We are still experimenting with how best to arrange our blog posts. We have decided to setup a new blog for posts most purely related to investing and economics. The Curious Cat Science and Engineering Blog has quite a few posts related to economics and science and engineering. I would foresee those post in the future still being made there. The Curious Cat Management Improvement blog also has economics and investing related posts. In the future I would imagine most of those posts would now be made in this blog – expect those that tie closely to both management and economics or investing.
We also will be posting more frequently on general investing and economics topics. And we will be providing posts linking to interesting articles we find.
The Curious Cat Investment Glossary defines investing terms and includes links to related online resources. The Curious Cat Investing Library includes links to selected investing and economics online articles and the Curious Cat Investing Bookstore highlights books we feel are of value to investors.
I have also added the posts on investing and economics that were originally posted on the other blogs here (that way they will be returned in searches of this blog and be seen when browsing the category listings).
Our Financial Failings by Neil Irwin, Washington Post:
It has about $3,800 in the bank. No one has a retirement account, and the neighbors who do only have about $35,000 in theirs. Mutual funds? Stocks? Bonds? Nope. The house is worth $160,000, but the family owes $95,000 on it to the bank. The breadwinners make more than $43,000 a year but can’t manage to pay off a $2,200 credit card balance.
That is the portrait of the median American household as painted by the Federal Reserve Board’s Survey of Consumer Finances.
Saving for retirement is not complicated, it is just a matter of priorities. Most people care more about a Starbucks coffee each day (or season tickets, or new shoes, or a new car every couple of years or…) today than saving money for retirement. In a capitalist society we believe in letting people make their economic choices. The choices most of us make (in the USA) lead to the results above.
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CNNMoney is not exactly intellectual discussion of economic and investing issues but normally it offers fairly good material for the large number of people. Especially those who really don’t want to read Warren Buffett or Brad Setser. Still the following quote in their article, Cashing in on hot real estate is just wrong:
…
San Diego-based certified financial planners Christopher Van Slyke and Terry Green recommend an unconventional plan: taking out a new $500,000 ARM.
Handel and Laport can pay off their existing mortgage before the rate rises and retire their other debts. They can put the remaining $200,000 into stock and bond funds.
To be sure, borrowing against a house to put the proceeds into the market rarely makes sense. But in Handel and Laport’s case it does because so much of their net worth is tied up in their home, and the super-hot L.A. real estate market looks primed for a fall…
They can convert equity that might melt away.
They can what? In no way does increasing their leverage convert equity that might melt away. Any amount of “melting away” will still happen after this increase in leverage – no conversion has happened. They still have a full ownership interest in the real estate. If the value of their house fell $300,000 before or after this supposed “conversion” they would “lose” (on paper) the same amount: $300,000. The investment risk for the house has not changed (for the whole portfolio you could argue it has but that gets complicated and subject to debate).
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In April of last year I posted on 10 stocks for 10 years. At that time I also setup an fund through Marketocracy, which allows for 3rd party tracking of investing results. See the results so far on Marketocracy’s site. Thusfar the portfolio is up 20%, in under 9 months (versus 13% for the S&P 500 for the same period of time.
The 10 stocks didn’t meet the diversification requirements for marketocracy, at the time, so I modified the portion of the portfolio for each stock when I setup the fund. The portfolio as of Jan 2006 (17% cash):
|
|
Stock | % of fund | Current Return |
| Google – GOOG | 16 | 114% | |
| Templeton Dragon Fund – TDF | 12 | 25% | |
| Toyota – TM | 10 | 48% | |
| Dell – DELL | 8 | -13% | |
| Petro China – PTR | 5 | 36% | |
| Cisco – CSCO | 5 | 8% | |
| Amazon – AMZN | 4 | 39% | |
| Pfizer – PFE | 4 | -9% | |
| First Data – FDC | 4 | 11% | |
| Yahoo – YHOO | 4 | 25% | |
| Intel – INTC | 3 | 13% | |
| BP – BP | 3 | 5% | |
| Walmart – WMT | 3 | -5% | |
| Templeton Emerging Markets Fund – EMF | 2 | 43% | |
| Microsoft | 1 | 6% |
Obviously Google is doing quite well, up 114%. The second largest gain is for Toyota, which is up 48%, I’m sure a surprising result to many.
