Friday, 27 September 2013

Discounts and great deals often take advantage of them while they last

Recently I did a post on how I saved a fair bit of money by moving from my old (reasonably expensive) mobile phone plan once it had expired to a new phone plan which was much cheaper and offered exactly the same level of data, call rates and usage.

The new provider I had moved to was TPG which was primarily an internet provider but had branched into mobile by reselling Optus network services for very very cheap rates.  There were some problems around connectivity and data speeds which meant that it was not quite as good as I had expected but overall the cost / benefit trade off was definition there.

In fact the deal was so good that they no longer offer it

I recently read a report saying that you could not buy the plan I was on any more.  Indeed TPG used to offer 4 different plans based on various usage, each of which was great value for their price point and you can't get any of these plans any more.  Their basic plan now is still decent but you get virtually no data and if you compare it to the major providers it is not that much better so there is no real reason to switch and get the lower level of coverage and connectivity.

I have been pretty lucky though.  Although they are no longer offering the great deals that they used to, they are allowing people that are currently on the plan to continue using it.  It is a month to month plan which means they can cancel it whenever they like however I can't imagine they would want to annoy their whole customer base but rolling everyone off good deals onto much more expensive deals.

If you see a good deal...take it

We have all been in the situation where we see a great deal and we think we will wait around or look around for a better deal or product and when we go back to

Wednesday, 25 September 2013

The free market is not perfect: The case for unions

It has been a while but I thought I would return to one of my pet series of posts which attempts to provide a rational economic explanation for much of what we see around us.  Most people have a basic understanding of economics 101 however this is not enough.

There are those, especially on the political right who advocate the free market as the solution to all our problems.  The believe that market mechanisms are the most effective and efficient means of allocating resources and to the largest extent possible governments should keep out of this.  I believe this to be only partially true.  As I have posted about before, better outcomes often result if governments are around to enforce property rights and intellectual property rights which lead to innovation and better outcomes for society which would not result in a free market.

This time, I am going to stretch the bow a little further (and perhaps drive those free market advocates a little crazy).  I believe that unions are a product of the free market and rational actors and are a natural part of an economy where businesses are allowed to gain market power.

A union is a worker trying to improve their outcomes through scale

All of intuitively understand that the bigger an enterprise gets, the lower it's unit cost of production is.  This is one of the major benefits of scale.  However there are other benefits - if it is able to achieve some form of market power then it can influence pricing and extract monopoly rents from customers.

Unions are rational workers doing exactly the same thing.  They are achieving market power to deal with companies on a more even footing.  The negotiating position of an individual is minimal - you take what you are given (especially if you are replaceable), however the negotiating position of a workforce is formidable - a company cannot fire everybody if they want things made.  Just as the company would seek to extract monopoly rents if they are in a position to exercise market power, so are unions able to extract higher than market outcomes for their members if they have enough power in the system.

This is no better and no worse than the company making the money themselves.  There is often a rhetoric which suggests that it is good for companies to make large profits and it is bad for unions to demand a large share of the profitability of the company.  I do not view one outcome as

Tuesday, 24 September 2013

Why I started hunting for my own home so early

Regular readers of Journey to 90 million may remember that I did quite a long series about investing in real estate.  Indeed every week for quite a long time I would have another topic to post on.  You may also have noticed that I have not done a post on real estate for quite a while.

The reason for this is quite simple - I wrote about my experiences in buying my first investment property and tricks and tips I learned along the way.  Once the investment was bedded down though, and all I was doing was collecting rent and paying the bills associated with it there was not a great deal left to post about.

With my previous investment property ticking along smoothly and given that all my other investment categories also going along to plan I thought it was finally time to start looking for my own house.

Why have I started to look for my own home?

When I moved out of home at the start of the year (which I posted about at the time), I considered buying a house but decided to rent instead.  This was partially because I was not making the smartest decisions after a break up but also because I knew that financially it made much more sense to rent.

As an aside people always say that 'rent money is dead money' but this is absolutely false.  In fact the biggest form of dead money is the interest on a loan.  If you think about buying a home versus renting, if the interest bill is higher than how much you'd be paying in rent then you are always better off financially by renting.

