Year: 2008

Just One Thing

I just finished John Mauldin’s new book, Just One Thing. It took me only two days to read. I cannot enthusiastically recommend this book even thought there are some nuggets of wisdom in it. In the book, twelve investment writers each give their one best investment idea.

Some of the authors rambled and others (Bill Bonner, George Gilder, John Mauldin) did not have anything useful to say that you could not have already picked up from reading Mauldin’s email newsletter or other sources. For those who are not familiar with Dennis Gartman, James Montier, Gary Shilling, and Richard Russell, their chapters make good reading.

The two best chapters were Ed Easterling’s chapter on the capital asset pricing model (CAPM) and its faults and Rob Arnott’s chapter on non-market-weighted index investing. Easterling does a good job of explaining problems with how we look at risk. Arnott makes a good case for avoiding index investing in market-weighted indexes such as the S&P 500. In a market-weighted index, companies that are selling above their true value will be overweighted while companies that are selling below their true value will be under-weighted.

The solution is to invest equal amounts in all different companies. By investing equal amounts in the stocks in the S&P 500, you can average a return of 2% more per year over the market-cap weighted S&P 500. Of course, that is what investors in individual stocks should do. By putting the same amount of money into each stock, regardless of market-cap or price, investors lower their risk while increasing our returns.

Overall, Just One Thing is a decent book and a quick read. Consider buying it.

Disclosure: This review was originally written two years ago and published elsewhere.

Comcast to Shareholders: Screw You!

Comcast [[cmcsa]] has agreed to pay its founder a salary for a full five years after he has ________. The logical (and upsetting) conclusion of that sentence is “retired”. No public company or even private company with minority shareholders should ever pay an executive who is retired or otherwise not contributing. However, Comcast has decided to take callous disregard of shareholders to a whole new level by agreeing to pay its founder for five years after he has died. He will even be paid a bonus in that time. Ouch.

Disclosure: I have no position in CMCSA, nor am I a customer. I have a disclosure policy that shall never die!

Echostar’s $63 million dollar mistake

Oops. Echostar [[dish]] lost $63 million more over the last few years because they included the same income in multiple years. A new SEC reg requires companies to disclose financial errors that are not material but through repetition have become material in aggregate. Sadly, companies do not have to run this through the earnings statement and can take it straight to the balance sheet. Unsophisticated investors may never even notice. See the original article by David Milstead over at the Rocky Mountain News. I recommend subscribing to his column via RSS.

Disclosure: I have no position in DISH; I am a customer. I have a disclosure policy.

Tracking your finances in Quicken or Money

If you do not use Intuit Quicken or Microsoft Money (or a similar program) to track your finances, you should start. I take about 30 minutes each week to update my bank accounts, as well as 5 minutes each trading day to update my brokerage accounts. If you just hold index funds and ETFs or long-term investments in individual stock you would not have to update your transactions very often, maybe only once a month.

Most credit cards offer downloading into Quicken. I like using my Discover card because it will download the most easily into Quicken. Most other cards (such as those by Chase) require a visit to the website to download transactions.

A number of brokerages offer automatic downloading into Quicken of transactions, including E*trade, Scottrade, and Ameritrade. My main broker, Interactive Brokers, requires a visit to its website to download trades to Quicken. Of course, buy-and-hold investors should not use IB; the only reason I use it is because it has a good platform for short selling.

A few hints:

  • Track depreciation of assets such as cars. I track all my large assets in Quicken. Each year I have depreciated my car, a 2003 Mazda Protege, using a straight-line 8-year depreciation schedule. This tracks the real loss of value of the car.
  • Use mark-to-market accounting. I own a rental property, a house, and a chunk of land. I anticipate selling the rental property sooner rather than later and have reduced its value in Quicken by the 6% commission I will likely pay. I have also reduced its value by an extra $10,000 in market-value losses I have suffered. I have likewise reduced the value of my house by about $30,000 in market value that it has lost since I bought in 2003. I have increased the value of the land by a couple percent a year. I am still carrying it at a price below what I could get by selling it.
  • Capitalize home improvements. Home improvements (not repairs) increase the value of your home. Capitalize them by transferring the money you pay (in the program) to the asset account of your house. Do not do this for improvements that will not increase the value of the house.
  • Track your net worth. This can be a good motivator. My financial goal is to grow my net worth by over 10% per year. For those with significant debt, seeing a large negative net worth can be a good incentive to save.

Doing all the above lets me track my net worth very closely so that I can see if I am making progress towards my financial goals. If you wish to improve your financial performance it pays to track it. Tracking your finances closely will help you know how you are doing and it will motivate you to do better.