Ten Things to Do with Yesterday’s Business Paper

Yesterday’s paper still holds value of another kind. A few lessons in business writing and reading.

Whether it’s yesterday’s business paper or last week’s it still holds some value. This post is written in a humoristic manner but it also emphasizes the importance of understanding journalistic trends, interests and business writing as a concept.

I’ll start right away with what can be done with yesterday’s business paper:

#1 Get a good laugh from quickly irrelevant commentary and analysis

Source: NY Times

There’s only one guarantee in economic and stock market analysis and commentary. The central and generally agreed upon scenario won’t happen. Everything else is quite possible.

Nothing puts things in perspective as reading yesterday’s paper or better yet last week’s or last month’s papers. No one really knows what’s going on. We’re all pretty much shooting in the darkness.

Anyone who reads analysis and commentary recognizes the usual twisting and squirming with forecasts that include more conditional prepositions than any real analysis. I should know. I’ve written some (although I try to convey my general thesis).

They are pretty useful as jokes however.

#2 Note the ones that do know what they’re talking about

There are good analysts and journalists our there. Getting to know them is well worth the effort.

Next to financial reports, investor relations and the market itself we have precious little data regarding the economic and business environment.

It takes time, patience and experience to really know how to read a paper, what should be filtered, what the various interests in each article are and what is really important. The good news is that it’s a learned trait.

#3 Notice how yesterday’s heroes become today’s villains and how yesterday’s trends become today’s bubbles

Much like anything in life business news, commentary and analysis is cyclical. It crowns the kinds of the business world; it creates and usually strengthens trends and hypes and is also the first to tell us “we told you so”.

New business models, new economics, recessions, expectations, oil, housing bubbles and more are mirrored and toyed with in the papers. There are actually patterns to reporting bubbles and trends and I believe the follow the following (hopefully I’ll write a bit more about it in a future post):

• Unnoticeable 100 word articles or press releases.
• Reports of abnormal return on investment.
• Analysis which sets goal prices at 50% higher after 400% increase in the past 3 years.
• Debate, commentary and cover stories of the heroes of the new trend.
• Unnoticeable 100 word articles of veteran investors warning of miss conceptions and over-valuations of new business models and new economies.
• Commentaries that claim the old must adapt to the new or be lost forever.
• Reports of sudden and severe drops in prices.
• Commentaries analyzing why everything that’s happening is only a part of a healthy realization of past capital gains.
• Mass hysteria and stock selling as everything comes crumbling down.
• "We told you so" by every economic commentator everywhere.
• Old veterans buying everything they can get their hold on.

And the cycle continues. Those who ignore history are bound to repeat its mistakes

#4 Browse it again to stimulate your creative blogging bone

I find business papers and personal finance blogs a great source of inspiration. I either agree or disagree with what I read and sometimes I just can’t wait to tell you why.

For me, constant creativity is the hardest part of blogging. Thinking at today’s business news and economic analysis from another point of view usually gets my writing going pretty quickly.

#5 Save it for making money in future time travel to the past

Had we had the opportunity wouldn’t we all take advantage of it? Much like Michael J. Fox did with a 2000’s sports almanac back in the 1950’s in Back to the Future?

That is a bit far fetched, I agree, but haven’t we all wondered what would we do had we known how the market will act? Looking at graphs and charts trying to predict their future behavior from past patterns and constantly failed?

Many business papers publish seasonal and event driven articles with great recommendations, advice and how-to’s. Saving these can be very helpful the next time around. Tax planning recommendations, Christmas and holiday shopping tips and many more helpful articles often hold great potential to be taken advantage of the next time around any particular event becomes relevant.

There must be many other good uses to yesterday’s business papers. I’d appreciate your thoughts and comments on the matter.

You could always go with a more practical view and do any of the following:

6. Line your pet’s bed or cage
7. Wrap fish
8. Recycle it
9. Cut it into a bouquet
10. Line your floor while painting

Why We Shouldn’t Expect An Inheritance, Investment Mistakes Made By Couples And More @ The Round-Up

The customary weekly round-up

Weeks really go by fast. I usually try to do something extra-ordinary every week to slow down the feeling of passing time. Whether we like it or not, it’s time for another weekly round-up (time stops for no men):

A couple of good articles from around the web:

• A great article in the NY times discusses 8 Reasons You Should Not Expect an Inheritance.
• Adapt to a Bear Market by Investopedia for Yahoo Finance is another great read for turbulent times.

The Money Hacks Carnival #18 was hosted by My Investing Blog. My post on The Importance of Learning to Let Go made editor’s choice! I especially liked the following posts:

• Investment Mistakes a Couple Makes @ Living Almost Large
• 13 Lucky Tips to Save on Life Insurance @ The Wealth Hunter

The Carnival of Personal Finance #158 was hosted by Mrs. Micah. I enjoyed the following posts:

• What Being A Surgeon Has Taught Me About Personal Finance @ Value for your Life
• How To Protect Your Job and Career During an Economic Slump @ The Digerati Life

The Festival of Frugality #131 was hosted by Broke Grad Student. I’ve found the following particularly interesting:

• The Greatest Frugal Generation @ SavingAdvice
• A Real-Life Example of How to Save $1,300 in Less than Two Hours by Shopping Around for Car Insurance @ Free Money Finance

More from fellow personal finance bloggers:

• Thoughts on the Law of Attraction @ The Financial Philosopher
• Are You Financially Healthy? The 5 Stages @ Moolanomy
• A Reminder to Keep Your Beneficiaries Up-to-Date @ Gen-X Finance
• The Carnival of Money Stories #65 @ The Dividend Guy

My View of Frugal Thinking

Presenting my thoughts on frugality and personal finance literacy

I’ve never been a huge fan of extreme frugal thinking. I’ve always thought excess frugality comes at a rather high price which outweighs the financial benefit of saving $30 a month. I don’t, by any means, discredit a sum of $30 a month. However, as a big fan of efficiency and productivity I believe the time and effort it takes to get frugal enough to save quarter to quarter is just too precious.

Reading and writing personal finance articles has opened my eyes to many different views of frugal thinking. The simple act of reading is already enough for some ideas to grab hold and nest in your head ready to evolve with the next article and next post.

Those of you who have been following my writings here at The Personal Financier have surely noticed by now that my view of frugality is a bit different. I believe in investing the time in financial education and competence which later translates to much bigger savings.

Clipping coupons has its place and is very wise if you can afford the time. Quarters add up pretty quickly as grains of sand create dunes (I’ve expanded on this here: The Little Savings That Could). However, learning basic financial thinking, financial math and getting to know the capital markets better will pay higher dividends in the long run.

I suggest concentrating efforts at becoming very knowledgeable in the following personal finance niches which will serve as true leverages to your personal finances:

#1 Mortgages and Loans

I’ve recently wrote an article about how I saved over $3,000 in one hour. It sounds like, and it really is, a catchy headline, but it’s also completely true. Realizing we are in a very low interest environment allowed me to quickly capitalize on low interest rates by refinancing my mortgage. My financial understanding also made me to keep my mortgage payments at their current level thus saving on the number of payments and directly on interest paid (Naturally, the factor of time is crucial for compounding interest).

