one. You’re not going to avoid the boring stuff.

Consider it the heavy lifting of investing.

The majority of your reading doesn’t need to be so dry. There are countless business books that are actually interesting, ranging from stuff like Freakonomics and Malcolm Gladwell to stuff on the history of financial markets. (A list of books I recommend can be found here.) There are thousands to choose from. You could literally start reading right now, continue to read forever, and not run out of new content to read. There’s mountains of stuff for you to read, assuming you don’t get distracted by kitten videos on The Youtube.

As you read more, your understanding of all sorts of topics goes up. I’m a shareholder in Revlon, even though I wear no makeup and often can’t figure out whether girls are wearing paint on their face or if they’re just blushing because they’re embarrassed at me. I didn’t just wake up one day knowing things about the makeup business. I read annual reports, scoured the internet, and asked many different women their opinion on Revlon’s product. No, I did not sample the various lipsticks before buying. I did sample the nail polish, an action I am not proud of.

If you read a lot, sometimes you’ll just stumble on some piece of information that’ll make you a better investor. Maybe it’ll be somebody else’s detailed stock analysis. Maybe you’ll read a little blurb somewhere on a company, giving you that nudge to go check it out in more detail. Or maybe you’ll just read some stupid knock knock joke and impress the hell out of some six-year old with it.

If you’re looking for profitable investing ideas, you need to seek them out. If you’re a white guy walking around Southeast Asia alone, chances are the hookers will find you. Investing isn’t quite so easy. Absorbing as much data as you can is a great start to becoming a better investor. It takes work to beat the market, but the reward is worth it.

Once again, you’ve made it through Recycle Friday, a thing I do because I’m too lazy to do that other thing I do. I published this post originally about 18 months ago, but it’s still good. 

Jul 222014
 

Because I am the opposite of cool, I used to spend more hours than I’d care to admit watching Star Trek. Oh lord, I can’t believe I admitted that to the whole internet. That sound you hear? That’s my girlfriend frantically packing her bags so she can leave forever. Can’t say I blame her.

Time for an impromptu ranking of my favorite Treks? Don’t mind if I do.

  • The Original Series – Shatner is kind of annoying, and the special effects are lame. Grade: B-
  • The Next Generation – Mostly good, some of the clothes they wore were hilarious though. Grade: A
  • Deep Space Nine – Avery Brooks tries way too hard, but I liked the war seasons. Grade: A-
  • Voyager: Teenage Nelson undressed Jeri Ryan about a billion times, but the show got weaker as it went on. Grade: B+
  • Enterprise: Did anyone watch this? I sure didn’t. I heard the Vulcan chick was pretty hot though. Grade: ?

Now that we’ve got that out of the way (and my newly found singleness confirmed), we can get to what I was going to talk about. One of my favorite things about Deep Space Nine was how many “random” people found their way into recurring roles. These people were much more like real life. They were deeply flawed in certain ways. As much as everyone loves Captain Picard, you’d be hard pressed to find a weakness in his character, which isn’t exactly how real life works. Except me. I AM YOUR GOD.

One of my favorite characters was Quark, the Ferengi bartender. Quark was an unabashed capitalist, usually breaking some sort of law to smuggle aboard some fancy thing for resale. He was always getting into wacky adventures because of his greed.

In the show, the whole Ferengi race is into this stuff. They travel around the galaxy looking for opportunities to make a buck. Starfleet, meanwhile, has apparently evolved into a form of socialism, since technology have made all of humankind’s basic needs easily met. They even have holographic chicks you can do stuff with, except nobody ever does for some reason. Is it cheating if you do a hologram? Asking for a friend, of course.

The Ferengi live by a series of folksy one-liners they refer to as the Rules of Acquisition. Even though some Hollywood writers just randomly came up with them on the fly, there are some gems in there that will be useful to most any entrepreneur type person. There are also some real head scratchers. Let’s take a look at a few.

(A complete list can be found here)

Rule #1: Once you have their money, never give it back. 

Well, duh. Except if you’re a retailer, that is.

Fun fact: there’s a real problem in real estate with this. As a buyer, you don’t go over to inspect the house until after the seller has their money. Like the seller is going to refund you money for anything at that point. You can sue, but that’s expensive and time consuming. Not to mention stressful. I’ll write a post about it sometime.

Honestly, a little weak for THE MOST IMPORTANT RULE, but whatevs.

Rule #3: Never spend more for an acquisition than you have to. 

I don’t care what you’re buying. Chances are, there will be an opportunity to buy it at a lower price at some point in the future. This doesn’t mean that you should sit on your hands for all of eternity, but just that patience is especially important for investors. It’s not a big deal to sit on some cash for a couple months.

Rule #6: Never allow family to stand in the way of opportunity. 

