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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.

Jun 262015
 

In the world of personal finance, just about everyone wants the masses to convert to our “religion.” It’s lonely seeing the light, apparently, so we need as many followers as possible. We’re like David Koresh, but without the terrible 90s glasses.

So we do what any good religion does, and that’s indoctrinating the children. Yes, Mrs. Lovejoy, somebody IS thinking about the children. We relentlessly stress for financial education in schools, even though evidence argues it might be a waste of time. We post financial tips on our blogs, with some of them even being useful. And I guarantee a full 96% of us would actually cream our drawers if somebody showed up and wanted us to be our personal finance mentor. (Not me. I don’t have time for that crap. Figure it out on the internet like I did, champ.)

This is all well intentioned, but I think ultimately misguided. I not only think that the vast majority of this stuff is a waste of time, but that we should go even further. We should encourage people to actively not take an interest in personal finance.

Only so many opportunities

In the world of value investing, there are only so many cheap companies. And out of those cheap companies, the majority of those are trash. They’re either in a secular decline, or they have too much debt, or whatever. There’s a lot of crap out there, especially in the value world. Think of the whole exercise as turd mining, actually. You fish through a lot of turd to find something decent.

This extends to other personal finance options. Think about something like an emergency fund. If everyone had an emergency fund, banks would be flush with cash, and they wouldn’t have to issue so many bonds. So they’d pay deposit rates for the cash, while people would borrow a whole lot less than what they do now. Lower volume equals higher interest rates, plus less jobs in banking.

In a world where everyone buys less junk, the retail industry would be decimated. People would make their own beer and only buy lentils and whatever meat the grocery store had on sale. That’s probably good news for Walmart, but terrible news for luxury retailers. Nobody is buying a Tiffany’s necklace in this new world.

Even think about cars. Everyone would drive a Honda Civic or a Toyota Camry, because the luxury car segment would barely exist. And since car companies wouldn’t have luxury models to pad the bottom line, the price of a Camry would be more than what it is today.

And finally, there’s the world of regular investments. If you think the market is expensive now, imagine how expensive it would get when you add trillions in cash that isn’t getting spent on gadgets, fancy sofas, or credit card interest. There’s only so many investments to go around. And remember, stocks like Coca-Cola, McDonalds, or Nike wouldn’t be very attractive at all, since every consumer would be drinking delicious tap water and making their own hamburgers.

Our entire economic system is based on people buying stupid crap that they don’t need to impress people they don’t care about. We all think it’s stupid. But without it, the world gets a whole lot harder to compete in.

It gets worse

Imagine a world where everyone took our advice completely to heart and successfully implemented it.

Forget about the economy for a second, even though it would be completely different than it is now. Just look at something like employment. We’d be full of overachievers that are sitting on huge emergency funds, just waiting to switch jobs because something better comes along. There would be no under performers, because we’re all working hard so we can eventually retire early.

How is the average performer supposed to get ahead in a world like that?

In Canada, one of the driving forces behind our economy is people borrowing against their houses to consume. What happens to the economy if we don’t do that?

People think that if we take away the consumer-centric economy, that money will automatically flow into investments and people improving themselves. We’ve already debunked the myth that more money into investments is automatically good, so let’s squash the other myth.

Frankly, it’s laughable that the average person is just a better financial situation away from accomplishing something great. If the average person has his financial poop in a group, he’s not going to create the newest internet business. He’s going to spend more time staring at the TV (Netflix, of course). He’s just not smart enough.

Let’s face it. Most people who would create cool new things are already doing it. If Bill Gates had credit card debt, would that have made him less good at computers? Somehow I doubt it.

If you want to get ahead, you need to do it by stepping on the figurative back of someone else to get there. If everyone had the same goals as the rest of us, being wealthy wouldn’t be extraordinary. It would just be the expected outcome, like pinching one off after a big meal. What a terribly boring world to live in.

Fortunately, this will never happen. Consuming makes people happy. That stupid diploma on the wall apparently makes up for the $50k in student loan debt. And the new car makes people feel good too. But in reality, this is all moot. No matter how much people like me claim we’re smart and do all the right things, the fact is PF nerds buy stupid crap all the time. And if PF nerds do it, what chance do regular people have?

If you really want to get ahead, you should be cheering for everyone to get further behind. Less competition is a good thing.

Jun 222015
 

Back in December, after saying some words about borrowing to invest, I decided to put my (figurative) money where my mouth is (was?) and create a portfolio that I would use if I was using the bank’s money to invest in the market.

Here are the ground rules:

  • The portfolio would be a 50/50 split between borrowed and original capital, with the opening value of $75,000
  • The portfolio would be mostly Canadian stocks, but with a couple of U.S. ones mixed in for fun
  • No additional money would be added, because like hell I’m going to figure that out. If I was going to add more cash, I’d probably use it to pay off the debt taken out in the first place
  • The assumed interest rate will be 3%
  • Once a stock cuts the dividend, it’s out of the portfolio, replaced with something else

When we last looked at the portfolio, it was underperforming the TSX Composite by about 1% after accounting for the dividends. The decrease in the U.S. Dollar helped the American side of the portfolio, and Extendicare was the big winner on the Canadian side. Bombardier cut its dividend, and I replaced it with Manitoba Telecom.

Let’s take a look at the most recent results:

Screen Shot 2015-06-21 at 4.08.42 PM

If you exclude dividends, the value of the shares are down about $3,000, and are down $1,300 from the original investment, made back on December 5th, 2014. Once you add the dividends back on, I’m up marginally, to $75,674.47. That’s good enough for a return of 0.90%.

