Personal Finance Blogger Falls off the Map

One of the PF (personal finance) blogs I've read regularly for the past few years is PF Blog, which detailed "MM's" (the author) quest to reach $1 million net worth by the age of 40 in the year 2016. When he was roughly 27 years old at the end of 2003, the author's net worth was approximately $132,000 (details here) and this had grown to about $885,000 as of the end of May 2008 (details) at the age of 32. If I'm following his story right, he is a Microsoft employee who was sent over to Asia to work overseas. He is pretty well paid and has a side business he used to generate extra income.

At the end of May, his portfolio was worth about $900,000. 30% of this was in 12 stocks he selected himself, with roughly $20k in AIG, $20k in American Express and other positions, with a heavy concentration in financials, which he felt were becoming undervalued. Another 12% was in US mutual funds, 30% in international mutual funds, and the remaining 30% was in cash, divided between the US Dollar and the Chinese Yuan.

Unfortunately, May 2008 is the last time he posted a net worth update. Since then, the S&P 500 Index has fallen from about 1400 to about 750, a decline of almost 50%, and his blog has been relatively silent, except for some irate comments made by readers. Some of my favorites are "Even though he seems to have abandoned his blog I hope he wasn't ignoring the market and sold out of his AIG position with at least a little something. He bought it at $62 and its now essentially worthless." and "I made a copy of his portfolio with where it stood in May and since then it has lost about $148,000 from those May prices."

I have enjoyed reading his posts over the past few years and I have to say he was much more diligent that I've been in terms of posting frequency. Some months he made 30+ posts. He also kept meticulous records of his net worth and updated them monthly for five years. That required an incredible amount of discipline and was an extremely valuable case study for everyone reading his blog. I didn't agree with everything he's written (for example I am not a fan of taking short-term zero interest credit card loans and putting the money into a bank account, which I believe he does to earn extra income), but I've been a fan of the site. His English and writing skills aren't fantastic, but they were good enough to get his points across.

So why has he stopped posting? I can think of a few reasons. I know that many people find it hard to look at a stock portfolio that has fallen in value. During down markets, I always hear the phrase "I don't even open my 401(k) statement anymore." Looking at your 401(k) statement is hard enough, but going through the detailed analysis that "MM" goes through each month probably gets pretty grueling when your net worth, which is heavily exposed to the stock market, is taking 30% hits.

Also, if he is like me and every other working person, he is probably facing increasing demands and stress at work lately. With layoff announcements in the news every day, it can be hard to focus on the work you have to do, and companies often cut back on staff without cutting back on work, placing increasing demands on those who remain behind. This would not leave much free time for him to devote to his blog, which is most likely not a priority in his life.

I don't think the reason he has stopped posting is embarassment about recent net worth declines, as some of the commenters on his site seem to suggest. For example, I think this comment was a bit harsh: "MM was very quick to post his net worth updates when things were going well, now he's essentially abandoned the blog. And I guess I do see what you mean by that certain "hubris" and "ego" he used to display. I just shrugged it off though as another finance blogger who thought he was some sort of pro stock picker. They are a dime a dozen."

Some other commenters also talked about another blog - "Millionaire Mommy Next Door" and suggested it had fallen off the map as well, but a simple google search would have answered that question - her account was hacked and she moved to a different domain.

I do think we will hear from MM again when he gets more time on his hands, but for now, wish him the best as he copes with the financial crisis.

(Fear not readers, my next post will be one of my long-anticipated net worth updates, a special "financial crisis" edition. I am sure you are all waiting with baited breath.)

How Scott Adams Manages His Money

I came across an interesting blog post the other day... it was written by Scott Adams, the creator of Dilbert, describing how he manages his money.

Statements like this make me very jealous: 

"When I first started making serious Dilbert money, I let experts manage half of it, and I managed the rest, as a hedge against both the experts and myself."

Can you imagine making "Dilbert money"? Me neither. I'd imagine Dilbert money amounts to a pretty tidy sum.

But I digress. The part of the post that most interested me was this part: "The experts invested in Enron, Worldcom, and a number of other companies that promptly exploded. The experts reduced their portion of my money by about a third over five years. (The experts work for one of the most respected financial institutions on Earth, by the way.) My own investments did better, precisely because they were more diversified. So now I handle my own investments, probably incompetently."

I smiled when I read that. One of the biggest lessons the current financial crisis has driven home again and again is that nine times out of 10, the so-called "financial experts" aren't worth the paper their MBA degrees are printed on. Tens of examples appear in the papers every day. From the "geniuses" who created the whole mess by engineering clever securities to the Wall Street research analysts who scrambled to lower their price targets and ratings every time the market dropped 15% this year, the majority of "experts" were outed as frauds. If you had followed their advice, you would find yourself extremely poor right now.

I went to school with these people. I worked with them in investment banks and I worked for the companies they peddled their wares to. Half of the time I couldn't follow what they were saying and the other half I couldn't understand why someone would want to take the kinds of risks they were talking about taking, or why someone would want to hedge against the risks they were trying to get them to hedge against. Warren Buffett warned that derivatives were a "ticking time bomb" back in 2003 a warning that put a bad taste in my mouth for the "financial engineering" I was just beginning to get exposed to at the time. Derivatives and complex financial instruments got really popular though. The big stars at the companies I worked for were those who understood the lingo, who could create increasing layers of complexity to get around accounting rules and "redistribute" risk. Incidentally, these kinds of people were also the big stars at Enron. (And ended up being relocated for their troubles). 

I'm getting into rant territory, so I'll stop here. I realize a variation on this theme has been repeated thousands of times over the past hundred years or so. The most recent one I read was Andrew Lahde of Lahde capital, who wrote a similar rant when he recently quit his job. I highly recommend you read the letter he sent to his shareholders- if nothing else, it's quite an entertaining read. (And I think Lahde money would actually make me more jealous than Dilbert money.)

