Financial Jungle

… until I land my next job, that is.

Apparently my company has been struggling with ratcheting up their sales amid the US teetering on the official definition of a recession: 2 consecutive quarters of negative GDP growth. It also doesn’t help when a segment of our business relies on the US housing market, which as we all know, is in dire straight.

You guessed it. My pride is a little scuffed up right now, as I didn’t escape the sudden and massive round of layoffs announced today. It was pretty much straight to the managers’ office in the morning, but at least they were nice enough to not shout, “You’re fired!”

So right now, I’m sitting at home early, stunned, and wondering, “What went wrong?” Was my performance unsatisfactory? Was my pay scale too rich relative to peers? Was I not getting along with co-workers? For sure it’s a tough decision for management to axe a selected group of individuals. I don’t envy their position. We let go some pretty solid people. I also don’t envy the colleagues who have multiple mouths to feed. Finally, I don’t envy the colleagues who have enrolled and kept the company shares from the Employee Stock Purchase Plan.

The silver lining is that my severance package is 3-months pay + 2.5 weeks of accrued vacation, which presents an exciting opportunity for me to re-examine my career path. It’s still too early to say, but a few random ideas have crossed my mind to dabble with:

* Find another job in the same field — Software Engineering.
* Go back to school to pursue a career in personal finance/investment.
* Go back to school to pursue a career in photography.
* Become a full-time blogger as Financial Jungle is carrying a little momentum.
* Become a full-time investor hunting for undervalued dividend paying stocks.
* ???

Well, I guess I’ll have to sleep on it as I’m frazzled from this episode.

This has been a hot topic among bloggers, so I’ll throw in my 2-cents.

Every asset you own can be classified into 3 broad categories: necessities, luxuries and investments.

Examples include:

• Necessities: electricity, gasoline, food, water, clothing, banking, medicine and *shelters*.
• Luxuries: Tag Heuer watches, iPods, Coach bags, Ferraris and sailboats.
• Investments: stocks, bonds and rental properties.

No. That’s not a typo. I did place “shelter” as one of the necessities, but I believe the crux of the misunderstanding centers around what exactly do we consume: is it the warmth provided by the shelter, or the ownership of the shelter itself? Let’s clarify by drawing parallels from my dividend-paying stocks.

I consume electricity, but also consider my ownership of Fortis as an investment. Similarly, I’m a part-owner of Saputo, Canadian Oil Sand, Reitmans, Royal Bank and Johnson & Johnson, which all provide essential products and services including milk, gasoline, clothing, banking and medicine. Yet, I consider these stocks as investments. Furthermore, I don’t plan on ever selling these dividend stocks because they pay for my everyday living expenses; similar to how home ownership pays for rents.

Let’s recap:
Milk = Essential, Saputo = Investment
Home = Essential, Home ownership = Investment (… added)

Yes, home ownership is inessential and I have proof — me! And along with 33% of the population like me. If you think all renters live below the poverty line, you ought to meet the Millionaire Mommy Next Door and Jack Hough, who choose to invest their money in the stock market while “renting” their ways to financial freedom.

Okay, so maybe home ownership isn’t a necessity, but how about pride of ownership? What exactly is pride of ownership anyway? Does owning a BMW give a sense of pride? What about the snazziest cellphone on the planet? Are they essential? Probably not.

If pride of home ownership is neither an essential nor an investment, then that leaves luxury as the only logical option by virtue of the process of elimination. Seriously. 1500 sf? 4 bedrooms? 3 bathrooms? Hardwood floor? Granite counter tops? Home Depot’s Behr paint? 2-car garage? Views? Balconies?

My belief is that for most people, home ownership is a bit of both investment and luxury. Where you draw the line is up to you.

The current market tailspin probably doesn’t make you very rich, but at least you can be famous. Gavin Adamson, a personal finance columnist for The Globe and Mail, is looking for a DoItYouself investor for his upcoming article. The only prerequisite is that the investor must have an online RRSP account and makes use of the research materials and tools available on the brokerage web site.

How often do you get an opportunity to appear on a national paper? If you’re opinionated and can tolerate a little stardom, please leave a very brief comment below telling us which online brokerage site(s) you use and also your assessment on the service. Remember to include your email address.

Please submit by this Sunday evening at 6pm EST, after which I’ll pass along the comments to Gavin.

