Thursday, June 7, 2007

And so the slide begins

A couple of weeks ago when I said the slide was going to begin and I sold some stocks and put stop-loss orders on others, I was convinced it was imminent. And then the market rose for more than a week. I kept on hearing "the trend is your friend" and wondered if maybe I pulled some of the chips out too soon. But I was so sure of it. My gut told me so.

And now it has begun. Okay, okay, three days don't make a trends, but with the market down almost 200 points just today and no good news in sight, I think it is going to keep falling. Not even the iPhone release will be able to save this. Sure Google is at an all time high, Apple is on a tear still, and Amazon is kicking some ass, but I don't think that will be enough to prop up the overall market. The money sitting on the sidelines will be comfortable there until the end of the summer when the end of year market rally begins. Of course I could be wrong, but even if I am, I won't be as painful as some of the other mistakes I've made.

With the increased volatility, now is a good time to start playing some options. Of course with a falling market, you'll need a strong stomach, but there is still lots of money to be made. With an uptrending market, I've been on the put side. Time to switch if the market keeps on going down. I'm not going to do anything, but after the next option expiration weekend, I'll jump back in and see whats happening. This will be an interesting summer.

Tuesday, June 5, 2007

More mainstream press retirement nonsense

Articles like this get me going. I just can't help it. On today's MSN homepage there was a link to something about retirement not being so bad. And it led to this: Why your retirement won't be so bad. Are you kidding me?

The premise of the article is that most retirement calculators overestimate your needs for retirement because they don't into consideration some key things. As the author states, they ignore reality. I don't know what kind of reality the author lives in, but not one that I am familiar with. His argument is that people will need less in retirement because they would have paid off their homes, have finished educating and paying for their kids, and finished paying for their ailing parents. Really? As far as I know, many people in this country are using their home equity as ATM machines and have no intention of paying off their mortgages in full before they retired. And even though you may have finished paying for your kids college, they move our and eventually come back, with broken relationships, new enterpreneurial dreams, second career cravings, etc, all of which they are looking for some money. And their parents? Well, they are living longer and need even more financial aid.

Now the author, Scott Burns, does make a case that some spending will go down in retirement, I believe he is not living in reality in where costs and spending will go up. What does he expect you to do all day? Wait around for the mail for your financial statements? Most people I know who are planning for retirement have dreams of more traveling, more hobbies, more home projects. If anything, they might be spending more money in retirement than they do while working. And if you are blessed with a long life, your retirement could be very costly. Especially if you need any kind of healthcare requirements - which almost all of us will. Mr. Burns also points out that the cost of living will be cheaper with eventual widowhood because a single-person household will cost less than a single. Maybe that is true if you are glued to a TV screen and never leave the house, but if you go on any kind of trip, the single supplement is huge. Just ask any single person today.

So back to my point. Articles like this from the mainstream press are designed to capture your attention, but in my opinion, they are like the rags at the supermarket checkout counter. Empty, incorrect, and irresponsible. It would have been more accurate to report that spending habits will change, not decrease.

Thursday, May 24, 2007

Scraping by on $250k

Oh, how I love the financial press. On the MSN homepage this morning in the money section, one of the headlines read “$250,000 a year and still strapped”. Click in the link, and it brings to this article: “The rich don’t save either”. Another article on how Americans to don’t save as much as they used to or as much as they should, focus being on how this extends to the rich. The biggest complaint? They need to pay everyday bills too. Give me a break.

I wish the article went into some detail on what some of those everyday bills were. But let me guess. They drive more expensive cars than they probably should. They subscribe to all the premium cable services. They pay a crap-load of banking service charges. They carry balances on their credit cards. They use their home equity loans to finance things other than their homes. They take premium vacations. They shop at upscale grocery and clothing stores. They outsource more than they should. They want to give their kids more than they had. Anyway, I can go on and on about this. I know people like this. In fact, I’m related to a few of them.

It is amazing what people consider to be “everyday bills” and don’t take accountability for making poor financial choices that is affecting their current and future standard of living. One relative of mine, who shall remain nameless, is constantly telling two types of stories: one on how they shop and the things they buy (which really isn’t all the extravagant, but just constant), and the other about being constant refinancing, being audited, owing back taxes, paying high interest rates, not being able to get ahead. I used to participate in the conversation, but now I just ignore it. These people are immature, don’t see the bigger picture, and have a sense of entitlement which is more like an anchor than anything else. It used to make me mad, but realizing that I can’t do anything about, I just focus on my own and try to make the best choices possible. People like this think that more money will solve their problems, but if they can’t make it work on $250k a year, they won’t be able to do it at $300k or $400k. More money isn’t the issue.

Anyway, back to the article. I’m not sure what the intent is from the writer’s perspective. To make lower class people feel better about their problems? To inspire wealthy people to save more? To grab more clicks and drive advertising revenue because the headline is somewhat preposterous? Given the lack of detail, I’m going to go for the latter.

Wednesday, May 23, 2007

Memorial Day Cometh - Time to Selleth...

Memorial Day is upon us. The sole Survivor has been selected. Jack Bauer has saved the world yet again on 24. The winning couple has had their last dance on Dancing with the Stars. The top singer was selected on American Idol. The plot has thickened on Lost. And while the networks have been bombarding us with a wide assortment of new pseudo-reality shows for the summer (more dancing, car racing, amateur film-makers, and all kinds of trashy boyfriend/girlfriend choosing, wife swapping, and other mindless pabulum), the looming question has still not been answered. Will the market pull back?

