Friday, April 18, 2014

What have you done to change the world recently...?

If you are a reader of this blog the chances are that wealth creation, finance, investment banking, real estate or something else to do with money is what you are interested in.  I am completely in that camp as well and working in finance and writing about finance all day long often has me wrapped up in a bubble that I rarely step outside of.

Occasionally I decide to stick my head outside this bubble...

I stop thinking about capital generation, wealth preservation and the enjoyment of life that comes from that (i.e. holidays, a nice apartment, dinners etc) and start thinking about other things in the world around me.  Invariably this takes me down two paths: I either think about politics or I think about charity.

When I think about politics I almost always end up depressed and disenchanted.  The people with the most ability to affect change in our world seem focused on their own goals and interests and caught up in their own 'bubble'.  This is not always true and occasionally you'll see something really great come out of politicians.  But for the most part we seem to be disappointed with the lack of progress that we desire.

The other path I take thinks about the difference that each and every one of us can

Wednesday, April 16, 2014

Money and relationships: Communication, Communication, Communication

When I was a bit younger I confess that communicating about money was the last thing I did in a relationship.  It didn't feel like one of the important things you needed to focus on.  It was not that I was 'the shallow guy' - looks weren't the things I focused on - I focused on how nice the girl was, how she treated me and how she treated others (you know those soft things you're told that you should focus on) but I never really talked about money.

As I'm getting closer to proposing to my girlfriend and settling down and getting married and all the expenses that come with that I have started communicating more...and I've realised just how important it is to get on the same page.  It's not that my girlfriend and I had vastly different expectations about our financial life - to the contrary - we were more alike than I first imagined but communicating allows you to to work together towards your financial future.

Some of the advice below I have muddled my way through and worked it out on my own while others is a compilation of advice from my older (and wiser) couples who have a great working relationship when it comes to finances.

Why is communicating about money important?

There are several reasons why communicating in an easy and open way about money is important:

  1. It means that there are no mismatched expectations
    • When yours and your partners expectations are not met financially it can lead to a lot of tension
    • If you are the saver for later in life and to set you up and you partner is living in the moment and spending you can feel like you are bearing the weight all on your own while they can feel like you're a miser and holding them back
    • Communication and compromise is the key - work out what you're willing to compromise on and make it work.  
  2. You can help each other achieve your goals
    • You may actually be surprised when your goals line up pretty well with you partner's even when you didn't expect it to
    • I have been wanting to start a small business for a long time and after chatting to my partner about it recently I found out that it is something she has thought about doing for a long time too and we are now actively working on something together
    • My partner is not at all interested in finance - I can see a little part of her die whenever I start talking about it - so I extended that assumption to small business as well but I couldn't have been further from the truth
  3. It can bring you closer together
    • A natural part of discussing finances is discussing goals and objectives - when these become share goals or shared objectives it can bring you that much closer together
There are many more reasons that talking about money is important but the ones above are the ones that really stood out to me.  If the older (and more experienced) readers of this blog would be willing to add more advice for the less experienced readers (like myself) that would be much appreciated!

...But how do I bring up the topic of money with my partner?

Starting the conversation is often the hardest thing.  This is the way that I had recommended to me and it is also the way that I started talking about money with my girlfriend:
  1. Start the conversation about life goals and plans
    • It is really really hard to start talking about money straight off the bat
    • Most often, money is just a means to an

Monday, April 14, 2014

Coming soon: Application and Interview Guides for Investment Banking

One of the best things about writing a blog is that I get to share some of the information that I have gathered over the years which may be of use to other people.  One of the very few problems that I've come across as my blog has gotten on is how to organise and order the information on this blog - as of April 2014 this blog had more than 450 posts.

One of the most popular areas of this blog, as evidenced by the page views as well as the number of emails I receive on the topic, is the section on Investment Banking.  My stint (for 3 years) as an analyst in an investment bank was incredibly revealing and I have a lot to share on the topic.  

As such I have decided to, and am currently in the process of writing a series of e-books on the various investment banking topics that seem to interest people.  The first few e-books will cover the application process for investment banking - that is how do you actually write a decent application for an investment bank.  I have written blog posts on this in

Friday, April 11, 2014

Equality of opportunity not equality of outcome

Recently when I was trying to avoid actually doing work I was wasting a fair bit of time on Facebook.  I have a strangely diverse group of friends on Facebook some of whom are right wing and some of whom are very left wing and it is always interesting to see the articles that people are sharing.

Recently one of the more right wing people put up a video from a US talk show (I think it was on Fox News) where they were espousing the view that in a fair and equitable society that we should all have equality of opportunity and that equality of outcome is actually inequitable because it does not reward effort and hard work.

I have to admit that at one basic level this is an incredibly tempting point of view - who of us has not hated paying taxes, especially when we see how some of it is wasted?  Especially when we see people mooching of the system and then wanting to tax us more even though we are working stupidly long hours and not really getting to where we want to get to.

However equality of opportunity is not as basic as you may think

The problem with the 'equality of opportunity' mantra that is often spouted by right wing pundits is that if you were truly interested in the 'fairness' of the system and making hard work and effort the primary determiner of outcomes and success you would be most interested in making sure that people started at the same point.

People start at different points and have different advantages and disadvantages due to not fault or skill of their own.  If you live in a first world country you already have so many advantages that others around the world do not have.  Then if you are lucky enough to be within a social structure that allows you all the possible opportunities you are most able to make your effort count.

