This post is about money, learning, failure and success, inspired by a huge money week for me last week and a conversation I had with a friend. Last week, really in just two days, I made over $15,000. I’ll get to that in a second but first, a bit of background and a caveat: I am embarrassed to tell you how much money we have and I’m afraid that you’ll think I’m lying -- however, I'm not and there is motivation that you can take away from this tale for yourself. I believe that anyone can do what my family did because it was so easy.
How My Wife and I Made $800,000 in 10 Years
The first-ever goal that my wife and I made as a newly married couple was to retire by the age of 40, made at a time when our life was poor. We lived in a basement apartment, I had just graduated and got my first job making “real” money, which seemed huge to a student but was really only enough to fund our two cars, our rent, and the entertainment we soon grew used to: Cable TV, movies, dinners out, etc. Ten years ago we had virtually no savings and we spent everything we made.
Since then I think we’ve accomplished a lot:
- We had three children with a fourth on the way.
- My wife got two degrees,
- My wife started two business, I started two, and we started one together, and invested in two other startups.
- We’ve bought and sold eleven investment real-estate properties, been in debt over $1 million at times to do it,
- Have built up a stock portfolio worth $400,000, have over $250,000 in equity in our house, and over $150,000 in other investments.
Both my wife and I have fairly normal jobs; I’m a middle manager and my wife is a part-time teacher. There were not many times during our marriage that both of us were working at our jobs. She took at least a year off to have each of the children, she also took two degrees, and I took about a year and half to try to start a business support by her. Our family employment income is above-average for sure, but not out of reach for many middle-aged families. We’ve also been blessed with merely normal luck -- no big lottery wins or inheritances, and plenty of huge losses were thrown at us.
Here is how our family net worth has changed over the years (net worth is how much you money you have left after you pay all your debt) along with some notable milestones:
| 1984 |
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| 1987 |
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| 1991 |
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| 1997 |
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| 2000 |
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| 2001 |
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| 2002 |
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| 2003 |
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| 2004 |
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| 2005 |
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| 2006 |
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| 2007 |
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| 2008 |
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| 2009 |
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| 2010 |
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| 2011 |
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There you have it. I’ve lost more than $100,000 that I actually had, and millions of potential dollars.
So, why is this in a parenting blog?
Because I think the people who are ordinary, like me, but getting nowhere are that way because of the environment in which they grew up. #1: Somehow they learned, when they were young, to be fearful and hands-off in their approach to life. #2: People, from childhood, get zombified, pacified, distracted and lulled -- they know how to hit the TV, sports, video games, clothing stores, but not "complicated real-life". I want something different for my children.
Back to my $15,000 week. Here is a real conversation I had with a friend this weekend over dinner. He’s a geologist and we got to talking about the price of oil.
Me: “Hey, do you know what happened to oil last week? Why did it drop so much?”
Him: “<Several minutes of some mumbo jumbo about the economy slowing blah blah blah>. Oil is going down maybe to $70!”
Me: “What’s it at now?”
Him: “High 90s”
Me: “Wow. Yeah, I noticed I made a boatload of money on my oil shorts yesterday.”
… some more talk, then we got around to iPhones and Blackberries …
Me: “Blackberries suck. I thought they were good, then my work lent me one temporarily and I immediately began to hate it: Hard to use, fuzzy screen, bad programs.”
Him: “I know, they’re so far behind Apple and Android <few minute long rant about how Blackberries are irrecoverable techno-laggards>”
Me: “Yeah, I made a boatload of money on them last week. Blackberry dropped like a stone after their earnings.”
His wife: “Wow, really! Alex, you have to give us your stock tips.”
My eyebrows raised, I looked at her and pointed to her husband, “Your husband just finished giving us a clinic about exactly the tips you wish I’d given you! I’ve already shown him how to use the online stock broker and also given him a few books about stocks that you two never read. You come to the same conclusion I did about oil and Blackberries, yet you made nothing from that knowledge and I made $15,000”
I didn`t add that I had also invited them to join me in every real-estate deal but they always “had their money deployed elsewhere”, and how they complained to me last time I bought them a personal finance book as a present. This couple makes about twice as much from their jobs as we make, but their worth is probably half of ours and it’s mostly in the value of their house and company stock options. They are not in the least unique. I've asked many tens of people to join me in business ideas, but very few accept.
I think there are at least three lessons here:
Fail hard and often, then learn from it!