In an interesting twist, Adams ended his blog post with an endorsement for stocks: 

"In order to diversify more, I started migrating money over to the stock market during this recent plunge. The market could go a lot lower still, but this is either the beginning of the end of the United States as we know it, in which case it doesn't matter how I invested, or it is a once-in-a-lifetime stock buying opportunity. It was an easy decision."

Not quite the same reasoning Warren Buffett gave, but an endorsement nonetheless. When America's preeminent corporate cartoonist starts endorsing stocks, is it a buy signal? You make the call.

One final note: I received an email misinterpreting my prior post as "calling a market bottom." Re-read my posts. I would never call a market bottom. My argument is that stocks are selling at more attractive prices now than they were last year, but nobody is treating them that way.

Warren Buffett Recommends Buying American Stocks

I started this post on October 11th and never got around to finishing it. Fortunately, Warren Buffett himself finished it for me with his op-ed in the New York Times on October 16th. I can't say it any better than he did, so I'm not even going to try. Let me first show you what I wrote, then I'll add a link to Buffett's letter.

"I feel like I need to preface anything I write about investing in stocks with the following disclaimers:

1) You should only invest money you can afford to lose in the stock market

2) You should not have a high allocation to stocks if you are close to retirement

3) You should be prepared to see the value of your holdings drop 50% without worrying

That said, I want to make the following statement: now is a good time to buy stocks. And bonds.

How can I say this, when the markets are at 10 year lows and when we've had the worst week in history? Who am I to contradict the headlines?

Let me put it this way: were you happy buying stocks a year ago, when the market was at its peak and the dow was above 14,000? Chances are, you were. (I wasn't.)

When I see Tiffany & Co. selling for $22 a share.. it makes me happy."

I'm not calling a market bottom, and neither is Buffett. That said, people are now fearful and I'm happier in equities right now (see the three disclaimers above) than I am in anything else.

To see how he finished my post for me, I highly recommend you read Warren Buffett's Op-Ed in the New York Times.

What should I do with my 401(k) during the financial crisis?

The headlines are not good right now, for example:

• The New York Times: "Where to keep your cash as investments crash"
• CNN Money: "EU Policymakers worried about shaky financial markets"
• Reuters: "Wide financial sector fears to drive market"
• Bloomberg: "Greenspan says financial crisis may be 'Once in century' event"
• Associated Press "Emergency meeting on Lehman rescue resumes"

Major companies are failing (or at least, their futures are in question), for example:

• Above mentioned Lehman Brothers is frantically looking for a buyer. The company's stock has fallen from a 52-week high near $70 to last Friday's close of $3.78 per share.
• Washington Mutual has fallen from a 52-week high near $40 to Friday's close of $1.75 per share.
• American International Group has fallen from a 52-week high near $70 to last Friday's close of $11.49.
• The list goes on: Fannie Mae, Freddie Mac, Citigroup, Merrill Lynch and others

The fallout has been a decline in stock prices. My 401(k) is down 13% year to date, with the biggest percentage losses coming from the category of my international investments. My international fund is down 23% and my emerging markets fund is down 30%. The S&P 500 index fund which holds the bulk of my assets is down just about 13%. My best performer by far is the fixed income fund That's up 3.7 year to date. My account value is about $63,000, with a loss of approximately $9,000 year to date.

So I'm giving in. On Monday morning I plan to sell everything and put all of my money into the fixed income fund. The stock market is rigged in favor of the rich. I'm going to wait until we hit bottom and then put all of my money back into stocks.

Just kidding. If you've been paying any attention to my posts about my investment philosophy, I am fully prepared for years like the one we're currently having. If you want to put your money in stocks, you have to have the stomach to watch the value of your holdings drop 50% without batting an eyelash. The current market environment is nothing new. Between now and 30 years from now, I expect stocks to perform better than my alternatives: bonds, bank accounts, gold, cash, etc... They are not going to go up every year.

So what should you do? Besides rebalancing if your holdings have strayed 5 percentage points or more from your target allocation, I recommend doing absolutely nothing. Keep buying more stock at cheaper prices. When we have our next inevidable bull market, you'll be happy you did. More importantly, when you retire, you will have more money than you would if you put your money into bonds over the years.

Of course, if you have 5 years or less until retirement, the above does not apply. If you have a long time until retirement, however, rest easy.

I also think this is a great opportunity for active investors. Some great companies are getting battered by the headlines above. Mr. Market is running scared and doing foolish things. I personally don't have the time to study and make individual stock selections, but if you do, I'd imagine you can find some pretty attractive bargains in this market.

What is the best money advice you've ever received?

I recently read an article on Yahoo about the smartest money advice some people ever got and I found it interesting. I always enjoy reading things like that. My favorite was "Don't Follow the Herd" by Robert Schiller:

People do not trust their own judgment but go along with the crowd, even when they can see truth. In a world populated with such people, there are investing opportunities for people who make the effort and do the work see clearly for themselves.

After reading it, I started thinking to myself - what's the best money advice I ever got? I thought back to the books I read that first got me interested in investing years back and all of the Warren Buffett and Peter Lynch nuggets I know by heart. I thought about Peter Lynch's admonishment not to put any money you will need in 3 years or so in the stock market. I thought about Buffett's quote that "investing is most intelligent when it is most businesslike." I thought about a book I read recently- The Richest Man in Babylon by George Clason and the simple investing lessons it offers. (By the way, I liked this book.)

I thought about all of those things, then I realized they weren't really advice, they were just things I read in books. Then I realized the best advice I ever got was the example of my parents while I was growing up. They never had big salaries, but they were frugal and worked hard to send my brothers and sisters and I through school. They never wasted money on fancy things like new cars. They never got me the newest fad in sneakers, and I was always one of the last people to get the new video game console. I didn't like it then, but I appreciate it now.

