Best of March 2017

3/6/2017

When I started the site, my intention was to constantly write about the four pillars I will follow to become wealthy: personal finance, investing, entrepreneurship and economics.

I’ve written a little about entrepreneurship with stories about publishing my various books and spent time every week for the last few months thinking and writing about investing. Personal finance and economics have been forsaken.

I decided to rectify that this past week with a new budgeting series and more economics forsaking.

Over the next three days, I’ll post an article each day on budgeting. Starting today with, On the Philosophy of Budgeting.

On Wednesday, I’ll send another email with a fun special report version of the series that includes a secret fourth article only for subscribers.

A Week For Finallys

After almost six months of painting, massive cleaning, battling insurance companies, fretting about PMI fees and then weeks of being fruitless listed at the wrong price, my fiancee and I have finally rented out the condo.

For newer readers, our plan is to ladder up residences, moving every few years and never selling old houses.

As we move we’ll rent the last place and allow a tenant to pay off the mortgage.  Any profit from the rental will go into a down payment account focused brokerage that is only invested in fixed income.

For this specific property, the mortgage and HOA combined amount to around $700/mo and we were able to secure tenants at $900/mo.

In celebration, I have put my first book, on special situations investing, on a countdown deal.  Starting Tuesday, 3/7/2017, you will be able to get it for just $0.99.

I’ll sender a reminder of the deal on Wednesday along with the special report.

Massive Exposure

In my never ending attempt to drive traffic, I’ve started reposting some old articles on different sites.  These are the articles that my fiancee that gave my fiancee a pleasant surprise as she slugged through reading them.  You can find them at:

Quora

LinkedIn

Medium

3/13/2017

I wish I could start this email with a story about the massive amount of cleaning I did this weekend.

Unfortunately, the only cleaning that gone done was the normal weekend load of laundry and chipping off the hard water residue in the humidifier.

Still going to use the cliche to get this newsletter done.

Anyway, here are some items you should do to spring clean your finances:

  • Clear out high-interest debt.  If you have any debt with an interest rate over 6% or so you should put as many resources as possible toward paying it down.  This includes selling investments (as long as there is not a penalty to do so).  If you are paying 6% interest on a debt and have a bad year where you make less or lose money it’s double trouble.
  • Mine your Personal Capital.  I wrote about this recently.  Make a habit of going through all your transactions at least quarterly.
  • Create a housing plan.  If you are like me and want to create your own SFR (single family residence) empire, figure out how to save toward more down payments.  If you’re renting and want to purchase your first home, get your finances in line and get pre-approved for a mortgage.  If you’re going to stick with a house long-term, think about and decide how fast you want to pay it off or if you would benefit from a refinance.  If you’ve already paid off your house, figure out if you would benefit from using a HELOC to pull equity out for some other purpose.
  • Create secondary income sources.   Everyone has some skill or another than can be used to earn income online or otherwise.  You can freelance on Fiverr. Drive people around with Uber.  Rent out a spare room with Airbnb.  Walk dogs or babysit them.  Create an online course or write an eBook.  The potential is limited only by the effort you put into it.
  • Set-up a rainy day fund.  I couldn’t pass myself off as a finance expert without recommending this at some point.  It’s just cash you set aside in case you have no income for 3-6 months.

That’s it for now, if you have any other spring cleaning you do with your own finances, shoot me an email.

3/20/2017

I’ve been working on my next book between video games the past few weeks. For those who don’t know about it, the book is a collection of about 150 pages of investment writing I did between the ages of 14 and 19.

It will, of course, be called Confessions of a Teenage Investor.

Interspersed in the chapters are footnotes where I update the performance of various investments (spoiler alert: many of them went very badly), make fun of myself and fawn over the smart things I wrote from time to time.

One of the chapters I read through this weekend was notes from an investment conference I went to during my senior year of high school in 2007.  The conference was put on by a now defunct investment newsletter and was my first chance to meet many of the people I had been emailing.

I even made up business cards that just had my name and email on them.

The two best presentations were on options trading.  The strategies are two sides of the same coin: selling covered calls and selling naked puts.

Selling covered calls involves selling the right to purchase shares of a company you own for a set price within a set time frame.  Selling naked puts is selling the right to sell shares of a company for a set price within in a set time frame.

An advantage for both strategies is how seamlessly they fit into run of the mill value investing.

You can sell covered calls on a position you own that is nearing or over its intrinsic value to increase your returns.  You can sell naked puts on a company you do not own but would purchase at a good price.

Unfortunately, when I first learned about these strategies at that conference I had an immaterial income and was a minor so, according to the government, I was unprepared to trade options.

