Weekly Linkfest #25

Weekly Linkfest #25

I rent an office in the crappiest mall imaginable that just got a whole lot worse.

This mall has two spaces for major anchor tenants. The first use to hold a Woolworth’s and then a Liquidation World, a chain which actually closed up because times were too good and it couldn’t buy cheap crap from closing stores any longer. Liquidation world shut its doors in 2007 and its space has been vacant since, with the exception of the town’s annual rummage sale and a few other one-off events.

The other big tenant is a grocery store that has been struggling for years now. Last week it finally bit the bullet and announced it was officially shutting its doors, effective at the end of the month.

It’s a bittersweet moment. I’m happy that they’re no longer burning perfect good capital to keep the location open (it was subsidized by two other profitable divisions, lumber and gasoline), but I feel bad for people who are losing their jobs. My fellow mall merchants who actually depend on foot traffic are pretty screwed, too. Who’s going to visit a mall that doesn’t have any anchor stores?

And most importantly, where am I supposed to go for snacks? I’m asking the important questions here.

The saddest part of this whole situation is, IMO, that store was run terribly. I’m convinced I could have cut the losses at least in half with a little active management and tighter controls. It was obvious for years, but instead of doing something the present management team just focused on the profitable divisions, letting the store go all to hell. It was a damn shame.

Links I liked

1. Let’s start things off with an investor nobody can accuse of not trying, Mark Charles Barnett. Mr. Barnett (who is from Florida, naturally), paid an unnamed man $10,000 to place bombs in Target stores all along the east coast. He then planned to buy depressed Target shares to make himself a tidy profit. THAT’S GOOD HUSTLE.

2. Here’s a great interview with Charles Koch, a man I’d consider one of my business heroes. It’s just too bad he felt forced to spend so much of his energy on political causes, although these days he mostly just throws money at things.

3. Speaking of videos of smart business guys, I wrote a few days ago about Charlie Munger and the Daily Journal annual meeting, which is just like the Berkshire Hathaway meeting but smaller and more fun. Here’s a video of the whole thing if you’re so inclined.

4. I think RRSP loans can be a great idea in the right circumstances. Over at Boomer and Echo, Robb talks about the subject and comes to a similar conclusion.

5. Here’s an analysis of a stock I first discovered at about $12 per share, Goeasy Ltd. They’re the company that makes unsecured loans to dirtbags charging 46% interest. Unsurprisingly, that’s a pretty good business and this is a pretty good analysis.

6. Should Ottawa let people invest their TFSAs in small business? Since most small businesses are funded by their founders, it would be a big advantage to them to allow such an investment. I’m not holding my breath, but it’s an interesting idea.

7. This week Warren Buffett’s Berkshire Hathaway announced it sold most of its Wal-Mart stake, signaling what one writer called “the end of retail as we know it.” The title is a little much, but it’s an interesting article.

8. More gold from Paul over at Asset-Based Life, the only blog I know with a dash in its title. He recently wrote about something called the “gas factor,” which is all you need to have a successful career. What’s the gas factor? Does it have to do with farts? You’ll have to click through to find out.

9. Over at Freedom 35 Blog, Liquid presents some timeless advice that certainly bears repeating. If you surround yourself with successful people, you’ll lift yourself up. It might be simple advice, but it works, dammit. I especially remember it when certain people show up and bum me out.

10. Dividend Growth Investor is a good read, even if you’re not a hardcore dividend-growth guy (like me). He recently wrote a great post on how it’s important to recognize risk when investing and embrace it, rather than avoiding it completely. He uses two tobacco stocks, Altria and Philip Morris, to illustrate his point.

11.BMO generated a lot of attention this week by declaring Toronto real estate to be officially in a bubble. Excuse my French here, but, no shit. People have been saying this for years now. BMO doing the same does nothing but confirm already entrenched biases. By the way, how’s shorting the Toronto real estate market working out for everyone? That’s what I thought.

(I agree with BMO and the 4,592 other analysts that called a bubble before this, BTW. I just don’t see what good it does anyone.)

12. Bullish on Realty Income, the overvalued REIT that has more middle-aged male fans than Kate Upton? Ian Bezek just splashed cold water in your face.