#2 Investments

Understanding common investing mistakes will also save you much more than any homemade rain water receptacle. These are fun and creative to build but financially wise don’t translate to significant savings. Understanding the relation between risk and return, the concepts of investment terms, asset allocation and investing goals and planning is much more valuable than throwing frugal birthdays.

I’ve written on my share of common investing mistakes. Two of my favorites are: 10 Sure Ways to lose 50% of your investment and Investing mistakes to avoid.

#3 Retirement

All the frugality in the world won’t get you a proper retirement unless it’s combined with solid financial planning. The amount of money required to retire properly has no equal (besides, maybe, a New York Apartment).

There are so many mistakes we can make that will affect our retirement it’s no wonder such a small percent of people retire as they planned (more on How to Avoid Crippling Your Retirement Funds here).

#4 Insurance

One of the most important aspects of financial planning is making sure the financial impact of sudden and unforeseen events is smoothed out through insurance. Life and disability on the one hand and property insurance on the other will ensure a smoother financial “life line”.
Insurance always seems easy enough but is really very complicated. Different coverage, plans, alternatives and more create a dazzling array of products to choose from. I’m not knowledgeable enough to be writing on insurance but hopefully in the near future I’ll be closing more knowledge gaps and become more proficient.

#5 Real Estate

One of the biggest expense and investment items in our lives is real estate. As a result each successful or less successful decision has a huge impact on our lives. Location is often mentioned as a prime consideration, home renovations and their return on investment is a popular topic, rent vs. buy comparisons are always relevant and more (there are a lot of relative posts in my top posts section).

#6 Career Planning

Instead of constantly focusing on how to spend less, which usually holds a finite and small potential I believe in concentrating on earning more. Career planning and opportunities offer much more than simply saving on expenses. From education to day to day management career planning is crucial for success. We do most of the things intuitively but often times some posts and articles can offer precious ideas.

I recently wrote, what in my opinion is a very good post on how to actively manage our careers which should really clarify what I’m talking about.

There are more subjects to explore such as budgeting, debt and risk management, credit cards and loans and more with an almost infinite pool of knowledge.

To conclude, my view of frugal thinking is of learning and education. I believe sinking our teeth in all of these subjects has a greater return on time invested than focusing on every-day frugality. I agree frugality translates, directly, to pocket money but how much are we talking about here?

Image by: ethorson

Free Market Proponents Call for Regulation on Speculative Oil Futures Trading: Define Irony

Analysts say speculative oil trading is to blame for gas prices at $4 a gallon. Congress considers regulation and legislation. What happened to market forces of supply and demand?

In the 2005 movie Syriana an oil company executive quotes Nobel Prize winning and renowned economist Milton Freedman: “Corruption is government intrusion into market efficiencies in the form of regulations”, he says. Freedman, one of the strongest proponents of the free-market, promoted the view of minimal government intervention in the markets as a means of creating political and social freedom.

We are born and raised according to the theoretical concepts of the free market and we are diligently taught the rules of the ‘vanishing hand’ and market forces at work. Our economic upbringing and formal academic education teaches us about market efficiencies and perfect competition only to face, later in our lives, a very harsh and different reality.

Gloating isn’t the best of qualities, yet I couldn’t avoid it when I read about a recent congressional panel regarding rising oil prices. Four senior analysts testified before congress claiming speculators are to blame for $4 a gallon gas prices.

The four senior analysts are: Michael Masters, who heads up Masters Capital Management, Fadel Gheit of Oppenheimer & Co., Edward Krapels of Energy Security Analysis and Roger Diwan of PFC Energy Consultants.

All four analysts agreed limiting speculators’ participation in energy markets will lead to sharp drop in oil prices to the economically reasonable level of $65-$75 derived by supply and demand.

Apparently Congress is looking to revise legislation to do just that. There are several bills at work trying to limit or even remove speculation from energy markets.

More than 63% of oil futures owned by speculators

According to the Energy and Commerce Committee speculators now control overwhelming amounts of the oil futures market.

The economic function of a future contract is to enable any corporation to hedge its business and fix the price of oil in a future business deal, either paid for or sold. Imagine oil companies who wish to raise the level of certainty behind their revenues. They will offer future contracts to buy oil in certain prices in a future given time. Should a trucking company find those prices reasonable a deal is closed today with known prices for both enabling them to smoothen out uncertainties in future business.

The level of contracts owned by speculators rose from 37% of the contracts in 2007 to 63% in 2008 with the rest owned by oil refineries, trucking companies, wholesalers and other end users.

Imagine all that speculative money removed from the market. Suddenly an overwhelming over-supply is created and prices drop sharply.

The following are more charts presented before the committee. They are real eye openers:

The massive increase in speculative investments is evident from the charts. Another important observation is the level of relative growth in speculative investments:
More regarding economic theory, free markets and reason

Projecting the case of speculative investments on Milton Freedman’s entire economic philosophy is a huge over-simplification and I won’t be going that way. I only wish to illustrate the delicate balance that need be between the freedom of markets and government regulation.

Lack of proper regulation enables speculators to take advantage of market failures. Sadly it’s not a perfect world and there’s no real ‘vanishing hand’, perfect competition and market forces. There are opportunities and opportunists grabbing what is left open for grabbing.

There’s no doubt speculative activities contribute to market efficiency. The price of a lack of proper regulation and supervision can be very high.

Ayn Rand, the noted author and philosopher who wrote the infamous book “Atlas Shrugged” believed and promoted, wholeheartedly, the concept of freedom and objectivism. She is quoted for writing, much like Milton Freedman that “Every government interference in the economy consists of giving an unearned benefit, extorted by force, to some men at the expense of others”.

As an idea these words echo strongly. The problem is they are often correct the other way around. A Lack of government interference in the economy might give unearned benefit, extorted by force, to some men at the expense of others.
If we’ve sunk deep into philosophy than we may also recall Thomas Hobbes and Jean Jacques Rousseau’s words regarding the government:

“That a man be willing, when others are so too, as far forth as for peace and defense of himself he shall think it necessary, to lay down this right to all things; and be contented with so much liberty against other men, as he would allow other men against himself” (Thomas Hobbes)

“As soon as any man says of the affairs of the State "What does it matter to me?" the State may be given up for lost” (Jean Jacques Rousseau)

Related Posts :

• Is There an Oil Price Bubble Evolving?
• Higher Gas Prices: A Blessing in Disguise or America's Wakeup Call
• Spontaneous Observations on Commodity Prices - Will Prices Remain so High?

Image by: ping-news.com

The Economic Impact of Euro 2008 and a Generic Illustration for Global Sports Events

Global sports events have a tremendous economic impact on both the hosting countries and the rest of the world. Euro 2008 as a test case.

A picture of the beautiful Innsbruck Stadium against the Austrian Alps

American’s are probably less aware of the grand football tournament taking place in the European continent these days. Euro 2008 is co-hosted by Switzerland and Austria and is considered to be the second most important football tournament in the world and is the third most-watched global sporting event after the summer Olympics and the world cup (football as well).

The Euro, or European soccer championship, takes place every 4 years (like the world cup and the summer Olympics) and lasts three weeks. Europe’s 16 top national football teams will be competing in 19 games for the cup.

UEFA (Union of European Football Association) expects over 1 billion people will view the matches on TV and internet traffic and interest is expected to reach over 100 million visitors.