I got my life's savings stolen when I was 13. I got swindled by business partners twice and by a property manager we hired. We lost tons of money in real estate and in the stock market. My wife and I started businesses that lost money or hardly made any. But each time we failed, we went back at it and tried again. We used the experience, bought for a high price and milked it. We went from beta to version 1.0 to 2.0 to 3, and now we're at My Family 2011 Edition: Adapted, smarter, stronger, evolved, happier, and of course wealthier than ever before.
This comes back to my post earlier about how proud I was of my son failing to perform well in front of a theatre full of spectators. How much better to fail that way at the age of 5 instead 15 or 25 or 45 ... or never? He has that under him now, so he can whoop failure's ass and move on to the next ass. I can't tell you enough how awesome failure is, when you figure out what you did wrong, realize it wasn't bad, and then go slay that beast next time. Looking back you'll be so happy you were able to experience it. Looking forward is when it looks scary, but know that one day you will be looking back -- unless to don't make a move. The water feels coldest just before you step in.
One of my biggest goals is to cram as much failure as possible upon my kids. I'm being purposely extreme in my statement. Of course I want to arm my kids with skills and help them navigate and understand their failure, leading them ultimately to huge successes far beyond what the average person will know. The way to get there is experience, and most especially, experiences of failure.
Do it early and go all-in, every time
Time is a very special commodity. You and your kids have a lifespan. It's short. Too short for what you dream to do. You are a curl of smoke that is thick and dense at first, but is soon blown away leaving no trace. Do what you can, while you can, for yourself and for your kids. Some skills are on the critical path, meaning that other life skills rely on them: Being able to communicate, having a discriminating mind, knowing that you don't know, knowing how to work, knowing that life ends, that other people exist, that actions have consequences perhaps distant in time, that nobody really owns anything outside their skins and souls, that the world is full of choice and opportunity. If you or your kids waste undue time being sheltered or feeling sorry then those lessons get pushed back and the really valuable skills like being able to run businesses, make decisions, lead and influence people, and be courageous are not learned until later, if ever. Those skills come naturally from experiencing the world as it is rather than learning about it from a distant place of safety. You could never learn to play tennis without picking up a racket.
People are exposed eventually and I think children should be exposed under the supervision of the parents so the parents can guide them through. They`ll see laziness and bad kids and down and out losers all around them in school. Some of these people look like they`re in real situations; until someone knows how to get out, every bad situation seems hopeless. When a child loses everything, but then finds that everything can be regained, they achieve a freedom and fearlessness. If they get that early then they`ll have the rest of their lives to live successfully. If not then they are doomed to live under the grip of a delusion that they actually have important things to lose when the important things are what they might gain.
I have a couple of mental diseases for while I'm greatful: I never feel that the odds are much against me. I never feel that I can`t somehow prevail. If I do, for a moment, I simply imagine the circumstances under which I succeed. I also don't have much attachment to things or money. Even though I think about money a lot it's more like a game to me. I don't care too much whether money comes or goes Certainly when I hit a big win I'm happy and big losses make me kick myself for a second as I try to figure out what went wrong, but if I made the best move I knew how to make then I couldn't have done better and that's fine with me. So I continue to go all-in, watching, learning, and reaping the rewards (and the punishments). But I`m just a normal guy and my wife is just a normal girl. We started with nothing, we lost a lot, we made the most basic stupid mistakes over and over, but now we know a lot and we`re still learning tons as we plod slowly up the hill. I repeat: We are just a normal person with a narrow view compared to the really wise people. You shouldn`t do what we do ... you should do much more.
Success Breeds Success
As you can see by the graph, the net worth goes up faster and faster. It is much easier to succeed a second time, or succeed bigger, once you have a success under your belt. The magic of compounding means that the next level in knowledge or money or skill is larger than the previous one because it's based on what you accumulated before. When you have and know nothing, everything seems hard, but everything is easy once you know how it works and have sufficient resources.
WHAT DO YOU WANT?
Do you want more ideas about family finance ideas, making money while being a parent, paying for kids, or teaching kids about money? Please leave a comment and let me know.
Details on the $15,000
So I don`t mislead you with my title about how I made the $15,000, here it is:
HOU (think H-Oil-Up) is a mutual find tracking the price of oil. HOD (think H-Oil-Down) is the reverse, if oil goes up then HOD goes down. I though that oil was stupidly high a few weeks ago and bought a bunch of HOD (predicting it would go down) in a few tranches over the weeks as it continued to rise. But I didn`t buy HOD directly, I bought options of HOD so I would have to invest much less money. I bought about $5000 worth of HOD options for $0.30 each and as oil plunged last week they went up to about $0.90 each, giving me about $10,000 profit. The graph below is HOD gaining about 25% from May 4 to May 6 -- the options I bought tripled but there aren't any charts I know of for historical options prices.
