Blessed by the Potato

Out in the blogosphere (blagonet), a bunch of people are describing their financial mistakes and entering a contest by Canadian Capitalist.

I have several mistakes to talk about. Most recently, I was locked in indecision about what to do about a car. Mine had been stolen (twice!), had just had an expensive round of repairs, and was making funny noises. I had a significant amount of “negative affect” every time I drove it: knowing that it had been stolen, cosmetically damaged, and who knows what else was done to it, it just didn’t feel like my car any more. I spent a ton of time researching what to get next (you all know how that ends: Prius). At the same time, some of the income trusts I owned were bought out, and I found myself with some cash instead of stocks. I also got a scholarship, but managed to live as though I didn’t (for at least a few months), and saved up some more money. All of that cash went and sat in a PC Financial high interest savings account so I could get access to it on a moment’s notice in case I needed it for the down payment on a new (or new-to-me) car. To sell my car, I had to detail it, and once I detailed it I reclaimed it to a large extent. It became much easier to forget it had been stolen when there weren’t someone else’s muddy boot prints on the dash, etc. The noises, while worrisome, stopped getting any worse and just kind of plateaued. I came to realize that I didn’t need a new car, and that my old one probably still had a few more years of life in it. While I had sunk in more repairs than it was probably worth, that money was already sunk, and if I could go even a year before the next repair, I’d probably still come out ahead of the cost of buying a new one.

This was a very slow realization, and that whole time — over a year — my down payment sat as cash. That money, which to me is a substantial fraction of my savings, could have been working much harder for me if it was invested a bit better, though I did at least have enough sense to get a 4% return on it over that time. In fact, with the recent market chaos sitting on cash probably worked out to be a good thing. However, that was a serendipitous event. I didn’t even put in a tenth of the effort determining what to do with that money as I did researching which new car to get. Maybe I would have done the research and concluded to keep a cash reserve, or to keep that portion of my savings in a safe, low income place, but I never gave myself the opportunity to make that decision with eyes open. I just let it happen.

Surebeam was another mistake. That one goes a fair bit differently: my dad first came to me with this stock, and he thought the financial side looked good, but wanted my biophysicist opinion on whether their technology would work or not. I thought it would, but might have problems finding a market with so many people afraid of the N and R words (nuclear and radiation). We both invested fairly early on. We set price targets for it, and were on our way. It actually went up for a while. Went up impressively, and hit my sell target within a year or so. Of course, I didn’t bother to check up on my portfolio for a month or so, and then was out of the country and calling home to my dad when I found out. I didn’t trust the public internet computer in the hotel’s lobby, so I waited until I got home to sell. Then I had to unpack and catch up on some work (*cough* and regain my position on the Warcraft III ladder *cough*), and it was about a week or so before I bothered to check back in with Surebeam. It had settled a bit from its peak, and I figured I would wait and surely it would go back up… and the next thing I knew the company was delisted, bankrupt, and my investment was worth nothing. There’s plenty of blame to spread around for that loss, including the management.

The careful reader will also notice that here things could have been saved if I had just put the time and effort into keeping on top of my portfolio. Or if I had taken a chance on a public computer. Or had the good sense to put in a standing sell order for my price target, especially before leaving for vacation.

To say that I’m an amateur investor, or that it’s a hobby of mine is to vastly overstate my case. I invest in the stock market because I was raised to believe that there are much greater returns to be had there than can be found in a savings account, GIC, or government bond. Because money should “work” for me. But I don’t put enough time and effort into staying on top of it, and that has been my financial mistake. There are tools out there to help people like me stay on top of things, and I’m working on checking the status of my portfolio (and any relevant news releases/columnist articles/etc) daily, or at the very least weekly. I’m also starting to look into potentially taking advantage of mutual funds, which can help keep me better diversified and will have managers to stay on top of things. What might be ironic is that I do take the time to set a monthly budget and every month or two I go over all my receipts and bills and make sure I’m staying on budget. Yet I have a pretty good natural instinct for that sort of day-to-day financial stuff and staying out of debt, so I might not even need to (or at least not spend quite so much time at it) — being a frugal university student for nearly a decade might have something to do with that.

So to sum up, take the time to stay on top of your money situation. If you simply can’t, find investments suited to a hands-off style.

Edit: Just to try to clarify, I do think that a mostly hands-off buy and hold, wait and see type strategy is generally good… but hands-off isn’t the same as brains-off :)

All this time with a blog, and I haven’t really touched on personal finances.

My dad’s an accountant by education, and then became a financial consultant as he got more experience in the work force (though the subtle differences between a CA and a financial consultant escape me), opening his own business and then closing said business down and “retiring” early. Now, retiring here goes in quotation marks because my dad still works at least a little bit every day of the week. His nearly full-time job now is managing his retirement savings to make sure that the returns keep coming in sufficient quantities to make ends meet without having to dip into the principal, if that can be helped.

