Tuesday, June 12, 2018

When is Debt "Good?"

When is Debt "Good?"

Debt can be used as a moneymaking tool in certain situations; this is called leverage. It can be highly risky, but the reward can be great as well.

Consider this example: you learn of a foreclosed house that's available for sale for only $35,000. It's fairly well-kept, and it's in a nice neighborhood, and you think it's worth $110,000.

Since you don't have $35k right now, you borrow that money from the bank, pay 8% interest (that is, an additional $2800), and then mow the lawn and spruce up the appearance a little bit. Then, you list the house for sale for $120,000. You get a buyer who agrees to pay $100,000 for the house.

So in this example, your cost is $35,000 + 2800 = $37,800. Your revenue is $100,000. Your profit is therefore over $60,000. A $60,000 profit that, were it not for the short-term debt required to raise the initial $35,000, you could not have realized.

That's how leverage works, and that's how debt can be "good." Student loans can be considered the same way, IF you can be confident that a profitable job in your field will be available when you graduate.

Wednesday, June 6, 2018

Does Greatness Require Failure?

The Importance of Failure

Q: What do Henry Ford, Emily Dickinson, Thomas Edison, Winston Churchill, J.K. Rowling, Abraham Lincoln, Michael Jordan, and Ludwig van Beethoven have in common?

A: Failure.

Monday, April 9, 2018

Want to Be Rich? Don't Buy a House

How Renting—Not Buying a House—Can Make You Rich

People always say that buying a house is an 'investment,' rather than 'throwing your money away on rent.' After all, a house goes up in value over time. But if you rent, you end up with nothing, because your landlord has all the money!

Good investment? Or black hole of time, money, and worry?
Good investment? Or black hole of time, money, and worry?

Tuesday, April 3, 2018

Chasing Money Ghosts

Dumb luck or smart strategizing?

Update Apr. 17, 2018: This post has been

I'm a fan of Jim Collins, also known as jlcollinsnh after the URL of his blog.

Apparently, Google is also a fan! They hosted him for a Talk at Google in Chicago, which you can view in its entirety on YouTube, right here:

Monday, March 26, 2018

The 11 Best Articles for Your Financial Health (Mar. 2018)

The 11 Best Articles for Your Financial Health (Mar. 2018)

"If instant success is the only option, we will be disappointed 99% of the time."

"...the Western mindset sees a “crisis” as something negative, the Chinese word includes both – the danger and the opportunity."

"...monetary policy is reaching the end of its efficacy...central banks have needed to take more desperate and more frequent actions as those actions become less effective."

"Investments with these five characteristics have been profitable over time, but typically are not very exciting...We are in the business of helping to maximize the wealth of our clients, not the financial services industry."

"The Nightmare on Wall Street is only a spooky story told to drive media ratings."

"As you can see, compounding doesn't really do much during the first few years...The longer your money remains invested, however, the more powerful compounding becomes."

"...there was a hot new company everyone was talking about called the South Sea Company...Sir Isaac Newton noticed, and wanted in on the action. So he bought in...Newton, being no dummy, figured things were getting out of hand and quietly started eyeing the exit even as more idiots were jumping in. He got out...netting a cool 207% gain...He knew this was a bubble. And he knew a crash was coming. But then something strange happened. A crash...didn't come.

"...he bought back into the bubble, KNOWING it was a bubble...when the dust had settle[d], Newton had lost over £20,000. It was Sir Isaac Newton's entire life savings."

"By developing creativity, resilience, adaptability, and perseverance, I was able to...retire decades before everyone else--even people who grew up rich...Privilege makes people soft."

"Innovation is good; financial innovation is bad...the robo[-advisor] industry, looking for extra sources of revenue, is therefore beginning to move away from the passive-investing ideals that excited so many of its early adopters."

"Caplan calculates that at least half of the 67 percent premium earned by the average college graduate can be explained simply by the talent, knowledge, and discipline that they already had when they arrived for freshman orientation. Much of the rest, he argues, is merely a signal to employers..."

Everybody makes mistakes; what's important is that you learn from them:
"A credit card is not an 'income stretcher'...The interest rates will cripple you."