Here are a few samples of Gavin’s work:

• ESTATE PLANNING: A little trust goes a long way.
• Empty nesters: Health-care insurance. ‘We’re all invincible, until we’re not’
• Want to save money for your kids’ future? RESPs aren’t the only option
• Child-free, with a portfolio to nurture

ps. don’t forget to continue visiting Financial Jungle when you become famous.

Being an author of a personal financial blog, isn’t it embarrassing that I’ve never heard of The Financial Forum & Wealth Management Expo? According to their website:

The Financial Forum & Wealth Management Expo delivers Canada’s premier financial event where investors, advisors and exhibitors meet to exchange ideas, and benefit from a robust program of financial education, expert advice and timely information. It is all about money matters!

Gail Bebee, author of No Hype – The Straight Goods on Investing Your Money, first brought this event to my attention. As an introvert type, my ideal weekend doesn’t typically involve springing off the comfort of my own jungle to mingle with other investors. But, what the heck. Maybe I’ll have a blast yakking with like-minded individuals. Since most of people in my circle don’t even know what a P/E ratio is, this event will be a fresh experience for me.

Oh, and don’t worry. I’ll be on my best behaviour. E.g. no interrupting a whole life insurance or a closet index fund sales pitch.

So, Saturday, Feb 9th is marked on my calendar. BTW, Gail Bebee is presenting on this day as well. BTW2, if you’re a RBC Direct Investing client, your Winter 2008 newsletter should include an invitation code for a free register to the event. I’d post my code here, but better be safe than sorry as I don’t have the financial means fight an onerous battle against Royal Bank.

For those who are coming, see you at the conference.

I have a confession to make. I’m a pretty nosey fellow. If you’re an over-achiever flourishing in an unforgiving world, you better watch out. Financial Jungle just might drag you into an interview, grilling you on all your financial philosophies.

Yesterday, I had the pleasure to meet Mike through a mutual friend of ours. The tall, slim-built, self-employed software solution consultant from Britain was half-jokingly proclaiming to be retired at a tender age of 30. And why not? He has accumulated enough net worth to sustain a modest retirement, but more importantly, he’s living the job of his dream. You see, Mike has a knack for solving corporate pains and sufferings, and he loves it. Stories of process improvements flared the initial 20-minutes of the conversation. In particular, Mike rejoiced at the time when his simple Excel Spreadsheet consistently salvaged 10 unproductive hours each week in a client’s time-tracking process. His high spirit feeds off the gaping look on his clients’ face, and he enjoyed being a super hero in the business world, so to speak. All that, and Mike still gets to choose his hours, projects and “get out of bed” rates.

Life hasn’t been always been honky-dory from day one. Like many of us, Mike was a prisoner with a salaried position in a corporate rat race for 12 years. But he concocted an escape plan: live within his means, and invest the difference - the tried and true method. He is a habitual analytical consumer. It doesn’t matter if he’s pondering on a bigger house or a trivial anti-glare feature upgrade on a laptop. If he can imagine living without them, he walks. And invest the money into real estate. Oh yes, he has a more ambitious plan to tackle on.

The Robert Kiyosaki (Rich Dad Poor Dad) inspired Mike has been on a string of real estate acquisitions. Four years ago, he immigrated to Vancouver while hanging on to his lone property in UK. His timing was impeccable as the Vancouver real estate boom was just at its infancy. After much research, Mike snapped up a condo in the prestigious neighborhood of Kitsilano. With his real estate holdings roaring over the past few years, he took another plunge by selling both his properties and leveraging up the proceeds to acquire 3 condos in Downtown Vancouver. Quite impressive for a 30-year old bachelor. If he keeps this up, his real estate portfolio just might multiply to 4, 5 or 6 properties within the next decade.

In addition to his consulting business and real estate, Mike also hauled away a generous stock option with him after fleeing his 9-to-5 job. When I asked what else was in his investment portfolio, he was stumped, and later replaced “investment portfolio” with “wealth”, which is broader in scope. He quipped that his wealth included both hard assets - real estate and stocks - as well as the intangibles, such as intellect. After all, he did invest countless hours and dollars to foster qualifications to become the heart-and-soul of his consulting firm. That should count for something. So much so he pegged his consulting know-how as an equal one-third weighting against his stock and real estate holdings.

