Tuesday, March 20, 2018

A.B.L. (Always Be Learning)

I just ordered a book from Amazon, Commercial Real Estate Investing for Dummies. The title pretty well sums up my lack of knowledge on the subject. Last week I was catching up with one of my old friends; they all seem pretty old these days. Since our last phone call, he invested a good portion of his “nest egg” in a small office building located near a county court house in another state. He is happy with the income his property is generating and he is looking forward to watching his investment grow in value. Our conversation peaked my interest. There are really only two ways for the average American to build wealth, the stock market, or owning income-generating rental properties. While I have read a book or two on investing in real estate, my mind always came up with frightening stories that sent me scampering back to index funds and conservative dividend paying stocks.

Closing my eyes, I envisioned buying a small two bedroom home in an undervalued lower middle class suburban neighborhood. My first tenant is a young woman attending a local Bible college. Wait! She falls in love with a biker, who transforms my investment into a crack house. During a gun fight with the local police SWAT team, my house catches on fire and burns to the ground. So far, the idea of renting office space to a couple of legal firms, seems—safer.

I want to learn more about this subject.

My whole life I have wanted to learn more about something or the other. As well as completing two bachelor’s degrees, one with a double major, I have attended 17 for credit college courses funded by my employers on my time, 10 of those classes led to my MS. I have taken a variety of life enrichment courses from calligraphy to the National Guild of Hypnotists’ certification training. In addition, I have studied subjects like investing, finance, comparative religion, Tai Chi, and even a little bit about the law on my own time and dime.

At my age, I have regrets, both for what I have done and what I have failed to do. I am not a perfect person and I don’t live in a perfect world. However, I don’t regret any of the studies I have undertaken over the course of my lifetime. Some of these undertakings, like my BS in Mechanical Engineering, changed my life in a measurable way. Some of my efforts did little but make me a more entertaining guest at the dinner table, but all of them made me a better person and allowed me to live a fuller life.

In the first five years of retirement, I have felt like I have been slipping a bit, not learning enough. I thought about this subject as I went for my morning walk on the campus of my first Alma Mater. It isn’t quite true. My wife and I lost three parents in five and a half years. I have learned a lot about wills, power of attorney, taxes, probate, advanced directives, and hospice care. Now that chapter of my life, one that we will all have to face at some point, is drawing to a close. It still might take up to a couple of years to sort out every last detail, but the heavy lifting is almost finished.

I can face the future, start learning something new about this wonderful world, a world that seems more interesting and alive than it did in the waning years of my career. Neither my body or my brain works quite as well as it once did. I can tell the difference. There was a point in my life when I didn’t tell the same funny story to the same person more than two or three times, but I am thankful to be enjoying good health in a comfortable retirement.

I may or may not ever pull the trigger on my first commercial real estate deal. While I doubt that I will ever become the strip mall king of my new home town, I may, just may, diversify my portfolio into commercial real estate, after I have learned enough about the subject to have an intelligent conversation with someone smarter and more knowledgeable than your servant, the humble author of this blog.

Always Be Learning! Never Stop!

Saturday, March 3, 2018

Yes, There Are Giants In The Land

As the Children of Israel were getting close to the Promised Land, Moses sent out an exploration and evaluation team consisting of twelve spies, one representative from each tribe, to explore Canaan. He wanted an intelligence report containing information on the soil, plant life, cities, and the current inhabitants of the land.

All twelve men came back with the same report. The land was exceedingly wealthy, flowing with milk and honey. They brought back a bunch of grapes that was so large it took two men to carry it, as well as samples of other high quality produce. However, they also saw large fortified cities and the giants who lived in those towns.

Two of the spies, Joshua and Caleb, thought that the Children of Israel would be well able to conquer the land. In fact, Caleb silenced the listening crowd when he said, "We should go up and take possession of the land, for we can certainly do it." Unfortunately, the other ten reported that the land was dangerous, that if they attacked, the land would devour the living. When describing the giants, they said, "We seemed like grasshoppers in our own eyes and we looked the same to them."

That night, after listening to the reports, the members of the community cried, wept, and complained. They were ready for a recall election to get rid of Moses and Aaron, so they could choose a new leader to take them back to slavery and Egypt, believing it a better option than dying in the wilderness, or getting annihilated by giants in Canaan.