What is the best money advice you've ever received? I welcome you to share it below. And before you point it out- admittedly, my answer was kind of a cop out but trying to come up with the best single piece of advice I ever received would be kind of like trying to pick the best movie I've ever seen, or the best book I've ever read... way too difficult to pick one but I could rattle off the top 20 or so if I took some time to do it.

To get the juices flowing, here are some more "best money advice" articles, in no particular order:

The Best Financial Advice Ever
Advice from the always-interesting Free Money Finance
The Best Investment Advice I Ever Received - this one is a link to a book on Amazon that I'm thinking about either getting or borrowing from the library. Check out the "Search Inside" feature for some previews.

Should I put "MBA" in my title, on my business card, etc...?

Over the course of my career, I've held jobs at fortune 500 companies, investment banks and small firms. Every now and then, I've come across people who make the huge mistake of using the MBA designation in their title.

For example, I'll get the occasional email with a signature in it, or see a business card or a "Linked-In" profile that reads like this:

John X. Smith, MBA
Accounts Payable Reconciliation Manager
Phone: 555-555-5555

This usage is absolutely wrong and it is one of my pet peeves. You can be proud that you have an MBA, but do me a favor- never use it in your title. The first thing I think when I see something like this (and it is almost always true) is that John X. Smith got an MBA at night school at a community college or on the Internet and has never worked in a professional setting before. Presenting yourself like this instantly brands you as a neophyte and if you make mistakes in things as minor (though admittedly subtle) as this, who is going to trust you with major responsibilities? The MBA is not a professional designation like a PhD or an MD. If you put MBA after your name, it just looks like you're trying too hard to impress people.

If you don't want to take my word for it, take a look at this piece in the Wall Street Journal, entitled "Why you should leave "MBA" off your card".
I've also seen this issue come up on Linked-In pages and it is usuall people in the IT field or something. I hate to pick on people, but check out this page [Actually, I had a link to a page with someone using MBA in their title, but this page has since been removed. I'm having second thoughts about picking on people in particular, so I'm not going to replace it. You can easily find it by just doing a search for "Joe Smith, MBA" on Google] I just did a totally random search to find someone using MBA in their title on linked-in and found this person. Looking at their education, I see it took them four years (most likely night school) to get an MBA from the Illinois Institute of Technology which almost perfectly fits my above thesis.

In closing, unless you really want to grind my gears, NEVER use "MBA," "M.B.A," "Master of Business Administration" etc... in your title. Feel free to mention that you have an MBA in your resume, or in your corporate bio etc... but don't use it as a part of your title or you end up looking unprofessional.

And while I'm on the topic, don't EVER call yourself "an MBA." This profile on LinkedIn is a good example of someone I would never want to work with. First of all, the person seems pretty psycho about LinkedIn and lists himself as a "networking king." Second of all, he uses MBA in his title. Third, he calls himself an MBA, writing "As an MBA with 7+ years of corporate experience..." I'm stopping right there.

Moral of the story: you have an MBA degree, you're not a doctor. Keep it in the background and let your work prove your worth.

By the way, no offense at all meant towards someone who got an MBA at night school at a community college. I don't care where you got your degree. In fact, I don't even care if you have a degree if you're an honest, intelligent person who does good work. I've just noticed a correlation between night school or internet MBAs and the use of "MBA" in their title.

I encourage you to read all of the comments below and decide for yourself.

EDIT 11/19/2010: I've come around in my thinking since writing this original post, thanks to many of the comments below. In the majority of circumstances, I still think you should not use MBA in your title or on your business card. however, some people have told me that in certain industries/companies, the business card is used as a "mini-resume." I can't verify this as I have never seen it or worked in any of these industries, but if this is indeed the case, I'm less against it than I would otherwise be. I still get annoyed when other people with MBA degrees walk around saying "I'm an MBA" and expect people to bow down to their greatness.

Let your work and your attitude prove your worth. Don't just lean on a title.

New Jersey Housing Prices Fall

I came across a pretty interesting blog recently- http://www.njrereport.com/. It publishes news stories and examples of New Jersey homes being offered well below previous purchase or asking prices (which it refers to as "comp killers" because when they sell for lower prices, they serve as comparisons ("comps") for other homes being sold nearby and therefore drive down prices in an area.) Perhaps the most interesting part of the site is the comments, so be sure to check out the discussions when you're reading posts.

I think the blog is written by a real estate broker in NJ who very correctly called a top in the NJ real estate market in 2005.

It's an interesting read if you're following the real estate market, or if you're in the market to buy a house in NJ (or the northeast in general).

So where am I in the process? I'm still on the sidelines for a first home. I got married in 2005, at or around the top of a real estate bubble in one of the most overpriced areas in the country. I realized it would have been impossible for me to responsibly buy a home at that time, even though people with significantly lower incomes and down payments were doing so all around me. It was very easy to look at the numbers and see that I couldn't afford jack at that time. I posted about this a few times in the past, and I'm still waiting for prices to fall further. The news has been getting more and more encouraging, but prices are still ridiculous. I'm hoping real estate price declines continue, I'm hoping nobody bails out the people who took on mortgages they couldn't afford, and I'm continuing to build my down payment savings in the meantime. I hope to buy sometime in the next couple of years. I'm not worried about "missing a bottom" because I know once real estate prices fall, they don't generally bounce right back up, they tend to stagnate for a while.

How am I going to know when the time is right to buy? First of all, I'm definitely not going to try to pick a bottom. What I am going to do is continue to update my calculations of what my wife and I can afford on one salary, and when something looks both affordable and attractive to me, I'm going to go for it. I'm not too worried because my rent is pretty cheap for the time being. Right now, prices in general are still pretty ridiculous. I either need to save a lot more money, or see prices come down a lot before I really focus on the home buying process.

