Tuesday, September 30, 2008

The Stock Market as a Parody of Itself

I’ve already called it manic-depressive but now the stock market just has that aroma only really bad jokes have

I honestly didn’t think the politicians had it in them. It takes guts to vote against a plan which is, allegedly, the only thing that can save the markets. Imagine yourself presented with a $700 Billion vote you really know nothing about. Common sense suggests there isn’t really any other way to go.

Have no doubt. The so-called rescue plan will pass. This is about politics and politicians taking their pathetic stand, too little too late, so they’d be able to later claim they didn’t simply role over and approve the plan but really showed those Wall-Street fat-cats …

I don’t appreciate the market’s tone

There’s something violent and brutally extortive about “the market’s” response to the news of the delayed approval of the rescue plan. A look at today’s price surge is enough to realize what we all already know last night: This price drop can’t be justified. The message was loud and clear: You had your fun. Now make what cosmetic changes you’d like and approve the darn plan.
We don’t really have any new information today we didn’t have yesterday and in a beautifully synchronized rhythm the markets plunged and soared. Foreign stock markets were quite puzzled and indecisive losing 4% on average. If markets could talk they’d ask out lout: I am supposed to shed 10% today? Why!?

The Dow went down 777 points and came back up 500 the next day. Aren’t economist supposed to rational people?

The Human Psychology at Play Once More

One of my personally favorite subjects is that of biases and the human psychology. Its simply mind boggling to witness how easy it is to make and pass billion dollar decisions while budget appropriations of mere millions often take weeks and months to approve through various committees. There’s something about scale the human mind simply can’t fathom.

It’s a phenomenon we’ve all experienced whether in personal life or at work. When the numbers are big enough we forget about our everyday scale and treat it as such. Try and remember what was it like when you bought an apartment or took a vacation abroad. When buying a million dollar home we don’t mind several thousand dollar this way or the other; when touring France we don’t really care that that quick lunch just cost us $80.

Corporations and politicians obviously act the same. Why $700 billion? Any number would have won really. What’s a couple hundred thousand millions (!) give or take? You’ve got two days to think it over and vote.

No Signs Of Relief So Far But As Usual We Will Only Notice Them In Retrospect

Meanwhile, housing prices drop 16% YoY leaving the earth beneath our feet very unstable. It appears more than 15 Million American homes are worth less than the mortgage taken.

There are some encouraging numbers as well as various cities begin to show price increases signifying a sort of bottom (Denver, Dallas, Boston, Atlanta and Minneapolis).

Great Britain, France and Belgium have recently started joining the trend bailing out banks of their own. It seems you can’t really call yourself a regulator these days if you don’t own at least an 80% share in a major bank….

Related Posts:

Image by: bunmun

Friday, September 26, 2008

My Recent Experience with a Manic-Depressive Stock Market (One Wife and Three Lessons Learned)

That past couples of weeks required considerable restraint on my part. Everyday brought with it what seemed to be endless opportunities to buy low and sell high. The temptation of making a quick profit off the mass hysteria that engulfed us and the markets was at a peak.

I sms’ed the same generic message to my wife at least twice a day: “this kind of opportunities won’t present themselves again anytime soon”. Everywhere I looked I saw a big “BUY ME” sign. Stocks, bonds, funds, funds of funds and what not all took severe hits. Stock exchanges throughout the world plummeted to price levels considered reasonable 5 and 10 years ago. How could someone not buy?

My wife, acting out the role of the voice of reason, tabooed all market activities. This is no time to enter the markets. Better to lose a 30% increase and get back in when the trend is clear than to risk losing 50% on your investment.

I was so certain I was right I could sense the stinging pain of losing the possible revenues. Naturally, when the markets responded, in a similar hysteria, to the steps taken by the Fed and the British FSA I couldn’t avoid the feeling I missed out on a great opportunity.

When I sat down during the weekend to analyze the situation I noticed several distinct issues I should have addressed earlier.

#1 We should have decided together, in advance, on a sum of money we are willing to risk if the opportunity should present itself and make zero time decisions.

The stock market is no place for indecisive people. There’s not much time to hesitate when you’re going for quick in-and-outs of the market. By the time the opportunity presents itself it’s already gone.

It takes time to liquidate the sum you’re willing to risk and to agree to risk it in the first place. This up-coming weekend my wife and I will discuss our strategy for the current crisis. With the stock market responding so violently to everything short-term movements become easier to foresee. It’s a sort of basic Manic-depressive behavior pattern really.

#2 Had I acted on my instincts would I have actually made money?

A valuable lesson is not to cry over spilled milk. It’s even a more valuable lesson to learn that it’s very possible the milk hasn’t really been spilled at all.

When considering short-term investment opportunities and failing to act on them we often find ourselves pondering in retrospect on our wisdom and market divining abilities. It seems that every time we consider gambling on short term market movements and fail to act on it we get the direction right while every time we do act on it for some weird reason we fail.

Needless to say, there’s a bias at play. When we make our move we get to see the actual objective results of our action right in front of us in the shape of a positive or negative return. When we don’t act we simply choose a quote from the paper one or two days later which magically suits our unrealized decision.

Cold logic is a rare necessity and learning how different biases affect our thinking and perception is crucial for market success.