It’s very interesting to observe the economic impact of such global or continental events. The Euro’s impact extends far greater than the hosting countries themselves and is carried, much like a wave, into all of Europe and the world. The upcoming Olympics in Beijing will undoubtedly leave, and has already left, a significant economic mark on China and the world.

A graphic illustration of the economic impact of global sports events

The following is my attempt at a graphic illustration of the impact of global sporting events:

Austria and Switzerland will be hosting these games and will benefit most of incoming tourism, broadcasting rights, merchandizing, commercial revenues and more. Another economic boost comes in the form of temporary jobs and investments in infrastructure much more obvious in Beijing.

Weighing the numbers each tournament and qualification’s match suddenly seems that much more important. A country that fails to qualify to the Euro will obviously lose a major and significant share of the potential economic gain.

Women are not left out

A very interesting study done for MasterCard estimates women spending and commerce revolving around the tournament at 140 Mil. Euros (Approx. $210 Mil). These spending are entirely football related. That’s around 10% of the total economic impact of the entire tournament.

Traditionally a men’s sport football seems to have slowly, yet surely, found its way to women’s hearts as well. The festive atmosphere in and around the stadium’s as well as the high maintenance level and comfort level of the facilities attract more families and women to the matches.

Image by: Nico3000

Research Prospective Employers, Timing the Market and More @ The Round Up

The customary weekly roundup

It’s already time for another weekly round-up. I haven’t had a lot of free time this week for myself as my new job requires most of my attention. Still I hope I was able to share at least three interesting posts as I usually do.

Now to the carnivals:

The Carnival of Money Stories #64 was hosted by MoneyNing. My post on how to actively manage our careers made editor’s choice! Thanks David. I enjoyed the following posts in particular:

• From a Sale to an Experience @ Internet Business Coaching
• Looking Back — 10 Years And More Than $1,000,000 Ago @ Can I Get Rich on a Salary

The Carnival of Personal Finance #157 was hosted by Consumerism Commentary. This actually was the third anniversary of this successful carnival. I found the following particularly interesting:

• How to Get the Most for Your Home When it is Time to Sell by Making a Good Impression @ Gen X Finance
• How to Research a Prospective Employer @ Squawkfox
• How I Started Buying My First Stock @ MoneyNing
  

More from fellow personal finance bloggers:

• When Should You Buy Into The Stock Market? Like Yesterday @ The Digerati Life
• Cheap Vacation: Be a Tourist in Your Own Hometown @ Get Rich Slowly
• So you want to buy a house…. @ Gather Little By Little
• The Festival of Frugality #130 @ Out of Debt Again
• Cavalcade of Risk #54 @ Blueprint for Financial Prosperity
• The Money Hacks Carnival #17 @ Mr. Nespy’s Frugal World

The Importance of Learning to Let Go

Trying to keep every option viable is very costly both mentally and physically. Learning to let go is essential to moving forward

One of the most difficult things for me is to let go. From opportunities to clothes I try to hang on to everything and everyone keeping all my options alive and postponing decision as much as possible.

Studies indicate this phenomenon is quite wide spread. I’ve recently read about a study performed in MIT, I believe, that tested a subject’s ability to let go. The test involved choosing a certain door with others closing with each choice made. I distinctly remember people had a very hard times watching those doors close.

Very much like real life, a closing door simulates letting go of other options and other opportunities. I guess it’s a human instinct of some sort that encourages us to keep our options viable.

Why should we let go at all?

As some of my readers probably remember I’ve recently quit a government job for a private sector company.

During this transition I’ve had to settle for lower pay and rank due to lack of relevant experience with a clear prospect of higher pay and self fulfillment in the foreseeable future.

I’ve clearly made a choice and decided in favor of my new job. However, very recently I received an offer to return to my previous organization with higher, yet not that significant, pay and rank. Suddenly I’ve started rethinking my entire decision.

I’ve enjoyed working at my last job and I only quit because of long-term considerations. Suddenly I’m rethinking everything all over again. I’m having a very hard time closing that door behind me and sticking to my earlier decision.

Letting go of that door in my life is very important if I want to be able to concentrate on my new job and the new challenges that face me. Letting go enables us to focus our energy, efforts and state of mind on what we decided is best.

Keeping our options viable is very expensive. It requires us to maintain old relationships, consider each new decision from many angles and introduces constant deliberation in our daily routines.

The importance of letting go is relevant to all aspects of life

I’m sure most of you have already sympathized with what I’ve already written. If you haven’t already, you’ll probably find something close to heart in the following.
The importance of letting is relevant to all of life’s aspects. We hang on to everything:

1. Opportunities – As I’ve already described we find it very hard to let go of opportunities.

2. Redundant possessions – How many of you still have 10 year old clothes that are either way too small or too large to ever wear. Not to mention raggedy clothes we always intend to “just wear at home”. Which one of you has ever gotten rid of furniture, an old TV set or an old computer that has lost their functionality ages ago? It simply pains to throw them away (recycle them of course).

3. Losing Stocks – In a more finance oriented tone – who of us hasn’t hanged on to a losing stock instead of letting go and re-investing the money in better opportunities?

4. Old relationships – Need I say more?

The cost of trying to keep our options viable

Keeping our options viable is characterized by the following in all aspects of life:

1. High maintenance costs
2. Increased mess and disorder
3. Requires both mental and physical energy
4. Interferes with building the new

I deal with this tendency on a daily basis. It usually works since I’m more of rational person forcing myself to “see the light”. My advice is to do the same or at least understand how much work keeping everything alive requires. What do you think?

Image by: shenghunglin

Why A Mortgage Is An Opportunity And Why We Shouldn’t Fear Mortgages

If I was a potential home buyer I’d start browsing for opportunities

Even the mere mention of a mortgage is sometimes enough to send some people running for their lives. Mortgages have a bad rep and are associated with debt, dubious financial logic and the recent sub-prime crisis.

The truth, as always, lies in the middle. Mortgages are probably the cheapest available loan and usually the only way a family can afford their first home. As any financial tool mortgages are neither good nor evil. When used properly mortgages can really leverage your life (literally).

Mortgages tend to be regarded as complicated financial tools. They certainly are for the financially illiterate but with a small effort and some will you’ll be able to figure them out quickly enough.

Housing starts are at a slump and so are housing sales and prices. The market is slowly correcting its way back to normal price levels. Some might say even overshooting down as markets that experience corrections often do.

Low interest rates, combined with what might possibly turn out to be reasonable housing prices, can create a good opportunity for potential home buyers.


So why a mortgage is an opportunity and why we shouldn’t fear mortgages?

Many people regard mortgages as a tremendous obligation weighting heavily on their backs for many years. An unsound mortgage just might do that. However, properly thought out mortgages present as much an opportunity as bad ones present a threat.

Mortgages are opportunities because they are essentially relatively cheap debt. As aforementioned a mortgage is a loan against the property bought. The property essentially serves as a sort of insurance which enables the lender to offer a significantly lower rate on a very big loan.

By taking on a mortgage you are leveraging yourself. You are making an investment with both your equity and relatively cheap debt. Your investment is your house thus enabling you to enjoy an increase in housing prices on both your equity and debt. As mortgages are considered relatively cheap debt and since buying a house is usually a long term investment chances are you’ll see solid returns on your investment. Keep in mind Leverage works both ways – losing on your investment leaves you with debt yet to pay. There are always risks involved (more on leverage and mortgage can be found here).