As much as it sounds like a copout, this portfolio isn’t all about the capital gains. The whole point was to use the income generated by dividends to pay off the interest, which the portfolio has easily done. So far the portfolio has generated $1,879.87 in dividends, while we’ve paid interest of $1,220.55.

Since December 5th, the TSX Composite Index is up 1.23%, marginally beating my portfolio. But since the last update on February 20th, the TSX Composite is down 3.47%, compared to the portfolio’s loss of just 2.27% (including dividends). That’s not bad, considering how I’m getting much higher dividends than the index investor would be.

Some individual notes on some of the companies:

  • Extendicare continues to do well. Including dividends, it’s the best performing stock on the list. I own it personally and think it’s worth close to $10 per share
  • Pizza Pizza is a stock I’ve been buying on the recent pullback. Now that shares are yielding 6% I think I’ll add to my position
  • The recent election in Alberta hit both TransAlta and Cenovus. Typical NDP, crushing the dreams of capitalists
  • All three U.S. stocks continue to perform pretty well
  • Rogers Sugar has paid out the most dividends. I own this one as well

And that’s about it. So far, not a bad performance.

Jun 192015
 
goldmember

Financial Uproar: On the cusp of pop culture

I was talking to a guy recently about his investments, because that’s apparently what I do now. We spoke for a little while about his mutual funds, (which, as you can expect, were terrible and expensive), before he dropped the bombshell on me. It turns out he has a not insignificant position in precious metals, particularly silver.

Here’s pretty much how the conversation went:

“You own silver? Like, a silver stock, or mutual fund?”

“No, actual silver. Little bars of it.”

“What do you do, keep it in your safety deposit box?”

“Yeah. Sometimes I take it out and hold it.”

“So let me see if I’m clear here. You own something that not only doesn’t pay you a dividend, but you have to pay to store it?”

“Well, when you put it that way…”

I’ve known this guy for a while. He’s successful, works hard, and has ran his own business. He’s not stupid, by any means. He just fell for the hype one day and decided he was going to buy some silver just in case the Canadian Dollar went the way of Polaroid cameras and beehive haircuts. It was a hedge, to protect his family from the internet’s dire warnings of AN UPCOMING CURRENCY COLLAPSE.

We’ve all heard the same arguments for years. The U.S. Federal Reserve has pumped trillions of dollars into the system, mostly by buying U.S. Government debt. According to the conspiracy nuts, this was supposed to lead to runaway inflation, which would therefore devalue the Dollar. Next step: living in caves. Probably.

This hasn’t happened. All credit goes to Ben Bernanke, because the whole Quantitative Easing worked out pretty much the way it was drawn up.

So right now, precious metals aren’t the place to be. Gold is down, so is silver. Platinum might be the worst performing metal of all. Heck, just about every metal is down from recent peaks, mostly thanks to China slowing down.

So in theory, this would be a good time to maybe pick up some precious metals. The price is low, so y’all should load up now, and ride it up to the inevitable peak, which is apparently exchanging it for toilet paper with one of those guys from Doomsday Preppers.

WHO’S LAUGHING NOW, JACKASS?

But here’s the deal. Gold is a really crummy asset to own. It doesn’t pay you. You can’t really use it to pay anybody for anything, since they’ll just have to exchange it for actual money. And unless you’re a big investor buying thousands of dollars of it at one time, you’re getting a terrible deal when you both buy and sell.

Besides, let’s take owning gold to its logical conclusion. Say a gold bug is right, and the world’s largest economy collapses. The U.S. Dollar is now worthless, and the guy who saved 10,000 cases of cream corn is now in charge. But hey, you’re in second place because you have a fist full of gold.

Explain to me who would hope for such a thing to happen. What kind of person wishes for everyone’s wealth to be destroyed? What kind of person wants to see the world’s greatest economy brought to its knees? Who would rather live in a world with a collapsed currency than the relatively tranquil one we have now?

But hey, at least he’ll have gold. Even though things like bullets, gasoline, and food will be infinitely more important than shiny pieces of metal. I’d rather invest in innovation, entrepreneurship, and the success of American enterprise.

But should you own it?

The thought process of many non-crazy people when looking to invest in gold goes something like this:

Just put 5% of your portfolio into it as a hedge, and forget about it. That way if the Dollar does collapse, you at least won’t be totally screwed.

But I’m not sure that’s good logic either. Firstly, if the Dollar really does collapse, you’ll need physical gold, not paper products. Good luck trying to exchange your gold ETF shares for actual metal as the economy is collapsing.

And secondly, there are plenty of other assets you can own that are inflation hedges. Other, more useful commodities are one, so is real estate. You could even argue short-term bonds are a hedge, unless inflation is super bad. In theory, they should pay a little more than inflation.

Probably the best thing to own in that situation is a house with a mortgage on it. As inflation runs out of control and your interest rate and payment stay the same, you’re in pretty good shape. Just don’t get screwed over when it comes time to renew the mortgage.

So to summarize, should you invest in gold? I’ll let Warren Buffett have the last word on that.

Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Jun 172015
 
An actual picture of my actual underwear.

An actual picture of my actual underwear.

The other day I started thinking about the laundry market, because that’s what I do. HEY. I NEVER CLAIMED TO BE COOL.

