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  • Buy Google

    I bought some more Google yesterday. Google has fallen from almost $750 a share to $450 a share. Now before some people get excited about how bad that is: until about 18 months ago Google had never been as high as $450 a share. Anyway, I think at this price it is a great long term buy. Time will tell whether I was wise or foolish. FYI, $450 is over 100% above my original purchase price a few years ago. I am happy it has fallen and given me this opportunity to purchase more.

    Related: 12 Stocks for 10 Years Update (Feb 2008) – Is Google Overpriced? – Great Google Earnings (April 2007) – Stop Picking Stocks – post on our management blog on Google

  • Great Advice from Warren Buffett

    Great advice from Warren Buffett. He spoke to students at UTexas at Austin business school and one of the students, Dang Le, posted notes of the discussion online. The internet is great.

    On diversification:

    If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it.

    Great advice. Warren Buffett uses great concentration (little diversification) but you are not Warren Buffett.

    There are $10 billion mistakes of omission that no one knows about; they don’t show up in the accounting. In 1994 we paid $400 worth of Berkshire stock for a shoe company. The company is now worth 0, but the stock is worth $3.5 billion. So now, I’m happy to see Berkshire go down since it reduces the size of my mistake. In 1973 Tom Murphy offered us NBC for $35 million, but we turned it down. That was a huge mistake of omission.
    …
    Getting turned down by HBS [Harvard Business School] was one of the best things that could have happened to me, bad luck can turn out to be good.
    …
    We did an informal office survey by looking at the total tax footprint versus the total income. I earned 46 million and paid a tax rate of 17.5%. My rate was the lowest, the average was 33%, and my cleaning lady paid 40%. The system is tilted towards the rich. The Forbes 400 total net worth has gone from 220 billion to 1.54 trillion, an increase of 7-to-1. You see in legislature that there is lobbying carried on by the powerful over issues such as the estate tax and carried interest for private equity investments. We need to flatten income and payroll taxes, and those making under $30,000 shouldn’t be bothered.

    It is hard to beat reading Warren Buffet’s ideas on investing and economics.

    Related: Buffett on Taxes – The Berkshire Hathaway Meeting 2007 – Buffett’s 2006 Letter to Shareholders – Warren Buffett’s 2004 Annual Report – books on investing

  • Americans are Drowning in Debt

    The story is a bit boring. People spend money they don’t have. But it is hard to ignore the story when it is so important. And so many people are foolishly ruining their financial future. When credit cards put you in jeopardy

    Consumers have racked up more than $2.2 trillion in purchases and cash advances on major credit cards in just the last year. And it’s become a habit for them to spend more than they have. The overall credit card debt grew by 315 percent from 1989 to 2006, according to public policy research firm Demos. To compound the problem, fewer people are paying their credit cards bills on time.

    Please stop. Don’t spend money you don’t have. Don’t think those political “leaders” that practice the same spending money they don’t have financial management are worthy of respect and don’t follow the bad example they continue to set.

    The article gives some tips. I would suggest the tips for using your credit cards I have blogged about earlier. But the main thing is really simple: don’t use your credit card for loans – pay off your full balance every month. Save money for things you want. When you have the money saved, then buy them. This is not rocket science it is pretty darn easy. Don’t spend what you don’t have.

    Related: Too Much Stuff – Financial Illiteracy Credit Trap – Poor Customer Service from Discover Card – Trying to Keep up with the Jones – Raising Taxes on Future Generations

  • A Bull on China

    I recently started reading A Bull in China: Investing Profitably in the World’s Greatest Market and am enjoying it.

    From the Curious Cat Management blog, Decemeber, 2004:

    Adventure Capitalist by Jim Rogers tracked his trip around the world by car. Previously he had documented his around the world motorcycle journey in Investment Biker. His views offer a worthwhile perspective that is often missed, in my opinion. That said I wouldn’t accept his views as the final truth they are valuable as one perspective to shed light on areas that are often overlooked.

