BlueNote's Journal

[BlueNote]

Interview

I didn't get anywhere with my job interview, they decided to go with an internal candidate. It was good to get an interview experience in though , I am glad I went.

Investing

I recently updated my portfolio with a position in BP. The main reason I did this was that, by my calculations, even in a worst case scenario of BP having to cut the dividend to payout a huge settlement they are still undervalued. I also think that based on their prior dividend history that they will do everything to get the payment back up to pre macondo levels which means tons of dividend growth. I think that the super low valuation created by the legal situation they are in takes a lot of the risk out of the stock but I could be wrong. Ben Graham said that a good investment decision requires right thinking and independent analysis. If you can't do your own investment valuation then you are just speculating and will probably not be able to stomach a big downturn in the price.

vacation

I got back from a vacation in Florida last week. It was fun, I drove down, stayed in cheap hotels and generally had a great time. Loved the weather, Florida is probably a great place to do early retirement if you are an American.

Bike

It's getting really cold for biking. I biked in one day and it was almost freezing, I ended up sweating a lot because I wore a coat and had to quickly dry off using a hand dryer in a public washroom before coming into work, classy!

My bike will no longer switch to the lowest gear. I got this problem by adjusting the limit adjusting screws on the rear gear assembly. I have just been ignoring the problem for the last couple of weeks but I guess I should fix it.

[BlueNote]

Exhausted

I have not found an exercise replacement for biking and am starting to suffer for it. I feel much more exausted physically and mentally each day now and I know that biking was helping me with my energy levels. By the end of the day I am almost useless at my job, I have to try to compress all the detail oriented things I do into a about the first 4 hours of my day. The next 2 hours I spend on moderately draining activity and the last 2 hours consists of scouring my inbox for mindless work that I have little chance of screwing up.

Guitar

I have started playing guitar . I figure it's a good early retirement activity as it costs very little and will probably always be very rewarding.

I have eclectic tastes, folk, rock, blues, jazz etc.

Practicing is key. It's not only important to log hours on the instrument but to practice effectively. I like to mix repetitive stuff, with ear training and music theory. I try to practice 1 hour a day and more on weekends.It helps to create a video of myself after practice so that I can review my playing at the beginning of the next practice session to look for improvement and places to fix problems. I practice with a metronome which is also very important. It is sad to hear someone who regularly practices to the beat of their own internal drummer. They generally have a lot trouble playing with others and it is doubly hard to break the bad habit and get into playing in time.

Anyone else here play an instrument, perhaps in early retirement?

Investing

It's been difficult to find stocks I like. I keep searching the fringes of DGI type stocks to find something worthy that won't cause diversification risk in my portfolio (heavy on oil and materials).

ROE is a great metric, it's too bad that the ROE posted for many stocks is less useful then it could be because it includes all sorts of accounting junk that subtracts predictability. I have been researching clean surplus accounting and the ROE subsequently generated. An interesting area of investing for sure, and something that would dovetail very nicely with dividend growth investing.

Books read recently with quick review:

1. Dividends Still Never Lie (Kelley Wright)

Interesting ...quick and simple method to value stocks using historical dividend yield patterns.

2. Damn Right!: Behind the scenes with Berkshire Hathaway Billionaire Charlie Munger (Janet Lowe)

Munger is an interesting and smart man and I would reccomend this book to anyone interested in investing or biographies in general

3. How to Fail at Almost Everything and Still Win Big (Scott Adams) Yes the Dilbert Cartoonist

An interesting self help type of book. The author advocates systems rather then goals. For example don't make it a goal to lose weight but rather incorporate a system to lose weight that allows you to use as little will power as possible and has escape valves built in to protect you when you have no will power at all.


4. Buffett and Beyond (Dr. J.B. Farwell)

This book is probably too long. Essentially ROE as calculated using a clean surplus accounting of book value and income is a great investing metric. I checked out the authors website and he is a proponent of not only ROE but also technical analysis (charting). Charting is a fantastic method to measure past performance, this I know, however I have my doubts about it. If it works for you thats great but I think that the ROE he comes up with would be more useful in conjunction with something like p/e ratio or dividend yield.

[George the original one]

It's been difficult to find stocks I like. I keep searching the fringes of DGI type stocks to find something worthy that won't cause diversification risk in my portfolio (heavy on oil and materials).

Look to the REITs like O, WPC, DLR, etc. Brad Thomas on seekingalpha.com provides excellent articles on their merits and good instruction on how to evaluate REITs.

