Financial Independence Will F*ck You Up

Financial Independence Will F*ck You Up

Ooh, look at you. Such restraint in the title. Would you like the Nobel Peace Prize?

Why yes, I would, Italics Man. I think I deserve it after putting up with you.

Let’s talk a little about Nelson’s sexy new job. It must have been a great opportunity, since I quit writing about stocks to do it.

That new job is…

Just building up anticipation here, don’t mind me…

(whispers) I work in a grocery store.

(ducks as tomatoes come flying from the crowd)

Why in the actual hell would you go work at a grocery store?

First off, remember that I’ve spent much of my adult life in the retail industry. My first real job was working in a grocery store (the same one as today, actually). I stayed for almost six years. After becoming a terrible real estate agent, I went back into the industry for three more years as a potato chip salesman. It’s nice to start a new job and not have a crazy learning curve.

As I’ve mentioned before, retail is clamoring for brains. Most chains have their share of long-term employees, but most of these workers have zero hope of ever advancing past entry level. They just don’t have the intelligence or work ethic needed to excel. They’re decent at being told what to do, but never level up past that stage. Grocery is competitive as all hell; it needs people who can truly drive sales.

And apparently, one of those people is me. At least, according to my new bosses. I’ve been tapped to move up the ladder. Management has put me into a sort of half-assed advanced training program and has me in charge of certain parts of the grocery department to try and prepare me for the next step.

Grocery management is a decent living. Department managers regularly earn more than $50-60k per year, with store managers pushing six figures. Hell, even as a guy who just works in a store, I feel I’m more than adequately compensated. Certain chains invest in their staff. Others don’t. One of the reasons why I work where I do is this company is squarely in the former category. And it shows; they have some damn fine grocers.

Despite the opportunity staring me in the face, I’m not entirely certain I’m going to go for it. And it’s all because of damned financial independence.

How FI is BS

Thanks to years of aggressive saving and some savvy investments, I’m fortunate enough to be in a position at 34 years old to not have to work. I continue to drag my ass in every day because I know time off only means something if you have something to measure it against. When every day is a treat, it’s no longer a novelty. Suddenly, taking every day off is like having a job.

But while I’m a big advocate of doing work, I find myself with less motivation now that I know each paychque just goes to further increase the big pile of money at my disposal. I should be working my ass off towards getting promoted. I should be telling management to send me to a new store the minute a department manager opportunity opens up.

But I’m not. Instead, much to their chagrin, I’m hemming and hawing and coming up with reasons why it’s not a good idea to accept a promotion. I don’t want to move. I’m not sure I’m ready. I want to make sure the manager is someone I can work with.

It’s all nonsense. The reason why I’m dragging my feet is because money doesn’t motivate me any longer. Sure, there are plenty of other reasons to take a promotion, but y’all gotta admit the cash is a huge motivating factor. And if the money doesn’t motivate me, then it’s all about the challenge of a new position. But why bother taking on huge potential frustrations when I don’t need the money?

This is what financial independence has done to me. Suddenly, I understand these early retirement bloggers who threw up their hands and decided work was stupid. It’s really hard to get motivated under such circumstances. Why work so hard when you don’t need to? Why not just have fun instead?

There’s a lot of good that comes with financial independence. We all know about that. But nobody ever talks about the bad. Sapping motivation is not a good thing. Early retirees are, generally, smart as hell and great with money. They’re probably people who should stay in the work force long-term. Unfortunately, there just isn’t much sense trying to talk these people out of it. As I’m finding out, the default response to “fuck you” money is “fuck it,” no matter how much I want it not to be.

Portfolio Updates and Other Such Nonsense

Portfolio Updates and Other Such Nonsense

Hey, it’s been almost two months now. I bet you kids are just JONESING FOR MORE NELSON.

(Crickets chirp and a tumbleweed slowly goes by)

Or not.

