Nelson Smith

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

Aug 202014
 

I stumbled upon an interesting article over at Seeking Alpha yesterday, talking about margin debt and how its growth nicely correlates with the stock market in general. Let’s steal a small part of his work.

margin-debt-to-s&p-500

As you can see, the price of the S&P 500 and the level of margin debt have moved pretty much hand in hand throughout the whole chart. The author of the piece breaks it down even further, suggesting that most major stock market corrections were actually predicted by margin debt, which peaked a few months before the S&P started to decline.

Unfortunately, it’s not quite that simple.

Let’s talk a little about margin debt. Investors who are bullish on stocks but don’t have the cash to plunk down have a few choices. They can sit on the sidelines, but where’s the fun in that? They want action, dammit. They can borrow via short-term loans like from k24, but they tend to have high interest rates. They can borrow against their house, using something called the Smith Maneuver, which I’m going to go ahead and claim that I invented.

Or they can use margin debt, when they borrow from their stock broker.

By the way, if you don’t already have an online broker, use Questrade. Or, better yet, ditch your old one because right now they’re offering $250 in CASH MONEY BABY to switch.

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

Plus $4.95 per trade? I shouldn’t even have to beg you to sign up. Just go do it.

Anyhoo, there are certain rules that govern using margin debt from your stock broker. Depending on the price of the stock, you’re limited to approximately 150% of your total investments. It’s more complicated that that, but the details aren’t that important. If you have $10k invested, you can add another $5k.

What happens if you dip below that level? Great question. Have some frozen pizza. You get what’s called a margin call. Basically you either have to contribute more money to your account or sell some shares in something to get your level back to the acceptable level. If you don’t do it within a few days, your broker will automatically sell something for you. They ain’t screwing around.

When a bull market suddenly turns bearish, the unwinding of margin debt only makes the decline worse. This only makes sense, we’ve talked about how leverage can do this a million times. It’s great when times are good, and bad when things decline.

And there lies one of the problems. Using margin debt as an indicator is fine — in hindsight. But it’s really hard to use it as a predictive measure.

Why? Look at the chart again. The S&P 500 hit a record high over a year ago, in April, 2013. (I may have looked this up independently) Margin debt hit a record high shortly thereafter. And then proceeded to keep marching upwards. When margin debt is at a record, so is the stock market. Interest rates are as low as they’re going to get too, which could very well have an effect on how much people are borrowing.

What makes this margin debt call different?

Back to the original piece on Seeking Alpha, the author thinks he’s predicted the market top. The reason? Because margin debt actually peaked in February, and we’re now a few months later, just like most of the other declines. It’s an interesting theory, but only time will tell as to whether it’s right.

As for me? I’ve held shares in Revlon since 2007, buying at a (split adjusted) price of $11. The stock currently sits right around $33. I’m going to sell. I don’t have anything to put the cash into. I’m selling because I think now is a good time to take some money off the table. I may not fully agree with the peak in margin debt = market top, but everything else points to the fact it’s a market top.

I guess what I’m saying is that if you’re sitting on huge gains, now might be a good time to sell.

 

Aug 192014
 

As I’ve mentioned approximately 6,395 times before (author’s estimate, but I’m pretty sure it’s right), you need to read a ton if you’re going to be a successful investor.

Personally, I read at least a couple hours a day, and maybe even more. I have a book that I’m working on (currently The Snowball, Warren Buffett’s biography, for the third time), I read Seeking Alpha and of course Motley Fool almost every day, and I cruise the interwebs for all sorts of interesting stuff. I also stumble upon interesting stuff on Reddit, along with a lot of crap. Finally, I spend $20 a month on a Globe and Mail Unlimited membership, which I think is worth my time. Plus I like that I can write it off.

I recently ordered another information source, one that potentially has a lot more content than some of the others, that only costs $15 per month. It’s Next Issue (Subscribe to Next Issue now!), the Rogers owned “Netflix for magazines,” which give you access to over 130 different magazines. This is my Next Issue review.

next-issue-review

What do you get?

There are two different price levels. For $10 a month, you get access to a bunch of monthly magazines. Prominent titles include:

  • Money Sense
  • Money
  • Canadian Business
  • Cosmo (and Cosmo for Latinas, which is apparently a thing)
  • Esquire
  • Family Circle
  • Chatelaine
  • Golf Digest
  • Inc.
  • Rolling Stone
  • Wired

And so on. The list is pretty massive, and includes quite a few business magazines. What it doesn’t include is one of the bigger ones, Forbes.

But for an extra $5 a month, you get access to 11 weekly magazines. They include:

  • People
  • Newsweek
  • Macleans
  • Time
  • The New Yorker
  • Sports Illustrated
  • Bloomberg Businessweek

That’s a nice list as well, but keep in mind that my favorite magazine isn’t included, The Economist.

How do you use it?

The best way to use it is on your iPad or Android Tablet, using the free to download app. You can also view it on your smartphone or Windows 8 laptop (no MacBooks, suckers). I found the experience on my iPhone to be lacking. The screen just isn’t big enough.

On my iPad, Next Issue looks terrific. The pictures look amazing, and many of the magazines have digital editions that are very intuitive. They have extra content exclusive for the digital editions, extra pictures, all that jazz. Some of the magazines (Rolling Stone is one) are just the magazine’s page on the iPad, except with the ability to zoom in. It’s a little disappointing when you run into one of those, but most are optimized to look like at least a thousand bucks.

Is it valuable?

That’s pretty much why you’re reading this Next Issue review, aren’t you? You want to know whether it’s worth your time.