Damn right it will. Besides the investor’s cliché of “sell in May and go away”, all the other signs are there. The housing market continues to drop in most parts of the country. Oil prices are still high with no relief in sight. Government spending is out of control. The sub-prime mess. Greenspan stating that a recession will most likely happen. The US dollar getting creamed. The stock marketing reaching all time highs. The longest bull run in. Investing pundits raising the warning flags to get out now. Of course, people like Doug Fabian are always raising the flag, but this time he’s on the money.

So what I’m going to do? I’m taking some chips off of the table with my equities. Not worth getting out of my covered-call positions, but in my other holdings, I’m going to do one of two things. First, where I’m overexposed (and most people are whether they admit it or not), I’m selling some shares and raising some cash for when the pullback comes. Second, on some of my winners, I’m going to let them keep on running, but put stop losses on them so I don’t get walloped. I wish I could do the same with the mutual funds in my 401k plan, but alas, the rules are screwed up and don’t allow me to do that.

The hardest part about selling in May and going away is having the discipline to do so. At every market pull-back, I’ve always wished that I sold when I was seriously thinking about it. But then I wavered because I was either greedy, or let the emotions get the best of me. Do I really want to sell my Starbucks stock? Even though I don’t drink coffee, I like the company. And reasoning like that has got me in trouble. And days like today, where the market is going up and I feel good about it, I know in my head that the market is going to pull back and I’ll kick myself if I didn’t pull the trigger.

So here I go. I’m pulling some money out, putting some stop losses in place, and getting ready for Memorial Day, the gateway to the summer season. I’ll still be in the market and doing some of my option trading, but I’m protecting m nest egg so I don’t have to worry about it over the summer. Memorial Day for me has changed over the years, and the meaning of it today is to remember the fundamentals and protect my money today so that I can have a better future tomorrow.

Sunday, May 20, 2007

5 Million

When I was a kid, being a millionaire was glamorous and fantastic, something that was aspirational. Coming from an immigrant background, it seemed so out of reach. When I reached that milestone in terms of total net worth last year, it was not as big of a deal as I thought it would be. No alarms went off. I didn't quit my job. I didn't buy a sportscar. In fact, I didn't spend a dime. I shared a bottle of wine with my wife, but not because we reached the million mark. We were just going to have a bottle of wine anyway. It just coincided with me updating our spredsheet and the total showed a seven figure number.

After doing a lot of thinking and playing with numbers, I figured our target number of assets that allow us to independently wealthy and retire would be at least 3 to 5 times that once magical milestone. Turns out I'm in the same range as others who write about this. In the June 2007 issue of Smart Money magazine, the cover story is "How to Make $5 Million", which of course, grabbed my attention. But like most cover stories of the personal financial press, the title overstates the actual content. Sure, the article has some great stories about how some people made their millions and made the $5 million mark, but the article lacks any practical advice on how to get their. The path to the millions is achievable by starting your own company, which is nothing new. Robert Kiyosaki has been writing about the for years. In fact, this article kind of reminded me of his writings. Inspirational - yes. Practical - not really. The only thing that impressed me in the article was that it was not overtly pushing the type of investment products that actively advertise in the magazine, like mutual funds and equity stocks. Normally that is what you see in a lot of the articles in the mag.

But my point here is that $5 million is the new millionaire. $1 million just doesn't do it anymore. Especially if a big chunk of that is tied up in your home equity and you can't do anything with it other than pull it out through a HELOC. So the long of the short of it is that $1 million ain't enough, unless you have it all income generating assets. But even then, at 5%, that's only 50k per year. That might be okay for today, but not in the future.

Monday, December 18, 2006

Financial Freedom Quest

I wasn't quite sure what to call my blog, so I chose somethat that was straight to the point of what I'm working on. I'm on a quest for financial freedom. I'm working hard so one day I can be hardly working. And who doesn't want to do that? Well, apparently not everybody. I've been hearing about people who want to work well past 65. Not I. I'd be willing to stop working right now if I could, instead of putting in another 30 years or so until I can "retire". There are so many things I want to do, and "work" is getting in the way
So why the blog?
I spend so much of my free time, and a lot of my not-so-free time, thinking about how I can get to where I want to go. When I was younger, it was about how to get rich quick, but I haven't seen anything that really works. And now I'm about accelerating traditional approaches to get there quicker. Not overnight, but not 30 years either. Now that I'm on this quest, sharing ideas and getting feedback seemed like a good idea on how to broaden my scope, learn from others, and generate new ideas.

One of the first things I want to do is create of financial goals for 2007. I haven't refined them yet, but pretty much they will be along the lines of:
  1. Staying out of consumer debt. Shouldn't be hard to do since I've been conditioning myself on that habit for quite a while now.
  2. Stop collecting stuff. I used to be pretty bad about accumalating crap because I was "collecting" books and CDs, but now I need to completely stop and focus on getting rid of the crap.
  3. Accelerate mortgage payments. I know this goes against a lot of conventional wisdom as many financial planners advocate having a mortgage for tax reasons. But with an 5 year ARM that will be coming up in a few years, I want to reduce the principal as much as I can so that when I do a refi, it is a lot smaller in order to keep my payments about the same of what they are.
  4. Diversify my portfolio. Although my retirement account is well diversified, my brokerage account is not. I know this has been a bad move as most of my holdings have been in my company's stock plan, but the stock is recovering as of late and I'll sell some in 2007 in get into different sectors. I'm thinking about health care as I've been reading in places that it has been undervalued and I'm over-exposed in tech.
  5. Disciplined trading. Even though I should know better about being emotionally involved in a trade, I still let myself get trapped. Hopefully this is the year I'll get better at it.

Only 5 goals for now, but I'm sure I'll come up with 5 more before the year begins.