Thursday, July 31, 2008

Our Daughter is Using her Currency

Our Daughter's Currency shared how stickers and progress chart drawings were of value to our nearly four year old. We are now offering the opportunity use her stickers to "purchase" things that she would like. For example, for 25 earned stickers, she can choose to have the family go to her favorite restaurant for a meal. Of course, mom and dad still pick up the bill.

From this exercise, our daughter is starting to understand the concept of "earning" and "accumulation." She receives stickers for completing certain tasks and she needs to accumulate a certain amount before "purchasing" a reward. Interestingly, she also takes pride that she "earned" the stickers for her reward. Finally, she also understand that "earning" takes effort to do something she might not do on her own and that "earning" delays getting what she would like.

I also like that this exercise is partly about teaching responsibility. We are rewarding her for doing things like getting dressed in the morning, brushing her teeth and taking her plate to the sink. I am against paying a child for learning her expected chores. However, the stickers seem like a reasonable compromise. Her contribution of chores is rewarded by commensurate decision input into where the family goes for dinner, which I think is a fair tradeoff :-)

Although our daughter does know about money and its use, we haven't moved to the allowance stage. I expect that is still at least a year away and a new opportunity for me be tested as a parent :-)

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or parenting advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Wednesday, July 30, 2008

Preparing for Others to Handle One's Financial Tasks

Many times one person in a family handles the majority of financial matters, e.g. investments, bill paying, taxes, etc. This division of responsibilities is often very efficient and convenient, as long as the person handling the matters is available. However, if that person is unable to do the financial tasks, for whatever reason, it is sometimes difficult for the other members of the family to do the work, because only that person knew what and how the tasks were being done.

I learned this recently when my dad passed away. He had been handling 100% of the financial matters, with limited involvement from my mom. Although he tried to get her to be more active, she resisted. As a result, my mom was unable to take over the finances when he passed away. So the children took over and we've are still working through the details after more than two years.

Based on this experience, here are some steps we've taken to minimize the transition of financial tasks in our family.
  • Hire professionals. The two main areas I'd consider are a financial advisor and a tax preparer. Currently, we have a financial advisor that manages about a third of our savings. I still do our taxes on my own.

    Our financial advisor works with a number of retirees from my company and, therefore, is very familiar with benefits for the surviving spouse. In addition, our advisor's style is consistent with our investment preferences, and would maintain continuity of our investment plans.

    At some point, I will hire a professional to do our taxes. In the meantime, I keep very good records. For example, we have copies of every tax return we've every filed, with all the backup documentation for the past three years.


  • Share the financial tasks. We've each had responsibility for most elements of our financial tasks, from bill paying to investment records. Since we've each done most of the financial work in the past three years, we know what needs to be handled for our family.


  • Simplify. Reduce and automate is our approach. We use one bank, one financial advisor, two discount brokerages (and working towards one) and two credit cards (and a third one not actively used). Our mortgage is paid automatically each month, and the rest of our bills are paid via the Internet. We have one file for all tax receipts for the current tax year.


  • Keep transparent records with easy access. We have hard copy binders or file folders of all important financial records including bank statements, brokerage statements, recent bills, and tax returns. In addition, we choose to get hard copies of all our account statements. Hard copy statements helped us quickly find out all of my dad's accounts after he passed away. If he had received e-mail statements, we probably would still not be aware of some accounts.


  • Create a legal transition plan. Both my spouse and I have revocable living trusts that specify the succession plan for handling our financial affairs should we not be able to manage them. My parents also did this, which has helped make the transition of financial responsibility to the their children easier to do.
  • Of course, one never expects to have financial responsibilities transferred to someone else. However, when it should happen for me, I want to make the transition as easy as possible.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or legal advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, July 29, 2008

    Facing Reality Can Be Good

    Turning around a poor financial situation sometimes requires facing the brutal truth. Merrill Lynch did that yesterday when it sold off $30.6 billion of CDOs for $6.7 billion, for $0.22 on the dollar.

    Many financial institutions continue to hold their CDOs at 70% of face value, hoping that a recovery in financial markets will restore their value. Unfortunately, the carrying institutions need to periodically value the CDOs to market, which has resulted in continuing writedowns each quarter. Merrill's action, while very painful, gets rid of the burden of illiquid debt and allows Merrill to proceed unencumbered by the CDO cloud.

    While I don't know if this signals a bottom for financial stocks, I believe it may indicate the bottom for Merrill. I decided to buy 100 shares of Merrill Lynch (MER) for $24.99 in my trading account. If Merrill should rally as other financial institutions take Merrill's approach, I will look to sell the position in the mid thirties.

    Disclosure: At time of publication, I own Merrill Lynch in my trading account.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Links to Carnivals from July 28, 2008

    Here are links to Carnivals in which My Wealth Builder participated on July 28, 2008:

    Carnival of Personal Finance #163

    Festival of Stocks #99

    Carnival of Family Life

    For more on Ideas You Can Use , check back every Tuesday for a new segment.

    This is not financial, investment or family advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, July 28, 2008

    7/28/08 Stock Position Update - Purchased More Potash

    I have continue to take actions based on my buy list and short list of 7/7/08. So far I have taken four long and one short position. At this point, I believe the market will have a short term rally. Given the volatility of the market, I continue to be cautious for both purchases and selling short.

    For reference, the stocks on my 7/7/08 buy list were: Potash (POT), Research in Motion (RIMM), Bucyrus (BUCY), Williams Cos. (WMB), Southwestern Energy (SWN), Hess (HES), and Range Resources (RRC). The stocks on my 7/7/08 short list were: Las Vegas Sands (LVS), Sears Holdings (SHLD), and Life Time Fitness (LTM).

    From My Wealth Builder 7/7/08 Buy List
    Stock [purchase date]SharesPurchase Price

    Price on 7/25/08

    Range Resources (RRC) [7/10/08]50

    $58.17

    52.11

    Potash (POT) [7/18/08]10

    $215.09

    202.27

    Southwestern Energy (SWN) [7/18/08]50

    $39.46

    $34.00

    Potash (POT) [7/24/08]10

    $192.02

    202.27



    The fall in oil material prices has caused Southwestern Energy, Range Resources and Potash to decline this week. I used this as an opportunity to buy more Potash below my target price 200.


    From My Wealth Builder 7/7/08 Short List
    Stock [short date]SharesShort Price

    Price

    Las Vegas Sands (LVS) [7/7/08]100

    $38.10

    closed 7/11/08 @ 33.69



    I have only able to short Las Vegas Sands so far, which I have closed. When I tried to short Sears Holdings and Lifetime Fitness two weeks ago, my broker cancelled the order since the "stock is not available to sell short." In talking to a broker, I found out that shares of Sears Holding and Lifetime Fitness require special actions to be shorted. First, the stock need to be "rented" from a shareholder for about 0.1% a day and a minimum of $50,000 needs to be shorted. Too expensive for me to short. I will need to find other stocks for shorting.

    The market continues to be choppy. As of the close on 7/25/08, the Dow, Nasdaq and S&P 500 indices were respectively down 13.08%, 12.89%, and 13.35% year to date. Two of the three indices are significantly below the previous respective lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update. In addition, all three indices have been in bear market territory.

    I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data of the first half 2008 has caused the bull market to end earlier. I expect the market to continue to be choppy in 2008 with many short term rallies and declines.

    For now, I will try to create a long and short portfolio in my trading account. I will continue to maintain my holdings managed by our financial advisor, and plan to sell a duplicated funds during any strong rally which may occur.