RIM (the makers of Blackberry) made a product that was poor compared to Apple, so I bought options against RIM for $4.40 each. Their earnings disappointed, their playbook turned out to be lame, and so I doubled my money making almost $5000 in profit by selling at $9.00 even. The graph below is RIM sinking -- again the options more than doubled.
WHAT DO YOU WANT?
Do you want more ideas about family finance ideas, making money while being a parent, paying for kids, or teaching kids about money? Please leave a comment and let me know.
Comments
Congrats on the income. That
Congrats on the income. That's an impressive chunk of change. How many hours did you invest in market research before you decided to make the oil and Blackberry investments?
I think you made a great point about how easy it is to fall into passive zombification mode. When so many people have the paycheck to paycheck mindset, its easy to meet that expectation and think that kind of success is for "the other people," then miss all the opportunities that are available to anyone willing to put in the work.
No much! To be honest, I'm
No much! To be honest, I'm not that interested in market research because I find the sources to be junk. Last week Goldman Sachs wrote these sentences after oil dropped:
Wow, that is some useful information from one of the most prestigous investment houses. I basically make my own common-sense opinion for an issue that could make a big move, then buy as cheaply as possible some exposure to that move. I especially buy if most others are going the other way because that tends to be the best value. So if Mattel finds some lead in a toy then I let it drop and buy. BP oil spill, same thing. Ivanhoe Mines (a 10 bagger) same thing when the Mongolian government was being difficult.
Lululemon is another that I've made a lot of money on. That stock doesn't know how to go down long term, everyone who ever bought lululemon apparel loves it. So I wait for a little slide in it then buy for the upside.
I did the RIM because I tried the blackberry and hated it. I own neither a Blackberry nor an Apple nor an Android, but I've seen them all and when I got my Blackberry loaner it was the worst thing I'd seen. Apparently eveyone else has just realized the same thing.
I'm betting against gold right now, and will probably bet against oil tomorrow if it goes up further. I'm also betting for the economy to go up, so railroads, banks, commodities, construction, those kinds of industries.
The important thing is to invest very little for as big an upside as possible. So risk $10 to get $30 kind of thing, tied in with the common sense prediction gives good odds of making money. Just throwing money for a 50/50 chance of winning or losing is not good.
This is inspirational but I
This is inspirational but I think that you were luckier than most people too.
Luck is a factor, but I think
Luck is a factor, but I think I had enough bad luck too. Did you every lose a year's worth of salary? Did you lose your life's savings twice? Did you get swindled by business partners twice? Eventually luck will hit, so I just learned to set myself up to win with good luck, but not lose much with bad luck. Put your fingers in a few pies and some are going to hit.
How far out is the expiration
How far out is the expiration date on most the options you buy? I have a hard time buying options on a hunch when there is no guarantee when the stock is going to move. For example, it is pretty obvious Blackberry isn't going to beat Apple. But the RIM stock could stay at the same price or even higher for a year or longer.
Expiration depends on the
Expiration depends on the play. So RIM was a medium term, two quarters at least to give enough chances for enough people to figure out that RIM really isn't that good compared to everything else. That specific buy was in early May for a September expiration.
The oil and gold are longer term, a year or more, because I wanted to give enough time for some of the conflicts in the middle east to sort themselves out.
I buy Lululemon options very short term, 3 months or less usually because I'm taking the opportunity to profit on the current quarter's results.
So, did you buy the RIM puts?
So, did you buy the RIM puts? I bought another tranch of Jan 2012 when RIM popped up on May 18 (I bought on May 19). I'm up on that trade another 75%.
I realize that most of your
I realize that most of your plays come from common sense, but could you recommend a couple of books where you learned your stock strategies?
Always interested in reading more/different books on this type of thing.
I'll try to dig them up and
I'll try to dig them up and put together a resources page. Look for it hopefully next week (subscribe to the feed!). Thanks for the comment and the idea!
OK, I only just got finished
OK, I only just got finished crawling out from under all our bills and logged into your site and whammo, perfect topic. Very informative. I know nothing about stocks etc. so pardon my ignorance w. this question - after the oil stock went up were you able to sell, or do you keep it? Also, if you were a stock ignoramus like me and say you wanted to buy $5k of stock what areas would you recommend? Also, are you going to start a financial blog for us parents? I'd read it. You could include info on investing for college, teaching kids about money, and stuff like you just wrote. Of course you can write it all here too - money is part of the lessons we teach as parents. (-:
Great topic, great post.
