Tuesday, 2 September 2014

August 2014 Net Worth: $508,000 and Expenditure Tracker

This post covers my net worth and budget tracker for the month.  This month I suffered only my third monthly loss since I started tracking my net worth more than 3 years ago.  For an overview of what drove my performance keep reading below.

August 2014 Net Worth: $508,000 (-0.4%)


Value% Change
Assets$876,000+0.6%
Liabilities$368,000+2.0%
Net worth$508,000-0.4%


What drove my net worth performance this month?

In my last net worth post (July 2014) I mentioned that I expected this month to be challenging driven  by the fact that I was buying a diamond ring to propose to my girlfriend.  I had hoped to stay even with last month's performance (at $510,000) but in hindsight I was lucky to only be set back one month.

I have provided a break out of the key positives and negatives which affected my net worth performance below
  • Positive factors
    • Almost all the positives this month were driven by the share market
      • My portfolio increased nearly 2% over the month almost entirely driven by my investment in FKP (which I have written about extensively before).  I am currently looking to sell down this investment as it has performed well beyond what I expected.
    • My employee share plan vested and I received the inbuilt profit associated with these shares. 
      • I recently started accounting for the tax owing on these transactions as part of my net worth performance so the gains aren't quite what they used to be!
      • I continued to invest in my employee share plan in this month
  • Negative factors
    • My credit card bill was higher than it has ever been
      • I have a $12,000 limit on my credit card and I was butting up against this limit all month as I paid for the engagement ring on credit
      • Note that I had the cash to back this (I wasn't using debt to buy the ring!) 
      • I was also paying for various trips and holidays associated with the proposals (I had to pay for a flight to visit my girlfriends parents to let them know about the proposal...something I hadn't factored into my calculations!)
    • This month I experienced a significant cash drain 
      • In addition to the big expense above several large expenses fell due this month including my car registration
      • It was actually an interesting experience trying to manage all these expenses without dipping into savings (in the end I had to withdraw $2,300 from savings to cover some expenses)

What is my outlook for next month?

I am going

Friday, 29 August 2014

I lost money on the last Share Purchase Plan...do I try again?

"Fool me once...shame on you;  Fool me twice...shame on me".   That old proverb is ringing in my mind as I try and decide how much money I want to commit to the QBE share placement plan (SPP) that was announced in mid August 2014.

This is not the first time that I have had to decide to participate in an SPP run by QBE Insurance.  The last time was in 2012 and I saw an opportunity to make a nice little profit.  However, as I documented on this blog I got scaled back to such an extent that I actually made an effective loss if you account for the amount of time that they held my money before returning it.  I had applied for $15,000 in stock but received a paltry $32.10 and had the rest of my cash refunded to me.

A quick refresh on how to make money from Share Purchase Plans (SPPs)

I thought I would quickly run through how you can make money from share purchase plans.  In fact it is quite similar to making money from a rights issue:  You don't make the money from taking up your rights - the share price should adjust for this.  You make your money from the difference between the price at which you buy the shares and the theoretical price the shares should trade after the raising.

For example.  Assume Company A is trading at $10 per share and there are 100 shares.  
  • The issued capital of the company is worth $1,000
  • Assume that it wants to raise another $500 for acquisitions so it taps it's shareholders for some more money
  • The shareholders aren't necessarily going to give the company all of the money that it needs so the company issues shares at a 50% discount to the current value (i.e. for $5) per share.  It needs $500 so it is going to issue another 100 shares
  • The company now has an extra $500 of cash and an extra 100 shares.  Therefore the company is worth the original $1000 + $500 = $1,500 and there are now 200 shares on issue making each share worth $7.50
  • This $7.50 is the theoretical price the shares should trade at after the raising is done
So how do you make money

Tuesday, 26 August 2014

The single easiest way to get ahead financially when you are young...

If you are finishing up your college or university degree or have just started working you may be looking at ways to invest your new hard earned cash so that you can get ahead financially and can afford the nicer things in life.  There are a million options and as many tips out there on how to do this.

Well I think there is one thing that you can do which will make more of a difference than almost anything else and it is incredibly easy to do.  So what is this wonder solution?  It's really simple:

Stay at home for as long as you can...

Staying at home for longer is the best single financial decision that you can make when you are starting out on your wealth building path.  There are many reasons for this including

1. You avoid the high costs of rent

Rent is a massive expense and even if you share can really eat into the amount of money that you can save.  Now I'm not advocating mooching off your parents.  Pay them some sort of rent every month if they will take it or contribute to

Friday, 22 August 2014

Small Business Progress Update: August 2014

Regular readers of this blog will know that I have tried for several years to set up my own small business.  It has been far more challenging than I first imagined but then two months ago I finally got my new business up and running.  It is an Investment Banking blog (I've linked to it here) and my approach with this blog will be much more commercial (over time) than the current blog you are on which is much more personal in nature.

When I first mentioned that my new blog was running I mentioned that I would do periodic reports on how it was performing so here goes...

The first month was not what I had hoped for...