There are always exceptions such as the recent crisis. Keep in mind, though, that had sub-prime lenders had the ability to actually afford their mortgages they wouldn’t have lost their houses. This is where sound mortgage planning and risk management take place.

Avoiding a mortgage will save you interest payments and the necessity of making payments. However, you might also find yourself buying a relatively cheaper house which might not suite your future needs. In this case, you’ll pay more in deal costs buying a more suitable home in the future.

Related Posts:

• The Perfect Home is a Financial Nightmare - Don’t Get Caught Up In the Costly Race
• Understanding Important Hidden Psychological Aspects of Rent vs. Buy Comparisons
• Why Taking a Mortgage Is Leveraging Your Equity: Understanding the Potential Risks and Benefits
• How to Make Sure this is your Dream Home: 7 Practical Tips
• Should you Rent or Buy a Home?
• Buying a Home – an In-Depth Look at the Process

Inflation and the Stock Market – Which Stocks Offer Greater Protection against Inflation?

A small yet enlightening research on the relationship between inflation and the stock market and a discussion of the stocks that will offer more protection against inflation

Inflation is rearing its ugly head. It has been at it for a while now creating a potential for a nasty economic environment of inflation and a recession combined. In may prices rose by 0.6%-0.8% (depending on the indicator), 4.2% higher than in May 2007 and amounting to a yearly inflation rate of 3.9%.

Price increases are everywhere but food prices and gasoline prices attract the most attention. We’ve all witnessed the oil prices and commodity prices skyrocket these last couple of years and now we’re getting a feel of the results.

Studying the increase in prices by expenditure categories between may and April reveals the following:

1. Energy prices increased by 4.4%.
2. Food prices increased by 0.3%.
3. Housing prices increased by 0.5%.

Ignoring food and energy prices the increase in remaining prices is a mere 0.2%.

The relationship between inflation and the stock market

Fearful of an inflationary environment I began asking myself what will happen to my stocks should prices continue to rise?

I decided to take a quick look at the relation between inflation and the stock market. I’ve examined how the S&P500 and inflation rates have evolved since 1950s and since 1987 (20 years).

Since 1950 the level of inflation is negatively correlated with stock market returns. This is understandable as high levels of inflation eventually hurt stock values as well.

The following chart depicts the Yearly inflation rate and the S&P500’s return for each month (for example in July 1999 the inflation rate since July 1988 is compared to the S&P500’s return since July 1998). A very clear and distinct negative correlation can be observed:


Another intriguing result appears when I cleared out the months at which the yearly inflation level was lower than 3% (YoY). Out of 370 months in which inflation level, YoY, was over 3% over 163 produced negative returns.

Which stocks are more defensive or offer greater protection against inflation?

Essentially, stocks are assets and as such should respond to an increase in prices by increasing in value themselves.

This general rule of thumb is usually true and stocks often provide good protection against inflation. However, it is very important to note that in times of high inflation more asset oriented stocks respond and defend their value better. The following are important things to notice when investing in stocks in times of inflation:

1. The level of liquid assets the company holds - A high level of liquidity would hurt the company’s value as prices increase and erode the value of liquid assets.

2. The level of fixed assets the company holds – In turn, the higher the level of fixed assets the more the company is protected against inflation. These assets, such as buildings, land and machinery have a value regardless of inflation (they are automatically adjusted).

3. Commodity oriented companies are more defensive – Since commodity prices adjust to inflation a commodity oriented company should be more defensive in times of inflation (think of oil companies or food companies for example).

4. The level of exposure to foreign markets – The higher the level of exposure to foreign markets the less susceptible a company will be against inflation in its home country. Furthermore, the company might benefit as its expenses might erode due to inflation (such as wages) while its income remains at previous values.

Related Posts:

• How to Protect Your Money From Inflation
• Higher Gas Prices: A Blessing in Disguise or America's Wakeup Call
• Is There an Oil Price Bubble Evolving?
• Spontaneous Observations on Commodity Prices - Will Prices Remain so High?

Image by: tico24

End of the road for the Hummer? Passive Income and a Primer for Young People @ The RoundUp

The customary weekly roundup

It’s been another great week for me here at The Personal Financier. I truly enjoyed posting this week and I hope you, as my readers, noticed it.

The week started out with one of my better posts about the need to actively manage our careers. It continued with a very interesting bet by Warren Buffet who is long on the S&P. I found recent statistics reporting American’s saving habits and progress and extracted the most interesting. My last post for the passing week was fun an enlightening, at least for me. Airlines have taken some very creative measures to save on their fuel costs and there are lessons we can all learn.

I’ve read some very interesting articles at the daily papers. I especially recommend reading the following:

• Is it the end of the road for the Hummer? @ The Guardian
• A Primer for Young People Starting Their First Job @ The NY Times

The carnivals this week were at their usual best.

The Carnival of Money Stories #63 was hosted by Bible Money Matters. I’d like to thank BBM for choosing my post on “The Perfect Home is a Financial Nightmare - Don’t Get Caught Up In the Costly Race” as an editor’s pick. My carnival picks are:

• Build A Business Before You Go Solo @ The Digerati Life
• At What Age Do You Want To Become A Millionnaire? Part 2 @ The Financial Blogger

The Carnival of Personal Finance #156 was hosted by Prime Time Money. These posts caught my eye:

• Passive Income: Real Estate? Blogging? I Don’t Think So @ Consumerism Commentary
• A Tale Of Two Budgets @ My Small Cents

More from fellow personal finance bloggers:

• Why We Should Be Rooting for $200 per Barrel of Oil @ Becker-Posner-Blog (I recently discovered this blog by two leading professors and I strongly recommend it).
• An Easy way to make your Home more Energy Efficient @ The Financial Engineer
• Does Having Kids Earlier Save Money? @ The Baglady (Interesting perspective)
• Carnival of Money Hack @ Daily Money Hack
• Carnival of Debt Reduction @ Moolanomy
• The Carnival of Improving Life @ Improved Life

Creative Ways Airlines Cut Fuel Costs Provide 7 Invaluable Lessons on How to Save Money

7 lessons learned by observing how airlines cut down on fuel costs. These lessons have never been more relevant.

Skyrocketing fuel costs are causing havoc in airline business. Airlines face a dire need to significantly cut down fuel costs if they want to stay in business. Some of them have come up with some very creative ways I thought worth mentioning.

I believe this glimpse into how the biggest corporations deal with rising fuel costs will provide us with valuable lessons to implement in our own personal lives. The key words being: Quick adjustment, rapid action and creativity.

Fuel prices now account for over 40% of airlines operating expenses (compared to 15% eight years ago). This is easily their highest expense and they will naturally focus on creative ways to reduce it.

Lesson #1: Recognize the situation you’re in and respond promptly. Quickly adjusting to a new, less fortunate, financial situation is crucial to successfully riding it through.

Lesson #2: Identify your budget busters and focus on them. You’ll get the most saving out of those items.

Airlines next identified the major cost drivers for their budget busters. In the case of fuel costs these are: Weight and Speed.

Lesson #3: Identify the major cost drivers behind your budget busters. Reducing expanse requires dealing with these first.