When I first got Next Issue, it was because I was looking for something to read that would give me ideas for my freelance writing. For the most part blogs are great, but they tend to recycle the same old boring ideas. Yes, I’m aware credit card hacking is a thing, and so are you. No, I can’t be bothered.

Kind of like this blog, actually, with jokes.

From that perspective, the investment has been a resounding success. I get at least 3-4 ideas a month from reading it, easily worth my $15. I’m also much more aware of what’s going on in the world. Additionally, I find I read more for enjoyment too, spending time reading the sports, tech, and music magazines.

Vanessa has also “borrowed” my subscription, using it to keep up with what the UK royals are doing. Spoiler alert: not much.

More bonuses

Depending on the magazine, up to a year’s worth of back issues are available. For the weekly mags, that’s a lot of reading. Kinda like when you first join Netflix, you’ll probably binge when you first sign up.

Next Issue also is capable of downloading stuff and holding it on your iPad’s memory, meaning you can download a bunch of magazines and read them without having an internet connection.

So is it worth it?

Next Issue is worth it from two different perspectives.

If you like to read, there’s enough material there to keep you busy for the entire month, easily. Sure, there are ways to download magazines to your tablet from your library, but I couldn’t get that to work consistently. If you have a long commute on the subway or just eat lunch by yourself a lot, you’ll get enough use to make Next Issue worth your time.

Or if you’re like me, you’re constantly looking for the next investment idea. This is where I think Next Issue really shines. The 6-8 money related magazines will give you a constant source of ideas, and the news magazines will give you a decent overall picture of what’s going on in the world. I think $15 a month is worth it to get exposure to all these ideas.

Special offer

From time to time, Next Issue gives out a bonus to new readers, usually in the form of a 30-day free trial. Right now they’re offering a 60-day free trial. All you need to do is click the link below, and use BONUS30 as the promo code when you go to check out. It’s that simple.

Subscribe to Next Issue now!

Thanks for reading the Next Issue review. Have an experience with the service? Share it in the comments.

Aug 182014
 

Remember the last time I told you kids to play a merger arbitrage? It was when Prem Watsa announced he was looking to take over BlackBerry at $9 (U.S.) per share. The stock traded at $8.02 at the time. And as we all know, the deal didn’t happen, sending shares reeling, all the way down to below $6 per share before finally recovering. It hit a high of $11.50 in July, before settling down into the $9.50-$10 range, where it sits today. Remember, these are all U.S. dollar prices.

Related: The reasons I bought BlackBerry in the first place.

So I got the BlackBerry call wrong, but anyone who bought at $8 would have ended up being okay if they just waited a few months. The deal fell apart in November, but shares moved above $10 in both January and March, which would have given you a 25% return in a few months. Or you could have held it, because apparently you are a glutton for punishment like I am.

Full disclosure: I own BlackBerry shares. It’s not a huge position.

Even though I swung and missed the first time around, I’m back to play the merger arbitrage game, but this time with Bell Aliant. Let’s take a look at how the Bell Aliant merger arbitrage scenario would shake out.

  • On July 23rd, BCE made an offer of $31 per share for the 56% of Bell Aliant shares it didn’t already own.
  • Bell Aliant accepted that deal quicker than stray Korean cats run away from me.
  • BCE has applied for and gotten permission from the feds to make this deal happen
  • Bell Aliant has announced that it’s not going to pay its usual Sept. 15th dividend for common shares.
  • The deal will close on September 19th

On Friday, shares of Bell Aliant closed at $30.45 each. Let’s look at a 5-day chart to look at where the price range is.

Screen Shot 2014-08-16 at 2.03.42 AM

I like how it cuts off at the bottom. My sloppy work will be the death of us all.

As you can see, shares have spent most of the time in the $30.50 range, temporarily dipping below $30.40 a couple of times on Wednesday and Friday. For the sake of the rest of the post, let’s assume you can pick up shares at $30.40.

Say you buy 400 shares, using the SUPER LOW COMMISSIONS OF QUESTRADE THE BEST BROKERAGE EVER. (Sign up for an account plz. Nelly would like to get paid)

Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max

That’ll set you back a cool $5, coming to exactly 1.25 cents per share.

Buy: $30.40
Commissions per share: $0.0125
Total Cost: $30.4125

Sell: $31.00

Profit: $0.5875
Percentage profit: 1.93%

Number of days: 32/365 = 8.76% of the year

Annualized return: 22.05%

If you bought 400 shares like I point out earlier, here’s what you’ll get paid.

Cost: $12,165.00
Sale price: $12,400

Profit: $235.00

A few things to note before you run out and do this:

1. You have to tender your shares by the 19th of September. Which means you’ll have to call Questrade and tell them that you want to sell. This will save you 5 bucks in selling commissions.

2. I think the deal goes through, but there’s a risk it doesn’t. If it doesn’t, I’m pretty sure you’ll get the dividend that Bell Aliant plans to miss in September, which would knock your cost basis down to below $30 per share.

3. If you can pay $30.35 per share, you’ll increase your profits by nearly 10%. These are the types of situations where a few cents matter.

One of the reasons why I’m comfortable talking about this is because if the deal falls apart, owning Bell Aliant at $30(ish) per share isn’t the end of the world. It’s a steady company that isn’t going to do much except pay out most of its earnings in dividends. Based on the current share price, the yield is 6.25%. Even if you hold it for a couple years and the stock price goes nowhere, at least you’re getting paid nicely to wait.

The other interesting way to play this is through Bell Aliant’s preferred shares. There’s three series, the A, C, and E ones. The C and the E series have already gone up to the point where they yield a little more than 4% and aren’t so exciting. But the series A is a little more interesting, since they still yield a cool 5.2%. I haven’t looked into it much, but on the surface it appears that investors who buy now are getting a 5.2% yield from BCE when they take over the company (and the preferred shares), a full 1% higher than BCE’s preferred shares yield.

