I paid my own way through college. My dad paid his way through college. His dad probably did the same thing... So naturally when I started talking to my wife a few years ago about what to do for our kids the logical decision was: Let them pay their own way! We've been doing it for generations!
But there are a few things that make me think differently about this now. And here is why we will try to help them pay for college:
1. College expenses are relatively higher now than what they were when we did it.
As a California resident I paid $13 per unit at Golden West College. Its now $20 which is still very good! Compare that with a community college in New York where you pay a couple of thousand dollars for one class! When I did my undergraduate at Berkeley it cost $2,500 a semester. Now it costs around $5,000. That's just for registration. If you factor in the cost of living somewhere else, you see that it gets very expensive. It is still cheap to go to Berkeley if you are a California resident. But if you are an out of stater like me now, forget it!
I'm starting to see why a lot of LDS people send their kids to BYU: You can't beat the quality for the price you get.
2. College is an investment
According to this link college is an investment. It cites that college grads earn 60% more than people who only graduated high school. I don't want to be supporting my kids forever. I would be thrilled if I had the means to do it. But these kids need to be independent. Getting them out in to the semi-real world of college where other people are learning to be independent is a good way to get them out. I love having them around, but I recognize the need to help them by independent.
3. I don't want to limit my kids horizons
My kids will get plenty of people telling them what they can't do. Even if I can't afford the high priced colleges they may aspire to, I don't want to kill there dreams. I want to instill in my children that there is always a way to make something happen. By constantly telling them: "You'll need to think about how you're going to pay for that" I think limits them. Lets say: Go for your dream and depending on where you get we'll talk about the options. I know people who got into really good schools but didn't think creatively enough to try to make it happen, so they didn't go. Lets think differently. There are lots of scholarships and programs out there that help people. Lets tell them to shoot for the stars.
Now, here are the counter arguments:
1. You don't appreciate something as much if you don't earn it.
So true. My graduate degree didn't cost me anything but time. I appreciate it, but I cherish my bachelor's degree much more because I earned and paid for everything. So it is natural that I'll put conditions on what my kids get: If they get less than a B average than they have to pay for it. I'm not there to pay for parties.
2. College isn't all that great
True. I know many people who never graduated college and have done remarkable things. However, as one of my friends points out: I'm the exception, not the norm. If my kids have passion for something, I hope they follow it. Even if it means not going to college. But for most normal people, college is the easiest route to self sustainability.
3. Paying tons of money for a useless degree
Your kid wants to go to a private school and learn about art. I think there we'll need to talk about what they hope to get from their degree. If there is passion they'll find a way to make it happen even if I can't afford it and they end up taking on loans.
Now that is why I'm saving money for my kids. However, I think there are priorities for what to save for. In my opinion its a hierarchy and you shouldn't be saving for college for your kids before you can manage your own finances. To that extent you should be doing the following before saving for your kids college:
1. Pay off debt
2. Save for retirement
3. Have rainy day funds
After all, what is worse for your kids: Not having college paid for or having to take care of you when you're older? Your first priority is to make sure you're not a burden for your kids.
Currently we sock money away in a 529k. I haven't looked at it since August, and I don't want to since the markets tanked! While we may not be saving enough to fund our kids entire education, it is a comfort to my wife and I that at least we are doing something. And that is better than nothing. As time goes on we'll adjust the funds to be more conservative: right now they're all in stocks where they should be until we're 10 years out, then we'll start balancing.
So we're saving. We may not pay all of the costs, but we are going to help. I have hope that by contributing to our children's education they'll be responsible and and their education will enrich their lives. I'm a big believer in education. It is our way of helping the world and enriching society.
Friday, November 14, 2008
Monday, November 10, 2008
Why I would vote yes on California Proposition 8
This week many people in California continue to protest the passage of proposition 8. At first I struggled with this proposition and was opposed to it. I realize this is a blog on personal finance, but this is something I have felt pretty strong about and thought that I would write a little about it. Here are the reasons why I would have voted yes on California proposition 8:
1. Proposition 8 is not 'bigoted' nor does it discriminates against people. Proposition 8 discriminates against behavior. Comparing homosexuals to blacks or women is not the same thing. Homosexuality is a behavior while being black or a woman is something you are born into. I know that people argue that there is lots of scientific research that says that people are 'born' to be homosexuals, but there is also lots of research that suggests that some people are born to be pedophiles or murderers. The point is, the term 'marriage' is a definition and if the majority votes that it should mean something than that is what it should be. In the workforce, I completely agree that people should not be discriminated against for hiring or for promotions or anything regardless if their older, black, white, red, brown, straight, homo, or whatever. As long as they get the job done.