Specifically, I was thinking about Proctor and Gamble for an article I’m planning on writing about the company for a competing website that for some reason continues to invite me back. Yeah, I don’t get it either.

Essentially, my theory is this. In today’s world where consumers are spending more and more on stuff like health care, education, and layers upon layers of cakey goodness, they’re forced to cut corners wherever possible. An easy way to do this is to switch to generic brands of some of Proctor and Gamble’s most profitable businesses, like laundry soap, shampoo, and toothpaste. I recently switched from Gain to the detergent above there, with pretty comparable results.

Plus, take a look at Proctor and Gamble’s earnings over the past four years:

2011 — $11.8B
2012 — $10.8B
2013 — $11.3B
2014 — $11.6B

Why anybody would insist on paying more than 20x earnings for a company with zero earnings growth whatsoever is beyond me. And remember, P&G is passing on price increases and is just maintaining earnings.

So I went on the Twitter and asked y’all a simple poll question. Do you buy name brand laundry soap (Tide, Gain, Sunlight, etc.) or the cheap generic stuff? I was thinking that if anyone was going to buy generic, it would be a bunch of personal finance fanatics, but it just wasn’t the case. Brand names crushed the generic counterpart by a count of 5-1, with one person responding that he made his own, via a recipe provided by everyone’s hoarder of nickels, The Simple Dollar.

Ah, The Simple Dollar, my favorite purveyor of obviousness. Instead of linking to the multiple instances on  here where I made fun of it, allow me to link to the corpse of Control Your Cash which did a pretty masterful job of making fun of Trent’s experiment of making his own toothpaste.

Anyhoo, back a few years ago, Trent decided he was going to stick it to Big Laundry and make his own laundry detergent. Let’s present a few highlights:

“I’ve been experimenting with making lots of cleaning supplies at home, but this one is by far the craziest – and the most successful. Basically, I made a giant bucket of slime that works incredibly well as laundry detergent at a cost of about three cents a load. For comparison’s sake, a jumbo container of Tide at Amazon.com costs $28.99 for 96 loads, or a cost of $0.30 a load. Thus, with each load of this stuff, I’m saving more than a quarter.”

Right from the beginning I can see a couple of problems. Firstly, he’s comparing the price of his goo with the price of Tide, the Cadillac of laundry soaps. Saving 90% is admirable, but it’s kind of a useless comparison. I found Gain and Sunlight for about a dime per load with a very small amount of effort.

And secondly, I have a really easy way to make your Tide last a whole lot longer, especially if you’re a white collar worker like most people reading this. You don’t need to use a whole cup on clothes that are just slightly dirty. I cut my usage in half years ago, and just pre-treat anything with assorted protein stains. It works just as well.

I meant when I drop my steak on my shirt, preverts.

Let’s first compare Trent’s goo to my Dollarama detergent in the above picture. For a cost of 3 cents per load, Trent was able to make himself a nice (although he might be biased) load of laundry soap. For $2 (plus tax), I was able to get myself laundry detergent that costs 6.67 cents per load that took absolutely no work to make, store, or clean up afterwards.

As far as I’m concerned, all of that is not worth 3.6 cents per load, already making my dollar store find the big winner. Besides, I can pretty easily stretch that bottle into 40-50 loads, getting the cost down to under a nickel per load.

But let’s look back at Trent’s recipe. Just how much work is involved?

Step One: Put about four cups of water into a pan on your stove and turn the heat up on high until it’s almost boiling. While you’re waiting, whip out a knife and start shaving strips off of the bar of soap into the water, whittling it down. Keep the heat below a boil and keep shaving the soap. Eventually, you’ll shave up the whole bar, then stir the hot water until the soap is dissolved and you have some highly soapy water.

There’s a step two in there, but screw it. Let’s assume a half an hour for everything to be slightly generous, even though I think it would be closer to an hour. Now let’s value our maker’s time at a very conservative $10 per hour, meaning an extra $5.

Suddenly, the cost per unit rises nearly 50%, to 4.4 cents per use. That’s still cheaper than buying the cheap stuff for 6.7 cents per use, but suddenly there’s a very convincing financial argument to be made in favor of just buying the damn stuff and paying slightly more.

There’s also the ability to buy laundry soap on sale at the ol’ Walmart, Superstore, or whatever other store suits your fancy. I was pretty easily able to find brand name soap on Walmart’s website for less than a dime per load, is just a little more than the Dollarama special I buy. Generic stuff from Walmart worked out to about eight cents per load.

And this wasn’t even finding a great sale. If you’re patient, I guarantee you can do better than six cents per load. Probably not a whole lot better, but still.

Let’s wrap this up. Is it worth it to make your own laundry detergent? Only if you value your time at basically nothing. If you’re like the rest of us and would rather not make your own, just keep your eyes open for deals or pick up the cheap stuff at Dollarama.

Jun 152015
 

Greatest things in the world, ranked:

3. Orgasms
2. Sitting
1. Passive income*

*Your experiences may vary. Or not. What do I care?

Wait. I forgot cheeseburgers. Can we start over?

In the world of financial blog land, passive income is pretty much the holy grail. For those of us who are past the student loan/paying off the credit cards stage, we’re almost universally looking for investments that pay us each month, quarter, or year.

We all have different ways to do this. Some are dependent on real estate, leveraging a small down payment into something that generates more than enough cash flow to pay off the mortgage. Some like stocks, especially those that pay consistently rising dividends, hoping to someday just live on the dividends and leave the shares to their wiener grandkids. As we discussed on Friday, that might not be an ideal strategy.