Has I made my move I would have probably managed to sell higher than I bought but I would have also gone through one day of misery until the massive bailout was suggested. Maybe I would have given in and sold just a split second before the markets raced back up?

#3 History teaches us overshooting is as common to the stock markets as to everything else as a part of human nature.

These past two weeks and the weeks to come will provide us with many more examples of manic-depressive overshooting due to bad and good news. This is exactly the meaning of higher volatility. Everyone’s edgy and everything overshoots in reaction.

Overshooting is relatively easy to notice when it happens. The crash of the past week was sure to bring about a wave of optimism due to the massive bail-out planned. Just when it seems it can’t get any worse than it already is the market slings back up (and back down again).

Overshooting also happens on a bigger scale of course as previous crisis have proved. The markets will sling back towards growth. It’s only a matter of time. As I’ve already mentioned my wife and I are going to discuss strategy. I think getting back in slowly will definitely be on the table. I believe the markets have not yet fully realized the affect of the crisis but it’s too risky staying outside the game for too long.

Related Posts:

Image by: Little_Ricky

Friday, September 19, 2008

How Can they Possibly Afford That? Or Is Money in the Eye of the Beholder?

Do we all see the same color of blue?

Each passing day bring with it small new understandings into human nature and even bigger new puzzles. Ever since I remember myself I’ve had the good fortune of ranking in the top 10th percentile. Whether in SAT’s or GMAT or in terms of household income I’ve always found we averaged somewhere on the border between the 9th and 10th percentiles.

Still, ever since I remember myself we never had a brand new car or never ate in fancy restaurants aside for birthdays. Even now, when I’m relatively well off after having bought an apartment and finished renovating it, I couldn’t manage a new car on our household paychecks alone (it’d take us about 3 years of savings to get to a new car right now).

I often find myself amazed at the number of SUV’s, 4x4’s, BMW’s, Mercedes, Porsche and what not driving casually around almost taunting me with their sparkling new look. A new car is not in my list of top 10 desires but serves as a good metaphor.

It doesn’t end with cars. All around people are living in new homes, wearing top brand clothing, dine in fancy restaurant, and take expensive vacations and many other luxuries I simply can’t afford.

I realized two things this passing week which I have yet to understand in a conscious matter up until now.

The perception of money (or lack of) varies greatly

As a kid I used to wonder if everybody sees the same color of blue I do. I still don’t have the answer of course but the principle remains unchanged through life. Perception varies from person to person.

The feeling of insufficiency I feel when I save $500 a month may be a completely other feeling in other people. I’ve known people who simply couldn’t handle a positive balance on their account and had to go buy something. For them words like emergency funds and long term savings are completely strange. Aside from what savings they have embedded in they pay they simple ignore the concept of saving all together. Everything will turn out for the best is their lead motto.

My wife and I have managed to save $7,500 in an emergency fund in the past year. With the upcoming Jewish holidays in October nearly all my colleagues at work have arranged vacations and will literally leave the office empty through October. I had deliberated in length whether to go on a three week vacation with my wife or not. Such a vacation would most certainly eat away our entire emergency fund.

I’ve discussed the matter with friends at work. Nearly all of them didn’t even think about leaving the money just hanging there. I’ve often mentioned my dislike for extreme frugality and I constantly wonder whether I’m missing out on life just because I love money so much.

There’s a deterministic factor at play here. My parents have never been frugal about anything and belong to the first type of people I’ve mentioned above which simply enjoy their money. I’ve developed a taste for growing positive balances in my different accounts and act accordingly.

I could have been driving a new car right now paying 20% more through monthly installments but the overall utility I’d gain would be negative. The pleasure I’d get from driving a new BMW would be dwarfed by the feeling I’d have repaying the loan. It’s just how I am.

There aren’t as many people living the good life as we are led to believe

Perception isn’t only heterogeneous. It’s also biased. There really aren’t as many people living the good life as we are led to believe by both our brain and advertisements.

Human nature, in what seems to be a remarkably ingenious ploy of nature, leads us to always aspire to more than we already have. Naturally we look up to things rather than down. We will always notice a new shiny object we don’t have. We will forever look up to a passing by Porsche until we own one.

The other side of it is never realizing what we already have. We accumulate and gain much but we never bother to look at the more shabby cars driving by admiring our own. Again determinism comes to play: It’s just the way we’re built.

Advertisers do their best to make us think we’re missing out on something and we’d better tag along. Everyday couples (especially young couple in their 20’s and 30’s) are portrayed in situations some of us can only dream of. How can they possible afford it, you ask? They can’t. It’s staged. They’re just selling one more can of cola.

The dilemma of whether to save or consume is genuine. Group pressure doesn’t make it any easier. Still, the rough times ahead make the decision a bit easier. I feel more a bit more secured and reassured knowing we’ve got three full months of unemployment budgeted for.

I’d like to dedicate this post to one of my favorite personal finance blogs and to a mentor I’ve one-sidedly adopted: The Digerati Life. I’ve learned much on proper writing from reading the practical, extensive and exhaustive posts of The Digerati Life. Not many people truly appreciate the professional effort required to produce such quality posts.

