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

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

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

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

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

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

Investment Basics: What is the P/E ratio?

Any investment book that deals with stocks (see a few of my recommended ones here) will mention the P/E ratio of a company (Price to Earnings Ratio).  Most of them take it for granted that you know what it means and if they do explain it, it tends to be at a very high level.  This post will break down the P/E ratio so that the next time you are looking at a stock you know what you are actually looking at when you look at the ratio.

The P/E ratio is a relative measure of how expensive a stock is

That's actually all a P/E ratio is.  People often assign all sorts of interpretive power to a P/E ratio but in fact it provides nothing more than a tool for comparison with other companies.

The P/E ratio of a company looks at the price you are paying for every dollar the company earns.  I will go into more detail about how the P/E ratio is calculated and what it is and isn't useful for below:

How is the P/E ratio calculated?

Of all the ratios that investors use to value stocks, the Price to Earnings ratio is one of the easiest to calculate.  It is simply:

The price of one share in the company / The earnings per share of that company

Each of these is reasonably easy to find:

• The price of the share is usually stated on a stock exchange and it is easy enough to look this up on the internet
•  The earnings per share is usually stated in the companies earnings report (it is normally highlighted because they know that investors look for it

What does the P / E ratio mean?

This is the part which most people trip

How To Buy a Diamond Ring (Part 2)

Have you, after much thought and deliberation, worked out that your girlfriend was the person that you wanted to spend the rest of your life with?  Have you then realised that you need to buy a ring and know nothing about it?  Well then this guide is for you.

If you're just starting out check out Part 1 of my How To Buy a Diamond Ring guide.  It covered knowing your girlfriend as well as setting your budget and sticking to it.  In Part 2 I will be covering the nitty gritty of diamonds and the research you should do before going to visit any jewellers.

Step 3: Understanding diamonds...what does it all mean?

If you start looking for diamonds you will be confronted with a whole lot of terminology which is a little bit confusing.  The most important thing to remember are the 4-C's.  These are the four most important parts of a diamond and determines the cost of the diamond.  They are Cut, Colour, Clarity and Carat.  They are not all created equal so make sure you understand them before you go out ring hunting.

Here is a very brief overview of the 4-C's.

A. Cut

The cut of the diamond is the most important characteristic of the diamond as it determines how brilliant the diamond is (i.e. how much it sparkles).  

Note that it can get confusing because the word 'cut' is used in two different contexts.  It is used to both describe the shape of the diamond (i.e. round, princess, pear etc) as well as the quality of how the diamond is actually cut.  While the shape of the diamond does matter (round diamonds cost far more than the others...because they sparkle more) it is the quality and grading of the cut that is most important.

I could get into details on the cut of the diamond but there are other sites which will provide you far more information on the specifics.  Basically, a diamond with a better and higher quality cut will reflect light significantly better and there will be less leakage of light.  Once again this comes back to how brilliant the diamond looks when you look at it.

The reason that the cut is the most important factor is that it really does affect how much the diamond sparkles.  If you are tossing up between different diamonds and are trying to weigh up what is important you should always go for a better cut because a smaller diamond with a better cut will often look bigger than a larger diamond.

If you can ask for '3 ex' (which stands for excellent-excellent-excellent) when you buy the ring.  Try it - compare a '3 ex' cut to another cut and see whether you can tell the difference.  I certainly could when I started looking at actual diamonds.

B. Colour

Diamonds come in different colours.  The clear ones you are used to seeing on girls hands and on television are actually colourless diamonds.  However there are a range of colours from D (colourless) all the way down to Z.  

Diamonds in the D - F range are called colourless and are the most highly sought after diamonds.  Technically diamonds classed as G not colourless however you would never be able to tell the difference.  After G though the difference is quite noticeable so I would avoid anything rated less than G.

So what should you get?  Ask a

July 2014 Net Worth: $510,000 (+1.4%) and Expenditure Tracker

This post covers both my net worth performance for the month.  It also includes my expenditure tracker, a series of posts I use to track how good I am at actually sticking to my budget.  I combined the two topics as they are inherently interlinked.

July 2014 Net Worth: $510,000 (+1.4%)

	Value	% Change
Assets	$871,000	+1.2%
Liabilities	$361,000	+1.0%
Net worth	$510,000	+1.4%

What drove my net worth performance this month?

When I wrote my June 2014 net worth I genuinely thought it would be a month where not a lot happened.  As it turns out I couldn't have been more wrong.  I had some really big expenditures come through however the strong performance in the share market completely offset the impact of these expenses.  I was targeting a net worth of $508,000 for the month and was happy to beat this.

Outlined below are some of the competing factors which affected my net worth performance this month:

• Positive factors
• The share market performed incredibly strongly
• Both my personal portfolio and my superannuation portfolio performed very strongly over the month (each recording gains in excess of 2% for the month)
• The strength of the share market over the past 6 months is starting to make me think that I should start to sell at least a part of my portfolio.  I have some particularly high beta stocks which I wouldn't mind selling out of (and they have performed incredibly well form me)
• I managed to save quite a bit of cash over the month
• It was quite a