Some are taking a hands off approach to the quest for passive income and choosing to invest in ETFs. These investors either buy something with a small dividend but a decent expected capital gain, or they do like my parents and mostly invest for the interest income. Thanks to the recent sell-off in interest-sensitive REITs and preferred shares, it’s really easy to get a yield in excess of 5% when investing in fixed income.

There are a million other investments that pay some sort of yield, everything from private mortgages (a personal favorite of mine) to the ol’ peer-to-peer lending. The sky is the limit with that stuff.

But as I read some of the analysis that many people put into constructing their dividend portfolios or the time they spend scouring the MLS when looking for a rental property, I start to get skeptical that what they’re searching for is really passive income.

Sorry, not passive

 

The issue with this quest for passive income is, apparently after only a little stretching, everything gets thrown into the passive income category — even something as active as blogging.

There’s actually an argument to be made that there’s no such thing as actual passive income.

Think about owning a property. Once you get the bad boy rented you’re looking at a year of sitting back and cashing your rent cheques. But before then there’s showing the place, making sure the last tenant cleaned it properly, and scrounging up the cash for refunding a security deposit. And while the guy is there, you’ve got to fix stuff like the air conditioner when sex gets a little too violent (yes, actually happened), and the plumbing when your two young lady tenants decide to flush their tampons (also actually happened).

So, yeah. While owning real estate is far more passive than having a job, I’m not sure it’s totally passive income unless you hire a property manager. But even then, you’re gonna get calls from the manager every now and again.

And then there’s stocks.

One of the reasons why buy and hold forever is so popular is because investors want to be able to make a decision once and never have to think about a stock ever again. All they want to do is sit back and watch the reinvested dividends get bigger and bigger.

But in reality, I’m not sure it’s that simple. I’m relatively hands-off of the stocks I own, but I still spend probably 1-2 hours per quarter per company reviewing the latest quarterly filing, reading articles on the stuff I own, and so on. I tend to research stuff pretty well before getting into it, so there’s not a whole lot of surprises.

But still, that’s not a true passive investment. It’s pretty close, but I’m still doing a little bit of work on everything I own.

I’d argue that the only real passive investments are index funds, but even those are hardly passive if folks are constantly logging into their accounts and poking around, or questioning their asset allocations.

The real beauty of passive income

After saying all that, I hope y’all don’t think I have anything against passive income. That shiz is da bomb, yo, says an uncool financial blogger trying to be hip. You should do everything you can to get in on that gravy train.

Here’s the real reason why you should be striving for all the passive income you can, even if it might not be so cost effective at the beginning.

If you research a company for 3 hours and are only making $20 per year in dividends, that’s probably not such a good trade-off of your time, especially now that index funds with an almost zero management fee are a thing. But if you can eventually scale up and earn $2,000 worth of dividends annually from the same company, it takes almost no extra work.

Passive income is easy to scale. One person can manage a $1 million investment portfolio without any problem, even in their spare time. One person could also manage a couple dozen rental properties while still having time during the day to do other stuff. And so on.

While true passive income rarely exists, that doesn’t mean you shouldn’t strive for it. Almost passive income is just as good.

Jun 122015
 

 

"Do you expect me to eat those hot dogs? Because I will."

“Do you expect me to eat those hot dogs? Because I will.”

Not gonna lie, it’s a little creepy how much that kid looks like 15 year-old Nelson.

There’s a certain group of investors who, as the expression goes, are all about the dividends. Before we go making fun of these investors, let’s take a little closer look at the thought process.

There are many actual advantages to focusing on companies that pay dividends, including:

  • Dividends have historically been a large component in total return.
  • Dividends tend to be an indicator of consistent profitability, which is an attractive feature in an investment.
  • Dividends give a steady source of cash that can either be spent, reinvested, or tucked into stripper underwear.
  • Dividends take away the need for retirees to sell stocks to generate income, which is especially powerful in bear markets.
  • Dividends are taxed favorably, especially when compared to employment income or interest.
  • Dividend stocks are widely thought to be more stable.

But at the same time, I can offer counterpoints to each and every one of these points.

  • Dividends have been a large component in total return because they’re paid. It’s not dividends that drive profits for investors, it’s just the way investors get part of their return. It’s the whole chicken/egg argument.
  • It’s not a perfect indicator of profitability. Berkshire Hathaway, Google, and other companies consistently make money and don’t pay dividends.
  • There are many other sources of cash, like bonds, employment income, or rent from a house. Or, you can create your own dividend by selling some shares.
  • A diversified portfolio (including bonds, real estate, etc.) will minimize damage during bear markets, leaving more of a portfolio intact compared to just owning equities.
  • Prudent moves can minimize your after-tax income as well, like selling equal amounts of winning and losing stocks.
  • Again, it’s a cause and effect argument. Coca-Cola would be a more stable stock than Facebook even if it didn’t pay a dividend.

Now before I continue, I want to point out my own personal philosophy on dividends. I don’t hate dividends, nor do I refuse to invest in stocks that have the AUDACITY to pay monthly or quarterly distributions. The last three purchases I made for my value portfolio all pay dividends, and generous ones  too. I’m not opposed to getting paid if the company generates excess cash not needed to keep the business going.