There might be a catch to that, but I couldn’t find it in a few minutes of looking.

Anyway, if you’re nervous about the market and have some cash looking for a home, you could do a lot worse. A 2% return isn’t about to charm any ladies’ pants off, but it’s almost risk free and it takes damn near 2 years putting your money in the bank to earn the same thing. As a guy with cash on hand, I’m thinking about it.

Aug 162014
 

I’m in the middle of launching something new. You’ll know more about it next week during the official premiere, which is enough of a tease for you to be interested, but not so much that you hate me. Financial Uproar usually walks that line, actually. Just look at the dick jokes.

This project hasn’t required much in money (at least so far, it probably will later), but I’ve spent probably 20-30 hours going over the plans, setting things up, and so on. Throughout the process I’ve had doubts that I won’t even make enough on it to pay back my initial time investment, let alone make it a growing concern. But hey, I’m in a foreign land with time on my hands, so it was time to make it happen.

This is what I told myself. If I work at this for six months or a year and it flops, all I’m out is time. It’s probably time I would have squandered anyway, so it’s not a big deal. Like I’ve mentioned before, I intentionally set myself up with ample amounts of free time so I can work on stuff like this that is fun, and I think has long-term potential.

But am I looking at this all wrong?

I could always exchange that extra time for money. I could either hustle and take on extra freelance writing clients, or get my ass up and get a job. Assuming I could exchange my time for $15 per hour, the 25 hours I’ve already spent on this bad boy represents $375 out of my pocket. Another cost I have to consider is whether I’m the best choice for doing this type of work. If somebody can do what I did in 15 hours and I hire them out at the same wage, I could have paid out $225 while pocketing $375 at work.

And there lies the crux of the whole working for free thing, whether its on your own project or somebody else’s. Your time has value. I’d argue that, for most of you, it’s not worth your hourly wage at work, but it’s still worth something. And for a guy like me with lots of time and few responsibilities, it might be worth even less, but it’s still worth more than zero.

I can’t tell you what your time is worth. Hell, I barely know what my time is worth. Exchanging it for nothing is fine if there’s a potential reward down the road or if it’s something you enjoy doing. But don’t give it away for nothing unless it’s something that’s worth it. And if you’re me, hire more stuff out.

Time for freelance links

It’s your usual Saturday reading, consisting of your ol’ pal Nelson’s freelance links. He’s a Fool. As in, a Motley Fool. He’s also clever, and should probably stop referring to himself in the third person.

Think you should start loading up on cheap gold company shares? NOT SO FAST, BUCKO. Here are three reasons why you should avoid gold. Forever.

I see exactly 47% upside in Bombardier. How can I be so precise? Magic mirrors. And Harry Potter spells. He’s a wizard, right?

This post was fun to write. I ask whether Tim Hortons should bet the farm on investing in a bunch of coffee serving robots. I would so go there more often if I could watch a robot pour coffee. I would also make all the Robocop jokes.

I generally don’t hate any of the oil sands plays. It’s an important resource, and electric cars are probably a decade away from mainstream use, at least. So I wrote some words about Cenovus Energy.

Speaking of the oil sands, I also talked about Inter Pipeline, which has some pretty good growth potential in getting that oil to refineries.

And that’s it. See you guys on Monday.

Aug 152014
 

A few months ago, right after I started writing full time for the Fool, I invested in a Globe and Mail Unlimited membership. It only cost a penny for the first three months, before jumping up to $19.99. I’ve gotten probably eight or ten ideas from reading about something in the Globe, so from that perspective, it’s probably been worth my time. Plus, I can write it off, since staying informed about the markets is a legitimate business expense.

So I guess you could say I spend a bunch of time reading the Globe and Mail. Or, as an old boss used to call it, the Glob.

But what’s really impressed me about the Globe is its top-notch company info pages. They recently redesigned them to put a lot of good stuff right on the main page, including price to earnings, price to book, PEG ratio, price to sales, and price to cash flow. Plus (and this is the neat part), it has quarterly financials dating back for up to 15 years, depending on the company.

There are two reasons why this is important. When you’re looking to figure out what a beaten-up stock is capable of earning, a five or ten year average of earnings is a good start. And secondly, you can look to see whether a stock with a low price to book or price to earnings ratio always traded that cheap, or if it’s just a recent phenomenon.

And best of all, it’s free. You don’t need the membership to access the info. The only thing members get compared to non-members is real time stock quotes. But really, if you can’t handle a 15 minute delay in stock quotes, you’re probably not the kind of person who enjoy’s ol’ Nelly’s ramblings on things.

Song I like and therefore you should too

They played this song at the Paris Baguette store the other day and I realized it’s been too long since you guys had the pleasure.

OH SHE’S BACK YO AND THERE’S NOTHING YOU CAN DO ABOUT IT EXCEPT HITTING THE RED X DON’T HIT THE RED X PLEASE.

Simpsons Quote

Agnes: Seymour! The house is on fire!

Skinner: No mother, that’s just the northern lights.

Thing you should watch

Here it is. In all it’s glory. It’s my new favorite episode of The Simpsons. At least, assuming the embed works.

It’s Lisa the Vegetarian, and there are sooooooooo many good one-liners. I’m not sure why you’re even reading this and not watching the episode. Is there something wrong with you? Mentally, perhaps?

Post you might have missed

You probably didn’t notice, but there have been a few changes around here this week. I added a disclosure/privacy, changed about the about page, and of course added the new spiffy header. It’s the most changes this blog has gone through since those few months my background was hardwood floors. Let’s not remember that.

