Early Retirement in Helvetia

[SalutNounou]

Hello everybody!

As stated in my presentation, i'm a 30 years old French guy who moved in Zürich, Switzerland at the beginning of the year.
I am a developer and worked previously in Paris, France.
The move was motivated by a better quality of life, better salary, locals having a more pragmatic mindset and, compared to France, no political nonsense (when more than 50% of your income get sucked in diverse taxes and the resulting public services is really poor to say the least, you start asking questions and the answers are not pretty).

So here I am! Creating a journal will help me to stay accountable towards my goal of financial independance and early retirement.
Although i have always been keen to save money, it was more in the 40-50% range of my salary. I discovered ERE a few months ago just after moving in Switzerland, read the book, and it was kind of a revelation. Words on something i had always felt but could not really name.

Here is my situation so far :
-No debts
-50k CHF net worth (it was a little bit more at the end of 2015, but the move in Switzerland has been costly at the beginning and i guess i did not really optimized this part, as i wanted to secure the move as much as possible. however, the much higher salary should quickly compensate).
-Currently, depending on the month, i have a saving rate between 65% and 75%. I want to wait until the end of the year to have a clear idea of my expenses, but i don´t see why i would be far from this saving rate range.
-As my girlfriend came with me in Switzerland, she is currently looking for a job. We agreed that i will provide for the rent until she finds a job (she was previously a drums teacher in a music school). Currently she is doing part time baby sitting as well as learning german. The baby sitting allows her to pay for her half of groceries, health insurance and personal expenses (she earns about 1200 chf/month doing babysitting).
-As far as investing goes, Switzerland does not tax capital gain but taxes dividends. It is possible to have a tax deduced structure (the third pillar of your social security), but you can not put in it more than 6500chf per year.
-I am really interested in the concept of dual momentum investing. I read Gary Antonacci´s book as well was his paper on the generalisation on four asset classes. Even if "market timing" is a connoted word in the personal finances web sphere, the results made me think a lot about my financial convictions.


This is the beginning of a big and very interesting journey... stay tuned!

[Jean]

Bienvenue!
It's good for everyone that you listed the pragmatic mindset as a reason to move here.

[JL13]

Your 6500chf sounds like our IRAs. How high are the dividend taxes there? NSRGY seems like a great stock for someone who's in CH if the dividend taxes aren't too high!

[Jean]

From my underdtanding, dividend income are just added to your taxable income. So taxe rate, is highly dependant on your income and residence.

[JL13]

Why did you vote down the Universal Basic Income anyway? That would have really speed up your time to ERE!

[Jean]

I voted yes!
But as someone angrily told me saturday: "luxury and work are important".

[SalutNounou]

Well, it seems that it has been a while since I created this journal, I should post more often!

@Jean & JL13 : Yes I think dividends are added to taxable income, so I am not sure that it would be the wisest strategy here. Again, there is no taxes on capital gain, so this is a clear incentive to not get for the dividends (I will see how it will work out...)

Regarding the Universal Basic Income, I should first say that i could not vote because I have been in Switzerland for too short a time period to have voting rights ( i am not sure if it comes with the nationality, but in this case i will have to wait for 11 1/2 additional years...). However, even if it comes from people who intend to do well, I cannot see how within a big society we can finance such a mechanism. The people were talking about 2500 CHF per people (around the same in USD). On a very simple model level, if the government gives every one person 2500 CHF, he will have to pay it back in taxes (or in price inflation) to finance the universal income of everybody else, so it is very similar to a zero-sum game.
Plus, I come from France, one of the world champion in taxes and subsidies : I have seen times and times again how giving free money to people distort the economy. For instance, in France there is an subsidy to pay a rent called the APL : the government will give you X amount of money to pay a portion of your rent based on your income (well, given the current deteriorating situation in France, lot and lot of peoples can now claim this subventions). Landlords quickly figured out that if at time T0 the tenant could pay budget0 and now he can pay budget0 + X, then the landlords would be fools to not raise the rent by X. And this is what happened, massive inflation in rents.

