Investor Profile and Lifelong Investing Strategy

Good morning RIPvestors,

welcome to another post in the investing series, where I gradually introduce you to the world of investments and go deep on topics I have some experience with, mainly related to investments in Switzerland.

Here’s the tentative schedule for the series:

  • Investing basics – Easy
  • Financial Investing – Easy
  • Funds Investing – Easy
  • Fees & Taxes – Medium
  • Stock Price and Market Model – Hard
  • Investor Profile and Lifelong Investing Strategy – Medium (This Post 🙂)
  • ETF 101Hard
  • Interactive Brokers 101 – Hard (coming soon)
  • My Investing Strategy – Whatever (coming soon)
  • “Uncharted territory”:
    • maybe a post about degrowth and how to reconcile capitalism and anti consumerism
    • maybe other socioeconomic posts I don’t know yet
    • maybe a post about investing in yourself

[Note: schedule changes with every new post. Please refer to the latest post in the series for a more up to date schedule.]

In this post we’re going to talk about… ouch, I forgot what we’ve seen so far!

RIP, I’ve been following you throughout the series. We’ve seen all the basics and I’m ready to invest my money! I know that I should keep some money cash, something between 3-12 months of living expenses. Then invest the rest. Some on bonds and some on stocks. Index funds more than individual stocks, to differentiate and reduce risks associated with individual stocks. I know that fees matter a lot, so I should shop for a cheap broker. I also know that I should invest as soon as possible and stay in the market for as long as possible… I’m not sure I fully understood that btw… Anyway, a lot of theory but I don’t know how to convert it into some concrete steps…

Ok, cool. Thanks for the recap! Well, brace yourself: we’re going to see something concrete here!

Yeeeah! So? How should I invest? Which actual assets should I buy? Which bank/broker should I use? When should I buy/sell??

warrenbuff11Relax, calm down. Not yet, not all together. Here we’re going to devise a plan for your lifelong investing strategy. We’re not going to look at what you should actually invest into (btw, we’ve gone very deep there, you should tell me on what to invest right now) and not even which bank/broker services to use. Just how to design your support infrastructure.

Did you do your homework? Did you write your IPS? Do you have an assets allocation strategy? If not, go and come back once you’ve done with that.

Ok, welcome back!

swissflagDisclaimer: my view is biased toward Switzerland in several aspects:

  • No capital gain tax, but wealth tax.
  • Tax deferred accounts (Pension Pillars) essentially not investable but they don’t matter for wealth tax.
  • Investments are funded mostly with after tax money.

Ok, let’s move on! I assume you’ve your asset allocation strategy.

Well RIP… yes, I do. I’ve put 10K cash and the rest 75% Stocks and 25% Bonds… is that ok? Is that anything else I should invest in?

Cool! Well done! You asking me if you should invest in something else? Let’s face this soon so we can move on quickly. I don’t know. Surprise! I don’t really know. It depends on your personal taste, on your investor profile and on the amount of time you’re willing to spend to become an expert in a field.

Your investor profile, according with Wikipedia:

An investor profile or defines an individual’s preferences in investment decisions, for example: Short term trading (active management) or long term holding (buy and hold) Risk-averse or risk tolerant / seeker. All classes of assets or just one (stocks for example)

Your investor profile defines what kind of investor you are. Please, take time to assess it. Don’t invest mindlessly, be sure to have your investments and your strategy aligned with your profile. There are people who invest in safer assets like structured notes. There are investors who invest in precious metals and mining companies and those who invest in options (it’s kind of meta investing). There are literally plenty of “paper assets” types. You’ll find people who recommend X over Y all the time. I do recommend stock funds that track market indexes (and bond funds, eventually, for bonds). Because they are better? No, because they are simpler. You don’t need to know much to jump in. We already covered all you need to know to avoid panicking, trying to be smart and trying to time the market. So the bottom line on this is: if you really want to spend your time and energy on other investment areas, please do. I’m just here to show you a simple strategy that worked well enough in the last 150 years of recorded financial history.

Back to us: you’d like to invest 75% of your current investable NW (your NW minus cash/emergency fund). Before moving on, let’s split your financially aware life in few ages:

  • The first investment time. Here you probably are, my friend. You have some savings and want to start investing them and you don’t know how, on what, when, what to do if you lose money,…
  • The income (or accumulation) age. Here’s where I am. You are investing and still earning a salary, you’re saving and you want to invest what’s left each month (or spend what’s left after investments).
  • The transition age. Your investments are producing enough money but you’re not FI yet. You may want to take a sabbatical, switch to part time, take some risks in new activities or careers or simply follow your passions being aware that this may reduce your earnings. Here you probably can manage to keep your expenses below your earnings but you won’t be investing much more. Maybe you even need to withdraw a little from your invested capital. I will explore this sooner or later, since I may actually take this path.
  • The withdraw age. You’re living off of your investments, you’re FI (and retired). You need to withdraw continuously to support your expenses.

I assume you’re either in the “first investment” time of your life or in the income phase, i.e. you’re still working, earning, spending and saving at least 25% of your earnings, possibly 50% or more (what about 80%?) which means you want to invest every month a good portion of your savings, am I right? Awesome!

You wrote your IPS, so you probably have your guideline written down and your differentiation strategy, am I right? Not yet? Listen… take your time and do something like this:

assetsalloc

Here you can see an example market analysis and diversification strategy. On the first two columns you can see the indexes and their descriptions. This is just a screenshot, the original document (that I’ll clean and share sooner or later) contains links to justetf, a popular funds search engine where I do all of my researches. Third column is the target percentage of my investable NW. As you see not all the indexes made it. But it’s good to spend a little time researching indexes, markets and sectors. You don’t do this very frequently, just every once in a while. Let’s assume the whole Travel industry collapses, then you probably want to remove the Travel index from this list!

Wow RIP, what a deep analysis… do I need to do the same? And btw, what are those strange codes in columns 5-9?

No, you don’t have to do such an analysis. I did for… fun! Well, I wanted to know what’s around to differentiate more than I do today. These percentages are WIP and subject to change. I remember to have signed off to provide my IPS by end of year (update: here you go), I still have time 🙂

Anyway, you’ll probably be ok investing in few indexes like… wait, that’s your job! I can’t help you in this. Find your differentiation strategy and come back. If you want to keep as simple as possible, find a WORLD index and go all-in with it. Vanguard has total market fund. Sadly, Vanguard in Switzerland is slightly harder to manage thus they are not so recommended. We’ll cover it later in this series.

Ah, and those strange codes are ISIN, a.k.a. International Securities Identification Number. Identification numbers for your funds. Just don’t care about that for now (psst… those are actual funds!).

Now you have your assets allocation strategy! What’s next? Oh right, buying actual funds! There are several funds type, and for each index you want to have in your portfolio, there are tons of funds that track it. We will cover the problem “how to chose a fund, given an index I want to have in my portfolio” in another post in this series, so please let’s assume for now that you already have a preferred fund for each of your indexes.

[Note: you can even diversify within the index and buy several funds that track the same index. I don’t know if that’s useful. My personal opinion is that it is not. Plus it complicates things at tax time. The more asset you have, the more complex your system will be.]

So now you have your funds list each one with its desired target percent of your investable NW. cool! Let’s put that into a spreadsheet:

invsts

Note: previous screenshot is my new (WIP) strategy, while this one shows current strategy. Refactoring in progress.

Here you can see few things: current allocation, target and delta for each asset class and within stocks funds (ETFs, we’ll learn more about them in another post) allocation by index. If you’re curious, I’ve explained a little bit about this structure in a previous post.

How does this spreadsheet work? How can it help me during my entire life? The schema we’re looking at easily supports income age (as well as first investment time), let me show you how.