    Disclosure: At time of publication, I am long Range Resources, Potash and Southwestern in my trading account. The managed accounts are long Range Resources, Hess, and Sears Holdings.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, July 27, 2008

    Shorting Is Risky - My Experience with Las Vegas Sands

    Recently, I started shorting stocks, which is selling a stock and then buying it back later at, hopefully, a lower price. As I've written before, shorting should only be done by experienced traders. My most recent short, Las Vegas Sands (LVS), is a good example of the inherent risks when shorting a stock.

    On June 29, 2008, I wrote that it was time to short stocks, and highlighted Las Vegas Sands as a possibility. It had just hit a 52 week low and closed at $47.10 down from a high of $147.76.

    After doing more research (and missing a further $9 of decline), I shorted Las Vegas Sands on 7/7/08 at $38.10 and then closed out the position on 7/11/08 at $33.69. Besides taking a quick $441 profit, I closed out the position for two other reasons. First, Fannie and Freddie was on the verge of collapse and it was likely the government was going to take action over the weekend. Second, I was planning to be out of town the following week with no access to my trading account. Both situations made it risky to have an unmonitored short position.

    As it turned out, in the following week Las Vegas Sands dropped to a low of $30.56 and closed at $38.58 on Friday, which would have been a slight loss for my short position. However, the following week, the stock rose as high as $56.67, due to a short squeeze , and closed at $43.88.

    If I had not closed out my short position, a $441 gain would have turned into a $578 loss, in the span of two short weeks. At last week's high of $56.67, my loss would have been $1857, very painful for just three weeks of being short. Ouch!

    At this point, I am happy that I was a bit lucky to profit from the short sale of Las Vegas Sands. Even though it appears I dodged a bullet, I still think Las Vegas Sands is a good stock to short, since the casino industry is being adversely affected by the higher oil prices. In addition, the stock was unable to sustain the rapid rise from $30.56 to $56.67, which appears to be a short rally before the stock falls again.

    Therefore, despite the apparent volatility risk, I may be shorting Las Vegas Sands again in the future, especially if the current market rally weakens.

    Disclosure: At the time of publication, I do not have a position (long or short) in any stock mentioned for my trading account. Our managed accounts are long Fannie Mae and Freddie Mac.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, July 26, 2008

    Reflecting on One of My Favorite Sayings

    "If it sounds too good to be true, then it probably is."

    We've had many recent examples of the accuracy of this statement.

    1. In the the nineties, the sentiment was that the stock market had nowhere to go but up. The economy had reached new heights, driven by technology and the Internet, never to fall again. Millions of people flocked to technology mutual funds and technology stocks, which rose steeply until 2000 and then the bubble burst. The NASDAQ is still down almost 54% from its closing high of 5048 in March, 2000.

      Yes, becoming rich on tech stock investments was too good to be true.


    2. Not long afterwards in 2001, a housing bubble began in the United States, which ended in 2005-2006. During this time, people were able to finance 100% of their home, sometimes with No Income, No Asset loans. While the market was rising, borrowers could often sell their property for a higher price after owning it for a short time. However, when the housing bubble burst many buyers with these aggressive mortgages found themselves with property less than the value of the loan.

      Yes, a home being a never ending cash machine was too good to be true.


    3. Then the concept of securitization of debt was pressure tested in 2007 to 2008. The theory was that securitization of debt reduced risk and, therefore, increases the safety rating of higher risk bonds. (Collaterized Debt Obligations ) of mortgages were given higher credit ratings than the underlying instruments, thus increasing the number of people willing to buy them. After all, if the agencies gave a CDO a coveted AAA rating, it was to be believed...until defaults and foreclosures began increasing. The writedowns of the CDO values has resulted the demise of Bear Stearns, and significant losses by major banks and investment banks.

      Yes, making high risk investments "safe" was too good to be true.


    4. Finally, this weekend the Senate passed the Housing Bill, which will take effect October 1, 2008. It is estimated the bill will help 400,000 borrowers with $68 billion in mortgages, and may help up to 1 or 2 million borrowers. As President Reagan once said, "The nine most terrifying words in the English language are: 'I'm from the government and I'm here to help.'" Although, the bill has some good elements, such as participants returning profits from the sale of their home for a designated period, I am skeptical that the benefits will be as good as Congress projects. After all, the bill is expected to cost the government $25 billion and as much as $100 billion to bail out homeowners, Fannie and Freddie...money the government doesn't have to spend.

      Yes, this government intervention solving the crisis will likely be too good to be true.

    Unfortunately, I think more bad news is coming.

    As Lily Tomlin once said, "Things are going to get a lot worse before they get worse." I used the same quote in January, 2008 and March, 2008. Hopefully, this is the last time I will need to quote Lily Tomlin this year.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, July 25, 2008

    Make Money from Hobbies in Early Retirement

    Early Retirees in New Ventures, Mostly for Fun by Brent Bowers shares an interesting phenomenon with early retirees. They are turning their hobbies into micro businesses, and adding profit to the fun. The article provides examples of two early retirees that turned their hobbies in photography and decorative mobile building into businesses that have made from $1000 to $4000 in a year.

    Of course, $4000 a year is not enough on which to live. These early retirees are counting on other sources for living expenses. However, it is a low risk way to start a business. For them, it's also a bonus to get paid for something they love to do.

    Finally, the article recommends consulting an account or attorney when converting a hobby into a business, in order to understand the latest tax rules and regulations. I would also add checking with one's insurance agent. In my case, I found out that personal coverages that exist for the hobby, may not extend to the business part.

    For more on Reaping the Rewards , check back every Friday for a new segment.

    This is not financial, tax, business or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, July 24, 2008

    Over-Scheduling Has Become the Norm

    "I don't make my own schedule - it's constructed around my sons' school schedules." ~ Jane Haddam

    It took me lifetime to become over-scheduled. Nowadays, it seems kids are over-scheduled from the very beginning.

    In my youth, it seemed I had time to do everything I wanted. There was always free time after school and on weekends, even after homework and extracurricular activities.

    Early in my career, we could easily get our work done during an 8 hour work day. In addition, we had the flexibility to use 10-20% of our time on "new idea" projects. I always had time for personal activities and vacations. I even once asked for days off with out pay, because I started working too late to get any vacation.

    In my last assignments, my schedule was completely determined by others, in particular colleagues and organizations with whom I worked. Sometimes, I would have every minute of the official work day scheduled, with little time for other matters. As a result, other important work needed to be done before or after the official work day, cutting into my personal time.

    Nowadays, I've notice that full schedules are trickling into the lives of kids. From an early age, children seemed to be over scheduled with school, enrichment activities and sports, which all seem to require more focused commitment nowadays than before. For example, in sports, qualifying for a school team often requires practicing in the off season or playing for other competitive teams.

    I miss the time when play was ad hoc, a sport was only a commitment during the season, and ample free time was available. After all, we're only kids once and there is a lifetime ahead of being an over-scheduled adult.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial or time management advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, July 23, 2008

    My Strategies for Weathering a Bear Market

    Bear markets are painful experiences. Having been an investor in 8 of the last 10 bear markets, I can personally attest to the pain.

    Here are some strategies I use to minimize the pain of a bear market:
    1. Own some boring, safe stuff. CDs and bonds, when held to maturity, do not lose money money in a bear market. And they continue to grow one's portfolio at the rate of interest payments. Cash also doesn't decline in a bear market.

      A common argument against CDs and bonds is that they don't keep up with inflation. My response is "neither does a negative return on stocks." I do agree that being 100% cash, CDs and bonds does poorly against inflation. However, having 10, 20 or even 40% invested in CDs, bonds or money market funds can be a good hedge when the market goes down.