Note that this is true both over the long and the short run if you can be disciplined enough to save every dollar that you would be putting towards your own home into other investments so that you do not lose the benefits that come with an appreciating property (i.e. capital gains).

Even though it makes more sense therefore, to rent rather than buy I have decided to buy my own home for several reasons:

  1. I was thinking of buying another investment

Friday, 20 September 2013

Expectations, disappointment and Gen Y

This article should provide some food for thought for all the Gen Y readers of this blog (myself included).  I read this great article recently on 'why Gen Y Yuppies are unhappy'.  It was posted on the the Wait but Why blog and I found it a fascinating read.

Let me preface this blog by saying that although I don't believe that all of Gen Y are like this, I'm sure if you are a member of Gen Y you know more than a few people who fall into the category described in the link above.

Happiness and fulfilment in our career is a function of our expectations and our perceived outcome

This is not a particularly profound statement - if something is better than we expect then we are happy and if it is worse than we expect then we are unhappy or disappointed.  Also perceived outcomes are more important than actual outcomes.

Let me give you an example from my investment banking days.  For my first full bonus I had an idea of what I was expecting as a bonus and it was a rather high number. I ranked in the middle of my year level and my bonus number was slightly lower than what I was expecting.  I was neither happy nor unhappy about this outcome but when I found out what the top performers got paid (significantly more than me) my perception of my outcome was significantly diminished and so I became unhappy.

Gen Y are programmed to believe the world is their oyster and that they are SPECIAL

The blog I linked to above posits that this is because our parents instilled in us a belief that we could do anything that we wanted and that we were truly special and stood out from the pack.  We grew up in this weird system where everyone was a winner and there were no losers.

While this is definitely a function of how much of our generation was raised I think it is more than this - we are raised in a culture of instant results and instant gratification.  We are given our own platforms (blogs, Twitter, Facebook) which give us the illusion of importance and relevance.  Further the prevalence of the self help industry which profits by

Thursday, 19 September 2013

If you find budgeting hard try 'Expenditure Smoothing'

Expenditure Smoothing (as far as I know) is not an actual financial term but it is what a lot of sensible people do to save for and pay for large expenditures that they have coming up.  I have adapted the basic principle to make it broader and have been using it for a few months now and it is working rather well so I thought I would share it here.

The principle is fairly basic:
If you have a large expenditure coming up that you know about, you spread the cost over as long a period as possible.  That is you start to save today (even if you can afford it in the future) for something where you don't have to pay into the future.
This is not any great insight.  People do this for holidays all the time - they know they are going on holidays in 6 months time so they start putting money away today so that they can pay for their airfares and accommodation and also have spending money.

You can use this principle for almost any large expenditure

Most people only use it for expenditures where there is a significant amount of planning involved (i.e. holidays) but I'm advocating using it much more broadly.  Any example you can think of which may blow up your budget, you can start to save for it early and then it costs you very little when the expenditure actually comes up.

For example, guys who are reading this - if you have been seeing your girlfriend for a little while and think that she may be the one you want to marry at some point (though are not super sure yet and want to give it more time) and you think you may propose in a year or 18 months then saving $300 a month starting this month means you'll have $5,400 in 18 months with which to buy the ring (and it doesn't blow up your savings plan around that time).

It may sound like I'm just advocating saving and I sort of am but this is about saving incremental amounts for specific (NOT general) expenditures.  I am going to outline below how you can actually implement the plan effectively.

You can also use this for unexpected expenditures

You can get the greatest benefit out of this sort of plan when you know the expenditure is coming up.  With the ring example above you can split the cost over 18 months which makes it super affordable.  However you can also use this plan for unexpected expenditures.

It is really quite simple.  If you get a bill that was

Wednesday, 18 September 2013

The Fundamental Problem with Index Funds

It is never a good thing to be so enamoured with a financial product or investment that you cannot see it's flaws.  All of us know this and it may feel like I'm stating the bleeding obvious however it turns out that I had one blind spot - index funds.  I love index funds - I have written about them on several occasions and they are the cheapest and easiest way for a novice investor to access the share market in a cheap way that neither under-performs or outperforms (before fees which are rather small) the market generally.