You can monitor your desired allocation among funds and your actual investments. In case you’re at the first investment time all the actual would be zero. You periodically take a look at the deltas and if they are greater than a certain threshold, you act on it. Either buy buying more of asset X or selling asset Y. For example, according to the old plan, I’m short of STOXX 600 Europe fund by 37K. I should buy 37K of that fund. I’m investing 33K too much in S&P 500 Tech Cap, so I should sell it.

This way you can monitor diversification. The system is also self balancing: if a fund grows too much and sooner it will dominate your portfolio, you sell a portion of it to rebalance and achieve the planned diversification. If a fund loses too much to go below its target, you buy more of it. This way you also “buy low and sell high” automatically.

Why did I mention a threshold? Because in doing that I’m trying to minimize frictions: if my broker charges me 10 CHF minimum trade fee or 0.1% of the trade value, I try to never buy/sell less than 10K, to avoid paying fees at a higher percentage. So I don’t act on deltas smaller than 10K.

How frequently to buy/sell? Don’t get obsessed by it, you only need to take a look once a month o once everytime your accumulated savings are above the threshold. So, only you know when to look at it. If you save 500 a month and the threshold is 2K you go looking once every 4 months. In any case, better to not let more than 6 months pass, else your portfolio may become unbalanced on its own.

Cool RIP, so everytime I have new savings all my deltas will grow… once I have 10K (or the fee-based threshold) available, I’ll throw them at the asset with the bigger delta!

Yes, you got it right! You’ll find that in this accumulation phase you won’t need to sell, since even if an asset performs very well, your overall NW is going to increase, leaving you with smaller deltas and a cash surplus.

Ok RIP… so I’m essentially NEVER selling my stocks, am I right?

That’s not totally true, you’re going to switch from “accumulation phase” to “withdrawing phase“. Eventually transitioning to intermediate phases, in case you’ll reduce working time or switch to a semi retirement.

Ok RIP, I mean I’m not going to buy and sell frequently. I have friends who do that. I know you already told me it’s not the right way to go… but this friend of mine says he makes Godzillions…

Ok, let’s clarify this once and for all: there’s no right and wrong. I showed you how it’s hard to be smarter than the market, but you’re free to try and you may actually succeed! You may have better intuition than the investors crowd. You may bet on the oil price going up, or on banks going up, or on tech going down or whatever. If your guesses are right, you may be rewarded by tons of money. Go for it! The way I see it is like gambling, but in case you buy/sell frequently you’re paying a lot of trade fees that will make the expected return lower than just following the crowd. Thanks to trading fees, if you do a lot of operations with expected zero impact you’re losing money. It’s like betting on red or black on the roulette without considering the green number zero.

That’s because my investor profile is different that your friends one. I’m a Buy & Hold investor, while your friend is probably a Day Trader. The day trader’s job is to beat the market and perform better than average. The buy and hold investor is ok with matching the market. The first is driven by short term gains, while the second prefer to play on long terms.

bhvsdt
image: http://www.edelmanfinancial.com/

I’m kind of Risk Averse, while your friend may be more Risk Tolerant. I’m a Fund investor, your friend may be a individual  stocks investor (or, as we’ve seen before, an investor focused on other asset types). Different people, different profiles. Seek out yours! Write it down in your IPS.

Cool… then, what to do when in withdraw phase?? I’ll soon be FIREd and living off of my investments, how to handle withdraws?

Nice question! I have no idea 😛 I’m not there yet so I’m not the best person to ask. But let’s try to figure this out together: in withdraw phase you probably want to reduce stocks exposure over time. You will probably change your investor profile becoming more risk averse. You should continually change asset category allocation and experience deltas changing. You act accordingly. I don’t see a big difference here. You may try to switch to distributing funds instead of accumulating, so you have the dividend in hands instead of having it automatically reinvested – so you can disinvest it.

I have another idea that involves defining your “Stocks FU Number“, a desired total invested amount in terms of number of years of expenses (say 20x). If you’re lucky and your investments grow above 110% of that, you disinvest the extra 10% and buy more bonds. If it gets below 90% you take the missing 10% from bonds and invest them in stocks. This way you can reduce market collapse risks and you have a clear signal that you need to go back to work: when you hit the 90% and have no reserve.

But I still have plenty of time to tune my strategy!

Last but not least: Dividends.

In this very long post I talked a lot about stocks but almost never introduced the concept of dividend. A dividend is a tool companies use to redistribute profits to the shareholders. You own a stock of a company the day the dividend is distributed, you get the money. Some companies don’t distribute dividends by choice. I don’t like to focus on dividends since they are mostly neutral factors in stock decision for me (but need to tell there are investors who love dividend stocks: 1, 2, 3). Actually, from a company point of view issuing a dividend is a damage in the long term. Let me explain: when a company issue a dividend of X per share, the stock price instantly loses X. It’s logical, the company is worth less. If a company doesn’t issue dividends, the not issued dividend is still in the stock price. A company that reinvest the not issued dividend is more likely to make more money out of it, with a final result of having more chances of growth in the future. There’s more value in stocks who don’t distribute dividends. Here’s a list of very successful and growing companies who don’t distribute dividends.

Have a nice day.

Traveling

Hi RIP followers,

This month is being a real mess at House RIP. After a relatively cheap and tranquil August, with just a big trip to Hooliland and few guests hosted (like RIP Sr), we’re planning trips like crazy this month.

Planning and actually traveling too. I’ve been spending 3 days in an amazing European capital with my large team for a Hooli Offsite event at the beginning of the month, then two weekends in Italy to kick-off a big family project – more on this will follow – and last but not least I’m going to Rome before the end of September, till October 9th for a 6 days hiking trip with one of my best friends along the old Appian Way, from Formia to Rome.

appia
source: www.repubblica.it – If you’re interested, and you speak Italian, here‘s the link to the amazing book by Paolo Rumiz, an Italian writer, who rediscovered the path a couple of years ago. You can find there GPS tracks and itinerary description too.

I do love traveling and I do love hike and bike travels. In general I love slow and physically intense trips, where the destination doesn’t matter and you take your time to feel in contact with the territory you’re crossing. I’m looking forward to starting this short (6 days only) but intense trip!

As I said, we (the RIPs) are also planning like crazy:

  • Another two trips to Italy mid October and beginning of November for same reason explained before (family project)
  • A definitely non-frugal two weeks trip to Mexico by mid November with a couple of friends
  • Some Christmas vacation in Italy again by end of year.

I won’t be at home for more than 2 weeks (and never spending 2 consecutive weekends in Switzerland) till mid January, at least according to our current travel plans, which don’t extend beyond end of 2016. And this is happening since beginning of September.

If you asked me 10 years ago what my ideal life would be in 10 years I’d probably say “work for Hooli and travel around the world”. Holy sheet how priorities change… I’m kind of burning out due to so many activities. Maybe these are first signals of becoming old, I don’t know.

Travel is obviously fun, and most FI seekers put it on top of “what to do after” list. I’ve read a post by AmberTreeLeaves where traveling experiences are compared with “tastes of FI“. Such a strong comparison makes me both agree and complain. Let me explain why I’ve controversial feelings on this:

1) As I just said, I’m traveling a lot these days, both for work and for personal life.

Cool RIP, you’re going to Mexico! You can’t complain! That’s gonna be awesooooome!!

You know what? I’m not as enthusiast for the Mexico trip with our spoiled couple of friends, visiting everything in 2 weeks with a guide driving our rented car. Distances between destinations will be perceived as enemies in Mexico. Risks will be faced with money instead of creativity. Comfort will be a priority along with “intensity”, whatever that mean. It must be an unforgettable trip, because we all will return to the hell of our workplaces.

The exact opposite of what I’m going to do on the Appian Way. I’m looking forward to going with my friend along the Appian Way, it will taste like FI, a super cheap trip, where we’ll try to couchsurf and eat street food, spending almost zero for the entire trip (there will be a post about it).

In general though, I don’t like to travel at this very high frequency. I like to have spaces between experiences to give them the right weight. These days while I’m on trip X I think: “oh, I should buy tickets for trip X+1 before they become too expensive“. No, it’s not fun.