The interwebs is very much a place where you can just quietly go way and nobody gives a crap. I retired from Motley Fool about a month ago and two people cared enough to mention it. Two! I’ve never felt more disposable.

I have a real job now, and it’s great. Co-workers are fun when you’ve gone without for a few years. I like working with people towards the same goal. I really missed that.

But enough about my personal life. It’s time for a bunch of thoughts on some different subjects. ARM THE RANDOMNESS CANNON.

New portfolio position

I think Alberta is a great place to search for undervalued stocks today. The economy will eventually recover, bringing up earnings of Alberta-centric companies up with it.

Gamehost Inc. (TSX:GH) is one such company. It owns and operates three different casinos in the province, with locations in Grande Prairie, Fort McMurray, and Calgary. Earnings peaked in 2014 at $0.95 per share, falling to $0.66 per share in 2016. Keep in mind 2016’s results were temporarily low because of the Fort McMurray fire.

I paid just over $9 per share for my position, meaning I got in for less than 10x peak earnings. I believe the company grows earnings in 2017, since they’ve already come out and said both Grande Prairie and Fort McMurray are looking strong. Calgary is the weak market today, but the city will eventually recover. Oil always swings back. It’s just a matter of time.

And while I wait, the company pays a generous 7.6% yield.

Gamehost has other things going for it value investors typically like. Insiders own approximately 40% of shares outstanding. It has a solid balance sheet. Management did cut the dividend, but that was to free up capital to put to work buying back shares. And since Alberta’s economy is in the shitter, there’s little chance of any new casinos opening anytime soon.

Aimia

I bought a bunch of Aimia (TSX:AIM) shares in 2016, enticed by the company’s strong free cash flow and what I thought was a no-brainer choice for Air Canada to renew the contract.

I guessed wrong, and I’m now down a cool 75% on Aimia. Yeah, that stings.

I’m not entirely convinced Aimia will end up insolvent, although I do admit that’s a very real possibility. I like the company’s other assets, including the 50% stake it has in AeroMexico’s loyalty program. I suspect that will get sold and the proceeds applied to debt.

There’s also the possibility of another company buying Aimia, whether it’s the parent company of Air Miles (Alliance Data) or one of its bank partners. There’s zero possibility of Air Canada buying the company back, at least in my opinion.

The Aimia debacle pretty much erases my big win with Canam a couple of months ago. Oh, investing. You have a special way to keep a guy humble.

Home Capital and Buffett

Anything that fucks over Marc Cododes, the short-seller who declared Home Capital was a gigantic fraud at every possible opportunity, is fine by me. Short all you want, but don’t be an asshole about it.

I don’t see what attracted Buffett to Home Cap, but the reaction on Financial Twitter (or FinTwit) was delightful. I’m 80% certain Warren did the deal just to lurk and LOL at everyone’s reaction.

You still can’t convince me to touch Home Capital, however. I’m staying far away from that turd. Genworth MI Canada (TSX:MIC) looks a little more interesting, but it’s too expensive today. I might sniff when it falls back to $30ish. Or I might nope out of anything related to Canadian housing. That seems like the safer bet.

Other interesting stocks

I like Inter Pipeline (TSX:IPL) at anywhere under $25 and Altagas (TSX:ALA) under $30. I think both are solid businesses that will succeed over the long-term. Neither are particularly cheap, but they’re the kinds of companies that never get truly inexpensive.

I once bought Inter Pipeline under $10 a share and then sold at $20 per share, collecting a sweet dividend along the way. The company has increased both cash flow and the dividend since, a trend I think continues over time.

I’m down a bit on recent portfolio additions High Liner Foods (TSX:HLF) and Information Services Corp (TSX:ISV). I think both are solid businesses you want to own over the next decade or so, and would buy more once I add a little more capital to my portfolio.

Fairfax Financial (TSX:FFH) is also looking pretty interesting at right around book value. Not having to pay a premium to have Prem Watsa in your corner is nice.