So, there you have it.

At times in our life, we are called upon to choose to take on the role of a faith filled spy, a spy filled with doubt and fear, or just an innocent bystander who has to make a decision, "What report should I believe?" It isn't just about invasion planning. This story can find application in many of the important issues of life. Since this is a personal financial blog, consider any given economic situation. The facts can usually be sorted out from the speculations of the pundits. The interest rates, the gyrations of the stock market, the numbers of unemployed, housing sales, tax rates, and similar such information are the report of what was seen in the land.

Now what are you going to do with that information? Are you going to counsel others that, yes, there are some giants in that land, whoppin' big ones, and they live in strong fortified towers? I don't know about your city, but in my city, it seems that banks, insurance companies, and hospital systems own the largest, strongest fortifications. However, no matter what is happening, even during the worst day of the Great Depression, somebody was making money. Are you going to be like Caleb and say, "We can do it."

Or, are you going to report, "The little guy doesn't have a chance. The game is crooked. You can't find a decent job." In the glorious days after the end of World War II when the United States had the only industrial infrastructure that hadn't been bombed into rubble, there were losers, failures, and derelicts who had given up on life.

Most of time, you won't be one of the spies, someone who has actually seen the Promised Land of someone's successful marriage, a man with only a high school diploma, Bill Gates comes to mind, who is a wealthy businessman, or a formerly fat guy who just finished his third marathon, with your own eyes. You will just be one of the Children of Israel listening to the evening news or surfing the Internet out of boredom.

Be careful what you choose to believe. Be careful what words you choose to repeat. The ten men who spread a bad report were cut down by a plague and died before the Lord. The rest of the nation, excluding Joshua and Caleb, were condemned to continue wandering about in the wilderness for another forty years, until all of those who had seen the miracles performed by God on their behalf in Egypt and the desert, yet believed the bad report, were dead.

Of all those present, including Moses and Aaron, only the two, Joshua and Caleb, made it into the Promised Land. My prayer is that you will be one of those who makes it-to whatever financial freedom means to you.

Thursday, February 22, 2018

The Ten Roads to Riches

I think I have read most of the personal finance books worth reading that can be found at our little local library. However, I am always on the lookout for anything new that comes through the door. When I found The Ten Roads to Riches written by Ken Fisher on the recent arrivals shelf, I gave it the once over. To tell the truth I was suspicious. Ken Fisher runs an investment service that is heavily advertised on TV and the Internet. I suspected it would be a thinly disguised sales pitch, but it looked interesting enough to make it home with me.

I was pleasantly surprised to discover it was actually a well written, humorous exploration of nine different ways to become seriously wealthy and one way to financial freedom that was unlikely to make you a member of the Forbes 400, but highly likely to allow you to live a comfortable retirement and leave a legacy to your children. The author includes not only stories about those who have succeeded, but tales of failure that ended up in bankruptcy court or jail.

"Don't you know that a man being rich is like a girl being pretty? You wouldn't marry a girl just because she's pretty, but my goodness, doesn't it help?"
Marilyn Monroe

Thus, the author begins his chapter on how to marry money. Not only is Cinderella looking for a well healed prince charming, but men, like John McCain and John Kerry, can play at that game as well as the gals. It turns out that in today's world, both men and women are calculating the financial condition of potential mates as an important component to increase the potential for future marital bliss. With a sometimes-wry sense of humor that can become a bit tongue in cheek, the author explores the complexity of state divorce laws and the importance of prenuptial agreements, especially in community property states. As in every chapter, the author supplies a short bibliography of recommended texts on the subject. From my knowledge of books that appear on these lists that I have actual read, the bibliographies alone are probably worth the price of a used copy of this book. He ends all his chapters with a brief guide summarizing the contents of that chapter. He begins The Guide to Marrying well with, "Jane Austen told us it is a truth universally acknowledged that a single man in possession of a good fortune must be in need of a wife." Then lists some must dos, like working (or playing) in places where you are most likely to come in contact with rich singles and don't do anything stupid that will land you on the short end of the stick in divorce court.

