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.