This ultimate diversification and market performance for in a low cost listed product seemed like the perfect product.  Admittedly you could never by definition do better than the market but unless you have a pressing need to earn superior returns then a portion of your portfolio should definitely be in it.

So what is the problem with index funds

From the title of this blog post and my introduction you know that there is a big fat 'but' coming up.  Nothing I wrote above is actually untrue however whenever you invest in a product you should always know what the downside is.  It turns out the downside in index funds is how the market is actually measured.

Full credit goes to Joel Greenblatt in his book 'The Big Secret for the Small Investor' which I reviewed yesterday for pointing out the one major flaw in index funds.

Almost all major index funds such as the S&P500 in the US and the ASX S&P 200 in Australia and the FTSE in the UK are market capitalisation weighted index funds.  That is the largest stock accounts for significantly more of the index than the smallest one.  I explained the difference in my post on the difference between the Dow Jones Industrials Index and the S&P 500.

Because they are weighted by market capitalisation this means that you own more of companies with larger market capitalisations and less of those with a lower market capitalisation.  The major problem with this is that if you are a value driven investor such as myself what you end up doing is (through the process of market weighting your index or by buying into one) you are buying more of the expensive in favour sectors and stocks and less of the cheap out of favour stocks.

A value investor would actually seek to do the exact opposite - you want to

Tuesday, 17 September 2013

Book Review: The Big Secret for the Small Investor by Joel Greenblatt

Readers of this blog may have picked up on the fact that I am a massive Joel Greenblatt fan.  His books make sense, the have sound financial principles, the offer real investment strategies and most importantly Joel Greenblatt is a well known investor and lecturer in the real world.  Unlike other investment 'gurus' the returns of his fund can be tracked over time and he does what he preaches for a living.

The Big Secret for the Small Investor: A New Route to Long-Term Investment Success It was with some anticipation that I read his third book.  I was already huge fans of his first two books.  In fact I am currently looking at how to implement the strategies outlined in his second book (which I reviewed recently).  In fact, it was a good thing that I did read this second book and really understand the strategy that he was preaching because it informed a lot of this book.  In fact, if you are planning on reading The Big Secret for the Small Investor I recommend reading The Little Book that Still Beats the Market first.

This whole book is based on the premise that most small investors do not have the skill, time or inclination to implement the strategy that Greenblatt puts forward in his second book.  It is a fair point - I read that book about a month ago, I was convinced by the idea but I am still trying to work out how to effectively implement it.

This book attempts to provide an 'easy' way to achieve the same sort of returns as that strategy by investing in funds which replicate that strategies return profile.  Actually, now that I

Monday, 16 September 2013

Give up your summer holiday and do an internship

This post is for university and college students around the world who are going into any profession that is the least bit competitive.  If you are guaranteed a job at the end of your degree (e.g. a dentist or a doctor) then you can ignore this post but for all you other university students this is the best advice I can give you.

Whether you are doing a 2 year, a 3 year or a 5 year degree - it doesn't matter - you should be trying to do as many internships as possible.  They are valuable for many reasons (which I will outline below).  They increase your career prospects and more importantly will help you work out whether you actually like what you are doing.

Although you may regret giving up a summer, or several summers as I did, the value you get out of it so great that I do not regret it one bit.  If you have not thought about summer internships before or you think you can leave it until later in your degree, I encourage you to read on and see the benefits of doing an internship.

An internship offers you an ability to 'road test' your career

One of the most important things that an internship does is allow you to work out whether this is the career that you actually want.  Most times when we go into a university degree we have some idea of what we want to do theoretically however have no idea what it will actually be like.  At best you may have spoken to someone or have seen your parents do that job but the chances are that you would never have experienced it.

I studied law and seriously considered becoming a lawyer until I did a summer job at a law firm.  I decided pretty quickly that this was not something that I could do day to day.  It was just that I didn't enjoy the job and I didn't enjoy what I was doing.  If I had never done that summer job I'm not sure if I would have come to the conclusion as quickly and started thinking about other jobs.