Related posts:

Image by: drumsnwhistles

Tuesday, September 16, 2008

Spontaneous Thoughts on Recent Events: Investment Banking as We’ve Known It

What’s going on? Is investment banking dead? What's going on???

I thought of a great idea how to make a fortune quickly. I can’t believe I haven’t thought of it before. It’s really a three step program:

1. Raise money from other people (a.k.a OPM or Other People’s Money).
2. Take huge risks and leverage like crazy.
3. Share only the upside!

I really can’t fail, can’t I? The question is who in their right mind would hand me their money in the first place? Well, no one would give The Personal Financier any of their money to invest but if what if I was named Lehman Brothers? or Merrilll Lynch maybe? Bear Sterns?

There’s really very little comfort in the recent demise of investment banking as we’ve known it. Lehman Brothers went bankrupt leaving behind over $600 billion in debts which will echo through out the worlds’ capital markets.

Each and every one of us will feel the impact of the historical events taking place on Wall-Street these days, whether directly or indirectly.

Screens all over the world are painted in ominous red promising further chaos and uncertainty. It seems the ripples across the financial ocean are only now starting to spread, contrary to the optimistic views heard recently.

On average each recession has taken from 0.5-2 years to recover from. These events are of epic proportions and can’t really be compared to any crisis I’m familiar with aside from the great depression of course.

The dollar had just started resurfacing only to be wacke again by the hammers of Lehman Brothers and AIG. It’s amazing how quickly the Bank of America changed his mind and went fro Merrill Lynch instead of Lehman Brothers. I never knew $50 billion dollar deals were made so quickly. Even if they were considering buying Merrill Lynch a long while back how can any bank, even as big as the Bank of America, conduct two ultra complicated negotiations and research in the same time?

Merrill Lynch was actually bought at a 70% premium of Friday’s stock price which is quite astounding. The market showed it’s disbelieve as Merrill Lynch’s stock didn't rise to meet the premium.

Much like hurricanes Gustav and Ike we must secure our houses and head for shelter. I’d double check my emergency fund and hope for the best. Hopefully we will wither the storm and the worst is over (though I highly doubt it).

Apparently Lehman Brothers’ executives failed to recognize the full gravity of the situation even as late as October 2007 as they went on and purchased a real-estate company for the legendary sum of $22 billion dollars. It’s always easy to be smart in retrospect but during October 2007 we were quite educated already.

The Fed’s decision to leave Lehman Brothers hanging dry is interesting and promising. Bailing out Bear Sterns delayed Lehman Brothers’ bankruptcy and prevented mass hysteria. Bailing out Freddie Mac and Fannie Mae was necessary to preserve the economy, or what’s left of it.

Goldman Sachs and J.P Morgan appear to be stable enough and Merrill Lynch was just purchased. Someone had to pay the full price for their carelessness.

We will learn to trust investment bankers again. It might take a while but thank to the short term memory of most us they will thrive once more.

Meanwhile AIG dangles between life and death waiting for its knight in shining armor. Warren Buffet declined to feel the role and various ideas are tossed in the air faster than any skilled juggler. “They” won’t let AIG fall. Much like recent bailouts too much is at stake contrary to the Lehman case.

Another thought comes too mind…. With massive bailout paid for by US citizens wouldn’t it have been easier to bailout all the Americans who defaulted on their mortgage payments in the first place?

Image by: squilla.dave

Sunday, September 14, 2008

Carnival of Personal Finance #170 – Famous Last Sentences Edition

I thought quite hard about what could serve as a good theme for this edition of The Carnival of Personal Finance hosted here at The Personal Financier. I hope you’ll enjoy the theme I chose at the end.

With over (what seemed to be) one million submissions I can proudly say I enjoyed hosting the Carnival of Personal Finance which I’ve looked up to ever since I’ve started blogging. Have a great read!

If this is your first time here, at The Personal Financier, welcome! Please check out my Top Posts and consider subscribing to RSS Updates.

Editor’s Picks

#1 Don’t worry, these were rated AAA by all major rating agencies…
#2 I just got this great tip from a friend of a friend.
#3 I heard you can make a small fortune in option trading.
#4 I’ve got this system where I buy stocks that are in their 52 week lows…

Unreal blog shares his analysis of the goings-on in commodity markets in Commodity Prices – Who’s Holding the Cards? A good in-depth analysis of the various economic theories behind the recent turmoil in the commodities market and its effect on people's lives. The author also presents his personal view that it is the influx of institutional funds that caused the recent surge in prices. Prices have most certainly calmed down since recent, and as I wrote earlier this year – unjustified, highs. I enjoyed reading this article and deserves an editor’s Pick.

Pinyo @ Moolanomy presents Everything You Ever Wanted To Know About Asset Allocation. My love and appreciation for in-depth posts should be well known by know and this post definitely deserves an editor’s Pick. Asset allocation is investment basics and is crucial in any personal finance education scheme.

Saving Advice offers 16 Arguments You Can Take to Your Boss on Why You Should be Allowed to Telecommute. Saving advice is often featured as editor’s Picks and the reason is obvious – Quality articles. This is a very good post about a painful subject which many of us experience. This post provides refreshing, creative and practical tips of dealing with this particular problem.


