Nelson Smith

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

Sep 222014
 

Suze Orman is looking pretty hot these days.

Suze Orman is looking pretty hot these days.

(image credit)

I’m not sure I hate anything in this world more than SMART goals.

Okay, that’s a lie. I hate plenty of things more — like entitled people, the lazy, whiners, mustard, sunshine, The New York Yankees, people polluting my Twitter feed promoting their latest post 19 times, when I miss a spot trimming my beard, the dark, bullets (but not guns), drunk people, WHOO girls, the Chicago Cubs’ starting lineup from 1989, feelings, showering, that time I fell down, and 37% of the people from Denmark. I’m onto you, you filthy bastards.

Wow. That was excessive.

As inevitable as death, taxes, and Argentina defaulting on its debt, each January 1st (or thereabouts), the world will be making goals for the upcoming year. Some will be audacious, like quitting smoking, losing the last 15 years worth of fat, or saving 50% of one’s income. Others will be less noteworthy, like being more positive, or less judgmental. Whatever the goal, you can be sure a full 90% of us pledge to do something.

(Fun fact: When asked, I used to say my New Year’s resolution was to make fun of people who made New Year’s resolutions. That usually ended the conversation pretty quick.)

There’s no better example of this than when I sold potato chips. December was a great month, since everybody always made sure they had enough food on hand to feed their family 2.9 times over. Even leading into New Year’s was good, since people would buy for their parties and for the football games the next day.

And then? Nothing. It was so dead.

I went through it three years, and it never ceased to amaze me. My sales would be down close to 50% overnight. Nobody warned me about this either, so I almost got caught with too much inventory my first year alone on the job.

They say the average New Year’s resolution gets broken about three weeks in. This is true. I’ve seen it happen. Sales of chips would start to pick up around that point, thanks to that and because of Super Bowl.

We all know goals usually end up failing worse than guys hitting on porn stars on Twitter. So at least on the internet, we’ve tried to make them better. Enter the SMART goals, as identified with the attractive version of Ms. Orman above (Note: that is not actually Suze Orman).

Aside: That time I was invited on the Suze Orman show.

At the beginning of each year, the PF-o-sphere is awash in goals for the upcoming 12 months. Most want to increase savings, whether they be in a RRSP, TFSA, or my personal favorite, the emergency fund. There’s usually other stuff thrown in there as well, like blog goals, exercise goals, getting a promotion at work (because, hey, that’s 100% something a worker can control), and so on.

These goals are generally well thought out, realistic, and actionable. These people have looked deep within themselves, and determined what they value the most, choosing to make goals based on those values.

And yet, they still (mostly) fail miserably. The success rate is probably better than the hungover guy who pledges to never drink again on January 1st, but not by much.

There are a few reasons for this:

  • Goals are hard.
  • We make too many.
  • We don’t have the patience for year long goals.
  • Priorities change.
  • Life throws us a curveball (which mostly gets used an a convenient excuse).
  • We forget about them, especially when we spread goals out too thin.
  • We pledge to do things we ‘ought’ to do, instead of things we want to do.

Let’s talk a little more about the biggest reasons people fail at this, even though they do everything right — at least, according to the experts.

Too audacious 

How does that expression go? Don’t be afraid to shoot for the moon because even if you fail you’ll still be in the stars? Sure, let’s go with that.

That sounds all fine and good in theory, but reality is a much different beast. Most people give up their crazy goals very quickly, after realizing they’ll need to work really hard at getting there. These people don’t end up in the stars. They barely jump off the ground.

Spread ourselves out too thin

I understand that there are people out there who like planning things. I’m like that with my holidays. I spend hours figuring which hotels were the best combination of close to public transit and affordable for this cheap bastard. Vanessa can attest. But there comes a point when we’ve got to realize that planning everything out so much is detrimental to actually getting those things done.

So what happens? We start out with a bunch of goals that seem achievable, and then we throw up our hands in frustration. Nothing gets done.

The same thing happens when we make goals not because we really want something, but because we’ve been conditioned by our peers to think certain things are important. Maybe you don’t *need* to lose those last ten pounds.

Plans change

Sometimes they change for the better, and sometimes they change for the worse. But plans have a way of not staying the same.

Again, I’m hardly one to talk. A year ago, I was still a chip guy who was about to move to Calgary. In my wildest dreams I didn’t think I’d have the balls to pull off a year abroad. But things changed, and so did my attitude. And here I am, in a cramped Japanese hotel room.

So what, don’t bother?

What’s my solution then? Am I saying you shouldn’t bother with financial goals?

Well, yes. Sort of.

When I was a younger man, I very much wanted to be wealthy. I knew part of the solution to my lack of wealth was spending less, so I did my best to hold onto every nickel. I lived in my parents’ basement. I ate a lot of breakfast cereal and pasta. I worked a ton, and didn’t have a very active social life. And when I did go out, I wouldn’t want to go to expensive places.

And so on.

My point is that if you truly, passionately, and desperately want something, you won’t need to make it a New Year’s resolution, or one of your ‘x’ year financial goals. You’ll already be doing it.

It’s why I cringe so much whenever I hear people talk about how their finances need balance. I didn’t have balance when I didn’t take more than a weekend off work for 7 consecutive years. And I certainly didn’t when I went without a car until I was nearly 24. It was easy, because today I’m reaping the benefits of my first decade of saving nearly everything. This was always the goal, and it feels good to have accomplished it.

I never wrote it down. I never pledged to do it drunkenly at 12:02 am. I never checked in on it throughout the year. I just did it. Because it’s what I wanted.