I’m a firm believer that finance blogs should talk about finance, so I didn’t put this on the homepage, but I wrote some words about my first month in this land known as the South province of North Korea.

Nelson’s so funny

A golf and tennis tweet? I regret nothing plenty.

Funny picture

Like we all needed more proof Coke is going down the toilet.

coke-with-pepsi

 

Somebody’s getting fired for that. Although maybe it was the mythical Coke guy from the commercials who discovers Pepsi and then GOES CRAZY AND JUMPS OUT THE WINDOW.

Dirty word in Words With Friends

I played dusty. It’s not the kind of dirty word you probably had in mind, but a dusty vagina probably wouldn’t be the best thing.

My user is nelsmi if you want to play but I’m pretty sure nobody does although maybe some do and are just avoiding me like hussies.

Babe loosely related to finance

You know, I spend too much time featuring the younger ladies in this category. They always get the attention. But what about the older ladies for the older fellas? Let’s make an exception. It’s Jane Seymour, who is 63 years old.

jane-seymore

I know, I know. She’s had ALL the plastic surgery done. But still. Yowza for 63.

Time for links

Long time readers know I’m a fan of Jim Rogers, who has traveled around the world twice (and written about it each time), investing and looking at businesses the whole way. Here’s a piece from the National Post which looks at some of his most timeless pieces of advice. Also he has a nice Alabama drawl and I want him to be my grandpa.

I think we can all agree that asking Reddit for advice on legal matters is a bad idea. Here’s the story of a guy who followed a dumb Reddit idea to really screw himself over in his own divorce case.

Don’t Quit Your Day Job reminds us of an important lesson, which is don’t chase yield. While I think that in a whole portfolio it’s fine to chase a little yield, it’s really dangerous to pick a stock or two to do it.

Oddball Stocks thinks more of us should invest in small businesses. Not your local store, but businesses that are worth less than $100 million. I agree, but don’t mind if you don’t. That just means more for ol’ Nelly.

Good explanation from My Own Advisor about the difference between a REIT’s book value and net asset value. You’d think they’d be interchangeable. They’re not.

And finally, a piece from Seeking Alpha about Canada’s overvalued real estate market. There’s nothing new in the article that I didn’t already outline a year ago, but the comments are interesting. It’s almost like the overvalued Canadian real estate theme has gone away. And that actually makes me more likely to think about getting back in and shorting, actually.

Have a good weekend everyone.

 

Aug 142014
 

(Hey kids, Nelson here. I’m breaking my no guest posting policy for the day for Eddie, who blogs at Summaticus. No, not that Eddie. A different, better one. If you like the serious parts of Financial Uproar, I’m pretty sure you’ll like Summaticus. His full bio is at the bottom. Take it away, Ed-ster.)

This article is a commentary based on the Forbes article written by Amy Leyishian. I am familiar with the Myers-Briggs test and was intrigued by this article. I have expanded on a few thoughts.

Protectors – also known as the Guardian Temperament (SJs)
Role Variants: ISTJ (Inspector), ESTJ (Supervisor), ISFJ (Protector), ESFJ (Provider)

The world of the Protector revolves around security. Having a secure home, job, and income are critical to the happiness of a Protector and possess a strong work ethic to preserve their place in society. They are very practical and frugal, not wasting money on impulsive purchases. The biggest problem they have with self-gratification is that they do not do it often enough in the present, always saving money for a rainy day. They are unlikely to take chances on risky financial ventures and will likely be invested in conservative securities like GICs and bonds vice emerging market ETFs. A Protector is likely to have a financial plan and would be meticulous in following it. Because of their natural tendencies towards security and rules, they are most often found in business as managers, accountants, and planners.

Being married to a Protector has its benefits and its drawbacks. Because Protectors value security, they are stable and reliable. Having enough money socked away for retirement will not be one of your worries. However, if they are extreme Protectors, they will not spend a dime on things they enjoy in the present, which can be very frustrating for another temperament, most notably a Player (see below). A possible method to circumvent this is to agree on a certain amount of money to save every month or to spend every month. Whatever amount is agreed to be spent can be done so without judgment from the Protector. Bear in mind that not all Protectors will want to save every single penny; it means that security and saving is their default and to which they will naturally gravitate.

Planners – also known as the Idealist Temperament (NTs)
Role Variants: Mastermind (INTJ), Field Marshal (ENTJ), Inventor (ENTP), Architect (INTP)

Planners rely on reason to strategize about their future. Inherently logical, they seek objectivity and suppress emotions when called on to make decisions. Because of their pragmatism and forethought, they are drawn to careers involving systems, such as IT and engineering, as they identify more readily with science and technology.

Planners are the most likely to have financial goals recorded in a coherent document. They would be adept at creating contingencies and incorporating flexibility into their plans to ensure its continued relevancy and feasibility. They would have an emergency fund, but in a smaller amount than a Protector, and have a diversified portfolio of investments. However, there is a tendency to look to far forward and not live in the moment, which would likely cause friction if paired with a Player. To overcome this potential hazard, the article suggests diverting a portion of the income towards long term savings and another to pure indulgences. This appears to be a rational solution to the principal drawback of being a planner.

Pleasers – also known as the Visionary Temperament (NFs)
Role Variants: ENFJ (Teacher), Champion (ENFP), Healer (INFP), Counsellor (INFJ)

Pleasers are among the nicest people in the world. Similar to Planners, they tend to look more in the future but through a more emotional and introspective lens. They tend to focus on what could be rather than what is, as opposed to the cool rationality that is a Planner. Pleasers are on a quest for knowledge and self-improvement, focusing on the journey and of their own potential. They are warm, affectionate people that take a keen interest in others. Because of their Intuitive and Feeling functions, they are drawn to careers that involve people, such as teaching, journalism, counselling, and in religious institutions.