[BlueNote]

It's been difficult to find stocks I like. I keep searching the fringes of DGI type stocks to find something worthy that won't cause diversification risk in my portfolio (heavy on oil and materials).

Look to the REITs like O, WPC, DLR, etc. Brad Thomas on seekingalpha.com provides excellent articles on their merits and good instruction on how to evaluate REITs.

I have been thinking about alternative assets like REITs, thanks for the links. "O" looks interesting to me, like a hybrid stalwart DGI stock/ REIT with a nice inflation hedge built in.

I am leaning towards buying some coca-cola and/or Pepsi shares. I have to say that I could sleep very well at night knowing I bought them very close to their intrinsic value. I never would have thought it but I am a fairly conservative investor at heart. I don't think I could sleep at night trading on margin and the only stock I own that doesn't pay dividends is berkshire hathaway.

I wish it could be like 2008 again and I could get JNJ, CL, KO, PEP, PM, XO, CVX and a few other stocks cheaply and just hold onto them. A core portfolio built from stocks like that bought at below intrinsic value would be very secure in my opinion. You would just have to stomach watching the portfolio wiggle above and below intrinsic value on a regular basis.

[George the original one]

Patience. PG, JNJ, and PEP are definitely overpriced right now. You're getting security, but the growth is not worth the current price.

[BlueNote]

2013 Savings

March 2013 was when I made it a goal to get out of my student debt quickly and save at least 50% of my income.

My savings rate for Mar-Dec 2013 is: 51%

My 2014 goal is for 60-65 % so I need to find about $6K in savings to get there

Investing Discipline (or lack thereof)

I did a valuation of Coca-Cola and bought some shares last week. They seem to be about fair value to me but I would have preferred to buy a good dividend growth stock that was undervalued.

I think in the long run this won't be a big deal because KO has a super wide moat and makes good returns on capital with very low debt. The actually have 3 moats: Brands, Scale and the distribution network. Brands people love and always buy irregardless of the economy. Scale allows them to do things smaller competitors could only dream of, they are one of the few companies that could be the primary advertiser at the Olympics for example. I like the distribution network , because, among other things, it allows them to expand at a lower marginal cost then the competition. It's like they have their own little UPS. They are also a Dividend King , raising the dividend every year for 50+ years.

I also bought some Rogers (RCI.B) stock for my Canadian holdings. They seem relatively undervalued considering their business model.

It is very hard to find good stock prices these days and it feels unnatural to just collect a pile of cash until some opportunity comes along.

If history is any guide something always happens that presents opportunities. Greece, debt cliffs, bird flu, banking crises etc. something is bound to happen to bring prices down in general. In the mean time I am sure a good company or two will get some temporary bad news and give me an opportunity to buy something between now and the next market correction.

I imagine I will be keeping a growing pile of cash for a while, could be years until I get the prices I want.

[BlueNote]

I was on the bogle heads forum and I noticed a lot of people there were quite religious about indexing. I think that indexing is a reasonable strategy to pursue risk and inflation adjusted returns on investment. Indexing appears to be a good once size fits all approach for the vast majority IMHO. However I don’t believe it is the one best way to invest. The best way is contingent on factors like taxes, your local laws, your income, networth, withdrawal scenario, and your personality (psychology). Therefore each person should look at a variety of strategies and choose the one that fits them best.

Indexing to me means investing in a security that tracks a very representative part of a securities market. You accept the average returns offered by the market. It can also include diversifying by type of security (debt, real estate, equity etc.) and possibly by geography.



Pros:

- Low Fees
- Requires just a little more discipline then just putting your savings into a HISA
- Easy to implement, very low time commitment
- Empirical evidence supports excellent chances at positive real returns, in stable capitalist countries, over long term (15 + years)
- You’ll never “look bad” in front of others because you will always be average. Note: This is very important to some personality types.
- Works well with dollar cost averaging because if you have enough time you will get averaged market timing and averaged risk adjusted returns.
- Based on market efficiency theories (ie there’s no point in trying to beat the market because it knows all available information and has it priced in already). I think the main stream markets NYSE, TSX etc. are quite efficient and difficult to beat. So if you can’t beat them join them.
- Can be combined easily with many other strategies, creating a hybrid strategy. For example the permanent portfolio can be implemented solely using index funds in many countries. Another example is DGI investing, you can buy funds that index the S&P dividend aristocrats and pay a low fee to get the diversification and re-balancing.