Whether they’re financial or otherwise, we collectively stink at making goals. My advice? Keep it simple. Concentrate on just a couple of things, and spend time on them at least weekly. Instead of saving $20,000 annually, focus on putting away as much as you can each week. Instead of doubling your blog readership over a year, do three things a week that you know will result in more readers. And so on.

Figure out what’s the most important thing and put everything you can behind it. And if you fail? Maybe it’s time to question your passion toward the goal. Rather than looking at it as a failure, realize it’s your subconscious telling you what you want isn’t so important in the first place. Adjust your plans accordingly. And once you figure out what it is you’re really working towards, accomplishing those financial goals will get a whole lot easier.

Sep 202014
 

Sick of hearing about my travels yet? TOO BAD SUCKAS. I OWN YOU.

I’m writing this in a “business hotel” in Osaka, which is really just a Japanese version of a motel. My room consists of a bed, tiny TV (which has a pay-per-view porn option by buying a card from a vending machine), a small desk, and a bathroom the size of an airplane lavatory.

Forget about the sites, let’s talk a little about Japan’s impending demographic doom. A third of the population is over 65, and 40% is over 60. These guys are everywhere, especially in the business district where I’m staying and on the subway. They’re still working because they’re Japanese and here you work until you’re approximately 106 years old. For every kid I saw on the subway over the last few days, I saw at least 25 old men. Again, I’m in the business district, and things did even out a little more when I got to the shopping district, but still.

If you’re one of those people who thinks Canada’s pension system is screwed (you’re nuts, by the way), at least we’ve got one thing saving us — immigration. Here? 98% of the population is ethnically Japanese. Dual citizenship doesn’t exist for Japan, so if you’re a Korean or Chinese living in the country you either take the long, complex journey to become Japanese, or remain a guest with few rights forever. Most choose the latter, for obvious reasons.

The people are all very nice to foreigners. But unlike North America or Europe, there’s almost none of us. South Koreans very much want to be like Americans. Most speak a little English and the women regularly get plastic surgery to look more American. But Japan? It embraces its uniqueness. Foreigners are just a fun novelty to them.

The moral of the story? Japan will eventually blow up. Too many old people, nobody to replace them with.

Song I like and therefore you should too

Apparently Avril Lavigne is big here. So she made this bizarre…thing.

There’s a Hello Kitty store. Well, probably more than one. I went to it, and there’s NO WAY THAT STUPID THING IS A GIRL.

Simpsons quote

You might be beginning to detect a theme.

Woody Allen: So many rice crackers claim to be low-cal, but only Fujikawa rice crackers make your insides go bananas! What’d I do to deserve this? Oh, right.

Thing you should watch

Here’s a documentary about how young people just aren’t getting together in Japan. It seems interesting.

Just look at that. You know you have to watch that.

Post you might have missed

I don’t think I have any posts about Japan in the archives, so instead I’ll just wring my hands until words come out of my keyboard. They’re not good words, but at least they exist.

Here’s a fun piece I did about when they invited me behind the scenes at Dragon’s Den. This episode didn’t quite make it to air, but I think you’ll like it.

Nelson’s so funny

A big thing last week was the introduction of the newest iPhone and Apple Pay, which will allow people to pay for crap using their phones. Which lead to a lot of articles trying to figure out which companies would benefit from the service. Which lead to this.

People read too much into stuff sometimes.

Aside: keep in mind this is purely unscientific, but I spent some time in the big shopping district of Osaka on Friday, and I saw a lot of cell phone employees standing around and not so many people looking at the spiffy new iPhones.

Unrelated Apple rant alert – Apple has a market cap of $600 billion. Let that sink in for a minute. Everybody says the stock is cheap. Okay, fine. It’s got $160 billion in cash. But how is it supposed to invest that and generate any sort of return with it? It could buy Disney. Yes, Apple has enough money in the bank to buy Disney, assuming no takeover premium and no tax paid on the (largely) overseas cash hoard.

Apple is running into the law of large numbers. Apparently the goal for the opening weekend is four million iPhones? That’s nothing for a company worth $600 billion. It’s just too hard for it to really move the needle.

Funny picture

Yes. Yes you did.

vitamin d

MAKE THAT MAN A DOCTOR.

Dirty word in Words With Friends

I save the dirty words as screenshots now, which has made this whole exercise approximately 259% more efficient. It also will undoubtedly create at least some puzzled looks from people going through my Japan pictures at a undetermined later date. No, I cannot delete them. They are important pieces of history my biographer will NEED to sort through.

Anyhoo, that was a lot of preamble to tell you I played lust and biter. Play me blah blah user is nelsmi blah blah.

Babe loosely related to finance

According to the Google, Maria Ozawa is from Japan and also quite attractive. Let’s allow her to fill some space.

maria-ozawa

Well played, Japan. Well played.

Time for links

Let’s start things off with Sandi Martin, ex-bank employee and current fee-based financial planner. She graced the pages of another fee-based financial planner (that’s Boomer and/or Echo), pointing out some myths in the RRSP Home Buyer’s Plan. And then I disgraced the post by mentioning it on this dirty, filthy blog. FOR SHAME NELSON.

From J to the T over at Money Mamba, a post from something called The New York Observer about entitled rich kids. Ah, he knows my Kyptonite. Also, if the magazine New York Smeller existed, every page would just be puddles of urine.

Up next is Divestor, with a link to a 130 page report on the inner workings of running a restaurant. We’re three links and I’m linking to stuff that links to other stuff? Yikes. The rest of this does not bode well.

Ah, saved by the potato. Holy Potato, that is. The saintly spud made fun of some bad math promised by real estate developers. If you’ve never seen some of the ads put out by condo developers, I’d suggest you take a look. How that’s legal is beyond me.