      For example, my trading account is 42% CDs/Bonds, 49% money market, and 9% stocks. It is up 1.3% for the year. On the other hand, our managed accounts, which are 97% stock and 3% money market, are down 11.2% year to date.


    2. Own mostly quality companies and avoid poor performers. While affecting all stocks, bear markets seem to devastate poor performing companies. Strong companies, (e.g. GE or P&G) tend to survive bear markets. Marginal companies often go out of business or are sold at distress sale prices, e.g. Pets.com.

      In the 2002 bear market, I made the mistake of buying stocks in marginal companies as the market was declining. Some of the stocks kept going down, never recovered, and resulted in losses for my investment.


    3. Hedge. No one can predict the short term direction of the market with 100% accuracy. Therefore, I like to take small positions opposite to my expectation, to offset some of the losses. For example, our managed accounts are 97% invested in diversified portfolio of stocks, since I expect the market to be up in the long term. However, I currently have mostly CDs, bonds and cash in my trading account and will take some short positions, in case the current market advance is only a bear market rally.

      Another way I hedge is to take some profits with a stock that has risen significantly, selling 20 to 50%, and sometimes 100%, of a position to lock in some gains. I recently did this with Potash and Google.


    4. Be Patient. Historically, bear markets have always bottomed and the market then begins the next phase of a bull market. The length of a bear market averages a year in duration, but typically is less than two years and can be as short as a few months.

      By owning quality stocks and having sufficient cash, I believe I can wait out the bear market and participate in the next major bull market.

    Of course, there are no guarantees. The magnitude of the current financial and economic crises may cause the bear marekt to last longer or cause more quality companies to go out of business. However, I am still betting on history and expect that this 10 month old bear market will bottom within the next year.

    Disclosure: At the time of publication, I own GE, P&G, Potash and Google.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, July 22, 2008

    Are my Bank Deposits Insured by the FDIC?

    Although I have been careful keep our bank accounts under the FDIC maximum insurance limits, I decided to do a quick check, given about 5% of deposits were not covered by FDIC insurance in the recent IndyMac takeover.

    Here's a summary of my research:

    1. FDIC insurance only covers checking accounts, savings accounts and CDs. It does not cover other financial products such as mutual funds and money market funds.


    2. Insurance is per person by type of account in each bank. Individuals are insured up to $100,000 for all single accounts by the same person at one bank. Joint accounts are separate from individual accounts are insured for up $100,000 per co-account holder, i.e. all joint accounts for each co-owner are added up. Certain retirement accounts are insured up to $250,000 per person. Revocable trusts are insured up to $100,000 per qualified beneficiary.

      At IndyMac, some depositors mistakenly thought multiple single accounts, in the same name, would give protection over $100,000. The correct answer is to have multiple single accounts at different banks, each below $100,000.

    I already knew the mutual funds and money market funds were not insured by the FDIC. However, before doing this research, I didn't know that single accounts at the same bank were aggregated together for FDIC insurance purposes. I had always thought that a checking account, a savings account, and CDs in the same name were each insured for $100,000, for a total of $300,000. WRONG! Fortunately, because we have investing in CDs at different banks, we don't exceed $100,000 at any one bank for single accounts in the same name.

    For more details, see Your Insured Deposits by the FDIC. For specific information on types of accounts, see the Ownership Categories by the FDIC.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Links to Carnivals from July 21-22, 2008

    Here are links to Carnivals in which My Wealth Builder participated from July 21 -22, 2008:

    Carnival of Family Life

    Carnival of Personal Finance #162

    Festival of Frugality #135

    This is not financial or family advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, July 21, 2008

    7/21/08 Stock Position Update - Bought Potash and Southwestern Energy

    I have started purchasing and shorting stocks from my buy list and short list of 7/7/08. So far I have taken three long and one short position. At this point, I believe the market will have a short term rally. Given the volatility of the market, I continue to be cautious for both purchases and selling short.

    For reference, the stocks on my 7/7/08 buy list were: Potash (POT), Research in Motion (RIMM), Bucyrus (BUCY), Williams Cos. (WMB), Southwestern Energy (SWN), Hess (HES), and Range Resources (RRC). The stocks on my 7/7/08 short list were: Las Vegas Sands (LVS), Sears Holdings (SHLD), and Life Time Fitness (LTM).

    From My Wealth Builder 7/7/08 Buy List
    Stock [purchase date]SharesPurchase Price

    Price on 7/18/08

    Range Resources (RRC) [7/10/08]50

    $58.17

    59.22

    Potash (POT) [7/18/08]10

    $215.09

    209.11

    Southwestern Energy (SWN) [7/18/08]50

    $39.46

    $38.53



    Originally, I was not planning to purchase any of the four oil and gas stocks: Williams Cos. (WMB), Southwestern Energy (SWN), Hess (HES), and Range Resources (RRC). However, this week's further decline in oil prices caused me to reconsider and buy Southwestern Energy and Range Resources. In addition, I decided to buy Potash even though it was above my target price 200, since my market indicators show a rally is likely to happen.


    From My Wealth Builder 7/7/08 Short List
    Stock [short date]SharesShort Price

    Price on 7/18/08

    Las Vegas Sands (LVS) [7/7/08]100

    $38.10

    closed 7/11/08 @ 33.69



    I have only able to short Las Vegas Sands so far, which I closed out before the market rally of last week. When I tried to short Sears Holdings and Lifetime Fitness two weeks ago, my broker cancelled the order since the "stock is not available to sell short." This seemed strange since both stocks have trading volumes between one and three million shares per day. If the market rallies significantly this week, I may try to short all three stocks again.

    The market continues to be choppy. As of the close on 7/18/08, the Dow, Nasdaq and S&P 500 indices were respectively down 12.12%, 13.93%, and 13.13% year to date. Two of the three indices are significantly below the previous respective lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update. In addition, all three indices have been in bear market territory.

    I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data of the first half 2008 has caused the bull market to end earlier. I expect the market to continue to be choppy in 2008 with many short term rallies and declines.

    For now, I will create a long and short portfolio in my trading account. I will continue to maintain my holdings managed by our financial advisor, and plan to sell of small portions during any short term rallies, which hopefully will occur.

    Disclosure: At time of publication, I am long Range Resources, Potash and Southwestern Energy in my trading account. The managed accounts are long Range Resources, Hess, and Sears Holdings.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, July 20, 2008

    My Plan to Profit from a Bear Market Bounce

    Once again the government has stepped in and prevented a major financial crisis, this time with Fannie Mae and Freddie Mac. Investor confidence rose and the market rallied. I expect the rally to continue, at least for this week and perhaps for several. However, I believe that this will only be a bear market rally, because the housing correction, financial crises and high energy prices will continue.

    Here's how I will look to profit from this rally:

    1. Continue to increase our cash position. In the last rally, I increased our cash position by selling the positions in our trading account and a small portion of our managed account, all at a profit. Unfortunately, based on the decline in June, 2008, I didn't sell enough :-(


    2. Buy small trading positions in stocks I expect to rally. I will take small positions (10 to 50 shares) from my 7/7/08 buy list. This past week, I added 10 shares of Potash (POT) and 50 shares of Southwestern Energy (SWN) to my trading account, which already had 50 shares of Range Resources (RRC).

      I will sell out of these positions when it appears the rally is ending.