2. If same sex marriage becomes legal than you take away the rights of those who do not agree with homosexual behavior. For example: Suppose you are a photographer and that you are very good at taking wedding pictures. If a same sex couple wants to hire you to do their wedding and you don't agree with homosexual behavior then you should have a right to say I don't wish to participate in that. You are not discriminating against them, you are discriminating against a behavior that you don't believe in. But the same sex couple could sue you. Is that fair?
I have no problem with homosexuals in the work place, or wherever I am. I am very tolerant and would not discriminate in any normal capacity. But just as I don't force my beliefs on any person, I don't want their beliefs forced on me. I would have no problem photographing a birthday party. I would have no problem photographing graduations, etc. But to ask me to photograph an event that I don't believe in is unfair and takes away my right to not participate in things I don't think are moral.
3. Proposition 8 is about drawing a line in the sand. Most of society thinks that people that practice polygamy are strange and crazy. What if proposition 8 said "Plural marriages are not allowed in California". There would be no protests and people would be fine. Because right now its cool to be gay, but its not cool to be a polygamist. Why would you vote differently on those two? The way we have marriage tied to the state is a slippery slope. What about changing the law on statutory rape? Make the age go lower because you could argue that teens are more educated now more than ever. Point is, where do you draw the line? And what is it that tells you it is ok for homosexuals to be married but you cringe at the idea of plural marriages? Where do you get your morals from? Well, it turns out that the only way we can argue it is by what the majority votes. And for now, the majority thinks that marriage should only be between a man and a woman. I chose to draw the line in the sand now.
4. I disagree with the ads on young kids being taught homosexual marriages in kindergarten as much as I disagree with the anti-Mormon ads where missionaries knock on people's door to take away their rights. In that sense, the money thrown at the campaign by both sides doesn't come into play. Why do you blame churches for defending their side of the issue yet you don't blame celebrities? Both sides embellished much more than was realistic. So you shouldn't factor the money that was thrown into the campaigns as part of your argument. And calling Mormon's bigots is just as intolerant as hating another race. Taking down signs and yelling and fighting is just uncivil and doesn't make your case look good at all. Look at posts like this. Does that show tolerance? Look at the response by the Mormon Church after finding it is being singled out as the reason proposition 8 passed. It is sad to see this. The church has a right to express its democratic views as much as anyone else. Again note what Oaks says: We are saying that a behavior is wrong, not the person. You are free to disagree, but don't call people bigots because they disagree with you. There have been sad reports from each side of the campaign for intolerance. Don't be part of that.
That's all I got for now. Would love comments.
1. Proposition 8 is not 'bigoted' nor does it discriminates against people. Proposition 8 discriminates against behavior. Comparing homosexuals to blacks or women is not the same thing. Homosexuality is a behavior while being black or a woman is something you are born into. I know that people argue that there is lots of scientific research that says that people are 'born' to be homosexuals, but there is also lots of research that suggests that some people are born to be pedophiles or murderers. The point is, the term 'marriage' is a definition and if the majority votes that it should mean something than that is what it should be. In the workforce, I completely agree that people should not be discriminated against for hiring or for promotions or anything regardless if their older, black, white, red, brown, straight, homo, or whatever. As long as they get the job done.
2. If same sex marriage becomes legal than you take away the rights of those who do not agree with homosexual behavior. For example: Suppose you are a photographer and that you are very good at taking wedding pictures. If a same sex couple wants to hire you to do their wedding and you don't agree with homosexual behavior then you should have a right to say I don't wish to participate in that. You are not discriminating against them, you are discriminating against a behavior that you don't believe in. But the same sex couple could sue you. Is that fair?
I have no problem with homosexuals in the work place, or wherever I am. I am very tolerant and would not discriminate in any normal capacity. But just as I don't force my beliefs on any person, I don't want their beliefs forced on me. I would have no problem photographing a birthday party. I would have no problem photographing graduations, etc. But to ask me to photograph an event that I don't believe in is unfair and takes away my right to not participate in things I don't think are moral.