#5 I read this great book about technical analysis, you just have to look for the trend.
#6 Diversifying is for wimps. I say put all your eggs in one basket and watch it like a hawk.
#7 I’m investing for the long run. I made 0.5% just this week!

Can I Get Rich On A Salary takes a critical look at yet another Warren Buffet’s “10 Ways to Get Rich” article and directs us to what real value this particular article holds. I believe the most powerful message Warren Buffet is relaying is hard work. Can’t really get passed that.

Value Investing and Entrepreneurship discusses the best places to look for new stock ideas and details 5 interesting ways to get stock ideas from as the challenge of screening thousands of stocks is a daunting task. Personally I believe household investors should not invest in specific stocks but rather seek out good ETFs or mutual funds that cover an area whether it is an industry, geography or anything similar. Diversification is very important if you lack both the time and ability to really analyze specific stocks.

Praveen @ My simple trading system in Fannie Mae: Followup to Five Stock Picking Ideas complements my previous argument with a sort of back-test on stock picking ideas and recommendations. It’s short but contains a powerful point.

The Sun's Financial Diary is looking into small-caps in Is Small-Cap Making a Comeback? A pretty good analysis of small-cap investment tactics and its development in 2008.

Dividend Growth Investor provides a useful chart with useful information in 20 Top High Dividend Growth Stocks and characterizes the typical dividend aristocrats. Investing in high dividend stocks is another known recession investing tactic. I suggest you read this post.

Green Technology Investor offers several dual registered green stocks for your investment consideration in Going Green? Go Global!

Fix My Personal Finance shares his Five Tips in Finding a Scrupulous Insurance Agent and I ask: Is there such a thing?

New Money suggests buying the traditional recession proof industries in Economy Got Your Down? Buy Booze, Guns, Smokes, and Slots. A historically good tip but I can’t help but wonder what about a more responsible moral investing style. Money isn’t everything and I personally am against profiting off these industries.

Dividends4Life takes a look at the epic question of where can I find The Next Great Company?

Free from Broke had recently Re-Allocated And Re-Balanced his 401(k) Portfolio and shares the experience. Timely reviews are important, even in long term investing.

My Journey to Millions examines the worth of CDs and discusses Wamu's 5% 1 Year CD vs. Wamu's 3.75% savings account.

Economy and Finance

#8 I have this intuition into the market. I just know when it hit a low.
#9 The future is in emerging markets, my entire portfolio is made of BRIC (Brazil, Russia and China).

Amateur Asset Allocator with a surprising meta-post on Get Rich By Writing About How To Write About Getting Rich. Kind of reminds me of pyramid scams but in a good way.

Beyond Paycheck to Paycheck asks Where will the next bubble come from?

Are You Going To Be This Way the Rest of the Time I Know You? (Lucky I don’t charge by the letter) presents You’re going to give me $50,000 to do what? It’s just one of those titles you just need to read never mind what I have to say about it.

Value For Your Life offers to learn from her experience in My 3 Biggest Personal Finance Mistakes. Chances are you’ve already done this mistakes (I know I did) but in case you haven’t save yourselves the trouble and read this post.

The Passive Dad shares another refreshing alternative income idea in Alternative Income Idea: Stringing Tennis Rackets. Apparently there’s money to be had in the racket stringing business. Good luck!

Retire To India maps out Retirement milestones by Age which serves as a good road-map.

PennyJobs may be what I call a serial entrepreneur (in a good way) and he shares his experience of past initiatives in this series titled Businesses I’ve Tried and What I’ve Learned: Series Introduction.

InsureBlog discusses the concept of Over-the-Top Insurance and explains it to the laymen.
Finance ViewPoint offers Ten tips you should consider to protect your online financial transactions. A very good list on an important subject.

shares a different perspective on budgeting in Financially Wise and Married.

Uncommon Cents is standing for his in Sometimes Complaints Go Your Way.

Budgets are Sexy presents Today is going to be different, i just don't know how yet.


#10 This stock may have disappointed me so far but I’m hanging on till the end.

The Wisdom Journal eases the guilt in Your Low Salary Isn't Really Your Fault a post with a twist I enjoyed reading.

Retired At 47 with a reality check in Forget About Doing what You Love. Say it isn’t so…

Free Money Finance discusses job perks in A Valuable Job Perk .

American Small Business News
addresses the issue of recruiting in Recruiting the Right Team Members. Many researchers argue the recruiting process is basically looking for ourselves in others and recruiting similar individuals. I wonder how much theory can bend practice.


#11 I’m telling you, this analyst really know what he’s talking about.
#12 I say we manage our own funds and save 2% a year on this fund manager of yours.

In Are You Throwing Money Away? Unused Expenses and Untapped Discounts blogger Prime Time Money discusses the saving potential behind routine expenditures which aren’t examined on a regular basis.

Canadian Dream: Free at 45 (it’s a global dream really) discusses eating for pennies. I’m a big fan of good food and it’s quite hard to come by, for pennies that is. It’s a good post though I believe eating cheaply usually means eating lower quality foods.

Blueprint for Financial Prosperity presents 6 Things More Expensive Because of Marketing in a very good post with a very important message. We can all easily think on many products we pay more for due to marketing. Fight the urge and take a peek at top and bottom supermarket shelves. You’d be surprised of what you find.

FiveCentNickel asks Is it Un-American to Ask for a Discount?