2) I hate to travel with a return ticket in hands.

Yes, I love to go on open ended vacations. I did it in the past and it’s amazing. Well, not truly open ended… let’s say when I changed jobs (take a look at my professional story) I usually took few months of sabbatical and went exploring the world.

Having something like 2 month upper bound on my vacation time is awesome and yes, it tastes like FI. Then, most of the time after 2-3 weeks I feel the urge to go back home and enjoy freedom at home, with Miss RIP, my books, boardgames, videogames, computers, friends… I also love to cook and do my chores, if I have time (not these days, ahem, we’ve actually hired a cleaning lady). But if I go for a two weeks vacation I feel forced and I can’t enjoy the trip in the same way.

Anyway. I know it’s hard to do when flights are involved. That’s why I don’t see the necessity to go so far so frequently.

3) I hate to travel to a specific destination and be a tourist.

volkswagenhippieI don’t like taking a plane to the other part of the world and just stay there and behave like a tourist, watching things that are there to be watched just by tourists. Like I used to mock asian tourists in Rome when they were lining up for hours to visit the Colosseum. Come on, that’s not Rome! I hate to feel like a weird looking foreigners lined up with an umbrella who spends tons of money to visit “La Sagrada Familia“.

I do love the process of going from A to B, it tastes like FI. If not a physical intense experience like hike or bike, I’m also ok with a road trip with a car. Better if an RV or a Volkswagen Hippie van though!

4) I hate traveling as a form of “escaping from a life that I hate”.

When you need to take a vacation to “escape” reality, to “take a break” or to “recharge” you start dreaming about your trip a month (or several) before, counting the days, the hours. You use your vacations to help time flows, else the burden of an uninterrupted series of days at work would be unbearable. You need to go to the most exotic locations of the world, flying on weekends when tickets cost double than usual, to impress coworker and friends and to feel like you have an exciting life (because when you are sitting in your cubicle you don’t) and that the heavy work you do during the rest of the year matters, because it enabled this amazing five digits dollars vacation! You need to go veeery far. What a sheetty life would it be if you had to go on vacation close to home? You also need to never touch the same country twice or you’re a loser. Shame on you. I don’t even want to think you’re thinking to visit the same actual location twice. Shame on you! Better if you touch every continent as soon as possible. You’ve not been yet in New Zealand? Shame on you!

I do love staycations though, exploring my neighborhood, biking, hiking, do daily trips. That’s several times a far better alternative! They taste like FI.

5) I hate to visit a place like I visit animals in the zoo.

machupicchuIf you go to Machu Picchu you’re visiting a zoo. If you go checking out the Colosseum in Rome, you’re doing a Safari. Boxed experiences. You’re better off watching a documentary video of the same place. No stress, on your couch, no flights, no mosquitoes, zero costs.

I like to think that after a visit to a place I could discover I like it so much I want to live there, at least for a while. I like to talk to people, especially old people. I need to feel connected. It requires time and genuine curiosity. I like to go exploring places where people usually don’t go. If someone lives there, there will necessary be something fun to do and interesting to experience.

6) I like to be able to keep up with my habits while visiting a place.

If you go for two weeks to the other part of the world it’s hard to do sports or meditate. You’ve to handle jet lag and the checklist. And you have to have fun! I’d like to be able to go running, read my books, play my games. Traveling shouldn’t necessary be “special time“. It could just be “normal time” but on a different place (I’ve discussed this in a previous post about cycles).

For example, I like the concept of digital nomadism, even though I never tried. I may one day join the hacker paradise for a quarter or less.

Conclusions

Travel is awesome. Too much travel interleaved with workdays is not.

My ideal trip is open ended, with at least a month or two of free space. It doesn’t start on Saturday or just after a day in the office, but it demands a couple of days of preparation at home before and at least equivalent time when back home to revive the feelings and contemplate. It’s cheap, as cheap as possible. Hiking, biking, hitchhiking, couchsurfing. It’s filled with interaction with people, nature and history. It’s physically intense, but it allows space for relax and introspection. It doesn’t put pressure on you to complete checklists. It allows you to feel at home and productive if you wish.

Most important of all, it doesn’t have to be an escape from reality.

Stock Price and Market Model

Good morning RIPvestors,

welcome to another post in the investing series, where I gradually introduce you to the world of investments and go deep on topics I have some experience with, mainly related to investments in Switzerland.

Here’s the tentative schedule for the series:

[Note: this post is split in several pages because it ended up being very long.]

In this post I’m going to show you my understanding of the stock market and the players involved. My humble goal here – I’m totally NOT an expert this field – is to help you (and myself) in becoming aware of the risks associated with investing in stocks/funds, understanding the basic mechanics behind a stock’s price and avoid common pitfalls like panicking and trying to time the market.

astrobeerEssentially I’m going to throw a lot of mostly useless words at you that probably won’t impact much your behavior as investor. Sadly though, in the world of “risky” investments even few apparently small mistakes can destroy an otherwise good strategy. For that reason – to avoid disasters and better react to bad news – I think it’s useful to build a solid knowledge base. For the same reason astronauts spend more than 90% of their training time facing simulated disasters. The difference here though is that I’m not as good as the thousandth part of an astronauts’ trainer 🙂

Hi RIP, I’m a little bit lost. I’m following you since the first episode and my mood is continuously flipping between enthusiasm and desperation… Can you just tell me how, when, where, on what should I invest??

Relax my imaginary friend, there’s still a long way to go. My goal, by the end of this post, is that you’ll know as much as I am and you’re going to tell me what I should invest into. The rest of the series is just technicalities to implement your strategy. Here we’re going to dig as deep as I’m able to into the realm of the market rules.

Let’s start with the single most important thing to know, and let’s do that by asking a question: What’s in a stock price?

I think it should be intuitively clear why this is the single most important piece of knowledge about the stock market, but let’s assume it’s not. If you understand why a company is evaluated at X and what you’re paying when you buy it, you’d recognize all logical fallacies when taking impulsive decisions. Bullshits like: “everyone should buy X, they are growing a lot!“, “Emerging Markets didn’t grow in last 6 years, you shouldn’t buy” or “The market is high, you should sell” should ring a bell inside you.

So then, what’s in a stock price? Or in general, what’s in a price of anything sufficiently traded in free market model? I said “sufficiently traded” because if the market is not wide you may experience under/over pricing due to lack of knowledge by some of the traders.

In the stock price of a company X in a free and wide enough market is the averaged risk adjusted opportunity cost of the flow of X’s expected returns over time.

What a complex definition! And I made it! It’s mine, mine! Let’s dig deeper.

magicstoneLet’s start with an example: “I want to sell you this Stone. This Stone will produce, out of thin air, 10 Dollars per day. Inflation adjusted, Forever“. How much would you pay for the magic Stone? Let’s for simplicity assume that the 10 dollars per day are the only asset we’ll be owning and that we can’t make any other business decision like trying to become famous by showing to the world that we own a magic object (how cool would it be??).

There’s not a unique answer to this question. But to try to come up with a price I’d do the following analysis: how much would I need to obtain the same cash flow with another known investment strategy? That’s my individual opportunity cost. Let’s assume I’m risk averse, so my default strategy with my money is buying bonds and I’m looking for better alternatives, whatever gives me more than the very low at the moment bonds’ returns. Another potential buyer may be less interested, since they may be running a nice business where every extra dollar they invest on it doubles every year. This potential buyer will be willing to pay less for the Stone, since they need less dollars than me to obtain the same cash flow. Their opportunity cost is higher. If you have a wide market, the opportunity costs eventually reach an equilibrium so do the prices.

Opportunity costs play the stabilizing role of inserting a nice negative feedback loop into the price of everything. If there’s an economic boom and everything is growing 20% each year my opportunity cost is very high so I’m willing to pay less for things. The opposite happens on recessions.