But let us get back to my personal situation in the last two months :
- My net worth is now 62k CHF. 9,5k come from savings and the remainder from my current investments.
-Speaking of that, I took time to lay out my portfolio strategy :
-Half of my portfolio will be invested in a Dual momentum strategy (for more on this, you can follow this paper : http://www.optimalmomentum.com/RiskPremiaHarvesting.pdf or read Gary Antonacci's book). From the paper i chose to start in the "Real Estate" (Etf:VNQ) and "Market Stress" (Etf:GLD). Brexit had a good impact on this strategy, but i need to have more time to see where this will lead.
-The other half of my portfolio will be invested in stocks quoting under their Net Current Asset Value (the famous "Net Nets" concept of Benjamin Graham).
So yes, the whole idea behind this is that i think that the Market Efficiency Hypothesis is not relevant, at least in the short term : price and value are two different things, and price is just a reflexion of supply and demand. Some markets can be overly optimistic (hence the dual momentum strategy), and others overly pessimistic (hence the Net net strategy).

Finally, as finding Net nets by hand is not the easiest and definitely the quickest task ever, and given the fact that i am a software developer, i coded at home a software acting as a screener for Net Nets stock. This makes the process a lot easier : the soft gives me a list of stocks and i double check their financial statements to validate that they are valid.

So far both strategies work quite well, especially the Net net one. I have to wait more time to see if the dual momentum is working as well as I thought initially.
Anyway, this is going to be very interesting!

[Kriegsspiel]

Regarding the Universal Basic Income, I should first say that i could not vote because I have been in Switzerland for too short a time period to have voting rights ( i am not sure if it comes with the nationality, but in this case i will have to wait for 11 1/2 additional years...). However, even if it comes from people who intend to do well, I cannot see how within a big society we can finance such a mechanism. The people were talking about 2500 CHF per people (around the same in USD). On a very simple model level, if the government gives every one person 2500 CHF, he will have to pay it back in taxes (or in price inflation) to finance the universal income of everybody else, so it is very similar to a zero-sum game.
Plus, I come from France, one of the world champion in taxes and subsidies : I have seen times and times again how giving free money to people distort the economy. For instance, in France there is an subsidy to pay a rent called the APL : the government will give you X amount of money to pay a portion of your rent based on your income (well, given the current deteriorating situation in France, lot and lot of peoples can now claim this subventions). Landlords quickly figured out that if at time T0 the tenant could pay budget0 and now he can pay budget0 + X, then the landlords would be fools to not raise the rent by X. And this is what happened, massive inflation in rents.

Haha, yes this is the same thing that happens in the US too. I've heard it from a couple landlords that this is exactly what they do.

[vraxxos]

-The other half of my portfolio will be invested in stocks quoting under their Net Current Asset Value (the famous "Net Nets" concept of Benjamin Graham).

Always looking for new investment ideas, are there any particular companies you like?

[SalutNounou]

Always looking for new investment ideas, are there any particular companies you like?

It is not particularly a "new" investment idea, but i like the idea behind. Benjamin Graham had suffered severe losses during the 1929 crash, and wanted to be extra careful when picking stocks. Being a value investor, he was looking to buy stocks at a great discount. How to estimate the value of a stock?
Well, as said before, Graham wanted to be conservative. The most conservative value of a company is its liquidation value; if we were stopping the business today and selling everything, how much can the stockholder get back? The equity of the company is equal to its assets minus all its liabilities.
But remember, we want to be conservative : so we are going to take all the liabilities of the company ( because it will have to pay them for sure), but we are not going to take all of the assets (because who knows if we are going to be able to sell them?). So Ben Graham took only into account the current assets (those who can be converted into cash in less than one year). So he valued a company with the "Net current asset value" = (Total Current Assets)-(Total Debt short term + debt long term + other liabilities).

Now, if the market is overly pessimistic with a stock, sometimes it can throw its price well under its Net current asset value per share. So if a stock has a NCAV per share of 1$, and its price is currently 50 cents, there is a non negligible probability that the stock will return at least to its conservative value... Graham recommended to buy only if the stock price is below 2/3 of the NCAV and to diversify to a portfolio of 20 stocks and more.