In the chapter on Inventing Income, using creativity to earn money, the author explores a number of topics, including one that is of interest to me, Writing for Dollars. As a writer, the author recommends choosing another vocation if you want to become wealthy. Even if you grab the brass ring and make the New York Times Bestseller List, as he did, you will not earn enough to become wealthy. His most successful book generated $400,000 in royalties, enough to fund a very comfortable lifestyle for a year or two, but hardly enough to become a billionaire. Taking two examples of spectacularly successful authors, Stephen King and JK Rowling, Fisher sadly concludes that unless your deathless prose can be converted into a two hour movie, it is unlikely you will ever earn enough at your craft to become rich. If you must write, Fisher suggests that you always think, lunch boxes and action figures. A cheap lunch box sells for $5.00. The same box painted with the images of Harry Potter and his magical world can go for $25.00. Every time one of these items is sold, JK gets to dip her beak. That, Fisher concludes is where one can find riches in writing.

The final chapter, The Road More Traveled, covers pretty much the same topics as this blog and a host of classic texts on the subject. Although, the author would recommend keeping a much higher percentage of my liquid net worth in stocks and mutual funds than the amount that would allow me to sleep soundly at night, but if you want to retire with a couple of million in the bank (no-at your broker or his investment service) this is an option that is available to many Americans.

His summary Guide to Saving and Investing:

1)Get a decent job paying a good wage
2) Figure out how much you want/need to achieve your goal
3) Calculate what you need to save each month
4) Now save
5) Make your money work

Of course, the chapter itself explores all these topics in detail that pretty easy to understand. Even when the math might seem a bit obscure to those who didn't have four years of math in high school, the author does a pretty good job of explaining what the formulas actually mean.

All in all, a fun entertaining book that contains enough nuggets of wisdom and paths for the curious to explore, to more than justify the time I spent reading it. I might even buy a copy-if I can get it cheap.

Saturday, February 17, 2018

Because! There Will Be a Tomorrow

Not too long ago, I was pitching the Charitable Remainder Trust (CRT) to a close friend whom I thought might benefit from understanding such a tax avoidance option. In simple terms, the money in your 401(k) has never felt the icy breath of the tax man. The initial deposits from your paycheck, matching money from your employer, interest, dividends, and capital gains have all been growing in a tax free greenhouse. They will remain tax free until you begin to withdraw these funds. Then you will be taxed at whatever rate is appropriate, given your income in retirement. In my particular case, I don't intend to use these funds unless it becomes absolutely necessary. Instead, I plan on allowing the CRT that will contain these funds to start after my death. Then until my wife passes away, she will draw 5% per year from these funds. After her death, my heir will draw 5% per year for the next twenty years. Then all remaining funds, and there should be plenty in the CRT managers are even halfway prudent, will go, tax free, to the charities specified by me. In summary, I hope to leave my wife with an increase to the guaranteed portion of her income in my absence, plan for the retirement of someone from the next generation, and still be a blessing in this unhappy world, long after I have left it.

My friend chuckled, observing that I must know a lot about the future. I assured him that I didn't have a clue about the future, but it was my duty to prepare for the future to the best of my abilities, given the information that I currently possess. He bought that argument and the conversation passed on to other subjects.

Tomorrow will come, if not for you, for someone whom you love.

Which brings us to the wild gyrations of a stock market that lost over 10% of its value in a just a few days, then started climbing again as if that was nothing unusual. The market will go up. The market will go down. The problem is I don't know what is going to happen or when it is going to happen. If I knew these things, I would be placing a large bet on next year's Super Bowl, on the day when I knew I would be getting the best odds.

There are signs that have proven meaningful over more than a century, like the Shiller PE Ratio.

Current Shiller PE Ratio: 33.06 +0.01 (0.03%)

4:00 pm EST, Fri Feb 16
Mean: 16.83
Median: 16.15
Min: 4.78 (Dec 1920)
Max: 44.19 (Dec 1999)

Today, that historic index is in nosebleed territory, screaming that the market is overvalued. At the end of the day, buying shares in a company is nothing more than buying shares in an imaginary future. Will Coca Cola still be selling bottled sugar water or some other nonalcoholic beverages in tomorrow's thirsty world? Will they still be paying their shareholders a respectable dividend? Do you want a piece of that action? What are you willing to pay to play in that game?