I sold the oil stock, yes.
I sold the oil stock, yes. You can buy or sell any stock you want on any business day for any price you choose (as long as someone else is willing to buy).
#1: You must be willing to lose all or part of the $5K. The easiest kind of investing is a savings account or something equivalent, you can get a few percent with no risk. As soon as you start to look for more than a few percent then you usually have to put the money at risk. As you read above, I lost a lot of money and so you may also experience the sting (then later joy as you look back) of failure.
#2: The easiest kind of exposure to the stock market is what is called an index mutual fund. These are ways to invest in the "whole market". Usually countries always grow so your overall index fund grows more-or-less in proportion to the economy. You can't lose all your money with this kind of investment, because the whole economy would have to die: Even during the terrible recession the market only lost half it's value, and only for a few weeks. Now it's less than 15% off its maximum. To buy an index mutual fund you can probably get that from your bank -- every brokerage has them and there should be no fees associated because there is nothing to manage by humans, they are run for nearly free by computers. To buy these investments just throw a little money at them periodically -- if you get paid every two weeks then invest a percentage into, say the S&P 500 fund (S&P 500 is a representative basket of 500 stocks)
#3: To get a little more creative you could try buying other indexes. Since you live in the USA, when you're making money with big bonuses on your job then your USA index is doing well too. However, if the USA staggers a little, as it is doing now relative to some other countries, then your USA index will do the same. If you think another area of the world will do better, like China or India for example, then you could put some of your money in a fund that invests in Asian countries. Or if you think that we are turning a corner on green energy then you could probably find a fund that invests in a basket of green energy companies.
I wouldn't invest in individual stocks unless you thought of your own reason to buy them. Almost every tip I've ever gotten has turned out badly. Nobody really knows, and if they do then chances are that by the time you found out about it the stock has already moved compared to when the tipster bought it.
You can go to Google FInance and just start watching a few of your favorite companies. There is a place to create a watch list. Check out BP maybe, you'll see they tanked after the spill but are nearly back. Check out lululemon (LULU) if you like their clothes, you'll see they keep going up as they take over the world. I tried Chipotle for the first time two years ago and absolutely loved it, you'll see that everyone else loves Chipotle too (CMG). I mistakely thought they weren't on the stock market (I was going to try to buy a franchise but they don't franchise). Had I realized earlier I would have made a metric ton of profits on that one since it went up five or six times since then. That's how I generate my own tips: just find something that surprises me, then check it out and decide if I like it enough to put in some money. When you buy a stock you`re buying ownership in the company, so just imagine whether you`de like to own what you're buying.
Thank you so much for the encouragment. This was my most popular post, getting over 200 views in 2 days, but few comments. I could try a "Money Mondays" type of thing.
It's actually a nice and
It's actually a nice and useful piece of information. I'm hapρy that you just shareԁ this helpful іnfoгmation with us.
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This post has been really
This post has been really encouraging. I am home, unable to work because of a physical disabillity. I literally spend all day reading. I love geopolitics. I am a well-educated and smart person. I am not afraid of business: my father's life mirrors your own. I have no shirt to lose. We are losing everything, anyway. So what about day trading? So what about the stock market? This has inspired me to look further into it. It would be very easy for me to invest based on following a few industries, obsessively getting to know them, and making predictions. I've done well in the real estate market, as I saw the collapse coming, and invested wisely, but unfortunately, my disability has thrown the whole family into a tailspin. And now there is nothing for me to do but rest. I spend most of my time reading about things related to parenting but now my son has been placed in daycare during the day as I am not permitted to lift him and, if I were healthy, I would be back to work by now anyway. Do you have any tips? I'm a conservative person. I don't fall for gimmicks. I have good impulse control. I have nothing to do all day except sit here and learn. For maybe a year or more, possibly for the rest of my life (rare genetic disorder) and while I do so, we are going bankrupt without my income. I live on the West Coast... you just need two incomces and that is how it IS.
What interface do you use to buy and trade stocks? Would you recommend a primer? I was a humanities major. I don't even know where to start and don't want to get taken in by a scam. I think what I would do is take what I can find (a small amount of money) and just slowly start building on my initial investments in a few choice industries. I have absolutely NOTHING to do with my time and find myself obsessively reading about things like, oh, small pox epidemics and birth politics: why not something else? Why not make money? Why couldn't I make money?