3. Proposition 8 is about drawing a line in the sand. Most of society thinks that people that practice polygamy are strange and crazy. What if proposition 8 said "Plural marriages are not allowed in California". There would be no protests and people would be fine. Because right now its cool to be gay, but its not cool to be a polygamist. Why would you vote differently on those two? The way we have marriage tied to the state is a slippery slope. What about changing the law on statutory rape? Make the age go lower because you could argue that teens are more educated now more than ever. Point is, where do you draw the line? And what is it that tells you it is ok for homosexuals to be married but you cringe at the idea of plural marriages? Where do you get your morals from? Well, it turns out that the only way we can argue it is by what the majority votes. And for now, the majority thinks that marriage should only be between a man and a woman. I chose to draw the line in the sand now.
4. I disagree with the ads on young kids being taught homosexual marriages in kindergarten as much as I disagree with the anti-Mormon ads where missionaries knock on people's door to take away their rights. In that sense, the money thrown at the campaign by both sides doesn't come into play. Why do you blame churches for defending their side of the issue yet you don't blame celebrities? Both sides embellished much more than was realistic. So you shouldn't factor the money that was thrown into the campaigns as part of your argument. And calling Mormon's bigots is just as intolerant as hating another race. Taking down signs and yelling and fighting is just uncivil and doesn't make your case look good at all. Look at posts like this. Does that show tolerance? Look at the response by the Mormon Church after finding it is being singled out as the reason proposition 8 passed. It is sad to see this. The church has a right to express its democratic views as much as anyone else. Again note what Oaks says: We are saying that a behavior is wrong, not the person. You are free to disagree, but don't call people bigots because they disagree with you. There have been sad reports from each side of the campaign for intolerance. Don't be part of that.
That's all I got for now. Would love comments.
Wednesday, October 22, 2008
McCain & Obama Financial Policies
I'm not a big fan of either of these guys financial policies.
McCain has proposed taking billions of dollars and buying distressed mortgages from people who can't make their payments. I oppose this. I say we let market forces make it work. Renegotiating mortgages with people that can't afford them is socialism - the same thing he's accusing Obama of doing. It props up a housing market that should correct on its own. I think it will be painful, and it already is to a lot of people. But many of us who were responsible in our mortgages shouldn't pick up the tab of others who were caught up in the market frenzy. I'd rather people walk away from their mortgages than the government give them a hand out. It will ruin banks, keep the belt on the credit market but in time, those irresponsible banks will go out of business (as many have already). It will not help people's retirements and that is the sad part: People who were not responsible will now feel the effects as it sags through the economy. But I think it is still a better solution: Let the market forces work it out. I believe markets are rational in the long run and more efficient than the government in fixing the economy.
I also listen to McCain's talk on 'cutting taxes'. Such an original way of thinking for a republican candidate. But there is no vision in it. I don't mind receiving double tax refund on each of my kids. His plan actually makes my taxes less. But I am more worried about financial deficits. I'd rather keep my taxes the same or even a little higher if someone would start fixing the national deficit. The national deficit is as unsustainable as the housing market was. I want someone with vision to do that.
Obama on the other hand doesn't offer much better. We have Joe the Plumber who will not be able to buy the business he wants because of the higher taxes he'll have to pay. So while Obama is 'redistributing the wealth' he isn't helping small businesses - the back bone of society.
I think the McCain campaign hasn't been able to pick apart his plan enough to show why their plan is better. I don't like that both candidates supported this $700billion bail out. I still don't think I would have. I don't like that the federal government bullied the major banks into accepting government injections of capital into their financial structures. As one reader in the Wall Street Journal wrote: Where is John Gault? (John Gault is a fictional character in Ayn Rand's book: Atlas Shrugged who represents capitalism.).
In all I'm not happy about what is happening with the current nor future financial policies of the US. But can I or you offer anything better? That is the problem. It is so easy to criticize but difficult to come up with a real solution. I think Mitt Romney would have been a stronger republican candidate now that the economy is on the forefront of the agenda. Too bad this crisis didn't happen last year.
Who am I voting for then? I'm undecided. Does it matter? Probably not: Oregon is very pro Obama. But I'll still vote. People died so that I could be heard.
McCain has proposed taking billions of dollars and buying distressed mortgages from people who can't make their payments. I oppose this. I say we let market forces make it work. Renegotiating mortgages with people that can't afford them is socialism - the same thing he's accusing Obama of doing. It props up a housing market that should correct on its own. I think it will be painful, and it already is to a lot of people. But many of us who were responsible in our mortgages shouldn't pick up the tab of others who were caught up in the market frenzy. I'd rather people walk away from their mortgages than the government give them a hand out. It will ruin banks, keep the belt on the credit market but in time, those irresponsible banks will go out of business (as many have already). It will not help people's retirements and that is the sad part: People who were not responsible will now feel the effects as it sags through the economy. But I think it is still a better solution: Let the market forces work it out. I believe markets are rational in the long run and more efficient than the government in fixing the economy.