The issue I have is when investors pigeonhole themselves into not only buying dividend stocks, but buying only a certain group of dividend growth stocks. It just seems silly to limit yourself to fifty or sixty of the “best” stocks of the last 25 years, a list that is ripe with survivorship bias. Just because a stock has done well over the last 50 years doesn’t mean it’ll outperform over the next 50. If you think the future for Philip Morris, Coca-Cola, and McDonald’s is as bright as the past has been, you’re delusional.

There’s another reason why folks are all over the dividend payers, and that’s because of the outperformance over time. If you’re any sort of student of the markets, chances are you’ve seen this chart.

dividend-payers-over-time

Okay, a little old, but you definitely get the picture. Dividend lovers will present this picture as the equivalent of DROPPING THE MIC on us maroons who don’t care about dividends, telling us exactly what’s up in the process. Who wants to miss out on those kinds of returns?

But wait. That data covers the last 40+ years. How about some more recent history? Will that change the picture?

Oh, there’s a graph for that.

Screen Shot 2015-06-10 at 2.00.27 PM

 

Source for this graph and the next one are here, btw. It’s interesting stuff if you’re into that.

The graph shows that for most of the last 20 years, non-dividend payers have outperformed dividend stocks. For the most part, the only time it paid to own dividend payers is during the recessions, since the dividend payers performed better. But after each recession, the non-payers rebounded much more quickly.

Keep in mind that this graph excludes Apple, which is large enough these days that it would skew the results.

The next graph busts another myth, which is commonplace in dividend growth investing. The thought process is that folks should choose reasonable dividends with the potential to grow, settling for 2-3% with a decent growth rate. Those types of yields would probably go in the 2nd or 3rd quartiles if you were looking to measure it.

But it turns out they got trumped by the very thing dividend investors aren’t supposed to do — chase yield.

Screen Shot 2015-06-10 at 2.03.56 PM

 

Essentially, the two charts say this:

  • S&P 500 stocks that don’t pay a dividend aren’t such a bad investment. The above graph which compares dividend payers to non-dividend payers compares every stock, not just the good ones.
  • Pick the highest yielding S&P 500 stocks to outperform. Note that this probably includes names like Coca-Cola, McDonald’s, and so on these days — names that probably won’t do as well over the next 20 years.
  • Like with everything, investing isn’t as easy as just buying dividend payers and holding forever.
  • The focus should be on high quality companies, not dividends.

That’s the big problem with the people who blindly say “dividend payers outperform non-payers.” It’s not quite that simple. It’s more accurate to say “dividend payers outperform garbage stocks,” but keep in mind that a dividend is usually the effect of running a successful company. Thus, all you’re really saying is “successful companies outperform terrible ones.” Well, duh.

Remember, dividends aren’t the be all and end all of figuring out whether a company is successful. There’s much more to it than just comparing payout ratios and growth rates. That’s the important message I want to get out, not that dividends are evil.

Jun 102015
 

You guys know that I like to make fun of stupid people on here. I try to focus mainly on the financial decisions, but come the hell on. That kind of stupidity has a way of moving beyond the financial stuff, and into the most important parts of grey matter.

But I discovered an article earlier today that was so bad and so terrible in every way that I just had to drop everything and make fun of it. Yes, that even included my pants. TMI? TOO BAD I’M ON A ROLE NO STOPPING NOW.

It’s called The National Lust For Home Equity Lines of Credit: Should We Worry?, and it’s possibly the greatest thing I have ever read. I literally cannot wait to get started.

Murad Ali and Arsheen Haji live large thanks to easy access to their home equity lines of credit, joining the many Canadians succumbing to the same temptation.

Ah, yes. The ol’ ‘borrow to consume using your HELOC.’ We’ve seen this before, but certainly not to this extent, as you’ll see.

For the Toronto-area couple, it all started back in 2009 with a lavish $78,000 wedding.

Rather than spend $78,000 on a wedding, how about I do something else. Let’s have a blog party. I’ll go buy like $1500 in booze, some chips, and maybe rent a swanky hall for a couple g’s more. And then, I’ll go to the bank, get $75,000 in 20s, and slowly burn them while y’all watch and drink craft beer. Make sure to take lots of selfies, because obvs.

I’m accomplishing the same thing, really.

Then came numerous overseas vacations.

Check off another box in the “crap millenials waste cash on checklist.”

When touring Egypt, Ali bought four souvenir papyrus scrolls for $6,000. In Italy, Haji picked up a $7,000 Chanel bag.

Why buy one, when you can buy four, amirite Ali? When it comes to spending money, that man is not here to screw around. And apparently he’s taught his lady well too.

After the birth of their daughter, the couple moved into a newly built home and spent more than $100,000 on upgrades, including a custom kitchen, hardwood floors and a high-tech fireplace.

What kind of people move into a “newly built” home and say “you know what? This place is GARBAGE. Let’s get our guys in here and spend another six figures on this dump?”

So how exactly did these guys afford all this stuff, anyway? Are they independently wealthy? Inheritance from a long-lost uncle? Did they win the lottery?

Nah.

The wedding, trips and high-end purchases were made possible with cash from two home equity lines of credit secured against a couple of investment condos the family owns. The debt from those loans now totals $370,000.

JESUS H CHRIST WHAT IN THE ACTUAL HELL?

Can somebody please tell me this is a parody piece before I have a stroke? Please? I’m actually begging you right now. I don’t want to die.

They also recently got an unsecured $30,000 line of credit to buy solar panels for their new house.

OF FUCKING COURSE THEY DID.

“Hey, we’re, like, at least 400 g’s in the hole. You wanna get solar panels? It’ll save us pennies per year.”