An internship allows you to road-test the firm that you are working at

If you are lucky enough to land a job at a top tier firm in the industry that you are looking to go to, the internship allows you to see whether you

Friday, 13 September 2013

Conversations about money should NOT be taboo

This post is something that I was thinking about recently when I had my first real conversation about finances etc. with my girlfriend after approximately 6 months of dating.  It was a totally comfortable conversation about how much we spend when we go out and whether we are both happy with that level of spending.  It did make me think of the fact that talking about money has some real social taboos attached to it.

Talking about money and finances is not seen as polite dinner conversation

There are many taboo subjects when it comes to dinner conversations and I'm sure you could name a lot of them.  Some of the more contentious ones are religion, politics and money.  I understand why you would not want to talk about all of these subjects with a complete stranger however I do think that when it comes to friends this is a rather strange convention.

People do not talk about money and financial matters for a variety of reasons including
  • Feeling inadequate
  • Not wanting to show off
  • Social and societal norms
If you can talk about money without being specific then I think it can be very valuable

However I think that if you stay away from specifics that talking about money and your personal situation that we can all gain a lot from frank and open conversations about money and finance.  I am quite lucky in that I work in the finance industry and so do many of my friends - talking about our day and our work naturally involves money.  Work conversations meld easily into conversations about personal finances, strategies and tactics.

The more you talk about money the more you learn from others.  I have received some of the best savings and investing tips from others and unlike a book or reading something on the internet, you can

Thursday, 12 September 2013

Reasons and tips to stay on top of your existing investments

I was recently looking at the stocks in my share portfolio and I noticed one thing.  Although I remembered exactly why I entered most of them and what I thought the value was at the time of entering them, for some of the stocks in there I had no idea what they were currently worth, whether I still wanted to hold onto them and whether they were still good value.

I think this is a problem that many people face they invest.  They put a lot of effort in up front but very little into maintaining and interest in those stocks once they are in the portfolio.  

In my case I have almost all of the examples I can think of
  1. Stocks that have performed exactly how I wanted them to and they hit the share price that I was forecasting for the reasons I was forecasting
  2. Stocks that have outperformed for reasons other than why I thought they would outperform and now I have no idea whether my original thesis still holds
  3. Stocks which have significantly underperformed for reasons that I had not forecast and I still expect them to perform
  4. Stocks which have underperformed and I do not know if they still offer good value
  5. Stocks that I think are still decent value but I've held them for a very very long time and they have made me no money
If I can have all of this going on in a portfolio which only contains 16 stocks (4 of which are index funds) then I'm sure people with more diverse portfolios have much larger problems.  

One of the hardest things to do as an investor is stay interested in your OLD ideas

Old ideas are not sexy, fun or offer the same potential as new ideas, however in terms of what drives your overall portfolio performance and value, this is where the bulk of your invested share capital is and theoretically should be where your attention is.  Keeping up with your old stocks is boring though, especially if nothing is happening.

I have several stocks which have not had particularly bad news, nor particularly good news and it means that they go to the bottom of priority pile.  What happens though is that I get 2 - 3 years down the track and realise that I know very little about this stock.  Further, I now have to go and re-evaluate my decision to actually be in the stock (which is almost like starting from scratch) for a stock which may not offer as compelling potential as other ideas that you may have.

Concentrated portfolios of direct bets make it easier to keep on top of your investments

Although some people advocate it quite strongly, I am not advocating a totally concentrated portfolio.  Indeed diversification offers increased returns for the same

Tuesday, 10 September 2013

Why you should be wary of billionaire politicians

Super rich politicians are not a common feature of the Australian political landscape.  In fact when you talk about this phenomenon most Australians would refer you to the US where this is much more common.  However with the way that preferences are flowing in the 2013 election, it looks like Clive Palmer's Palmer United Party ('PUP') will pick up at least one seat in the lower house and  one seat in the upper house.

Why don't I like the idea of the super-rich being elected into government positions?

There are several reasons that having someone who is super rich in a position of power makes me uncomfortable.  Although there are no doubt exceptions to this the following common traits of the self made super rich make them unsuited to high political office in my opinion.