Such a Stone is a good model for a treasury bond, not for a stock. Expected company revenues are harder to predict (mean estimation) and yield very high uncertainty in the prediction itself (variance estimation). The means may drive the price, the variance may alter the opportunity cost. One thing is to have a guaranteed and predictable cash flow over time, another thing is to have a lot of unknowns. Would you rather buy X that earns 5% guaranteed per year or Y that is expected to earn on average 5% per year but may go up and down by up to 90%? Right, volatility comes with a cost. That’s why I added “risk adjusted” component into the price. That’s why you may get a predictable 2% from bonds but expect 6-10% returns (averaged per year over a very long period of time) from the riskier stock market.

Anyway, setting aside opportunity costs and the risk component (variance) the most problematic variables left in our price definition are the unknown expected returns over time.

Here’s where all the magic happens. Why a stock’s price bumps by +-10% after a political news, a quarterly earning disclosure, a company acquisitions, a government maneuver? Well, because the expected returns of the company over time change.

And btw, expected by whom? This is another individual factor. You can try to make your offer for buying a stock based on your personal expectations. It won’t impact the market price though. If your offer is below the market price, none would sell you. If it’s above everyone would buy from you. So what’s the market price? It’s the equilibrium. It’s the average expectations of future returns. It reflects the expected returns over time of the company, expected by the very large population of buyers and sellers. Expected by all the publicly available information about the company, the sector it operates in, the rumors about acquisitions, the hire rate, layoffs, current and past earnings, newspaper headlines, current and future projects… the price of a stock of a company contains the expectations of its future, based on all the publicly available information.

Well, I’m using the word “stock” where I should use “capitalization“, which is stock price multiplied by number of circulating stocks. Not a big issue, the same concept applies. I’m also focusing on stocks instead of index funds but the same rules apply. An index fund in just an aggregation of stocks.

So, let’s say once again, since this is the basic rule of everything about stocks: the stock price of a company embeds the expectations of its future returns, based on all the publicly available information.

“Ah cool… anyway, RIP, when is my stock price raising?

Essentially, it is raising when today’s expectations are better than yesterday’s. Well, not exactly. Meeting expectations should earn you the risk adjusted opportunity cost. In an age where in US people wonders if you should take 5%, someone else aims to 3x risk free guaranteed returns of 2% (i.e. 6%) of a balanced portfolio with other assets categories represented along with stocks, I guess that 6-8% per year is a valid expectation those days, for investments in USD currency at current inflation rate (~1%). In Euro area, with inflation rate close to zero, expected returns may be 5-7% in EUR currency.

Anyway, it’s important to understand that it’s not enough that the company you’re investing in is doing well, it has to do better than expected (or at least as good as expected). This is true in the other directions. If a company is expected to shrink, it may still be worth investing in it. The price already reflects bad expectations and just keeping up or shrinking less than expected may end up in a stock price increase!

Let’s take a look a the implications of this rule:

(click on Next Page)

Eleven Gems on the Net #2

Hi readers,

Welcome back to another episode of eleven gems on the net, where i share few interesting links I’ve found on the web. More information about the series can be found in the first post.

There’s not a common theme among these links, which is “work as intended”. I’m thinking that since my curiosity flies in thematic waves I may orient the series to revolve around a central theme per post, allowing few links to diverge from it. Dunno yet. We’ll see.

Anyway… yes, it’s not been a very long time since last episode in this series. Just a week, actually. I expected a lower frequency. I’ve been travelling quite a bit recently so I had more time to read than to write. So… enjoy!

11gems

1) Stuff Cloud.

Last time I shared the Buy Nothing Project. Interesting project based on the fact that you’re probably going to thrash something that would be valuable for others. The Stuff Cloud idea (it’s not a concrete project yet) differs slightly because it’s not about transferring an object possession, but it’s about freely renting it from someone willing to let others use it for free. Both projects are about true sharing economy, a project any frugal person like me can’t help but love them. Anyway, it’s not a project yet. None is jealous of their idea here. You’re more than welcome to take initiative and implement it 🙂

2) Millennial Revolution retrospective about not buying a house.

Is it worth to buy a house? In Italy everyone will tell you you’re crazy and should be sent to doctors if you don’t buy but rent. But in the worlds of FI this is a valid question and the opinions varies a lot. Jim Collins and James Altucher say “never buy a house!”, while almost all the others are ok with owning their primary residence. A lot reached FI via rental properties, so for them it’s a no-brainer.

This couple from Toronto (Millennial Revolution) centered their blog around the rejection of the “you must buy a house” commandment (take a look at their welcome video and their guest post on Financial Samurai about why cash is better than a house).

Well, after 4 years they wrote this article analyzing in retrospective how would have been their life in case they purchased the house back in 2012, when the didn’t. Amazing detailed analysis (even though, as I pointed out in comments, in my opinion they adapted the math to make their message).

They also wrote a follow up post, analyzing the impact of the mortgage leverage effect and still no, it still would have been worse to have bought the house. Even considering that the house market did great in these 4 years!

3) Rewirement by John Bowman.

Yes, we’ve finally found the missing word! We all agree that the word “retirement” is ugly, old and unrepresentative of what we aim to once FI.

This John Bowman solved the problem: not retirement, but rewirement:

Rather than retire, my generation would rather rewire. That is, prepare our minds, our bodies, and our plans for years of continued growth ahead.

Inherently optimistic, this new life-stage begins with deeply understanding who you are and where you’re going, determined by knowing fundamental personal and communal values that drive you.

This guy is a CEO of a certain age, so he’s probably just trying to feel young while retiring at a traditional age. But what he doesn’t know is that he found the missing word!

I’m actually thinking about renaming my blog in Rewire in Progress. Not joking.

Anyway, I found this while reading the MrFireStation blog. Why not go back to school again – to rewire – when retired? Amazing idea!

4) Scared of retiring early once your FI? What about our Super Asset? By LeisureFreak.

You want to be FI right? You know how to save, how to spend less than you earn, how to be frugal. You run retirement calculators, crunch numbers, calculate your FU Number and your WR. You are cautious, you don’t want to fail. You set safety margins to play even safer. Once you reach FI you work One More Year, just to be safe…

But come on guys, what are we scared of? We know we have a secret weapon. The supersafe plan we’re drawing is overshooting 99% of cases. LF says our secret weapon is knowledge. I loved the article, it put on paper (well, on screen) my disorganized thoughts. But I think the secret weapon(s), more than knowledge is resilience. Plus creativity. Plus curiosity. Plus problem solving.

5) Investment analysis: Real Estate vs Blogging by Financial Samurai.

Every article by Financial Samurai deserves to be in this series. He’s so original, deep and productive. I wish I had a thousandth of his thinking and writing skills! Anyway, as to push the “Real Estate vs Stocks” discussion a step further, he analyzed differences between Real Estate and Blogging as investment strategies. Actually, you can substitute blogging with any other kind of startup/freelancing activity. Very deep analysis and interesting conclusions, even though I think the blogging outcome is too optimistic.

What I loved most – food for thought – is that I can connect dots here: there’s a ladder of earning quality. At the bottom there is “9 to 5 till 65”. Then you learn how to send your money to work for you. But at the beginning you’re ok with low bonds returns. Then you invest in something more risky/brave like real estates / stocks. Then you invest in yourself. Higher risks, higher returns.

Blogging, for example, follows this pattern.

But…

6) The Ultimate cheat sheet for investing your money  by James Altucher.

…Yeah, James Altucher goes all in! I love his posts about investing in yourself (he wrote a book about that). In this post you’ll find his unsettled anger toward wall street and the stock market. His advices are interesting and worth reading but I think his goals differs from mine. He states that stocks are boring and those who make money are “the thieves/experts”, so you should run away. Disagree James, sorry. I never liked so much an article with whom I disagree so much!

Anyway, I know one day I will say “James was 100% right”. I both dread and dream about that day.

7) Spend Generation Manifesto.