My Daily Dollars displays Her Frugal Pantry and nostalgically writes about stocking her pantry with the season’s fine harvest. Sound very romantic to me.

Our Fourpence Worth suggests Switching to Paperless Statements to Save Money, Time and the Planet. I think we’re all for this one. It’ll take the regulators a bit of time though and we do have to consider the entire population. Still, no reason to stop sending papers to those willing to make the switch.

Money Beagle presents Adventures In Insulating and suggests a do-it-yourself approach. For the ones brave enough this post is quite in-depth and well written.

FruGal presents Weddings and other peoples' money on the painful subject of weddings and their associated costs and emotions.

Simply Forties talks of the Eating Out dilemma and offers a solid strategy to dealing with it.

Money Management

#13 Work is for suckers. Passive income is what I’m talking about.
#14 Leverage. That’s the only way to really make it big.

Trent Hamm @ The Simple Dollar shares his personal finance products in response to the ever so common request of Please Recommend a Personal Finance Product to Me! "This is what I do" is one of my common answers to this question. The responsibility is simply too big.

I’ve Paid For This Twice Already shares the advantages of flexible spending accounts which are, apparently, a great tool to manage spending and enjoy tax benefits on certain expenses, a great and recommended read.

The Dough Roller offers An Easy Guide to Money Management with ten useful tips and tricks to manage our money.

Broke Grad Student shares his tips for college students in Broke Grad's Financial Tips for College Students. Some of these can’t help you avoid becoming a broke grad student ;>

Single Guy Money provides yet another reason for an emergency fund. Success orient planning holds nasty surprises, I suggest: always be prepared.

Miss Thrifty is lucky enough to have lived both in the UK and the USA and presents her analysis of the frugal options each offer in Frugality Wars: UK vs. USA, Round One! It’s always an eye opening experience reading about other countries.

My Dollar Plan offers Her Advice for Sarah Palin

Not the Jet Set presents a lovely post titled Forget Dave, Are YOU Bad at Math?

MoneyMonk discusses the Biggest Complaints of not getting ahead. Naturally, some of my budget busters are on the list as well.

BrokeFamily (oh my!) discusses Why Paying Bills Electronically Is Good for the Environment.

Aspiring Entrepreneur tells of his Path To Financial Freedom. Follow the yellow brick road.

Money answer guy shares his answers on Planning for Unexpected Expenses. My personal favorite is to set up another line in each budget to include true unforeseeable expenditures (I’ve writted a post on the matter). If they occur you’ve got funds, if not you’ve got more money for your emergency fund.

Think Your Way To Wealth asks The Peril of Living Paycheck to Paycheck- Are You One Step Awayfrom Financial Disaster?


#15 The government will never let that bank fall.
#16 I’m telling you their business model will conquer the world.

Fire Finance presents Save Your Wallet With These Penny Hacks addressing the well known issue of small chance and inflating wallets, a real fun read.

Everyday Finance demonstrates how Investment Related Expense Reduction Saves Thousands in the Long Run. Easing a bit on the buy/sell activity does wonders. I’m not so keen about the manage it yourself tip though.

Tough Money Love suggests thinking small and local for or high interest checking and savings, a good discussion in favor of community banks’ deposit interest rates vs. internet banks. Online checking accounts at community banks can provide better interest rates than the popular Internet banks. The fine print is something I would definitely look into though.

Saving to Invest shares Ten Car Buying Tips to Getting a Great Deal, some are unconventional but real life experience teaches otherwise. I say think out of the box, and if it is at all possible, go for a scooter!

No Debt Plan wonders whether Should We Shift Some Emergency Fund Money to CDs?

Personal Finance Analyst shares my disdain for SUV’s in Automakers Attempt to Mollify My Gripe About SUVs with Incentives. I really don’t think anyone can make the case for SUV’s…

Tight Fisted Miser shares His Plan to Retire in 50. We all aspire to get there but recently I’ve been having doubts. It seems the more active you are in your work and the more you exercise your brain and body the better your condition is in old age. Maybe we were meant to work till the end?

Almost Frugal asks How Do You Take Your Hundreds? An interesting proxy to saving.

My Money Blog shares money saving tips in Saving Money on My Electric Bill.

Online Savings Blog
tells How Laziness and Stupidity Cost Me $60 Today. This actually happened to me once when I accidently assumed my flight was departing from Newark while it actually departed from JFK. Needless to say a taxi cost me $100 dollars. I still remember the frustration that night.

Money Funk discusses Small Changes, Big Saving and calls for the elimination of individual bottled water. They do add up.

Real Estate

#17 My job is recession proof.
#18 Eat and drink for tomorrow we die.

Dan Melson @ Searchlight Crusade discusses Personal Loans For A Real Estate Down Payment, a thorough in-depth look into the subject. A must read for anyone considering his down payment options.

Personal Finance Blog by MoneyNing urges us to Not make renter's insurance your last thought! Managing risks is not only for corporations. Insurance is one of the ways to smoothen our financial planning out in case of catastrophes. A good point by David @ MoneyNing.