  1. Their primary motivator has been self interest
    • Self interest is what drives the capitalist model and all to often the best players in this model are those who are best able to advance their own self interest above the interests of others. 
    • Elected officials are their to work for the people they represent.  Although it is possible, I am finding it hard to imagine a situation where a person who has worked for their own interests their entire lives, votes against these interests because it is better for their constituents
  2. They are not used to being accountable
    • When you have reached the levels that many of these super rich have reached, you are not used to be accountable to anyone, least of all a fickle public whose views you need to listen to if you are going to be an effective politician
  3. I question their motives
    • I could have been completely off the mark with my first point and self interest could have been replaced by a sense of civic duty
    • If these billionaires cannot evidence this

Friday, 6 September 2013

Notice to Charities: You can't take more money without my consent

Writing this post gave me pause for a few reasons but mainly because I am writing a post against a charity which I support and greatly admire.  I have been a supporter of Catholic Mission for years because I think they do really good work and bring aid to people in remote communities around the world where few others are willing to go.

However when I opened a letter from them last week I found something which put me off them significantly.  Last week week I opened another one of those 'please increase your support letters' which every charity seems to send to their supporters.  I am not against such letters and I occasionally do increase my support when I am able to.

What was different about this letter?

This letter didn't seem different to most of the letters that I usually get from them and the other charities I support.  Normally I would glance at it and then get back to what I was doing.  However I had a bit of spare time so I decided to read the letter.  On the second page it informed me that they were increasing my monthly donation by 10% and if I didn't want it increased I should contact them...

They were increasing my donation by a significant amount and I had to opt out of the increase.  This is not how charity and donations or any other form of product work.  You cant tell me that I'm increasing the amount I'm going to give.

Why was I so angry at it?

I was angry at this tactic for several reasons:

  1. The increase, although clearly stated, was not disclosed until the second page
    • I'm guessing most people that would have received this letter would have missed it unless they had some time to spare like me
    • If you're going to increase a persons donation and require them to opt out then this should be up front - the first thing the person reads
    • This is actually the only reason I am writing this post - because some people may have missed it and you should be informed
  2. By requiring people to opt out of the increase you make them feel guilty for not giving more
    • In many ways I am a realist - I know that the whole charitable industry works on guilt.  Charities get more money by showing starving kids on television because we feel guilty for not doing more in the world so we donate to make other people's lives better...there is nothing wrong with this
    • However this guilt should cause people to want to give.  Use it to cause people to increase their donations.  Don't make them feel bad about having to call up and say they can't or don't want to give any more
  3. Why didn't you just ask?
    • By not asking you're going to

Thursday, 5 September 2013

The 2013 Federal Election is around the corner...and it's about time

The Australian 2013 Federal Election is this Saturday and although the actual election period has been very short (just 4 weeks since it was announced), anyone living in Australia would know that the politicians have been campaigning for much longer.  To my American friends: how do you guys deal with election campaigns as long as yours...don't you get bored of hearing the same message over and over?

In previous posts I had said that I would look at the economic policies of both parties and try to take them apart and analyse the fact from the fiction.  I didn't end up doing this as both major parties drove me nuts on several issues and thinking about politics made my head hurt.

While I'm sure that there are many 'true believers' when it comes to voting for one party or another, I'm also fairly sure that there are others like me.  People who are sick and tired of politicians appealing to the lowest common denominator on a number of issues.  Those who are sick and tired of politicians making populist policy instead of policies that are right for the country.

If you still don't know where you sit 3 days out from an election then this post is for you.

Ignore the media when it is pushing an agenda or publishing any sort of opinion

I have heard about how biased the media can be in the US when it comes to US elections however we had not really seen it here until this election.  Rupert Murdoch's Fox News is notorious around the world for being a biased, right wing, quasi news organisation.  His newspapers in Australia have not been nearly as bad...until this election.

When an newspaper editorialises in support of one candidate or another at the start of an election and then goes on to print stories which bash the other candidate for the whole election then it is no longer news - it is free advertising and you should treat it as such.