My husband would be terrible at trading. In any way. But not me. I've always made all the big financial decisions and have an uncanny ability to predict political outcomes. We would be doing fine if not for the fact that I no longer have an income. Could you direct me to the right places to start, beyond Google Finance? I was thinking about day trading because of its quick turn around but I know its a steep learning curve. But I would find that interesting and compelling and I am bored out of mind. I think I could probably find about 2000 dollars to start. I'd much appreciate your advice on how to start. I don't see what I have to lose here, to be honest, we're sinking anyways and I am watching my life fall apart. So why not do something from my couch? Thanks so much for answering this, if you have time.
I just want to add... I
I just want to add... I wouldn't be trying to support us. Just take a chance and see if I could turn a little bit of money around. I am patient. More like something to do with myself as a hobby that could make some money start small with reasonable risk. Build on whatever I could make. Do like you say and invest in industries that already interest me. From what I have been reading it sounds like you are a value investor. You invest in what you see is an undervalued commodity, then wait. I like day trading though, because that seems like more fun. What software do you use? Are there any programs you would recommend? I am not talking about a get rich quick scheme, more like a "get a little bit of money from the couch while I lay here" scheme. ;)
Excellent article, I loved
Excellent article, I loved the information.
Congratulations!
I love what you've shared -
I love what you've shared - and I do because it really shines to a "can do" attitude even in the face of what appears to be defeat. And just look - from those "defeats" you are smarter and more prepared for the next adventure!!! Kudos to you for keeping at it, and for sharing it so openly here!! Very inspiring!!
Encouragement is very welcome
Encouragement is very welcome! I also like your posts on Jungle of Life -- you're very much a compatible philosophy and I enjoy reading you. Thanks for reading and taking time to comment.
Wow Alex!
Wow Alex!
You know , I recall in one of our first conversations on email you speaking about how emerged you were in business dealings. And boy aren't you. Thank you so much share this this information and your journey of your over the past 10 years. I know this is a parenting blog - but I surely hope you continue getting us smarter in this category, because we can all use it.
The thing I love about your tale is that it's all been surrounded around being smart with your money, and being definite in your decisions...also flexible and willing to take some calculated risks.
Thanks for sharing this part of your life with us!
I wish you the best of luck in future dealings and hope to learn more from you and get more updates!
Happy Friday Alex!
Hope to discuss with you the
Hope to discuss with you the potential for business dealings in the future. You have some great marketing expertise yourself and I've already taken your advice on several things. We can do more together. I'll definitely be starting a bit of a Money Mondays type of series, or something like that -- maybe not always Mondays :)
This is a truly suberb post.
This is a truly suberb post. I especially like the timeline you have included. It really goes to show you that ANYONE can have their financial freedom with a little planning and a thirst for the right tools and knoweldge to do it. :)
That's the message! Just
That's the message! Just about anyone can. Sure we can think of scenarios, people who are really too poor to even feed themselves, but for the majority -- and certainly all my friends and probably the people reading down to here, can do more-or-less the same kinds of things. Thanks for the comment, and by the way, I love your site as well: Content an awesome design.
Hey Alex
Hey Alex
Been intrigued by the title of this post over since I saw it over at my place. Finally found some time to come check it out.
I winced reading the comment above that: "Wow yo've been lucky." I saw an interview with Jon Bon Jovi where the interviewer basically said the same thing....how lucky Bon Jovi were to go round the world touring...be superstars...be rich etc."
JBJ smiled back with the kind of smile you'd imagine an assassin has and said: Sure we're in a great position...."what's interesting is that the harder we work, the luckier we seem to get." (Not exact: words to that effect. And I think there's a Ben Franklin quote that's very similar).
I love your attitude to failure too....most people are too absorbed by their egos to take failing at something well. Peter Gruber in a book called TELL TO WIN (I think) said: Failure is merely a cul-de-sac on the route to success. Your attitude ollows that mentality perfectly....so many people get discouraged when they don't succeed on their first attempt. That's the secret gold in this post....keep learning, keep trying, keep doing it. You'll get there.
Paul
Paul, sorry I didn't get to
Paul, sorry I didn't get to you earlier ... meant to reply but somehow missed. I think the JBJ quote is right on. Give luck a chance to hit because it does strike a lot more than many people think. And failure, lately I've been trying to think about how I can tempt failure more. Next week I'm going to do my first ever open-mike at a stand-up comedy club. Man I'm nervous, but I know that afterwards I'm going to feel great! I thought you'de like this post because your all about trying things, taking chances, and winning by that. Thanks for the comment!
