Quote of the day

"Unless you want to get whopped again stop hitting your dad with the alligator." - Momma Kelly to 4 year old Jay

Kiva.org - microfinancing

In his book "The road to hell: The Ravaging Effects of Foreign Aid and International Charity" Michael Maren details some of the more troubling aspects of third world charity. It's been a while since I read the book, but some of the consequences indentified by Maren include
- local governments become corrupted by the aid (and money associated with it) and become less responsible to local citizenry.
- There may even be a perverse incentive to attempt to perpetuate a problem to keep the aid money flowing. This incentive is in place for both the receiving country as well as the aid organization.
- Local economies are destroyed,(example: Local farmers can't compete with free food) and aid efforts are too rarely focused on building local economies.

That brings me to Kiva.org which I first heard about a couple days ago in this related New York Times article by Nicholas Kristof. (You might have noticed the Kiva link I recently placed in the left margin also.) I find this is a very interesting approach that seems to do a good job alieviating concerns about creating dependency while at the same time helping build local economies. This improves standards of living by enabling those in local economies who are able to put resources to good use. This type of program has a feel of sustainability about it.

From the Kiva.org website: Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can "sponsor a business" and help the world's working poor make great strides towards economic independence.

The site allows you to select businesses to support and loan increments as low as $25 with a paypal account. Go to Kiva.org for more information on how it works.

My wife and I signed up, and our first micro-loan is going to this fellow in Azerbaijan who has previously secured and paid loans for livestock and a stable. Other loans are also going to:
- a seamstress in Ghana to expand by purchasing more sewing machines,
- a landscaper in Mexico to upgrade equipment,
- a retailer in Ecuador to expand inventory,
- and a bakery in Ukraine to purchase bulk inventory.

You can click here to read their business cases and their stories. Some may still be raising money.

And as to sustainability - when the loans are (hopefully) repaid the funds can be put to work again for someone else.

An ocean of cell phones

The wife took me to an Evanescence concert the other night - the first that I'd been to in quite a while.

Back in the 80s at my first big concert (Bon Jovi) the entire arena held up lighters during the ballad "I'll be there for you". I remember it as an ocean of tiny flames - a very cool visual.



Well, if the recent concert is any indication the new lighter is the cell phone. In addition to looking cool it also takes pictures of the concert and I think I saw a few folks trying to record audio with the phone as well. Picture a stadium full of people all holding up their cell phones with he little white glowing displays.

Now, since this was a goth-ish sort of concert, I felt like a little heavier iron was appropriate - should've at minimum been holding something like this up.

The weakening dollar

Several threads I've been reading discuss the declining value of the dollar, but I haven't seen many that put the value of the US dollar in to a long term perspective.

In an effort to understand what's been happening I went to the Federal Reserve site to get some historical data. The time series below plots the major currencies index. Per the FED site: "The major currencies index is a weighted average of the foreign exchange values of the U.S. dollar against a subset of currencies in the broad index that circulate widely outside the country of issue."



The dollar is currently at some of the lowest levels seen in over 30 years relative to world currencies.

My next question is how do I protect my portfolio from currency loss like we've seen, particularly if the trend persists? I don't know the answer currently, but it's worth thinking about since relative to world currencies the dollar is worth 22% less today than it was in Dec 2000.

When I was little...

When I was little I remember tearing kleenex after kleenex into little pieces, stuffing it into my hand, and squeezing it harder and harder expecting it to reform itself into a whole kleenex.

It worked for the magician on TV.

I smile to think about it now that I know better, but isn't there an appeal to a world where it just might could happen?

Compounding Continued - beating the market by a few extra points

In an earlier post we discussed the power of compounding. Let's look at the same data a little bit differently.

The table below shows what an initial investment of $10,000 becomes in 10, 20, 30, and 40 years at different annual rates of return.


For example: At 10% annual rate of return, an initial $10,000 investment becomes $174,494 in 30 years.