My Two Dollars now owns Part Of $5.4 Trillion In Mortgages Now with the recent bail-out of Freddie Mac and Fannie Mae. I don’t believe we’ll get to see a dime out of it so don’t have high hopes. The limits of capitalism have been analyzed to great extent during the past weeks, even here on The Personal Financier. I believe the government had little choice in the matter.

Tallahassee Real Estate Blog with some home sale advice in This Sign Is Up - Is Your Home Sold?

TWA's Real Estate Investing School shares 20 Real Estate Investing Tips to Becoming a More Profitable Real Estate Investor. An extensive list of tips indeed we can all use to understand realestate investors a bit better.

Transcendental Success presents Sell the Farm For a Profit and analyzes an interesting scenario we can all learn from.

Brunette on a Budget offers Tips to beat foreclosure in a very relevant post.

Personal Finance Start-Up Blog looks into The Process of Purchasing a New Construction Condo. First of all congratulations! And good luck. A very good post for those considering this option.

Happiness is Better teaches us How to Be a Master Flipper. It’s a full time job if you’re up to it.

Small Business Blog looks into reverse mortgages in Inside the Reverse Mortgage: Is It Right for You? I’m really not a big fan of this instrument. Like all loans, credits etc. their too expensive and too “capital eroding”. As a last resort it is an option to consider.

Liberta – Freedom discusses a home as an expanse (sounds familiar?) in Is my House an Investment? I highly disagree with “house as an expense” claim and have proved it wrong myself. It does have some true elements which you can read about in this post.

Credit and Debt

#19 All we need is to find one promising property.

Money Smart Life tackles a sensitive issue in Paying Down Debt In Your Marriage. I couldn’t agree more with the point being made. Marriage is challenging enough.

Taking Charge experienced a lesson he’ll never forget and shares it with us in Sting of garnishment from years ago still lingers. The call for more personal finance education in high-schools has never been more justified. I guess it simply contradicts with more powerful interests…

Smart Money Daily discusses how Motivating Visuals Help Payoff Credit Card Debt. I like this line of thinking and have pursued it before though I took more in the direction of graphs and charts. Visuals are very powerful imageries and can really help with our personal finance efforts.

Accumulating Money
points out What to Watch out for in Home Equity Loans.

Money Under 30 answers the question of joint mortgages in His Credit's Good, Hers Isn't: Can You Get a Mortgage Anyway?

The Better Credit Blog points out the 6 Most Common Credit Myths. I’m always for myth busters. These are quite important if you’ve never taken the time to research these myths yourself.

Ask Mr. Credit Card discusses why Credit Cards Are Excellent Financial Tools. I’m a big fan of credit cards as a tool and that’s the key.

The Smarter Wallet asks Why Not Use Credit Cards To Reduce Your Mortgage? I can think of a few good reasons why not but I’d give this post a chance at convincing you otherwise.

Green Panda Treehouse presents The Stigma of Debt Is Gone, But Not The Sting asking the question of whether having debt is ok?

Rookie Finances takes a look into the Office and money combining the show and principles of debt management into one post. I just love Steve Carr.

The Financial Wellness Project tells of living credit card free. Remember credit cards are tools. The problem is behavioral and should be dealt with accordingly.


#20 It just can’t get any lower than this…

Never too early, Sound Money Matters claims It’s Time to Set Your Christmas Budget and reviews all the necessary aspects to budgeting for Christmas. The holiday season does indeed pose a true budgeting challenge. As always the secret is discipline.

In Debt Because I Like Nice Things
(really cute name) warns of high heating prices in High Heating Prices Expected: Do You Have a Plan? You got the heads-up, don’t say you weren’t warned.

Living Well on Less present Their method for meal planning which really organizes the process for the less experienced ones of us. It’s a bit time consuming but I think it’s worth it both for better nutrition and paying less.

The Credit Beacon discusses How to Avoid Ugly Money Problems or Recover from Them and maps out the basics of budgeting and their ability to solve money problems.

Realm of Prosperity shares his (or her) grocery budgeting process in Setting Up The Grocery Budget For The Semester.


The Financial Blogger demonstrates How Having a Company Can Make More Money Through Tax Management. This is a good post and a good generic idea in to implement in most countries. You should look into country specific circumstances deeply before making the move but all in all you should be able to benefit from it.

The Wandering Tax Pro discuses Tax Amnesty and suggests easing penalties on debts to facilitate more payments. It’s a good idea which is already implemented in many countries. The cost however comes in the form of lower payment morals.

That's it for this edition of The Carnival of Personal Finance. Next week's edition will be hosted @ Sound Money Matters. Be sure to check it out.

Images by: kjd, theamericanroadside, daniel y. go, swanksalot, ktpupp

Friday, September 12, 2008

Coming To Terms with Never Getting Rich – A Look at the Pre-Requirements

What If I just don’t have what it takes to get rich?

I simply don’t have it. It being the elusive trait self made rich people have. Whether it is simply daring, risk ignorance, animalistic instincts or just a plain good old entrepreneurial spirit I simply don’t have it and I’m starting to think I never will.

I’m not talking about simply being successful which it no small feat in itself. I’m talking about getting truly rich, several millions of dollars worth kind of rich. It seems like some people are just born with the right set of traits combined with a bit of luck and make it big.

It shouldn’t be that hard. Many rich people aren’t as smart as me and aren’t as talented. Why can’t I make a small fortune then? What is it that I lack?