13. And finally, here’s a great post on negotiation from I Will Teach You to be Rich. This is something I need to get better at, and you probably do too.

Stuff Nelson wrote

As a reminder, you can hire me to write for your blog, newspaper, or poorly-Xeroxed newsletter. Hit the ol’ contact me page to get the ball rolling. 

1. This week Prem Watsa (of Fairfax Financial) took off the company’s equity hedges after being pretty bearish for years. Good for Watsa to finally figure out betting against markets is foolish.

2. I also asked if TransAlta Corporation is Canada’s cheapest stock. Spoiler alert: probably not, but it’s still pretty damn cheap. I own a bunch of it in my TFSA.

3. With the TSX Composite hitting new all-time highs, it’s time to start talking about taking some risk off the table. I outlined a few easy ways to do so.

Tweet of the week

TWO TWEETS. Oh, I spoil you guys.

I don’t like to get too political, but can’t we all agree corporate welfare is a bad idea?

Have a good week, everyone.

 

 

How I Leveraged Ten Seconds of Work into $200,000

How I Leveraged Ten Seconds of Work into $200,000

OH THE CLICKBAIT POLICE AREN’T GOING TO LIKE THAT TITLE.

Let me take you kids back to 1999, back when your author was even more awkward than today. Yes, I assure you, it’s very possible. I was 16 years old making a whole $6.00 per hour flipping burgers and making sundaes at my local Dairy Queen.

Life was good. Dairy Queen’s business was booming and I was in the midst of a fantastic business education from the franchise owner, Gail. She was a hard-nosed lady who didn’t put up with anyone’s crap, including mine. She gave me hell on several occasions, usually while there was a cigarette burning. Hey, it was a different time. That place still had a smoking section up until about 1997. She had no qualms about smoking in the back.

Gail taught me all sorts of invaluable lessons, things I still remember to this day. “The customer eats with their eyes, dummy,” she’d tell me, “not with their mouths.” Even if a lopsided sundae would taste every bit as good as a perfect one, it didn’t matter if it looked like ass.

One I graduated to running the kitchen (I say that loosely, Dairy Queen’s kitchen back then was really a one man job), Gail gave me another invaluable piece of advice. If the front staff were busy, I should just walk out from the back and call out the person’s number myself. All that mattered that the job got done.

Excellent service

One thing Gail used to really push was excellent service. She would do things like give regulars free coffee, bring food out to people’s tables (often stopping to talk for a little while), and making sure customers were happy even if their complaints were, frankly, bullshit. Somebody once threw a messed up hamburger at her. She dodged it, made the guy another one, and presented it with a smile. And then went to the back room and probably smoked half a pack.

Maybe I was young and impressionable, but Gail’s service standards rubbed off on me. One thing I’d do fairly often is when it was slow I wouldn’t even bother calling someone’s number. I’d load up their tray and just take their food out to them. I must have done this thousands of times over the years.

I don’t remember people being particularly impressed by this, but I now know at least one person was.

It’s a small world

Long-time readers know I sold potato chips for a living from 2010 to 2013, working for the North American leader in chips. I started out as a weekend guy for someone who was planning to retire before graduating to running the whole route on my own. Let’s call him Gord because, well, that’s his name. Also, at least 30% of men in their 60s in Canada are named Gord. You can look it up if you don’t believe me.

Gord lasted about a year until I took over his route full-time. He wasn’t entirely happy with my presence at first — probably because they paid me out of his commission — but quickly realized that I was cutting his work hours down from about 55 a week to less than 40. He ended up making a little bit more per hour when it was all said and done.

Selling chips is a surprisingly lucrative job. In three years I estimate I made about $200,000 in total commissions. The first year was a little lean, but once Gord retired I had a large route to myself. Even after they split my route it was still pretty lucrative.

Let’s back up a little. Here’s how I got the job.

I saw it online and applied like about 20 other people. Since the new hire would be working exclusively with Gord, he got a lot of input in the hiring process. My name was at the top of his list. The reason? It was because 12 years earlier I brought double cheeseburgers to Gord’s table at Dairy Queen without calling his number. 

He remembered after all that time. Hell, he still brings up that story to this day.

