BlueNote's Journal

[BlueNote]

@ Jennypenny: Thank you

Mr. Market

Today some dude declared that he wouldn't be applying for the fed chairman job in the US. Mr. Market went all manic and is now offering, on a net basis, all the DGI stocks I bought at the same price I originally purchased them. I wanted the opposite, because the lower the market goes the easier it is to find good valuations on great companies that payout growing dividends. God I want some JNJ in my portfolio, and a market correction would probably have brought it down to a decent valuation! I once owned some JNJ at a good price and I sold it, mistake #1, so I could try the perm portfolio mistake #2 (doesn't fit my personality).

Did I mention that I made calendar events of all my dividends payments. Well that is the best investing idea I have come up with so far. It takes the focus off the price movement and puts it where it belongs, the cash flow into my pocket. Tomorrow I should get a bit of cash from McDonalds but what I am really interested in is the BHP Billiton I stuck in my TFSA. I am making a small bet, to test a theory. I think that the BHP billiton ADR (BBL) I bought will have 0 witholding taxes in my TFSA because someone told me they put some royal dutch shell (RDS.B) ADR's in their TFSA and there were 0 witholding taxes (no US or UK). I guess I will have to wait and see how the little bet turns out, if I am wrong then it cost me a few bucks, if I am right then I will be sticking some more UK stocks in there, that market still has some good values, BP and RDS.B come to mind first, even though they aren't pure DGI stocks , they do seem to be very good values so I may make a small exception.

My current ratio

I need to get my current ratio up to approximately 25 (http://earlyretirementextreme.com/how-w ... ement.html) to retire on a 4 % withdrawal rate. right now it's an abysmal 1. Once I get to 25 I can let long term compounding take care of my money needs. It's a nice neat little way to measure ERE progress and I'd like to thank Jacob for posting that idea. I think I can get the ratio up to 25 in about 7-10 years with my current level of effort, which frankly isn't nearly as much effort as some of you put in.

[mxlr650]

A friend of mine died in a motorcycle accident yesterday, he was only 41.

Sorry to hear that. I am interested to hear details if you are ok/willing to share the circumstances of accident. Was it in town or on freeway?

I did not have car for close to 6 years, and my mode of transport was motorcycle - rain or shine. I believe freeways are safe and less chaotic, however they are less forgiving in case of accidents. Safety gear (Snell approved helmet, full body suit like Aerostich, ankle length road boots like Frey Daytona, headlight/brakelight modulators, etc) and rider training/education will not make the rider immortal, but cuts the risks down to acceptable. I would have continued living on bikes, however, I realized that I was getting pre-occupied with work while riding (getting our start-up off-ground) and it was time for me to retire biking and get into cage (rider slang for cars/SUV).

Street riding has illusion of safety but it is the riskiest, IMO.

[BlueNote]

A friend of mine died in a motorcycle accident yesterday, he was only 41.

Sorry to hear that. I am interested to hear details if you are ok/willing to share the circumstances of accident. Was it in town or on freeway?



Street riding has illusion of safety but it is the riskiest, IMO.

He died on the highway, the accident is still being investigated. I do know that he collided with a trailer someone was towing. Some of the witnesses are apparently saying a driver pulled in front of him suddenly and he just had no time to slow down.

In this case a car probably would have saved his life, motorcycles are relatively more dangerous but people make choices and often live or die by them. When I lived in Japan motorcycles were far more common then in North America. The mail men/women would deliver mail on honda cubs driving down the sidewalk, tons of people were on scooters and motor cycles there. So it's not like they are death machines, they just don't have the safety design opportunities of a fully enclosed automobile.

[BlueNote]

Small Risks

I have always been one to take small calculated risks just to see what happens. I recently read a book called "little bets" that was written about this. My version of this has always been to try find a very low risk way to try out my ideas so that if I am wrong I don't lose much. For example when I through I might want to run my own business I started a small business that cost me about $200 painting house numbers on the curbs in front of peoples homes. It broke even on day 1.

Recently I took a very small risk by buying 29 shares of the UK BHP Billiton ADR (BBL) for my TFSA (like Roth IRA for you Americans). This is a security that represents some UK stocks stored in the US. The stocks represent a mining/resources company that is split between Australia and the UK. I would have thought that at some point Canada, the U.SA., or the UK would have taxed my dividends just because it was such a large number of countries for my money to flow through. However there were 0 taxes witheld and I received 100% of the dividend in US dollars for my ADR's. My tax free savings account allows me to withdraw the dividends anytime tax free. Now I am going stock shopping in the UK where valuations aren't as bad as they are getting in the US and Canada.

[BlueNote]

Job Interview

I have a job interview tomorrow morning, wish me luck!

[Dragline]

Good luck! Or break a leg, if that's more appropriate.

[llorona]

How did the interview go?

[My_Brain_Gets_Itchy]

Hope things went well with your interview!

[BlueNote]

Interview

I don't really know how to rate an interview because they usually end up being pretty unique.

This one was no different, so here are the pros and cons

Pro's

- More interesting then my current job
- Better industry (a mature industry vs. declining industry)
- Probably much better pay and benefits


Con's

- Location would require more travel
- Would piss off current boss by leaving as we are running on low staff as is
- Massive learning curve


The interview was more of a discussion about work philosophy, technology, and accounting methods for SG&A costs.

The person interviewing me did ask me how much notice I would have to give my employer but also mentioned that he wasn't done interviewing all candidates. I got the interview through a head hunter who will be my negotiator for salary and benefits. The interviewer was a little hard to read so I don't know if he was interested in me or not at the end, I guess I will find out more when my head hunter gets a status update.

Either way it was good to get an interview under my belt, it has been a year since I have done one and I feel much more confident now. If I don't get this job I will be going full force in Nov when I get back from vacation. I will just keep lining up interviews until I get a better paying job in an environment conducive to outstanding success.

[BlueNote]

Interview ctd.

It turns out I left a positive impression and could end up with a second interview. The reason I say could is that I am going on a vacation , driving down to Florida, in a couple of days and won't be able to interview until I am back. They might just hire another candidate rather than going through the hassle of having to wait for me to finish my vacation before a second interview.

[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.