Let’s wrap up this train wreck with a couple of Nelson’s Fool articles and call it a week. First up, I asked whether Suncor Energy is worth $79 a share. It’s currently at about $43, to put that call into perspective.

And then I wrote about Penn West Petroleum, and why it became a good buy last week.

Have a good weekend everyone.

Sep 182014
 

It’s Thursday, which means it’s your weekly helping of Eddie. No, you cannot have seconds. He blogs here

Every few months, I spend several minutes reading several PF blogs, also known as my competitors. It never ceases to amaze me at the level of groupthink prevalent in the PF community. The most common elements encountered in terms of this phenomenon are:

  • Banks are out to steal your money
  • Only get a no-fee credit card
  • Index investing is the best and really the only way to invest in the equity and bond markets
  • Maximize your RRSP and TFSA contributions or pay down your mortgage

While I could mount an effective rebuttal to every one of these assertions (ed. note: please do!), the groupthink I will refute today is the notion that all debt is bad. On the contrary, debt can be extremely good – and usually is.

The conventional wisdom is the PF community is that debt should be treated like ebola – complete eradication. The authors of several of the aforementioned blogs have stated that they “consider all debt to be bad debt” or words to that effect. This likely stems from a prior history of mismanaged finances or a date with a bankruptcy trustee. However, they are missing an important corollary that is not so obvious to the uninformed reader: debt is bad if it is used to buy non-productive and depreciating assets – also known as consumer debt. Recall my previous post and the matrix that combines whether an asset is productive or non-productive (income generating) and if it increases or decreases in value. Financing consumer spending (also known as non-productive assets with declining values) with debt is evidently foolhardy. Unfortunately, this principle is applied to every outlay or investment a person can make, not just consumer spending.

Debt is an important financial tool that can increase returns with little change to the level of risk. While a comprehensive justification is not possible in less than 600 words, individuals, especially PF bloggers, should heed some lessons from the business community. Businesses frequently utilize debt to finance capital assets (mostly income producing but depreciating). It is uncommon and even irresponsible for large businesses to use cash and current assets to completely fund capital purchases, such as a factory or piece of machinery.

Almost every single publicly traded firm’s assets are financed through a mix of equity and debt, also known as its capital structure. For example, Cenovus Energy, a Calgary-based oil company, has a capital structure of approximately 60% debt-40% equity. My employer, soon-to-be client, maintains a 50%-50% capital structure. The mix of debt and equity is dependent upon many factors, but mostly it’s because of the nature of the specific industry.

There is no reason why this principle, although maybe not in these magnitudes, can be applied to an individual or a sole-proprietorship. Adapted to a personal level, this can mean several things.

  • A mortgage for a personal residence or investment property is fine and does not need to be paid off immediately. On the flip side, saving to purchase a home outright is almost never done – for many reasons.
  • Investing on margin is good, providing you have a good investment strategy
  • Partially financing a business or entrepreneurial venture, such as a franchise, with debt is not only acceptable, but is likely the only option

I can understand the push by the PF community to eradicate all forms of debt and to urge their readers to allocate unused cash flow to their mortgage. However, they ignore several important points pertaining to debt and its uses:

  • The interest on debt is tax deductible for investment purposes (but not for the mortgage on your primary residence)
  • There is an opportunity cost to everything. While paying off your mortgage isn’t necessarily bad, it does little to improve your short term cash flow and the cash can be used to invest in productive and income-producing assets. The opportunity cost of paying down your mortgage is the cash flow that could be obtained by buying an investment property, purchasing a franchise etc
  • Proper use of short-term and long-term debt can improve your credit rating and your ability to borrow in the future
    Debt can greatly assist in overcoming barriers to entry into some investments. For example, investing in a franchise requires a significant capital investment which almost always requires debt. Banks are more inclined to lend on a franchise because it is a proven business model. Without debt, the barriers to investing in most franchises would be near insurmountable.
Sep 172014
 

ibm watson

 

(Source: Newsweek, via Bloomberg)

Remember when IBM built that stupid computer and then it kicked Ken Jennings’ ass? That was fun, I guess. (Aside: follow Jennings on Twitter. He’s worth your time.)

If you’ve been around here for the last few months, you’ve probably noticed that I’m not the least bit funny. Oh, and that I bash Coca-Cola a lot.

It has nothing to do with the product. I do enjoy me some Coke and some Coke Zero and even the Diet Coke because even though I know it doesn’t matter I still try and refrain from getting too pudgy by doing silly things like substituting in Diet Coke. I also enjoy some strange Korean energy drink that’s also made by the company. So I’m still doing my best to support Coca-Cola and my dentist.

No, my reasons for bashing the company have to do with the stock. Essentially, I think there’s three things wrong with it, from an investing perspective:

  1. Investors overvalue it because it’s one of the largest companies in the world, and because they heart themselves a nice, tall, frosty Coke product.
  2. It’s expensive for a company with pretty much no growth, coming in at more than 20x earnings.
  3. Executives are buying back all sorts of shares, but are issuing them almost as fast as they buy them back. I crunched the numbers a few weeks ago. It wasn’t pretty. Essentially, after factoring in share-based compensation, Coca-Cola paid a little more than $60 per share for it’s own stock. Shares have never traded above $43.

Still, dividend investors love the stock. I’m pretty sure that if you don’t invest in Coca-Cola, you’re kicked out of the dividend growth investing club. Bulls see past the three objections, and note that Coca-Cola has a strong brand, an ever rising dividend, and Warren Buffett holds a whole bunch of it, so it must be good.

Speaking of Buffett, I was reading his 2013 Chairman’s Letter online, and noticed that he’s got a huge amount of IBM stock. It’s one of Berkshire’s top five holdings, at a little over $11.6 billion cost. It’s currently worth a little less than $13 billion. Buffett owns 68 million shares, or 6.3% of the company. He paid a little over $171 per share, or about 10% less than the company’s share price today.