Do the little things

The ten seconds it took me to take Gord’s food to his table might have been the most profitable ten seconds of my life. Yeah, I know I still had to work as a chip guy, but that one little action was enough to make a memorable impression, one that lasted for years. It was the difference between me getting the job and Gord suggesting somebody else.

The implications for your own life are simple. The little things matter. An employee who goes the extra mile is far more likely to get promoted. The business owner who gives better customer service is rewarded with higher prices.

This blog is a great example. I started writing six days a week in August, which bucks the trend in the industry. Most of my peers believe that writing less is the ticket, not more. But I powered ahead anyway, and I’ve nearly doubled my daily visitors in the last six months alone. It’s not easy, but I’m seeing great results. It’s pretty obvious you guys are enjoying it, too.

There’s an old expression about how showing up is 80% of the work. That might be true, but I prefer to look at it another way. If it takes an hour to do something, invest another minute or two into doing something a little extra. As long as the perk you pick matters, it’ll have a greater impact than the previous hour. It works.

As for Gail, her plan was to run the Dairy Queen as a semi-retirement project. She hoped to make a decent amount of money and then eventually retire to Hawaii. She did, but lung cancer cut her life short just a few years after she officially retired. She might be dead, but at least she lives on in a small way through the lessons she taught me.

Munger Speaks! Notes From The 2017 Daily Journal Corporation Annual Meeting

Munger Speaks! Notes From The 2017 Daily Journal Corporation Annual Meeting

Each year, Warren Buffett and Charlie Munger entertain tens of thousands of individual investors at the Berkshire Hathaway annual meeting. I went last year and would recommend the trip to anyone who’s a big Buffett fan. You should probably do it soon, since Buffett is 86 and Munger is 93.

Buffett gets all the attention, but many (including me) consider Charlie the real star of the show. Buffett has spent years speaking in public and has become a master of giving an answer without actually saying anything. Munger’s filter is nonexistent, so he’s a lot more fun.

Munger fans gather each year in Los Angeles at the Daily Journal Corporation (NASDAQ:DJCO) annual meeting to attend a Berkshire-type gathering but in a far more intimate setting. Munger — who is Daily Journal’s Chairman — answers questions for a few hours before the meeting wraps up.

Like with Berkshire’s meeting, the Daily Journal meeting is no hold’s barred. People can ask Munger pretty much whatever they want.

Fortunately for those of us who don’t want to go to Los Angeles, a number of different investors go and live-tweet the whole thing, condensing the whole thing into a series of fun sound bites. Then guys like me read them to learn a little more about investing from a true master. Isn’t life grand?

Here’s the best of what Munger had to say at the 2017 Daily Journal annual meeting, along with commentary from some hack who’s not nearly as funny as he thinks.

You forgot as smart as he thinks too.

Thanks, Italics Man.

On delayed gratification

I lived my whole life with people who have deferred gratification. They don’t have fun, but they get wealthy.

This is really personal finance in a nutshell, and one of the things I remind myself about on pretty much a daily basis. I’m all about getting rich. That’s what personal finance means to me.

It probably won’t be the same for most people. They want to drive a nice car or live in a nice house or travel all the time. There’s nothing wrong with those things, but they ultimately keep you from getting richer.

My priorities are clear. So are everyone else’s. And never the two shall meet. As long as everyone realizes that, we can live in harmony.

Apparently I’m a hippie now. Ugh.

Specialization

I don’t think working over multiple disciplines is a good idea for most people. I do it because it’s fun. Most should specialize… Even if you specialize, you should still spend 10-20% of your time learning the big deals of the major disciplines.

As much fun as it is to be a generalist, I agree 100% with Charlie here. If you know a business inside and out, the world is your oyster. It’s so much easier to get ahead if you just focus on what you’re good at. There’s just too much competition out there. In everything.

Working hard

In many areas of life the only way to win is to grind away and work hard for a very long time.

You don’t have to tell me twice, Charlie. I think just about everybody (myself included, btw) is capable of working a lot harder than they do. In many cases the only thing separating a successful person from a regular guy is work ethic. Brains can only take you so far.

Diversification

Am I comfortable with a non-diversified portfolio? Yes. The Mungers have three stocks: Berkshire, Costco, and Li Lu’s fund.