(Doesn’t respond, too busy masturbating over her Chanel bag)

“We are addicted for sure. Who wouldn’t be addicted to something so easy [to get]?” says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.

Does Ali realize these loans have to be paid back? Because I’m not sure he does.

“It’s easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it,” says the software engineer.

Not mentioned: the part where he went down to the bank and was told to sign on the dotted line or else they’d blow his brains out.

Wait. I’m being told that didn’t actually happen.

 

Ali is now considering borrowing more money against the equity in his new home.

WHERE’S A GUN? TELL ME WHERE I CAN GET A GUN BECAUSE I SWEAR TO GOD I NEED TO GO SHOOT SOMETHING.

He admits he’s antsy about adding to his debt when the family already has a substantial mortgage on their 5,000-square-foot house.

A 5,000 square-foot house for three people, by the way. That’s a lot of space for the couple’s baby to crawl around. Hell, maybe that’s the whole plan. Just let the baby get lost somewhere so it doesn’t get burdened with all that debt.

But the place is still largely unfurnished and he’s yearning to install a $40,000 glass railing for the staircase.

If only there was a way to have avoided buying a house that was so big that you didn’t have enough furniture for it BEFORE YOU BOUGHT THE GODDAMN THING.

Here’s a list of things I would spend $40,000 on before I used it for a glass railing for my stairs:

1. Anything

“Without the glass railing, the look of my stairs is not doing it justice,” he says.

There’s your problem right there. Shitty stairs. The rest of your life is peachy keen.

Right now, the couple could probably afford the extra loan payment. Currently, both he and Haji, a business analyst, can cover the bills and still have money left over for savings.

This might be the greatest sentence I’ve ever read. Sure, they’re going backwards each month, but they’re putting money away, dammit! Doesn’t that count for anything, HATERS?

Props to Haji though, for getting people to pay her to analyze their business while clearly having the math skills of a nine-year old. I honestly wish I was confident enough in my own abilities to pull off something like that.

 

While Ali and Haji like to spend, they believe they’re behaving responsibly and say they’re aware of potential pitfalls. That’s why they’re still undecided about another loan.

 

 

“Hey, we’re prudent. We’re going to wait a couple of weeks before spending on our next bullshit material thing we don’t need. Responsibility is hard work.”

If you get a line on this [house] and God forbid something happens to me or [my wife] and we are unable to sustain our lifestyle or stream of income that we have, then we would be in trouble and that may lead to us losing this house,” says Ali.

It “may” lead to them losing the home. Wow.

Ali, buddy, lean in close. I have a secret to tell you.

If anything happens to you or Mrs. Ali, you’re fucked. So unbelievably fucked.

And that’s why some rooms in the family’s home remain empty.

SUCH SACRIFICE. WHERE’S DEAD GHANDI I’M GONNA CALL HIM AND LET HIM KNOW ABOUT THE SACRIFICE.

Ali shows CBC News his large, mostly barren master bedroom and talks about his grand plans to furnish it — sometime in the future.

“Without the credit line, it’s slow,” he laments.

Even starving children think Ali is in a pretty tough spot. “Here” said Timmy, aged 4, with no hands or feet. “Have my last dollar. I was saving it for prosthetics, but I want you to have it instead.”

But things could always change. The couple says just last week the bank called, inquiring if the family was interested in another loan.

But I thought Canada didn’t have irresponsible bankers?

Jun 082015
 

Turner-prediction

While at the used bookstore the other week, I stumbled upon this old book by noted Canadian real estate bear Garth Turner, all about the upcoming retirement crisis. According to Turner, by 2015 the Canadian Pension Plan would be bankrupt, and Canadians would be forced to rely solely on their own savings to enjoy a retirement not filled with dumpster diving or their son’s spare bedroom.

Obviously, Turner got that prediction wrong. It’s now 2015, and the CPP is in pretty good shape. In fact, the CPP looks like it’ll be around for decades to come, which means you should probably include it as part of your retirement plans. It’s nice to be able to say that you’ll just save so much that you won’t worry about CPP, but like I argued before, that’s not especially prudent. Why save more than you have to? Spoiler alert: your damn grandkids will just piss that inheritance away anyway.

But back onto the subject du jour. Turner obviously got his prediction about CPP very wrong. Does this somehow invalidate his opinions on Canada’s housing bubble?

Well, to begin with, I’m being a little unfair about how poor Turner’s predictions were. Yes, his call about the CPP going bankrupt was hot garbage, but he did predict that stock markets would shoot up, and that government bonds would be a good buy. He was right on both accounts. There might be more stuff in there he predicted correctly, but I never did read it. I have better things to do than to read a 20-year old book about investing.

In the world of predicting stuff — especially stuff about the markets and investments — there are two secrets that I’ve found work pretty well. Firstly, you should be bullish most of the time. Even if markets appear overvalued, it can often take years before they correct, meaning you’ll be wrong for a while before you’re right. Besides, most folks are long the market, and want it to go up.

Secondly, you’re only as good as your latest prediction. Look at Peter Schiff, who made billions shorting subprime mortgages. He’s barely even mentioned these days, probably because he’s turned into a crazy gold-hoarding guy who openly talks about the upcoming collapse of the U.S. Dollar.

When you make unpopular predictions, people will ridicule you. Turner’s call on Canadian housing has been attacked by critics for years, mostly because it hasn’t happened yet. Even when you’ve just been proven right about something — like Schiff — you’re still only as good as the latest prediction.