Note the value of beating the market averages just by a little bit over time. At a 12% annual return that same investment becomes $299,599 in 30 years. At a 15% annual return that investment becomes $662,000 in 30 years. I happen to think a focused small investor can beat the market averages and see long term expectations of 12-15% as reasonable goals. My personal goal is 15%.

Bottom line A) - especially if you're young and time is on your side - the next time you want to spend $10,000 vs. saving think of this example. Effectively, the younger you are the more expensive spending is.

Bottom line B) - it is so worth it to try to understand your investments and find a way to beat the market averages over extended periods of time.

Keep homebuilders on the back-burner

Bill Conerly's Businomics Blog does an excellent job of tracking developments in the home building sector. Based on his arguments there's no reason to expect any improvement in the home building sector for years to come. In his most recent post he discusses why he thinks it could easily take 3 years for the excess inventory to be worked out of the system.

Bill's post from January presents a graph back through the 1970s that does an excellent job of showing the long run "normal" level of home inventory vs. the unprecendented levels we have to work through currently.

As an investment it was fun to watch the homebuilder stocks multiply many times, but my take on this is don't be in a hurry to jump in as the homebuilder stocks have fallen back to earth. It could be a long wait for a rebound.

It's the doorbell - Hide!

My doorbell rang today. In the glamorized world of TV it might've been a Domino's pizza, but in the real world my first reaction was "Hide!"

It seems that if my doorbell rings unexpectedly it's either somebody wanting money, wanting to sell me something, or wanting to talk about God.

I can't recall the last unexpected guest that was actually welcome. If it's anybody that I really want to talk to I know they're coming.


Doorbell ring emergency checklist.
- If the TV is on - mute it quickly along with any other noise producing devices.
- stand clear of any windows in case they look in.
- if you have squeeky floors stay perfectly still.
- preemptively, try to keep your garage door closed. If it's open they'll know you're likely home and are ignoring them.
- As a last resort - if they know you're there, can see through your door and won't go away. Keep a pair of headphones handy, throw them on, and jump around in view like you're jamming to Rick Springfield's "Jesse's Girl" while you vacuum the carpets. Throw in alot of air guitar. Start singing at the top of your lungs. That should work.

Record levels of margin debt

Hmmm. This post from the Big Picture Blog is interesting and adds more concern to my overall bearish market stance. It seems to point to fewer logs to throw on the fire.

Margin Debt reaches new all time record.

Here's another article discussing margin as well as low cash levels.

Compounding - Thinking BIG

It seems to me the time value of money and the impact of compound rates of return are some of the most misunderstood elements of investing. We seem to have a tendency to conceptualize growth in a linear fashion and to underestimate the longer-term implications of compound or geometric growth.

Many of us are probably familiar with the rule of thumb that an investment earning 10% annually will double in value in about 7.3 years. The table below lists other combinations of rates of returns and how many years it takes an investment to grow to a specific size.



What I find interesting is the far right of the table - and what the power of compounding can do for us if we start early enough in life, make smart decisions, and let the power of compounding work for us. For example, at a 10% annual rate of return it will take 48.3 years for an initial investment to increase to 100 times the initial investment. (Yes an initial investment of $10,000 at age 20 will become over $1,000,000 by the age of 69 at a consistent 10% annual return.)

Think BIG: Within our lifetimes we clearly have the ability to drastically change our circumstances and security with a focused investment approach, and it helps if we think not in terms of turning $10,000 into $20,000 in the first 7.3 years (2X), but instead of how the same math turns that $10,000 into $1,000,000 in 48.3 years (100X).

Now, I've shown rates of return in excess of 10% (roughly the long term rate for the S&P) because I think the Average Joe investor can beat the market averages, but we'll have to continue this discussion in an upcoming post.

France's UFO archives made available to public

The possibility of UFOs has fascinated me - particulalry claims involving extraterrestrial intelligence. Confirmation of such claims would be one of the most perspective-altering findings I can imagine, and the notion of other intelligent life "out there" has always carried a strange, even romantic, appeal.

In short, I wonder if there's somebody out there wondering if I'm here.