And here I am spouting diversification like a sucker. Hey, if Charlie has a concentrated portfolio, everyone should have one, right?

Look, I get what Charlie’s saying here, but I just can’t bring myself to have three stocks in my portfolio. It would stress me out too much.

Notice that Charlie is the Daily Journal Corporation’s Chairman and he doesn’t own any stock? That’s a little interesting.

Pessimism 

I don’t tell my grandchildren about how to seize business opportunities. I don’t have that much hope.

I’m not sure if that was a knock on his grandkids or about society as a whole, but it still made me laugh. People live-tweeting the meeting said Munger’s daughter thought that was hilarious, for what that’s worth.

On fees

If your advice is worth anything you should be pretty rich pretty soon, and if you not why am I paying you?

Charlie’s talking about hedge funds here, but a lot of the same stuff applies to mutual funds. I still don’t think it’s impossible to find a mutual fund that’s worth its fees — here are five that have consistently beaten the market over time — but it’s far easier to put your money in an index fund. Or, better yet, be a little smarter about indexing and put your money to work across the world. There’s nothing that says you have to pour all of your money into overvalued Canadian and U.S. stock markets.

Patience

Berkshire succeeded on two decisions a year.

This seven word quote is probably my favorite, and it’s perfect for today’s overpriced markets. It’s silly to opine on everything. Be patient and wait for your pitch. It’s something a lot of investors need reminded of, including me.

Let’s wrap it up

The nice thing about both Buffett and Munger is they’re kind enough (or vain enough, depending on your perspective) to do these things. It allows us to learn stuff without leaving our chairs, which is one of the best things about living in 2017.

Munger is the best. If y’all need me, I’ll be looking for transcripts of previous years.

Edit: Here’s the whole meeting on Youtube. God bless technology. As always, watch on 1.5x speed.

Ways to Back Test a Strategy

Ways to Back Test a Strategy

“Backtesting? How boring!” “I just want to make money.” I hear this all the time from new traders rushing in and wanting the glory straight away without getting their hands dirty.

Let’s say you’re opening a new business selling coffee. If you are completing your due diligence properly you and the bank will want to know how much your new business will make in the following years (projected income). If your treating your trading like a business (which I highly recommend), you will also need to know how much money you can expect to make with your system in the years to come. You would be surprised how very few traders implement this into their trading.

Now, this can be time-consuming but the rewards and confidence you will gain are well worth it.

Now you can backtest on your broker’s charts, it will all depend on what time frame you trade on. I trade on IG and have access to a charting program called pro real time, which can be accessed through IG or via their website (www.prorealtime.com).

Pro real time gives me access to 15 months of data on the 5min chart for most stock indexes, the higher the time frame you trade off the longer you will be able to go back. For example, if you trade off the 1hr time frame you will able to go back many years to test you system.

Now this does sound like a lot of work, but why not do 30mins per day, and in no time you will have 2 years of results in front of you.

So to backtest your gap strategy you will need to know the rules of your trade, when does the trade trigger? What stop loss do I use? And the risk you will be using per trade. You will notice once you start to back test you will find patterns, like the trade does not work on Fridays very well, the stop loss I use is too large and never gets tested when I’m in a trade. (let’s look at a smaller stop loss)

Looking back at the results I find adds more rules to the trade, but this is what we want, all we are doing is fine tuning our trade, to make it work better and add more profits to our account.

I have a backtesting sheet on an A4 piece of paper that I use, the information I use for my strategy is

  • The time the trade triggered
  • How long did the trade take to hit my profit target
  • Risk V Reward (the stop loss size compared to my profit target)
  • Day of the week
  • Was there any news announcements around time of the trade (or trump tweets)
  • How many points the trade went against me (is my stop loss to large for the trade?)

And like I mentioned as you make your way back in time so to speak, you will find other information that is very valuable to your bottom line.

Moving forward on a day to day basis I keep track of all my trades that have triggered in the last 24 hours, which can be time-consuming on some days, but a whole lot better than going back 2 years looking for results.