This led to years of financial heartache (I did not qualify to trade options until after I finished my graduate program about five years later) and many Facebook posts about the injustice of it all that I sometimes see in my Facebook memories.

Today I frequently use both strategies in my personal portfolio and others.

In an IRA I manage for a family member, I have used covered to calls to produce between $200-$500 in income in each of the last nine months.

In my down payment account, I have used naked put selling to produce an annualized return of around 15% on stocks I would be confident owning in even that low-risk account.

I have taken it to another level in my personal account where I use these two strategies but have also started work toward a more active option strategy.

I wrote about this strategy a few months ago.  Read about it here.

3/27/2017

My second book had the best open.  In its first week, it was downloaded over 400 times and led to a doubling of the newsletter subscriber count.

My first book, on special situations investing, has had about 50 downloads total.

The third book, which was released in January, and contained write-ups for various stocks, had just under 300.

The second book was a broader personal finance book.  It covers four steps you can take to retire a millionaire and then four ultra-advanced-mad-scientist-type steps to get even richer.  These include savings tips, how to earn more money and how to invest with proper asset allocation.

The first and third books are both solely investing books.  I believe this is why the second outperformed them.

So we have good and bad news.  The bad news is my new book (Confessions of a Teenage Investor), which I just finished the first draft of, is solely an investing book.  This implies a lower opening.

The good news is that, unlike the other investing books, Confessions has a target audience of beginners – after all, I was a beginner when I wrote it.

My plan is to market the book in this manner and try to rope in the types of people who read and enjoyed 4 Steps but were too intimidated by the other two.

Over the coming weeks, I will use this newsletter to update the progress of Confessions. Now that the first draft is done, all the other busy work that goes into the publishing is easy enough to explain and it would be good to get it on paper for future use.

In the meantime, the most successful book (4 Steps to Retiring a Millionaire) is free all this week.  Go see what the hoopla is about.


What’s the best way to save $1k per month?

Why not do both?

My fiancee and I use a brokerage account to save for our next down payment. We invest in various fixed income instruments that produce returns above 4% annually and don’t have the same risk profile of stocks.

We use that process to buy a new residence every two years and rent out the older houses.

Could stock analysis be summarized as running through a routine of indicators and disciplined research—a checklist if you will?

Many investors swear by checklists. I have one that I use for my traditional value plays. The problems arise with unique ideas.

If you’re looking at distressed debt, special situations, speculations, technical analysis, turn-arounds, start-ups, etc. (I could do this all day) there will be too many no answers in the checklist.

You could build specific checklists for each situation but in the end, it’s still going to come down to too many subjective decisions that don’t fit into a binary question in a checklist.

The best use of checklists in investing is to keep yourself honest.

Decide the bare minimum for each question, but keep an open mind in all situations. And make sure to have a behavioral finance section where you can grade your own biases.

How would you use Philip Fisher’s Scuttlebutt approach as an individual investor?

An interesting book came out about how to do this a few years ago: The Sleuth Investor: Uncover the Best Stocks Before They make Their Move

The author is, somewhat surprisingly, a traditional value investor. In the book, he talks about how to talk to customers, suppliers, employees, etc. All the good Fisher stuff.

The fun part is where he also talks about how to chat up executive admins to learn about divorces or other personal gossip that could potentially move stock prices.

What is the best way to start investing when you are in college?

The first thing you need to do is figure out what your risk tolerance is. This will determine where you should invest.

If you have a low-risk tolerance and are looking to invest just to make more money than you can make in a Bank account there are fixed income investments you can learn about to do that.

If you don’t want to take a lot of risks but also don’t want to just own bonds you can think about using proper asset allocation where you diversify among domestic and foreign asset classes. This way if one crashes there will be uncorrelated assets that don’t.

If you want to learn about and invest in specific stocks, you should make a list of the companies you like the most and start to learn accounting and valuation to pick out the ones who are undervalued.

All of these methods can be done with a simple discount brokerage account, like TD Ameritrade.

Why aren’t there more mid-range shots in NBA games? What can we do to allow for more of them?

Three points are more than two.

If, as a team, you’re hitting 40% of your threes the expected value of a 3 point shot is 1.2 points. You’d need to hit 60% of your mid-range shots to get the same expected value.

There are some players, notably DeMar DeRozan, LaMarcus Aldridge and Gordon Heyward, who specialize in the mid-range shot. Because NBA defenses have adapted to defending the three so aggressively these players have had a lot of success getting open in the mid-range.

As for how we could allow for more, the real question is why would we do that? 3-point shots are more fun and give lesser teams a better shot against Goliath.

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