This post made me angry with myself. I hate when I feel something being so totally wrong but I can’t came up with a couple of sentences explaining why it is wrong. I have skill, but being concise, succinct is not one of them. This post is about a guy who’s proud of spending all his 130K yearly salary while still living with his parents.

I don’t want to spoil more. If you have 10-15 minutes please read it. It’s a long article, but well worth reading.

8) Q&A at Camp Mustache hosted by the Mad Fientist.

Podcast of the Q&A session at Camp Mustache, a meeting between American Mustachian that I dream about joining one day. This podcast is an hour long and there are amazing questions asked by the audience to the four speakers: Pete (MrMoneyMustache), Paula (Afford Anything), Doug (The Military Guide) and the Mad Fientist. They all already reached FI.

Questions were about suggestions to beginners, motivations for those halfway through, investing in the stock markets at the all time high, challenges once FI, what to do after, how to relate with other people…

I learned few things I didn’t know that will help me on my journey:

  • the impact of negativity on a community.
  • the importance of practicing gratitude.
  • the importance of leading by doing and being consistent.

Food for thought, as usual.

9) XKCD on global warming.

Let’s admit that: Randall Munroe is everybody’s imaginary best friend. No? Cool, than he’s all mine! His depth of thoughts and how amazingly he can put things on paper using just stick figures is worth a nobel prize at least. This episode is slightly more complex and puts time into perspective while analyzing global average temperature on earth in last 20,000 years (well, what we know about it, since thermometers weren’t there 20K years ago…).

Essentially we, the human race, survived through a glacial era, when cities like Boston were covered by a miles (A MILES, in height) of ice. Since then the average temperature rose by 4 celsius degrees till 1990 (26 years ago) and another degree till today. Forecasts say we may gain another 3 degrees by 2100.

Denying human effects on global warming after having seen this graphics seems so silly. A picture is worth more than billions of words!

10) Hilariously Accurate Comics About Adulthood And Life By Owlturd.

I Follow the boredpanda on facebook. This page satisfy at least one of my two basic requirements for a social media entity to be worthwhile: being informative or being entertaining. This post were both. It made me discover this owlturd blog and his amazing drawings. The drawings are about adulthood life situations, where emotions are personified a là “Inside Out”. It made me laugh and think, which is the definition of success for me.

11) [Special] Little Boxes by Malvina Reynolds.

The special section is reserved for something that’s not new, and this video definitely isn’t. The song is dated back in 1962, closer to the first world war than to today. But I just discovered less than 24 hours ago, following a deep youtube vortex with at a friend’s house (curious? Last 3 steps were thisthis and this).

I’ve consumed hours of Malvina Reynolds songs while working yesterday at Hooli. I can’t help but keep going. She was (when she died I wasn’t one year old yet) an anti capitalist singer and songwriter of the flower power era. This song is an efficient criticism to conformism, urbanization and capitalism. I perceive my whole body feeling happy when listening songs of this kind, even though I know and accept the apparent contradiction of being anti consumerist (I don’t spend) and capitalist (I invest, i.e. I rely on other people spending).

My hearth belong there, among the flowers!

Fees and Taxes

Good morning RIPvestors,

welcome to another post in the investing series, where I gradually introduce you to the world of investments and go deep on topics I have some experience with, mainly related to investments in Switzerland.

Here are other articles published in this series:

In this post I’m going to show you the importance of fees and taxes in investments, with a focus on Switzerland brokers fees. We’re not going to take a deep look at assets related fees since my only experience is with funds’ fees – and we’ll take a look at that in one of the following posts in this series.

In the previous post I left you with a lot of unanswered questions. Sadly we’re going to answer to almost none of them in this post, just throwing a lot of confusion (read: data and pessimism) on the table.

Oh, finally RIP… I was waiting for this series to continue! What’s next? I heard that MyCoolIndex went up X% last year, if I invested back then and sold everything today now I’d have X% more, what a shame!

That’s sadly not true my imaginary friend, and that’s what we’re going to talk about today: actual investing will bring you slightly less money than theoretically expected, due to some kind of second principle of thermodynamic applied to investments. Like friction slows everything down and generates heat, every time you move a Dollar you experience financial friction and your money evaporates into nothing. Well, not exactly into “nothing”, but into someone else’s hands. Sadly, frictions in finance are everywhere, not just on money movements. They take several names, mainly taxes and fees. Taxes are on wealth (nominal value of your assets) and/or profits (dividends, capital gain) so they are there to smoothen the good news: reducing the gains. Fees are there anyway, as permanent bad news.

Before moving on, please read deeply this article by The Simple Dollar on the math behind fees compounding. Essentially, even a small difference of decimal percent points between recurrent fees will lead to gigantic absolute differences if given sufficient time. Here‘s another detailed article if you want to know more.

Ok, let’s take a look at fees and taxes.

Fees

feezInvesting is not a zero sum game. It’s not but due to two opposite factors:

  • it’s a less than zero sum game, since every action has a cost/fee.
  • it’s a greather than zero sum game since economy grows over time and everyone win.

We covered the expected greater than zero (I hope) so far in this series. Here let’s focus on the costs, the frictions, the energy loss due to transactions and managements.

We agreed you shouldn’t buy shares of an actively managed fund, right? Anyway, passively managed funds have costs. Usually they are costs proportional to the invested capital and to the number and volumes of transactions.

Brokers/banks may charge you for the custody of your securities. Depending on what you invest on (banks usually offer you discounted fees if invest in the funds they manage), you may incur in:

Account opening/closing fees.

Say you want to start investing and don’t know what to do. You find a mediator (a bank, a broker service, a financial institution, the government,…) and want to use them as a tool to buy, sell and hold your assets. You probably need to open an account with them. This operation alone may have costs and/or other kind of requirements like, for example, you may also need to open a checking account with the same bank, you may need minimum initial deposit, you may be forced to accept an expensive initial consultation with a physical person to assess your risk tolerance, et cetera.

perpetualmotionSame is true for closing the account. Please double check before opening an account with them. Must say that these kind of entry barriers are not very popular, since everybody wants to have you in with them.

I’ve also heard you can get “credits” for opening a brokerage account with some firms. I’ve not found yet someone who did it Not in Switzerland though. We use to respect thermodynamic principles. There are referral bonuses though. Like my favorite broker firm does! Note that the above link is not a referral link (yet), just a link to the referral program.

In the long term, opening/closing fees are negligible anyway since they are only paid once.

Deposit/withdraw fees

Your brokerage account is like a virtual world where you buy and sell things which reflects on moving number in databases. On its own, it’s an interesting world. But you probably want to connect it to the real world, where real money moves around. To do so you must be able to deposit money into your account and to withdraw from it whenever needed. Another source of friction.

On top of that you may need to take into account money transfer fees at source. Real case scenario: you have a bank account with bank X, you want to transfer money to entity Y that handles your investments. You instruct bank X to wire a certain amount of money to entity Y. Both X and Y may charge you for this.

I’ve actually found firms that issue a deposit bonus (as always, not in Switzerland), like forexbroker – well, forget about that: after a very deep 10 seconds research I’ve found it’s considered a mostly scammy broker.

Usually deposits are not charged by the entity Y (they want you to deposit money) but your bank X may apply transfer fees. I’m lucky enough that CHF deposits from my “CH – CHF – Individual – checking” account (row 19 on my NW) are not being charged, despite the bank and the underlying broker bank account for CHF deposits are in different nations (CH vs UK). Sadly, USD deposits from my “CH – USD – Individual” account (raw 23, different bank in CH) to the underlying broker bank account for USD deposits (which is in US) are charged a little by the CH bank.

Same is not true for withdraws. Here X and Y goals are reverted. Y doesn’t want you to take money out. For instance, with interactivebrokers, (a.k.a. IB) I get a free withdraw per calendar month, then each subsequent withdraw is charged with a flat rate of 11 CHF at the moment (September 2016).