If you find the media you usually read doing this overtly or even subtly then switch your reading.  I find that Murdoch's newspapers are terrible, Fairfax's are somewhat better and the ABC gives the most balanced coverage.

You have to work out what is important to you

If you intentionally switched off during the election campaign...I understand.  But the fact is that you have to vote so work out what issues are important to you and where parties stand on what issues.  I used vote compass which is a non partisan way of working out which parties best suit your view points.  It is not perfect but it certainly helped me.

I have written about it before...but you should vote in a way that also reflects your own self interest because no one else is going to do it for you.  For example, if you are not rich or

Tuesday, 3 September 2013

August 2013 Expenditure Tracker

I reset my budget expectations last month as I had continued to underperform my goals and expectations and I thought it was best to be realistic about what I could save and invest.  I realised that I actually had much higher core expenses than I had first imagined and my new goals, while still tough seemed much more achievable to me.

ItemAug 2013Target (new)Over/(Under)Target (old)Over/(Under)
Share Investments+$1,094+$2,500-$1,406+$2,000-$906
Offset Acct.+$2,149+$2,400-$251+$3,500-$1,351
Personal expenditure+$5,592+$2,800+$2,792+$2,200+$3,392

The table above paints a pretty bleak picture of what I had achieved versus what I wanted to achieve however it is not as bad as it first looked.  I mentioned in my August 2013 net worth post that what I was starting to do was to smooth my credit card bills by saving into a high interest saver account every time I spent money on my credit card.  This was the first month that I did this which meant that my personal expenditure looks much higher than it would ordinarily be.  From next month this should normalise.

As I have reset my expectations I also have a measure of how I was performing versus my original goals and how I am performing versus my reset goals.  The major movements in my 3 accounts are discussed below:

  • Share investments
    • This month I only contributed the standard amount to my employee share plan and did not invest anything further in the share market.  This was for 2 reasons
      • I have not saved anything into my home loan offset account since the start of the year on a net basis
      • I am looking at restructuring my investment

Monday, 2 September 2013

August 2013 Net Worth: $385,000 (+0.0%)

Value% Change
Net worth$385,000+0.0%

My Net Worth performance has become a lot more volatile of late in line with the share market.  My share portfolio now comprises a significant portion of my assets and as such, swings in this portfolio often more than outweigh all the savings and investing effort that I put in.  August 2013 represented my second worst performance ever although it was (thankfully) still in positive territory.  I round the figures but my actual increase in net worth over the month was a whole $102!

This month was affected (in both a positive and negative sense) by more than just the share market and I will outline the major effects in more detail below.  My target for the month was a net worth of $390,000 which I obviously missed by a significant amount.  Some of the factors which affected my performance this month included

Positive Factors

  1. The allocation of my employee shares to my account
    • When my ESP shares are allocated to my account I typically get the 15% step up associated with this (the discount that I get the shares at)
    • However, at the same time I also account for the tax that I need to pay on this step up so the recorded gain is more like 8%
    • This month I got allocated the shares and the share market started tanking almost straight away.  I have held onto them in the hope that I can make more than the 15% like I have tried to do in previous months so the recorded gain is actually somewhat less than the 8% that I would expect
  2. I managed to save some cash into my home loan offset account
    • When my investment property when positively geared I stopped savings as much into my offset account and started investing this money in shares instead
    • In the last month I contributed more into my offset account for 2 reasons
      • I am starting to think about buying my own house in the near term (next 1 - 2 years) so want to be more liquid
      • On a net basis I haven't really paid down any of this loan since the start of the year
  3. I have saved more in a high interest savings account to 'smooth' my credit card bill
    • Every second or third month I moan about how high my credit card bill is and how it has blown up my savings plans for the month.  I have a new method to combat this
    • When I actually spend on my credit card (not necessarily when it's due) I transfer some of this from my transaction account so that I have a block of funds to pay this amount back when it falls due
    • This means that in months where I have a low credit card bill I typically have lower savings in this high interest account and in months where I have a high bill I have higher savings
Negative factors
  1. A rather bad performance in my share portfolio