Monday, August 31, 2015

The Opportunity Cost of Fantasy Football

I have recently been the recipient of verbal office jabs for my choice to abstain from Fantasy Football this year.  My retort?  The opportunity cost of drafting, managing, and discussing Fantasy Football does not warrant participation.  I played last year.  I enjoyed it.  I enjoyed it a little too much, spending Sunday's refreshing my phone at the local B-Dubs, telling my wife I need some obscure receiver to catch at least 4 passes for me to lock in a playoff spot - as if to include her in my predicament.  The end of the season was a welcome relief, maybe as much for me as it was for her.  No matter how many times I have vowed to not let FF take over my life, I still found myself sucked into the office banter throughout the week and a zombie - a shell of my non-football self - on Sundays.  I am STILL being sucked into the office conversations, and I'm not even playing this year!  That's power of Fantasy Football!

What is the tradeoff for that time and stress?  What am I missing out on?  Am I getting more out of participating than I would from some other activity?  What are the opportunity costs?

Thursday, August 27, 2015

Beer Economics: To Brew or not to Brew . . .

We all have our "thing".  The "thing" . . . you know, the one that you, savor extraordinaire, just won't budge on.  It goes against every principle you try to uphold on a daily basis.  It's material, it's expensive, it's unnecessary, but it's sooooooo good!  Maybe it's coffee?  No, you would never frequent Starbucks each morning for a $5 Pumpkin Spice Latte with your name spelled incorrectly down the side - that would be asinine.  But there are still ways to get your fix, to feed that craving, and conquer that one weakness for a reasonable price.  Maybe when you're at the grocery store staring at that wall of Folgers and Maxwell House, maybe you can't help yourself but reach for a bag of Peet's for only $1 more per bag, or 15 cents more per pot.

Mine?  Mine is craft beer.  My dad had been brewing beer long before it was hip.  I sidestepped the Icehouse college phase.  I never "moved up" to the expensive Coors Light.  Nope, my first "bad" beer was Sam Adam's.  At that point, I was doomed.  It's a one way track.  A guy can move from Iowa to California and he'll understand what he had been missing, but you can't expect a Californian to relocate from San Diego to Des Moines and survive.  It's a step backwards, in his eyes.  After my dad's craft beer, there was no turning back. 

But craft beer exploded.  Now, a six pack of Lagunitas Little Sumpin' Extra ale will set you back $9.99, if you're lucky, and that's before taxes.  You want to buy Ballast Point Sculpin in Chicago?  How about $13 minimum?!

Tuesday, August 25, 2015

Utility - In Another Sense

Utility, in an economic sense, is defined in Investopedia as:

"Utility is an abstract concept rather than a concrete, observable quantity. The units to which we assign an "amount" of utility, therefore, are arbitrary, representing a relative value. Total utility is the aggregate sum of satisfaction or benefit that an individual gains from consuming a given amount of goods or services in an economy."

I became familiar with the term "utility" in this regard from Jordan Ellenberg's "How Not To Be Wrong" and it intrigued me.  Business Insider and Smithsonian give nice summaries of its use in the book here and here respectively.  The gist of it is that everything comes with a cost and you need to ask yourself what cost are you willing to pay for a level of comfort.  It is an "inconvenience factor" and Ellenberg measures it in utils.

Sunday, August 23, 2015

Like Diamonds, Cycles are Forever - Premature Thoughts on a Stock Market Crash

It is a bit early to call this past week's action a "crash" or to state that the market is in the midst of a crash, but it is also always wise to plan ahead for various possible future scenarios.  From a value investor's standpoint, crash = opportunity.  The last few years since the 2009 financial crisis, may have been a bit rough for value investors.  While the rising tide of the market over the last 6 years has inevitably raised all boats, those who focus solely on a Graham-esque value strategy may have been left in the dust as growth stocks have been the been doing the heavy lifting.