At the time, it was shocking behavior for Buffett. He’s always avoided technology, claiming he didn’t understand it. So why IBM?

Here’s how he justified it (from CNBC):

And if you think about it, I don’t want to push the analogy too far because it could be pushed too far. But, you know, we work with a given auditor, we work with a given law firm. That doesn’t mean we’re happy every minute of every day about everything they do but it is a big deal for a big company to change auditors, change law firms. The IT departments, I—you know, we’ve got dozens and dozens of IT departments at Berkshire. I don’t know how they run. I mean, but we went around and asked them and you find out that there’s—they very much get working hand in glove with suppliers. And that doesn’t—that doesn’t mean things won’t change but it does mean that there’s a lot of continuity to it. And then I think as you go around the world, IBM, in the most recent quarter, reported double-digit gains in 40 countries. Now, I would imagine if you’re in some country around the world and you’re developing your IT department, you’re probably going to feel more comfortable with IBM than with many companies.

Essentially, Buffett is saying that IBM is so entrenched with IT departments around the world that they’re not about to get replaced. IBM is so big and respected that if you need to hire a tech services company, IBM is the safe bet.

IBM has been struggling a bit for a few years now. Revenue has remained pretty flat, and the company has been doing stuff like getting out of PCs and into cloud based stuff. It’s sold off or shuttered lower margin businesses. The result has been steadily increasing margins, but revenue that’s slowly declining.

And yet, earnings are growing at a nice clip. Here’s earnings for the last 5 years.

  • 2010 – $11.52
  • 2011 – $13.06
  • 2012 – $14.37
  • 2013 – $14.94
  • 2014 (est) – $15.96

Based on a $191 stock price, IBM trades at 12 times earnings.

If revenue is isn’t growing, how is IBM increasing earnings per share? By buying back a whack of stock.

Here’s how many shares are outstanding at the end of each year.

  • 2010 – 1.287 billion
  • 2011 – 1.213 billion
  • 2012 – 1.155 billion
  • 2013 – 1.103 billion
  • 2014 (end of June) – 1.005 billion

Now that’s a share buyback. 25% of the float is gone in 5 years. Sure, it’s been borrowing to buy back those shares, but it makes loads of sense.

IBM has also been increasing the dividend.

  • 2010 – $2.50
  • 2011 – $2.90
  • 2012 – $3.30
  • 2013 – $3.70
  • 2014 (on pace for) – $4.40

But because it’s been decreasing the share count so aggressively, the actual dollar amount it pays out to shareholders has remained pretty steady. Additionally, you can see just how tiny the payout ratio is. The company is estimated to earn $16 per share in 2014, but is only going to pay out a little more than a quarter of it in dividends. There’s huge potential for IBM to increase its dividend.

So here’s the question I have. Why Coca-Cola, and why not IBM? The latter trades at a P/E ratio of nearly half of the former, is doing a much better job of buying back shares, and is actually being prudent about it. It’s far smarter to buy back shares at 12x earnings than it is at 22x. One gets you an 8% return, the other doesn’t even get you 5%.

Both companies are borrowing money at around 3% to buy back shares. IBM’s borrowings make a whole lot of sense. Coke’s just exist to fool investors into thinking management’s options aren’t so bad. Bash share buybacks all you want (and I have before), but in this situation the answer is obvious. You can make the case for IBM’s shares being undervalued. You can’t really make the same case for Coca-Cola.

If IBM buys back another 10% of its shares over the next two years and keeps its earnings steady, you’re looking at a company that’ll earn approximately $18 per share on a 900 million float. Without increasing earnings or revenue a dollar, IBM will go from earning $16 per share to nearly $20 per share. That puts the company at a P/E ratio of less than 10 times 2016 earnings with it just maintaining what it already has.

That’s the kind of share buyback investors want to get behind. Forget Coca-Cola. Buy IBM instead. It could be up 50% in a couple years if it figures out how to start growing again. It’s a cash generating machine. I can see why Buffett likes it so much.

Sep 162014
 

Of course, you probably don’t know anything about penny stocks anyway, so it’s okay. I’m here to educate you, young grasshopper.

When you think of penny stocks, you’re probably thinking about something like this:

terrible-penny-stock-ad

WHOPPING

These are the classic pump and dump schemes, which go a little something like this:

  • Dirtbags identify a small company with a compelling story.
  • They slowly buy a stake in said company for a few thousand bucks.
  • Then they use guys like Eric Dickson up there to promote the hell out of this “great opportunity”
  • This causes the stock to spike, going from something like $0.02/share to $0.20/share.
  • Dirtbag uses this opportunity to exit at an enormous profit
  • They move onto the next patsy company.

Even though there’s sometimes potential in these things (if you get in early enough and have the discipline to sell, which people never do), there’s no way you should put your money in some stupid penny stock scheme like this. That’s not investing, it’s speculating. Sure, there’s a certain amount of speculation involved with investing — because we can’t predict the future, at least very accurately — but investing involves reasonable guesses at a company’s future with tempered expectations, two qualities not usually associated with people trying to turn $5,000 in to $4.2 billion.

But this doesn’t mean that all penny stocks are bad. In fact, a majority of them are small companies just chugging along, doing their best to make widgets or rice or whatever it is they do. Yeah, a lot of them are startups with fancy visions of building some cool new way to do something mundane (or completely weird stuff like attaching a camera to the International Space Station), but there are still plenty of conventional businesses to choose from.