Leyishian suggests that Pleasers can be taken advantage of due to their caring nature. If they are not careful, Pleasers can enable the poor spending habits of others by giving them money without the beneficiary being accountable. This is something to be very aware of if you or a loved one fall into the Pleaser category. Another risk would be for Pleasers to enable and reward themselves through self-indulgent behaviour.

Players – also known as the Artisan Temperament (SPs)
Role Variants: Promoter (ESTP), Performer (ESFP), Crafter (ISTP), Composer (ISFP)

Players are typically the life of the party. They live in the moment and are spontaneous. Because of their tendency to be impulsive, they are “often the ones at the highest financial risk” according to the Forbes article. With the NT function dominating the Planners, the complete opposite of SP of the Player makes long term planning anathema to the Player. They are focused on the here and now and do not care much for future events and abstractions such as retirement. When under control, Players can be your most entertaining friend and somebody that you want to be around. If the SP function is not checked by a dose of logic, then say hello to constant debt and bankruptcy.

Players can be the most inclined towards self-employment and being entrepreneurial. Their fun-loving SP side would generally conflict with a bureaucratic and standardized workplace governed by rules and routine. This can be a powerful catalyst for wealth if they can channel self-indulgent behaviour into a profitable and enjoyable business venture. Their natural optimism and spirit will propel them to success, if only discipline can be honed to keep their venture on track.

What exactly does all this mean?

The Myers-Briggs test is a widely-used method for categorizing human behaviour and temperament. It can provide insight into an individual’s strengths and weaknesses and assist them in developing strategies to encourage the former and mitigate the latter. The Myers-Briggs test can be a useful guide to gain insight into human behaviour. It can also be used by a couple as a common language to explain themselves. For example. A man who is a SP and freely spends money can relate to his calculating and modest wife in terms they both understand.

The test has also comes under criticism by some academics who question its utility in predicting human behaviour. Others postulate that humans cannot be classified according to sixteen roles. On an everyday level, there are those who take the test and use the results as an excuse for their behaviour, rather than a tool to self-improvement. The human mind is a growing entity; habits can change and behaviour evolves.

Feel free to take the Myers-Briggs test at the link below. Carefully ponder how the results affect your understanding of yourself and your finances. Also think about the limitations of the test and what it cannot explain. Most importantly, think beyond the microcosm of personal finance and reflect on how this new knowledge affects your decision-making skills, career choices, relationships, and happiness.

For more information, consult the following references:

Summaticus – Master Thyself
Truity – Profiles of the Sixteen Personality Types
Truity – The Typefinder Personality Test Cost: $29
Human Metrics – Myers-Briggs Test  Cost: Free

Eddie is a self-employed project manager and consulting engineer in the oil & gas industry in Alberta.  After serving 10 years in the army, he is pursuing an Executive MBA at the University of Calgary.  He holds contrarian views about personal finance and writes about personal strategy, economics, and history at his blog www.summaticus.com.

Aug 142014
 

Many of you provided me email addresses and whatnot, hoping for updates while on the road. Or maybe you were just being polite and never wanted this at all, thinking my laziness would ensure this never happened. OH HOW YOU WERE WRONG. For those of you who were looking for updates, here you go. It’s a summary of my first month in South Korea.

Has it been a month yet? (Looks at calendar) Close enough.

I left Calgary at 7:20am on a Sunday morning, connecting through San Francisco before getting on the biggest freaking airplane I had ever seen in my life to go to Seoul. It was a Boeing 747, the biggest passenger jet in the sky. Rows were 11 people wide (3-5-3), and the plane was something like 70 rows deep. There was even a second story, where all the fancy first-class people sat. I looked, first-class cost $2700. Each way.

The flight was fine. They sell internet access (which cut out over Japan for some reason), and showed movies, which entertained me for a few hours. They also served us food twice, which was nothing short of amazing. I didn’t realize they did that stuff anymore. I got pasta the first time and eggs with sausage the second, and was so impressed with actually getting food that I barely noticed it was terrible airplane food.

So I got into Seoul at 3pm on Monday afternoon (around midnight on Sunday back home), and went through customs. That was easy enough but took forever, and soon enough I was on the subway heading into downtown. By the time I made it to the correct stop, it was probably 5:30. I got out, followed my meticulously saved directions to my hotel, and promptly got lost.

Like, really lost.

After about a half hour, some nice Koreans took pity on me. They found the hotel’s phone number, and tried to call it. Nobody picked up. They sent me in a vague direction (which did turn out to be right), and told me it was easy to find. So I wandered off again.

You can probably guess what’s coming. I once again got lost.

After another while of wandering (I later discovered I walked within a half block of the hotel and didn’t find it), ANOTHER Korean saw me lost and took pity on me, but not before telling me to stay at the hotel he worked at because it was nicer. At that point, I was pretty tempted to take him up on it. But he found the hotel on his phone and gave me great directions. I was a 3 minute walk away, and finally, after at least an hour of wandering around, I found my hotel.

You can imagine what was going through my head. Specifically, what in the hell did I get myself into?

So that was my first day in Korea.

That was about as bad as it got though. Over the next few days in Seoul I easily found my way around using the subway, which has English announcements. I went to Itwaeon (which translates to foreigner-town), where I looked at store after store of “antiques” and cheap sports jerseys. The selection wasn’t nearly as good as what I imagined, but I still picked up a nice Houston Astros jersey for the equivalent of $30. Yes, I know Houston sucks. I don’t care. It’s a nice jersey.