And finally, if you’re into energy stocks, I think both Cenovus (TSX:CVE) and Baytex (TSX:BTE) look interesting here. I’d be much more inclined to buy the former, but the latter comes with more upside potential.

That’s about it, kids

See y’all in a couple of months. Or sooner. Probably sooner.

College is Overrated

College is Overrated

Those of you who show up here on a regular basis know that your boy Nelly here isn’t very generous with the guest post spots. In fact, I tell most of these people to kiss the hairiest part of my ass.

But today, you kids are in for a real treat. Paul from Asset-Based Life is one of the finest finance bloggers out there. Handsomest too, or at least I’m assuming. He consistently posts some of the most entertaining and thought-provoking stuff out there, and he’s not a douche despite having a blog name with a hyphen in it. It’s criminal he doesn’t have more readers.

Paul and I decided to do a “dueling banjos” type of post, whatever the hell that means. He’s going to take one part of an interesting personal finance argument while I take the other. The winner will feast on the warm brain goo of the loser. We do not mess around.

The topic? It’s about going to college. To put a further twist on the topic, I’m going to argue the pro-college side of the argument despite consistently saying college is hella overrated, while Paul, who’s presumably more edumacated than a penguin dressed up with a bowtie, will take the anti-college side of the argument. Make sure you go check out Asset-Based Life for my side of the argument.

Without further aideu, here’s Paul. Make him feel welcome by tossing some rotten tomatoes his way.

There was something truly decadent about going to college. My parents were quite frugal and passed it down to me, but somehow financial discipline was thrown out the window when it came to college. I was told over and over, “We’ll pay for wherever you get in.” I managed to get in a very good and very expensive school. So much for the ol’ ROI.

College opened up many career paths. I learned a lot and had some fun. But as a cold, pragmatic investment decision, college was highly suspect when I went. It’s even more so today.

College Costs Too Much

A degree from my alma mater, if you started today, would set you back a cool US$280,000 (if you grew my actual cost back from dinosaur times by 7% p.a., it’d be about $360,000).

That is a lot of money.

If you consider your career a quest to build a big pile of financial assets (not a bad way to view it), college can start you off with a huge crater to fill.

There is certainly a premium in going to college, and a further premium to a great university. I just feel that the premium is rarely worth the cost.

Even if you’re able to go to college on the cheap, or even free, there’s still a big opportunity cost to the time you spend there. Which brings us to our second charge against college.

College Takes Too Long

You can accomplish a lot in four years. You can earn a full four years of wages (trust me – I went to college). You can learn and master a trade. You can start a business and see it thrive.

There’s a long-running quip that a bricklayer who stays busy can outearn (net of school cost) a doctor. Add in a high saving rate, compound interest, and perhaps a little entrepreneurship, and their tortoise v. hare race isn’t even close.

If I had simply learned a trade out of high school and started working and investing, there’s a great chance I’d be ahead of where I am today.

But What About the Learning!

I learned some really interesting things in my college coursework.

I had an Anthropology 101 class that was fascinating. But you know what was far more fascinating? Just about any Jared Diamond book I’ve ever read.

I had a great Philosophy course where we proved we do exist. That was definitely worth a semester of my time, and I feel sorry for you non-college grads who are still struggling with that question.

Almost everything I learned in class could have been picked up from a book (and funny fact, we actually used those “books” in our classes). Today it’d be even easier with all of the cheap or free online teaching resources.

As a business major with post-college jobs in finance, I was rather shocked how little of my coursework I used. In those rare cases I did, I always needed a refresher to remind me what I (sorta) learned.

Notwithstanding that, I did need a college degree for my first job in financial consulting, and that brings me to…

College Is An Incredibly Inefficient Filter

It’s hard – sometimes very hard – to get into college. That can make college a useful filter for employers. Since the schools have gone to all of that trouble to identify top test takers, high achievers, and whatnot, lazy companies can use that as their own screen for hires.