    China Wakes, by Nicholas Kristof and Sheryl Wudunn documents their time as Journalists in China (1988-1993) and again offers valuable insight into China. Obviously even gaining an incredibly oversimplified view of China would take a great deal more than one, or even ten books. Still the authors provide viewpoints that I found added, in a small way, to a picture of what China, was, is and may become. I plan to read their book: Thunder from the East: Portrait of a Rising Asia.

    Related: Rodgers on the US and Chinese Economies – Chinese economy and investment articles

  • Another Strike Against Gift Cards

    Gift cards are a bad tool. They are essentially a poor version of money. They are more restrictive than money. They incur fees not incurred when using money. The only redeeming value seems to be they are less socially unacceptable than just giving cash. We should change that attitude. If you are giving cash – just give actually cash not the less useful for of cash that is a gift card.

    The Sharper Image Suspends Acceptance Of Gift Cards Due To Bankruptcy

    After receiving several complaints that gift certificates were not being honored by the store the Consumerist was able to confirm via email with the Sharper Image’s corporate sales staff that the retailer is no longer selling or accepting the cards.

    Related: Customer Hostility from Discover Card – Too Much Stuff – Sneaky Fees

  • Predatory Lenders’ Partner in Crime

    Predatory Lenders’ Partner in Crime by Eliot Spitzer

    For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.

    In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government’s actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.

    But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.

    It is unfortunate when the federal government chooses to strip states of the ability to protect citizens.

    Related: Credit Freeze Stops Identity Theft Cold – Investor Protection Needed

  • 401k’s are a Great Investment Option

    The title of a recent article asks: Are you a sucker to invest in a 401(k)? The answer is an emphatic: No.

    Let’s say you put $10,000 in your 401(k) and invest in a stock-index fund that earns an average of 8% a year. After 20 years it will be worth $46,610. Withdraw the money all at once and you’ll pay $13,051 in taxes, assuming you’re in the 28% bracket, leaving you $33,559 to spend.

    But what if instead you had bought that tax-efficient stock fund outside your plan? Wouldn’t your tax bill be lower? Yes, but that’s the wrong way to look at it. If you skip your 401(k) in favor of a taxable account, you must first shell out taxes on that $10,000, which leaves you with just $7,200 to invest (assuming the same 28% bracket).

    Plus, over the next 20 years, you’ll have taxes on any dividends and gains the fund pays out. Even though you will get a lower 15% rate on your gains when you sell, you end up with $28,950, or about $4,600 less than with the 401(k). A tinier final tax bill can’t make up for having to pay taxes all along.

    This is a very good short simple personal finance article. It explains an issue that might be tricky for some to understand. Those that read it can learn more about personal finance. And it has several points – some of which, I can imagine, might be hard for some to understand. But it does a good job of explaining things simply. And a few points, made well in the article, are often overlooked or under-appreciated:

    tax rates will go up – we are passing higher taxes onto the future by not paying our bills now
    the tax deferral is a huge benefit – often minimized when people discuss the benefits of IRAs
    401(k) employer matches are another huge benefit

    As I have said before, learning about personal finance is a long term effort. If you don’t understand everything in an article that is fine, over the years you want to learn more and more. Hopefully this is a useful step on that journey.

    Related:
    Roth IRAs a Smart bet for Younger Set     – Saving for Retirement

  • Jumbo and Regular Mortagage Rates By Credit Score

    Example 30 year mortgage rates (from myfico.com – see site for current rate estimates). We have posted twice on this previously – August 2007 – May 2007. Since then rates have decreased on 30 year fixed mortgages but jumbo rates have increased significantly.