Anyway, even though these fees can be somewhat recurrent (you want to deposit/withdraw with a higher frequency compared to opening/closing accounts) in the long term they don’t mind too.

Yearly custody fees

Here’s the first fee that matters a lot!

Custody fees are usually proportional to the invested capital and are paid out yearly or quarterly. They are in the range 0 – 1% of the invested capital. 0% is very rare, the only broker I’ve found that offer such a good deal in Switzerland is again IB, but you need to have invested at least 100K USD or else you’ll pay 10 USD per month.

Custody fees are strong forces that accumulates over time and cost you a big chunk of your invested capital. Again, let’s skip the math here and please take a look at this article on how a 1% fee will eat 25% of your investments in 40 years, or play yourself with this Investment Fee Calculator.

If you choose your bank as investment broker, you’ll probably discover that they have 2 separate custody fees: a higher one (0.5 – 1.0%) for holding your generic securities and a lower one (0 – 0.5%) for holding securities issued by them. It’s a scam, run away! Their securities are managed funds with obscure – but high – management costs. I’ve chatted with both UBS and Credit Suisse and they are similar in this. Last time I chatted with UBS they had a quarterly fee of 0.14% (and somewhere around 0.04% quarterly for UBS managed assets) but at the time of writing they changed it to annual model, with a 0.35% base fee that can grow till 0.75% for non traditional funds outside Switzerland. 50% discount for UBS issued assets (which are in Switzerland and are not non-traditional funds, so 0.17%). Here‘s the link to the up to date information. Scam anyway.

Same holds true for Credit Suisse, even though their fees seem slightly lower.

If you plan to be a long term investor (and we’ll see why you should in next episode), choose a broker that applies the lowest custody fees.

Trade fees

So far you opened a broker account with entity Y and wired some money over. It’s time to buy securities! Is that free of charge? Of course not! Each trade has some friction in the range 0.05% – 3% of the value traded, sometimes with lower/upper barrier fees.

Yes, I’ve seen 3% trade fees at UBS for pension Pillar 3a funds like Vitainvest 25. Note: they state in the bullet points list under “Your benefits” the fact that the fund has an “Active management” so that “the weighting is always in line with the latest market forecasts”… wow thanks a lot UBS, I’m so lucky to have this team of financial expert to help me managing a fund that should simply match a Swiss Market Index like SMI or SPI with 25% of its capital and invest the rest in a Swiss Bond Index (SBI).

My experience, again, is with IB that has a dual trade fee model: Fixed vs Tiered. I actually don’t understand in which cases the Fixed model is better, because to me it seems the Tiered model is always better. Anyway, if you know a use case when Fixed is better, please write it down in the comment section of this post.

The IB Tiered model charges 0.08% of the trade value, assuming we are all trading less than a million CHF at a time. 0.08% – or as seen sometimes 8 basis points – means 8 CHF for a trade of 10K CHF. Fair enough. There’s a minimum of 1.50 CHF per trade, which means trading less than 1875 CHF in a single transaction ends up being more expensive.

Trade fees are relevant, you’re going to trade a little bit over time. Anyway, as we’ll see in next episode, if you’re a day trader you care more about these fees than if you are a buy&hold investor, like you should.

Premium fees

Brokers offers a wide variety of services and premiums you can benefit from. Do you want real time stock exchange data instead of 15 minutes delayed? If you wonder why it matters, maybe you’ve never heard about high frequency trading. Well, actually the high frequency guys don’t use a broker, they interact directly with the stock exchange. Anyway, if you are a day trader and want to make a fortune by timing the market and trading several times a day you may need better market data.

If you’re like me and don’t want to care about this stuff you don’t need any premium package.

Adviser fees

Are you managing your wealth or asking for help? This is not free. Advisers may eat another big chunk of your money via consulting and performance fees.

You should simply run away. No value added.

Funds management fees

Essentially, we can forget about minor fees like deposit/withdraw, open/close and premiums. Understanding custody and trade fees covers 95% of what you should really know about your broker. We’ve done with it.

Now it’s time to dig a little bit on fees related to the security you want to invest into. Note: I may use the words security or asset inconsistently across this series, but I mean the same thing. If I want to be specific I say stock, fund, bond,…

If you buy stocks, there are no other hidden costs. You follow the stock price on the internet (Yahoo Finance, Google Finance, your broker web/app interface) and that’s all. If you buy a fund, there are fund management costs. We’ve seen them in a previous post of this series and we said they strongly depend on the fund being actively or passively managed. Anyway, the fund management fee is never (as far as I know) paid out directly, but it’s withheld from the fund’s capitalization and reflected into the fund’s share price. It’s universally called Total Expense Ratio (TER). As we’ve seen it’s in the range 0.07 – 3%, yearly.

The TER is another fundamental number to try to keep as low as possible! Two funds who track the same index can be compared using their TER. The lowest, the better!

Always.

Well, it’s not true.

Why? Taxes…

Taxes

tazzesEssentially, taxes are other fees. Usually bigger fees. There are several kind of taxes on investments:

Wealth taxes

The concept is that you pay a yearly tax proportional to your NW. Proportional is not the correct word since, as every other tax does, the tax brackets are higher the higher your NW is. This is something new for me, since in Italy we don’t have a wealth tax (for now).

Sadly, Switzerland has a wealth tax that can reach 1%, yearly, of your wealth. Following this or this sources of information you can see that where I live (German speaking Switzerland, lower taxes) wealth tax for a NW of 1,000,000 CHF is between 0.1% and 0.4%.

Since, all your after-tax investments contribute to your wealth, you need to take this into account as an extra cost. Pension Pillar 2 & 3 don’t contribute to your wealth-taxable NW.

Dividend taxes

When companies distribute a dividend and you own stocks of that company, you earn the dividend. In almost any country the dividend is taxed either as income or separately. In Switzerland dividends are income. In Italy there’s a flat “financial return” tax bracket by financial asset category. Here‘s a link (in Italian) about rates. Currently, it’s 26% on stocks and funds.

Another problem is when the company is traded in a stock market in a different country respect your residence. Sometimes you may incur in double taxation. For example, US tax authority (IRS) withholds 15% of dividends, like a tax at source. If you’re Swiss resident and want to avoid problems you can use the DA-1 form to reclaim that tax.

Capital gain taxes

When you sell something that you paid less than that, you have a capital gain. This is taxed on several countries, like US and Italy. Luckily, Switzerland doesn’t have a capital gain tax. Italy has a flat 26% capital gain tax.

Lump Sum Taxes

In Switzerland – like in US – you may withdraw under certain circumstances (leaving the country, buying a house, starting a company) from your Pension Pillars 2 & 3. When you do, you pay taxes on it since your Pillars are pre-tax money. Luckily, you don’t pay full income tax but a fraction of it. You can calculate how much you would pay withdrawing from your Canton using this calculator, and then check how much you would pay withdrawing from Schwyz Canton clicking here. Note: you can always move your assets to another Canton before withdraw.

Anyway, if you invest your Pillar 3 (I’m not aware of investment opportunities for Pillar 2) you need to take into account these extra taxes you’re going to pay at withdrawal time. I’m accounting for this tax on my NW spreadsheet (row 58) with a tax rate of 5.3% which correspond to the expected rate in my Canton for the expected capital I’ll withdraw.

Trade Stamps

trading stocks on some stock market may incur in extra trade taxes. Trading stocks on the Swiss stock market as a Swiss resident you pay the Swiss stamp tax. I’m not aware about italian situation on this.

Costs (Taxes and Fees) Recap

As we’ve seen, all these fees and taxes will likely kill your strategy. The 4% rule is just a study based on S&P500 performance, assuming no fees and no taxes. Well, let’s say assuming no capital gain tax and gross withdraws. An ideal situation.

When planning for your actual situation you need to take these costs into account. What it means is usually a couple of things:

  • You may discover that your plan is not viable in your target country. In my case, Italy is not well suited for living off of investments thanks to too many taxes.
  • You may want to revisit your Withdrawal Rate, adding few safety margins. That’s why I’m not planning to go for a 4% but a 3.33% instead.