This strategy, like every strategy, has its advantages and drawbacks :
-When a stock go back to its valuation, it is often spectacular (for instance, I bought MBL group (MUBL.L) last year in July at 7.5GBP and sold mid-June 2016 at around 15 GBP
-But you don't know when a stock is going to wake up. It can take more than one year and you have to be patient. usually the overperformance of some stocks allows to wait for others to wake up.
-It is also very possible that the market continues to be pessimistic with a particular stock. For instance, I bought Emerson Radio Corp(MSN) last year, and although i am quite optimistic for the future value of this stock, i have a virtual loss of -40%. This makes me think that at its current value it is a great opportunity.
-But overall, the performance of the portfolio is globally satisfying. I started this strategy last year and although i did not invest much at the time, it is up 25% since july 2015. It looks good but i would wait several other years to see if this is still valid on the long term.

-Another advantage is that such stocks have often a small market capitalization=> big corporate investors cannot invest in them because it would impact the price of the stock too much.
-But a current disadvantage is that as the market reaches new highs, there are not a lot of them currently, and it is getting challenging to diversify a portfolio. However, in a down market 2009-style, it makes wonders.
To name a few stocks, i think that Asia Pacific Wire and Cable (APWC) and Richardson Electronics Ltd (RELL) should be good opportunities.


For those more interested in this strategy, Yahoo has an API where we can download the price of every security. The SEC has done the same with financial statements of every US listed companies :
http://www.jarloo.com/yahoo_finance/
http://developer.edgar-online.com/docs

Anyone with a little background in software development should see how it can take advantage of these to run this style of investement strategy

[vraxxos]

Thanks for the detailed response. I've been reading quite a bit on investing, and Ben Graham is something that has come up. From what I read, I always thought that his approach was something that only really applies during times when the market is low? Certainly, in my investigations on companies, I don't think I ever came across a company that was selling below NCAV. When do you figure out when to sell, when they hit NCAV?

[SalutNounou]

There are indeed far more companies selling under NCAV during times of market distresses. There were a lot of opportunities during 2009 and in the 1930s, one third of the american securities used to quote under NCAV. On a more anecdotical note, after the dotcom crash, even Apple (AAPL) was selling under NCAV in the early 2000's.

You are surely aware that the current american market is currently very highly priced. I ran my programm on the thousands of stocks quoting on NYSE, Nasdaq and Amex and only fifty stocks are selling with a good discount on NCAV. From these fifty stocks, i will remove :
-Chinese stocks operating in China but quoting in America (excepted Hong Kong, Macau and Taiwan): these companies have an historical tendency to fake their financial statements. I don't know if this is still the case, but I prefer to be prudent.
-Biotech companies that are not indicating in their statements that they are selling significantly compared to their capitalisation. If the company does not sell anything, it will burn its cash at a very high rate and the margin of security will disappear very soon.

After this sorting there are around 15 stocks remaining. These are the one in my portfolio.

Regarding when to sell, I could sell when the stock hits its NCAV, but often it goes far beyond so I prefer to wait for it to hit its Net tangible asset value.

[SalutNounou]

I forgot to mention, since the beginning of June i am the proud owner of a second hand touring bicycle. I am now biking everyday for my commutes. Plus, I live at the top of a hill so it provides lots of exercice when i come back from work.
I added 60L saddlebags, so I can also go for groceries with it.
The goal is to get rid of public transportation as much as possible, and, starting from next year, not having to pay a 700CHF yearly subscription.
The only part i am curious about is how this is going to turn out in the winter when there will be snow everywhere...

[SalutNounou]

I don't know how I manage to forget it, but I did forget 4000 CHF that were sleeping on another bank account. Nice! It will provide almost one additional month of savings to my net worth! Looks like August starts with nice surprises.