I also listen to McCain's talk on 'cutting taxes'. Such an original way of thinking for a republican candidate. But there is no vision in it. I don't mind receiving double tax refund on each of my kids. His plan actually makes my taxes less. But I am more worried about financial deficits. I'd rather keep my taxes the same or even a little higher if someone would start fixing the national deficit. The national deficit is as unsustainable as the housing market was. I want someone with vision to do that.
Obama on the other hand doesn't offer much better. We have Joe the Plumber who will not be able to buy the business he wants because of the higher taxes he'll have to pay. So while Obama is 'redistributing the wealth' he isn't helping small businesses - the back bone of society.
I think the McCain campaign hasn't been able to pick apart his plan enough to show why their plan is better. I don't like that both candidates supported this $700billion bail out. I still don't think I would have. I don't like that the federal government bullied the major banks into accepting government injections of capital into their financial structures. As one reader in the Wall Street Journal wrote: Where is John Gault? (John Gault is a fictional character in Ayn Rand's book: Atlas Shrugged who represents capitalism.).
In all I'm not happy about what is happening with the current nor future financial policies of the US. But can I or you offer anything better? That is the problem. It is so easy to criticize but difficult to come up with a real solution. I think Mitt Romney would have been a stronger republican candidate now that the economy is on the forefront of the agenda. Too bad this crisis didn't happen last year.
Who am I voting for then? I'm undecided. Does it matter? Probably not: Oregon is very pro Obama. But I'll still vote. People died so that I could be heard.
Friday, October 17, 2008
Putting some roughness back into life
As I start to approach mid-thirties I have a hard time striking a balance between being complacent and enjoying the life I have now and struggling to make it better by doing whatever it is I do: Making music, creating a silly web site, writing an article, or somehow striving to climb the ladder at IBM.
So for starters appreciating the life you have is the best thing to do: "Count your blessings" as the old song goes. Really doing this can help drive insatiable wants out of your life. Like Ghandi said: "The secret to happiness is wanting what you already have". Ok, maybe he didn't say it like that and I have no source, only going off memory here. Point is: Appreciating what you have makes you happier.
My friend Don Genet used to tell us: "I'm the richest guy in the world! I have a beautiful wife, my home is paid for, I have three lovely daughters that have grandkids. I always have food on my table..." He was a very good example of someone who was happy. And you could tell he really was. The twinkle in his eye and the sincerity of his presentation made it very clear.
So I am able tell myself that as well. And its true. He also said: "Who's got it better than me?" I like that. In an age of Hollywood materialism he shunned all that and told us what really makes people happy. So many times I'll think to myself as I look at the masses: "Who's got it better than me?"
So that's the balancing side of being content with what you have. The other side is that constant drive in some of us that wants more: More out of life, more money, more of whatever it is we think we need. This drive is not bad and it does not mean one is not happy. Improving ones circumstances is a worthy pursuit. And so I have started to think about my paper chasing ways.
One of the things that stops me is this level of comfortability that is easily reached in America. Where you have: All the food you can eat, and you have a place to live and can manage your bills. Once you have that, it starts to take the edge off of life. Also, now that you're out of school, there's no Zero period that makes you get up super early and do crazy pushups or run 2 miles. Now you're in charge of the structure.
And I think that's the problem with me the last 8 years. I rarely have to be anywhere at a certain time. There's no one that measures my weight progress or how much I can bench press. In fact things are too good: I can shower as long as I want with lots of water pressure and turn it up hot. I can sit around all day Saturday and do nothing but watch college football. I can sit here at my desk all day and surf the web. I can go down to the fridge and get as much sugar food as I want. Load the fridge with Mountain Dew and eat cookies all day long. I even made banana bread last night and ate a good chunk of it. That's another thing: When was the last time your stomach was growling because you were really hungry? I know that's not the healthy way to eat, but still: I would think about business trips where we'd eat big breakfast, big lunch, and giant dinner. I was like a blob rolling around a data center.
The point is: The drive has to come from within and there is no pressure to do otherwise. The luxuries make us weaker unless we control our use of them.