Open question: I didn’t find a nice non-standard retirement calculator for Switzerland/Italy. Kudos to who’ll point me to a suitable one 🙂

Now, back to your strategy my dear friend!

See you on next post on this series.

NW Spreadsheet improved – plus a taste of my current investment strategy

Hello friends,

I’ve updated my NW spreadsheet to include a NW tracker (historical too) and my real time portfolio allocation strategy and monitoring.

You’re obviously free to copy it out and personalize, or simply copy features and formulas you like.

Let’s take a look at each feature:

NW Tracking

This sheet tracks NW month by month, getting data from the NW sheet. Each color represent a currency: red is for Euro, green for USD and purple for CHF. Note that each light grey row is a jump of 5K in that currency 🙂

Data here are reported since May 2016, to better appreciate progresses during blogging time 😉

Historical NW

histnw

This sheet tracks my NW since the beginning of time. You may be interested in following the evolution of my NW thru the series My Financial and Professional Story so you won’t ask why there’s a 3.5 years hole in the data. Here each light grey row represents a jump of 10K in that currency.

Portfolio Allocation and Strategy

invest

This sheet is both defining my Portfolio allocation strategy (which is, btw, Work In progress) and my current real time assets allocation.

Disclaimer: I’m writing this article in September 2016. All references to columns, rows and cells are based on screenshots posted here. The underlying document will change over time but I don’t guarantee to keep information in this post in sync with the sheets evolution. Take the static images posted here as reference.

All values in this sheet are expressed in CHF.

The strategy is defined by column E. The 100% base is defined on the invested capital, which is not my NW. The invested capital is NW minus virtual money (credits), minus liabilities (debts), minus cash. The strategy defines which percentage of my invested capital is to be allocated on what.

Each row represent an asset category into which I want to allocate money. There are estates, bonds and stocks. Current coarse grain strategy is 15%, 25%, 60%. The stocks category is split in 3 index funds

Plus 3% of fun money to invest in random individual stocks. I usually hold some Hooli stocks, but I allow myself to play a little bit with random stocks. Never done so far though.

I added the actual ISINs and Tickers of my funds (ETFs). More on this on its own post in the investing series.

Note that there’s no target percent for cash. I model cash needs as few months of salary worth into an emergency fund (or a collection of bank accounts). At the moment I’ve set 30K CHF as cash cushion target (cell H8).

Column G measures current realtime allocation and it’s based on values from the NW sheet. Note that the Total here (cell G9) doesn’t correspond to my current NW, as I explained before.

The Current % column (column F) tracks my current allocation of each asset category against my total. As you can notice the percentages don’t necessary sum up to 100%. If it’s more than 100%, it means I have less cash than the target. If it’s less it means I have more cash than planned. Right now it’s 95.6%, in fact I have 51K of cash. I said in last monthly financial update I need cash these days for extra expenditures so it’s all ok.

Column H is the absolute target on each asset category, obtained by multiplying the target% (column E) by my total minus target cash.

Column I tells me if I need to invest more (positive value, red color) or less (negative value, green color) on that asset category, and it will drive rebalancing.

Here’s the full document embedded in this post. Click here to see it in Google Sheets

Well, I lied about strategy being monitored in real time. I update this NW document once per month, copying data from my personal (not shared) NW document which is in real time. Sorry for that 🙂

Eleven gems on the net #1

I’m an avid reader of books, follower of dozens of blogs, consumer of hours of youtube videos.

I love being hit by waves of information on the topics I care or I’m curious about.

I don’t follow the news or the politics too much, topics where people tend to get very hot about. Well, I do love to talk about politics but in the highest form, asking myself and friends questions like: “how would you organize a society?“, “are nations the right-sized entities to face future challenges?” or “should we go to mars?” – yes, I see it as a political question 🙂  I do also like politics at the very local level, where pragmatism is more important than ideologies. I just don’t like to discuss about parties, VIPs, marketers, sloganists, actuality, candidates,…

So I spend a lot of time reading, studying and watching interesting and mentally challenging videos. Whatever stimulates my creativity, satisfies my curiosity, challenges me, makes me smarter or simply makes me laugh I add that to my list. I’ve shared some of these resources in a page on my blog. I’ve set up tools to keep myself up to date on new videos from my subscriptions (thanks, Youtube), new posts from the blogs I follow (thanks, Netvibes) and new books I should read (thanks, Goodreads).

[Fun Story: That’s the price to pay if you’re a Strategic Thinker, according to Gallup Strengthsfinder. I did the test an year ago in a leadership training (thanks, Hooli) and I discovered that four out of my top five strengths are in the strategic thinking category. This strengthsfinder is a very valuable tool I’m glad to have discovered and I recommend it to you if you don’t know what to do and you think you’re an impostor where you currently work. Anyway, here‘s the list of the 34 classified strengths, here‘s a clustering of them in 4 categories and here’s my top 5 strengths: Input, Learner, Futuristic, Analytical (all in Strategic Thinking cluster) and Woo (Influencing). I must admit I was skeptical but I can’t agree more with the conclusions the came out of the tool. I can’t share them here – they are too much Hooli related – but trust me: I got actionable items to put my strength at work both professionally and in my private life!]

What’s the point in this very long introduction? I want to start a section (actually rebrand the inspiration series) into an (a)periodical series on “what I found interesting on the internet“. The key requirements of something to appear in a post are:

  • It must be a recent discovery of mine: I’m not going to post links to something I have in my bookmarks.
    • Well, I may add related resources and use my bookmarks.
    • Well, I may add some old links if I recently stumbled upon it.
  • It should be Personal Finance related.
    • Well, I consider everything personal finance related, even mars exploration.
    • Well, I can allow a couple of non personal finance related links per post.
    • Well, I can also allow a couple of meaningful “quotes”. I do love quotes. I have a doc with collected quotes. 23 pages of them…
  • You got it: I’ll put whatever I want in these posts.

I don’t want to make the series “weekly” or “monthly” or “whateverly”. I want to have a constant size for each post. As soon as I have N links I’ll publish a post on the series. It may happen I publish a post per day (it means I found N links worth sharing in a day) or maybe I won’t publish for a month, in case I won’t find enough things worth sharing.

The chosen size is 11. Why? I don’t know. The world is filled by 10s and 12s. None cares about the poor Eleven.

Next problem: how to name the series? Random names that I tried:

  • Things worth sharing. Boring.
  • Seen on the internet. Turbo boring.
  • What made me smarter. Bleah.
  • Last week today. It doesn’t look original at all 🙂
  • Elheaven. Ouch, this really sucks!
  • Eleven links that made me smarter. Looong and boring.
  • Eleven gems on the net. Mmh, it’s not that bad. Let’w work on it.
  • Eleven links worth spreading. Plagiarist!
  • Eleven Inspirational Links. Meh.
  • Eleven worthful resources. Not bad…
  • The Elevens. Featuring Bill Cosby?
  • My latest eleven discoveries. Nah.
  • Eleven links found on the web. Produced by National Geographic?

Nope, I’m going nowhere. Today is not the day I name this series. Temporary name is: Eleven gems on the net. Enjoy!

11gems

1) The Oatmeal on happiness.

Simple. Beautiful. Clear. I love The Oatmeal comics but this one I had to read three times to let it circulate into my brain. It’s about happiness and the misconcept that one must be either happy or unhappy. We lack words and we’re so used with this dualism that we talk about happiness without knowing what it is. The same happens when we talk about love.

2) Waitbutwhy on marriages.

I told you I’m a strategic thinker. I’m a software engineer, I’m a learner, input driven, INTJ (not sure actually) et cetera. That’s why I love WBW blog and Tim’s very looong posts in general. I feel very inspired by him and I guess I got influenced by his writing style. Anyway, this post of his is about The Decision and how humans come up with that. With special attention to brain-driven people.

