irenecertan0: June 2012

Saturday, 30 June 2012

John Lithgow, Part I

He's played heroes, villains, saints, sinners, a ballet-dancing elephant, and a space alien, now actor and children's author John Lithgow - best known as Dick Solomon from NBC's hit show 3rd Rock from the Sun - reveals a new side of himself... poetry lover. The award-winning stage and screen star Lithgow shares his favorite poems, insights into acting, and thoughts on the enduring power of art. Lithgow currently stars in the Broadway revival of Arthur Miller's All My Sons. He has penned several children's books, as well as compiled poems for The Poets' Corner: The One-And-Only Poetry Book for the Whole Family.

Source: http://feedproxy.google.com/~r/bmjvodcast/~3/-Mbdt1SCvTM/profile.html

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Age 50 is too late to start saving for retirement

We’ve all heard the same song for some time now.

Canadian debt loads are too high.
Canadian savings rates are dropping.
Canadians expect to work past age 66, not because they want to.

I’ve read a ton of personal finance and investing articles that state “it’s never too late to plan for retirement” or “it’s never too late to save for your future” but I’ve often wondered how much truth there is in that.

Some time ago, I wrote how about unfair it be might to broadly state that 20- and 30-somethings don’t save enough. Yes, Gen Y and Gen X should save and invest after they land that first career job but young adults and young families have many conflicting financial priorities. Any saving is better than nothing, no matter how meagre. So with those conflicts in mind I ask…when is it too late to start saving for a middle-class retirement? I mean, if you haven’t bothered to save barely anything for retirement in your 30s or 40s, is it too late to pay yourself first so you can enjoy your golden years?

My answer might be too blunt for some folks to digest but by age 50, I think if you haven’t saved for retirement yet then it is too late for you. Kiss your middle-class freedoms goodbye.

Here’s why:

If you delay your investment contributions until your 50s, if retirement age is 65, you’ll need to contribute more than 5 times as much to get the same portfolio value as a 20-year-old; you’ve lost too much compounding time. Use this calculator and try some math yourself.
If you don’t save for retirement until age 50, be prepared to give up middle-class luxuries like annual vacations. Chances are you won’t able to afford those on a fixed income.
If you haven’t paid off your mortgage by retirement, let’s say age 65, you’ll be paying off debt with fixed income in your golden years. As inflation rises and living expenses rise with it, you’ll struggle in a few years to keep up your debt payments.
If you haven’t changed your spending habits in your 30s and 40s, the likelihood you will change your spending habits in your 50s is slim to none. The reality is, unless you have a financial intervention from Gail Vaz-Oxlade you’ll discover past behaviour is too difficult to change.

I agree in principle, “it’s never too late” to start something in life. Age is just is a number in my book. Yet if you want a modest retirement comparable to the middle-class freedoms you enjoy today; new cars every few years, iPhones, last-minute trips to sunny southern destinations then you better start saving long before age 50. If very little has been saved up to that point, unless you’re on a gold-plated defined benefit pension plan with 25+ years of service, I think age 50 is too late to turn your financial ship around. Programs like Old Age Security (OAS), Guaranteed Income Supplement (GIS) and the Canada Pension Plan (CPP) will put food on the table but it won’t provide you with the freedoms you’ve become accustomed to.

In closing, our plan is to continue saving, what we can, when we can. We’ve got a heavy mortgage to pay off and besides that, debt freaks me out, so I don’t want to look back at this article 15 years from now and wonder why I didn’t take action sooner. Every little bit counts.

Please take a few seconds to vote for My Own Advisor at Modest Money’s Top Canadian Investing Blogs Poll! Thanks for including me in your list Modest Money.

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Market Efficiency: A Glaring Oversight In Passive Strategies

Passive investors have been allowed to define active investing for active investors. I want to even out the discussion from an active investor’s perspective.

How Passive are Passive Investments?

Let’s first call into question whether passive investing is really passive investing. We’ll start with the American S&P 500 index.

Unbeknownst to many investors, the S&P500 index is picked by committee. This sounds somewhat active, but I am willing to let it slide for now. The index includes “the most widely-held” companies on the US exchanges. Seeing as active management controls the majority of funds on the market, the S&P 500 holds the stocks active investors prefer.