    3. Look for additional stocks to short. The bear market rally should create additional opportunities for shorting stocks. My 7/7/08 list of stocks to short included Las Vegas Sands (LVS), Sears Holdings (SHLD), and Life Time Fitness (LTM). I had eliminated some stocks due to the price being below $10. The rally may lift some of these stocks above $10.

      For perspective, I do not plan to short any energy stocks at this time. Too risky.


    4. Buy an ETF that shorts financials. It's hard for me to believe that the crisis in our financial systems is over. I expect at least one other major financial upset, perhaps another investment bank failure (e.g. Lehman) or multiple regional bank failures.

      In the past, I've been reluctant to short an individual financial stock for two reasons: 1) the high probability of a sharp bounce like the one last week; and 2) the high dividend (e.g 5% or more) paid by most financial stocks. However, the UltraShort Financial ProShares (SKF) ETF offers a lower risk way to short financial stocks. If this ETF gets close to $100, I will purchase some shares. For reference, it closed at $138.00 last week, down from a high earlier in the week of $211.75.
    Finally, to keep from being suckered into this rally, I will keep repeating, "This is just a bear market rally." :-)

    Disclosure: At the time of publication, I own Range Resources, Potash and Southwestern Energy in my trading account. Our managed accounts own Range Resources and Sears Holdings.

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial or stock investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, July 19, 2008

    This Week's Government Intervention - A Two Edged Sword

    The good news is that the government has prevented a meltdown of financial systems. From IndyMac to Freddie and Fannie, the Fed was able to restore enough confidence in financial markets, averting a major crisis once again, for now.

    The bad news is the intervention confirms that financial systems are still very fragile and the economy is still weak, if not already in recession. As a result, the bear market is likely to continue, with further declines before a bottom.

    In the meantime, it appears that the stock market will have another rally, as oil futures decline and financials rally. My goal is to avoid being suckered into this rally. I will keep repeating, "This is a bear market rally," until I see VIX rise past 30, as it did for the bottom in 2002

    In my opinion, this is a trader's market, with short term opportunities to buy and then sell into the rally. If the rally is strong, I will also close out one managed account in our taxable savings, since it is duplicated in our tax exempt savings. Finally, I will continue to look for stocks to short as the market rallies, since I believe there will be another sharp decline in the future.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial or investing advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, July 18, 2008

    Five Retirement Risks

    Yahoo Finance and U.S. News & World Report both recently published articles based on the Society of Actuaries list of five top retirement risks. According to the articles, they are:
  • Inflation - The reduction of spending power can significantly reduce the standard of living during retirement. The articles recommend investing in equities, TIPS, and appreciating assets, such as a home.

    My main concern is that the stock market may crash in the next few years. We've already had a lost decade from investing in the stock market.


  • Outliving assets - A colleague of mine had an uncle that retired at sixty-five. He spent his savings as if he were going to die by eighty-five, since his family had a history of dying young. It was a great retirement until eighty-five. Unfortunately, from a financial point of view, he lived into the nineties, making for a very tough decade in his final years.

    We've planned our retirement savings to last into our nineties. However, I realize that we could possibly live to one hundred and am looking at potential back-up plans such as selling our house or buying a lifetime annuity later in life.


  • Loss of spouse - The loss of one or the only wage earner prior to retirement can be devastating. While I was working I carried life insurance to protect against this risk. Now that we're both retired, this risk is not a major one. Should either of us die, Social Security would provide survivor benefits since we still have a minor child. These benefits would augment the retirement savings that we estimate are already sufficient for both of us.


  • Declining health - This is a major concern. As one lives longer, there is an increasing probability of spending time in a nursing home facility. We currently carry long term care insurance to help cover this.


  • Medical expenses - Medical expenses and needs are expected to rise as one gets older. At this time, we are carrying retiree insurance from my company. Hopefully, it will continue to be sufficient at a reasonable cost.

  • In Pondering Our Financial Risks In Our Retirement from late 2007, I contemplated similar risks : 1) Stock market returns; 2) Health issues and 2) Longevity. At that time, I concluded that we were OK. However, the recent stock market performance has caused me to consider going back to work as a way to reduce some of the risk.

    For more on Reaping the Rewards, check back every Friday for a new segment.

    This is not financial or retirement advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, July 17, 2008

    A Kitchen For The MindTM

    One of my work seminars that I vividly remember was done by Mike Vance, who gave us the the terms Think Out Of The Box and Kitchen For The MindTM .

    I particularly liked the idea of a Kitchen For The MindTM, which was about creating a smorgasbord for the mind. As I remember, the concept was a room with the tools necessary to help the mind to expand and grow. This room would be analogous to a kitchen, with all its tools and appliances for creating meals, i.e a refrigerator, stove, oven, food, pots, pans and utensils. Similarly, a Kitchen For The MindTM would be a dedicated room with tools and appliances such as computers, video editing, microscopes, books, telescopes and musical instruments, providing opportunities to use and experience various elements to expand the mind and discover new interests.

    While we have not created a room in the house for this purpose yet, we are trying to give our daughter opportunities to experience many different elements. In addition to pre-school, we have enrolled her in swim, art, nature and dance lessons. Also, we have been taking her to zoo, museum, theater and music activities for children. Hopefully, this exposure will start providing us leads as to what may be her future interests and passions.

    When creating a Kitchen For The MindTM room, I plan to start with a number of things she already has: art supplies, games/toys, and musical instruments. To that, I plan to add items saved from my childhood, e.g. microscope, electronics lab, puzzles and science books. In addition, we'll need to increase the diversity in the above areas, e.g. new musical instruments. Finally, I expect we'll need to provide parental coaching and inspiration, or have instructors where we are not experienced.

    A Kitchen For The MindTM room will hopefully be lots of fun for everybody.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial or educational advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, July 16, 2008

    My Best Money Decisions

    In hindsight, here are some of the decisions and actions that I think helped us achieve our personal finance goals:
  • Marrying my wife. Personal finance success is a team accomplishment. If everyone in the family isn't working towards the goal, then it may be hard to achieve. Fortunately, my wife and I have equivalent views on personal finance. In many areas, we are the same, e.g. buying what we need, getting a degree that leads to a job, and avoiding debt.

    The reason I said equivalent is that we are not the same in every aspect. There are areas when I spend more than she would and vice versa. Also, I am a trader of stocks, while she prefers to buy and hold.


  • Working for a good company. I was fortunate to work for an excellent company from graduation until I retired in my forties. The retirement savings was based entirely on company stock, which has done very well, so far (knock on wood). In addition, as a retiree, my family is covered by the same health plan as employees, although for a higher cost.


  • Paying ourselves first. Once we figure out that is was important to pay ourselves first, our savings grew and kept growing. It also helped us establish a discipline of buying only what we need.


  • Avoiding debt. The only debt we have carried are a mortgage, a car loan and a student. We have paid off our student loans and car loans a long time ago. We now only have a mortgage, which we are targeting to pay off in 15 years.

    While we do use credit cards, we pay them in full every month.


  • Conservative investments. Preserving capital can be as important good earnings in volatile markets. While working, our main goal was to invest in options that had good preservation of capital. This approach helped us avoid major losses during declines such as the technology stock bear market.
  • Of course, one never knows if a decision is a good one until long after the fact and there is probably an element of luck involved in each one of these.

    For more on The Practice of Personal Finance , check back every Wednesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, July 15, 2008

    Digital Converter Box - A Cost Effective Alternative To HDTV For Us

    Earlier this year, I thought I might have to buy an HDTV due to the conversion of television broadcasts to digital in February, 2009. Fortunately for me, a commenter let me know that there was an alternative. Converter boxes would be made available to enable analog TVs to keep working after February, 2009. In addition, the government provides $40 coupons that can be offset the cost of the converter.