Our hatred of penny stocks comes from the same place where our hatred of small-cap stocks comes from. Many investors aren’t trusting of any companies but the largest of the large, only investing in companies that they’ve either a) heard of or b) are big enough that there’s no way there could be any hanky-panky going on.

That’s the mistake most investors make when it comes to penny stocks. They group anything small into the “penny stock” subcategory, even though 99% of small companies (which usually have low share prices) have nothing to do with any sort of stock promoters.

Outperforming the market using exclusively large-cap stocks is hard. Like, really hard. Not only are you competing with a vast majority of investors (because most have a mega-cap bias), but you’re also competing with all the institutional money managers too. They’ve got morons on the bottom of the totem pole researching these giant stocks that are smarter than you or I. And you’re going to beat them, even though you have a job and a wife and kids who are terrible at hockey?

Sure, you could. And you might even beat the market. But if you do, it’s a fluke.

I’ll keep saying this until I’m kidnapped and forced to shut up because they stuff women’s pantyhose in my mouth. The easiest way for a retail investor to beat the market is to find small companies that the market has overlooked and institutional money can’t touch because they’re too small. There are a lot of smart investors out there who are kind enough to do a lot of the work for you, and publish their findings. And they do it for free. Either follow them, or do the digging yourself.

A big part of outperforming is also not being afraid to buy a stock that happens to only be trading for $1 or $2 a share. Look beyond the nominal value of each share, and look instead at the assets behind it. It never ceases to amaze me that an investor is happy to pay $1.20 for $1.00 of assets for a billion dollar company, but balks at paying 75 cents on the dollar for a million dollar company. Value is the important part, not the share price.

If you patently refuse to buy penny stocks, just go ahead and invest in an index. Because by only picking the biggest companies, that’s exactly what you’re doing. It’s awfully hard to beat the index by picking the same stocks in a different order. There’s plenty of value if you venture into the world of small and unusual companies. Some might even be penny stocks. Just remember, that as long as value is there, the nominal price doesn’t matter.

 

Sep 152014
 

If the readers (and authors) of personal finance blogs are any indication, approximately 99.2% of you have a side hustle. Congratulations! Can I borrow some of that scratch?

Whether the side hustle is blogging, refereeing sports, cutting grass, or my favorite, dealing a few drugs on the side, it’s generally agreed by personal finance experts that people should have some sort of sideline job or business that generates a few hundred bucks a month. It helps pay down debt, and keeps someone occupied so they don’t get bored and spend money. And sometimes, that sideline business leads into a lucrative new career.

Note: I have been advised by my lawyer (Lionel Hutz) that I DO NOT, in fact, sell drugs. I just admire those who do, because they have so many friends. I have also been advised by my lawyer that he does not actually exist.

Many people who are looking for work will put ads up on Kijiji or the Craigslist, advertising all sorts of services. Folks who need simple jobs done like lawn care, moving, or basic home repairs can just crack open their laptops and browse a multitude of people who are willing to do their crap work. Or they can pick up a Mexican in a Home Depot parking lot. Either or.

One day I went on Kijiji and looked at what kind of people were looking for work. And, well, it wasn’t pretty. I took some screenshots for later mocking purposes, and now I’ve finally loaded them on my computer. Consider these a textbook example on how to NOT get a part-time job. Or a full-time job. Or much of anything at all, besides my mocking scorn.

Like this first guy, who is very skilled.

IMG_0747

 

Get used to the run-on sentence. You’ll be seeing a lot of those.

Maybe I shouldn’t laugh at this guy, since he apparently just got his tools stolen, but screw it. Judging by his spelling and grammar, he left them all out in the front yard with a detailed explanation of just how much the pawnshop would pay for each. He’s also “very skillful,” which I’m mostly impressed that he didn’t spell with a q and $.

Also, how’s he supposed to do renos without tools?

Next up, Kelly K.

IMG_0748

 

FOR GOD’S SAKE PEOPLE GET A SPELLCHECK THIS ISN’T HARD. LAYBOUR? WHAT THE HELL IS THAT?

Kelly K is 21 years “young,” which means he won’t yearn for the good ol’ days of rock and/or roll and will probably take several breaks during the day to smoke the wacky tabaccy. He has experiance (sic) in almost everything, presumably including quantum physics, international diplomacy, designing and building a 3D printer, and authoring a paper on the breeding habits of the pigmy marmoset.

But hey, at least he ended his ad with a smiley face, which makes him 100% not crazy.

Unlike this next guy.

IMG_0751

 

HI MY NAME IS NELSON AND I HAVE A BLOG ITS CALLED FINANCIAL UPROAR I THINK IT’S THE BEST BLOG YOU MIGHT NOT THINK SO BUT THAT’S OKAY WE CAN STILL BE FRIENDS WANNA BE FRIENDS PLEASE EMAIL ME OR CALL ME OR TEXT ME OR SNAPCHAT ME OR WHATEVER ELSE THE KIDS DO LIKE TWITTER OR FACEBOOK BUT I’M NOT DESPERATE I’LL TAKE WHATEVER YOU HAVE P.S. I AM NOT A CRACKPOT.

This next guy has some interesting expectations.

IMG_0755

“Hey, thanks for coming to the interview.”

“No problem.”

“So, what kind of job are you looking for?”

“I was thinking about something amazing, yet also simple.”

“…What does that even mean?”

“You know… Amazing. But simple.”

“I see. Okay, you’re hired!”

“Really?!”

“Yep.”

“Oh boy! That’s great!”

“And now you’re fired.”

“What!?!? Why?”

“I just wanted to have the opportunity to fire your stupid ass. This seemed like the easiest way.”

Anyone need a claner?