Besides, predicting stuff is hard. I recently admitted how wrong I was when I predicted interest rates would start to creep up in 2013, and that people should have locked themselves into a 10-year mortgage back then. And I like to think I’m reasonably informed about this stuff.

The bottom line is simple, at least when it comes to your finances. Feel free to listen to people who are making these grand predictions, but don’t take them entirely seriously. Instead, just keep on investing, whether it be through low-cost ETFs or individual stocks. Keep a diversified portfolio, and stay away from stuff that’s obviously overvalued. It’s really quite simple.

Jun 072015
 

The nice thing about making the decision to not buy a house anytime soon is now I have some extra down payment money that can now be put to work in long-term investments. Unfortunately, the stock market is doing relatively well, so there aren’t tons of bargains out there.

Still, I think there are some decent value stocks out there. Here are some that I’ve wrote about since my last one of these, just in case some of y’all are interested in the individual stocks.

Directcash is Canada’s largest ATM operator. It trades at just 4x 2014’s free cash flow, which is pretty damn cheap for the leader in its sector. It also owns some 14,000 other ATMs in Australia, New Zealand, UK, and in Mexico, as well as nearly 8,000 in Canada. Here’s my writeup on it over at Canadian Value Investing, a pretty happening site. It gets SEVERAL visits per day, which would probably help if I posted more.

I can’t remember if I linked to it before, but I also did a writeup on Corus Entertainment, the owner of such channels as the one with annoying cartoons (Treehouse), and the one with overactive teenagers (YTV). It trades at just 8x free cash flow, which is apparently my new favorite metric. Here’s my writeup on it, again over at CVI. Have you visited yet? No? COME THE HELL ON.

Pengrowth is another interesting name. I wrote about it over at Motley Fool, a website that is interested in what I have to say for some reason. Considering the price hedges it has in place for the next couple years, I don’t see the debt becoming a huge issue.

I’m not sure about Bombardier, considering all the debt and its inability to actually stick to a damn deadline when it comes to the CSeries. But it’s a really cheap stock. My writeup awaits your eyeballs.

Song I like and therefore you should too

I recently stumbled upon a Reddit post asking people who were some good new bands that they liked. Guess how many I had heard of? If you guessed zero, you’d be very close. In related news, I’m old and hate teenagers on my lawn.

I’ve featured this before, but whatever. Your ears will still enjoy it.

The Office quote

Creed: I still have my medal from that.
Angela: Do you even have a mattress?
Creed: No, but I still have my medal from that.

Post you might have missed

Thanks to everyone for the congratulations on making it to 1,000 posts. Y’know, it’s funny that I could ever get to the point where I could make a living posting opinions on the internet, especially with my work ethic. But here I am, and it’s pretty neat.

Anyhoo, here’s a post making fun of whiny teachers. Because if there’s any group of people who have it hard, it’s those who get every weekend, holiday, and summer off.

Nelson’s so funny

I’m thinking about the children, unlike the rest of you a$$holes.

The more you know

I was thinking about adding something educational about investing in this spot, but let’s face it. Like any of you are coming here to learn. You’re all here just to spot my typos and/or find stupid crap that doesn’t matter and then comment on it. And I commend you for it.

Daniel Joseph “Dan” Cotter (April 14, 1867 – September 4, 1935), was a Major League Baseball pitcher who played with the Buffalo Bisons of the Players’ League in 1890. Cotter played in one game for the Bisons on July 16, 1890. He pitched acomplete game, but allowed 18 hits, 7 base on balls, and 14 earned runs. He also went hitless at the plate in four at bats. Buffalo lost the game 19-0. Cotter later played for the Lewiston, Maine ballclub of the New England League in 1892.

I’m mostly impressed the crappy Buffalo Bisons have been around since at least 1890. Nice work, Buffalo. Still a dump though.

Kevin O’Leary’s stock pick

kevin-olearyEach week current BNN personality and Shark Tank investor Kevin O’Leary is kind enough to give us his favorite stock pick.

Thanks Nelson. My stock pick this week is SNC-Lavalin Group, the embattled construction company. They’re in trouble with the RCMP over a few little bribes, but like I’m going to let that stop me. I can’t even begin to go into details, but I’ve obviously bribed a cop before.

Okay fine, I’ll tell the story. It was 1974, and a young Kevin O’Leary was caught driving a little too fast. I tried everything to get out of the ticket, even giving him my best Mr. Wonderful smile. I knew if I came home with a ticket my Irish father would beat me, so I asked him if there was anything I could do to get out of it, while pulling a $20 bill out of my wallet. And then he arrested me! It took $10,000 to bribe the judge to let me go.

The funny part? That cop was Jim Treliving. We still joke about that story to this day.

Babe loosely related to finance

Because we haven’t gone there for a while, let’s see if the ladies of The Chive are still scantily clad.

all-the-cleavage

Yeah, they’re all like that. Nice to see nothing has changed.

Time for links

The nice part about only doing one of these a month is I can accumulate quite a few links for y’all. Let’s get started.

Let’s start things off with Boomer and Echo, who think door-to-door salesmen are dumb and should be shot out of a cannon. Finally, something we can all get behind.

Excessively trading can really kill your returns. The fine folks at Don’t Quit Your Day Job nicely illustrate that point, with a little help from the folks over at Fidelity.

Garth Turner points out what should be obvious, at least to readers of this blog. Most people are in financial straits because of poor decisions. We make emotional decisions without taking differing opinions seriously.