    In April 2008, I used my $40 coupon and a $25 gift card for Circuit City and purchased a Zenith DTT900 digital converter box for $59.99 plus tax. I installed it in May, 2008, and have been very impressed with the digital channels we are receiving. Here is a summary of my experience with the Zenith DTT900:

  • Installation - I am a do-it-yourself type person, and I considered this one very easy. The instructions were clear and all the parts were provided (e.g. cables). The hardest part was getting access to the back of the VCR/DVD and TV, which are housed in a entertainment center.


  • Functionality - Well designed and easy to use. The remote can work on both the converter box and the existing TV. The remote also allows easy conversion of aspect ratios to a standard TV.


  • Reception - The converter box gave us access to all the local digital channels, which doubled the amount of broadcasts we receive. PBS stations have multiple broadcasts, providing us more variety and quality.

    The quality of reception also improved significantly. We no longer get the "snow" of analog broadcasts. Occasionally (less than 1% of the time), we get poor reception, which results in no reception since digital is either "on" or "off."


  • Wish fors - My only complaint is that the converter box doesn't allow a "passthru" for the analog signal. Thus, our VCR and standard TV do not receive a signal and we are required to turn on the converter every time. In addition, I can no longer record shows on the VCR.

    The solution is to get a splitter. However, since this would only work until February, 2009, I probably will just live with it and save the money.

  • To note, we only receive digital and not high definition. However, I still consider using a digital converter to be a superior cost option to buying a new HDTV or subscribing to cable/satellite.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial or electronics advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, July 14, 2008

    7/14/08 Stock Position Update - Long and Short

    I have started purchasing and shorting stocks from my buy list and short list of 7/7/08. So far I have taken one long and one short position. Both were profitable at the end of the week. However, given the volatility of the market, I continue to be cautious for both purchases and selling short.

    For reference, the stocks on my 7/7/08 buy list were: Potash (POT), Research in Motion (RIMM), Bucyrus (BUCY), Williams Cos. (WMB), Southwestern Energy (SWN), Hess (HES), and Range Resources (RRC). The stocks on my 7/7/08 short list were: Las Vegas Sands (LVS), Sears Holdings (SHLD), and Life Time Fitness (LTM).

    From My Wealth Builder 7/7/08 Buy List
    Stock [purchase date]SharesPurchase Price

    Price on 7/11/08

    Range Resources (RRC) [7/10/08]50

    $58.17

    63.17



    Originally, I was not planning to purchase any of the four oil and gas stocks: Williams Cos. (WMB), Southwestern Energy (SWN), Hess (HES), and Range Resources (RRC). However, this week's decline in oil prices caused me to reconsider and actively try to buy Southwestern Energy and Range Resources (done). In addition, Potash briefly dropped intraday below my target price 200. Unfortunately, I missed the dip and Potash is back up to the 220s.

    From My Wealth Builder 7/7/08 Short List
    Stock [short date]SharesShort Price

    Price on 7/11/08

    Las Vegas Sands (LVS) [7/7/08]100

    $38.10

    closed 7/11/08 @ 33.69



    I was only able to short Las Vegas Sands. When I tried to short Sears Holdings and Lifetime Fitness, my broker cancelled the order since the "stock is not available to sell short." This seemed strange since both stocks have trading volumes between one and three million shares per day. I may need to change brokers if I continue to have this issue.

    For reference, I closed my short position since I believe the Fed may take action over this weekend to mitigate the most recent financial crises with Fannie Mae, Freddie Mac and IndyMac and cause market to rally next week. Thus, I took my profits on Las Vegas Sands before the weekend.

    The market continues to be choppy. As of the close on 7/11/08, the Dow, Nasdaq and S&P 500 indices were respectively down 15.2%, 15.58%, and 14.63% year to date. Two of the three indices are significantly below the respective lows of 9.37%, 16.58% and 11.86% in my 3/17/08 Stock Purchase Update. In addition, all three indices are down 20% from the 2007 peaks, putting them in bear market territory.

    I continue to believe that the probability of a recession in 2008 is relatively high, if we are not already in one. The multitude of negative factors will eventually outweigh any actions by the government and financial institutions. Originally, the Fed interest rate cuts and other actions led me to expect that the bull market would last through summer, 2008. However, the economic data of the first half 2008 has caused the bull market to end earlier. I expect the market to continue to be choppy in 2008 with many short term rallies and declines.

    For now, I will create a long and short portfolio in my trading account. I will continue to maintain my holdings managed by our financial advisor, and plan to sell of small portions during any short term rallies, which hopefully will occur.


    Disclosure: At time of publication, I am long Range Resources in my trading account. The managed accounts are long Range Resources, Hess, and Sears Holdings.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, July 13, 2008

    Is Capitulation Near?

    I think so.

    Let' s look at what happened this past week.
  • Financial companies are being crushed. Two months ago, I didn't think financial stocks could go an lower. Fannie Mae, Freddie Mac, and Lehman all lost significant value since. Not only are financial stocks going lower, but some, like IndyMac, are going to zero. There are likely more failures to come.

    I wouldn't be surprised if more government intervention is crafted over this weekend and announced Monday.


  • Oil hit $147 a barrel. Businesses are getting crushed by the expenses, which continue to increase as oil based raw materials and transportation costs increase. These costs will have to be passed on to consumers. As a result, consumer spending will decline significantly.

    I found it interesting that twelve airline CEOs have written a letter to the public for help to reduce oil prices. If I really had that kind of power, I would have reduced gasoline prices to $2 per gallon a long time ago :-)


  • VIX is rising. The CBOE volatility index is considered a barometer of investor's fear. It rose to almost 30 in Friday's trading. For reference, the VIX reached almost 40 in September 2002, at last major bottom of the Dow.

  • The only place to hide is in energy and agricultural stocks, which I believe is a sector bubble. When the energy and agricultural bubble pops, capitulation will happen.

    For more on New Beginnings, check back every Sunday for a another segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, July 12, 2008

    Plan B - Undoing Early Retirement

    After reviewing our Q2 2008 financial status, I am seriously considering going back to a "real" job. For the first half of 2008, our retirement savings has declined by 21.3% (or about 4.5 times my pre-retirement salary), which has been a major stress test of our retirement plans.

    At this point, we still are not panicking. However, we are considering some alternate options to our primary choice of full retirement.

  • Same industry, same job. If I wanted to do the same work, I would have stayed and not taken early retirement. However, if I really do need to go back to work, this would be likely be the "fastest" option. I rank this option third.


  • Same industry, different job. If I wanted to work in the same industry, I'd want the advantage of having the same type of job. I rank this option fourth.


  • Different industry, same job. While I enjoyed doing research and development (R&D), I think I would enjoy a job more directly involved with the end product and the customer. I rank this option second.


  • Different industry, different job. I rank this option first, since it may give me the opportunity to work in areas for which I have passion. One option I've started investigating is a government financial service job, in the Department of the Treasury. The seasonal part time work I did earlier this year has provided some relevant experience.

    Based on an Internet search, there are some openings in my current location. Even though they are full time positions, my spouse pointed out that it would still be about 60% of hours I used to work in a week:-)

  • I'll be submitting an application to my first choice job later this month. However, since I don't expect the first try to be successful, I will continue to explore other opportunities for my first choice of different industry, different job.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, July 11, 2008

    Early Retirement - A Lifestyle Choice

    I recently ran into a colleague who also decided to retire early. We were comparing notes on our careers and our early retirement decision. We concluded from our discussion that early retirement from our company was really a decision about lifestyle.