The same is true with Canadian indexes. Take the S&P/TSX 60, an index that frequently appears in passive investors’ portfolios. The index holds the 60 largest stocks by market capitalization. The largest stocks by market cap are, by necessity, stocks owned by most active investors.

Thus, passive indexes are propelled by active managers. The difference between active and passive funds is the cost – holdings are virtually the same by nature of how the indexes work.

Taking Research too Far

I have no problem with any claim that the average actively-managed mutual fund will lose to passive portfolios. The market indexes and all active managers essentially hold the same stocks. Active managers charge higher fees for largely the same exposure – naturally active managers underperform. This isn’t rocket science. If investments are the same, the lowest fee fund wins.

Passive investors have taken this debate too far, however, to conclude that no one can beat the market averages over a long period of time. Something must be said of “academic” research into the matter…if “academic” researchers were to find a way to beat the market, they probably wouldn’t be academics any more. But I digress…

Here’s the thing: there is a very fundamental difference between mutual fund managers and individual investors. There are liquidity requirements, diversification controls, and a slurry of rules and business realities that push institutions to favor a portfolio that looks much like a broad market index.

But most importantly, individuals do not manage large portfolios.

You Don’t Have $1 Billion

Passive investors like to say that since well-trained portfolio managers from Ivy League schools cannot beat the market, the individual investor absolutely cannot.

But there are really two different stock markets.

There’s the market professionals participate in – firms with market caps of $1 billion or more. Then there’s the market that professionals do not touch – firms with tiny market caps of less than $1 billion.

Right now, 50 analysts watch Apple’s every move. 50 people – there is very little wiggle room for an independent thinker to do better. Apple is just one company, though, and there are 3,100 other companies with absolutely zero analyst coverage. Nearly one out of every three listed companies opens new stores, builds new factories, or reports earnings without a single professional listening to the news coming from the company.

As for who is doing the buying and selling in these small companies, it’s almost entirely individual investors and occasional rebalancing action from an index fund. Brainless indexes making rules-based transactions, and individual investors with no real training in securities analysis, are not a market that lends itself to efficiency.

Some Examples

This post would be nothing without proof of the opportunity available in small companies – companies too small to attract professional asset managers. In the past few years I’ve found several high-quality companies hiding in the micro-cap segment of the market. I just had to look.

One was a health care company by the name of Metropolitan Health Networks. It consistently increased profits, cut expenses, and traded at a very, very low multiple to its forward earnings. It wasn’t until the company, worth $200 million in the first half of 2011, purchased another company that it attracted the attention of Wall Street analysts and mutual fund investors.

Sharks are hard to find until there’s blood in the water, but they come quickly when blood appears. From October 2011 to June 2012, top mutual fund shareholders (almost entirely new funds that never had an interest in the company) increased their stake by 300%, and the stock rallied by 109%. Nothing of material importance changed in that time – the company simply landed on the radar of more qualified investors.

I should note that MDF’s acquisition was of another company in my portfolio at the time, CNU. It was valued at roughly $300 million, and MDF paid a 30% cash premium plus shares for the firm before the combined entity rallied considerably. I was essentially paid twice on the transaction – once in the buyout, and once more when the combined firm attracted institutional investors. It just goes to show how much inefficiency can be found in smaller firms.

These aren’t risky, speculative pharmaceutical stocks, mind you. They provide basic medical services to patients with a particular insurance company. But because of their size, and size only, Wall Street had yet to go looking for them.

Another company is an excellent case for market irrationality. For several quarters over the course of two years it sold for less than net working capital. You need zero financial experience to know that purchasing a profitable company for $1 million when it has $2 million in the bank is a very good deal. A golf company, Adams Golf would later sell out to Adidas for a 127% return in 17 months. Those that got in even earlier saw 2 year returns of 200%.

The buyer? A giant in the space – Adidas!

The Key Detail

All of these companies were worth less than $250 million at the time of my investment. They’re “too small” for institutional investors – professionals. Few portfolio managers could justify watching a $250 million company when they have billions of dollars to manage. Thus, information is “priced-in” by people who have limited academic or experience-driven expertise.

For ordinary people like you and me – people who do not have billions of dollars to move around – these market caps are more than adequate. And it is in this inefficient market of smaller companies that individuals have the greatest edge on professionals because there are no professionals to beat.