Profiting From the Bear Stearns Trade

So we all know that JP Morgan offered to buy Bear Stearns for $2 a share a week or so ago. And by now we also know that JP Morgan increased its bid to $10 a share a few days ago.

This seems like one of the easiest "quick buck" trading opportunities I've seen in a long time, for anyone brave enough to have acted on it. When the initial $2 bid came out, it was so grossly low that many people (myself included) initially thought it was a typo. Bear Stearns employees thought it was crazy, many analysts thought it was crazy, media pundits thought it was crazy, and the market also thought it was crazy... bidding up the stock so it traded at or around the $6 a share level (give or take a few).

It would have been easy to place a bet on an increased bid by buying the stock or the calls after the initial announcement and selling them after the bid went to $10.

"If it was so easy, why didn't you do it, moneyman?"

Well for one, I'm really not a trader by nature. I do have a small trading account so that I can nibble here and there, but I don't have any cash in the account right now. For another, it would have been very risky. In hindsight it's pretty easy to have seen this coming, but before an offer comes out in writing, you're treading on thin ice. If the market had taken a nosedive, or if the due diligence process showed some more skeletons in Bear's closet, that increased bid may have never materialized.

Still, I follow the stock market pretty closely and this was one of those rare situations where it seems like EVERYBODY saw it coming. I'm sure plenty of people profited from the Bear Stearns trade over the past week or so. Even so- many, many more lost their shirts in Bear Stearns stock over the past few years, most notably the employees, most of whom will be laid off sometime in the near future.

How to Pack For A Business Trip

My job requires occasional business travel, and while some people might think business trips are a great way to see the world on someone else's dime, I have to say it's not all that glamorous. In fact, most times all you really see is an airport, a hotel room and a conference center or a meeting room in an office building.

I've actually traveled pretty extensively on both buses and planes throughout my life. The greyhound bus was my primary travel route to and from college, and it often required a 2 or 3 stage trip to traverse the many hours it took to get from home to my dorm. Having dealt with everything from delayed departures to missed connections and the heavyset person with the seat belt extender sitting next to you, I learned a few things about how to travel comfortably and I figured I would share them here with anybody who wants to listen.

I've learned over time that the biggest predictor of how your trip is going to go is how much you have to carry with you. I became a big proponent of packing light after my first trip home from college via bus. I made the mistake of bringing my acoustic guitar home with me (a mistake compounded by the fact that I didn't even have a guitar case. I carried it in one of those big black contractor's garbage bags). And my laundry. And some books. Needless to say, things went badly for me. I was forced to put two of my bags under the Greyhound bus, which delayed my boarding the bus and prevented me from getting a good seat. I didn't have anything to do in my seat but read a newspaper that bored me after about 30 minutes. I tramped through the Port Authority with bags digging into my shoulder, looking like an out-of-towner/traveler and potentially a good target for muggers or pickpockets. I bumped people with my bags when I boarded the subway, and the worst part of all, the door of my LIRR car didn't open at my stop and I had to rush back two cars, with my guitar bumping shoulders and heads and everything like that. After this 5 hour-2 connection greyhound bus odyssey into New York's Port Authority, a subway ride, and a ride on the Long Island Railroad lugging all of this stuff with me, I vowed that never again would I travel with much more than a book bag on my back, if I could help it.

I've even extended this traveling light philosophy to shorter trips. I commute 1 hour to work every day via bus, subway, and foot. As anyone who's ever commuted on the NYC subway can tell you, the less stuff you have, the easier it will be to find a place to stand comfortably during rush hour. I've been looking for a businesslike briefcase that I can carry to and from work to replace the heavy faux leather briefcase I currently carry, but haven't had any luck sofar. If anyone knows of anything like this (more professional than a messenger bag but lighter than the typical briefcase, with an outside pocket for a newspaper and an umbrella) let me know.

So, my setup for business travel is based around a few things that I want out of a trip:

• I want to be able to move quickly wherever I am
• I want to be able to get through airline security with a minimum of hassle
• I want to be able to get on the plane without checking any luggage
• I want to be comfortable on the plane
• I want something to do during the trip to make it go quicker
• I want to be able to get off the plane quickly without waiting for luggage that may or may not appear on the luggage carousel
• I want to carry my business clothing with a minimum of wrinkling/need for ironing
• I want to have everything I need and be prepared to handle unexpected situations

Packing light gets me 2/3 of the way there. For an excellent discussion of packing light, one of the sites you absolutely have to read is Doug Dyment's One Bag - The Art and Science of Travelling Light.

From the above endorsement, you might have guessed that I like to travel with only one bag, a carry on that can fit my stuff and fit in the overhead bins on an airplane. The smaller the bag, the better, but the bag I usually use for business trips (which I bought on the recommendation of One Bag) is the Red Oxx Air Boss. It is slightly bigger than I would ideally like, but I need it to hold a laptop, so the size is pretty necessary. The good thing about this bag is that it is soft sided so as long as you don't over-stuff it, you can fit it into an overhead bin fairly easily.

Getting Through Security

When going to the airport, I always pack with security checks in mind. If you're prepared, you can get through security pretty quickly. If you're not, it can be a huge, embarrassing hassle.

For those of you who don't fly much, a quick walk through of the airline security drill is appropriate.

When you arrive at the terminal, the first thing you need to do is to go to one of those kiosks and print out your e-ticket, if you don't already have your boarding pass. I recommend going online and registering for your flight the night before if possible, because it's one less thing you have to do when you get to the airport.