IMG_0752

 

I shouldn’t make fun. This ad is pretty obviously from a recent immigrant who’s just looking to pick up some cash. But I really enjoyed the first line. Very direct and exactly what I’d imagine a serial killer saying.

This next guy is my favorite.

IMG_0756

 

If this ad actually worked, my hat is off to you, Chad. It takes a special guy to admit that he’s gonna need to get paid in advance before he finishes a job. Seems like a capital way to hire a guy off Kijiji.

I like to imagine Chad getting email responses to this ad that offer him work with the condition being that he gets paid when he’s finished (like, you know, a normal job), and him getting all indignant with the audacity of such offers. HOW DARE THEY. Do they not know who I am? I AM CHAD, and I’m gonna need an advance.

Chad has some pretty high expectations for a guy who calls himself “expericed.”

Oh hey, it’s a hooker.

IMG_0757

 

Oh, Tiffany. You’re not fooling anybody.

Imagine a nervous virgin, just wanting to get the deed out of the way. He’s browsing Kijiji one day, and he comes across Tiffany here. He thinks she’s cute and wouldn’t mind paying her to have a go. But because she didn’t come out an explicitly say she does dudes for cash, our virgin chickens out and Tiffany is waiting for the phone to ring.

Being a hooker is a tough gig. Find yourself another job, Tiff. But hey, at least she’s flexible.

The sad part is? There’s a million of these. People, get your act together.

Sep 122014
 

By this point next week, your old pal Nelly will be in Japan. Insert your own panties in a vending machine joke here.

Is it sad that the very first thing I got excited about was the fact that they drive on the wrong side of the road there? Because I certainly did. I can just picture getting t-boned by some Toyota being driven by a Japanese man on the phone. He’ll be very apologetic, but I’ll be dead, all because I looked the wrong way crossing the street. A fitting end, really. Nelson from ten years ago wouldn’t have been able to predict that, that’s for sure.

So yeah, try and act surprised when all my tweets and junk over the next two weeks are about Japan.

Asia has these things called love hotels, where you can rent out a room for a couple hours to have a little hanky-panky with your lady because 19 generations all live in the same house and GRANDMA NEVER FREAKIN LEAVES. Some of the love hotels have started to list on the travel websites in order to get the lucrative all-night business.

Naturally, I found all this hilarious. I’m staying in one in Osaka.

The reviews were great. The TV apparently shows nothing but pixelated porn. There’s an abundant supply of condoms and lube just sitting at the front desk. Everybody kind of goes in and out in a hurry, and they speak with staff in hushed tones. On the plus side, other guests say the rooms are very soundproof.

I’m gonna walk in and say “YO INNKEEP WHERE ARE THE HOOKERS?”

Song I like and therefore you should too

Blast from the very distant past? Don’t mind if I do.

Sure, he was probably drunk when he did this, but it’s still a good tune. Buble can go to hell.

Simpsons quote

Grandpa: Dear Mr. President: There are too many states these days. Please eliminate 3. P.S. I am not a crackpot.

Thing you should watch

I think I’ve shown this before, but it’s so good I’ll show it again. It’s Kyle Bass talking about all sorts of interesting stuff, including shorting Japan, gold, and Canadian housing. It’s all interesting stuff.

Post you might have missed

Now I’m listening to Kyle Bass and my productivity has slowed to a crawl. And it wasn’t much to begin with.

Anyway, here’s a post on why you’d be dumb to save up for a house and pay for it in cash, rather than just taking out a mortgage like a normal person.

Nelson’s so funny

Alas, none of the Koreans are laughing at my jokes. They laugh at me, especially when I wear my Blue Jays jersey in public. Seriously. I don’t think I’ve ever got so much attention in my life.

That joke is bad and I should feel bad.

Stupid picture

How about another fun video, this one of a very angry woman in Hawaii who was apparently cut off by the guy with the camera?

The biggest tragedy here? That it was filmed in portrait mode. Oh, and don’t watch this at work. Unless you have a cool boss.

On that topic, one of my readers told me a fun story. She works at a major financial institution, which has blocked many of her favorite financial blogs from her work computer. One of the few that still works is FINANCIAL UPROAR BABY WHOOOOOOOO SUCK ON THAT EVERYONE.

Dirty word in Words With Friends

I don’t have one. But one of my opponents told me he played ‘vulva’ in a different game, so that dirty word by proxy will have to do.

My username is nelsmi if you want to play. Please do. I’ll need something to do in Japan. What am I supposed to do, talk to people? I don’t even do that when they speak the same language as I do.

Babe loosely related to finance

Apparently MY GIRL Taylor Swift and Katy Perry are in some sort of feud, because Katy hired a few of Taylor’s backup dancers. You all know I’m on team Taylor, but then I went on the Google and I found Katy Perry topless and now I don’t know what to do because it was spectacular.

Stupid hands

Stupid hands

I’m so sorry Taylor. Please figure out I exist so you can forgive me.

Time for links

Apparently it’s Holy Potato week here at Financial Uproar. In case you missed it, he had a guest post on Wednesday about HNZ Group, which is worth a couple minutes of your time. He also wrote about how you can save money with motion sensors on your lights inside your house. He took it about as seriously as it deserved, and it made me giggle.

Hey, it’s me at Motley Fool, writing about why Rogers Communications and Shaw Communications should merge. You know if that post was on FU there would have been a sex joke.

Vanessa posted some stuff about Korea and other various updates and I’m obligated to post it because I ogled two women above and OH GOD I’M SORRY WHY CAN’T YOU LET IT GO GEEZ.

Another Motley Fool piece, but this time not from me. It’s about Boardwalk REIT, and the surprising reason it’ll continue to have good demand going forward.