In short, the biggest companies are usually very rationally priced. There is a very efficient market for shares in Apple or Exxon Mobil. Assuming all of the market is rationally priced, however, is to completely ignore that more than one-third of all listed securities are not even on the radar for institutional investors. That detail alone should discount entirely the belief that the markets are always efficient, and that out-performance can come only from greater risk.

(For those who have any interest in examining smaller companies, I’ve put together a basic FAQ for active investing in smaller companies.)

This article was written by JT who blogs about finance at MoneyMamba.

Source: http://www.boomerandecho.com/market-efficiency-a-glaring-oversight-in-passive-strategies/

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Football, Heat, Drafts and Sunday’s Best as well

Euro 2012 is getting down to it, with an interesting metaphor for the entire Euro Financial meltdown, when Germany smashed Greece (hey, someone had to point that one out). Football as a metaphor for finances? Whodathunkit?

It has been hot here in Ottawa, but may start cooling off in the next few days (we can hope), lots of plants are looking burnt, as is my grass. The Lawn fix it services keep coming by and asking me if I want to buy their services, I have a stock answer, “… does it look like I give a crap about my grass?”, they usually go away quickly after that.

The NHL Hockey draft has come and gone as well, and now we have to ask, “Who screwed up the most?”. The thing with the draft is it is a lot like a financial plan, you can’t tell whether it was any good for a few years (gotta love those sports finance metaphors).

On the Twitter feed we eclipsed 1100 followers, which is cool, but it does keep going up and down (so I guess folks follow for a while, and then unfollow). Sorry if you have left, hope you come back one day, but I did bring back some oldies buy goodies from the archives (they are marked (OBG) if you are curious):

With Fathers and Money I reminisced about my Dad (who passed away last year), parents do actually teach their kids a lot about money (even if they don’t realize it).
With Computer Virus Scan is it a Scam? I point out that the whole computer virus game is a bit of a mug’s game, but what can you do about it?
You know you are really secure when Your Shredder Overheats, but maybe you should do it in smaller loads?
Men’s Health brings up the point that if it wasn’t for Viagra a lot of men would NEVER go to the Doctor.
What would your answer be if I had a Trillion Dollars (to paraphrase our friends at the Bare Naked Ladies)?

Remember to check out the Twitter feed, and various other Social Media places where I live (including this page on Facebook as well).

You keep seeing the TLA ETF appear and wonder what we are all talking about? That’s OK, I only found out because the N.C.F.B.A. explained it to me (in mono-syllabic (or less) words). Here is a good video from Khan Academy to help you with the concept(s):

Football, Heat, Drafts and Sunday’s Best as well is a post from: Canadian Personal Finance Blog and follow me on twitter as well: Big Cajun Man, daily updates from all over the Blogosphere. Subscribe to my comments feed as well!

Your advertisement could be here, contact me for info ?subject='RSS Advertising Query'">Big Cajun Man

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Glenn Greenwald and Jay Rosen.

Is the old media sustaining the old politics? News and analysis with NYU journalism professor and PressThink blogger Jay Rosen and political journalist and Salon.com blogger Glenn Greenwald.

Source: http://feedproxy.google.com/~r/bmjvodcast/~3/hPHAhHP_rVw/profile.html

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Barnes & Noble's Week: A Disappointment With a Sequel

Filed under: Technology, Earnings, Microsoft, Barnes & Noble, Books

It's been a rough few days for Barnes & Noble (BKS).

Shares of the last major book retailer standing rose on Monday as reports indicated that Microsoft's (MSFT) press event scheduled for later that day would somehow involve the software giant's recent partnership with the Nook.

It didn't. We now know that Microsoft's Surface announcement was all about the company entering the tablet hardware market on its own.

Then we arrived at Tuesday morning's painful quarterly report.

Booking a Loss

Analysts were expecting a deficit of 93 cents a share in the superstore chain's fiscal fourth quarter, an improvement over the $1.04-a-share loss it reported a year earlier. They were also holding out for an 8% uptick in sales.

Barnes & Noble let investors down on both fronts, posting a deficit of $1.08 a share on essentially flat sales growth.
The top-line disappointment is a bit of a shocker. Sales at its stores and at its BN.com website rose a mere 0.5% even though the company is no longer competing against the recently liquidated Borders for book lovers.