From there you proceed to the security screening area. If you don't want to get held up there, you'll want to be prepared for things they will probably make you do:

• Take off your shoes
• Take off your jacket (this includes an overcoat as well as a suit coat/sport coat you might be wearing underneath
• Take all of the metal things out of your pocket and put them in a tray to run through the x-ray machine
• Take your laptop and put it in its own tray to run through the x-ray machine
• Take your liquids, which should be in small containers of 4oz or less inside of a clear plastic bag, and put them in a tray to run through the x-ray machine
• Have your boarding pass out to show to the guard as you walk through the metal detector

If you're not prepared for the steps above, you can be sure that security will catch you on at least one of the above and send you back to the line to do it right. This holds you up, but possibly even worse, it holds up the people in line behind you and makes the security team pretty upset. Preparation is key here because I can't count the number of times I've seen someone send a bag through with a laptop only to have security ask them to take the laptop out. Invariably the laptop is in the center of the bag, wrapped with clothes and undergarments, and the person struggles to get it out without revealing their tightie whities to the world. The liquid rule can be even worse, especially if someone's big bottles of hair gel or shaving cream are scattered throughout the bag, and too big for security so they have to throw them out.

Taking off your shoes is easy enough. The right way is to slip them off and toss them in a bin to go through the x-ray machine. The wrong way is to have some kind of 8 inch high heeled boots that lace up to your knees and take 10 minutes of fumbling or sitting on the dirty floor to get off.

Taking off your overcoat/jacket can be another story entirely. The right way to do it, if you've prepared in advance, you ideally have nothing in the pockets that can fall out. You whip the jackets off and stuff them in a bin. This is opposed to the wrong way where you have a giant, bulky jacket with 10 pockets and small smooth bits of metal in each pocket. You go to take it off and nickels start hitting the floor along with keys, your lucky matchbox car, and a small bouncing ball that you chase around the security area. To top it off- oh $hit, you left your boarding pass in the pocket and as you pass through the metal detector, the guard asks you for it and you fumble around and point to the x ray machine.

Taking the metal things out of your pocket is something you can plan for in advance. If you have some kind of an outer pocket in your bag, you can take all of the metal keys, cell phone, blackberry etc... out and put them in the bag either before you go to the airport, or right when you walk in the door. In other words, somewhere that is not the security table where you have 20 people waiting behind you in line. If you don't plan this right, you'll walk through the metal detector with keys, a phone, a beeper, and a matchbox car in your pockets. You'll have to go back and empty them, forgetting you have a spare key in the little key pocket of your jeans and take a third trip back to the scanner.

Ideally, your laptop has its own compartment in your carry-on bag that you can get to very easily. You unzip, take the laptop out, put it in a tray and run it through the machine. If you don't do this right, you will have to dig through your bag, messing up your careful packing scheme, pull out your laptop and then try to squeeze it back into the bag on the other side of the scanner.

The liquids thing is easy as well. Have your liquids in a quart sized ziplock bag that is easily accessed from an outside pocket of your carry-on bag. They're all in one place, they are all under the maximum legal limit, you toss the bag into a tray and through the machine it goes. If you're not prepared, your bag goes through the x-ray machine with the liquids inside. The security guard rolls their eyes and says "whose bag is this?" They make you open it up and they dig through your underwear to find your full sized bottle of shampoo. They toss it in the garbage. They find your travel sized lotions and perfumes after a few minutes of digging and admonish you that your liquids have to be in a clear bag the next time.

Your boarding pass should always be folded up in the same place on every trip. I can't stress this enough. I use my shirt pocket. I always keep it there, and I always know where it is. I pull it out as I walk to the metal detector and show it to the guard. If you do this wrong, you will leave your boarding pass in your bag and it won't be ready to show the guard. Even worse, you won't remember where you put it, causing you to empty every pocket in your pants and jacket, go through all of your bags only to find it after 10 minutes folded neatly in your wallet.

If you follow the guidelines above, I can almost guarantee that you will get through security quickly every time (depending on how many people in front of you are unprepared and hold you back). If you're running late for a flight for some reason, delays at security can mean the difference between making it on to the plain and being forced to spend a night at the Peoria, IL Airport Marriott while your daughter performs her first piano recital back at home, or some similar scenario.

Boarding the Plane

Boarding the plane is another crucial step in the process. Hopefully you've picked out and reserved a pretty good seat by checking out SeatGuru.com before the flight. I recommend standing as close to the front as possible before they start boarding the plane. This way, when they call your boarding group, you can scoot right on. Normally I would say it's no big deal since you have an assigned seat, you can wait until whenever you want to get on the plane. However, I've noticed many more people carrying laptops (even non-business travelers) and things over the past few years, and the overhead storage bins seem to fill up pretty quickly, so I recommend getting on as soon as your group is called to board to ensure you have a place to store your bag.

In-Flight Entertainment

My favorite in-flight diversion is watching a movie either on a portable DVD player, or as I've been doing recently, a video Ipod. I like the video Ipod because it takes up very little space, but the portable dvd player gets the edge in terms of screen size and picture quality. If you're at all a fan of movies (and I can't think of anybody I know who isn't), nothing makes a flight fly by faster than immersing yourself in a movie as soon as you've reached cruising altitude. You can play Russian Roulette waiting to see what the in-flight movie will be, but I do not recommend it because you might find yourself watching Gigli or Maid in Manhattan and contemplating jumping out the window.

I recommend using cushioned headphones on your flight, ideally noise-cancelling headphones that can drown out the drone of the engine and allow you to escape the world around you. Earbuds just do not work. You have turn the volume up so high to drown out the noise around you, and this will a) damage your eardrums over time, causing you to go deaf at an early age and b) disturb the people sitting around you. Cushioned headphones keep your sound in and to a pretty good extent, keep the surrounding sounds out, especially if you have noise reducing headphones.

I've tried three different kinds of headphones over the past few years, and they have all had their ups and downs. First was the AKG Acoustics K26P Foldable Stereo Folding Headphones. These were a pretty decent pair of headphones for traveling. They had good sound quality, folded pretty small into a little carrying bag, and did a pretty good job of sealing sound out and in. However, they broke on me. They have a little plastic hinge that helps the earpiece fold and this thing broke, making them useless. It was impossible to fix them with krazy glue and the warranty had expired so I tossed them.