If you're interested in discovering a variety of great blogs, check out this list of great bloggers (including me!): https://websitepromoter.co.uk/finance-blogs/

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Thursday, February 1, 2018

Are We Headed for Another Big Market Crash?

Are we headed for another big market crash?

Betteridge's Law of Headlines says no. But history—and the perceptive blogger Wealthy Accountant—says yes.

Over the past few months, I've been getting a bad feeling about the market. When everybody marvels at how well the stock market is doing, that's not usually a good sign. When dealing with something like the stock market, which is partially driven by irrational speculation and knee-jerk reaction to unpredictable events, the best play is to zig where others zag.

But hey, don't take it from me. Take it from the most successful investor alive:

Wise counsel, Warren Buffett...

Here's a link to the Wealthy Accountant's perspective. He does a good job of telling people not to time the market, but his caution against picking this moment to jump in with both feet is wise.

I left a comment on this article, to the effect that I suspect that a severe correction will occur in 2018. I hope I'm wrong, but the behavioral indicators (combined with the ever-increasing surge in the stock market) are veritably screaming that a downturn is coming.

Ten-year history of the Dow Jones Industrial Average as of January 29, 2018. 
Check out that recent uptick! Looks like the makings of a bubble to me...

And here's a link to one summary of Joe Kennedy's famous (and possibly apocryphal) story. "When the shoeshine boys have tips, the market is too popular for its own good."

I haven't seen any shoeshine boys lately, but I have seen a proliferation of blogs and other Internet "experts." I wonder how long they'll all last if the Dow Jones' 177-point drop of January 29th, 2018 precedes a continuous, month-long drop...

Long-term, my advice has been—and remains—to stay the course. But short-term...well, I'd recommend caution.

It's foolish to put all your eggs in one basket. Doubly so now that the stock market is almost certainly approaching the end of an impressive run!

In a time of exuberance about the market, you should not follow the herd. The greater stability of bonds are probably the better move at the moment.

But after people have lost lots of money and the general attitude about the market is somber...that's when it's especially important to remember that in the long-term, the market always goes up.

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Thursday, January 25, 2018

The $17 Billion Fraud

The $17 Billion Fraud

Almost everybody has heard of Bernie Madoff, the infamous fraudulent "investor" who ran an elaborate Ponzi scheme. You probably have, too; his name was on the lips of a lot of people around 2008-2010, and his scheme was reported often in the news.

Madoff's fraudulent investment scheme was supposed to have been worth $65 billion, which makes this the largest fraudulent scheme ever perpetrated by an individual! In reality, however, people actually put roughly $17.5 billion of their own money into the scheme; the other $47.5 billion refers to profits that never actually existed and therefore cannot be recovered. [The taxes people paid on these fictitious profits are, of course, not recoverable either.]

Attorney Irving Picard is trying to recoup the $17 billion that investors put in. ABC News reports that, as of February 2016, he recovered just over $11 billion for investors who lost money. However, that process is inevitably difficult, as Yale accounting professor Dr. Rick Antle explains.

But do you really know what Madoff did?

Thursday, January 11, 2018

Should You Invest In Bitcoin?

Should You Invest In Bitcoin?

I've spent a while reading about Bitcoin, blockchain, and the underlying philosophy of cryptocurrencies.

Everybody's got an opinion, so I might as well weigh in and hopefully provide some perspective!

Tuesday, December 19, 2017

How to Invest

Investing: The Evidence

Want to get rich from investing?

Perhaps you've tried to read articles like this one and said, "Nope, too long," or perhaps you find the jargon too technical and headache-inducing!

If this describes you, you need to watch these brief videos!

Saturday, December 2, 2017

The Zen of Christmas

The Zen of Christmas

It's a truism of popular culture that everybody is rushing around before Christmas, trying to get the best presents, or the best deals, or both. As the thought goes, people are trying to cram 30 hours worth of stuff into a 24-hour day. Of course, this means that everybody is stressed!

I'm not.

Here's how I avoid the stress and enjoy the holidays!