Investing Curiouscatblog

Category: Investing

  • Retirement – Working Longer

    Retirement planning has some pretty straight forward aspects and some difficult to predict aspects. If you don’t save substantial amounts of money over a long period of time there is little hope for a good retirement nest egg (outside of things like winning the lottery or living off an inheritance). So consistent savings over a long period is normally a requirement. You can get decent estimates like saving 8% of your income from age 30 to age 65 (in a 401k, Roth IRA…) but how you investments perform during that period will have a large impact on your success (as will how much risk you want in retirement, the state of health care at that time, inflation, tax rates, your health insurance…).

    This is a good article discussing some options as you close in on retirement and the financial picture become clearer: Two More Years for a Better Retirement. From Fidelity: Survey: One-Third of Americans Delaying Retirement.

    One alternative to delaying retirement is to start saving more earlier but the overall data shows few are taking that option.

  • Coming Collapse in Housing?

    I do not believe we will have a huge decline in most housing markets see: Housing and the Economy. Still the article below is packed with great information. Definitely worth reading. Other related posts: 30 Year Fixed Rate Mortgage Rates – Europe and USA Housing Price Boom – How Not to Convert Equity – Beginning of the End of Housing Bubble?

    The Coming Collapse in Housing November 17, 2006

    by John Mauldin

    I am convinced that the housing bubble is gigantic and will burst before long with massive implications here and abroad. In fact, it’s the key to the global economic outlook.

    Setting the Scene

    House prices in recent years have leaped well beyond their normal relationships to the CPI.

    Even when the increasing size of houses–the McMansion effect–is excluded, inflation-adjusted house prices have jumped as never before in over a century.

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  • Europe and USA Housing Price Boom

    The booms in Spanish and Irish real estate make the US real estate boom look timid

    Central banks are concerned that recent pursuance of housing price growth in both countries wasn’t supported by fundamentals. The Irish national Bank stated in its latest financial stability report that the 2006 price surge wasn’t expected. In Spain, the Central bank has already issued some warnings regarding credit risk monitoring. The IMF Directors noted “that an abrupt correction cannot be ruled out” in Ireland.

    Cotis from the OECD has acknowledged that several big countries are at risk of a housing downturn: with the USA, France and the UK topping the list. But, given the extreme dependence of both Spain and Ireland on housing, both countries are even more exposed to a sharp correction.

  • Google Approaching $500 and Entering the S&P 100

    Standard & Poors is placing Google in the S&P 100. Google is close to $500 a share today. Here are our thoughts before Google was added to the S&P 500:

    The price of a share of Google stock rose 5.7% to $255.45 today. The stand “explanation” “reported” by the media is along the lines of this quote from CNN:

    Internet shares rose along with Google (up $13.84 to $255.45, Research), which jumped 5.7 percent on rumors that it could be added to the S&P 500. Should that happen, the stock would benefit from index fund managers having to buy it for their portfolios.

    I don’t understand how these types of “explanations” are accepted by the media and their customers. If some investor really was surprised that Google was going to be added to the S&P 500 they shouldn’t be investing in the market, they should just buy an index fund and leave well enough alone.

    If CNN (and the others [MarketWatch Potential index inclusion drives GOOG”], Reuters (via CNBC)… reporting the same story) really believes the increase of 5.7% is due to a rumor that Google could be added to the S&P 500 I don’t know what to think of the other reporting they do. Even when much smaller companies are actually announced as new additions to the S&P 500 and that company’s addition really was questionable (for say anytime in the next year or two) they don’t go up 5% in price. But, if CNN doesn’t believe it, wouldn’t that be worse? It just seems financial reporting is more concerned with finding some explanation even if that explanation lacks almost any merit.

    SmartMoney’s “explanation” was much better: “Google (GOOG) shares shot up nearly 6% to the latest all-time high with nary a provocation.” But if you don’t know anything about investing this seems like SmartMoney don’t know what the others are reporting. I don’t know whether SmartMoney actually made a good editorial decision or they just wanted to vary the language a bit. (more…)

  • Trying to Keep up with the Jones

    People in the USA make a great deal of money. There are many who make huge amounts of money so many who make a great deal think it is unfair they don’t make more. And many of those just decide to buy what they can’t afford. Then they create their own financial weakness.

    Why Living in a Rich Society Makes Us Feel Poor

    Writers from the “personal responsibility” movement, for example, denounce those they consider too weak-willed to resist the influence of other people’s spending. In their view, middle-class families should just spend less and stop complaining.

    I guess that would be me. I don’t mind if people spend what they earn, but I do mind when people that are given huge amounts of money and spend beyond their means and then complain that they can’t have their cake and eat it too. I am not saying that people don’t have to make tough choices but there are hundreds of millions of people alive today that have real tough economic lives. People that want to live beyond their means in the USA and then complain that life is not fair need to realize that yes life is not fair. And the biggest truth is that hey have been given the advantage over most everyone else in the world (yes some small number that happen to live near them may be even richer).

    If they want to spend more – go earn more first. This option, available to most in the USA, is not available to most people alive today. Most people in the USA should be helping those less fortunate than themselves not complaining that they don’t get to buy enough toys compared to this person they see on TV or that they know…

    Charities to consider: Trickle Up – Accumen Fund – Grammen Bank – Habitat for Humanity

  • Is Amazon a Bargain?