    As we reminisced about our project in the eighties, we realized that we worked hard, travelled a lot AND we still had sufficient time for our personal and family lives. Our most recent assignments were much more demanding. They had become 24/7 projects, particularly due to global reach and continuous connectivity. While we were well compensated for the work, the trade off was less personal time for family and other matters.

    For both of us, our decision on early retirement was one about lifestyle. It was a choice between working hard, being paid well and having less time for family. Or retiring, perhaps working, and having much more time for family and friends. Our decision was for more time and more flexibility.

    While we both enjoyed the time we worked for our company, we are also looking forward to future, which we expect to be a better balance between work and a personal time.

    For more on Reaping the Rewards , check back every Friday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, July 10, 2008

    Emotional Stages During A Bear Market

    Having been an investor through the last four bear markets, I can tell those experiencing their first is that bear markets are pretty painful, both emotionally and financially. As the stock market goes up and (mostly) down, there are emotional highs and (mostly) lows. The emotional stages I've experienced are similar to the Five Stages of Grief developed by Elisabeth Kübler-Ross:
  • Denial - In the early stages, I mistakenly believe the stock market decline is a minor correction. I buy on the "dips" thinking that I will be buying low. Often the stock price goes even lower. I buy more, thinking I am getting even a better price. And the stock goes lower.


  • Anger - After the market continually to go down, I get angry at all the suspected causes of the market decline, e.g. government, investment banks, analysts, speculators and companies.


  • Bargaining - I start thinking, "If I can only get back to even, I'll sell and be whole again." As the bear market gets worse, I lower my exit point to -2%, then -5%, etc.


  • Depression - Well into the bear market, I start to think that my losses are big and perhaps not recoverable. My financial goals seem to become unreachable. I wish I had invested in CDs.


  • Acceptance - At the end, I become resigned to the losses, start selling losing positions and begin rethinking my investment strategies. Soon afterwards, the bear market ends.

  • Based on what I have been reading in personal finance blogs, the overall sentiment seems to be one of denial. Many commenters, who may not have experienced a bear market, feel a bear market is a great opportunity saying something similar to, " This is a great time to BUY stock." For me, a great time to buy stock is when the majority investors have experienced acceptance and wish they had never invested in a stock.

    It seems there may be a while to go before that stage happens.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, July 09, 2008

    Three Scenarios For The Economy

    As I posted in Consider More Than One Scenario When Making A Decision, "Financial decisions based on a single scenario can sometimes be disastrous if the assumed scenario proves incorrect." In my opinion, the stock market direction is currently being driven by the price of oil. As oil goes up, the stock market goes down, and vice versa. So here are three possible scenarios for oil prices, and what I plan to do in the stock market.


  • Oil prices rise to $200 or more. This is the worst case scenario. I believe the economy would definitely go into a deep recession. The price of all goods would increase, creating the worst inflation in years. The stock market would dive. This would be a very bad scenario. I estimate a 25% chance of this scenario happening.

    Personally, I would need to reverse my early retirement which I took in 2007, and take a new job. Although I have put near term expense needs in safe investments (e.g. CDs and bonds), my stock portfolio has declined significantly, to the extent that five years may not be enough to recover.

    As for stock investments, I would hold most of my current holdings and sell small portions that are profitable into rallies. I would continue to look for opportunities to sell stocks short.


  • Oil stays in the $130 to $170 range. A short recession will likely happen. Weak companies will go out of business. However, consumers will be able to adjust and use less oil, keeping demand relatively stable. I estimate a 40% chance of this scenario.

    For this case, I would expect the stock market to be very choppy for a few years, moving within a channel. I would be a trader of stocks, attempting to buy as stocks near the bottom of the channel and selling near the top. I would use the modified Unemotional Investor growth system for choosing stocks.


  • Oil declines to around $100. Either demand declines, productions increases, or speculators exit the market. As a result, oil prices decline to a manageable level. Business profits rise, the recession ends sooner, and the bull market resumes. I estimate a 35% chance of this scenario.

    I would increase our allocation of stock in our long term savings. However, I would still not be fully invested in stocks unless oil prices would decline further.
  • At this point, I betting on either the second or third scenario. However, I am also getting prepared for the possibility of the first scenario.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Tuesday, July 08, 2008

    Avoiding Investing Mistakes I Made In 2002

    The 07/08 bear market will test how much I learned from the bear market of 00/02. Here's a summary of what I did in 00/02 and what I'm doing now.

    00/02

    Action

    Lesson Learned

    07/08 Action

    I continued to buy on dips, which worked until late 2001. However, in 2002, the market just kept going down, as did the stocks I owned.Buy on dips only when the market is in a long term upward trend. Using market indicators such as the ratio of new highs to new lows, I think I am better at recognizing a short term pause in a bull market versus a declining market. Currently, I believe we have a declining market.
    Expensive stocks became cheaper and appeared to become value stocks. After going from over $100 to $10, it appeared that up was the only direction some of these stocks. Wrong! Many of these stocks proceeded to $1 or nothing.Avoid value traps and make additional purchases after a clear reversal and uptrend has occurred.I no longer dollar cost average positions that I have. If a stock goes down right after I buy, I continue to hold it, because I believe it is a good company. However, in case I'm wrong, I wait for it to resume an upward trend before buying more.
    At the end of 2001, I didn't sell any losses to offset gains. I believed that the stocks would rise in 2002. Instead they declined further.Losses often get bigger for a stock in a declining market.In 2007, I sold all my losses that could offset taxable gains, and therefore, minimized my income tax.
    At the end of 2002, I sold all the stocks in our personal accounts. As a result, we missed out on the 2003 market gains.Always have some exposure to the stock market. In 2008, I will continue hold the majority of our current investments, and occasionally sell small portions (e.g. less than 5%) during rallies to raise cash.


    In the 00/02 bear market, my only investing strategies only involved owning stocks, not owning stocks or options. From 2003 to 2004, I experimented with shorting stocks, which focused on companies with poor business performances and extended declines in their price. This approach to shorting had enough success that I plan to use it again in 2008.

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Links to Carnivals from July 6-7, 2008

    Here are the Carnivals in which My Wealth Builder participated from July 6-7, 2008:

    Carnival of Financial Planning #6

    Carnival of Personal Finance

    Tax Carnival #38

    Carnival Family Life

    For more on Ideas You Can Use, check back every Tuesday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Monday, July 07, 2008

    Stocks I Plan To Short

    On June 29, 2008, I posted that I thought it was time to short stocks. Since then, I have been working identify stocks to short. Starting with 100 possible candidates, I have come up with a very short list (no pun intended) of three stocks I plan to sell short.

    These are the stocks I have identifed to short:
  • Las Vegas Sands (LVS) - This is a casino stock with properties in Nevada, Pennsylvania, Singapore and Macau. The stock closed at $39.30 today, down from a 52 week high of $148.76.

    $4 gasoline, expensive airfares and the horrible housing market are all hurting the casino/resort businesses. While all casino companies are at risk in this economic downturn, this company appears to be the most vulnerable of the casino companies.


  • Sears Holdings (SHLD) - This is a retail stock, consisting primarily of Sears and KMart, and has successful hedge fund manager Eddie Lambert as Chairman of the Board. The stock closed today at $74.01 after setting a new 52 week low at $71.35. Its 52 week high is $174.05.

    The current retail environment is a tough one, and probably favors companies like Wal*Mart that rigorously manage costs and have superior competitive advantages. I expect the the weakest retailers tend to fail in an economic downturn. Sears and KMart are still pretty low on my list of places to shop.