The only problem with this Rube Goldberg machine is that it requires students to then sit through four years of classes, many (most) of which they’ll never actually use. Plus there is the real risk of finding after four years that you should have gone a non-college path. Sorry about that.

Can’t we design a near-instant filter similar to college admission? Is it really that hard? I know of some companies who rely heavily on IQ, behavioral, and knowledge tests and don’t really care about your pedigree. I think that trend is just starting.

If college was and would always remain a ironclad filter for great jobs, I’d probably favor it more. But we’re shifting to a more meritocratic world where your college degree union card isn’t as important. The role of college as a filter may be nearing its end.

The Move to Meritocracy

Nelson (feeling charitable) and I (ambitious!) have both decided to write these guest posts today. Somehow we both felt it was a good use of our time.

Are you going to measure the quality of our posts based on how much we spent on college (fingers crossed)? Or are you going to judge them based on the quality of the writing (boo)?

There are many fields where college just isn’t relevant anymore, and there are many a millionaire and billionaire with no degree. If an orangutan was a world-class programmer, he’d have a job at Google tomorrow.

There are professions where college is still a required credential, and if you really want one of them, then have at it. Just know we’re shifting more to a world of merit. If you just want a big pile, college may not be the best route. I’ll tell you what is.

Entrepreneurship

The most lucrative career paths have always involved entrepreneurship. If you want a shot at being truly rich, start your own business.

It’s a scary path with uncertain prospects, but one thing is certain: You do not need a college degree to become an entrepreneur.

On the contrary, I think a college degree can inhibit entrepreneurship. College debt, a comfortable salary, and a personal brand of “college grad” can lower your risk tolerance and turn up your nose to many simple but great business ideas.

As an entrepreneur, if you ever need skills that might come from college, you can simply hire those folks. When they sniff that you don’t even have a degree, you can tell them to go make you some more money.

I’ve always wanted to be an entrepreneur. While my current effort (strategy consultant) levers my college and MBA degrees, I have no doubt I could have found one that didn’t need a degree at all.

Wait! College Is So Much More than Career Prep

I had a wonderful university experience. The social aspect was really fun. I made great friends and had many a good time. I even spent a semester in London, which was culturally amazing for a simple Texan lad.

But here’s a sneaky little secret. Did you know that people who don’t go to college are also allowed to have fun? You may not get do it in a Hogwarts-like setting, but you can have many of the same incredible experiences. You can even visit foreign countries and cultures – they let in non-students too. And you can do it much, much cheaper.

Can your genius reach its full potential without being tested in the crucible of college? I’m gonna go with yep. Many brilliant minds are forged outside of college. Colleges mass-produce pseudo-intellectuals, but I don’t know that they craft real genius.

College Isn’t Completely Worthless

College is a safe and well-trodden path from high school. You don’t need to pick a career; you just need to make it to your 9am class. Your professors will help you learn, the administration will help you pick courses and majors, and recruiters will come right to you on campus.

All of this outsourcing doesn’t come cheap, though.

I didn’t even think about careers in high school. With my parents’ full support, I just moseyed to college ‘cause that’s what one does. Had I sat down and grasped I was at the start of a great adventure, with college as one of many options, I might have gone a totally different and more lucrative route (esp. if my parents gave me my tuition as seed capital!).

College is clearly worth something. It’s just often not worth the cost in money and time. It’s an incredibly expensive luxury. In a word, it’s overrated.

5 Terrible Mistakes Business Owners Make

5 Terrible Mistakes Business Owners Make

As I outlined in the post RIPPING business owners who think you should shop local TO SHREDS, I’m convinced a full 90% of small business owners are disgruntled ex-employees who decided that they were going to be the boss, dargbloomit.

Because these folks aren’t entering the venture with the proper mindset, they make a lot of mistakes. Ultimately, they boil down to the same handful of things over and over (and over) again.

Here are 5 of the most common mistakes business owners make.