Cons:

- During withdrawal phase you may be required to withdraw principal during severe economic downturns, essentially being forced to sell at firesale prices
- As more people jump aboard the indexing strategy it creates “technical” pressure on index funds to buy more components of the index. Forced buying causes prices to rise (micro economics 101) in the short term despite no change in the supply or “intrinsic” value of the underlying securities.
- If the market fairs poorly over a long period (think WWII losers, Japan recently, countries with communist revolutions etc.) then you could be subject to average losses. That’s why it’s important to diversify geographically and by security type. My index portfolio is in US , Canada, and World stocks, some REITs and bond funds as well.
- opportunity cost of not choosing a different strategy (ex perm portfolio, DGI, GARP, Value investing, technical analysis, HISA, small business, active mutual funds, black jack card counting etc.)

[jacob]

Very nice summary! Can I steal it for the wiki?

[BlueNote]

.. Can I steal it for the wiki?

Yes you can steal it for the wiki.

Glad you liked it!

[frommi]

Nice journal, you are coming to the same investment conclusions as i did . I bought some REIT`s in the last two months like George suggested. I would add ARCP and OHI to the list, they trade around a P/FFO of 12 at the moment and are good dividend growers.

[workathome]

I liked your idea about looking at UK stocks. As a whole, the US market currently sits at a Shiller P/E of 25.4, making it the most expensive developed nation in the world currently.

Contrast that with the UK market which only has a Shiller P/E of 13.61 - almost half that of the US! It looks cheaper on a dividend basis too, with a 2.76% yield on the EWU ETF versus 1.88% for the SPY ETF.

[BlueNote]

I liked your idea about looking at UK stocks. As a whole, the US market currently sits at a Shiller P/E of 25.4, making it the most expensive developed nation in the world currently.

Contrast that with the UK market which only has a Shiller P/E of 13.61 - almost half that of the US! It looks cheaper on a dividend basis too, with a 2.76% yield on the EWU ETF versus 1.88% for the SPY ETF.

In order to avoid UK dividend witholding taxes (~30%) I have to invest in the ADR's of UK firms. For some reason there is no dividend witholding tax on the dividends paid to my Canadian tax deferred accounts when I hold the ADR for a UK firm (complicated UK-US-CDN tax treaty reasons I suppose). This limits me to a small pool of UK firms for my preferred investment style. I own BP and BBL right now but I have Unilever, RDS.B, and Reckit Benckiser on my radar as well.

I think the UK market is somewhat shunned because of the closeness to the European market and their difficult monetary situation. There is definitely some fear of investing there, so I am trying to be greedy while others are fearful.

However the vast majority of great dividend growth stocks are to be found in the USA which as you pointed out is going through a raging hot bull market right now. I am accumulating cash right now while I re-calibrate my investing methodology. I will post about it soon once it's all finalized but it's definitely a level up from how I did things in the past.

[BlueNote]

Norbert's Gambit

Note: USD = US Dollars, CDN = Canadian dollars

Norbert's Gambit is an easy to execute financial transaction that allows one to exchange USD and CDN dollars with very very low frictional costs (fee's, spreads etc.).

I bought about 256 shares (~$3K CDN) of DLR.TO an ETF that holds USD but is denominated in CDN. I then asked my broker to "journal" all my DLR.TO to DLR.U.TO (the same thing as DLR.TO only denominated in USD). They do the switch for free and when I sell the ETF the trade is settled in USD. My broker only charges me $4.95 for the buy and sell trades combined. There is currently about a 1 cent CDN spread between the two ETF's. so that's another $2.56. That's a total transaction charge of about 0.25% (maybe a little more if you include bid ask spreads on the stock itself). To get the broker to do this the traditonal way they almost all charge a conversion fee that is 5-8x times higher (1.95% in my case) and god only knows how terrible the currency spread is compared to the market. I will probably save 200-300 dollars a year during my accumulation phase from this, I highly recommend all Canadian stock investors of all stripes become totally practical on this technique. Even if you just index into a Vanguard S&P 500 ETF it behooves you to know how this works because you are probably bleeding money to your broker every time you get them to switch your currency back and forth.

Here is a link that explains exactly how I did it (it's dead simple): http://www.moneygeek.ca/weblog/2013/10/ ... questrade/

[BlueNote]

Poem: The Smell of Spring in Toronto by BlueNote


Roses are Red
Violets are blue
The smell of spring in Toronto..
is that of thawed out dog poo


I should have opted for an English major in University, totally wasted my talents!

I have a feeling that my bike commute to work will resume tomorrow as the glaciers are receding enough to get access to the bike trail.

[BlueNote]

I am investigating the “Warrior Diet” and Intermittent Fasting to help me lose weight and get healthier.