Naturally, airlines focused on their major cost generator to reduce fuel costs (weight and speed). Some companies have been ever the more creative with their solutions:

• U.S Airways have eliminated snacks.

• Japan Airlines is using crockery in first-class and business-class cabins that is 20 % lighter than the service items they replaced.

• American Airlines has switched from using onboard power units that draw down jet fuel while planes are parked at gates to electrical generators on the ground.

• Deutsche Lufthansa, Europe's second-largest airline, is one of several that has begun washing planes more frequently because dirt on a fuselage increases wind resistance.

• As speed goes, a number of airlines are flying their planes somewhat slower in order to save fuel — 480 mph, for example, instead of the usual cruising speed of 500 mph. This translates to about a 6 minute increase in flight time from LA to Atlanta.

• Delta is studying whether it is feasible to divide the heavy pilot manuals required on each flight between the captain and first officer, so pilots are not toting duplicate sets.

• Airlines are swapping heavier seats for models weighing about 5 pounds less.

• American is replacing its bulky drink carts with ones that are 17 pounds lighter.

• Northwest is putting 25 percent less water for bathroom faucets and toilets on its international flights.

According to airline executives every 25 pounds removed equals saving $440,000 a year.

Lesson #4: You can save on even the most straightforward expenses by being creative. Creativity goes a long way.

Lesson #5: Small changes and small steps amount to big differences. Don’t underestimate small efforts.

Less successful solutions, in my opinion are:

• Delta Airlines charges $25 for telephone reservations

• Airlines come up with various surcharges.

I believe these are less successful since the public will not associate these extra charges and costs with rising fuel prices and will not take them kindly. For change or a saving effort to succeed it has to be associated properly with the cost driver. I believe none of us objects to reducing the amount of extra water on board.

Lesson #6: Educate and market the change properly. Associate it with the expense and the cost driver.

Economics will force airlines to implement even more radical solutions like charging by the pound. When fuel prices are low enough airlines have no economic and financial motivation to implement a “by the pound” billing system. However financial motivators can be extremely strong. High fuel costs will force airlines to consider how much weight each passenger contributes in order to charge him properly.

Naturally, this will start with baggage. Each of us will be “motivated” through a financial fine to carry less baggage when traveling. If fuel prices remain as high we will soon pay for two tickets: one for ourselves and the other for our baggage.

The day is not far away when we just might pay by pounds for our own weight as well. Apparently South West Airlines are asking passengers to buy a second seat if their girth prevents the armrest from lowering.

Lesson #7: When a resource is not priced properly waste is created. A proper economic value assigned will help prevent waste and promote saving.

Learning from the airlines recent experience is a free lesson offered to us all. As always I’d love to hear more lessons you’ve noticed and learned which I may have overlooked.

Image by: Matt Hinsta

Americans Report Their Savings Habits and Progress

A recent research by the ASEC sheds light on some very important statistics regarding Americans’ saving habits and progress

Americans have long been accused as saving too little while consuming too much. A recent survey by the ASEC has some intriguing results. Can you find yourself in the numbers?

I’ve extracted what seemed to me as the most interesting statistics from the report and I’ve divided them into groups. There’s a lot to learn from the following numbers. The most powerful conclusion I draw from this particular survey is the strong need for mass personal finance education the lack of which is responsible for what seems to be an innate inability to save.
Spreading the message of personal finance, budgeting and planning is essential to making real progress in American saving habits (naturally higher interest rates might help as well).

Saving Habits

• Half of all U.S. households report adequate savings progress.

• Nearly three-quarters of Americans (73%) report that they "spend less than their income and save the difference."

• Little more than half of them (53% of all respondents) say they save at least 5% of their income, and only 28% say that they save at least 10% of their income.

• More than two-thirds (71%) report that they "have sufficient emergency savings to pay for unexpected expenses like car repairs or a doctor visit."

A little reminder here, experts usually recommend saving at least 10% of your income on a regular basis. As far as the data goes it seems a quarter of all Americans have difficult time saving at all.

A more intriguing fact is that of half of the Americans who report adequate savings only 28% save at least 10% of their income. This conflict in data stresses the lack of personal finance education and a lack of understanding when it comes to the importance of saving.

Retirement Saving

• Only 57% of those not retired say they are saving enough for a retirement with a "desirable standard of living".

• An important reason for inadequate retirement savings is the failure or inability to "save for retirement at work through a 401(k) or other contributory plan," which only 55% of the non retired report having.

The crux lies in saving for retirement. Sadly, only 60% of Americans save enough for retirement to meet their desirable living standard. I don’t believe it’s a problem with the subjective definition of “desirable”. I truly believe people weren’t properly educated to plan for retirement.

Lack of contributory plans is an outrage. There are examples of other countries where a mandatory contributory plan was installed with minimal contributions. While these are not enough to properly retire they are a good start while always introducing retirement planning to the other 50% of the population.

Planning

• Only 62% of Americans have a "savings plan with specific goals".

• Only 49% have a "spending plan that allows you to save enough money to achieve the goals of your saving plan".

• Only 42% "save automatically through regular preauthorized transfers from checking to saving or investments".

• Only 41% "save a portion of tax refunds, gifts, bonuses, or other financial windfalls."

Needless to say having a sound plan with specific goals is the first step in saving. You need to have clear and specific goals that will motivate you to save and help you postpone instant gratifications with a clear view of what you’re aiming for in the future.

Windfalls such as tax refunds or bonuses are excellent saving surplus that will get you ever closer to the goals you’ve set. It’s a pity 59% of Americans quickly consume these funds.

Debt

• Only 21% say their consumer debt is “growing” or “remains at the same level.”

• More than three-quarters with mortgage loans (76%) say they "will pay off all mortgage debt before retirement."

"Hard data about savings behavior suggest that responses to several questions were buoyed by the personal optimism of respondents," said Stephen Brobeck, Consumer Federation of America Executive Director.

We need to be very careful in estimating our current financial situation and future financial prospects. Personal optimism and success oriented planning certainly have their place in life but we must make sure we’re not clueless once our plans don’t go as planned.

Income Differences and Saving Habits

The survey verifies what we all assume intuitively. High income households:

1) Save more
2) Are more aware of the importance of saving
3) Have adequately funded emergency funds
4) Have adequately funded retirement savings

The survey defined high income households as households with incomes of at least $75,000. Obviously these households can afford bigger savings but this is not the entire story. I believe the following statistics are no less important:

• 85% of the high-income group, but only 36% of the low-income group, report having a savings plan.

• 72% of the high-income group, but only 29% of the low-income group, report having a spending plan.

• Furthermore, members of the high-income group are much more likely than those in the low-income group to: know their net worth (72% vs. 38%), save automatically through checking transfers (54% vs. 28%), and save financial windfalls (55% vs. 30%).

It’s all about awareness and good financial education. Low income households are less exposed to good financial advice and the basic of financial planning. Knowing how to plan, budget and manage is crucial for financial success.

Hopefully this blog and many others of its kind will raise public awareness to the importance of personal finance and active management and control of our lives.