I’m all for having relationships with people, but if your friends or relatives want to hold you back while you move onto bigger and better things? Those friends suck. Luckily, there aren’t that many people like that in real life. Most people are legitimately happy for their friends’ success.

Rule #10: Greed is eternal

You mean, Ferengis don’t tithe? SOMEBODY GET THE FAINTING COUCH.

Rule #17: A Ferengi without profit is no Ferengi at all.

According to Star Trek, most of the Ferengi left the home planet because they all went to search the galaxy for opportunities to make money. Can you imagine living in a world where every person on the planet was looking to best you in a business transaction? That would kinda suck, actually.

Rule #59: Free advice is seldom cheap.

I prefer the other axiom — free advice is worth what you paid for it. Keep in mind that most of your friends’ opinions on things are kinda baseless. The big thing you learn from being questioned by lessor investors is having the ability to strengthen your own argument.

Rule #62: The riskier the road, the greater the profit

That’s gold, right there. The issue is finding out how to minimize the risk.

Rule #94: Finances and females don’t mix

The Ferengi are a highly sexist society that doesn’t let women leave the house, own property, or even wear clothes (unless they’re in public). It’s strange, to say the least.

I’m not arguing that anybody should be that sexist, but there’s a gem of wisdom to take from it. When you’re with your lady (or fella), let the money stuff slide a little bit. Not keeping such a close track of who pays for what isn’t the end of the world.

I’ll leave you guys with that one. There are 285 in total, but it’s an incomplete list. I wouldn’t go as far as printing them out or anything, but it’s fun when a show like that can teach us stuff.

Jul 212014
 

If you’re any kind of investor, you’ve got both Canadian and U.S. stocks.

Having all your assets tied up in Canada is silly. What happens when Quebec finally gets the bomb? You know those crazy poutine eaters won’t hesitate to nuke Alberta and then try to ride in and take the oil. They won’t succeed because MURICA will beat their asses to it, but still. It’s fun that they try.

Of course, the real reason why you shouldn’t have all your investments in Canadian dollars is because our economy isn’t really that important. Sure, we’ve got the oil and a lot of minerals, but that’s really about it. We’re not a superpower, we’re just pretty good. Think of us as the nation version of Ben Affleck’s little brother.

Besides, Canada is a whole 3% of the world’s economy. Our biggest claim to fame is our overpriced housing market, and maybe the fact that we’re America’s hat and/or largest trading partner. Oh, and Alberta will get mad if I don’t point out the oil thing again. Canada is a housing correction and a decent electric car away from turning into Poland.

Which is why, if you’re a canuck investor, you should hold at least some U.S. stocks. You could get all technical and say that everyone should own stocks from around the world, but let’s not go nuts. A lot of U.S. stocks have significant worldwide operations anyway. Besides, it’s easy to buy many foreign stocks using ADRs that trade in the U.S.

Assume you bought a U.S. stock that pays a dividend. Which account should you hold it in?

The answer is really simple — your registered one. As in, your RRSP.

Here’s what happens when you hold a U.S. stock in a registered account, and you get a dividend.

1. You get the dividend
2. There is no step 2, sucka
3. Uh, I dunno
4. Has this joke gone on too long?
5. Yes. Yes it has

Meanwhile, if you hold a U.S. stock in a regular margin account, the IRS will take a 15% withholding tax. You can apply to get that withholding tax back from the CRA, since the U.S. and Canada have a tax treaty. But unlike with Canadian dividends — which are taxed at a discounted rate — U.S. dividends are taxed as normal income. That means, depending on the tax bracket, you’d pay about 10% more in tax on U.S. dividends.

The TFSA is a little different. You’ll get dinged the 15% withholding tax, but that’s it. So again, it pays to hold U.S. stocks in your RRSP and stick Canadian ones in your TFSA or regular ol’ account.

Rules are slightly different for other parts of the world. Say you bought shares in Siemens, a German company. It pays a nice 3.25% dividend, and generally you’ll get withheld 15% of the income in both a registered or non-registered account.

The difference is that you’ll be able to get the tax credit from the taxable account, and not the RRSP. So it makes sense to hold foreign stocks that aren’t U.S. based (including ADRs that trade on U.S. stock exchanges) in your taxable account, at least from a dividend perspective.

Sometimes though, the country withholding the tax won’t know where the investor is from, and withhold the maximum amount of tax allowed. In the German example, it might be 25 or 30% of the value of the dividend. As a Canadian taxpayer you can apply to get your tax credit to get the 15% back, but that’s it.

Assume this happens with Siemens. Suddenly your 3.25% dividend turns into a less impressive 2.93% dividend, based on the 25% withholding tax and the 15% credit. And remember that you’re paying full tax on that, so in reality it’s more like a 2.75% dividend.