My next set of headphones I really liked were a set of Maxell Noise-Cancellation Headphones I bought at Wal-Mart. They were my first experience with noise-reducing headphones, had these really big comfortable cushions and folded up reasonably well (though not as small as the AKG ones). I really got a lot of use out of these headphones, but after a while, I stopped getting sound out of one ear. I played around with it to no avail, but I'm guessing a connection was severed somewhere when i bent the wires, and after a couple of movies with left channel sound only, I decided it was time to get a new pair.

I didn't go cheap on my next set, though I wasn't willing to pay a few hundred for a set of BOSE noise reducing headphones. Instead I settled on my current set, (which I've only used on one flight) and they seem to work pretty well. After reading some reviews, I settled on the Logitech Noise-Canceling Headphones I found on Amazon.com for $50. So far, they work great, and one of the reasons I got them was they came with their own semi-hard shell case that also had a pocket to hold a video Ipod.

The hard shell case has pluses and minuses. On the plus side, after breaking two pairs, I am treating these headphones like a baby and the case really helps with that. On the downside, it adds a little bit of bulk and wouldn't fit in the magazine pocket of the seat in front of me comfortably, so its sort of a question as to where to put the case during the flight.

I think I solved that problem with a carabiner. I'm going to clip the carabiner to the case and this way I can hang it from the webbing of the pouch on the back of the seat in front of me to keep it out of the way.

Before going on the flight, I make sure to set this up as my primary food/entertainment option during the flight. I've found it pretty easy to toss a couple of powerbars along with the ipod, the headphones and the battery (it takes one triple A battery to power the noise-reduction feature) into the headphone case. By throwing a couple of snacks in there before the trip, it prevents me from buying the $3 cookie or the $5 sandwich from American Air. I really miss the old days and the free in-flight meals.

From there, I settle in to the flight (preferably with an aisle seat for easy access to the bathroom), watch my movie, and I'm as comfortable as can be as time floats by.

Carry-On Bag

If you frequently travel on planes, it makes sense to have a pretty good carry-on bag. For a while I had been using the rolling duffel bag from this 6 piece Eddie Bauer luggage set (its the bag tilted on the left). It is a decent bag but it is kind of heavy due to the apparatus for the rolling handle, the handle tends to stick, it has no shoulder strap, and it cannot stand upright on its own, which made it a pain in the neck to lug around an airport.

After my last trip with this thing, I got pretty fed up and I immediately ordered the Red Oxx Air Boss. Though I haven't used it yet, I know it is going to be a big step up from my previous bag. The Air Boss was designed with input from Doug Dyment of the previously mentioned "onebag.com" and it seems to have everything I'm looking for. I know many will balk at the $225 price tag but for me having a bag that I won't have to replace anytime soon due to its lifetime warranty was worth paying up for. Since I haven't actually used it yet, I can't recommend it, but if you want to read some reviews, check out what people have had to say, including Brad at Onebagger, Flyertalk.com, Lornitropia.net, and last not but least, Doug Dyment's review. Also check out Dyment's page on choosing a carry on bag while you're on the site. One quick first impression of the Air Boss- it seems bigger than I thought it would be. In fact if you pack it pretty full, it will look like a big stowaway bag with a strap on it, something you might want to avoid. If you do decide to order one of these bags, be sure to get a tape measure and get a good sense of what the dimensions are before you make the purchase.

What to Pack

Finally, the most important thing you can do in order to travel light is to pack as little as possible. I'm not going to go into a detailed packing list here. You can find many of those on google. What I am going to say is that you should bring as little as possible, and you can figure out how much this really means by trial and error.

Good luck!

Tax Rebate Blues

Today the government announced that people will be getting tax rebates. Unfortunately (fortunately?) my wife and I make too much to get one. It's kind of funny because we don't make that much more than the limit and we live in one of the most expensive cities in the world (NYC). A couple making a combined $190k in Peoria, IL is probably a LOT "wealthier" than a couple making that much in New York City. I think there should be some kind of a cost of living adjustment depending on where you live for rebates like this, as well as for things like the limits on Roth IRAs.

I know you're all getting out your "world's tiniest violins" and saying "cry me a river." I hear ya. I realize we're lucky to make as much as we do. Although, I worked 15 hours today so I wouldn't say its all luck. Would you?

Diamond Ring Rebate

Did you buy a diamond ring or other diamond jewelry somewhere in the 1994-2006 timeframe? (I did- got engaged during this period). Well, you may be eligible to receive a rebate from DeBeers, which recently settled a class-action lawsuit.

Just wanted to pass that along. I know a few bloggers and readers of this blog may have gotten married during that period. You might only get 50 cents, or you might get $200 from what I've been hearing. It's at least worth going to the website and filing your claim.

Fed Rate Cut

So we just got an intra-meeting 75 basis point cut. I guess the Fed's job is to prop up the stock market now. I'm not a huge economics expert, nor do I really care one way or the other what the Fed does with rates at the moment. However, it looks pretty obvious that the move was done due to declines in global stock markets and a desire to prevent such declines in the US.

Best Place to Park Cash

By the way, I've been looking around for a while now, and currently I think my best option for investing short-term cash is the ING Direct Electric Orange checking account. If you'll recall, when I first got the opportunity to open one of these accounts I declined , but later, I decided to go for it.I'm getting a 4.9% APY since my balance is at least $100,000 and I haven't seen any rates out there that beat it. I did recently sign up for an Emigrant Direct account because I know their rates have been higher than ING Direct's saving account rates at different times in the past. However, since I have so much cash right now (relatively speaking, for me), the rate ING offers me is better than my alternatives so I haven't put anything into Emigrant yet. When I do eventually buy a house, I won't qualify for the higher rate at ING Direct and I will have to evaluate which of the two make more sense for me at that time.