So I've been trying to put some roughness back into my life. Trying to keep me on the edge. Not only so that I can get back to my fighting weight (165 here I come!) but so that I can stay hungry and meet some other goals I have.
So I'm the eye of the tiger today. Trying to shun these luxuries and get down to business. This morning I took my 2 mile run with Big O. We've been pretty consistent for the last 3 weeks of doing it at least 3-4 times a week. This summer I've been running a lot too. My weight isn't much lower, but I had my cholesterol measured: an 18% improvement from 2006 when I had it measured last. To me, staying hungry and putting roughness into life makes life more worthwhile. Fight on people. Fight on.
So for starters appreciating the life you have is the best thing to do: "Count your blessings" as the old song goes. Really doing this can help drive insatiable wants out of your life. Like Ghandi said: "The secret to happiness is wanting what you already have". Ok, maybe he didn't say it like that and I have no source, only going off memory here. Point is: Appreciating what you have makes you happier.
My friend Don Genet used to tell us: "I'm the richest guy in the world! I have a beautiful wife, my home is paid for, I have three lovely daughters that have grandkids. I always have food on my table..." He was a very good example of someone who was happy. And you could tell he really was. The twinkle in his eye and the sincerity of his presentation made it very clear.
So I am able tell myself that as well. And its true. He also said: "Who's got it better than me?" I like that. In an age of Hollywood materialism he shunned all that and told us what really makes people happy. So many times I'll think to myself as I look at the masses: "Who's got it better than me?"
So that's the balancing side of being content with what you have. The other side is that constant drive in some of us that wants more: More out of life, more money, more of whatever it is we think we need. This drive is not bad and it does not mean one is not happy. Improving ones circumstances is a worthy pursuit. And so I have started to think about my paper chasing ways.
One of the things that stops me is this level of comfortability that is easily reached in America. Where you have: All the food you can eat, and you have a place to live and can manage your bills. Once you have that, it starts to take the edge off of life. Also, now that you're out of school, there's no Zero period that makes you get up super early and do crazy pushups or run 2 miles. Now you're in charge of the structure.
And I think that's the problem with me the last 8 years. I rarely have to be anywhere at a certain time. There's no one that measures my weight progress or how much I can bench press. In fact things are too good: I can shower as long as I want with lots of water pressure and turn it up hot. I can sit around all day Saturday and do nothing but watch college football. I can sit here at my desk all day and surf the web. I can go down to the fridge and get as much sugar food as I want. Load the fridge with Mountain Dew and eat cookies all day long. I even made banana bread last night and ate a good chunk of it. That's another thing: When was the last time your stomach was growling because you were really hungry? I know that's not the healthy way to eat, but still: I would think about business trips where we'd eat big breakfast, big lunch, and giant dinner. I was like a blob rolling around a data center.
The point is: The drive has to come from within and there is no pressure to do otherwise. The luxuries make us weaker unless we control our use of them.
So I've been trying to put some roughness back into my life. Trying to keep me on the edge. Not only so that I can get back to my fighting weight (165 here I come!) but so that I can stay hungry and meet some other goals I have.
So I'm the eye of the tiger today. Trying to shun these luxuries and get down to business. This morning I took my 2 mile run with Big O. We've been pretty consistent for the last 3 weeks of doing it at least 3-4 times a week. This summer I've been running a lot too. My weight isn't much lower, but I had my cholesterol measured: an 18% improvement from 2006 when I had it measured last. To me, staying hungry and putting roughness into life makes life more worthwhile. Fight on people. Fight on.
Saturday, October 11, 2008
Benincosa Market Watch - Special Edition
This is a letter sent to friends of the BMW today:
Dear friends,
So many of you have said to me these last few weeks: "Where is the BMW? It was here during the good times, but now that hard times beset us, where is the BMW to guide us through the financial turmoil that has engulfed our financial markets?"
It is for this purpose a special edition comes to your inbox today: The Benincosa Market Watch is back, like a beacon in the night, to all struggling seafarers navigating the financial storm that is all around us.
Throughout this last week I've thought on the words of Thomas Payne. In December 23rd 1776 he published: "THESE are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman."
The BMW believes that the sunshine investor will never enjoy the rewards of patiently building wealth over long periods of time. In a world where we read about people who are able to make enormous amounts of money over quick periods of time we may be inclined to think that it is something we should all aspire to. Or that it is the only way to reach financial independence in America. Nothing could be further from the truth. The fact is... somewhere, I don't have sources now, is that the majority of people, if they practice disciplined investing principals will not be harmed over tiffs of the market and be able to save a great amount of money over their life time.