Young and Thrifty would like everyone to know she doesn’t read Financial Uproar very often anymore. But she did link to him twice in the last three posts she wrote, including this one about life lessons she learned by 30. OMG, STOP STALKING ME.

Here’s my original list, if you’d like to read it again. You would? (swoons)

And that’s all I’ve got. Have a good weekend everyone.

 

Sep 112014
 

It’s Thursday! Thursday! Thursday! So it’s Eddie! Eddie! Eddie! Here’s his Blog! Blog! Blog!

In my last post, we were introduced to the concept of the Black Swan, which is a highly impactful event outside the realm of normal expectations, and can only be explained in hindsight.

The author of the book from where this idea originates, Nassim Nicholas Taleb, professes that humanity ignores Black Swans to devastating consequences, especially in the financial world. He cites numerous stock market crashes and financial meltdowns that have erased billions of dollar in value. Humans gravitate towards high risk, low volatility investments, like blue chip stocks, while under the illusion that they are low risk.

Index investing is lauded by the personal finance community as the best way to save for retirement. If so, then why did every index portfolio lose half of its value after because of 2008? Yes, the argument for asset allocation can be made, erroneously, but it still does not reconcile the confusion of risk and volatility and does nothing for younger, less financially “conservative” investors. Index investing is highly susceptible to volatility and negative Black Swans, yet are trumpeted by those who have little actual knowledge about financial risk. Holding equity investments in a world governed by Black Swans gives investors the illusion of a good investment. It is the classic case of not seeing the forest (massive financial risk because of Black Swans) through the trees (lower MERs).

Taleb suggests an alternative form of investing to that of the index investor. Rather than being susceptible to Black Swans and market volatility, he suggests an investment strategy which thrives off of volatility and risk. One possible asset allocation would be:

• 90% to be put in the lowest risk investment possible, such as US Treasury Bills
• 10% to be put in Options

Options allow an investor to thrive off of positive or negative Black Swans by buying a call or a put, depending on the asset. Options magnify gains while guaranteeing a maximum loss in case the options are not in the money. In periods of low volatility, which will be much more often than not, the investor will merely lose the risk premium. When a Black Swan occurs, the gains from the option will dwarf any losses from the payment of risk premiums prior to the Black Swan. Essentially, the 90% conservatively invested capital merely funds the opportunity to benefit from positive or negative Black Swans.

Taleb explains this concept and the justification for it much more thoroughly in his book The Black Swan: The Impact of the Highly Improbable. He also suggests firing your financial advisor, as they actually know little about investing and risk, as evidenced by their investment recommendations and their ignorance of Black Swans. Food for thought.

Taleb puts forth a very credible argument for abandoning index investing and embracing the concept and implications of the Black Swan. While this may provoke criticism from the personal finance community, please read the book first. It will be infinitely more interesting, thought-provoking, and useful than the latest post from your favourite PF blog (including mine, wait a second, no one would say that about mine, truthfully) or the newest article in Money Sense.

Feel free to email me your thoughts at eddie@summaticus.com.

Sep 102014
 

Nelson’s note: Because I am lazier more efficient than you ever thought possible, here’s writing by someone who isn’t me. It’s by Holy Potato, who I think is a criminally underrated Canadian finance blogger. And I’m not just saying that because I’m on his blogroll. He usually blogs at holypotato.net when he isn’t neglecting the site to work on his upcoming book, which is all about teaching regular people how to become boring index investors. 

HNZ Group is hardly a value stock. They haven’t increased the dividend ever so it’s not a dividend growth story either. But it’s a rare bird in the world of public companies: a company with (virtually) no debt on the balance sheet.

This is after making a major acquisition just a few years ago, when then-Canadian Helicopters bought HNZ Group (and kept the name) from a distressed seller in New Zealand. They borrowed about $100M to make it happen, and paid the debt off in a timely fashion.

That makes the balance sheet really strong; though much of it is in the form of aircraft, we can see from sales of comparable craft and their own sales of their used helicopters that the value on the balance sheet is indeed close to the real-life market value. In some years they’ve even recorded a gain after turning over units in the fleet. At about 1.2X book value, this is hardly a drool-worthy play on net asset value or liquidation, even with such a solid balance sheet and the possibility that helicopters can be re-sold at a bit of a premium to carrying value; at a 12X (normalized) P/E it’s also not a screaming buy on earnings or cash flow. But it’s reasonably valued and has some potential.

That potential, in my mind, is fairly hidden: you can’t look at the trends in the income statements and see any kind of growth. They’re not substantially expanding their fleet and aside from dabbling in providing repairs from their services arm, aren’t really expanding into new businesses in a meaningful way. The potential that I see is that balance sheet strength and the discipline in capital management they’ve displayed in paying down the debt from the last acquisition so smartly.

Helicopter exploration and transportation is a cyclical business – some years oil and gas exploration companies are crawling over each other for HNZ’s services at the same time the US military is contracting out transportation work; other years it’s quiet. I can’t say whether this is the nadir of that cycle or not. If this is the bottom in the business cycle then this valuation looks pretty good, actually. I suspect it’s not just yet, but they are well-positioned to weather whatever storms may come. Moreover, and what is exciting me about this one, is that that unlevered balance sheet and patience will set them up to expand suddenly and rapidly when the opportunity presents itself – for instance, if times get tough and a more leveraged competitor goes belly-up.

I have no idea when or if HNZ Group will have a chance to make an acquisition, which way the market cycle will go for helicopter services, or if increasing turmoil in the middle east will once again lead to high-margin civilian contracts. With a 5% dividend, I’m ok with the idea of waiting on this merely adequately valued stock and seeing what future opportunities they can seize from their position of strength in an ever-shifting business.

Disclosure: I am long HNZ.A.