What is different today? The world's central banks from the Federal Reserve, to the European Central Bank, to the People's Bank of China have been dumping unprecedented amounts of funny money into the world economy. All that money has to go somewhere, so why not the stock market and real estate? In London, there are whole neighborhoods of highly desirable houses that are mostly empty. They have been purchased by foreign syndicates and shell companies as an investment. Not many people who actually work in London could afford to live in one of these houses, so they sit there, unused, but going up in value. Insanity! But if you are an older Englishman who has owned and lived in one of these houses for a long time, you will be enjoying a luxurious retirement in the suburbs after you sell your home. One man mentioned in this report, traded his small apartment in London for a large farm in the countryside. He was an amoral stockbroker, who didn't much like the man he had become or the life he was living. Now, he earns his daily bread writing about the machinations of dubious characters who live and work in the London financial district.

Because we don't know what the future will hold, it is very important to have a contract with yourself. My contract tells me I should hold about half my money in shares of conservative dividend paying companies and low cost stock or hybrid mutual funds. I should never invest too much in any one company (5%?), or sector (15%?). I have been burned by holding too much in energy stocks when the price of oil took a nosedive. I have also learned that I should stay away from technology stocks, as I tend to fall in love with the technology, rather than the business plan and management of the company producing the technology.

If I am true to my contract, my net worth will increase slowly when the market is headed up, but when it goes down 40%, as it did in 2008, my net worth only drops 20%, and I will have free cash to buy undervalued shares, when everyone else is selling, terrified they will lose everything. This seems to be the best plan I can come up with for a couple still in the early years of retirement with our lifestyle, guaranteed income (pension and Social Security), and investments. Am I right? Who knows? I don't know what the future will hold, I can only make prudent, educated guesses based on the best information I can find.

The rest of it, like the life and death of your humble blogger, lies in the hands of God.

Sunday, January 28, 2018


"Schadenfreude is the experience of pleasure, joy, or self-satisfaction that comes from learning of or witnessing the troubles, failures, or humiliation of another." (wiki)

Schadenfreude is an all too human failing, one that I believe contributes to failure in our own lives and in the lives of our friends and family members.

Who isn't going to laugh when Moe hits Curly in the back of the head with a dead fish? Slapstick is one of the two universal sources of comedy that appear in all cultures on earth from the jungles of Borneo to the caverns of Wall Street. The second widespread source of comedy would be the dirty joke. We are all human.

The more insidious form of schadenfreude has its roots in envy, one of the seven deadly sins. Because we covet every good thing our neighbor possesses, when our neighbor fails, it becomes a source of self-satisfaction.

I have found that achieving anything of lasting value is extremely difficult. On and off, over the course of a lifetime, I have pursued a variety of worthy goals like financial freedom, physical fitness, weight control, healthy personal relationships, and my spiritual path with varying degrees of effort and success. In chasing my dreams of becoming a better person, it seems that at best I take one step back for every two steps I take forward. In 2008, it was difficult watching years of savings disappear into a black hole of falling stock prices. My efforts at physical fitness? Well, sometimes, I just quit, for years. After I hit some kind of wall, morose self-pity can seem to be the most natural response. My efforts at controlling my diet are so pitifully small and sporadic that-I am not currently losing any weight. Am I God's man of faith and power? Don't ask my wife, she knows my shortcomings all too well.

When I can say, "Rise up and walk," on even a semi-regular basis, I will let you know.

What kind of people do you want surrounding you when you are working toward a better life, people who find pleasure in the failures and shortcomings of others, or people who comfort and encourage one another whether in times of success or in moments of difficulty and failure?

When I see someone, who has succeeded in building something wonderful, achieving a goal that is at least something I understand as difficult and praiseworthy, I try to remember, that in most cases, people are rewarded in public for thousands of hours of hard work performed in private. How on earth would it benefit me to gloat when such a person, who just like me wants a good life for himself and those he loves, stumbles or falls?

Even if that person is your real or imagined enemy there is a better way.

"You have heard that it was said, 'Love your neighbor and hate your enemy.' But I tell you, love your enemies and pray for those who persecute you, that you may be children of your Father in heaven."