    Is Amazon a Bargain?:

    Amazon stocks 1 million unique products in inventory, whereas grocery stores stock roughly 50,000, and supercenters stock around 125,000. What’s more, Amazon sells out its entire inventory 14 times per year, which is more than Costco (Nasdaq: COST), Wal-Mart, and Best Buy (NYSE: BBY), whose inventory turns are 12, eight, and eight times.

    Furthermore, Internet real estate doesn’t require Amazon to make monthly lease payments. But Amazon, in turn, can collect rent from other retailers by “renting” out its virtual real estate. In fact, Amazon made roughly $3 billion last year, or 30% of sales, from outside sellers by “renting” out its Internet real estate to third-party sellers.

    Amazon is a very interesting stock. It is not cheap (on a PE basis) and trying to evaluate what the earning picture will look like going forward is not easy. This article does a good job of looking at some of the interesting questions.

    Related: 10 Stocks for 10 Years Update – Amazon Innovation

  • The Greatest Wall Street Danger of All: You

    re: Born Suckers – The greatest Wall Street danger of all: you by Henry Blodget.

    Henry Blodget mentions two profoundly (though simple) important factors that lead to poor investment decisions: Prospect Theory and Outcome Bias. He lists 7 factors, I find two profound.

    Prospect Theory (more details) essentially states people are eager to “lock in gains” (sell positions with profits to realize gains) and hold losses (deffer selling positions in which they have losses so as not to “realize” the loss). Like many profound ideas the simplicity of the idea undermines the importance. This factor can make a huge difference in investment results. Many of the most successful investors understand the importance of this idea. And they repeat the importance of taking action to avoid falling into the patterns prospect theory predicts.

    William O’Neil (founder of Investors Business Daily) – “Remember, 7% to 8% is your absolute loss limit. You must sell without hesitation – no waiting a few days to see what might happen or hoping the stock rallies back; no need to wait for the day’s market close” page 90, How to Make Money in Stocks: a winning system in good times or bad, 3rd Edition, 2002.
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  • Highest Possible Returns

    fool.com is an excellent site. They offer commentary that is both informative and even better educational. One strong theme they preach is to buy for the big score. Today, one of the founders, David Gardner, has a great article on this theme: The Highest Possible Returns. Period.

    The Wise of Wall Street would chalk up AOL’s 35% annualized gains to luck. “No one can really identify the great companies of the next generation,” they’d say. Growth stocks are too risky, according to the Wise; it’s best to avoid that style of investing altogether and let a Street “expert” manage your investments.

    I disagree. Investing in great companies early on in their high-growth stages, then holding them for the long term, will provide the highest possible returns. Period.

    We call those companies Rule Breakers. Our investment service of the same name seeks out the great growth stocks of tomorrow — the potential AOLs — before the Street catches on.

    I missed out on the IPO for Google, much as he missed out on AOL. Luckily for me, I did buy at $220 (the IPO price less than a year earlier was $85): now it is at $476. Buying after you watch a stock more than double is not easy. My investment experience helps me make that decision today when I likely would have decided not to buy before – thinking I should have bought before it doubled so since I didn’t I wasn’t go to jump in later… I doubt I would buy Google now but I am keeping what I have.

    Related: 10 stocks for 10 years update

  • Retirement Tips from TIAA CREF

    The TIAA CREF site has some valuable retirement planning advice (link updated since some pointy haired boss doesn’t know that web pages must live forever – when are we going to get competent people running web sites?). Take some time to read one of their articles (or read more), for example: Retirement Strategies, a 48 page overview. Yes it requires some time to read but the money involved in retirement is huge. Making the wrong decisions can cost you not $2-5,000 but $100,000, and more, easily. Don’t avoid the steps you need to take to learn cost you.

    The key is to get started. If you are relatively young you are lucky, you have decades to learn more and improve your plan. Don’t wait until you are only 10-15 years from retirement. The early you get started the better for you and the more money you will make by choosing wisely. The documents TIAA CREF puts together make it much easier to succeed. We will continue to point out resource to aid your continual quest for financial literacy. It is a long term project.

  • Click Fraud = Friction for Google

    Fraudulent web click are friction in Google’s business. Fraudulent clicks ad costs to the system without a benefit to the performance of the system. Google’s profit is derived from improving the system (of finding customers for advertisers) and taking a cut of the profits that their system creates. Google makes a great deal of money because their system of matching advertisers with dollars to spend to customers. Google does this through ads on their search results pages and on third party web sites. Google engineers will do whatever they can to find ingenious ways to reduce that friction.

    There have been many stories over the last few years about click-fraud. But none I have seen explain the simple idea that Google is the company with the most to gain by eliminating it (and Yahoo next). They often point to companies suing Google about fraudulent clicks instead.

    Companies like Google run ads on web sites and charge the advertisers for each click (anywhere from a few pennies to several dollars for each click). Advertisers want to get potential customers when someone clicks on their ads, obviously they don’t want to pay when there is no chance the “visitor” is going to become a customer. Obviously, fraudulent clicks are bad and those that engage and encourage such behavior are acting unethically and immorally and should be stopped and punished.
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