3) Trent Hamm’s Manifesto.

It’s no secret I love The Simple Dollar blog. In this post Trent lists his values in a kind of “10 commandments” tone, slightly less “thou shalt not“-y. My hard drives and cloud systems and paper notes are full of small Manifestos of mine. I love listing values, goals, todos, things I own, things I never did, things I care about… Now I can’t help myself but I need to write my own manifesto sooner or later. Items in his list I really loved reading are:

  • I will work toward a day, sooner rather than later, where I no longer have to work to earn an income, and I will achieve it by saving the excess of the fruits of my labor.
  • I will find variety in my life not through opening my wallet, but opening myself to the widest array of experiences that life provides for us without having to exchange money for it.
  • I will enjoy some of the pleasures of life irregularly so that they remain special and feel like a genuine treat, rather than enjoying those pleasures frequently and have them sink into part of the ordinary routine.
  • I will work to maintain and improve my mind every single day as well, as the freedom I desire is best expressed with a healthy mind.” (this is actually the best one!)

4) Financial Samurai on Brand and Blogging.

I like Sam’s blog even though I don’t always agree with him. This post is about building your own brand. It’s centered around blogging but the same rules apply for other fields as well. It’s aligned with the philosophy I found in the book Choose Yourself, by another virtual mentor of mine: James Altucher. What I liked the most in this post is the concept of “Value Proposition“: what’s your brand offering? Which value is your brand adding? By value he doesn’t necessarily mean economic value.

Here some related readings by the simple dollar (1, 2, 3)

5) Buy Nothing Project.

I found this project listed in a recent article on frugalwoods blog. I started years ago as a sharing economy enthusiast and I gradually become more and more disappointed about it. I thought the sharing economy would have killed all the middle men and made us richer, but it turns out to just substitute middle men with even stronger and monopolistic middle men. I supported couchsurfing but then airbnb came and now social lodging costs like hotels. I wanted carpooling and carsharing to be closest to actual operating costs (super cheap) but then uber came and now social driving costs like a taxi. I see this Buy Nothing Project as a last resort for the sharing economy and I will devote time and resources to it.

6) Derek Sivers: Why.

Derek Sivers is one of my virtual mentor. I carefully read all of his updates. Every post is a look at the world by another uncovered angle. This post is about focusing and motivation/purpose. Focusing on the goal with the intent to maximise your impact leads to the best strategy that, as he says, may be counterintuitive:

Like if you have a high paying job, but realize that charitable giving is what matters most to you, then the best strategy is not to quit your job and go hang mosquito nets in Africa, but actually to keep your job and make as much money as you can, while spending it on hiring hundreds of people in Africa to hang thousands of mosquito nets. (Unless your goal is more about looking charitable, instead of actually being charitable. Then admit that to yourself, too.)

As I said. Another angle, another point of view. Food for thought.

7) Medium: I got scammed by a silicon valley startup.

I was kidnapped by this very long post. I started reading and I went all the way to the end of it. Long story short: a girl accepted a contract with a company in silicon valley that simply never paid its employees till everything blew up with a fake wire transfer story. Penny (the storyteller) kept CEO, CTO and employee names (and company name) secret, but the story went so viral that everything is public now. Nothing related to my working situation or to the one of someone I know. But the story is a perfect post mortem that can teach you how to recognise bad smells when closing working deals. I had my scammy startup experience during my freelance years, I wish I had this article around at that time. Anyway, the other take away from the story is that behaving badly with one of your employee ruins your reputation, sometimes with devastating PR effects.

8) Goodbye Coworker’s Mail Generator.

In one of my recent deep procrastination session (clicking on links on the internet instead of doing things) I stumbled upon this amazing website named The Cooper Review. I obviously started binge reading all the comics and it suddenly made it through the very selective process of being added to my feed reader. One of the post who made my day was the one about how to send a goodbye mail to your coworker. In that article there’s a link to the mail generator. Working at Hooli I see a lot of these emails from coworkers who are leaving. I always thought that they look so similar. Now I wonder if they were using the generator!! For example they all end with “hey guys, let’s keep in touch! here’s my personal mail”, but then after 3 days none remembers not even the names of those who leave! This is both relieving and sad. Sad because as soon as you stop keeping up you disappear. Relieving because in the end, none cares about what you do or think or are. We overrate what others think about us. Anyway, here’s mine:

Fellow Brogrammers,

It’s with a gentle sad face that I must share with you my decision to leave. This was apparently a very difficult decision to make.

It’s hard to believe that Almost four years ago, I was the frontend engineer in team X… From that time, until when I was Backend engineer in team Y, and all the way to my current role as Senior Software engineer in team Z, I have grown so much. Thank you for teaching and inspiring me, and allowing me to do the same for you.

I am headed off to explore my next chapter enjoining the freedom brought by FU Money.

I’m excited about my future there while I continue to be excited about all the things you’ll continue to accomplish here (except for you Gavin Belson, you will never ever make the world a better place!)

If I could leave you all with just one thought, remember,

“It is during our darkest moments that we must focus to see the light.” – Aristotle Onassise

If you ever want to get in touch, my contact info is below. This isn’t goodbye, our paths will cross again. Hopefully at farewell happy hour drinks at 5!

-Mr.RIP

Email: mrrip@retireinprogress.com
Phone: 012 3456789
Twitter: @misterrip
LinkedIn: www.linkedin.com/misterrip

9) Partial Financial Independence by The Simple Dollar.

I tend to skip TSD posts not written by Trent Hamm, because since after Trent sold his blog you can breathe the “need for money” on other writers’ articles. They usually talk about “best credit cards” or “best student loans”, i.e. referrals and affiliation programs. I can tell if an article is written by Trent by the title, so I clicked on this one sure it was written by my favourite personal finance writer. It was not and I kept reading. Ok, it’s not that deep (sorry Matt Becker) but it touched a topic that is in my mind these days:

While full financial independence is the ultimate goal, it’s not the only goal worth pursuing. Along the way you can attain partial financial independence, which is simply when you have the financial resources to make lifestyle decisions that make you happy, even when they’re not financially optimal.

Which is a nice way to say: if you have enough money to take some risk, well, you may take it already. No reason to be unhappy where you are till you reach FI. Food for thought.

As a plus, the author came up with a nice definition for Financial Independence:

I define financial independence like this:

The ability to make decisions based on what makes you happy instead of what makes you money.

It’s the point at which money stops being the limiting factor and starts enabling you to live the life you want.

Both simple and awesome!

10) James Altucher on Negotiation.

Wow. My knowledge on negotiation as always been limited to “let others speak before you do”. Now I have a dozen new techniques at hand, thanks to James and his friend Chris Voss, former lead hostage negotiator for the FBI. Some of them are intuitive, some are not. Some require acting skills and poker face, which I claim to have. And don’t underestimate the importance of negotiation. Negotiation will happen in your life more often than you think. For example, I ended up on the Silicon Valley scam article thanks to a Financial Samurai post on negotiation. Getting better at diplomacy and negotiations is what makes you stronger as you grow: what you can’t win anymore with a direct fight you can get by plain and simple diplomacy and negotiation.

11) [Special] David Foster Wallace: This is Water.

Yes, the eleventh will always be special. Either “from the past” or something plainly fun or just a quote. This time we have the amazing commencement speech given by Wallace at Kenyon College on May 21, 2005. Here’s the video:

Thanks to this video I discovered D.F. Wallace and like most of the people I recognise as being incredibly wise and aware of the supreme truth, he committed suicide. The video is a compressed version of everything a student should learn from school. The school year could have been easily ended after the speech. One of the top comments on youtube for the video is “I learned more in that 20 minute speech than i did in all of my public schooling…“. You need to listen to it, I can’t summarise it here. If you need help, here‘s the full transcript, here a nice collection of quotes from the speech, and here‘s the post by brave new life that made me fall in love with D.F. Wallace. Enjoy!