For the complete report

Related Posts:

• Budgeting for Unexpected Expenses
• The Problem of Accounting and Budgeting For Cash Expenses
• How to Save Money by Analyzing Your Budget: 4 Basic Tools
• How to Make Saving More Rewarding and Tangible: 5 Practical Tips
• How to Save by Making Credit Card Payments More Real and Tangible: 5 Practical Tips

Image by: s2photo

Buffet Bets $320,000 Long on the S&P and against the Hedge Fund Industry

Fortune magazine published yesterday that “The celebrated investor wagers a tidy sum that even carefully chosen hedge funds won't return more than the market over time”

It looks like an old fashioned show-down. Will the market outperform even a carefully selected collection of hedge funds? Warren Buffet and Protégé Partners LLC, a New York City money management firm took sides in this $320,000 bet of which profits will go to charity.

I myself have written here on the benefits of investing in an index. Among these advantages are:
1. The fact little or few money managers actually beat the market in the long run
2. Low transaction costs, commissions and fees
3. Increased diversification
4. Less hassle

It seems the great oracle from Omaha, Warren Buffet himself, has agreed to risk a tidy sum in favor of index investing.

The biggest challenge facing Protégé in this bet is the enormous fees hedge fund managers charge. These fees are comprised of a management fee, usually 1%-2.5%, and also an overwhelming share in gains of 20%.

This bet holds a very important truth for us household investors. The mere fact this bet exists suggests index investing is probably one of the more recommended ways for long term investing. True, Warren Buffet made his fortune stock picking and analyzing but that’s beyond most people’s reach. Certainly beyond most household’s ability.

One more interesting fact noted in the article is that Warren Buffet offered this bet as early as May 2006 in Berkshire’s annual meeting. The fact no one has taken him up on his offer up until now probably makes him more right than wrong.

The complete article at Fortune Magazine

Actively Manage Your Career to Stay On Top of Your Game

Frightening statistics show how many of us lack active control of our careers. I offer these focal points to actively managing our careers.

I’ve recently made a decision to leave a comfy job I’ve held for 6 years after hitting the glass ceiling in that organization. I’ve thought about it a lot and I’ve decided to follow my aspirations and to make an effort to fulfill what I think is my potential.

It wasn’t an easy decision. I’ve had to accept a 20% pay reduction and a significant drop in rank and authority in my new job (4 months now) all for future prospects.

In a very unblogger like manner I haven’t shared my thoughts, conflicts, decisions and conclusion. In retrospect I believe I wanted some time off the thinking and I chose to write about different topics. I believe some ideas are now coming to fruition and I’ll be writing more about career in the near future.

My recent experience really focused my thinking regarding active career management. Managerial skills are often thought of as bossing people around, leading a team, a department or whatever association jumps to mind. I believe managerial skills are much more. We constantly manage everything around us with the most relevant subjects to this blog being our finances and our careers.

Embracing the thought of managing yourself is crucial, in my opinion, to completely unlocking our potential and understanding our important place in the processes that take places in our lives.

A look on the following statistics gives us a frightening picture of how many people lack active control of their careers:

• Half of all Americans today say they are satisfied with their jobs, down from nearly 60 percent in 1995. But among the 50 percent who say they are content, only 14 percent say they are ‘very satisfied.’ (The Conference Board. Additional results from the supplemental survey conducted by TNS in August 2004 include:


• 40% of workers feel disconnected from their employers.


• Two out of every three workers do not identify with or feel motivated to drive their employer's business goals and objectives.


• 25% of employees are just “showing up to collect a paycheck.”


• More than eight in 10 workers plan to look for a new job when the economy heats up, according to a survey by the Society for Human Resource Professionals (CNN Money).

I’ve made an effort to map out the most significant points of active career management. I’ve been deliberately stingy writing on each specific point. Should you be interested I’ll expand on each point in a different post more thoroughly. Here they are:

#1 Be Active

I’ve met many people who happily drift away with the flow going where life takes them. The last thing I’m going to do is criticize this approach to life as it usually leads to healthier more stress and care free living. There is a price of course.

For those of us who aspire to control their careers and lives and have a clear view of where they want to be this approach is guaranteed to lead to frustration. Living passively basically transfers control of your life to your environment. Reacting instead of acting is, by definition, narrowing your options and possibilities. An active approach is the first basic step to career management.

#2 Make decisions

Active management requires decision making. Without developing the ability to make clear cut decisions and following them you probably won’t be able to make progress. Decision making is difficult since taking one course of action renounces the other. There is no forward movement without decisions.

#3 Accept Tradeoffs

Decisions produce tradeoffs. Letting go of possibilities is never easy but is required in order to fully focus on the path you decided on. The inability to accept tradeoffs often leaves us in a place of permanent indecision and consequently inaction and stagnation. Letting go of hypothetical or old options is a crucial step in fully focusing on what you’ve decide upon.

#4 Create a long lasting competitive advantage

What’s right for companies is right for us as well. Companies seek the strategic high-ground in the form of long lasting competitive advantages. Google has technology, Coca-cola has brand and Microsoft has a captive market share for example.

We must develop our own competitive advantages in order to have an offer of added value to any organization. This competitive advantage can come in many forms: exceptionally good people skills, a gift for sales, a sharp mind, advanced education, a synergy of two fields of expertise and much more. The main idea is to create a unique value you can offer to the job market.

Building a competitive advantage is not done in a day. It requires planning and careful construction of complementing schools, fields, traits etc. Your competitive advantage will determine your bargaining power and often times your career.

#5 Build around your advantages

Having a competitive advantage is a great start and a solid foundation to build on. Your career path must be developed accordingly to complement and further enhance your advantage.

Aim for roles which further explore your niche and expertise. Target positions which will enable you to fully utilize your skills and potential. Think of the best way to shine and stand out in the crowds. The synergy between advantage and career path is extremely high.

#6 Constantly review your position

I had to quit a job I actually enjoyed and loved since I hit a “glass ceiling” in that particular organization. Some may say I’ve made a mistake since these kinds of jobs aren’t easy to find but I place self fulfillment higher on the value scale.

The basic principle here is to constantly review your position. Are you headed in the right direction? Will this path lead to where you want to go? Why am I still holding on to this job? These questions will serve as a course correcting method should you stray too far of the path.

#7 Stagnation is your enemy

The older you are the harder it is to make changes and change yourself. It’s a natural phenomenon and it has its logic. However, stagnation is career’s enemy. Through change we evolve and so does our offer of value.

Change is a very important piece in the career puzzle leading to more vast experience, broader horizons and bigger social networks. Development requires change.

#8 Education never stops

Continued education and learning is also crucial to maintaining and building on your advantages. The more advanced the world becomes the more niche knowledge is appreciated, sought out and rewarded.

Participate in relevant conferences, take courses, deepen your knowledge and brand yourself as an expert. Niche knowledge offers significant added value.

#9 More of a field person? Develop in other venues

If you’re not into learning and education or just don’t have the patience use the time to develop in other venues. A great way to develop yourself is to enhance your social networks. There are many ways to enhance your social networks such as volunteer work, blogging, social initiatives and more.

Other options of self development include learning a foreign language or a new set of skills. Everything that has anything to do with your competitive advantages will do. Continued self development is crucial for forward movement.

In the near future I’ll expand on each point more thoroughly in different posts. Please let me know what interests you the most and what would you like me to expand on.

Image by: Andy Burnfield

Is This a Recession? Leveraged Investing and Day Trading @ The RoundUp

The customary weekly Roundup

I’ve hosted the Festival of Stocks #91 this past week. I hope you enjoyed what fellow finance bloggers had to offer for that edition.