He got my brother and I interested in investing at a very young age; he shopped around for banks that were willing to do business with kids with respect, and sell them very low-minimum GICs. We set up my first savings/chequing account when I was 10, and he explained the value of tucking the money I had saved up from my allowance and gifts into a GIC to not be touched for a whole year to get even more interest around age 13. I think I had my first set of Canada Savings Bonds at 15, and he was helping us play the market before I went to university.

Unfortunately for me, while I had the head for everything he was trying to teach us about picking stocks, I just didn’t really have the interest or more importantly, the talent for the non-tangibles. As much as my dad will scour a balance sheet for earnings, market capitalization, cash on hand, and yield, he also pays attention to the overall market and psychology of a company. Even if a company looks good on paper, if it just has a bad reputation and isn’t going anywhere with its sales, the stock isn’t going to do well in the long term. Vice-versa, even companies with a mediocre balance sheet can really turn it around if the market is going in their direction. One example is those funny sandals known as “crocs.” They’re actually made by a Canadian firm, and that company flew more-or-less under the radar for a while. My brother and my dad saw how popular these ridiculous shoes were becoming, and decided to invest a little bit, something that’s come out well for them. I couldn’t get over the fact that they were ugly and had holes in them, and thought it would never go anywhere. In case you haven’t noticed, my brother does seem to have the head for this sort of thing, and certainly the interest, so he’s now on the career path to becoming a stock broker himself.

You can’t really avoid the stock market if you want to save and invest your money. I mean, you can but then you’ll be barely beating inflation with a 4% GIC (OK, 5.5% if you run out to Canadian Tire right now). My dad has never been much of a believer in mutual funds, partly because he’s better than many fund managers at picking stocks (and even the good fund managers are sometimes hampered by the momentum of a mutual fund or other rules), and partly because many mutual funds will sap your potential returns with various fees (though investing out in the wilderness on your own also has commissions). Somehow, that dislike of mutual funds got passed on to me, and so I’ve been investing pretty much soley in individual equities either on my own or with my dad’s help.

In the last few days I’ve started to really reconsider the value of mutual funds. I’ve been largely invested into income trusts, which with the lying Conservatives have become a bit of a minefield. So I’ve been trying to do this “diversification” thing. And it’s really, really hard to spread your investment around when you don’t have a lot to invest. Not being diversified has hurt a bit. There are the nice winners, such as Q9 Networks, which has grown by over 50% in about two years for me. But there are also real dogs, such as Surebeam, which looked promising at first, and then tanked all the way to nothing once it was revealed that the people managing the company lied and they didn’t have the lucrative contracts they said they did.

Another advantage of mutual funds is that you don’t have to keep a constant eye on the market, which is something that my dad does but I, until very recently, haven’t. For one thing, it was always a bit of a pain to try to keep track of things, and while looking up stock prices is pretty easy to do each night, I always had trouble remembering where I bought, so it was hard to keep things in perspective. Plus, it was stressful. It’s much easier to be a buy & hold investor when you’re not worrying your portfolio daily. The use of easy tools has helped me with that recently, things such as Google Finance. To also keep on top of things I’ve started reading various analysts, bloggers, and writers in the business section of the paper and online. One, themoneygardener, is linked over on the right.

I’ve also become more interested in my “investment portfolio” lately as buying a house and a car have become nearer and nearer goals. Lots of friends have been getting all grown up, with houses, jobs, and kids. I am, of course, still in grad school, but that doesn’t mean that Wayfare wants to wait another decade for that sort of thing, so we’ve got to be planning and saving now, and keeping one eye on the real estate market.

To put it briefly, the housing market is scary.

If I thought diversification was a problem with a stock portfolio, buying a house blows that completely out of the water. For many people, once you get a house, that’s pretty much your only investment for at least a few years. Of course, at the same time you don’t worry as much about a market downturn because real estate is pretty stable in the first place, and even if there was a housing crash, well, you still have a place to live which was the main point (unless you’re flipping houses, which no one I know is), and as long as you don’t have to move, you can usually ride it out. Sure, we “lose” money by paying “rent” instead of “building equity”, but it’s a lot less risky that way, and there are lots of good articles that point out that if you can live frugally and save the difference between what rent is and what a mortgage would cost, that you can come out ahead of the game. Especially if it means you then save enough to put a decent down payment on a house…

But the thing that’s really scary is how fast the housing prices are shooting up. Wayfare tells me it’s 9% a year in London, and it looks to be about the same around Toronto (of course, a house in London costs about 50-75% of what an equivalent one in Toronto would). A friend just recently bought a house after saving and saving and saving for years to try to get a respectable 20% down payment. He tells me though that he couldn’t do it, and had to buy because he couldn’t even keep pace with his savings, let alone build on them, and had to get one of those 5 or 10% down insured mortgages. The housing market was simply growing faster than any other investment he could make. That renting and “saving the difference” argument really only applies to a relatively stable market, not one that’s shooting off like crazy like this.