I’ve given quite some thought to the matter and come up with several key traits and circumstances which one needs in order to get rich. I believe the following are essential to getting truly rich and they carry a price, as anything in life does.

#1 Hunger

Many self made rich people describe their childhood as less than ideal. Many tell stories of poverty and lack of means. Many rich people developed a sort of hunger that grew from a lack of means or a need to prove something. Paradoxically enough, the better the childhood you had, and the lack of “traumas” you had to face the less you have to prove as an adult and as a result chances are you are pretty comfortable in your upper/middle class social standing. I haven’t developed any real hunger for anything other than for money that will serve for a comfortable retirement at 40.
This hunger serves as a driver for going and getting. Without something to prove, why bother with all the hard work?

#2 Entrepreneurial Spirit

Some people are born entrepreneurs. We all know a friend of a friend who owns one coffee shop here, two apartments there and a small start-up company elsewhere. These people can’t really live any other sort of life without great frustration. Entrepreneurs usually keep on going forever, long after they’ve already ripped great financial success. It’s their nature.
Serial entrepreneurs are very common in the High-Tech industries, in real-estate and everywhere really. They always initiate, think of new ideas and somehow have a god given talent of starting anew.

#3 People skills

There’s no success without people. They buy, sell, manage, work and we’re totally dependent on them. Humans are social animals and without good people skills not much can be achieved. The current networking trend or plain old connections serve as success multipliers. Sometimes a good word or a friendly introduction can open doors to huge opportunities. In the end, it’s all about people.

#4 Risk “Ignorance”

For the lack of a better term risk ignorance is what I name the ability to take risks without being intimidated by them. It may even be more extreme. They may ignore risks at all. Thinking about risks limits our actions. Any rational person considers his actions before taking them usually weighing the risks and benefits.

If you’re like me you’re very risk averse and will probably never mortgage your house to finance any business endeavor, for example. Risk and return are tightly bound, as we know, and therefore chances of getting really rich are slim to none since a sacrifice is required.

#5 Luck

The other necessary side to risk ignorance is a healthy dose of good luck. Rich people stories are naturally success biased. We almost never hear of people trying and failing since it doesn’t sound as glorious.

We are fed success stories and naturally value our chances at success much higher than they really are. Risk, by definition carries a certain chance of success and a certain chance of failing. The stories that do get to us are of the people who already proved to be lucky in one or more business adventures.

It’s Better to Try and Fail Than to Have Never Tried At All ...

I hold quite a deterministic point of view. Philosophically wise it makes sense to me. Still, there is no better way to get to know oneself than actually trying. It doesn’t have to be a big bang try which will end up with heavy personal cost. Any small initiative might succeed (like this tiny little blog of mine which in my standards is doing quite well).

From my personal experience there are only a few experiences quite as empowering as making $100 dollars on your own, without the grace of an employer.

I’m coming to terms with never getting really rich. Becoming more successful is something I aspire to and work hard for but still, I almost know I’ll never be able to look at my balance and see a 7 figure, not to mention 8 figure number shining brightly back at me.

Related Posts:

Image by: noahwesley

Tuesday, September 9, 2008

The Limits of the System

A massive scale bailout reminds us the limits of the system

Churchill is often quoted saying “Democracy is the worst form of government except for all those others that have been tried”. To paraphrase on this famous saying capitalism is probably the worst from of market behavior except for all those others that have been tried.

The shiny knights of capitalism have taken yet another blow responding joyously to a bailout of fantastic scales. Fannie Mae and Freddie Mac, the famous former federal agencies are literally bankrupt leaving the government no real choice.

Devoted capitalists should be outraging right now. Bailing out a bankrupt corporation stands in sharp contrast to any and all “true” capitalist ideals. How will the markets clean themselves of failing corporations, managements and business models?

The problem with ideals is their practicality or lack there of. It is quite easy to see bailing out Freddie Mac and Fannie Mae was the only real alternative the government had aside from letting the markets descend into complete and utter chaos taking the global economy with them.

Considering the impact on the global economy the US government should send a part of the check to many foreign countries whose economies are getting bailed out as well during the process.

Ironically enough, on the day the government announced the bailout market responded with sharp surges upwards in stock prices. Capitalism takes a blow and investors cheer. The reason is obvious enough: The price of risk just got limited. No one had to share their earnings with the government when risks paid off, aside from taxes, usually somehow avoided as well. When risks are costly no one seems to pay the price, other than the citizens of the US of course.

That’s not entirely true though. Stock owners of both Freddie Mac and Fannie Mae have lost the vast majority of their investment even if bond owner got a lucky break. Bear sterns stock owner lost the majority of their investments as well.

There are more surprises in stock and the chaos is still present and stronger than ever. I can’t explain the 40% increase in Freddie Mac and 40% cut in Lehan Brothers’ stock aside from sheer panic and confusion.

The wise investor will keep clear of the markets unless you’re there for a very long time.

Image by: Adam Baker

Saturday, September 6, 2008

Working Weekends - Free Professions Have Become an Ironic Oxymoron

Thoughts from my first (yeah, I’m lucky) weekend working experience

I’ve just finished my first experience of working in the weekend. What once was a personal taboo of mine is no more. I’ve worked through the very late evening on Thursday to avoid bringing work home but still couldn’t avoid some required finishing work.