Very interesting. I think you
Very interesting. I think you are definitely lucky...lucky to be so smart ! Lol.
I'd love to see money issues as a regular feature of your blog. One thing I'd like to hear your take on is how to know when you can afford to start investing. For example, would you pay off student loans first? Buy a house instead of renting? And how many months living expenses would you keep saved up?
Maman, thanks for coming back
Maman, thanks for coming back. I will be putting up money/business issues up from time to time. Thanks for asking.
My answers:
When can you start investing? I think as early as possible. Once you have no loans higher than about 7 or 8% then you should be safe to start investing but it really depends on what you want to gain. If you're trying for 3% with a GIC, then pay your 7% loan first. But if you have a business opportunity that can double your money, then ignore the loan and put the money to the idea. No credit card debt ever before you invest.
Buy a house instead or renting: I could do a post on this but rule of thumb, when the price of the house * 0.006 is lower than the rent, you should consider buying. Example: If you can buy a house for $200,000 then check the rental rates for a similar house. $200,000 X 0.006 = $1200, so if you can rent the house for much less than $1200 then rent the house. If you can rent for $1200 or more then buy the house instead. It's just a rule of thumb.
Living expenses, like an emergency fund? I don't keep an emergency fund, but I can lots of available credit. I recommed getting a low interest line of credit for emergencies. If you have no access to cheap credit then you'll need as much as it will take you to find a new job ... so probably minimum 3 months if you can get another job quickly, more if you can't. You need less if you have a working spouse. You need less if you have lots of investments that are liquid. You need more if you have integrated lots of risky expensive things into your like (like if both you and spouse need a car, live in a house you own, need expensive tools to earn money, etc).
Loved the post Alex! I think
Loved the post Alex! I think there's a link there that a lot of people don't see as just consumers of something. That there's actual people behind those businesses that they buy from and love. Maybe part of this is a function of Walmart-ization, I don't know. I know that I've been way too lazy about personally investing in businesses and just going the stock market route because it's totally passive, but I have more time now so we shall see.
Coincidentally, the land my dad bought back in the '70's was somewhere between St. Albert and Edmonton... :-) He was going to buy close to Calgary (about where Rocky Ridge is now), but one of his brothers convinced him that Edmonton would grow faster than Calgary - oh well.
The one that kills me is that I could have picked up a house just off 24th St and 4th Ave. SW in Calgary for ~$100k back about 15 years ago. What an idiot I was to not do that.
Super comment! Do you live
Super comment! Do you live in Calgary? I'll flip you an email. Stock market is great too, but I find that the stock market presents the greatest amount of risk. There are so many parasites involved who make risk-free money (the broker, the bank, the managers and insiders of the compnay) and the pricing is so competitive that the retail investor is left with a lot of risk. Businesses, on the other hand, make money in a more deterministic way ... you can model them. So when you start them from scratch, or buy into them outside the market, then you have more assurances of how the money will come. Thank you for coming!
Not to harp on about this,
Not to harp on about this, but it's kind of a funny coincidence that you mentioned Apple's iPhone, since I was totally thinking of Steve Job's throughout your article about kids and failure. Sometimes I wish that articles concentrated more on the failures, rather than the easy successes. Jobs had many projects and attempts that never got off the ground, practically ruined him. And yet he became arguably one of the most successful businesses in the world. What I admire about Jobs was not his technical innovation or the culture of his product, but his determination to striding forward in defeat.
I believe that humans can and will adapt to any situation so long as they have an optimistic attitude, and a will to survive and live. That's one of the reasons why we've become so successful, is our ability to innovate, adapt, and find a way to make things work no matter the circumstances. Why not use our natural survival instinct to fight and make our way forward? Helplessness just seems so infantile in comparison.
I 100% agree with you. It is
I 100% agree with you. It is demoralizing to hear about success because it seems too easy. Yes they often emphasize the leaps of logic and hard work, but even that is too easy. What about the leaps of logic and hard work that led to nothing? The adaptability of people is amazing, yet natural. There are soft people out there who don't know how much capacity they really have (not that I know the limits either, but I know they are distant!) Thank you for the awesome comment!
Just going through the MMM
Just going through the MMM blog and saw your comment. Led me here.
All I can say is what an inspiring post. Reminds me of one of my favorite books, "The Big Short".
Love this post. I subscribed
Love this post. I subscribed to the comment thread to get any further updates or Information. Is there another area with more information on this topic?
I would be very interested in any resource guides you have put together.