Sep 092014
 

Back in the day, I wrote why Warren Buffett would be a bad personal finance blogger. If I recall correctly, it was one of those posts that I thought would be important and go over well, but bombed with all of one comment. (Edit: nope, five! whole comments. Not bad) Not that the number of comments that a blog post gets is important, but still. I don’t think people got it.

I’ll save you the trouble of clicking back. Buffett would make a terrible personal finance blogger because he understands the value of compound interest so well. Instead of looking at a $5,000 vacation as “WHOO YOLO I DESERVE THIS,” the Oracle of Omaha would much rather defer that consumption forever, since all he’d see is the million bucks that $5,000 could become after ‘x’ number of years.

When it comes to TFSA vs. RRSP advice, many people are making the same mistake.

First, let’s review some of the relative basics. TFSAs are invested with after tax money, meaning the investor can put their $5,500 per year away and grow it inside their account tax free. The money can be taken out at any point without having to pay a penalty, which people obviously like.

Meanwhile, a RRSP is invested with pretax earnings. As an example, if you made $40,000 and contributed $5,000 into a RRSP, it would be like you only made $35,000. You’d get an increased tax refund for the $5,000 put away into the RRSP, meaning the next year you’d have approximately another $1,000 in more money from a bigger tax refund.

RRSPs aren’t flexible like TFSAs. They aren’t taxed while in a registered account, but can’t be withdrawn without a penalty either. Unless you’re withdrawing the money to put down on a house, you’re going to pay tax on it. And even then, you’ve only got 15 years to pay yourself back. And, of course, they’re fully taxable once you start taking out the cash. You can defer it to age 71, but after that yo ass is forced to take out that sweet retirement scratch, and pay tax on it too.

That last point is a big reason why I see all the people recommend the TFSA route over RRSPs. You can let those bad boys compound until you’re 187 (in theory, anyway, your organs may beg to differ), choosing to never withdraw. I always thought part of the the point of retirement savings was to spend the money at some point, but maybe I’m drunk.

But the fact remains that if you go that route, you’ll end up with less money. Because there’s less to compound in the first place.

I did a similar example the last time I wrote about this, but let’s assume we’ve got two people who make $60,000 per year, putting them in the 23% tax bracket. [Edit: it's 22%. I wrote this on a Korean bus without internet access. But it doesn't matter anyway] One contributes $5,500 to a TFSA, the other plunks down $5,500 into an RRSP. Let’s assume an 8% compounded return over time. After year one, here’s what it would look like:

RRSP investor: $5,940

TFSA investor: $5,940

Boy, that was anti-climatic, huh? You’ve come to the wrong place if you’re looking to get excited.

But what about year two? Remember, the RRSP investor is looking at a tax refund of 23% of $5,500, a whole $1,265. He goes ahead and reinvests that money onto the same RRSP, putting it and an additional $5,500 away. The TFSA investor puts in another $5,500. Here’s the results after year 2:

RRSP investor: $13,721

TFSA investor: $11,880

Even though this increased contribution effect would continue on as long as the RRSP investor continued to put money away, let’s stop after year 2. This will work well enough to get my point across. After 40 years of compounding, how big of a difference will it make?

RRSP investor: $548,840

TFSA investor: $475,200

All I needed to do was reinvest ONE RRSP tax refund to increase returns by about 15% over a 40 year compounding period. After five or ten years of doing the same thing the results will just be more striking. The RRSP investor will end up with a nest egg of hundreds of thousands more than the TFSA investor, all by taking advantage of the government’s generosity.

BUT WAIT, the TFSA folks are saying, Nelson forgot about taxes. Once he pays the MAXIMUM TAX BRACKET ON THAT RRSP, I’ll be the one laughing.

Which brings me to another really misunderstood aspect of RRSPs – the tax implications.

We’ve already established that most people don’t know a lick about taxes. They don’t seem to think tax brackets exist, and that if you’ve crept into the top bracket, then all your income is subject to the onerous tax rate. These people are more wrong than when you didn’t compliment your girlfriend’s new haircut.

You’re not forced to withdraw all that RRSP money at the same time. If you’re smart about it and take out about 7% of it per year starting at 65, you won’t end up paying much tax at all. A lot of it will already be liquidated by the age 71 deadline (when you’re forced to withdraw a certain percentage per year), and you’ll be in a low tax bracket because of the lack of employment income.

Even if you’ve done well outside of your RRSP and have income coming from either other investments or your TFSA, it’s easy to plan ahead of time with those. Maybe you sell those in your early 60s and move them into conservative instruments. Maybe you sell some losers in your non-registered portfolio during those years and defer the tax credits forward. Tax planning is a thing that isn’t really that complicated.

Or, if you’ve got so much money that you’re worried about paying all the taxes, maybe that’s a cue to retire early. There’s no rule that says you have to wait until you’re 65 to start withdrawing RRSP money.

And honestly, if you’ve been so successful that you’re stuck paying too much tax, I don’t have a lot of sympathy for your “plight.” Taxes are the cost of being successful. Absolutely take any legal opportunity you have to minimize your tax bill, but most folks won’t have that problem. They’re struggling to scratch out enough to put money away for retirement. Having the opposite problem is pretty much the epitome of a first world problem.

If you’re one of the lucky few that are able to max out both your RRSP and TFSA, it’s still wise to put money into the RRSP first. No matter what the tax bracket, reinvesting the tax refund will put you ahead. Besides, your retirement is a long way off. Who knows if the TFSA will even enjoy its tax free forever status in another 40 years.

As the old saying goes, a bird in the hand is worth two in the bush. The bigger tax refund you get from contributing to your RRSP is the bird in your hand. Use it. Warren Buffett would be proud.