On that note, the French government reported that it's making it's UFO archives available to the public on the web. The French website http://www.cnes.fr is currently overwelmed with traffic and I can't get through to see, but it's a good first step in opening up material from official investigations to the public.

According to the article there are over 1600 cases and 6000 witness accounts included in the archive although "'Only 20 to 30' could be classified as "Objet Volant Non Identifie" — UFOs that appeared to be physical objects, leaving 'marks on the ground, radar images'."

Kudos to the French for making this move.

The Year of the Fire Pig

We are now in the Chinese Year of the Fire Pig. When I heard that I thought: "Great name for a rock band..." And oh yeah - here's some more fine art. Behold the Fire Pig!


And since this kind of stuff is sortof fun, I got to wondering about my Chinese birth year. It turns out I was born in the year of the Metal Dog. Apparently this indicates I possess the best traits of human nature, although I'm also selfish, stubborn, eccentric, emotionally cold and distant.... Pretty much nails me.

Want to find your Chinese Year (animal and element)?

More on Average Joe Beating the Market

Anyhow, to continue with the line of thought that the Average Joe investor can beat the market.... This is a little disjointed, but hopefully worth a read.

In a previous post I've posted some longer term data showing it is possible to beat the market by a fairly wide spread over an extended period of time. The trial portfolios were made up of low maintenance holdings (mostly buy and hold for many months at a time) and are generally not obscure stocks. There's nothing about these funds that I don't think a somewhat involved and informed "Average Joe" investor couldn't emulate.

For example, on the longest running fund (SMF), the 5 most profitable investments over the life of the fund are CTSH Cognizant Technology, BBY Best Buy, INFY Infosys, GRMN Garmin, and CHS Chicos FAS. For folks that follow the markets, you'll recognize that none of these stocks are obscure or out of the mainstream investing knowledge. (I'm trying to point out you don't have to take risky long shots on unknown companies).

Consider this: According to the Motley Fool "three out of four mutual funds don't beat the market." (While I've pretty much foregone mutual fund investing for the do-it-yourself approach, I am a fan of the Motley Fool approach to investing that thinks there are still great investments out there to be found.)

On the other side of the argument: Here's an excellent article by John Bogle of Vanguard fame . Bogle is a supporter of the prevailing efficient market hypothesis and argues the best approach is simply to buy index funds and try to keep management costs as low as possible. I disagree on that point and think there's still a good chance for the Average Joe to beat the market, but in any event, it's staggering how much of your potential profit of mutual fund holders is syphoned off by both below average mutual fund performance and expenses/fees. He puts forth a compelling case to at least go with the lowest expense alternatives possible if you go the mutual fund route.

Bottom Line: If you have the capability and inclination get involved in understanding your investments. Small decisions now can mean hundreds of thousands or millions of dollars of difference in retirement assets then.

Human Beat Box

I first saw this Lasse Gjertsen video on Youtube. One of the most memorable and entertaining videos I've seen on the site.

Here's a more recent video of him with a drum kit and piano. Very cool stuff.

Why Dogs Stick Their Head Out

"We'll let the dog ride up front and stick his head out
I'll ride in back and you can chauffeur me around."
- song lyric

It's that time of year when I start seeing dog heads sticking out of car windows again. It was probably last year when I first understood (or thought I understood) why dogs love to stick their head out the car window as it zooms down the road, or why a dog riding in the back of a pickup will race back and forth, sticking his nose around the edge of the cab on each side, and standing up on the back of the edge of the truck bed to get his face into the air.

Humans tend to anthropomorphosize (that's a big $ word - I've thrown in the extra syllable for free!) so putting myself in the place of a dog I was just imagining how unpleasant it is for me to stick my head out the car window. I can't see a thing - too much wind. Eye's dry out fast. I can't hear anything either due to the turbulence. Overall it's rather unpleasant. (Try it - I bet you'll agree)

(Artwork: My wife Trish drew the dog. I claim the rest ;-) )

But then I got to thinking that a dog probably doesn't experience the world like me. A dog could care less that I enjoy the world by looking at the scenery and and being able to hear the radio in the car. A dog experiences the world through his nose, and for him to ride down the road without sticking his nose out is probably like me riding down the road with my eyes blindfolded. In short, I think a dog is probably seeing the world by sticking his nose into the wind, and for him to not be able to do so takes all the fun out of the trip.

