Investing Is Like A Skill Based Game

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The more I think about it, the more it’s obvious that investing is like a skill-based game!

Like any skill-based game, the more you think about and practice with it, the better you become (hopefully).

I’m finding that in many ways investing is very similar to a game such as Risk, or even Chess.  Investing involves losing money as much as winning money. Much like skill-based games like Chess, you lose pieces, but sometimes you have great gains with one piece, and sometimes you hold onto that piece until the end of the game ends or at least for a long time.

A lot of people lose some money with stocks and get disillusioned with the entire process and quit.  But hardly anybody wins all the time with the stocks that they purchase.  It’s a matter of experimentation and experience.  I’ve had 6 bagger (stocks that increase their value 6 fold more than the purchase price), and I’ve had stocks that went to 0 (painful, but luckily it’s been just a few).

I’ve learned to look at more than just the financial statements, and I’ve learned to look at more than just the stock story.  I’ve seen some companies with incredible products that were brilliant go broke because the product was too expensive compared to competing products.  I’ve also seen a few stocks with rock solid financials but later it was revealed that the books were cooked, or at least questionable.  I’ve also seen a few stocks that were solid financially for many years, and that are now on the decline because of a changing business environment (think Pitney Bowes).

I’ve also learned that the management team (and especially the CEO), matters!  Look at Apple after Steve Jobs passed away for confirmation of a stock that looked like it would continually go up, and now has fallen quickly and some even believe has a questionable future.

I’ve also learned that I can’t do it like Warren Buffett.  His system is best done by him alone.  Considering he doesn’t even have a computer in is office at work really demonstrates that I won’t even invest like him.  That said, there are definitely techniques that I can learn from Warren, but in the end I would have to come up with my own system.

I have learned to diversify my stocks, and only put so much into each stock investment.  If I think I’m pretty sure a stock is a winner (much like Baidu was), then I invest more in such a stock, but those opportunities are rare for me.

I’ve just scratched the surface, there are many other facets to consider, such stock rotation during the year and other ever-changing strategies…

Bests,
Don

Are We Financial Serfs?

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Back in the middle ages and medieval times, most of the feudal European population (roughly 90% or 95%) were serfs of some sort or another. Serfs is an aggregate class name for a lot of smaller classifications, like pheasants and even slaves. Life was different back then, and financial interest of any sort was outlawed by the church, so the magic of compound interest didn’t exist so opportunities to grow money were constricted. Without a way to invest money, either you had it in a container hidden in your one room house or is was collected as part of taxes that your superior took.

So how did the serfs make money? Their lords didn’t pay them money, although the nobles did let the serfs use the land that the nobles owned… In fact, the nobles mainly took their stuff like an ant sips the sweat off of an aphid bug. The nobles let the serfs keep some of the food to survive on, and some were even able to sell their food to merchants (the very small middle class back then, less than 9%) for money. So some of the serfs had money, but without a way to make it grow, they were still very limited.

Serfdom

Now the kicker is that although we have more opportunities since interest isn’t illegal anymore, wealth distribution isn’t really that much different from what it was like in the old days, sort of. I can imagine the net worth of individuals back then being practically flat until about the 95% of the population. Then at the 95% of the population line, the line slopes up dramatically, probably much like the wealth line does for the 1% vs the .01% today.

The difference is that today we own land and have our own houses, so this means that the wealth line is much more gentle slope than the dramatic rise of the middle ages. Equity in houses, not matter how many renters claim otherwise enables the bulk of us to have at least a little wealth!

So are we financial serfs? I don’t think so, but we’re still not that much better off except for the equity in our houses (at least for the majority of us). I think that a big part of our problem is that we aren’t raised financially savvy and shy away from investments of the financial sorts.

Bests,

MR

Retirement Rich But Life Poor?

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I’ve been thinking about my financial strategy for the present and future. Not having anybody to ask about my investment strategy, I have to rely on myself to see what needs done (this is part of the reason I blog, to help others through my experiences). I now realize that I’m on a path to live Retirement Rich but Life Poor.  I want to tweak my investment strategy a bit so that I’m on my way to have a better life by focusing on the present instead of trying to be Retirement Rich.  You don’t hear many people write about saving too much for retirement, but that’s exactly what I’m currently doing!  Here are my financial strategies and thoughts:

My Current Financial Strategy

At the beginning of the year, I noticed that I had more deductions from my paycheck than I received in disposable income versus last year’s paycheck. So “taxes+401k contributions+health insurance+other” was greater than what I had left to spend. So if I made 50k, 26k goes to deductions from my paycheck, while I only receive 24k to live on and invest.