The Carnival of Personal Finance #155 was hosted by Moolanomy. I’ve enjoyed these posts in particular:

• The Knowing-Doing Gap @ The Financial Philosopher
• Stop complaining about Gas Prices! @ The Red Stapler Chronicles
• Three Rules Of Leveraged Investing @ Amateur Asset Allocator

The Festival of Frugality #128 was hosted by No Debt Plan. My post on “Psychology tricks and increased spending – The Case of Expensive Wines” made editor’s choice. My favorites from the festival were:

• Frugal Tips I Can’t (or Won’t) Do @ My Dollar Plan
• What’s a thing worth? @ Funny About Money

More from fellow personal finance bloggers:

• Making Money Through Day Trading: The Secret Lives of Stay-At-Home Mommy Speculators @ The Digerati Life
• Is Your Career Really Your Most Valuable Asset? I Say No @ The Simple Dollar
• Insurance Coverage and Opportunity Cost @ Moolanomy
• Is this a recession and do we care? @ EconBrowser
• The Carnival of Money Stories #62 @ Finance Gets Personal
• The Carnival of High Risk Investing @ HYWD
  

Gas Prices Finally Impact US Car Sales

More on the better side of record gas prices

For some reason pickup trucks and SUVs have rooted themselves in American culture. Apparently they serve as symbols for strength, power, durability and more values that are held dear to many Americans.

I’ve read somewhere the pickup serves as the modern horse, keeping the old west’s heritage alive. With all due respect to culture it seems more and more Americans are finding it hard to continue maintaining these gas eating monsters with gas prices constantly rising.

Americans save on gas by switching to economy cars

According to Reuters US auto sales tumbled in many as consumers spurned pickup trucks and SUVs in the face of record gasoline prices, driving General Motors Corp (GM.N), Ford Motor Co (F.N) and Chrysler LLC to double-digit declines.

Furthermore, Japan’s Honda Motor outsold Chrysler for the first time to emerge as the new No. 4 U.S auto-maker with Toyota closing the gap on General Motors.

Record gas prices apparently sent Ford’s sales tumbling down by 16% and General Motor’s sales by 28%. Honda, on the other hand, registered a 16% in Civic model sales which are fuel economic. Pickup truck sales were reduced by 30%.

Could it be Americans are realizing how wasteful and costly these vehicles are?

The smell of change is in the air but history teaches us we humans quickly adapt for better or worse. In the 70’s the oil crises caused gas prices to soar forcing Americans to seek cheaper more economic alternatives. This was the growth bed for the Japanese auto industry in the US.

Now, as then, it’s money and economic considerations which make the biggest difference (rather than ideology, environmentalism and more). As long as gas prices remain at all time highs this trend will continue.

However, should prices drop or remain stable I believe the public will quickly get accustomed to paying more on gas slowly turning the trend back around.

Americans driving at historical lows

In the meantime we get to experience the better side of high gas prices. A press release by FHWA reports Americans drove less in March, 2008 continuing the trend from November 2007.

Additionally, the U.S. Department of Transportation estimated that greenhouse gas emissions fell by an estimated 9 million metric tons for the first quarter of 2008.

Record gas prices take their toll on countries and people all around the world

In India three county states went on strike a response for high gas prices. Malaysia suffered mass demonstrations after the government announced a 41% increase in gas price while in France and Spain taxi drivers blocked highways and roads to protest against record prices.

Governments seemingly have their hands tied having little other choice than to constantly adjust prices. But that is only half a truth. These countries can and need to make strategic decisions regarding their dependence on oil as an energy source.

New Zealand recently announced its strategy of becoming the first sustainable nation in the world and will balance its gas emissions. Furthermore, currently 70% of New Zealand’s energy is generated from renewable sources and it has committed to a goal of 95% by the year 2025. That’s strategy and definitely a lesson to be learned by leaders everywhere.

Hopefully the environmentalist trend is here to stay even when gas prices cool down a bit.

Image by: code martial

Related Posts:

• Higher Gas Prices: A Blessing in Disguise or America's Wakeup Call
• Is There an Oil Price Bubble Evolving?
• Spontaneous Observations on Commodity Prices - Will Prices Remain so High?

The Perfect Home is a Financial Nightmare - Don’t Get Caught Up In the Costly Race

It is very easy to get sucked in a terribly expensive effort which never really ends

My wife and I just returned from our 203th visit to IKEA with some interesting insights I’d like to share. Since we’ve bought our apartment and renovated it we’ve been caught up in a continuing effort to furnish and design it into our perfect little home. All this time a very obvious yet elusive insight eluded us: There’s no end to this effort, no finish line to the race.

It starts very early on. You decide to buy a house, maybe even decide on a budget but all the plans and all the decisions soon fade away when you start shopping for a one. It’s understandable. Some locations, architecture and design, extra rooms and more may be well worth the extra money but have you ever heard of anyone buying a cheaper house than they initially planned on?

It continues with massive, endless renovations trying to shape reality to dreams with multi-million homes as our inspiration. Even the world’s best interior designer can’t create that much space in a two bed room apartment.

Naturally, our quest goes on even after we’ve moved in. Furniture, appliances, designs and adjustments all continue to trouble us. I’ve heard the sentence “we’ve got to replace that couch” from everyone of my friends (and they bought the couch just a couple of years ago).

Our house is a major factor in our lives. It’s our home, it’s where we spend most of our lives (after work), it’s where our children grow up and it also reflects on us as people. Aiming for the perfect home is very understandable but is it wise? Is it financially sound? Is it at all possible?

I’ll show you that even billionaires can’t really attain the perfect home and are constantly busy searching, buying, designing and eventually selling their homes.

My case against the race for the perfect home is built on the following:

#1 It’s Endless

Stop and think about it. When will you tell yourself you’ve got it made? Chances are you’re not even living in your perfect home just yet. Most of have dreams, be they a park view apartment in Manhattan, a mansion in the English countryside or whatever else comes to mind. It could also be just two more rooms, or just a pool and that’s it.

Don’t delude yourself. We can’t really be happy and content with what we’ve got. It’s a human curse and a blessing. We adjust too quickly to both good and bad and always fail to appreciate the present and what we’ve got. It’s a sort of hedonistic fallacy. We always want more and better. It’s fantastic because it drives humanity forward (supposedly) but we must understand this basic psychological concept and how it affects us so powerfully.

#2 It’s terribly expensive

When it comes to our homes it’s always expensive. Forget about buying or renovating one. Those costs are astronomical and the point is easily made. Instead think about that $2,000 designer sofa you just saw on “sale”.

Designers of any sort have it made. They can price their products as they like since “inspiration” cannot be measured. The only measure is whether people buy it and surprisingly they do. You don’t need me to tell you there’s no practical difference between a $200 sofa to a $20,000 sofa. It’s whether someone is willing to pay that price (and keep mentioning it in our ears to justify the purchase).

The same goes for tiles, baths, showerheads, dining rooms and everything else you can think of. Nothing is too good for our home, and the retailers know it.

#3 It’s time consuming

I’ve personally spent (or invested some might say) at least 50 hours searching for an apartment, 200 hours renovating one and at least 50 hours shopping for my home. It’s not wasted time but that time has many alternative uses. Every time you go looking for a set of cups think about the alternatives.