Anyone see anything that beats 4.9%? I've seen some CDs yielding a bit higher at some smaller online banks, but I'm not too interested in opening up a bunch of different accounts just to chase a tiny bit of yield.

401(k) In the Red

I have to admit, it's a strange experience to log in and see my 401(k) balance squarely in the red. My total portfolio has lost 9.6% of its value sofar this year, with my small-cap funds (13% of my current balance) down about 14%, my index fund (60% of my current balance) down 9.5%, my international funds down about 7% and my fixed income fund (3% of my current balance) up .3%.

Everything is down except for my fixed income fund. If you recall from my 2006 year in review, I historically haven't even had any fixed income allocation in my retirement account. However, I added some in '06, my reasoning being that "I decided to put a small amount of my retirement money in a fixed income fund purely for the sake of diversification so that in the years when equities are in the red (and I know these years are coming!), I will be able to look at my portfolio and see that at least one of my investments is up. The fixed income fund underperformed my stock investments this year, returning 5%."

I guess that time has come! These days, I almost wish I'd put even more into the fixed income fund back then :)

In a way, I am thoroughly entertained by everything going on in the market right now. It was easy to see we were in the midst of a housing bubble, and it was even easier to see that we were in the midst of a credit bubble. I've written about both over the past few years. For people in my age group, these are the second and third bubbles we've had the fortune of observing (the first being tech stocks in the late 1990s). I guess the moral of the story is that if it seems too good to be true (housing prices increasing 20+% every year, tech stocks increasing 50%+ per year, credit being incredibly easy to obtain), stay away from it. If you time it right in the short term you might do well, but you have to get out at the right time. I don't think anyone out there can time markets successfully on a consistent basis, so you're better off not even trying.

By the way, a brief update on Moody's: the stock is sitting right near a 52 week low just under $34 a share. I don't want to jinx it, but I have been picking some up in my trading account. Remember its extremely risky to put money into individual stocks. I'm only investing an amount I could comfortably lose without losing any sleep. MCO reports earnings in the early part of next month and I anticipate some reaction (positive or negative) to the reported earnings as well as the outlook. If you take a step back from the current environment you'll see a company generating good free cash flow and high margins. As long as it survives the current significant threats, I think the company will continue to show great returns and hopefully the market will reward this.

Finding Bargains in Your Amazon.com Shopping Cart

I buy a ton of stuff off of Amazon.com. I've been using the site for about 10 years now and bought everything from books (my first purchase was "The Intelligent Investor" by Ben Graham) to socks, to toys and many things in between. I have an amazon.com credit card and it gives me extra reward points when I shop on the site.

Anyway, I started noticing something about a year ago. When I added items to my shopping cart but didn't check out, I would come back a few days later and and click on my shopping cart to find a few alerts reading something like:

The price of the book "The Intelligent Investor" has decreased from $13.95 to $9.99 since you added it to your cart.

Basically Amazon keeps a record of the prices of things in your shopping cart and lets you know when they go up and down.

I've found this pretty fascinating from a few different standpoints, the primary one being finding bargains on items that I would like to have, but don't need right away at the prices they're currently listed for. To take advantage of this feature, I add basically anything I might want to my shopping cart, and sign in every now and then to see if anything has been updated. Sometimes the price reductions are so good that they'll convince me to buy the item right away before they get raised again.

It's also interesting to see how much prices actually fluctuate. Over the course of a month, my purely unscientific survey has shown the average item's selling price changes at least twice.

I started noticing this about a year ago, but it might have been happening for a lot longer... not sure if this is something everybody knows about.

One thing I also wonder about is whether or not Amazon lowers prices specifically to get a customer to buy something. For example, maybe they have some software program that checks what items someone has had in their cart for a while, and this triggers them to lower the price a certain amount on certain items as an inducement to make the purchase. I'm sure if they tracked customer responsiveness to price changes like this over time, they could figure out some pretty effective incentives that would drive sales increases.

I'm also curious if Amazon offers different prices to different customers at certain times, though I doubt they can practice much, if any, price discrimination.

Anyway, I guess the takeaway is to play around with this yourself, especially if you use Amazon and haven't already discovered this on your own. Add some items that you might want to buy at lower prices and then just wait for Amazon to make you an offer you would accept. For example, I have a 42 inch LCD tv in my cart right now. If Amazon tells me the price has decreased a few hundred dollars below where it is now, I might consider buying it.

This is basically the same approach I take to investing in individual stocks. I have a list of the companies I want to own, but I wait for the market to offer them to me for the right price before I'm willing to buy. Please note that I stole this approach from Warren Buffett, but he stole it from Ben Graham anyway, so I don't think he will be too angry. (For more reading on this, you might want to learn about who Mr. Market is).

Moody's Thoughts on the Causes of the Subprime/Credit Crisis

I recently happened upon a paper written by Moody's as part of its "Global Financial Risk Perspectives" series entitled "Archaeology of the Crisis" where the rating agency attempted to "dig a little deeper" to discover the causes of the current credit crisis. It is sort of complex and not aimed at the general investing audience, but I found it to be a pretty interesting read nonetheless. While I know that past results don't predict future performance, I do think you can learn a lot from studying market bubbles/blowups and hopefully avoid finding yourself invested in one in the future.

Moody's basic thought is that the roots of the crisis are deep and entrenched, meaning you can't just pin it on a few little things. It presents a list of seven observations that I'll discuss a little below:

1) Incentive structures in the financial markets are flawed. My read on this was that people working for banks are paid (and paid very well) based on current performance without taking the long-term impact of their decisions into account. Put more simply, people are looking to make a quick buck. Moody's goes into how this applies to traders at investment banks but I'd also note that this applies to people like mortgage originators and real estate brokers. Their commissions are paid when people buy houses. Whether or not the person defaults on a mortgage and loses his/her home down the road does not matter to the broker, so at the height of the real estate bubble, they were just stuffing anyone they could into homes they couldn't afford. The basic short-term nature of incentive structures in the financial markets inevidably introduces more risk into the system.