I also went to the Korean War Memorial, where I discovered two things:

1. The only war Korea has ever won was in 1953, which they didn’t even technically win, and only because WE helped them. They seemed pretty grateful for it, with some random Korean guy making a big deal about it to me. Uh, thanks, but I’m pretty sure I had nothing to do with it.

2. Every few years the North Koreans do something just to annoy their southern neighbors. Like when they dug a tunnel from the North to the South. And then, when the South found it and filled it, the North just redid it in a different spot. The North has no intent to ever invade the South. It just needs to keep poking so it can keep up appearances.

I also went to a baseball game in Seoul, but it got rained out after an inning. Stupid rainy season. More on baseball later.

After a couple days in Seoul it was time to take the train down to Ulsan, which is about 450 km away. I went on the KTX Express, a bullet train that reaches speeds of 300 km/hr, and that has free internet. I left at 8:25am, and was in Ulsan before 10, all for a ticket that cost $40.

Ulsan is a much nicer city than Seoul. It’s new, surrounded by mountains on three sides and water on the fourth, and has plenty of expats. Hyundai has their largest plant in the world here, along with a port where they build ships. Many Americans, Canadians, and Australians work for Hyundai as well as energy companies that have operations in the area. The area isn’t swimming with expats, but there’s certainly a higher percentage than the rest of the country. Approximately 1 in 1000 people here aren’t Asian, to put in in perspective.

So I get stared at a lot. Kids love me, but most are too shy to do anything but look. Sometimes I’ll wave at them, and they’ll get all embarrassed and act coy. Sometimes they’ll actually talk to me, which is usually accompanied with their mom yelling at them to leave the foreigner alone. I know three words — Cum-sum-nida (thank you), large-e (large), and way-gook-in (foreigner).

There are restaurants everywhere, mostly because apartments are so small that people get the hell away from them whenever possible. I don’t care for a lot of Korean food, but there’s some stuff I like. Korean barb-e-que is tasty, except the side dishes are weird. There’s lots of pickled stuff that comes with, most of which I’m pretty okay with not eating. Fried chicken is a thing, and it is delicious. And, of course, everything has to be spicy. They sure do love their spice here.

Fortunately for my weak Canadian stomach, there are tons of western restaurants too. The western chains tend to be a little more expensive than comparable Korean ones (but slightly less than back home), so it isn’t bad. There are many sort of mom-and-pop western restaurants ran by Koreans, which are usually relatively cheap and they speak decent English.

After a couple weeks of getting my bearings, Vanessa and I went to Busan, a port city located on the very south east corner of the peninsula. Busan is where the Japanese established themselves when they occupied the country (from 1890-1945), and is South Korea’s main southern port. Approximately 4.5 million people live there.

We went up the Busan tower (on a clear day you can see Japan, but no dice that day), along with going to the Busan/Japanese history museum, and some shopping district which had a whole bunch of people with portable carts selling stuff like socks, hats, electronics, and so on. They also had some delicious smelling street food, but we showed up right after lunch so we didn’t partake.

And then we went to a cat cafe.

For $7, you get admittance and a drink of your choice. For an extra $2 you can but cat treats, which will ensure that the cats will actually pay attention to you. Something like a dozen cats were in there hanging out, basically just killing time until somebody showed up with food. The cats were all very nice to you — for about three minutes. Once they figured out you had no food, they were gone.

It smelled pretty much like you’d imagine a cat cafe would smell like. Honestly, it was a little disgusting, and I’m not sure such a place would exist in Canada. It certainly wouldn’t be allowed to serve anything. Still, it was an interesting place to visit.

After that, it was time to go to my favorite attraction of the day — the Sajik Baseball Stadium, where the Lotte Giants were taking on the NC Dinos. OH BOY KOREAN BASEBALL.

The whole deal is much more relaxed than going to sports in Canada or the U.S. Lots of people bring in food from outside, and even inside the prices for stuff are much more reasonable (think convenience store markups, not stadium markups). There were many places to buy beer for less than $2 per bottle. Outfield tickets were $7, and even the best tickets in the place weren’t much more than $35.

All of the home team’s supporters sit down the first base line, and all the visiting team’s supporters sit down the third base line. Apparently the outfield is for neutral (or cheap) people. Each side has a guy with a whistle — along with four cheerleaders — who directs the fans to participate in chants for each player. It’s all very strange.

In case you were all wondering, the Lotte Giants came out victorious, 10-3. The game took nearly four and a half hours. I convinced Vanessa to stay for three and a half of those hours, which I thought was pretty good.

I think that’s probably enough for now. Stay tuned for the next one of these, which will confirm some Asian driver stereotypes. That’ll probably come in two or three weeks. Or not. Depends on how lazy I am.

 

Aug 132014
 

If I had a crystal ball, I would probably be using it to predict more fun things than the stock market. Also, I’d be a gypsy, and nobody likes them. Not even gypsies like other gypsies.

Now that we’ve concluded that I don’t definitively know that the market is going down, I think we’re in the beginning of that correction all the kids have been talking about. Bear markets don’t happen right away, but I think craziness from Russia/Ukraine  and weakness out of China will start to bring the market down.

Keep in mind though that there is at least a 96% chance I’ll be wrong. That is the nature of calling market tops.

So what should you do if you think the market is going down? A smart move would be to get into a sector like REITs, even though Canada’s real estate bubble is large and still in charge. Most of these REITs are sitting on assets that are a decade or two old, and can actually deliver decent cash flow. Besides, the commercial REIT space is filled with smarter buyers than the Toronto condo market. They actually buy properties that cash flow immediately.