  • Life Time Fitness (LTM) - This a family entertainment/fitness stock. My spouse's friends all love the facility. Its low membership costs and all inclusive price has something for everyone in the family. It has a full range of fitness equipment, swimming pool, basket ball courts, racquet ball courts, climbing wall, fitness classes and even short term child care.

    I visited a facility and was impressed with the offering, but not enough to shell out a special discounted membership cost of $19 and the subsequent $166 per month. I expect that many others will come to the same conclusion as the economy worsens.

  • So far, these are the only three stocks that I've identified for shorting. For reference, I try to find stocks in a confirmed down trend and still have potential to fall significantly. Thus, I avoid rising stocks due to fall (e.g. energy and commodities) and stocks below $15.

    While I thought I would find a lot of opportunities, many potential candidates were in were already significantly beaten down. Housing, financial, retail, and auto sectors had a number of candidates that didn't seem to have much potential to fall further, i.e. already close to or below $15. In addition, I am currently avoiding stocks which pay a dividend.

    Today, I sold short 100 shares of Las Vegas Sands at $38.10. Interestingly, I also tried to sell short Sears Holdings at $72.09, but was unable due to shares "not being available to sell short." Afterwards, Sears fell to $71.35 before recovering and closing at $74.01. Lucky me :-) I have not yet tried to establish a short position for Life Time Fitness.

    Disclosure: At time of publication, I am short Las Vegas Sand in my trading account. The account managed by our financial advisor is long Sears Holdings.

    For more on Strategies and Plans Ideas, check back every Monday for a new segment.

    This is not financial or stock investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Stock Buy List Update - 7/7/08

    With the major Dow decline in the first half of 2008, I've decided to update my buy list, in anticipation of a good buying opportunity in the future. For background, see My Stock Picks for Q1 2007 for a description of the Modified Unemotional Investor Growth system. The Top 5 system is a direct application of the Unemotional Investor Growth system described in the book The Unemotional Investor by Robert Sheard.

    My Wealth Builder Buy List - 7/7/08
    StockSystem UsedTarget PriceTarget Shares
    Potash (POT)Top 5, Modified

    less than 200

    10
    Research in Motion (RIMM)Top 5, Modified

    less than 90

    10 to 20
    Bucyrus (BUCY)Top 5

    less than 50

    20 to 50
    Williams Cos. (WMB)Top 5

    TBD

    TBD
    Southwestern Energy (SWN)Top 5, Modified

    TBD

    TBD
    Hess (HES)Modified

    TBD

    TBD
    Range Resources (RRC)Modified

    TBD

    TBD


    Unlike previous buy lists, I plan to wait for a further market correction before buying any positions. Potash is currently $215, down from $241. Research in Motion is $117, down from a high of $148. Bucyrus is at $65, down from $79. I think these stocks may go down further before the next rally.

    At this point, I do not plan to buy any of the other four stocks. Williams, Southwestern Energy, Hess and Range Resources are oil and gas stocks, which seems to me to be close to a speculative bubble, and may correct in the next year. My reasoning is that too many energy stocks are being identified by these two stock picking systems. In 2005, the system picks were over weighted with housing stocks, which was then followed by the major decline of these stocks.

    Disclosure: At time of publication, I did not own shares of any stock mentioned in my trading accounts. Hess and Range Resources are owned in accounts managed by our financial advisor.

    For more on Strategies and Plans, check back every Monday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wealth Builder Ratios - Q2 2008 Update

    Here is our Q2 2008 Wealth Builder Ratio update. I am disappointed with this year's results versus goals and 2007 results. 2008 has not been very kind to our financial plans and goals so far. The first half of 2008 yielded the worst returns since 1970 and is the 10th worse since 1900. The Dow was off 10.2% alone in June, 2008, the worst June return since 1930.For more details on the relevance of these ratios, please see this How Much Is Needed To Be Wealthy - The NUMBER.


    Ratio and Target

    Q1 2008

    Q2 2008

    Comments

    Investment
    Income to Salary

    Target=0.8 2007=3.41

    -1.50
    -4.65

    For the third year in a row, the returns of the stock market under performed in the first half of the year. This year's declines have caused our portfolio to lose 4.65 times my pre-retirement salary. We have now lost all of our 2007 gains, plus some.

    Fortunately, we do not yet need to sell any investments for our retirement expenses. At this point, we are staying invested in the market, and taking the opportunity to increase our cash position during rallies.

    Savings
    to Salary

    Target>20
    2007=23

    21.2
    18.1
    The significant loss is due to the stock market decline in the first half 2008. Our total stock and CD/bond investments fell 10.6%. However, my company stock declined 17.2%, reducing the value of stock options and increased our losses to 21.6%. OUCH!

    Debt to Salary

    Target=0
    2007=1.51
    1.51
    1.49

    Currently, our only debt is our home mortgage. Since we retired, we have not made our usual 4% principal payment in January. We will wait for the market to recover before selling some investments to cover this payment.




    My financial goals for 2008 are:

    1. Continue to maintain an Investment Income to Salary ratio > 0.8. (off track)

    2. Maintain a Savings to Salary (final before retirement) ratio of 20. (off track)

    3. Reduce my Debt to Salary Ratio by 0.1 to 1.41. (off track)

    (For reference, Salary refers to gross salary just prior to early retirement in October, 2007.)

    Both #1 and #2 were directly correlated with how well our stock, bond, and CD investments did. Due to a weak first quarter in 2008, our stock, bond, and CD investments have returned -10.6%. Including stock options, our investments fell 21.3%. This compares with an S&P return of -13.73% and a Dow return of -14.7% for the first half of 2008. Number 3 will be achieved if we make an additional payment equal to about 4% of our mortgage principal later in 2008.

    At this point, I am concerned but not panicking. Our short term expense (next 3-5 years) are invested in CDs, bonds and money markets. So we can wait for the stock market to resume an upward trend, hopefully.

    In our Q4 2007 update, I noted that "2008 will be an interesting (and probably volatile) year, given the economic and political uncertainty, and the upcoming Presidential election. Next year will be a good test of the effectiveness of our investment strategies." So far 2008 is proving that statement to be correct:-)

    For more on Strategies and Plans , check back every Monday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Sunday, July 06, 2008

    Media Headlines Indicating A Bottom?

    Spotting the End of a Trend by Mike Norman at the Motley Fool talks about the Magazine Cover Indicator, writing "The premise is simple: When a major investment theme or trend shows up as the cover story of a well-known publication, then that theme is near an end or at least ready to take a pause."

    Yesterday, I received the current issue of BusinessWeek and Barron's. Both cover stories were pretty gloom and doom, with Retirement Strategies for Tough Times on BusinessWeek's cover and The Bear's Back on Barron's cover.

    Does this mean the broad stock market decline and credit crisis is almost over? My opinion is probably not. It still isn't bad enough, yet.

    I believe the bottom may be close. However, the market just needs a major capitulation, and then it can get back to the business of a bull market. At that point, I think it would be time to definitely buy more stocks. When something like a "Get out of stocks" cover hits the news stands, I would say that capitulation has happened:-)

    For more on New Beginnings, check back every Sunday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Saturday, July 05, 2008

    An Analogy Between Sports And Personal Finance

    Since retiring in my forties in 2007, I've been taking up some new sports activities.

    Most of my life, I have played competitive match play sports such as baseball, football or tennis, where one plays directly against an opponent. In match play sports, the objective is to defeat an opponent. I have found winning can often hinges on using on my strengths or taking advantage of an opponent's weaknesses.