Over at Moneygeek, Najim Mostamand (sorry in advance if I misspelled that!) reviews The Manual of Ideas, a book for value investors about how to find and filter down investment ideas. I haven’t read the book yet, but it seems pretty interesting.

Over at Sustainable Personal Finance, I argue that parents actually have a responsibility to help out their adult children financially, provided the kids have a history of not lighting piles of money on fire. Yes, I know the authors of The Millionaire Next Door told you different, but whatever. One of them is dead now, which invalidates everything.

More Nelly at other sites? Okay! Here’s a piece for LowestRates.ca about how to buy a car on Kijiji, provided you’re okay with meeting potential serial killers in public places. That way, at least plenty of people can watch you die. Which, frankly, is my biggest fantasy.

If you’re a value investor, you should be following Value Investors Club, where smart guys go and write about the stocks they own. If you sign up for a free membership, you’ll get access to ideas which are 45 days old.

Vanessa wrote about what a typical day in Korea was like for us. Go for the pictures of Korean crap, and stay for the not-so-subtle shots she takes at your’s truly.

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

 

 

 

 

Jun 032015
 

I’m convinced that the financial industry is out to scare people into submission.

How many times have you heard about the upcoming retirement CRISIS? BABY BOOMERS AREN’T SAVING ENOUGH, the scary voice on TV says. They have to get their act together NOW, or else they’re stuck with a terrible retirement of cat food and staying in their son’s spare bedroom. Those types of articles/news stories are everywhere.

Because of that, the apparent desire for everyone to hang up the skates at 50 even though they’ll probably live until 90, and the terrible investing habits of the average human, personal finance writers have started to move away from the commonly cited rule that you only need to save 10% for retirement. Some are even going as far as saying that 20-25% of your income might not even be enough, because I dunno. Fear is apparently good for business.

But is it really realistic? Let’s take a closer look at a few scenarios and see whether the ol’ save 10% for retirement rule still stacks up today.

Scenario #1 — The new grad

Note: I’m going to ignore inflation for all of these calculations, because laziness. 

Let’s say you’re 22, and just finished a tour at one of Canada’s finest keg delivery places universities. You’re starting a new job and want to make sure you’ve got enough for retirement. So you set aside $5,000 per year of your $50,000 salary for 43 years, because apparently your boss is a jerk who never gives raises.

How’d you do at the end of your working life? Let’s have a look, assuming an 8% return.

Screen Shot 2015-06-02 at 4.38.13 PM

Well, that was easy. I don’t even have to crunch the numbers, I’m pretty sure a 30-year retirement can be funded by $1.8 million. At a 4% withdrawal rate, buddy is taking out $72,000 per year. He’ll be okay.

Scenario #2 — Slacker friend

But what about his slacker friend, who doesn’t do a damn thing towards his retirement until he hits 35? We’ll give the slacker friend the same salary and expected return.

Screen Shot 2015-06-02 at 4.41.34 PM

Now we’re running into a few problems. Slacker friend can afford to withdraw about $25,000 annually once he hits 65, which is probably cutting things a little tight. He might have to downsize or make some other decisions that he probably doesn’t want to be considering.

But wait a minute. If slacker friend works for almost 50 years, he’s probably accumulated some pretty serious money into Canada Pension Plan. Say he qualifies for an extra $800 per month because of CPP. Suddenly, his income balloons to almost $35,000, which is probably pretty doable.

Scenario 3 — Midlife guy

Now we’re getting to the guys who haven’t done well. Here’s midlife guy, who is 45 and hasn’t saved a nickel towards retirement. Can he get away with only saving 10%?

The answer, as you might expect, isn’t pretty.

Screen Shot 2015-06-02 at 4.49.16 PM

At a 4% withdrawal rate plus our estimated $800 per month in CPP benefits, midlife guy is only going to be able to generate about $20,000 per year in income. That puts him at a pretty serious risk of running out of money, unless he’s got stuff to sell or is willing to work until he’s 70.

The numbers just get more depressing as the examples age, so we’ll stop there.

The takeaway

Here’s the deal with rules of thumb. They’re not usually great.

There are just too many variables to factor in. Somebody saving 10% of a $100,000 salary is going to do better than someone saving 10% of a $40,000 salary. And somebody who can live on $20,000 per year in retirement doesn’t need as much tucked away as someone who has 14 leech grandkids to support.

Saying that, I’m pretty comfortable saying that damn near everyone would be in pretty good shape if they consistently put aside 10% of their income throughout their working lives. Even those people who skipped a few years would be in decent shape, especially if they consistently put money into CPP.

But if you’re someone who didn’t get started until 45, 10% probably isn’t going to cut it. That means you’ll either have to get more aggressive or start planning to move in with someone during your golden years. Or maybe you’ll work until 70 rather than 65.

So remember, if your favorite personal finance writer starts telling you that saving 10% for retirement isn’t going to cut it in today’s world, don’t just take that at face value. Over saving is definitely a thing, and just about every retirement calculation I see excludes CPP, which I think is a grave mistake. By planning for the worst, you could save hundreds of thousands too much, affecting your life today. What’s the better choice — going on a dream trip now, or growing that $10,000 into your fourth million come retirement age?

We need to remember that not everyone is as hardcore about this stuff as we all. When we make retirement saving seem really hard, people have a habit of not bothering. Which is why it pays to give personalized advice, not fear mongering.