In one of my favorite books "The Richest Man in Babylon", the rich man asked all the people to look into their bags and tell him if the gold they had now was more than they had 10, 5, or even a year ago. His point is that you should be saving every year and each year increasing that wealth. Now, yesterday as a friend of mine and myself dared to peak at our 401ks we saw a stagering -38% year to date return. My friend and I have long term horizons. We are the same age and started working roughly at the same time. We then closed that horrible web page and went on with our normal lives. Not changing our allocations, and continuing our contributions. This year, I will not be able to tell the richest man in Babylon that there is more gold in my bag, however, I will continue to invest, and I have continued to save, as it is the proven way for the average person to achieve financial security. (or as close to something that represents financial security as one can have in todays climate.)
In addition the Benincosa Fortune Portfolio has suffered a devastating 34% loss. I look at that money and sometimes think: Man, I should have bought some cool stuff instead of saving. But then I remind myself: This is money that was set aside that will not be used for at least 10 years. So there is no need to touch it. We have done some rebalancing (some of it probably imprudent), but for the large part, we have left our money there and not touched it for the last year. In fact, we have added some to it. I'm happy to report that none of our investors have pulled their money out yet. Ask me again in 10 years how its doing. One benefit that we have over run of the mill hedge funds is that we do not need to have yearly targets and patiently wait for good things to happen.
My thoughts on the financial policies of the United States are not so friendly and more conservative. I don't like that I have to be responsible for reckless lending practices and speculative investments. So far nothing that has been done has seemed to change the market. It seems like we are spreading the prudent man rule: "Its ok to be wrong, as long as a lot of people are wrong too". We will see how it plays out but it is doubtful whatever does come of it will affect my behavior.
What is so remarkable about the current crises in fact is that it doesn't change our investment approach at all. This is something that I take comfort in. We still invest in stocks, but more primarily S&P500 ETFs and other market indices. Most of us do not have time to track one or more stocks and index funds provide the safest way to hold stocks with minimal overhead. We invest in stocks because we have a long term time horizon. In 10 years, it will be different as we will move more into bonds and TIPS.
So I close with more of Thomas Payne: "What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated." Financial security, for most of us, is also something that requires work and discipline. There's no substitute for it.
Hope you all have a wonder fall season!
Dear friends,
So many of you have said to me these last few weeks: "Where is the BMW? It was here during the good times, but now that hard times beset us, where is the BMW to guide us through the financial turmoil that has engulfed our financial markets?"
It is for this purpose a special edition comes to your inbox today: The Benincosa Market Watch is back, like a beacon in the night, to all struggling seafarers navigating the financial storm that is all around us.
Throughout this last week I've thought on the words of Thomas Payne. In December 23rd 1776 he published: "THESE are the times that try men's souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands by it now, deserves the love and thanks of man and woman."
The BMW believes that the sunshine investor will never enjoy the rewards of patiently building wealth over long periods of time. In a world where we read about people who are able to make enormous amounts of money over quick periods of time we may be inclined to think that it is something we should all aspire to. Or that it is the only way to reach financial independence in America. Nothing could be further from the truth. The fact is... somewhere, I don't have sources now, is that the majority of people, if they practice disciplined investing principals will not be harmed over tiffs of the market and be able to save a great amount of money over their life time.
In one of my favorite books "The Richest Man in Babylon", the rich man asked all the people to look into their bags and tell him if the gold they had now was more than they had 10, 5, or even a year ago. His point is that you should be saving every year and each year increasing that wealth. Now, yesterday as a friend of mine and myself dared to peak at our 401ks we saw a stagering -38% year to date return. My friend and I have long term horizons. We are the same age and started working roughly at the same time. We then closed that horrible web page and went on with our normal lives. Not changing our allocations, and continuing our contributions. This year, I will not be able to tell the richest man in Babylon that there is more gold in my bag, however, I will continue to invest, and I have continued to save, as it is the proven way for the average person to achieve financial security. (or as close to something that represents financial security as one can have in todays climate.)