Working in the weekends is not as devilish as I thought it would be. I always thought working in weekends interrupts with the very necessary stress and pressure relief from the already over packed weekdays. I have no intention of letting this become a regular habit but I don’t consider it the ultimate evil also.

The fear of a slippery slope has definitely come to my mind, especially since my boss might get used to weekend deliveries. There’s a fine line to maintain here.

Weekend surprisingly hold a lot of free time. That’s usually what they’re about but still, squeezing in a couple of hours more work doesn’t really injure it beyond repair. I may be trying to console myself as I currently don’t have a choice in the matter but I’m almost certain It won’t bother me should I be forced to put in another extra hours occasionally. Getting paid extra for my weekend hours is a sweetener helping to swallow the pill but it’s not really about that.
The modern workplace is a demanding one. Often compared to modern sweatshops the work environment of “free professions” has never been more enslaving.

Technology proved to be a powerful means of bondage enabling companies to increase the availability of their workforce over distance and time. Logging on to emails and the company’s servers from home, blackberries, laptops and more are all tools of “enslavement” of the modern office employee.

I still believe we have it better than the blue collar workers often romanticized by my fellow colleagues. With as little experience as I have in manual labor I still recall sore hands and backs after what appeared like endless days in fields and manufacturing floors.

We do have a choice of whether to participate in the game or not but if you’re ambitious you can’t really be any less available than any of your colleagues. We’re digging our own holes with our mobiles.

This blog I fight to maintain can easily be regarded as weekend work. Posting isn’t easy and maintaining quality (which I lack recently, in my opinion) is even harder. Still, it is enjoyable and serves as time off from regular work which is no less important.

Working weekends is a great competitive advantage, however cruel to yourself, your family and friends. I fear many have realized this as email activity on weekends has risen dramatically. Eventually many regret sacrificing their best years on some job but that’s usually done from a senior executive position making the regret a bit easier.

An interesting point of view on working weekends can be read here. There’s no real alternative according to this article. Judge for yourselves.

Related Posts:

Image by: The road is the goal

Wednesday, September 3, 2008

My Post Caused a Bit of a Stir on MSN Money

First of all I’d like to thank MSN money for the reference to my post on Outsourcing Our Chores - Do We Overvalue Our Spare Time? Secondly I’d like to clarify the point I was trying to make. I do suggest you read my post rather than just comment based on the more controversial part of it.

Anyone familiar with my writing knows that my arguments are based on economic principles. I’m the last person to try and monetize everything and I’m actually speaking against it.
In my post I claim many of us use the excuse of the monetary value of their working hours to justify paying professionals to do their chores while usually corrupting away the spare time created.

I couldn’t agree more with the concept of prioritizing and the arguments made by the commentators to this post are actually in accordance with my argument. Spending time with your children or with your spouse should obviously have a higher economic value which most certainly justifies outsourcing our chores. I was merely trying to offer my readers a refreshing way of thinking about their spending habits. I most certainly believe most people have the time available to do their chores and choose to outsource them as this is a common practice these days. I personally don’t know many people who work 70-80 hour work weeks….

The last sentence in my post was “It is important to note that I believe having a big family, with two kids and more, changes the basic premises. The time required to properly tend to several children is obviously much greater and changes considerations”.

Maybe I should have been a bit clearer on the subject. I do apologize if I offended anyone. It was never my intention. It did get my writings a mention on MSN money ….

I'd like to take this opportunity to thank Abby from I Pick Up Pennies for writing this excellent post as a follow-up.

Tuesday, September 2, 2008

This Time of the Month

Our net-worth hopefully takes a small spike up at each month start

The start of each month holds both a sort of thrill and desperation. We manage each month trying to meet our goals, pay our debts and grow our net-worth as much as we can.

My budget excel chart eagerly waits its monthly update, its graphs shimmering with anticipation. I take great joy in our budgeting process. I can’t say if it is as a result of my constant dealing with budgets, finance and money or just an obsessive compulsive behavior. A bit of both I reckon.

The passage of time receives yet another meaning, waiting for wealth to accumulate, slower than the growth of trees. I don’t really believe true wealth can accumulate in one lifetime of solid salaries. It’s just too slow and the numbers are too small.

Still, comfortable living and early retirements are not just fantasies for the majority of hard working people. It is a pity many of our better years are spent in our workplace but there is challenge and growth to be had at work as well.

The secret is obviously to avoid constantly checking our balances and portfolios. A watched pot never boils and a watched portfolio never “compounds”. Short term thinking and planning have always plagued man kind but during the past couple of decades have worsened due to us getting used to instant gratifications.

The months do go by pretty fast eventually, the budget history grows bigger and more detailed and our net worth grows, however slowly. I sometimes have a difficult time reminding myself money is a means to an end and not an end in itself as we’re always taught the power of compounding works only in long periods of saving.

We do have a life to live and it is important to remember. I’m very far from frugal and I believe money should serve us. I do have goals and I try to meet them, sometimes avoiding or postponing what I don’t necessarily need at any given moment.

Hopefully the start of this month finds you all well. Please feel free to share.

Image by: hounddiggity