So the main benefits I feel of backtesting a strategy are: knowing how profitable your system is, your winning %, and your potential profit. You will have more confidence in taking your trade and in some ways it can take a little of the emotion out of trading. Looking down at your stats sheet knowing that over the last 2 years this trade you’re about to take has a 62% chance of giving you some profits.

News events, does your trade work when there is an interest rate decision by central banks? When a war has broken out? Or when a country is going through a change of government?

These are just some of the questions you will not know about your system unless you get your hands dirty and do some backtesting.

Could This Stock Market Rally Just Be Getting Started?

Could This Stock Market Rally Just Be Getting Started?

As every major North American stock index (including the little-known Nelson index, which just tracks stocks I think have fun ticker symbols) starts hitting new all-time highs, us value investors tend to take our proverbial ball and go home. I am not above acting like a petulant child.

My default reaction in today’s markets is to do a few different things. First, I’m focusing on paying down my mortgage, using funds I’d normally be pouring into the stock market. I’m also looking heavily at alternate investments, things that will provide me cash flow without the risk of falling 20%. I just did another private mortgage, for instance.

Surprisingly, I haven’t sold anything lately, which is usually the final step. The last stock I sold was in 2016, and that was because it got taken over. Most of the stocks I own pay pretty succulent dividends, so I’m happy to hold, even if I think they could easily fall 20%. The dividends are safe no matter what the stock market does.

Remember that I’ve been saying stocks are expensive for years now. This is another reason why I’m reluctant to sell just because markets seem a little bubbly. Besides, I kinda got that one right. I wrote that article on August 13th, 2014, when the TSX was at 15,300. 18 months later the TSX was below 13,000 and I was buying stocks with all the gusto of a crack addict just outta rehab.

Besides, I’m not sure today’s the same as 2014. There’s a major source of funds that could propel stocks higher. Much higher, actually.

Enter scared millennials

God, you millennials make me sick. Always making it about you like a bunch of GLORY HOGS. Why can’t you just suck it up and be more like your grandparents? They got shot at in World War II and THEY LIKED IT, DARGBLOOMIT.

Millennials are scared of everything. Home ownership is hard, so they prefer to rent. Building up a career isn’t as fun as bouncing around, so they change companies faster than my cheap ass uses Subway coupons. And most alarming of all, they all pretty much refuse to invest in the stock market.

These are U.S. numbers, but I’d bet a lot of money that Canadian millennials have about the same asset allocation:

Only 14% of millennials’ portfolios are in stocks. You’ve got to be kidding me. And 46% of millennials think “investing” is too risky. Not stocks; or crazy penny stocks; or even Bitcoin. Just investing in general. It’s the equivalent of refusing to go up an elevator because 9/11 happened.

Too soon?

Look, millennials, I don’t like making fun of a whole generation, but you people are basically asking for it. And I thought I was wussing out by paying my mortgage instead of investing.

Notice the small print of that graphic there, too. These aren’t poor millennials. These are people with at least $50k in assets. They are the 1% of millennials.

What happens when they start investing?

One of the things propelling the 1990s tech bubble boom was baby boomers putting their cash to work in the market. Granted, a lot of that money went into insanely overvalued tech stocks, but it still got invested in equities.

Millennials could start doing the same thing. They’ve got the money and most hardly remember the meltdown of 2008-09. And if they insist on continuing to rent they won’t have a house to pour all of their disposable income into. Equities will be the default investment choice.

When baby boomers and generation X started investing, you could get a decent return on a GIC. Sure, a 6% GIC isn’t very exciting when inflation is at 3.5%, but the average person doesn’t care about that. A 2% GIC sucks, even if inflation is basically zero.

Let’s face it. The average person with a bunch of money in a savings account is hardly a sophisticated investor. They’re the kinds of people who will get wrapped up in the hysteria of a market heading 20% higher in 2017.

The end

Nobody knows if millennials are going to flood the stock market in the next couple of years. What I do know is that there are a million things that can cause an overpriced market to keep rising. Be wary of doing stupid stuff like selling everything just because markets are expensive. The better course of action is to hang on, be picky buying new stocks, and perhaps taking capital and putting it to other uses.

There’s no telling how much higher the market could go. Be cautious, but don’t be stupid. Keep investing in stocks you like, but maybe do some other stuff with the money.