In addition the Benincosa Fortune Portfolio has suffered a devastating 34% loss. I look at that money and sometimes think: Man, I should have bought some cool stuff instead of saving. But then I remind myself: This is money that was set aside that will not be used for at least 10 years. So there is no need to touch it. We have done some rebalancing (some of it probably imprudent), but for the large part, we have left our money there and not touched it for the last year. In fact, we have added some to it. I'm happy to report that none of our investors have pulled their money out yet. Ask me again in 10 years how its doing. One benefit that we have over run of the mill hedge funds is that we do not need to have yearly targets and patiently wait for good things to happen.
My thoughts on the financial policies of the United States are not so friendly and more conservative. I don't like that I have to be responsible for reckless lending practices and speculative investments. So far nothing that has been done has seemed to change the market. It seems like we are spreading the prudent man rule: "Its ok to be wrong, as long as a lot of people are wrong too". We will see how it plays out but it is doubtful whatever does come of it will affect my behavior.
What is so remarkable about the current crises in fact is that it doesn't change our investment approach at all. This is something that I take comfort in. We still invest in stocks, but more primarily S&P500 ETFs and other market indices. Most of us do not have time to track one or more stocks and index funds provide the safest way to hold stocks with minimal overhead. We invest in stocks because we have a long term time horizon. In 10 years, it will be different as we will move more into bonds and TIPS.
So I close with more of Thomas Payne: "What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated." Financial security, for most of us, is also something that requires work and discipline. There's no substitute for it.
Hope you all have a wonder fall season!
Friday, October 10, 2008
The Proudest Monkey
So we're all taught about market emotions and keeping your cool in rough times. That's how you make money in the stock market right?
Well better said than done. So I got spooked. Its Halloween after all. So last week I said: "If Goldman Sachs gets to $80 its probably going to go bankrupt so I'm getting out." So I put a stop loss that said: Trade if it gets to $80. Well today it did, so it automatically sold. Its good to have policies. But they still don't make you feel good. Cause now I've lost some serious cash. Sellers remorse. The good thing is that it'll be good for a tax write-off... I guess. But it still hurts.
So while I was at it I thought: Ok, I'm going to sell my other lame investment: Blackstone. This investment has killed me. Blackstone is a hedge fund and they basically raped their shareholders, gave them no voting rights and the CEO took a huge payout when they went public. I was a sucker for buying and I've lost some good money on that.
Between the two I could have spent that money on buying a new Mac Book Pro which will debut Tuesday... I'm going to get one anyway for work. (Newsflash in case you didn't know: IBM doesn't make PCs anymore so they're a bit more liberal as to what we use for our primary workstations.) So in that vain, I did another dumb move: I bought Apple Stock. I bought around $92 with the proceeds from GS and BX.
I feel very dumb right now. I acted on emotion and not sound investment principles. The good news? Well there isn't much, but I haven't sold anything else and don't expect to any time soon. The money is there for long term. The time horizon is greater than 10 years... which is why I should not have sold... especially at the lowest point...
My emotional rational? I expect Apple to take a huge chunk from Windows Market share. It is a very distant 2nd place right now. I'm counting on the Mac Books, the iMacs to displace windows and capture as much as 50% market share in the US. This is nothing new, I'm sure others are saying the same thing. But my rational is taken from what I see in the work place. Most of the system admins that I work with these days have Mac Books, especially the startups. Some of the startups try to lure you into working with them by telling you that you'll get a mac book. Its the perfect OS for what I need to do: It has the unix capabilities that are hugely missing from Windows OS, and it has the MS applications that really work that are missing from Ubuntu and other Linux distributions. Take that and Apple's own cool stuff like garage band, mouthwatering graphics and you have yourself a fantastic machine. I don't see Windows or the other lap top venders beating that any time soon. Unless HP and Windows get together to do something really innovative, I think Apple will emerge as the leading OS/notebook/workstation of choice... Oh, and did I mention they also have this thing called an iPhone and an iPod?
Moral of the story: I'm dumb. No more investments in companies I don't understand and no more selling. Here's to a great rebound in the 4th qtr!
Well better said than done. So I got spooked. Its Halloween after all. So last week I said: "If Goldman Sachs gets to $80 its probably going to go bankrupt so I'm getting out." So I put a stop loss that said: Trade if it gets to $80. Well today it did, so it automatically sold. Its good to have policies. But they still don't make you feel good. Cause now I've lost some serious cash. Sellers remorse. The good thing is that it'll be good for a tax write-off... I guess. But it still hurts.