Health :
Lately I started again working out with Kettlebells. I used to workout with them in the past (around 2010) but somehow they also were sleeping in the basement, due to the fact that I did a lot of bouldering inbetween. I have to admit that this comeback to kettlebells is partly due to all the discussions about them on the forum.
So i did a test this week : 300 KB swings with a 35lbs kettlebell in around than 9 minutes. According to Jacob's concept of Length pounds of work, this makes a total of 1/2*300*35 = 5250 length pounds of work in 9 minutes. I guess that is a good starting point to assert my starting condition.

I have also started to try the series of KB clean and press, and clean and jerk. Holly shit, the former is much much more difficult than the latter. My weak arm's shoulder says stop very early for my taste with Clean and Press... around the eigth set of six repetitions... This might be indeed a good point to strengthen my shoulders, as long as i don't overtrain them.

[SalutNounou]

Reporting for July 2016

Somehow I started to do my accounting not at the beginning of the month but plain in the middle of it (the 14th), so I kept going. All numbers are in Swiss Francs (CHF), which at the time being is roughly equivalent to a dollar (1CHF=1.03USD).

Income after taxes : 7539
Expenses :
Rent : 1513
Health Insurance : 321
Tools : 37.95
Groceries : 264.4
Eating out : 18

Total expenses : 2176.5

Savings
Pension account : 564
Investment account : 4798.5

Total savings for the month : 5362.5

Saving rate : 71.13%

Net worth : 72k CHF.


Commentaries : Clearly the biggest part of expenses is the rent. However, please note that it is a rent for two persons since my girlfriend (and soon wife ) is looking for a job. As soon as she will work again this expense should be divided by 2. Keep also in mind that, although the rent in Zürich might seem horribly expensive compared to other cities/countries, our rent is still 25% cheaper (for the same surface) than other similar apartments in the surroundings.
The second biggest expense is the health insurance. I did not tweak it when i arrived in Switzerland. As far as i know we are allowed to change Health insurance once a year here. So I will try to optimize it at the end of the year.

Readings of the month :

• -Security Analysis, by Benjamin Graham : Already investing in Net Nets, one should have thought that I would have read this book sooner. However, it was not easily available at my public library (long waiting list), and the amazon price is too much for me. But finally after much patience I had the opportunity to read it. As expected, the most interessant part is the one on the analysis of the balance sheet!
  -Market Sense and Nonsense, by Jack Schwager : really like the first part, which is a good list of every error a new investor could make. The second part on hedge funds was a little less interesting, because as an individual investor I could not see how I could take advantage of it.
  -Value Investing, by Ronald Chan
  -Hedge fund market wizards, by Jack Schwager : even if i don't have access to half the fourth of the investing opportunities of these guys, it is always interesting to see how they think. The parts on Ed Thorpe and Jamie Mai were particularly inspiring.

[SalutNounou]

Today, after having been talking about the MBTI test with a colleague, I decided to retake the test. The result bugged me a little. In the past I have always been diagnosed as an INTJ. However today the test was hesitating between ISTJ and INTJ. Well; i can rely to perhaps half of the ISTJ traits, but the other half is not really my cup of tea, especially the part "Most likely to enjoy an environment where everything is done by the book"...

What does it mean? Did I derive from making my mental models (past me) to progressively sticking to was has worked(tendance ISTJ)?
At 30 years old, it would bother me to stop developing mental models...

EDIT : I noticed (and i plead guilty here) that generally INTJ are proud of being so. The vast majority of people talking about MBTI on the internet are INTJ... so perhaps there is an ego dimension in the fact that this news kind of bothered me.

[SalutNounou]

I just finished my Kettlebell workout.
I am currently doing a clean and jerk routine, in the same spirit as the one laid out by Jacob in the ERE book.
I am doing 64 reps by arms, separated by as many sets as needed. Each set lasts 1 minute. So i started 21 sets of 3 reps, then 16*4, then 5*13...
I am currently at 8*8 for each arms. That is a 16 minutes workout. The total volume is not that great : with a 35lbs KB, i am only doing 35*64*2 = 4480 length pounds, in 16 minutes. That is 2800 in ten minutes (booooo...) I am able to do at least 2.5 more with kettlebell swings, but currently my weak points are my shoulders... I guess i just have to keep practicing!