Core competencies

A local photography shop personifies this common business mistake.

They’ve got a nice studio and are only one of three locations in town that can take passport pictures. They do a reasonable passport business and a few family portraits, too.

Desperate to increase their business, the photography place decided to expand into retail. Soon the front of the studio was filled with used DVDs and other such nonsense. It’s not even photography related!

Why this place wanted to expand into retail is beyond me. Then, friends of mine went to ask the photographer for engagement/wedding photos. They had a budget of $500 for engagement shots and $2,500 for the wedding.

The response? “I’m not interested in dealing with Bridezillas.”

So to review, instead of expanding into the wedding picture business with 10 times the margin of passport photos, this photography studio decided to sell junk. Why expand into something you’re not good at when there’s a big opportunity in your core business staring you in the face?

This brings me to point two…

Execution

There’s a really easy way for the average small business to put themselves head and shoulders above the competition.

Be good at what you do.

An example? Don’t mind if I do. Most of the time, interactions with small business owners go something like this.

“Hey, I’d like (item). Can you get it in for me?”

“I don’t know. Can you give me a little time to check and I’ll call you?”

“Sure!”

(two weeks later)

“Hey, did you look into that item for me?

“I’M WORKING ON IT. GOD. STOP HASSLING ME.”

If you’re providing a service, the way you present yourself is equally as important as actually doing the damn job. In Alberta, right now there are thousands of former oilfield employees who have decided to become handymen. Most of them struggle because they aren’t professional. They do things like providing verbal instead of written quotes and don’t show up when they’re supposed to.

There are a million ways to differentiate a business from its competitors. You can be cheaper than the rest. You can do a better job. You can offer a unique spin on a product or service. And so on. But — and this is crucially important — you can’t do all those things. Pick one and become incredibly good at it. Expansion should only be considered once you’ve mastered the original business.

A word of caution before committing to be the lowest priced operator. This is much tougher than you’d ever imagine. There’s a reason why your competitors charge what they do.

Easy payment solutions

I can’t believe how many businesses don’t make it easy for customers to pay them.

Getting back to the contractor example above, an incredibly straightforward way for a handyman or plumber to differentiate themselves would be to accept credit card payments. A good way to accept payments is with Paysafe, as they have everything you need to accept and process payments globally. Technology makes doing this incredibly easy. All you need is a smartphone reader and a 20-minute lesson on how to use the software.

It’s not just about credit cards, either. If none of your competitors offer payment by cheque, do that. Ideally, the more options you can offer, the better.

Don’t make it difficult for customers to pay you. It’s that simple.

Skipping on marketing

This was one of my big problems as the World’s Worst Mortgage Broker(TM). I assumed people would just find me because I was the only broker in town.

This was not a smart way to do business.

Here’s the math I didn’t get back then. Say the average mortgage paid me $1,500. If I spent $300 per mortgage transaction on marketing, I’d still make a net profit of $1,200 for approximately 5 hours of work.

Instead I dabbled in free stuff. I built a Twitter and Facebook page before abandoning both after a month. I started a mortgage blog that lasted about six posts (and wasn’t read by anyone except me, either).

Spend a minimum of 20% of revenue on marketing. Don’t have 20% to spare? Then you need to get into a better business.

Capital allocation

Follow a simple rule when it comes to spending your precious capital. Track the return of every dollar meticulously.

Say it cost you $20,000 to open your own hair studio, cash that was borrowed at a 10% interest rate. Anxious to pay off the debt, you throw every extra nickel towards the $20,000. In a year, that bad boy is paid off.

But at what cost? Say that $20,000 could have been invested in fancy machines that do perms (Do ladies still get perms? Serious question). Those machines generate an additional $10,000 in annual profit.

Paying off the debt immediately saves our hero $2,000 in annual interest. But it comes at the cost of $10,000 in missed profits. As long as subsequent investments generate more than $2,000 each year in profits, the debt should remain as long as possible. Even at 10%.