If you’re buying a stock based on the assumption that it’s undervalued and is likely to go up a lot, taxes are just a cost of doing business. Other governments don’t get in on the action of taxing capital gains on stocks.

But if you’re buying a stock for income, Canadian stocks continue to be your best bet. There’s no withholding taxes, and they get taxed using the dividend tax credit. I understand wanting to diversify across borders, but at least from a tax perspective, it’s not such a good plan.

Jul 202014
 

Well kids, it’s official. Remember that thing I’ve been talking about off and on for the last two months (plug time? YOU KNOW IT) that you’re probably really tired of? Well, you’re in luck. Because as your eyeballs move across the screen, my eyeballs will be thirty-some thousand feet in the air. And the rest of me too, I suppose.

My flight was leaving early in the morning, so I was just going to pull an all-nighter at the airport, which is probably at least in the top 5 of worst sleepovers of all time. And then it was about three o’clock the day before and I was done having lunch with my friend and I suddenly realized I had nothing to do for about 16 hours. I couldn’t really go to the mall or the movies with my luggage in tow, and I was already pushing my luck storing my luggage at the place where I checked out.

So I stayed at the Delta Airport Hotel, and let me tell you, this place is SWANKY. I got my very own king sized bed, which I DESECRATED with my farts. I also spent a little time watching the planes take off and land, but that got boring pretty quickly. Perfectly executed take-offs are all fine and good, but pretty boring when you’re watching. I want to see bloopers, dammit.

They’re renovating the pool, so I got a room for just over $100. I’d like to say I used the ways of the Hotwire, but there it was, a sponsored listing on Expedia. I barely even had to look. Easily the best $100 I spent today. Also pretty much the only $100 I spent.

Song I like and therefore you should too

Weird Al is coming out with a new album soon, and all the kids have been a twitter about it.

Well. Those four minutes were more glorious than that time I played spin the bottle in 7th grade and got that pity kiss on the cheek.

Simpsons quote

Homer: (after trying to get a gun) Five day waiting period?!? BUT IM MAD NOW!!

Thing you should watch

I’ll tell you want you shouldn’t watch, and that’s CFL Football. I went to a game on Friday night that ended 10-7. What in the actual hell is that? The only thing that had less scoring is Nelson’s teenage years.

It’s an interview with Francis Chou, who I profiled last week. It’s too bad there isn’t more interviews like this out there of the guy. He’s pretty smart.

Post you might have missed

Astute readers already noticed that I didn’t post yesterday. This is because I watched that stupid football game instead of typing out words for your amusement. I’ve never made a worse decision in my life.

Here’s a post I did last year on when it pays to break the law. I opened that post up with a hooker joke because of course I did.

Nelson’s so funny

I ended up buying him one, because apparently I’m not a good negotiator. And then he bragged about his sexual prowess. I wish I was kidding.

Funny picture

Fellas. Are you single, ready to mingle, and don’t mind a lady who has a kid? Have I got the woman for you.

bad-mother-selfies-1

Either she saw the kid and didn’t care, or she was so into taking that sexy selfie that she didn’t even see him. Either way, you’ve got to admire the dedication to the selfie. Give that woman her own post on The Chive.

Dirty word in Words With Friends

My phone is alllllllllll the way across the room, charging in the free iPod dock included at this here Delta hotel, the place I am staying because just for one night I want to be swanky. So I’ll make up a dirty sounding word. Like turdmuffin. Totally fits.

If you want to play, my username is nelsmi and those sobs you hear are real.

Babe loosely related to finance

How about another selfie, but this time without a kid in it?

sexy selfie

Is that the toilet by her thigh? Nothing’s more sexy than the room where we drop the stinkiest things.

Time for links

Hi guys. My name is Nelson, and I have a problem. I really like these discussions where brave authors go and challenge the gospel on how dividends are the greatest thing since sliced bread. And then I get sucked in. Please give me the strength to not wade into the comments next time. But still, it’s a terrific piece, well worth a couple minutes of your time.

Over at Save. Spend. Splurge., she points out how easy it is for Canadians to save a big chunk of their kids’ college funds by just pocketing the money the government gives the parents for free. I’m not sure why every parent doesn’t do this. Oh, right. They’re dumb.

Garth Turner points out the problems with Canada’s program that allows first time home buyers to borrow money from their RRSPs, and why that program has turned out to be kind of a disaster.

Don’t Quit Your Day Job uses an example about Nintendo to bust the whole “buy what you know” investing myth. As an investor with an extensive background in retail, it’s something I struggle with all the time.

Want to throw off the shackles of the working world and retire sooner than you ever thought possible. You can, but it’ll be such hard work that it might not even be worth it. I wrote all about it over at VOSA.