For a long time now, I’ve looked at the real estate boom and consoled myself that it’s really a much better decision to stay out of it: I simply don’t have enough certainty about what I’ll do after I graduate to be buying real estate anywhere, and surely that kind of growth can’t be sustainable. I looked at the US, and read the market analysts, many of whom have long been predicting the “subprime meltdown” we’re seeing now. I looked at the demographics, and saw a lot of baby boomers coming up on retirement: to me, that looked like a lot of excellent family homes that might soon come up for sale as they decide to winterize their cottages and retire outside the city. From all of that I concluded that housing prices must stabilize soon, and maybe even correct downwards a bit.

It’s been over 2 years of saying that to myself now, and won’t we be damned, but the subprime crisis is hitting the States, but the Canadian market seems completely immune to it (well, except for our banks), much as it may bedevil me. My own parents (baby boomers), despite spending upwards of 50% of their time at the cottage have no intentions of selling their Toronto home, even with one son gone, the second on the way out, and the final kid applying to university next year, with out-of-town schools ranking high in her preferences. So much for my theory about a flood of baby-boomer homes coming up for sale.

I’ve had some rough luck in the market in recent years, and the markets in general aren’t doing too well lately, either. There have been some nasty capital losses for me, but thanks to the high payout of some of my income trusts my average return is still around 6%. While that is better than sitting on a savings account, that’s not a lot of return for the risk I’m exposed to. It also seems to be a low rate of return. I don’t really have any mutual fund literature that says they can do better or anything like that, but I have read a lot of investing articles that say things like “compounded at 8% over…” which seem to imply getting an 8% return is common and easy (in fact, I think that’s closer to what my dad averages). Heck, my landlord has to pay me 6% on my last month’s rent down payment. Of course, once you compare my 6% figure to the 9% the housing market has gone up, and I start thinking bad things about my ability to ever buy a house in the future.

But hey, the slight downturn the stock market is facing now may present some “buying opportunities” so that I can at least aim to be a rich renter (as much as it may irk Wayfare to “waste” money that way).

Almost every year I’ve watched the Toronto Santa Claus Parade on TV, and gone down in person a few times (twice as a kid, and at least once as an adult with my parade-loving other half). It’s always a top-notch affair, and I think it’s inspired a lot of other cities and towns to do the same (or maybe it has something to do with Christmas). Anyhow, this is the first year that we’ve bothered to go downtown to watch the London Santa Claus Parade in person. It was a pretty good show, with some high-quality well-integrated floats (notably the entry by Kellogg’s), as well as a number of sadder-looking “let’s throw a tree and some lights on a trailer” floats. I’m not trying to disparage the London parade for that: the Toronto one has a lot more advertising and money, etc., that goes into it, and the London one was still a good show even if it was more low-key. Of course, the Toronto one also gets entrants from all over the place, to get the best marching bands and the best float entries, etc. In London, it’s all local.

Which made some of the sights pretty surprising. For instance, London has all kinds of weirdo dance and band groups, a unicycle club, and more shriners than you can shake a stick at! (I think there were 3 separate groups of shriners that went through, and each group was pretty substantial!) Some things really weren’t very wintery or Christmasy, such as the group of Jedi and stormtroopers that walked by. Wayfare mentioned before they got to us how cool it would have been to be in the marching band — she briefly considered joining the Western one when she was in grad school. I sort of shrugged my shoulders, not thinking that would be all that cool, but then the Jedi came by and I was all like “wow, how cool would it be to be a Jedi in the parade?!” “That would be pretty cool, of course, when I was thinking of joining the marching band, I didn’t realize that was an option. I still don’t quite get how it relates to Santa…”

The parade didn’t quite go off without a hitch: the route was different this year because of the giant sinkhole, so apparently it’s more picturesque as it rolls by decorated shop fronts, rather than the more barren facade of Queens. Beyond that, it was quite a bit later rolling by than we expected, and there were two or three very large gaps where there was nobody coming for almost as far as we could see (at least 5 or 6 blocks) and we started to wonder if the parade had ended without Santa (we knew from the paper that there was some minor controversy with Santa). London, unlike many other cities’ Santa Claus Parades, holds its at night. That makes the lights (and lightsabers!) all the more impressive as they go by, but it also makes it colder, so those big waiting periods weren’t really appreciated.