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Fairly frequently I am asked, by friends, for investing advice. One topic I am asked about frequently is mortgages (locking in rates, etc.). Often they are concerned about what a Federal Reserve decision to raise or lower rates will effect the 30 year fixed mortgage rate. Essentially the decision by the Fed won’t have any predictable impact (this is not the complete truth but close enough for the question being asked – this article has more, though it still just provides a cursory view of the situation).
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Our only hope: retiring later by Jim Jubak
Jim Jubak is definitely worth reading for anyone interested in investing. This column touches on the economic problem of the aging population.
That pretty much has to be part of the solution. While the United States is rich even we are not rich enough to have people work for 40 years and not work for 40 years. Retirement at 65 was set when most people died before or soon after that date. It just is not realistic to think we can live at the standards of living we expect and only work from 25-65.
If people want to cut the standard of living during the 80 years they live that would be one tradeoff they could make. I don’t believe his contention that savings is not a reasonable significant part of the solution (if that is what he means by “The whole world is getting old pretty much all at once, so saving more and investing at higher returns won’t do the trick.”
- The Impact of Aging on Financial Markets and the Economy: A Survey by Barry P. Bosworth, Ralph C. Bryant and Gary Burtless. The Brookings Institution, July 2004
- Aging population makes this deficit scarier, Sue Kirchhoff, USA Today.
The issue of how to deal with the economic consequences of aging population is an important issue to consider today. It is something I need to continue to study. But we also need to be taking action now on things like increasing the full retirement age for Social Security, increasing the saving rate, decreasing the current yearly federal deficit (and private pension liabilities), providing ways for those in their 60’s and 70’s to participate in the economy that work well (probably part time, more flexible work arrangements, etc.).
The annual meeting of Berkshire Hathaway is being held this weekend in Omaha (cnn article). Recently the 2004 Berkshire Hathaway Annual Report (by Warren Buffett) was published. The report is excellent reading for anyone interested in investing. Some quotes from the annual report:
- In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect future returns to be – [bold added]). But if you look for years with returns anywhere close to that 11.2% – say, between 8% and 14% – you will find only one before 2004. – page 3
I decided to look at selecting a portfolio of stocks I would be comfortable putting into an IRA for 10 years. My main criteria was companies with a history of large positive cash flow (that seemed likely to continue that trend).
The 10 stocks I came up with are (closing price on 22 April 2005 – % of portfolio invested):
- Templeton Dragon Fund (TDF – 16.40 – 16%) – a closed end mutual fund investing in China, Hong Kong, Taiwan, Singapore… This one doesn’t fit the criteria but does a great job of filling out the portfolio in my opinion.
- Dell (DELL – 36.43 – 12%)
- Toyota (TM – 72.42 – 12%)
- Google (GOOG – 215.81 – 12%)
- Pfizer (PFE – 27.22 – 8%)
- Amazon (AMZN – 33.04 – 8%) They are only just starting to generate cash but I like their prospects.
- Intel (INTC – 23.24 – 8%)
- Petro China (PTR – 61.68 – 8%) Investing in PTR is based on the potential for China, the prospects for oil over the next 10-20 years and Warren Buffet’s ownership of the stock.
- Cisco (CSCO – 17.43 – 8%)
- First Data (FDC – 37.48 – 8%)
re: Beginning of the End of Housing Bubble? – Dan Gilmor blog post
I doubt we are at the end of the bubble. However, financial bubbles are very difficult to time. My guess is the bubble will continue for over a year for most, if not all locations in the USA. And unless the bubble continues and prices reach levels much higher than they are now, the end of the bubble will not be dramatic decline of prices (say an drop in prices of over 25%) in most locations.
Manhattan (with historically very volatile prices) and certain other locations will likely have dramatic declines. But overall the real estate market will slow down (fewer sales) greatly and may experience say a 5 year period where prices decline slightly (or increase slightly). Real Estate normally does not behave the same way the stock market does when a bubble breaks, but we will see what actually happens.
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