But I don’t like roller coasters! I like carousels.

What I feared has come upon me… ~ Job

(JOB. Coincidence? I think not.)

	Target bal		Current/	Portfolio	Gain/(loss)	YTD	Annual
Dec-11	209,769	Invested	Actual	Gain	less inv	%	%
Jan	217,292		217,288	7,519	7,519	3.6%	43.0%
Feb	224,815	5,000	224,808	15,039	10,039	4.8%	28.7%
Mar	232,338	15,000	235,273	25,504	5,504	2.6%	10.5%
Apr	239,861		235,568	25,799	5,799	2.8%	8.3%
May	247,384	5,000	227,578	17,809	– 7,191	-3.4%	-8.2%

Potential blog titles for the next post:

Stop investing on eggshells: Taking your money back when the market has borderline personality disorder
Too good to leave, too bad to stay: A step by step guide to help you decide whether to stay in or get out of the market
Codependent no more: How to stop thinking that you control the market and start doing… something else…?
How to be an Adult in Investing: The 5 keys to mindful money when you feel like throwing a temper tantrum
Rescue your retirement: Changing the 8 dumb attitudes and behaviors that will sink your portfolio
Coming unglued: Why your portfolio stinks and and how to live through the ending of yours
Why can’t you read my spreadsheet?: Overcoming the 9 toxic thought patterns that get in the way of a profitable relationship

I have to go listen to Al Pacino and Nick Vujicic now with that depressing druggie movie song playing in the background: Requiem for a Dream. How apropos.

Re-reading Daniel Kahneman’s “Thinking: Fast and Slow” – particularly the part about myopic loss aversion would probably be a good use of time.

Source: http://singlemomrichmom.com/but-i-dont-like-roller-coasters/

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Are You Ready for Jim Flaherty’s Latest Mortgage Rules?

The Canadian housing market has been hot for awhile now, and there is speculation that the real estate bubble will pop soon. The government seems to be on a quest to cool things down and Finance Minister Jim Flaherty seems to be relishing the role of slowing things down a bit. Yet again, he is changing the rules when it comes to mortgages insured by the CMHC.

What are the New Rules?

Starting on July 9, government backed mortgages will have a maximum amortization of 25 years, down from 30 years. Additionally, you can only take out 80 per cent equity when you refinance, as opposed to 85 per cent. This will make it a little harder to get into more debt than you can handle, at least when it comes to your mortgage.

There are have growing concerns in Canada about the growth of household debt, and what an over-leveraged consumer base could suffer if the global economy tanks again. Additionally, there are hopes that the move to reduce amortization (automatically forcing many borrowers into higher monthly payments) will help reduce home prices. Borrowers are expected to look for lower priced homes, since the shorter amortization period means that they might not be able to afford the higher payments on a higher priced home.

In economic terms, this move is a lot like raising mortgage rates a little less than one percentage point. The Bank of Canada hasn’t been quite ready to raise rates and curb the economy, and this is one solution that might help Matt Carney avoid the need to raise rates. The new rules help limit debt, are likely to keep home prices in check, and allow monetary policy makers to keep benchmark rates lower in order to encourage economic growth.

Refinancing debt should also be reduced. Instead of being able to tap 85 per cent of the equity in your home, you can only tap 80 per cent. That means if you have $100,000 of equity, you can only tap $80,000 of it, instead of $85,000. That’s a $5,000 difference in how much debt you end up with. For those who have been concerned about growing levels of Canadian debt, though, these changes are being welcomed, even if it means a slight reduction in spending power.

How Much has Canadian Debt Grown?

While the rate of household debt is slowing in Canada, in late 2011, Canada surpassed the United States in per capita household debt. That’s a pretty significant milestone. And, even though Canada’s economy has weathered the recent storm fairly well, there are plenty who are not convinced that the worst is over. At the very least, there could be another setback.

Since Canadians have been growing their debt levels, they are more exposed to a possible downturn. The move to try to curb some of the additional debt that Canadians might see is one that could potentially help prevent widespread problems for consumers as a result of high debt and difficult economic conditions.

What do you think of the new mortgage rules? Do they make sense? Will they affect you?

Are You Ready for Jim Flaherty’s Latest Mortgage Rules? originally appeared on Canadian Finance Blog on June 25, 2012.