This is just about the time of the year when my family puts up the tree (sometimes we might even wait until December), but Wayfare’s traditionally does theirs while the Santa Claus Parade is on TV. A nice little tradition, so we’re going to watch our tape of it tomorrow and put the tree up then…

I have to wonder just how dumb thieves really are. I mean, in my own life we have lots of evidence of mean, spiteful, stupid thieves: the ones who did over a thousand dollars of damage to my car just to take it out for a joy ride (or commit another crime), who had the car for a week and couldn’t get the radio out (though obviously not for lack of trying), and the ones who broke into my house and left behind the American money. Now in the news we have several reports of thieves stealing copper for the scrap metal. From the London Free Press a report about thieves risking their lives to get the copper from live wires. Wow, copper must be worth a fortune for someone to risk their own life, the life of the power worker who will have to come by to fix the damage, and to be spiteful enough to plunge a whole neighbourhood into darkness for hours (not to mention stealing from a public utility)! And the going rate, according to the LFP?

Scrap dealers are offering about $2.80 a pound for copper.

The price is down from the high of $4 last year but still worth a thief’s effort.

“Don’t forget, their profit is 100 per cent,” Kummer said.

$2.80 a pound! Geez, even if you haul a hundred pounds of wire out of a substation (which is about as much as I could see a thief taking out on foot), and assume it’s pure copper and not wasted weight on insulation, you’re looking at $280, and that’s probably a pretty generous estimate. Possibly worth the time since it is, as the person quoted says, all profit, but there is a lot of risk associated with that, and the dickheadery that goes along with stealing from a utility, and putting others into a blackout and at risk. Nearly everyone has a price at which they’d sell their own mother, but I can’t believe these guys place such a low price on their respect for other human beings. And hey, here’s another similar story from the CBC.

“What they do is they take this and they wrap it around a trailer hitch of a four-by-four and drive away. And they take probably 1,200 feet, ripping that up.”

Wow, 1200 feet. Since I’m a science geek, let’s figure out just how much copper that is. Of course, we’ll need to know how thick the wire was, which wasn’t reported in the story, but let’s assume it’s pretty hefty wire with a diameter of 1 cm [r=0.5cm] (not quite as thick as the wire carrying bulk power in your neighbourhood, but a fair bit thicker than even an outdoor extension cord). 1200 feet ~ 400 meters. Density of copper = 8.9 g/cm^3. Volume = pi*(0.5 cm)^2 * 40000 cm = 31400 cm^3. Mass = 279 kg, or 615 pounds. Hey, not too shabby, but that’s assuming something that’s more of a copper rod than a wire. If it was 8-gauge wire (still pretty hefty), we’d have a cross-sectional area of 0.08 cm^2, for a mass of 89 kg, or 197 lbs. Hey, still nearly double my earlier estimate, but hardly mess-with-the-power grid money.

Speaking of putting people at risk for selfish bone-headed copper thieving, how about this story from the CBC in Nova Scotia?

A thief stripping propane tanks of copper lines is putting people at risk, Halifax police warn.

Someone stole the copper lines from two propane tanks outside residences in central Halifax on Monday. In both cases, the highly combustible fuel leaked.

“The person is literally playing with fire,” said Const. Jeff Carr, spokesman for Halifax Regional Police.

It was only a few weeks ago when police reported that someone had cut copper from several oil tanks in north-end Dartmouth, resulting in oil spills and expensive cleanups.

All of this of course doesn’t mention the disparity between the cost to the victim and the gain to the thief. Ignoring the issue of the insane risks the thieves are taking and forcing upon others, the people who have to replace their propane lines or power connections don’t pay the scrap price for their copper. Their lines cost much more than that. Similarly, people who get a laptop, iPod, car stereo or catalytic converter stolen usually have to pay much more to replace it than the thief will ever get for it, and that’s not counting any repairs from a break-in that might be necessary, or intangibles lost (such as data on a laptop). Whatever happened to the days of holding up a bank, or swiping the cash out of a till, or pickpocketing a person? In other words, the days of stealing money? It still sucked to be a victim, but at least the thief would get as much utility out of the money as the victim lost, rather than this stupid, spiteful gap.

Well, like every year since I started working at the hospital, I got my flu shot as soon as it was available. And like every year, I got some kind of mild flu/bad cold right at the beginning of flu season (one year, I got the flu before they started offering shots). After being sick for 4 days, I think I’m finally on the upswing.

It’s been fun though, Wayfare came back home on Sunday and won’t let me go near her. I know she has a craptacular immune system, but sometimes she acts repulsed in such a way as to suggest she thinks I’m sick on purpose, and cruelly trying to make her sick. She’s running around opening doors with her shirt, and steadfastly refusing to touch the orange juice container I was using. She put a kleenex around the TV remote so she wouldn’t have to touch the buttons. She gives me a dirty look any time I touch something…

I’m a pariah in my own home!