I’m not sure if interest rates will go up, but even if they do I don’t think a spike in rates is going to happen, which is probably the biggest risk to REITs. Even if they go up a little and the average REIT sells off 10-15%, you’ll be somewhat insulated by the succulent dividends.

Anyway, enough teasing. You want actual REITs to buy, and you possibly want to murder this DAMN FRUIT FLY ANNOYING ME I SWEAR TO GOD I’LL TORCH THIS PLACE.

I mean, let’s look at two of my favorites in the space.

Cominar REIT

The majority of Cominar REIT’s (TSX:CUF.UN) assets are in Quebec, setting me up for some terrible poutine jokes.

A little over a year ago, the whole REIT market sold off some 20% because everyone thought interest rates were going up. That turned out to not happen, so most of the sector have largely made back the loss. Except for Cominar.

The REIT has a little of everything, except apartments. It’s got office towers, retail, industrial, and so on. Operations are mostly located in Quebec, which has weak overall economic numbers, a possible reason for why it hasn’t recovered with the others. But when you look at the numbers, they ain’t bad.

Every metric was up during the company’s last quarterly report. Funds from operations rose something like 10%, thanks to acquisitions in the Greater Toronto Area. It even went as far as hiking the dividend, from 12 cents per share a month to 12.25. For a REIT, a 2% dividend hike isn’t so bad. The payout ratio is currently under 90%.

And yet, shares are giving you a 7.66% yield. If you took them in the form of a dividend reinvestment plan (which gives investors a 5% reward for taking shares instead of cash), you’d be getting an 8% yield. Not a bad place to hide if you ask me. It sure beats the closet. NOT WHAT I MEANT.

Dream Office REIT

I understand why Cominar hasn’t recovered, but I honestly have no idea why Dream Office REIT (TSX:D.UN) hasn’t.

Dream owns office property across Canada, with a 60% concentration in Calgary and Toronto. It’s been having a few problems getting occupancy up to standards in Calgary, but other than that it’s been rolling right along. The REIT yields 7.75% and the payout ratio is right around 90%.

What I like about Dream is that it owns some of the best office towers in the country, including 50% of the Telus tower in Calgary, Scotia Plaza and Adelaide Place in TO, and the HSBC building in Edmonton, among others. Here’s a complete list. There’s no retail at least, so that’s a plus. Most of the REIT’s buildings are located right downtown, which makes them attractive places to work, and therefore attractive places to rent.

Dream yields 7.75%, and like Cominar, I think has the potential to grow the share price a little once it fixes whatever the market perceives as being wrong. You’d be picking up a stock trading for around 80% of book value that trades at a discount to its peers too, which is sorta the way we like to do things around here.

Anyway, if you have some stock that’s quadrupled or something since 2009, I’d serious look at finding something a little safer. But what do I know? I’m a giant wuss who cries regularly.

 

 

Aug 122014
 

If personal finance aficionados were in charge of the world, a LOT of things would be different. You guys have no idea.

First, we’d all have separate savings accounts for travel. This would be mandated with all the enthusiasm of Brad Lamb shilling his latest condo development. The vacations wouldn’t *have* to be exotic, but you’d get mocked endlessly if you spent your travel fund  going to Saskatoon.

Secondly, we’d all churn credit cards to get reward points, but only once our debt was paid off. Because, obvs. Y’know, see point one.

Thirdly, we’d have weekly meetings about balance, all while tracking our net worth monthly to the penny. We totally wouldn’t get the irony in that.

And finally, we’d make personal finance education mandatory for all youth, starting them off at the ripe ol’ age of six. That seems like waiting long enough. STOP PISSING YOUR PANTS JIMMY, IT’S TIME TO COUNT QUARTERS.

On the surface, personal finance education in high school seems like a good idea. They’ll be heading out into the real world soon, and need to know about budgets, credit, taxes, investing, and the big one, student loans. Increasingly, our teachers are taking time to teach kids this stuff.

Back around the year 2000, I was in high school. And we learned this stuff. Admittedly it wasn’t much more than a couple weeks worth of coming up with imaginary budgets and amortization schedules, but we learned it. And that was a million years ago.

God, I’m old.

Admittedly, I don’t have an in-depth look at my former classmates’ financial picture — hell, I can’t even stalk on Facebook, since I quit it like five years ago — but I’m willing to bet that, collectively, they ended up pretty much the same as people who didn’t learn any personal finance education.

Why was it a failure?

Was it because we didn’t spend much time on it? Maybe

Was it because teachers, as a group, aren’t really that good at it? Maybe

Or was it because high school students largely tuned it out because they don’t deal in the real world? We’re getting warmer

As just about every single high school teacher who had me in grades 11 and 12 can attest, it’s hard to teach people what they don’t want to learn. I had mentally checked out of school, and I was working close to full time at my after-school Dairy Queen job. I barely did my homework, and was kind of a lippy little jerk.

But I did well on the personal finance education test. I got 100%. Most everyone in the class got above 85%. Because, as I’ve stated a million times, this stuff isn’t very difficult.

So why do students do okay in personal finance education in a classroom, but not in the real world? It’s because they just don’t care. When you’re a student and you don’t care enough about the subject matter to do anything more than pass the course, I guarantee that knowledge is going to be more gone than my entire grade 12 calculus class. BUT I PASSED, SUCKAS.

And I think I have evidence that my theory is correct.

According to this article from the personal finance section of Vox (presented by Discover!, also without irony, apparently), students in 17 states must take fairly complex personal finance education before they are allowed to graduate high school, with only six states actually testing them on it. After finishing their course, each student was presented with a quick test, consisting of such difficult questions as:

  • Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, or less than $102?
  • Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?
  • Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”

I’m not saying the answers. If you don’t know, log off and leave this blog forever.