I also wrote for Sustainable PF, where I talked about the finance lessons taught by the Duck Dynasty guys. And then I got jealous of their beards and ogled the wives. Even Miss Kay.

And that’s about it. Have a good week everyone.

Jul 182014
 

Let me start this post with a statement that even the dullest of you can get behind. Playing the lottery is a colossally bad idea.

Say you’re playing Canada’s most popular lottery, Lotto 6-49. As the namesake implies, you’d have to match the six chosen numbers out of the first 49 numbers to win the grand prize. Usually this grand prize ranges from a couple million bucks to occasionally 50 million or more. Since the Canadian government is kind enough not to tax lottery winners, the lucky moron who picked all six numbers right gets to keep every dime of their earnings.

Of course, winning the lottery is an incredibly unlikely event. I’m way too lazy to figure it out myself, but a quick search tells me the odds of winning Lotto 6-49 is about 1 in 13 million. The following events are more likely to happen than you winning the lottery:

- Getting a royal flush in poker: 1 in 649,000

- Getting two holes in one in one golf round: 1 in 9.2 million

- Having a threesome with those two hot girls you know: 1 in 2.9 million*

*I bet the chances of that threesome would increase greatly if you won the lottery first. Everyone’s got a price, right?

By far my favorite description for the lottery is that it’s a tax on stupidity. Is it any wonder that, statistically, the average lottery player also happens to be of a lower income? After all, a lower income is generally a good indicator of below average intelligence. The person with a lower income has more reason to play the lottery too, since their life will be comparably better if they happen to match all the numbers.

I’m sure you’ve watched the TV specials that interview former lottery winners who’ve gone broke. There are all sorts of people who cash in that lucky ticket, only to be broke again after a few short years. Then they show up on one of those TV specials, whining about how winning the lottery ruined their life. And I, for one, am tired of it.

If somebody pisses away the money the lottery gave them, they have absolutely nobody to blame but themselves. Coming up with a way to make millions of dollars last for years is incredibly easy — you just DON’T SPEND IT. Yet the people who win the lottery continually don’t figure this out. That’s because, as we’ve already established, you’re not very good at math if you’re playing the lottery in the first place.

I’m quite okay with the way this works. The lottery winner spends like a prince for a few years, runs out of money, and then has to go get a real job again. In the meantime, his spending stimulates the economy, helps to generate jobs, which in turn further stimulates the economy. Money is taken from the stupid, and then redistributed throughout the economy. This is generally good for the economy in general. It’s not so good for the guy who spent all his lottery winnings, but if he’s stupid enough to do it then that’s his own fault.

Here’s what really makes me mad. How many times have you heard this before?

If someone handed me a winning lottery ticket. I wouldn’t cash it.

Every time I hear someone say that I want to punch them in the face. They’re a million times worse than the people who cash it and then blow it.

If someone handed you the ability to provide for your children for the rest of your life, you’d be an absolute idiot not to take advantage of that. You’d never have to worry about losing your job again, or getting disabled, or even disliking work. You could afford to quit and knit tea kettle cozies for all I care. That’s the beauty of having money, it provides freedom.

So instead we have people who wouldn’t even take the money, because they’re scared of what might happen. They’re the same type of people who didn’t ask out the hot girl because risk makes them wet their pants. So instead of admitting that the uncertainty of a sudden windfall is what really scares them, they just assume all their friends and family will turn into greedy leeches, without realizing that if your friends were greedy leeches you would have figured it out by now.

And just about everybody says they’d donate at least a portion of their winnings to charity. Frankly, for the vast majority of people, that’s bunk. Most lottery winners don’t make more than token donations to non-profits. The reasons are simple really.

Firstly, people are inherently selfish creatures. That’s why so many of us pine to be wealthy. I fully intend to continue to amass wealth even once I have more than enough to spend. I want to make sure I have enough money to do whatever I want, whenever I want. Why would I donate large sums of money while I’m still young, when there’s still a chance I might lose that money somehow?

Secondly, if you really feel strongly about a charity, then you should be volunteering for them right now. Oh, your favorite non-profit doesn’t have volunteer opportunities? Find one that does. There’s plenty, and they’re just waiting for passionate people to volunteer. Trust me. Personally, I wouldn’t contribute a nickel to a charity that doesn’t utilize free help.

I despise unearned wealth. I’d much rather earn it. But, if given the opportunity, I think I could turn a winning lottery ticket into an empire. I’d be stupid not to. So please, for at least my sanity, don’t pretend you wouldn’t cash that winning ticket.

This has been another edition of Recycle Friday, the blog series that makes you read an entire post that you think is new but is really old. Even my weekly features troll my readers.