If you are outside such social structures you are not

Wednesday, April 9, 2014

Raising the rent on your investment property

Regular readers may have noticed that I have not written about investing in property for a while.  This is because once the initial work is done the amount of effort it takes to manage your property is largely a function of how involved you want to be.  I want as little involvement as possible and this is the way that it has panned out.

However, even if you are a low involvement landlord, one thing you will need to think about is when and if to raise the rent.

Keep on top of your contract renewals

In a previous post I wrote about how you should keep on top of your contract renewals.  One of the main reasons that you want to do this is that it provides an opportune moment to review what your tenants are paying and consider increasing the rent.

The process for setting the rent at this point should be pretty similar to when you first got the tenants into the property.  However make sure you take advice from your agent.  Your agent will often tell you whether you can increase your rent and if so by how much.  Sometimes, if the market is particularly soft, the agent may advise you against increasing your rent at all.

You shouldn't follow your agent's advice blindly

It is a reasonably tough rental market in Melbourne for landlords.  For the last few years, every time I've had a contract renewal come up the agent has advised me to keep my rent flat, and given the circumstances I have agreed.  Note that I haven't done this blindly - when I moved out of home I saw how easy it was to negotiate better rent with landlords or for repairs and work that they would not normally do.

However sometimes you have to back your own judgement.  I hadn't raised the rent on my investment property in 3 years.  In this time I have had the same tenants and I have largely agreed to all the maintenance (albeit minor) that they have requested.  I have also agreed to their request to have a pet.  I like them and they seem to maintain the property well.  It is a good relationship but it is not a charitable one.  After doing my own search on the internet I found that, although my property is not under-rented, it is certainly not far ahead of the market.

Agents often look at how many properties they have on their books versus how many people are coming to view those properties.  They are less nuanced about the

Monday, April 7, 2014

The challenge of tracking your portfolio returns

As you can probably guess from this website - I am a person who likes tracking everything.  I track my financial goals, I track my weight, I track my savings, I track my expenses.  It was therefore rather disconcerting when I found myself wanting to write a post on my 2013 share portfolio return and I was unable to dissect what it actually was.

If your portfolio positions are not static your returns are harder to track than you may imagine

If for any reason your portfolio composition changes, tracking your overall portfolio return becomes a real challenge!  You cannot just take the starting value of your portfolio and then the ending value and then work out what your percentage returns are for several reasons

  1. If you have contributed cash into your share account then your returns are going to look a fair bit higher than is really the case
  2. If you have sold shares and withdrawn cash then your returns are going to be depressed
  3. Any dividends that are not re-invested should count towards your returns however are not going to be using this method
  4. Transaction costs should factor into your portfolio returns
All of these challenges are surmountable however if you try and do it in hindsight it is close to impossible.  I tried to do it for 2013 so I could write a post on my 2013 portfolio return and after a day of effort I realised that it was just far too much effort.

If you want to track your portfolio returns therefore, you need to set up a method of doing so at the start of your tracking period which takes into account all of the issues above.

Treat your own portfolio as a fund manager may treat theirs

The best way I found to

Friday, April 4, 2014

Whose priorities matter when corporations donate large amounts of cash?

Yesterday Westpac Banking Corporation (ASX: WBC) announced that it was donating $100 million towards setting up an IT educational scholarship which addresses the lack of females in the IT industry [Edit: The focus of the foundation appears to be much more broad than the news reports originally suggested - I actually support much of what they are doing personally but my comments about the agency problem identified in this article still stand].   As you can see from the attached article, the press loves feel good stories like this and it is almost reputational suicide to publicly stand against a move.

However I am against the very concept of donations such as this.  This is not because I am against donating to charity - indeed I support several charities and micro finance organisations including The Cancer Council, Kiva, Catholic Mission and the Fred Hollows Foundation.  I think charitable donations are a great way to benefit society and save tax at the same time.

The role of corporations is to act in the best interests of their stakeholders

The board and management team of a corporation are charged with acting in the best interests of their stakeholders.  Although some define the stakeholders quite narrowly - i.e. only shareholders - I have a more broad view and believe that corporations should act in the best interests of all of their stakeholders - i.e. shareholders, employees and customers.

Therefore, unless an action is in the best interests of the stakeholders of the company - i.e. the shareholders, employees or customers then it is not their role to donate this cash.

If we use the Westpac example above:

  • This is clearly not in the interests of shareholders
    • They are giving away a huge amount of money for no tangible benefit to shareholders
    • Corporations often argue a fluffy point about goodwill but this is not measurable and is fast forgotten
    • It should always be remembered that this is the shareholders money that is being given away
  • They are not acting in the interests of employees
    • Employees are not the ones getting the scholarships nor does the employee base benefit from these scholarships
  • They are not acting in the interest of customers
    • It is a really long bow to stretch to suggest that the promotion of education benefits customers
      • As a side note I actually found it incredibly difficult to argue against this setting up of this foundation because I admire so much of what it actually stands for and is trying to promote

Some people make the compelling argument that corporations are the only actors which can bring enough clout to an issue to make a difference.  In the modern world they control the largest pools of capital and these pools of capital can be brought to bear in a way that makes a difference.  Whilst this is true there is a massive agency problem that happens - in this world of limited resources and unlimited problems, who determines where the corporations donate their shareholders' cash.

Corporate donations further the interest of management teams...not shareholders

If you look at corporate donations and the charities they donate to - it is invariable the charity that the CEO or Chairman support.  They have a project that they believe is worthwhile and they use their power as the head of a large organisation to further their own