Thanks Carissa. I haven't
Thanks Carissa. I haven't written about this for a while but you've inspired me to write another soon.
Which site did you come here from?
Hey Alex. Simply GREAT
Hey Alex. Simply GREAT attitude towards failure and life in general. I also love your flowing writing style. Keep the good work!
Thanks Tal! Sorry about all
Thanks Tal! Sorry about all the waiting on the interview. Summer .. you know :)
No worries at all. keep doing
No worries at all. keep doing the great work both of you & I hope to cacth up next time Kyle and I are in Montreal. Cheers!
This investment advise is a
This investment advise is a pile of rubbish. It is nothing but speculation. Trying to profit from short term bets on the direction of stocks or commodities is a fools game. In the long run it will be about as profitable as playing craps at your local casino. Stocks are small pieces of ownership in businesses and should be treated as such. If you choose to invest in stocks spend some time and learn how businesses are valued, identify several solid companies you can understand, and buy them when they are neglected or when the entire market is neglected. Also, avoid companies with too much debt. Have you ever heard of someone who has no debt going bankrupt? Well the same goes for businesses. Other than that...be patient ...sit and wait.....for years I mean. THIS IS 'INVESTMENT'!!
To the author:
1. What is your investment record from such a strategy? I'm talking many years ...ie. you annualized rate of return for a 15 yr period.
2. If you have been investing this long and have put up superior returns why not post a summary of your transactions audited by your accountant. I'm sure this would be a very educational learning exercise for the readers of your blog. I would bet you have underperformed the market average over the last 10 years.
Awesome comment, first.
Awesome comment, first.
I'll answer your second question first: TSX in Canada (where I live) has doubled over 10 years, US S&P 500 has not quite doubled -- I have definitely beaten that over the same ten years as you can see from the graph above. I certainly didn't earn and save 800K from a job. But you are right that I've lost lots of money too, as I mention in the post. I haven't been trading for 15 years so I can't give you returns over 15 years. Bot over 10, I've beaten a double. You are absolutely right that every week isn't a double by a long short.
Your other points are both right and wrong -- depends on philisophy. There are a lot of people who make money trading. Speculators are a sector of the capital markets and they are the reason that you can buy or sell any security. You make a so-called investment, well someone else plays the other side. Is that person always a fool? Also, there are many ways to limit risk or increase returns in speculation as well; it is quite an art. But you're right, if you don't know how to use financial tools and don't understand trading then you will often loose (as I have lost many a time).
So the other piece you mention, which is to learn about businesses and valuations and such, is common and good advice. However, I would offer that the retail "investor" is not really an investor. They excercise no power over the company and they take all the risk as a retail shareholder. Banks earn commissions and interest on the "investor's" money, executives collect millions from companies without being accountable to the retail investor, and the retail investor only collects when there is something left over to boost the price, which is decided by someone other than the retail investor (the market).
This kind of buy and hold "investing" should be called saving, and you don't need any companies or research for that you can just stick to indexes and create an optimized portfolio that does not need much monitoring. That will probably outperform any value investing. What do you think about that? I used to be a buy and hold person, but I eventually decided that it wasn't the full story.
I do invest, real investment, in business but I do so in private buinsesses where I can have a say, or at least earn returns better than a retail invest. This means VC financing, president's club, joint ventures, that kind of thing. I also invest in real estate and bottom up businesses.
Anyway, those are semantics.
Your point about debt I would say is too simple. Not using debt is a poor way to make money. It means the company is using equity, which necessarily implies poor returns. Debt is nearly always cheaper than equity. Debt affects the risk, so yes, high debt can be risky if the company exposes itself in such a way that it can't guarantee debt service. Example: An electrical company, typically makes regulated returns, which means they are stable over the long term and guaranteed to cover expenses, therefore you leverage that type of business 80% or more. A VC company on the other hand, cannot guarantee returns nor asset values, so debt would be hugely costly, so you use 100% equity 0% debt. Manufacturing is in the middle so you probably can leverage that 30 or 40% or 50%.
Thanks for the awesome comment. What do you think about the answers? Are you a value investor practicing right now?
I agree with you that my
I agree with you that my point on debt is too simple....but only if you are willing to dive into serious security analysis. Even then, too much debt is very dangerous...regardless of upside potential. I kept my point simple because the reader base (on average) are likely not overly experienced investors. Simple rules are much better if you don't have a thorough undersdtanding. Also, I can agree with you on the indexing point...but only for someon that does not want to spend the time on due dilligence.