I had a plan for the blog which involved building up the readership in a slow and steady fashion and although it has had spurts of readers...it has been much slower and not as steady as I would have liked.  Here are some stats from the first full month of operation (July 2014):
  • 40 users looked at the blog in 125 separate sessions
  • There were 730 different page views
  • The bounce rate (the # of people that go to a page and leave after that page) was 44% (which is not bad actually)
  • The newsletter I set up has 7 subscribers
The problem is that I

Tuesday, 19 August 2014

Always know why you are invested in a stock...and at what price you would be willing to sell

I rarely make blanket statements on this blog about investing.  I think investing is inherently nuanced and specific to the individual making that investment bias.  However there are some rules which you should never break in the investment world and today I am going to talk about one that I constantly break and which makes me a worse investor as a result.

Here is the rule:
If you invest directly in the share market you should always know why you are invested in a particular stock and at what price you would be willing to sell that stock

 Know why you are invested in a stock

Knowing why you are invested in a stock is very different to knowing why you invested in a stock in the first place.  

Last year I wrote a piece on Reasons and Tips to stay on top of your existing investments and it is as true today as when I wrote it.  That post argued that we are programmed to care about things that are:
  1. Exiting (i.e. new investment opportunities)
  2. Painful (i.e. investments that are going very badly)
However all to often we don't really care about those investments that hadn't done anything.  The companies could have changed substantially along with their risk profile and the opportunities associated with it however we do nothing because in an investment sense they have not done anything to cause us to turn our attention to them.

Having an investment thesis for

Friday, 15 August 2014

How To Buy a Diamond Ring (Part 3)

If you are looking to buy a diamond engagement ring for your girlfriend it is probably best to start with Part 1 of 'How to Buy a Diamond Ring' guide which covered Knowing your Girlfriend and Setting and Sticking to your budget.  Part 2 covered the 4-C's of buying a diamond and the research you should do before going into a jeweller.

In this part of the guide (Part 3) I will be covering:

  • Finding a diamond jeweller or a jewellery store
  • How many should you visit and what should you say?
  • How to negotiate the price of the ring down
I should address one point upfront.  I do not cover how to buy a diamond ring online in this guide.  I didn't go through that process myself.  I thought about it however preferred to examine the ring and the diamond myself my before buying it and you can only do this at a physical jewellery shop.

Step 5: Finding a Diamond Jeweller


When you decide you have done enough research and actually want to get out there and actually buy the diamond you will realise that every jewellery store you can think of sells engagement rings.  So which ones should you go to?

A. Get recommendations from friends (or online)


I highly recommend getting recommendations from friends.  Ask them where they went, what their experience was, how helpful the person that served them was and whether they seemed to know about diamonds.

Most guys that have gone through the same process you are have done heaps of research and are more than happy to help you in your search.

If you are the first one getting engaged go online.  I found that diamond jewellers are the one type of store that people are happy to post both positive and negative comments about online (unlike most other stores where there is an inherent bias).

B. Visit several stores...


Never just visit one store.  Diamonds are different, as are the settings and stock that different stores have.  Just because one store doesn't have what you are looking for doesn't mean another wont.  

Going to multiple stores will also give you a good feel for prices.  Don't be afraid of asking for prices on everything and writing it all down.  It will help you realise what is a good price and what you should be negotiating down.

The benefit of visiting multiple stores cannot be overstated.  For example Tiffany was probably the 6th or 7th store I visited and because I had a good idea of prices I saw pretty quickly that their prices were approximately double for exactly the same piece of jewellery.

Step 6: What should you say when you visit?


A. Make sure they know what they are talking about

After you have a few

Tuesday, 12 August 2014

Progress towards my $90 million goal

Am I still confident of hitting my $90 million goal?  That's a question I ask myself now and then.  My goal seems so large and unattainable at times.  This is especially true whenever I do my net worth update every month...the incremental improvements seem so small in light of the overall goal.

I still think I can achieve my $90 million goal...


You may have thought that I would be giving up on my goal from the paragraph above but the fact is that I am more confident of achieving my goal this year than I was last year.  

What gives me so much confidence?

When I did this post last year I calculated that if I did nothing special (i.e. if I didn't start a business or find any extra ways of creating wealth) I could get to a net worth of $16.5 million by the time I retired at age 65.  Let me repeat that...with no effort, sub-par returns and no improvement in the amount I earned or saved I could get to $16 million dollars...

I confess when I first did that post (and when I passed on the excel file to any readers that wanted it) I knew that the numbers were fuzzy.  I knew that they made really broad assumptions and life rarely goes to plan.  After all if it were that easy wouldn't everyone be there?

Well now that I am a year down the track I can assess it so far.  The excel file suggested that at June 2014 my net worth should be $457,000 however if you look at my actual net worth for June 2014 you will note that I was actually significantly higher than this at $503,000.

Not only does this start to prove up the fact that I can get to a reasonable net worth...it also gives me hope that I can better this if I can start businesses and bring in additional sources of income.

After rolling forward the excel spreadsheet the 'easy to achieve' target is ~$16.9 million

After inserting my new net worth into the model and keeping the same assumptions as last year, my net worth forecast (without any additional income) increased to $16.9 million purely due to the power of compounding.  You can see the shift in my actual / forecast outcomes in the chart below:


But that's not