    FICO score APR May 2007 APR Feb 2008 – regular APR Feb 2008 – jumbo payment/mo May 2007 payment/mo Feb 2008 – regular payment/mo Feb 2008 – jumbo
    760-850 5.86% 5.53% 6.61% $2,362 $2,278 $4,476
    700-759 6.08% 5.75% 6.83% $2,419 $2,525 $4,579
    660-699 6.37% 6.04% 7.12% $2,493 $2,335 $4,713
    620-659 7.18% 6.85% 7.93% $2,709 $2,620 $4,373
    580-619 8.82% 9.22% 9.40% $3,167 $3,282 $5,834
    500-579 9.68% 10.20% 10.37% $3,416 $3,568 $6,336

    Amounts shown for borrowing $400,000 and rates as of Feb 18th (and May 2007). Jumbo payments are based on $700,000. Previously I could see the assumptions on the site which were (but I see no details on the calculated amounts as of Feb 2008): For scores above 620, the APRs above assume a mortgage with 1.0 points and 80% Loan-to-Value Ratio. For scores below 620, these APRs assume a mortgage with 0 points and 60 to 80% Loan-to-Value Ratio.
    (more…)

  • Sneaky Fees

    The use of sneaky fees by service companies is growing

    It’s a phenomenon that Bob Sullivan, who runs the consumer blog “Red Tape Chronicles” for MSNBC, calls “Gotcha Capitalism” – the title of his recent book, which catalogues the growing use of sneaky fees by service companies from banks to hotels to airlines:

    In early February, United Airlines began to charge customers $25 for an extra bag. Some rental car companies charge an airport concession fee if the lot is conveniently located near the airport. A hotel in Las Vegas now bills customers for any item they take out of the minibar for more than 60 seconds, even if it is not consumed. Some bank gift cards lose part of their value if not used by a certain date.
    …
    banks collect up to a 3 percent processing fee for third-party credit transactions. Most of that 3 percent is called the “interchange fee.” That fee has outraged merchants in continental Europe, where credit card use is sparse and consumers are accustomed to debit cards. In December the European Commission won a case against Mastercard that requires it to eliminate interchange fees within the next six months.

    As I have mentioned before the problems of bad practices by financial companies and the unfortunate truth that they force you to be on guard against them tricking you and taking your money. The Curious Cat credit card tips page provides advice on how not to get tricked by credit card companies into paying big fees along with some other tips.

    It a shame financial companies don’t seem to believe in providing an honest service and making a profit as part of provide good value. Instead you have to watch them with the belief they will take you money if they can trick you (through hidden fees, misleading ads…). And it is sad other companies are expanding such anti-customer methods to other markets.

    Related: Credit Card Currency Conversion Costs – Bad Practice: .05% Interest – Customer Hostility from Discover Card – Challenge Those Credit Fees

  • Covered Call Options, etc.

    Options are a tool that investors can use within their portfolio in various ways. They can be used to speculate and they can be used to provide a bit of extra income (with the cost of potentially losing big gains). Mainly they are for more sophisticated investors. Form the Curious Cat Investing Glossary – Stock Options:

    For example, if you own 100 shares of Cisco you could sell a covered call option giving someone the right to buy your shares at a specific price by a certain date. So, for example, they pay you $200 for the right to buy you 100 shares at $1 more than it is selling at right now anytime in the next 2 months. They might chose to do so, in order to leverage their investment as it only cost them $200 to benefit from the rise of 100 shares of Cisco. Of course, if it doesn’t go up in 2 months you benefit because you get to keep the cash and your stock.

    Selling covered call options allows the investor to earn a bit of extra money but they will lose out if the stock shoots up as then the investor that bought the option can buy your shares at the agreed to price even if it now is $5 a share more. Read more on options including naked puts, naked calls…

    Employees may receive options to buy company stock at a Company’s stock at a set price for several years in the future. In general, those options cannot be traded on the market (the employee must keep them or exercise them – pay the strike price to purchase the stock). Why are options such a nice perk if you must pay the strike price? Because they are often good for years and the strike price is set at today’s price (though this doesn’t have to be the case). On the whole stocks go up over time so most of the time the stock will increase in value over the years and the options to buy it at the price several years ago is very valuable. For startup companies, there is often a high likelihood of going out of business in which case the options are worthless, but if the company is successful the options can be worth a great deal.

    Related: Hedging an investment – Books on Speculation with Investment – Google to Let Workers Sell Options Online