"Muditā: means joy; especially sympathetic or vicarious joy…the pleasure that comes from delighting in other people's well-being…Mudita is a pure joy unadulterated by self-interest." (wiki)

Buddhism teaches that there are Four Sublime States, compassion, loving kindness, sympathetic joy, and equanimity. Of the four, many teachers believe that highest and most difficult to achieve would be living in the condition of finding pleasure in the success and well-being of others. Look into your own heart whenever you gloat over the sufferings of others-even if they deserve to suffer. What you will find there is dark and burns like fire. When you escape your own lusts and desires for even a moment, like when watching your child learn how to walk, what is there, deep in your heart? How does that feeling compare to rejoicing in the suffering and mistakes of others?

Which state of mind is more likely to be a blessing to yourself and others, as we all deal with the difficulties and setbacks of life in this material world?

One more warning, when you are tempted to indulge in schadenfreude, remember.

"Rejoice not when thine enemy falleth, and let not thine heart be glad when he stumbleth: Lest the LORD see it, and it displease him, and he turn away his wrath from him." (Proverbs 24:17-18)

Saturday, January 27, 2018

Boom and Bust Explained

The economy is nothing more than the commercial interactions of everyone with everyone. The sum total of all these exchanges of value, forced or voluntary, creates consequences, both at the individual and global levels. Over time, you and I create the business cycle.

Conventional wisdom, tells us that during our working years, we should save somewhere between 10% and 15% of our pretax income for emergencies, a down payment on that first home, college educations for the kids, and retirement. There are reasons why this doesn't happen. Most of those reasons, that are a matter of individual choice, involve debt fueled consumption. Debt allows us to purchase more in the present moment without having the money in hand. Multiplied by millions, your Christmas credit card purchases are helping to fuel a boom already juiced by about $1 trillion of new Federal funny money that enters the economy every year.

The stock market is running wild. Unemployment is down. Happy days are here again.

For about thirty years, the national savings rate was somewhere near sanity, even during the wretched decade of the 1970s. During that unhappy time of high unemployment, stagflation, oil shocks, and disco music there were some years I was unable to save at anything near an acceptable rate, but at least I managed to stay out of debt when either my wife or I were unemployed. But, changes were happening in the national psyche. In my childhood, debt other than a mortgage, was a scarlet badge of shame. Try to remember, the first general purpose credit card that allowed the consumer to carry a monthly balance appeared in 1958. Today, debt is viewed as a rite of passage into becoming an adult. Over the course of 60 years we have bought into a lie taught to us by banks and corporations who sell us consumables and depreciating assets, like cars.

However, the time will come to pay the piper. At the individual level, first the consumer saves less than the recommended 10% to 15%. We have many excuses for what we know is unwise behavior. The money I borrow to get a degree in Italian Film Art is an investment that will guarantee my future in the movie industry. Everyone I know has an iPhone10, how can I be expected to live without a $1,000 cell phone that will be obsolete in a year. The cost of our house is more than 3 times our annual income, but it is an investment that will fund my retirement, not an expense. My neighbors all drive new BMWs and Subarus, how can I be seen in public driving a ten year old minivan? Hey, I'm only thirty years old, my salary will increase without pause forever.

I can save tomorrow, but we all know, tomorrow never comes.

Then the consumer will add their debt at a slower level, as their monthly payment burden increases. Finally, consumers are tapped out. They can't add any more debt fuel to the economy, so everything begins to slow down. Business close, layoffs happen, then the repo man comes in the early morning hours to seize your Subaru. Since I left home for work before 5:00 AM I saw the Jerr-Dan tow trucks prowling the neighborhood on more than one occasion. Finally, the foreclosure sign appears on your neighbor's abandoned home.

There are only three things that can be done with debt, public debt, commercial debt, or individual debt. The debt can be repaid. This is painful. The debtor is slave to the lender. I have seen too many young people strapped with student loans that will keep them in servitude to others for decades, before they can begin their lives as free adults. Owing more on a car than the car is worth, happens the moment you drive the thing off the lot. During the train wreck of 2006-2008 couples couldn't sell their underwater home in one city to find a job in a new city, because they didn't have the cash to cover the shortfall.