As the quest never ends so the shopping, browsing, designing and adjusting never cease.

#4 Fashions change

Fashions change and we have to start everything from scratch. This means yet another trip to the handy store for that oceanic-pearl wall color to replace our previous wall color of tomato-orange mix or whatever name they came up with to justify paying an additional 20% for that color.

We obviously have to re-design everything else to fit that new wall color and so on and so forth.

The National Association of Home Builders (NAHB) cites interesting numbers for first year spending in a new home (the numbers are for 2003 but the ratio’s are ever more relevant):



Another interesting view point is how these expenses divide up the first year. The following pie charts speaks for itself:



Remember I promised you I’d prove how even billionaires take part in the race? Well, Russian billionaire Roman Abramovich just bought a $36M Colorado ranch. The 1,300-square-meter, split-level home is set on a secluded 81 hectares in Snowmass, near Aspen, The Wall Street Journal reported Friday. The house, built by surgical-equipment magnate Leon Hirsch, has 11 bedrooms, 12 bathrooms, a media room, a climate-controlled wine room, a hot tub and a spa, the report said.

I’m sure you don’t find this at all surprising. But did you also know Roman Abramovich intends to create a super mansion in the heart of London which will become the most expensive private residence in England and that it will cost approximately $300M? Apparently Abramovich owns dozens of houses around the world, all unique, beautiful and terribly expensive.

I guess it really never ends.

Image by: Lincolnian

The Festival of Stocks #91 – Israel’s Stock Market Facts Edition

This edition of the festival of stocks will be dedicated to the Israeli stock market


It’s my first time hosting the Festival of Stocks. I believe there are quite a few good posts in this addition and I had a hard time choosing my editor’s picks.

I’ve chosen to dedicate my edition of the Festival of Stocks to the Israeli stock market which has generated excellent returns in the past 5 years and serves as a growth or value investment in a developing economy with the conditions and environment of a developed market.

I’ve also chosen to comment on each post and add my point of view (where I had something of value to say).

My Picks:

Fact #1: Israel’s stock market is called The Tel Aviv stock exchange and features two prominent stock indices called the Tel Aviv 25 and Tel Aviv 100 made of the 25 and 100 companies with the highest market value. The market value of the companies traded in the Tel Aviv stock exchange is approximately $460 billion.

The Digerati Life presents an eloquent and creative post with a different perspective on bad habits and investment mistakes in From Bad Investing Habits To Investing Sins: Many Unhappy Returns.

Money Blue Book discusses a part of Warren Buffet’s investor ideology in detail in Warren Buffett’s Single Most Important Piece Of Advice For Stock Market Investors. I’d recommend following another of Warren Buffet’s advice – Work Hard. I believe he was once faced with a question regarding his value investing ideology and gave a surprisingly simple and powerful answer. The question referred to his meticulous analysis of companies, financial reports and due diligence. “There are so many companies out there, where should we start?” He was asked, “Begin with the letter A and take it from there” was his answer.

ETFtrends presents 17 Commodity ETFs to Help Hedge Your Portfolio. ETFs and indices are probably the easiest way to invest in commodities and the list provided is quite detailed and thorough. However, keep in mind it’s a risky business. I’d also consider the timing as I personally believe commodity prices are relatively high nowadays (not a professional advice of course

General Investing Ideas

Fact #2: The TA25 and TA100 generated an average yearly return of 12.4% and 12.6% since the early 1990’s with the last 5 years generating over 175% in total.

My Wealth Builder offers insight on How To Profit From Bubbles based on Bernanke’s stock market bubbles research performed in Princeton. Only thing left is to recognize the next bubble and get in and out in time.

StockWeb makes an interesting point in GDP growth vs. P/E for international ETF. However, I believe the system should be adjusted a bit. As it stands now it assumes a perpetual growth rate of a certain percent making developing countries significantly under-priced. I believe it should be adjusted to include a short-term and steady state growth rate. Adjustments to inflation are also required.

Company and Dividend Analysis

Fact #3: The Israeli stock market is always evolving with increased transparency and regulatory requirements and more complex financial products, new ETF’s and mutual funds, derivatives and more.


Old School Value performed a valuation on K-Tron in accordance with the blog’s title. It’s an interesting valuation of an interesting company. I personally enjoy the approach as a whole. Read it in depth to decide for youself.

Saving to Invest presents a way of increasing exposure to agriculture and solar energy through DuPont Stock in Playing the Agriculture & Solar boom in one safe stock. The analysis is pretty detailed and should be a good start for an investor looking to increase his share in these sectors.

Dividends 4 Life provides us with an analysis of PepsiCo Inc., dividend wise, in Stock Analysis: PepsiCo, Inc. (PEP).

Dividend Growth Investor analyzes Consolidated Edison‘s dividend in Consolidated Edison (ED) Dividend Analysis.

Fat Pitch Financials looks back at Jaclyn going private in Jaclyn, A Profitable Going Private Transaction.

Mutual Funds

Fact #4: Israel has the second-largest number of startup companies in the world (after the United States) and the largest number of NASDAQ-listed companies outside North America.


Best No Load Mutual Funds presents a comparison between Vanguard’s passively managed index mutual funds with Vanguard’s actively managed mutual funds in Vanguard Index Mutual Funds Versus Vanguard Managed Funds. This comparison reminds me of an investment competition once held between investment and brokerage firms and a “monkey” that randomly selected assets. Guess who won.

Bull Returns asks whether mutual funds are for you? and discusses the advantages and disadvantages of investing in mutual funds.

Investment Mistakes To Avoid

Fact #5: Foreign investments in Israel’s economy are increasingly growing with prominent investors showing increased interest. Examples include HP purchase of Mercury for 4.5 Billion dollars (cash), Berkshire Hathaway’s first investment out of the US of ISCAR Metalworking for 4 billion dollars, SanDisk’s purchase of M-systems for 1.5 Billion dollars and more.

Free Stock Market Investing Tips lists 13 common Investment Mistakes To Avoid from diversification and following trends to getting attached to a stock. I personally believe the biggest investment mistake people often make is failing to realize how much there’s to learn before jumping in.

Stock Investment Tips Blog discusses the mistake of following trends in particular in Avoid Making This Key Investment Mistake.

Forex Trading

Fact #6: Dominant Israeli companies include: Generic pharmaceuticals giant TEVA, Cutting tools leader ISCAR, software and information security leader Checkpoint, defense industry’s IAI and many more.

Stock Market Investments presents a Complete guide to online Forex trading (part 1). I don’t have a lot to say about FOREX trading. I personally believe it’s very risky and controlled by professional players. I don’t believe households should risk their savings in FOREX trading. If you’re enjoying the thrills go ahead.

Forex Strategy Secrets discusses the skill required to actually earn anything trading FOREX in Which Will Win Greed or Skill?

Other Posts

Fact #7: Israel has decided on a gradual, yet swift, adoption of IFRS accounting principles increasing the uniformity with global accounting standards and the level of transparency of financial reports.

Five Cent Nickel presents The Best Online Discount Brokers (Updated).

Uncommon Cents presents a simplified basic equation to wealth in Basics: The Wealth Equation.

Images by: YehudaCo, nicasaurusrex,