2) Regulators and policymakers, looking to maximize growth, don't limit banks enough to prevent financial crises. What Moody's seems to be saying here is that bank regulators such as the Federal Reserve could prevent crises by requiring banks to keep much more cash on hand to deal with problems, but then banks wouldn't be able to earn any money. Since policymakers have implicitly agreed that letting banks grow and make money is a good thing, they accept the risk of the occasional crisis.

3) "The mystifying interaction between credit risk and the economic cycle." That's how Moody's third point reads, but I will admit I had a hard time understanding their argument here until I read the next sentence "Another problem is the difficulty of measuring risk over time." I think the crux of this argument is that the people who measure risk (rating agencies, risk management departments at banks etc...) have trouble doing so because their measurements are impacted by the cyclicality of the economy and it is hard to separate structural risk from cyclical risk, because their measurements are based on the current state of the world around them, which may or may not be in the midst of an unrecognized bubble. This is a pretty arcane topic and I might not be reading it right, but let me try giving an example...

In the late 1990s before the equity market bubble burst, people were saying that risk premiums were lower, so stocks were less risky than they have been historically, and their sky-high valuations were therefore justified. These people were having trouble looking at risk from a long run perspective and were just using the results of the current market cycle which led them to believe that the world had somehow changed. It turns out the world hadn't changed, the markets were just coming to the peak of a huge uptick in the cycle. I think the London Business School paper "Global Evidence on the Equity Risk Premium" does a better job of explaining this than I could:


"Over the last decade of the twentieth century, US equity investors more than trebled their initial stake. In real terms, they achieved a total return (capital gain plus reinvested dividends) of 14.2 percent per annum. During the last five years of the 1990s, US equities achieved high returns in every year, varying from a low of twenty-one percent in 1996 to a high of thirty-six percent in 1995. Many investors became convinced that high corporate growth rates could be extrapolated into the indefinite future. With steady growth rates, equity risk appeared lower. Simultaneously, there appeared to be a decline in the premium sought by investors to compensate for exposure to equity market risk. This drove stock prices onward and upward. Surveys suggested that, in consequence, many investors expected long-run stock market returns to continue at double-digit percentage rates of return.


Then the technology bubble burst... With markets having fallen, investors started to project lower returns into the future."

4) Difficulty in tracing risk. The crux of the argument here is that all of the structures that developed in the past 10 years or so (mortgage security pools and wrappers, pools of pools, risk transfer structures etc...) were complex and opaque. The investors who purchased the risky investments like mortgage loan pools had less information than the people who created them, so it was hard for them to truly measure what kind of risks they were taking. For example, if I borrowed $200k to buy a house, the mortgage originator might sell that mortgage to an investment bank who would combine it with other mortgages into a pool, then sell off chunks of that pool to a hedge fund under various degrees of risk assumption. The hedge fund manager would never get a chance to look at my financial records, yet he owns an investment that is partially dependent on my ability to make my mortgage payments on time. The shady mortgage broker might have lied about my income on the application as a result of the incentive structures discussed in point 1 above, but the hedge fund manager would have no way of knowing that. In addition, the bank who created the security might have made some assumptions or variations to the way the loan pool was created that were buried in some 100 page prospectus that the fund manager might not have been able to discover. The way the whole process worked made it difficult to state exactly what the risks were in the security the ultimate investor owned.

5) Confusion over the definition of "liquidity." The paper gets even more arcane here, so I don't blame you if you get sick of this entry and click out to somewhere else, but to me, Moody's seems to be sort of going on the defensive here. It mentions that there is a misconception that "highly rated securities are necessarily liquid." The agency's argument is that when it gives securities a high rating based on the issuer's balance sheet, it does not necessarily mean that there will always be an orderly market for buying and selling the security, ie while the credit risk of the security might be low, the market risk might still be very high. This seems to be what happened to many of the mortgage-backed securities. As everyone decided that mortgages were toxic, it became difficult to find any buyers for the securities, so even though the majority of mortgages underlying the securities might still have been performing as expected, the securities would only sell at extremely low valuations in the market.

6) No satisfactory valuation paradigm in the credit markets. As we all know, there is often a disconnect between market prices and underlying economic values. Moody's is saying here that the models people were using to value the credit securities that came out in the past 10 years or so were inadequate, and additionally that no adequate models exist.

7) "Spurious precision" in a complex system. Basically what Moody's is saying here is that financial reporting is discrete and precise. Banks have to put a value on their liabilites and assets as of certain dates (usually quarter end for their 10-Qs and 10-Ks) yet the values of some assets and liabilites cannot be precisely estimated, as pointed out in point 6. This leads to huge writedowns and further panic in the financial system.

I am sure our current market conditions and the ultimate fallout (the extent of which we don't know yet) will be well studied in the future but I think the above points do get at some of the main causes of the current crisis in the financial markets.

2008 Market Decline

So, I take some time off from posting for the new year and the market tanks.

First of all, Happy New Year to all of my readers. I hope you were able to take some time off around the holidays. I found it hard to pry myself away from work, but I managed to do so and really enjoyed the downtime.

The Dow closed at 13,500 on December 26th and has since fallen about 1,000 points. Hopefully there's more to come (allthough the market rallied today). People are as pessimistic as ever on the future of the housing market, gold is nearing $900 an ounce, oil touched $100 a barrel for one brief trade (but based on the rumors I've heard it was the minimum contract amount and the trade was just done by a person looking for bragging rights).

Looks like it's going to be an interesting year.