I will summarize some of Mike’s key lessons contributing to his hat-trick performance:

1. Live within your means. Know the difference between needs and wants.
2. Invest, but only in something you understand. (E.g. real estate.) Collecting interests off a saving account is not investing.
3. Don’t abandon an investment too easily unless you have a more compelling alternative.
4. Take your time on key financial decisions. Leave your cheque book at home.
5. Have a 5- and 10-year financial blueprints.

I want to thank Mike for sharing his lessons with us. Please feel free to post any questions that you might have.

… and I wrote pig in a complementary sort of way.

I just returned from my first go-karting experience organized by my employer, who’s rewarding us for a job well done on some key projects. The race was quite refreshing and fun, but more exhausting than I had anticipated. I’m still feeling my tense muscles in my arms and legs, which may take a couple of days to recover. What’s worse is that I have nothing to brag about for my agony, since I finished near the bottom of the standings.

One tip I did learn from this adventure is that people who excel on the race track also excel on the corporate ladder, and they tend to be ruthless go-getters who don’t play by the rules. Who can blame them? Breaking the rules is the rule of the game if you’re determined to celebrate your victory prominently on a podium surrounded with champagne and beautiful models. So what if you’re given a warning when you deliberately knock an opponent off the track? What some see as barriers are opportunities by others. Warnings are free low-blows to your opponents. Go ahead. Take some risks. Bump the person in front of you off the track. If the referee doesn’t catch you, do it to the next opponent. How did I end up buried in the dust? Because I completed the race with these squandered free-passes in my pocket; my arsenal was filled with fully loaded weapons when the war was lost.

Don’t get me wrong. I love my co-workers. At the end of the day, this was a successful event. Everyone was blessed with a few great laughs, and no one took amiss for their karts spinning helplessly off track. But my colleagues better watch their back; when the race is on again, it doesn’t behoove to be Mister Nice Jungle Guy.

Either I lack the bargain hunting talent, or SLR lenses age well like good bottles of wine.

Recently, I’ve been hunting for a used Canon EF-S 17-55mm F2.8 IS over at CraigsList.org. This lens is everything that I’m drooling for, abet a little weak on tele-zoom. However, this lens can shoulder most of my shooting demands, which include wide angle zoom, image stabilization, wide aperture, top notch resolution, minimal distortions, and silent auto-focus. Isn’t she a beauty? If you think point-and-shoot cameras are just swell, wait till you harness the power of fast auto-focus, instant power-on, noise-free ISO settings, and most notably, low-light performance. Once you are enchanted with a Digital SLR (DSLR) camera, you’ll howl over your old vacation photos with regrets.

Trouble is sellers treat this Canon lens as if it’s an appreciating asset like stocks! At eBay, you can bypass the auction process by directly purchasing products with the “BuyItNow” logo. For instance, TriState is offering this lens for $938Cdn. If you don’t mind the grunt work, you can often snatch this lens up for $900Cdn + $100 in shipping and taxes. In short, a brand new Canon 17-55mm for $1,000.

What are they asking for over at Craigslist?

• $1,100 - warrenty expired
• $1,300 - two weeks old
• $1,200 - 10 months old
• $1,150 - age isn’t specified, but include a lens hood
• $1,250 - age isn’t specified

I’m astounded by the asking prices. Shouldn’t there be an automatic depreciation of 10% once the lens is driven off the lot? Suffice to say, I’ll go tell my wife that I’m going back to eBay to claim my brand new Canon lens.

That’s my story, and I’m sticking to it.

I recently came across Invest Skeptically by Thomas Kim. Although Thomas is new to blogging, he’s an affluent investor judging from his initial posts. I’m always on a look out for online mentors, and Thomas fits the bill perfectly. His writing resembles one of my favourite authors, John Lawrence Reynolds, of The Naked Investor.

His About page reads:

Invest Skeptically is an investment blog for the ordinary investor. Retail investors (whether from lack of time, interest, or education) are often at the mercy of savvy marketing and smooth salespeople. The purpose of this blog is to be an advocate for the retail investor by reading the fine print, sharpening my pencil, and bringing in a little bit of the training and experience that any institutional investor has available to them.

Welcome to the blogosphere!

I’ll give you the famous answer; it depends. Since we don’t live in a binary world where it’s either happy or not happy, I think money can at least buy you some degree of happiness by ridding of financial burdens. Otherwise, your life is constantly saddled with bills, debts, rents, grocery and other necessities. At the minimum, money can relieve you of these headaches, and shifts you toward the happier end of the spectrum.