Pro’s

- You save time by eating less often
- Unlike most diets you don't have to constantly analyze everything you eat all the time.
- I have seen a lot of people online who have lost weight and gained muscle on this type of diet
- Apparently fasting can help extend life in mice. However I don’t know if this is technically fasting or if the effects on mice translate to humans.
- There is some cause and effect type evidence to suppose claims or fat loss and greater insulin sensitivtyhttp://www.nerdfitness.com/blog/2013/08/06/a-b ... t-fasting/


Cons:

- Some of the some of the articles I have read are negative towards the Warrior Diet. One of the main criticisms is that there is a lack of scientific evidence to support the claims made. Therefore most of the evidence is anecdotal and experiential in nature.
- Also there was one article I read that said that the Warrior Diet would increase a person's chance of getting diabetes because the one large daily meal could cause a vast increase in the amount of insulin in the blood stream which could cause insulin resistance.

The only points of advice on dieting in general that I found broad consensus on are:

1. Get the recommended amount of vitamins and minerals (micronutrients)
2. Make sure your Macro nutrients are sensibly proportioned. Not too much of any one of them and a bias towards getting carbs from vegetables and fruits.
3. Eat a variety of “real” food and avoid processed food.
4. To lose weight make sure you burn more calories than you consume (assuming no malnutrition or starvation)

I have been reading on dieting and nutrition for days now and those four things seem to be the common factors that all the science and nutritional expert advice seem to have in common.

On top of that doing frequent aerobic and strength training was the most common advice, pretty obvious.

There was some discussion about physics and thermodynamics. It was mostly above my head but from what I gather you can convert mass to energy and if you don’t provide the body with enough externally sourced energy (food) it will convert its internal mass (glycogen, fat etc.) to energy thus lowering your weight.

[robby152]

Here is a pretty interesting synthesis of various diets by a Bob Blum (PhD from Stanford I believe) that mentions CRON - Calorie Retricted Optimal Nutrition: http://www.bobblum.com/ESSAYS/BIOMED/Food.html.

Not sure if the findings are complete on any of this, but I agree with your summarization of 4 points.

[BlueNote]

Here is a pretty interesting synthesis of various diets by a Bob Blum (PhD from Stanford I believe) that mentions CRON - Calorie Retricted Optimal Nutrition: http://www.bobblum.com/ESSAYS/BIOMED/Food.html.

Not sure if the findings are complete on any of this, but I agree with your summarization of 4 points.

Very informative website, thanks for the link.

[slimicy]

If you want some science behind IF I always recommend www.leangains.com

[BlueNote]

Luck

I like to read investing books, it’s been a hobby for the last 2 years. The best book, IMHO, I have read so far is “The Future For Investors” by Jeremy J. Siegel. I read a library copy about a year ago and when I find a good investing book I usually buy it for personal reference. I ordered a used copy from Amazon for about $7 + S&H. I got a a signed first edition hard cover with smythe stiched binding. This tome was meant to last a long time, probably library quality. The kicker is that it is signed “To Mike Jeremy Siegel”, and as luck would have it my name is Mike, so thanks to the original Mike for getting a signed (assuming it's authentic) first edition for me

Quality and Durability

I have always thoroughly enjoyed owning things that have the dual qualities of durability and high quality as long as I paid a reasonable price.

Examples:

- My Pannier/Briefcase bag is a full grain leather bag with a 100 year warranty. It looks better the older it gets because full grain leather gets a beautiful patina. $500 seems expensive until you amortize it over my life time and that of whoever inherits it. $9-$11 a year seems reasonable.

- The top three stock holdings I have that give me the least worry (DPS, KO and BRK.B) are all high quality business with strong durable competitive advantages.

- I own an ten year old reliable black and white laser printer, most people buy ink jet (razor and blade business model) and pay too much for ink.

- I wear nice leather shoes to work, been wearing the same shoes now for a couple of years. I figure I will get at least 2 more years out of them before resoling or replacement.

- My top of the line music equipment gives me much more satisfaction and use than the mediocre stuff.

I think the point here is that there are many areas where paying more gets you more per unit of activity/time then does paying less upfront.

That reminds me that I need to buy a copy of ERE, I wonder if there is a smythe stitched library quality version. The Toronto Public Library version is a perfect bound paperback that looked like crap because that format isn't really intended for heavy public circulation.

[jacob]

No, every ERE book in existence is either pixels or a POD glue job.

I did consider handbinding a few copies once. If there's sufficient interest, I can reconsider.