Author: Douglass Gaking

Book Review: Security Analysis

security analysisDavid Abrams sums up Security Analysis the best in his introduction to Part VII of the 6th edition, where he calls it “the value investors’ equivalent to Deuteronomy” . SA is an extremely thorough explanation of how to evaluate stocks and bonds, primarily focusing on a company’s income statement and balance sheet. It is not an ideal starting point for young investors, but it is essential reading for any serious investor.

Graham and Dodd discuss the philosophy of value investing eloquently. They provide detailed analysis of dozens of companies’ finance statements to support their arguments about how investors should analyze securities. It is an excellent reality check for anyone who thinks he knows a thing or two about investing.

The examples given by Graham and Dodd are a bit dated (1930s), but most of the principles are still relevant today. The organization of the book is a bit awkward, but I don’t presume that I could organize such a massive quantity and variety of material any better.

It took me a long time to get through this, and I will probably explore many parts of it again over the next few years. It is a valuable addition to any business library and a resource that you can use for a lifetime of investing.

Entrepreneurs: The New Adventurers

I am 3 days into the new Intro to Entrepreneurship class that I am teaching to 24 high school students this year. I am already having a blast, as the students—mostly freshmen—are very enthusiastic, despite several of them not being quite sure what entrepreneurship was 3 days ago. We started off by analyzing the etymology of the word entrepreneurship. Etymology is underrated as a tool for studying concepts like this. You get a peak into the cultural perspective of the time and place where the word was first invented. How cool is that?! Continue reading “Entrepreneurs: The New Adventurers”

Robinhood to the Rescue

An app that let’s you quickly and easily trade stocks with no transaction fees? It sounds too good to be true. There has to be a catch, right?

robinhood iconThis was my reaction when I heard about Robinhood, the app you can download for free and use to start trading stocks with no transaction fees. At the time, most of my retirement savings was in a 403(b) and a state pension. These accounts have limited options, mostly made up of index funds. I am not crazy about index fund investing for several reasons, which I will elaborate on at another time. I had finally opened a Roth IRA with an online broker to invest in individual stocks, but I was frustrated with the fee situation. I investigated Robinhood as an alternative, and here is what happened. Continue reading “Robinhood to the Rescue”

Book Review: All About Asset Allocation

All About Asset AllocationAll About Asset Allocation is worth a read by every investor, even if you don’t buy into efficient-markets theory (EMT) or modern portfolio theory (MPT) and focus your investing on alternative strategies.

Richard A. Ferri uses tons of charts to help demonstrate the effectiveness of various kinds of diversification of the portfolio. He identifies the roles of various kinds of securities in the modern portfolio. He makes excellent cases for the importance of real estate exposure and international equities. He points out the weakness in the simplistic approach that many financial advisors take to investing in bonds.

Ferri demonstrates various strategies for hedging against inflation, interest rates, and other risks. He creates suggested allocation plans for investors at 4 different age levels and 3 different risk profiles. While I do not agree with all of Ferri’s theories and strategies, everything he advocates is research-based. His approach is appropriate for investors at any level, young or old, advanced or beginner. This is a great resource for anyone committed to meticulous portfolio management.

These 3 Charts About Student Loans Should Scare Everyone

Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, wrote a startling article on “the economic side effects of the student loan crisis.”

1. Homeownership is on the Decline

chart1-homeownership

2. More Student Loan Debt Among Older Age Groups

chart2-studentloan

3. College Education is Still Key to Employment and Earnings

chart3-earnings

So you have to have a college education to earn decent income and steady employment, but the cost of that degree makes it nearly impossible to purchase a home, save for retirement, etc.

Rieder offers some excellent perspective on why this is some seriously alarming data for the economy.

Bringing Spending Down to a Low Boil

I spend a lot of time talking about the importance of paying off debt and investing for long-term goals. I preach it to my high school personal finance class every day. However, the real struggle for most Americans is making room in their monthly budget to pay for it. The “pay yourself first” strategy is helpful, but still involves making room for saving or paying off debt in your budget. In the end, it always seems to come back to earning more money and spending less of it.

Both are easier said than done. Asking for a raise is a joke in many industries, and there are only so many hours in a week that you can spend laboring. When it comes to spending, almost everyone could read off a list of things he or she would like to have or even need to have but sacrifice to keep the budget in line.

For me, I don’t pay for television. I mooch off a family member’s account for one subscription service, and I buy an occasional DVD. That’s it. I have never paid for live or on-demand video entertainment of any kind. I watch an occasional sporting event or PBS series, and the rest of the time I spend reading. This is one of many things I do to keep excess expenses down.

sisyphus (titian painting)Despite that and many other efforts I make to save money, I still feel like Sisyphus pushing student loan payments up the hill, only to have the next statement roll down over me, showing that at age 32 I’m nowhere near done paying for the college degree I finished at age 22. And I still feel like I need to save more for retirement and for a downpayment on a house.

If you feel that way too, here are 2 easy tips that have helped me recently:

  1. If you can’t make a huge increase in debt repayment, at least round up what you pay on your higher-interest debt payments. Within a few months, you will notice improvement in your statements and even see the minimum statement payments decrease. It gets quick results, and that feels good.
  2. Track your spending by recording it, using your bank’s expense-tracker for your debit card, or using an app like Mint, Personal Capital, Tiller, or Wally.

Consumer sector corporations are brilliant at getting you to develop bad spending habits: café coffee, gas station soda and candy, eating out too much, not sticking to your grocery list, or impulse-buying at discount stores, department stores, or online. You can probably relate to more than one of those. I certainly can.

For my wife and I, the biggest spending problem right now is food. We are both teachers, and we both have some health problems that rob us of energy. At the end of the school day, we often feel too tired to cook, and are tempted to eat an easy processed meal, grab a pizza, or stop at a quick service restaurant, all of which are usually more expensive than a home-cooked meal, and not great for your health either. To make matters worse, I have a gluten allergy. Those easy processed meals like mac-n-cheese, TV dinners, or frozen pizza cost about 3 times as much when you have to get them gluten free. Putting together 5 gluten-free sack lunches per week is not cheap or easy for me either.

This summer, we came up with a plan to solve our food spending issues, and we were able to get most of it done in one weekend. Continue reading “Bringing Spending Down to a Low Boil”

Book Review: The Big Short

the big short

The Big Short is more technical and more entertaining than I had expected. When it comes to coverage of the 2008 financial crisis, there are few in books or media who do an adequate job of explaining the mortgage-backed securities, collateralized debt obligations, credit default swaps, and other technical finance concepts involved. Michael Lewis manages to make sense of a complex system of debt speculation that the people who were responsible for understanding didn’t seem to understand. It is exactly what one might hope to get out of this book, but it’s not the thing that makes this book truly special.

What is really surprising about this book is its tone. Wall Street investors can be very brash. The investors covered by Lewis are outsiders. They share many characteristics with Wall Street stereotypes, but for various reasons they don’t fit in to those social circles. They are rogue investors, searching for any niche they can find, striving to be contrarian. They speak with a colorful vernacular; Lewis doesn’t bowdlerize. In fact, Lewis adopts a bit of the voice of his characters to better tell their story.

As the story progresses, the tone drastically changes. The events that unfold have huge implications for capitalism, democracy, and the history of the world going into a new century. Seeing how the men who predicted it profited from it and eventually reacted to it is what The Big Short is really about.