If you still believe money is irrelevant to how happy you are, try watching The Pursuit of Happyness. Pay close attention to Will Smith’s expression when his character, Chis Garner, was finally accepted to Dean Witter after confronting with a string of financial predicaments in the early part of his life. Chris Garner struggled to contain his excitement on a busy New York street. (I almost cried during that scene.)

I suppose the more interesting question is, can money buy you happiness once you cover all your necessities.

Whoever said money can’t buy happiness simply didn’t know where to go shopping. - Bo Derek

Once again, the answer is… it depends. What would you do if you have a million bucks? What happens when your million dollar journey is over? I’d love to hear some of your thoughts. Personally, I’d spoil myself with a Canon EOS Mark II, and travel around the world capturing breath-taking sceneries. Of course that’s just me. Perhaps it’s too nerdy for some, and others may have different ideas of what make them happy.

Sex is one of the most wholesome, beautiful and natural experiences that money can buy. - Steve Martin

Umm… no comment.

Anyway, for most folks, I think money can buy you happiness, as long as there is something to live for. I’m not talking about squandering money on impulse, but using it to purchase items that enable you to pursuit a genuine dream(s).

I always wonder what sane people would claim that money doesn’t buy you happiness.

Money doesn’t make you happy. I now have $50 million but I was just as happy when I had $48 million. - Arnold Schwarzenegger

Well, if you have $48 million, an extra $2 million is going to be insignificant. There’s an element of diminishing return where the first million will satisfy your inner most wants, and subsequent millions will round up the secondary. Consequently, not every dollar is appreciated equally. Can money buy me happiness? It depends on which million you are referring to.

Just a short post to say happy anniversary to my sweetie. See you tonight at the Japanese steak house. Yummy.

The Two Of Us

Love,
From your Financial Jungle Guy

I’m seeing a wave of bloggers and forum members proposing a radical way to redefine “net worth”, where the primary residence is removed from the formula. Say you own a $200k investment portfolio, a $400k home and a mortgage of $100k; the new net worth calculation would simply be the $200k investment portfolio. Everyone is entitled to her opinion, and I respect that. For my own net worth calculation, I prefer the more traditional definition, mainly because I don’t share the same rationales for redefining what’s been working all along:

“The home doesn’t provide me with income.”
The home is every bit an income-generating asset as your investment portfolio, albeit your primary residence operates in a stealth mode where you can’t readily admire its income as you would with your portfolio. That’s because the income generated is in the form of rents-saved. You’ve heard of the expression “a dollar saved is a dollar earned.” If your home is saving you $1,000 in rent, that’s equivalent to earning $1,000.

“I need a roof over my head anyway”
Similar argument here. The investment portfolio is every bit a necessity as your home, otherwise house-rich and portfolio-poor individual would simply starve. Moreover, many of the stocks in our portfolios do provide essential services. We shop for groceries Loblaw’s, pump gas at Petro Canada, bank at Royal Bank, insure ourselves at Manulife, and pick up prescription drugs at Shoppers, but we wouldn’t dismiss these stocks from our net worth, so why dismiss our homes?

Mental accounting
This can become a classic case of mental accounting where “individuals divide their current and future assets into separate, non-transferable portions. The theory purports individuals assign different levels of utility to each asset group, which affects their consumption decisions and other behaviors.”

I avoid compartmentalize my assets. When I receive a windfall, I’m indifferent whether to pay down the mortgage, or invest within my portfolio. In the end, money is fungible. The same wallet funds both my home and my investment portfolio to achieve the same common goal: financial freedom. I’ll conclude with a quick example outlining the awkward disparity when compartmentalizing assets into different buckets:

Twin brothers having identical balance sheets: $200k portfolio, $400k home and $100k mortgage. They both receive a $100k windfall. Brother A pays off his mortgage completely. Brother B decides to increase his “net worth” by topping up his portfolio to $300k.

Would you deem brother B having a richer net worth? But, he still owes $100k in his mortgage, while brother A is debt-free. Taking one step further, brother B becomes stock-bullish and plunges $200k worth of Home Equity into his portfolio. Now he holds a $500k portfolio, but clearly his is not thriving as the mounting debt is impeding his progress.

The example demonstrates that measuring your net worth solely based on the investment portfolio gives you a narrow view of your overall financial health. The proposed new definition curtails net worth as a tool to benchmark between peers, or to gauge of your financial progress.