    Now that I'm older, it's harder to participate in direct competition sports. As a result, I'm taking up sports such as golf, weightlifting and exercise (e.g. yoga or aerobics). In these sports, the opponent is typically a course, weight or personal goal, and not a person.


    For example, golf is usually played as stroke play, where the lowest score for the course wins, versus trying to win each individual hole and the best of 18. Even when I play in a group, I feel I am competing against my previous score versus my partners. In these types of sports, my enjoyment increases as I get better. Thus, I focus on improving my skills, even taking lessons, to do better in the absolute.

    Similarly, personal finance strategies can also be versus others or an absolute goal. An approach is to directly compete against others, as in tennis or football, and compare wealth. Sometimes this may mean acquiring more to signal wealth and worrying about looking poor.

    On the other hand, striving for a personal financial target, e.g. $1 million net worth, is more like the game of golf, where one is playing against the course, an absolute target. Winning is achieving the target. Improving skills to get closer to a personal target is better than just beating an opponent. This has been my lifelong approach to personal finance.

    Although I've preferred playing direct competition in sports, I've typically focused on absolute targets in personal finance. Hopefully, reapplying my financial strategies to my new sports of golf, weightlifting and yoga will improve my skills and enjoyment in these areas.

    Disclosure: I have historically been a below average golfer. In over 25 years, my best scores were in the mid 50s for a round of nine holes. However, after six years of not playing, I recently shot 95 and 98 for an 18 hole round, breaking 100 for the first time ever.

    For more on Reflections and Musings, check back every Saturday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Friday, July 04, 2008

    Paid Volunteer Work

    For Love and a Little Money by Claudia H. Deutsch from The New York Times shares how retirees are now volunteering for pay. Gasp, is paid volunteering the ultimate oxymoron?

    While the term seems strange, the concept is not. Organizations (and people) sometimes do not value services that are done for free. Assigning a cost, even a minimal one, will often create more conscious engagement. In addition, a volunteer tends to be more committed (e.g. showing up on time) when there is small compensation.

    Having done significant amounts of pro bono volunteer work in my youth, I was not interested in volunteer opportunities when I retired in my forties in 2007. At the same time, I don't feel it is appropriate to request payment for volunteering with charitable organizations.

    However, I think the term "paid volunteer work" can be loosely applied to more than just charitable endeavors. For me, interesting and fun work, which has minimal compensation, could be classified as paid volunteer work. For example, the seasonal part time work I recently did falls into my definition of paid volunteer work. I helped a lot of people. It was interesting, and I learned a lot. And the pay was a little over minimum wage.

    Here are some other types of "paid volunteer work" that I would consider:

  • Teaching adult education topics. Of course, the topic would need to be an area of personal interest or expertise. Otherwise, it would be real work :-) I plan to check out opportunities with a local adult education center.


  • Coaching kids on the essay parts of college applications. Having done applicant interviews for my alma mater, I have some perspective on approaches that can help promote a candidates qualifications when applying to competitive colleges. I've worked with a couple kids of friends and have enjoyed the interactions.


  • Tutoring math or personal finance. Being an engineer and a personal finance junkie, I enjoy both of these topics. Helping others become more skilled in these areas would also be enjoyable work.

  • Although I think would enjoy doing these part time, I realize that there isn't much money in any of these areas. That's why I think of these opportunities as "paid volunteer work."

    For more on Reaping the Rewards Reflections, check back every Friday for a new segment.

    This is not financial advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Thursday, July 03, 2008

    Wearing A Tie

    Tie Association, a Fashion Victim, Calls It Quits as Trends Change by Ray A. Smith in The Wall Street Journal reports about the decline of men wearing ties. According a Gallup Poll, only 6% wear ties everyday to work, down from 10% in 2002.

    When I was working, I was one of those 6%. Until a few months before retiring, I wore a tie to work just about everyday.

    When I started working, a tie was the norm for engineers and managers at my company. The only times we didn't wear ties was when working in the lab or pilot plant. At some point, tieless Fridays became the norm and then a transition to "business casual" occurred in the nineties.

    After trying business casual for a time, I decided to go back to wearing a tie. Here were my reasons:
  • Be dressed for business. To me, wearing a tie means being serious about work and ready for business. Some business casual outfits could be mistaken for playing golf or going fishing :-)


  • Easier to dress for work. I found wearing a tie made dressing for work easier. Easier to match. Solid light shirt, dark pants and a matching tie. No need to worry about under dressing. I remember our organization once had a presentation to a senior manager of our company. Several people agonized over whether or not to wear a tie. For me, it was an easy decision. I dressed as I normally did and wore a tie.

  • Of course, except for a few professions, a tie is likely a thing of the past. When attorneys, bankers, stock brokers and accountants no longer wear ties, I will know that wearing a tie has become extinct.

    For more on Crossing Generations, check back every Thursday for a new segment.

    This is not financial or business attire advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC

    Wednesday, July 02, 2008

    Navigating Investments In Turbulent Times

    "These are the times that try men's souls." ~ Thomas Paine

    In volatile markets, like the one we are experiencing, it is easy to get whipsawed by market changes. Many 401K accounts have declined. Recent stock purchases have negative returns. I admit, I've panicked at times in the past, sometimes selling a stock near the bottom (e.g. Best Buy in June 1997 before its meteoric rise) or not being in stocks as the market recovered (e.g. 2003).

    Here is what I've learned in my 23 years of investing:
  • Develop an investing plan for both bull and bear markets. As Peter Lynch once said, "You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."

    A good plan will enable one to feel comfortable during both bull and bear markets. To me, a bear market is the major test of one's plans.

    My overall investment approach with personal funds has been one of short term capital preservation, and we allocate our investments accordingly. Our savings and IRAs have typically been 50-80% money market/CDs/bonds and 20-50% equities. However, for my company retirement account, we've taken much higher risk. It has been 100% invested in equities, specifically my company stock. Since retiring, we've reduced the exposure to company stock by about 33% and replaced it with a diversified stock portfolio.

    Even with the market declines, I can still sleep at nights, primarily because of the funds in the money market/CDs and bonds. Yes, our returns are not as high during a bull market. However, the lost gain is worth it to reduce the pain during the bear market.


  • Choose good quality stocks. In a bull market, poor stock picking skills are often forgiven. That's because all stocks can rise in a a strong bull market. However, a bear market is less forgiving. While both good and poor companies decline in a bear market, poor companies sometimes no longer exist at the end.

    I used to think that I could identify inexpensive stocks with turnaround potential and be rewarded great returns. Wrong! I learned the hard way that poor companies often continue to do worse, especially in declining markets.

    So now I tend to stick with strong companies with good management and excellent business models, especially if it has been successful through a recession.


  • Remember that history and statistics will likely prevail. The stock market is cyclical. Bear markets are followed by bull markets and vice-versa. Over the long term, the stock market has had 8-12% returns depending on the time frame chose. With time, this bear market will also pass. And then one can reap the benefit of a good investing plan.

  • An investing plan needs to be customized for each individual. I want a plan that works best for me, and often, another person's plan won't work as well for me. Investing in overall market index funds and dollar cost averaging can be one good plan. Asset allocation with periodic rebalancing may be another. However, if I did it over again, I would probably still divide my personal savings into 20% stocks and 80% CDs/bonds, because that split best matches my tolerance for risk.

    For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

    This is not financial or investment advice. Please consult a professional advisor.

    Copyright © 2008 Achievement Catalyst, LLC