So while I was at it I thought: Ok, I'm going to sell my other lame investment: Blackstone. This investment has killed me. Blackstone is a hedge fund and they basically raped their shareholders, gave them no voting rights and the CEO took a huge payout when they went public. I was a sucker for buying and I've lost some good money on that.
Between the two I could have spent that money on buying a new Mac Book Pro which will debut Tuesday... I'm going to get one anyway for work. (Newsflash in case you didn't know: IBM doesn't make PCs anymore so they're a bit more liberal as to what we use for our primary workstations.) So in that vain, I did another dumb move: I bought Apple Stock. I bought around $92 with the proceeds from GS and BX.
I feel very dumb right now. I acted on emotion and not sound investment principles. The good news? Well there isn't much, but I haven't sold anything else and don't expect to any time soon. The money is there for long term. The time horizon is greater than 10 years... which is why I should not have sold... especially at the lowest point...
My emotional rational? I expect Apple to take a huge chunk from Windows Market share. It is a very distant 2nd place right now. I'm counting on the Mac Books, the iMacs to displace windows and capture as much as 50% market share in the US. This is nothing new, I'm sure others are saying the same thing. But my rational is taken from what I see in the work place. Most of the system admins that I work with these days have Mac Books, especially the startups. Some of the startups try to lure you into working with them by telling you that you'll get a mac book. Its the perfect OS for what I need to do: It has the unix capabilities that are hugely missing from Windows OS, and it has the MS applications that really work that are missing from Ubuntu and other Linux distributions. Take that and Apple's own cool stuff like garage band, mouthwatering graphics and you have yourself a fantastic machine. I don't see Windows or the other lap top venders beating that any time soon. Unless HP and Windows get together to do something really innovative, I think Apple will emerge as the leading OS/notebook/workstation of choice... Oh, and did I mention they also have this thing called an iPhone and an iPod?
Moral of the story: I'm dumb. No more investments in companies I don't understand and no more selling. Here's to a great rebound in the 4th qtr!
Monday, October 6, 2008
Edgy
Well, I'll admit. Today I'm a bit edgy. After all, this is the biggest single day drop my portfolio has ever had. Its so good to see the government bailout plan is working. Right.
So now I suffer on two fronts:
1. My stock portfolio goes down in flames. So I loose all the money in that.
2. There are now more dollars in the market and so my current dollars will be worth less.
I am not happy about the bailout. At first I was ok with it. I thought: "These are a lot of smart people, they know what's best for the economy." Now I'm leaning the other direction. There is so much debt in America and I hate that I have to be held accountable for some of it. It makes me think: Man, I should have just gone on a credit binge like everyone else too. That way we'll all go down together.
I never borrowed more than I could afford. I have stock piles of cash for situations like this. I stayed conservative and bought a house I could afford. (Sure, I stretched a little, but not like these crazy people in southern california with their 800k houses). I'm even at a disadvantage: Our household has only one income: My salary. My wife doesn't work. Yet, listen to this: I'm able to live within my means. I don't over extend. It's so anti-american, I know.
I have no credit card debt. No debt but my mortgage. I have surplus every month. But now I have to pay for people who are not responsible? Why?
But I keep my head. I don't sell stock today, because I'm not a day trader. I'm a value investor and I stay the course and hold on for the long-term. Of course, I'll probably be picking up the bill for many day traders too and their 'fool-proof' models.
So now I suffer on two fronts:
1. My stock portfolio goes down in flames. So I loose all the money in that.
2. There are now more dollars in the market and so my current dollars will be worth less.
I am not happy about the bailout. At first I was ok with it. I thought: "These are a lot of smart people, they know what's best for the economy." Now I'm leaning the other direction. There is so much debt in America and I hate that I have to be held accountable for some of it. It makes me think: Man, I should have just gone on a credit binge like everyone else too. That way we'll all go down together.
I never borrowed more than I could afford. I have stock piles of cash for situations like this. I stayed conservative and bought a house I could afford. (Sure, I stretched a little, but not like these crazy people in southern california with their 800k houses). I'm even at a disadvantage: Our household has only one income: My salary. My wife doesn't work. Yet, listen to this: I'm able to live within my means. I don't over extend. It's so anti-american, I know.
I have no credit card debt. No debt but my mortgage. I have surplus every month. But now I have to pay for people who are not responsible? Why?
But I keep my head. I don't sell stock today, because I'm not a day trader. I'm a value investor and I stay the course and hold on for the long-term. Of course, I'll probably be picking up the bill for many day traders too and their 'fool-proof' models.
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