When the debt can't be repaid, the debtor defaults. It is good to remember that debt that can't be repaid won't be repaid. In a country that allows individual bankruptcy, the lenders go out of business. There is nothing like a widespread bank panic to really wreck an economy. This has happened many times throughout history. Although, I don't know when, it will happen again, count on it. At this point during a business cycle in places like Southeast Asia and India, the borrower can really become the slave of the lender. Do a Google search. Prepare to be horrified.

Finally, if you are fortunate enough to control the printing presses, you can inflate debt denominated in your currency out of existence. I am the proud possessor of a $100 trillion bill from Zimbabwe. When it was legal tender, that would have been enough to buy a stick of chewing gum. Now it is worthless, except as a teaching tool to people like me.

The problem with the last two options is that they generally lead to blood in the streets. Revolutions, civil wars, dirty wars in places like Argentina, and even a World War all had their roots in unpaid debt. Think about that the next time you don't pay off your credit card balance.

Friday, January 26, 2018

You Got to Walk that Lonesome Valley

You've got to walk that lonesome valley
Well you gotta go by yourself
Well there ain't nobody else gonna go there for you
You gotta go there by yourself

This morning, as is my custom, I was listening to a psychologist delivering a lecture on the elements of success, as I sipped my daily cup of coffee. For some reason, perhaps it was my frame of mind, it wasn't working, at least not for me. Losing interest, I began to surf the Internet in another window while the speaker droned on in the background. While looking at some other personal finance blogs, I was reminded that there are no silver bullets, no magic cures. Others can help your progress or hold you back, but ultimately no one, not your friends, neither personal finance gurus, nor politicians have the answers that will release you from accepting personal responsibility for how you choose to live your life.

There is a reason they call it personal finance. It's personal. You can't escape the money equation:

Money In = Money Stored + Money Spent

But how you chose to fill in those numbers over the course of a lifetime is up to you.

You get make the decisions and take the actions that will become your career. You can choose to follow the impossible dream, whatever the cost, you can make the "Great Compromise" that is finding the least objectionable way to earn what you and your wife consider an acceptable amount of money, or become an entrepreneur, striking out on your own quest to earn more money by becoming a greater blessing to your neighbor.

Once your basics are covered, how you spend your money is up to you. After all it is your money. If you want to live in a trailer park, so that you can dine at the finest restaurants in town, that is your business. If making a fashion statement with a pair of $600 shoes rings your chimes, go for it. If you want to give your surplus money away to charity or use it to benefit individuals in need, if you have it to spend, who or what organizations get your money is totally up to you. At this point, let me add that from my personal experience, you can give away more to help others than you are likely to think is prudent or possible.

Some people, like me, choose to place shares in conservative dividend paying companies and low cost index funds in their money stored column. Others prefer income generating rental properties. Some are not comfortable beyond insured savings accounts and Government bond funds. Some bury gold and silver coins in their basements, right under their stores of emergency freeze dried rations and boxes of shotgun shells. How you envision the future, will determine how you prepare for the future.

How you define financial freedom is your decision. It is likely that your definition will evolve over time. I would say, my first experience of financial freedom occurred the month I paid off my mortgage. Suddenly, I had an extra $1,000 to spend or invest-every month! It was exhilarating to be able to dramatically increase the amount of money going into investments and take my wife to places like Hawaii, Santa Fe, and Las Vegas.

I remember the day I understood, really understood, that I had reached my goal, financial freedom. During my annual performance evaluation held sometime back in September/October 2011, I told my boss it was clear that barring a major stock market meltdown, I would be gone by January 2013 when I would turn 62. I suggested that he start training some folks to replace me. Of course, I volunteered to help in this process. Then after the death of my mother in law in the spring of 2012, we inherited enough extra to kick us over the top. At the time, my employer was offering "buy-outs" to encourage old folks like me to take early retirement. In a meeting with my supervisor, I told him that for the first time in my life, I no longer had to work for a living. If he wanted to offer me the buy-out, I would take it. He was horrified at the possibility of that option, so I worked until the day after my 62nd birthday, as planned, since that would be the first day I could retire without penalty to my pension.

P.S. I had enough vacation time on the books to take off the last two months of my career with the Government. Roughly 47 years after taking my first job as a caddy at an exclusive nearby golf course, I reached one of my goals, financial freedom. My prayer is that you will achieve this goal in less than half that time.