Bull runs of this nature are difficult for a value investor to stomach.  He likely invested in the 2009 crash, enjoyed the gains until he sold out at what seemed a fair valuation, and subsequently watched agitatingly while the overall market continued to appreciate.  He has likely either converted to mostly cash or focused on commodities, energy, and possibly retail stocks, which have lagged behind the rest of the market sporting low P/E's and P/B's.  Energy and commodities, specifically, have been absolutely hammered this year, while the Dow finally appears to be leveling off after the 5 year bull run.  He follows all of the rules he has picked up from Graham, Buffett, and gang, yet it appears those around him blindly throwing money at in-vogue stocks like Tesla are the ones celebrating!  He has flashbacks to 1999-2001.

But bull markets must come to an end and, like diamonds, cycles are forever.  Love him or hate him (I, for one, am not a big fan), Jim Cramer makes some valid points in "Real Money" when it comes to cycles.

Thursday, August 20, 2015

Lessons of an Investing Addict Part 2: Book Value Strategies

“I’m not very good at judging people. So I found that it was much better to look at the figures rather than people. I didn’t go to many meetings unless they were relatively nearby. I like the idea of company-paid dividends, because I think it makes management a little more aware of stockholders, but we didn’t really talk about it, because we were small. I think if you were big, if you were a Fidelity, you wanted to go out and talk to management. They’d listen to you. I think it’s really easier to use numbers when you’re small.” -- Walter Schloss

In Part 1 of this series, I talked in generalities about laying the groundwork for becoming a successful investor.  I discussed some good literature to get you started down the right path and suggested familiarizing yourself with economic cycles.  Finally, you should choose whether you identify yourself as a speculator, a trader, or an investor and then to get your feet wet by putting a minimal amount of funds into a discount brokerage to get a "feel" for the market.

I have spent years researching different methods of equity investing and learned some expensive, but valuable lessons along the way.  My ego has led me to believe I could trade stocks and beat the market; convincing me that somehow I had the gift to outdo the money managers who live and breath this stuff all day, every day.  I have since moved on from the guessing game and built an investment strategy around the techniques of Graham, Buffett, and my favorite, Walter Schloss. 

If you have any doubts about the effectiveness of a long-term value-investing approach, I highly encourage you to read "The Superinvestors of Graham-and-Doddsville", a speech by Buffett to a class at Columbia.  Buffett does a fantastic job articulating the school of thought that these "Superinvestors" adhere to while dispelling the argument that randomness is solely responsible for an investor's success.

Monday, August 17, 2015

You Win! Now What???

"If you don't continually revise your goals, the only place you've got to go is down." - Laird Hamilton, World Renowned Surfer

I've written extensively about the process of goal setting and listed some literature that expounds on those ideas (e.g. "Think and Grow Rich", "The Art of Learning", and "Mindset" - take a look at the "Good Reading" page for additional suggestions).  However, what happens when a goal is within site or attained?  What do we do next?  How often do you see professionals who seem to mentally "check out". 

The first one that comes to mind (as football season is drawing near!) is (former) NFL quarterback Jake Locker. 

Wednesday, August 5, 2015

Lessons of an Investing Addict Part 1: The Groundwork of an Investor

I've discussed in previous posts that keeping a tight budget is very important in reaching your financial goals.  A Google search will turn up hundreds of articles providing ideas on how to trim your budget and an entire blog community exists full of participants trying to outdo one another on who can live in the most frugal manner.  I think that is a little extreme.

Instead, I want income growth to be the main driver of my financial independence.  I tend to focus much of my free time and energy on stock investments and I will outline my strategy here.  Disclaimer:  I also mentioned in a previous post that I don't necessarily agree with Jim Cramer's overall investment philosophy, but from his book "Real Money", I wholeheartedly agree with his concept of dedicating a minimum of 1 hour per week per stock to research. 

Tuesday, August 4, 2015

Financial Freedom - July 2015

I recently (better late than never!) came across a couple of blogs that I really enjoyed on personal finance:  Root of Good and Mr. Money Mustache.  Both blogs focus on early retirement and different techniques to become financially independent - my goal numero uno.  Mr. Money Mustache has a way of conveying to readers the proper mindset one needs to go down this path and the differences between those who achieve this goal and those who do not.  My favorite part of Root of Good is the financial update and transparency he provides into his family's financials with monthly updates. 

After being inspired by these two blogs of men who have successfully obtained financial freedom, it occurred to me that, while it is extremely beneficial to read about the reflections of those who have succeeded, it may be even more beneficial to document the journey as it unfolds.