Source: http://canadianfinanceblog.com/are-you-ready-for-jim-flahertys-latest-mortgage-rules/

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How to Stop Low Interest Rates From Ruining Your Retirement

Filed under: Retirement

Wells Fargo low interest rates and retirement Low interest rates have made life a lot easier for many borrowers struggling to make monthly payments. But for retirees, who have to live off their portfolios, low rates have caused huge problems.

A May survey from Gallup and Wells Fargo (WFC) confirmed what many people already know all too well: Low interest rates are destroying people's confidence about ever being able to retire. Fully one-third of those surveyed said that they expect low rates will compel them to work longer and delay their retirement, while 45% of current workers say they think low rates will make it a lot more likely that they'll outlive their money after they retire.

In particular, the survey points to deteriorating confidence among retirees. Last year, retirees were much more optimistic about their futures. Yet with core inflation outpacing rates on bank certificates of deposit by more than a factor of three in many cases, those living on fixed incomes are feeling the pinch -- and will continue to do so as higher prices reduce the purchasing power of their nest eggs.

Gas Stations Are Hosing Debit Card Users at the Pump

Filed under: Energy, Autos, Credit Cards

Debit Cards Feel like you're getting gouged at the gas pump amid rising prices? You actually are if you're using a debit card.

Despite the passage of the Durbin Amendment to the Dodd-Frank legislation last year, gas stations have yet to pass along more than $1 billion in debit card transaction fee savings to consumers, according to a survey released Monday by the Electronic Payments Coalition.

When the Durbin Amendment was under consideration, retailers stressed the need to cap debit card transaction fees to a flat rate of approximately $0.24, rather than allow it to be based on 1.15% of the total transaction, says Trish Wexler, a spokeswoman for the coalition.

"Consumers were used in Washington to get this legislation passed," Wexler said. "There's no evidence they've passed on these savings to consumers. They haven't been able to show they are lowering prices or offering discounts to people who use debit cards."

Crisis Panel to Probe Window-Dressing at Banks

Many of the practices that enabled investment banks to mask deteriorating finances are still being employed.

Source: http://www.nytimes.com/2010/05/05/business/05repo.html?partner=rssnyt&emc=rss

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Friday, 29 June 2012

Why the Supreme Court's Ruling Is a BFD

Joan Walsh, Salon
To borrow the historic words of Vice President Joe Biden, Thursday's Supreme Court's decision upholding the Affordable Care Act was "a big fucking deal" for President Obama. (Or as Democratic National Committee political director Patrick Gaspard tweeted, "It's constitutional. Bitches.") Had the law been struck down, the president's Republican enemies would have been shrieking about the socialist tyrant usurper who'd gotten his constitutional comeuppance by the country's true leaders, the Republican Supreme Court majority....

Source: http://www.realclearpolitics.com/2012/06/29/why_the_supreme_court039s_ruling_is_a_bfd_283596.html

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SCOTUS Ruling Much More Than a Victory

Michael Moore, Huffington Post
Even though it's been a few hours now, I'm guessing you're still pinching yourself to make sure you're not dreaming. But yes, it happened. At 10:07 this morning, the conservative Chief Justice of the U.S. Supreme Court, John Roberts, not only joined with the liberal justices to completely uphold almost every single part of the Obama health care law, he wrote the majority opinion himself! In fact, he went even further. When he realized that the government had poorly made its constitutional case to the court, he went searching for a clause in their argument and the...

Source: http://www.realclearpolitics.com/2012/06/29/scotus_ruling_much_more_than_a_victory_283597.html

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College Launches Solar Energy Research Park

Northern New Mexico College, Espanola, New Mexico has launched an initiative to establish a dynamic Solar Energy Research Park and Academy (SERPA). Its current funding request of $9,000,000 has been introduced in an appropriations bill this legislative session (House Bill 146) and is sponsored by Speaker of The House Representative Ben Lujan. The bill has [...]

Source: http://www.alternative-energy-news.info/press/solar-energy-research-park/

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Sara Lawrence-Lightfoot

Bill Moyers speaks with one of America's leading educators and author of THE THIRD CHAPTER: PASSION RISK AND ADVENTURE IN THE 25 YEARS AFTER 50.

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