This quick test is commonly used to figure out whether kids know anything about personal finance. Nationally, in the U.S., just 27% of high school kids got all three answers right. You’d think students with personal finance education would do better.

You’d be wrong. They did about the same.

If that’s the case, why spend money on personal finance education anyway? Perhaps it would be better spent on college students, or increasing funding to higher education to ultimately lower tuition. Like that last one would happen, but we can dream.

Has personal finance education been around long enough to declare it a failure? I don’t think so. But I continue to insist that it isn’t the magical answer to all the money problems that kids get into. We push college at all costs, get constantly sucked into traps because of psychology, and show kids crummy examples by doing stuff like financing cars because we want something shiny, spouting some crap about reliability.

Do you really think that a semester in school taught by some teacher who’d rather be playing games during his spare is really going to make a difference when stacked up against that? And when stacked up against kids who don’t really give a crap about learning this? I doubt it.

The problem of kids not knowing basic personal finance stuff is real. Teaching it in school seems like the best way to fix it. It’s not. I wish I could come up with a better way, but I can’t. All I know is the way we’re doing it isn’t working. So let’s stop it and do something else.

Aug 112014
 

yellow-media

You all might not remember, but I wrote about Yellow Media back in 2011. The maker of the Yellow Pages was barely profitable, paying a hefty dividend (it was 20% at one point), and its debt load was bigger than my failure at Dance Dance Revolution at a Korean arcade the other night. It was not pretty. Me, I mean. But also the debt.

I decided to avoid the stock, for those reasons, even going as far as taking a shot at it when I talked about stretching for yield. And I turned out to be right, because in 2012, the company finally bit the bullet and filed for bankruptcy protection. Well, sort of. The company and debt holders came up with a deal to convert $1.5 billion worth of debt into new equity, all but wiping out existing equity holders (they got about 10% of the company, compared to 80% for the debt holders). The company then did a big-ass consolidation of shares so there’s currently only 27 million shares outstanding, along with a few million warrants and convertible debentures.

So now it’s back, and a lot leaner than before. It’s still sitting on $575 million worth of debt — part of which is offset by $146 million in cash — but it’s in a lot better financial shape. Hell, you could almost argue it’s in great financial shape. And considering how much press the decline of the Yellow Pages part of the business gets, it’s still remarkably profitable.

Since Yellow Media emerged from it’s creditor protection period at the end of 2013, let’s take a look at how much money it’s made each quarter. Keep in mind that Yellow Media’s shares trade at $17.65 each.

  • Q1 2013 – $1.64
  • Q2 2013 – $1.50
  • Q3 2013 – $1.24
  • Q4 2013 – $0.92
  • Q1 2014 – $1.22
  • Q2 2014 – $1.01

Based on the last 4 quarters of earnings, the company trades at a annualized rate of just four times earnings. That’s crazy cheap.

But is it for a reason? Well, yes. Check out the revenue numbers during that time.

  • Q1 2013 – $253M
  • Q2 2013 – $243M
  • Q3 2013 – $237M
  • Q4 2013 – $238M
  • Q1 2014 – $223M
  • Q2 2014 – $220M

It’s pretty easy to see the problem. At this point, approximately half the revenue comes from sources other than the traditionally big, bulky phone book business. Yellow Media owns a bunch of different websites, including YP.ca, Red Tag Deals, and a few others I’m too lazy to look up, but are kind of big Canadian deals.

First, let’s talk about the viability of the Yellow Pages. So far post-restructuring the company is renewing customers at approximately a 85% rate, as well as signing up approximately 15,000 new ones per year. Let’s assume conservatively that they’ll continue to renew at an 85% rate, and not sign up anyone. What do the numbers look like after a few years?

  • 2014 – 265,000
  • 2015 – 225,250
  • 2016 – 191,462
  • 2017 – 162,743
  • 2018 – 138,331

Let’s stop there, and assume that in 5 years the Yellow Pages business will be cut in half. This is also assuming the company doesn’t sign up a single new customer.

Yellow Media is very vocal in pointing out that half of its revenues come from the digital side, which seems like a good transition. Except it doesn’t actually break down the margins from the digital side. For me, that’s a giant red flag, and shows that digital margins are 14 different kinds of terrible, and at best the digital side of things is breaking even.

It’s hard to predict any earnings growth from the digital side, so let’s assume that earnings are cut in half over the next five years from the decline in the print business. That puts earnings at the $2.25 to $2.40 per share range, giving the stock a future P/E of eight. That’s… not bad, actually.

There are a few risks, of course. Print revenues are declining by 20% a year (partially offset by converting these print customers to digital customers, which is where I got the 85% renewal rate), and there’s always the risk that they could fall faster. There’s also the risk of more cities passing bylaws to not allow the company to distribute physical phone books. The company has long-term contracts with every major phone operator in Canada except Bell, which expires in 2016.

And, of course, we still don’t know if digital makes any money, and much to do with the economics behind it. We all know there are a whole bunch of profitable websites out there, but just how much of Yellow Media’s digital revenue comes from its websites and how much comes from selling ads to yellow page customers remains to be seen. Because as the Yellow Pages business declines, folks aren’t going to care about maintaining a digital presence on the website. They’ll just go away.

The company also trades at right around book value, but that’s pretty much meaningless. About 75% of the company’s assets are intangible. Sure, the Yellow Pages has a brand, but just how valuable is it? Is it worth $1.3 billion? I doubt it, but that’s the reality in investing in a company like this.

Anyway, I’m not about to buy Yellow Media anytime soon. At $17.65, I’m just not that excited. But would I look hard at it if it dropped to $10? Hell to the yes. It’s on my watch list, anyway.