Anyhow, that's my hypothesis and I'm sticking to it.

Stock Holdings

I'm convinced that the "Average Joe" investor can beat market averages over the longer term. A statement like that probably needs some justification so here's some "best effort" play money mutual funds I've been running over at the Marketocracy website. Marketocracy lets me try out different investment strategies and monitor progress over time.

SMF is my initial and longest running fund. This is a best effort fund. Even though I started the fund in May of 2001, I really only started managing it properly sometime in the last half of 2002.

SOS is the other "best effort" fund I run and is a variation of SMF with a more aggressive sell strategy. SOS has been running since August 2003.

As you can see, both funds beat the S&P500 average by a wide margin over the test periods. Beware there is volatility in the methods I use, and the funds recently have tended to underperform in down markets - so as a result in my real life accounts I raise cash quickly when I get bearish.

I try to review my personal stock holdings at least on a monthly basis. My current stock holding in order of size of holding are:

CRDN - Ceradyne - primarily ceramic body armor
CTSH - Cognizant Technology - technology consulting (India)
GRMN - Garmin - Global Positioning System pioneer
HANS - Hanson Natural - Energy drinks
INFY - Infosys - technology consulting (India)
NGPS - Novatel - another GPS player
ASVI - ASV Inc - maker of tracked loaders similar to "bobcats" - this was a mistake by me on the buy but I'm holding at current prices. I was aware of the slowing home market but bought anyway.
CKFR - Checkfree - online billpay provider

Redneck slingshot

Whoa. I thought for sure this was leading to a very bad end, but suprisingly

http://tinyurl.com/2ygaqy

no one seems to have been injured...

Jobs for kids

When I was in middle and high school I mowed lawns to get a bit of spending money. I've noticed that there don't seem to be that many kids mowing lawns anymore though, and don't understand why. To me mowing was pretty near the perfect job for a kid.

• I controlled my own hours, as long as I didn't let things get too far behind.
  
• The pay was better than minimum wage friends were getting at fast food jobs
• I didn't have to have a car and associated expenses, just gas for the mower and weedeater (as long as I took jobs near my house).
  
• Make my own hours. I could work around school activities / studies. In the summer I usually could pick the cooler days or times of day to mow.
• A yard or maybe two could be done in the hours after school prior to sun-down.
• If I wanted to increase wages I could take on extra yards to mow.
• If something came up (vacation) it was usually easy to get a friend to cover a few of the yards.
  

Now, what I don't understand is why lawn mowing has become much the domain of professional lawn services - at least from what I can tell in my neighborhood. Heck, at the going rate of mowing now kids could probably make a career of it if they wanted.

Am I a tight wad?

Alright, so I've been trying to wait for a profound post to bubble forth for my first blog post. Well, turns out I just don't have much profundity percolating, so this will have to do.

At work today the department went out to lunch to celebrate birthdays. We never did this kind of stuff in my previous departments, but I work in a department with a lot of girls now and ... well - girls like to celebrate a lot more stuff than guys. Anyhow, as a sign of my tight-wadedness I find myself wondering why we're having lunch clean on the other side of town. I mean, my pickup only gets like 14 miles per gallon so I figure I'm burning $5 to $6 of gas just to get to where I'm going to eat. That's almost as much as I'd normally spend on lunch.

That's when I wonder if I'm messed up for thinking this way. I admit I love to save money, but sometimes I wonder if I'm out of sync by even thinking in these terms.

Lunch was good. Had a big bowl of spaghetti with Italian sausage. Ate way too much and as a result of the excess wasn't worth a dime at work the remainder of the day.

By the way, I chop my spaghetti with a knife instead of twisting it around a spoon. That's probably way uncool on the sheik scale, but the spaghetti twirling has to stop.

Button Fuzz out.