[SalutNounou]

August/September report :

Health :
I am still working on my clean and jerk routine with KBs. I just finished my workout, and I am at 6 sets of 11reps per arm, with around 12 seconds of rest between each set. This is starting to get very challenging. Funny how, alternating 5 reps with each arm, I can go on for 10+ minutes without rest, but as soon as the set starts increasing reps, it becomes exponentially difficult.
On a good note, I have almost no more callouses anymore. Good thing that I spent time learning how to not grip too much the kettlebell while doing clean/jerks/snatches. The hand should be like a hook, never gripping the bell.

I am doing the KB routine twice a week. I also added a weighted chin-ups workout twice a week. Doing currently 3 sets of 10 reps with 15 additional kgs (that would make 33lbs for the fellow readers using imperial units). I weight currently 77kgs (170lbs) for 1.86m.

Relationship :
I am getting married at the end of october!
I try to keep it low budget : october will only be civil ceremony here in Zürich, and the religious ceremony will be next year in Poland(because my fiancée is Polish). So far we are doing good on the budget

Balance sheet/Investing :
I saved 4500 CHF during August, which takes my Net Worth to 77k CHF.
It is decomposed as follows :
Debt : 0
Cash/Liquidities : 29900 CHF : a little bit high, but i like to know that if there is any emergency i'll be ready. Even if I manage to stay low budget, In Switzerland when shit gets real it becomes very expensive, very quickly.
Shares/Equities : 47100 CHF.
As explained in a precedent post, my equity portfolio is divided in two strategies :
-The first is Double Momentum. Currently it is doing so-so... I did not lost anything but i did not win a lot either. Kind of like the current market. Curious to see what will happen in the next year with this strategy (it is designed to not lose much money in a bear market, except when there is a rapid drop followed by a quick recovery).
- The second one is based on Benjamin Graham Net-Nets : this one has been much more profitable lately :
-I reinforced my position in Emerson Radio (MSN) before it went up 60% --> transformed a -40% virtual loss in a +30% profit
-Richardson Electronics and Gravity Corps (RELL and GRVY) went both up more than 25%
-the only one that is still waiting is Rubicon technology (RBCN)... Bought it at 0.67, currently at 0.64... The price is still at a tremendous discount compared to Ncav.
So this Net Net portfolio has a performance of 25% since late spring... The only big drawback I see is that it is currently too concentrated. benjamin graham advised for at least 20 securities . With that said, I recently found this screener :
https://screener.co/
First month is free, so it allowedme to find around fifteen other NetNets on the Japanese market, and I am starting to investigate also the HongKong market... It is gonna be exciting!

Books :
For anyone interested in Value investing, I read lastly Value Investing : Tools and techniques for intelligent Investment, by James Montier. A nice book in that it opens the eyes on the serious flaws of the market and the big mistakes the layman could make (basically, it smashes EMH, CAPM, forecasting growth, etc).

Work :

I am not sure if I already wrote it but I am a software developer in a financial company. The projects are very stimulating technically, but functionally it makes me more and more cynical about the financial industry(especially structured products), especially with the eyes of the ERE/Investing community. The amount of fees charged is literally insane (on my current project it is not rare to go up to 8% fees annually), and the most amazing thing is that people still buy these products. People should read the prospectus.
The weird thing is, it does not shock me/makes me want to get out. It makes me only being more cynical about the industry everyday. A good thing is that on the other hand, from a technical point of view it is very stimulating. I learned a lot since i am here.

[SalutNounou]

A lot has happened since last time. First of all, I got married! And I managed to not pay too much for this (this was small committee, and the party was at our home, and we cooked ourselves ).

Regarding my net worth, it is currently at 83779 CHF. A little bit less than expected, due principally to the fact that the dual momentum strategy did not do very well... On the other hand some of the Net Nets that were in my portfolio (ex : GRVY) did really well. With the time passing by, i'm becoming more and more and more convinced that this value strategy suits me very well.

More to come soon!

[Tyler9000]

Every time I see this journal, I read it as "Helvetica" and think it's a treatise on fonts.

Congrats on getting married!