I probably spent at least a good hour or two thinking something must be wrong, but after a few months of getting less than 50% of my gross paycheck, and continually doing the math, I’ve come to the conclusion that my paycheck is correct.  I knew that I was putting a lot into retirement and other things, but geez…

Let me list out the deductions that are killing my paycheck?

  1. Taxes, no mystery here…
  2. 401(k) contributions – This year I’m maxing out the amount that I’m allowed to take out.  In fact, I’m overshooting the max amount by $500 because I know that my employer will stop my contributions once I hit that maximum.
  3. Roth IRA – This year I’m maxing out this amount too.  Previously, I’ve been doing experiments with this account and actually did great.  Read my article called “My Roth IRA Has An Annual Growth Rate of 52.75 % Since Inception” if you are curious, or perhaps the title is enough!
  4. 529 Contributions – I contribute over 4,000 a year to 529 plans, this takes a respectable bite out of my paycheck too.
  5. HSA Contributions – It seems those of us with jobs are all supporting ourselves now after the Affordable Care Act. Maybe net good, but individually painful?
  6. ESPP Program – This is my shinning deduction that actually increases the amount I gain each year by $2,000!  I wish I had more deductions like this one!  Still is puts a monthly strain on me all the same.  If your employer has an ESPP, and you don’t know if you should participate, read my article called “Getting Over 15% Return By Saving Money In An ESPP“.  I highly recommend participating in an ESPP if you have the opportunity!

Okay, I haven’t even got to the meat of this post yet, but I feel obligated to present some of the “Life Poor” elements of my finances.

A Look At Retirement Saving

Because I’m spending at a subnormal level for the amount that I get paid, this allows me to max out my retirement contributions.  After all, that’s what everybody says is the “Smart” way right?  I use to believe that too, but now I’m not too sure, here’s why.

  1. I’ve read too many stories about people who were too frugal and until they died, they lived like a hermit hardly ever leaving their house.  I’ve even read that some would eat out of their neighbors’ garbage cans.  Yeah, they had millions when they died, but I don’t want to live that way to get there.
  2. Let’s face it, when you are old, you aren’t going to go clubbing or to concerts or be active in sports or really do much of anything that involves moving fast or getting very excited.  Why be rich with nothing to do?
  3. Someday in the future, the government may decide that such retirement accounts are easy targets to raid and steal from.  One never knows…  Some say look at Social Security and Medicare and the state that those programs are in.
  4. Death and Accidents happen.  You could be saving like a fiend in your retirement account, then some freak accident happens and you are dead.  Or you get some incurable cancer, or some injury severely affects your mobility so that you are trapped in a wheelchair (Christopher Reeves for instance).
  5. You might get scammed and lose it all.  Don’t believe me, ask any Bernie Madoff victim or Worldcom investor.

So what should I (we) do?  Maybe go to a fortune-teller?  No, instead create a balanced financial strategy that involves getting money to present investments and at the same time into retirement accounts too.  The Roth IRA is a good in-between vehicle because you can withdraw your contributions at any time.  It’s just the earnings that you can’t touch.

So in my particular case, next year I’m going to drop my contributions percentage down to 10% for my 401(k), but still, max out my Roth IRA.  Then with the remaining money, I’m going to invest in my regular brokerage account, looking for some golden dividend stocks.  By golden, I mean ones that have the potential to keep growing while still yielding a dividend (maybe Apple by then?).

I’ll have more thoughts on this later…

Don

All or Nothing Blogging

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I’ve been sick for quite a while, but I would like to share a small discovery that I’ve made about blogging.

Blogging is an “All or Nothing” activity for me! I find that keeping a consistent blogging schedule is harder now that I’m “supposedly” only blogging twice a week versus when I would blog each and every day. This is kind of surprising for me, as I thought I would instead create more creative articles to post on this site, but instead I’ve found that other things has taking my time up instead.

Mixed Emotions

Mixed Emotions

Such distractions include the following:

  • Spending more time with my kids!  Of all the options, this has been the most rewarding distraction.  I consider this to be the one distraction that I would stop blogging for permanently.
  • Stock Market theories and experimentation has also grown to take some more of my blogging time.  I feel like I’m going thru a learning phase and if I concentrate hard and long enough, that I can beat the averages by a wide margin.  While this hasn’t happened in my regular brokerage account, I’ve has some decent success in my Roth IRA account (see Roth IRA 50 % Return).  Of all the options, I’m finding I’m concentrating the most in the investments area.
  • Fighting Vertigo.  While I don’t get dizzy like I did this past summer, I still have some effects left over from when I had Vertigo.  Once such effect is a pounding headache when I try to think too long.

The above are the main activities that have replace my blogging time and has made it harder from me to accomplish my blogging goals.

I think once I defeat (or learn to deal with the Vertigo), I’ll obviously use all of that time to plow back into blogging and other online activities.