Reminder: Don’t Invest With Investors Group

Reminder: Don’t Invest With Investors Group

Let’s talk a little about investing with Investors Group, which is one of Canada’s largest wealth management companies. It has approximately $130 billion in assets under management, or about what I have hiding in the couch cushions for a rainy day.There are some 5,000 Investors Group advisors sales people spread out across Canada.

The investing process starts with a financial plan, which goes over all parts of your finances from your mortgage to your insurance to your investments. The client is told the process is so their needs can be fulfilled in the best way possible. This is a lie. It’s a sales process, nothing more.

Recently, Investors Group has been in the news for a couple of main reasons. The first is the company’s opposition to Canada’s new mutual fund disclosure rules. Before, disclosure of fees in a percentage form was fine. These days, fees must be disclosed as an actual dollar figure.

The company also made headlines for announcing it was doing away with deferred sales charges. This meant investors who get out of Investors Group mutual funds before a certain time period (usually 5-7 years) don’t have to pay huge penalties any longer. Such generosity! The company also cut fees on many of its in-house mutual funds.

Investors Group is actually really excited about this. Veteran investors know you should never invest with Investors Group, but there are literally millions of Canadians who don’t know any better. This post is for you.

An apples to apples comparison

Let’s take a closer look at one of Investors Group’s largest funds to see just how serious the company is about cutting fees.

The largest IG mutual fund is the Investors Dividend Fund. Because this company likes making things complicated, there are about a million different slightly different iterations of the same damn fund.

Investors group dividend fund

After a little clicking around, I’ve come to the conclusion that you’d be most likely to be sold is the Series B. It no longer has a deferred sales charge and the prospectus breaks down what the advisor gets paid in great detail.

The fund has 88% of its assets in Canadian equities, with the remainder in bonds and cash. It has a total of 125 different positions, but 57% of assets are in the top 10 stocks. Top positions include:

  • Royal Bank (8.4%)
  • Scotiabank (8.1%)
  • TransCanada (6.0%)
  • CIBC (5.7%)
  • Power Financial (5.6%)
  • Bank of Montreal (5.5%)

The management fee? It was 2.48%, but the company SLASHED it, proving once and for all Investors Group cares about its investors. The new fee? It’s 2.38%.

OMG YOU GUYS I’D BETTER GET THE FAINTING COUCH.

In 2016, the fund paid a distribution of $0.77, giving it a yield of just over 3%.

Now let’s compare it to the largest Canadian dividend ETF, which is the iShares Dividend Select ETF (TSX:XDV). It has 100% of assets invested in Canadian stocks. The largest positions include:

  • CIBC (8.2%)
  • Agrium (7.6%)
  • Royal Bank (5.8%)
  • Bank of Montreal (5.7%)
  • Scotiabank (5.0%)

59% of XDV’s assets are invested in the financial sector. The Investors Dividend Fund has 57% of its assets invested in financials. There’s a lot in common between the two funds, not just that. They’re not identical, but damn close.

XDV has a trailing yield of 3.7%, a full 20% higher than the Investors Dividend Fund.

Where XDV really shines is its management fee. Investors are paying 0.55% annually to own XDV. That’s a full 78% less than owning an equivalent product with Investors Group. (And 0.55% is a little expensive in the ETF world. You can find ETFs  for less than 0.10%).

We could look at other fund categories, but it would yield similar results. If you invest with Investors Group, be prepared to pay a hell of a lot more for something that can easily be replicated with a cheaper ETF.

Just don’t invest with Investors Group

Investors Group does a great job of presenting themselves in a professional manner and the average advisor will instill a sense of confidence into a newbie investor.

But ultimately, that comes at a huge cost to the client. A 2% difference in fees will make a huge difference in your retirement.

The bottom line? You’re better off to choose a simple ETF portfolio on your own. You’ll save tens of thousands of dollars in fees (if not more!) if you don’t invest with Investors Group.