I know you are just sharing what you are doing, but, the article makes it sound like you have figured a way to predict the short term price movements in stocks based on news storys and profit from them. Reading through you replys to several posts I noticed you still do take somewhat of a value approach on neglected securities..ie. BP. BTW I also purchased BP after the spill.
As far as I know there are very few individuals who have generated outsized returns (ie 14%+) over a long period of time using such short term "trading" strategies. On the other hand I can name dozens and dozens who have produced these returns over extremely long periods of time using similar value based strategies. Most individuals analyzing stocks spend there time trying to figure out the upside potencial of an investment as opposed to the downside risk. In a basket approach...if the investor spends his time protecting his downside...the upside will take care of itself.
So...basically this is what I do. On the rare occasion such as the 2008 crash or the BP spill...I will purchase great large cap businesses when the market is giving them away. Other than that I seek out smaller, cheap, neglected, out of favour businesses and buy them when the market is selling them for .50 on the dollar. I will look at anything where there is forced selling...spin-offs, index deletions, liquidations, going-private transactions, post-reorg equities. Between the forced selling of such equities and the lack of people who read the coresponding SEC documents to go along with these scenarios....there are many treasures to be found. These types of investments are NOT for everyone though...you have to do your homework...and I would never tout them to the average Joe. For the average Joe, investing should be kept business-like and straight forward. No options, no shorting, no margin......all dangerous. From a valuation standpoint the idea of shorting sounds great in theory.....but timing is the problem. You may find the most overvalued stock in the world but it may remain overvalued for years...throw in margin and you risk a margin call....throw in options and they have a time contraint. Now one could argue that a cheap stock may remain undervalued for years and it may....but if I can buy it for less than the net cash on the balance sheet and receive a cash flow positive operating business for free...I don't mind waiting years for the market to price it more efficiently...and it usually does.
Maybe you have read this...if not you should...a great read.
http://www4.gsb.columbia.edu/null?&exclusive=filemgr.download&file_id=522
BTW.. I am in Canada also...Ontario
PS Sorry to sound harsh in my original post. I just hate to see people mislead by short term "make money fast" type investment proposals that rarely work out. Our society is so ignorant as a whole when it comes to investment and there are so many people and institutions touting subpar advice. I really think people need to see investing from a barebones approach.....just like a simple small business....Why? Because people can understand that. If the average person doesnt even understand how a stock relates to ownership of a business...how can they understand options and shorting.
We sound very similar :) I
We sound very similar :) I am basically a contrarian investor like you, so I DON'T believe the news. If there is something in the news and I can convince myself that the opposite is true then I will make the bet. So the RIM bet was made the first time I owned a RIM device. They were so obviously second rate and behind the times that it was clear to me that RIM was going be bulldozed by better designs. This post was written over a year ago and now I don't think anyone doubts that RIM is on last legs. Now I'm looking for a way to convince myself that RIM will make a comeback. I also bought Mattel (options) on a lead scare a couple years back, which turned out to be a triple. I bought Apple, which turned out to be a double. I lost on commodities, especially Natural Gas. Didn't expect coal conversions and rigs to be redeployed so quickly. Lost on Linkedin recently, didn't expect that company to be worth 12B ... that's nuts to me and I'm still pretty certain it doesn't have that kind of value. The realization that, as a retail investor, I was getting hosed by everyone pretty much turned me off of that kind of investing and moving upstream as much as possible, with a little bit of "gambling money" to take advantage of these speculative returns.
Take Bill Ackman's move on CP Rail. He bought it and changed it in such a way that his investment increased by 50% in a year. That's not the way retail value investors work. VCs too, buy control and upside ... they don't buy 10% returns and hope. That's what I want to get more into.
So what do you do in real life? Are you a pro investor? I will read that article you linked to. I can recommend some books for you too, and interesting articles that show information is actually bad for decision-making! I'll work on a list when I have a sec.
RE:
Take Bill Ackman's move on CP Rail. He bought it and changed it in such a way that his investment increased by 50% in a year. That's not the way retail value investors work. VCs too, buy control and upside ... they don't buy 10% returns and hope. That's what I want to get more into.
This may be true..but..I wouldn't consider CP a screaming value stock before Ackman made his purchase. I went big into CNR in 2009 and am up just short of 100%. Like I said...I try to stay away from larger mainstream stocks except under heavily depressed market conditions or a major company specific issue. The bulk of the time with these large caps...as a retail investor there is too much competition from analysts, hedge fund managers etc. (this is why I like stocks with little analyst converage....less competition. Anyway...as far as my CNR position goes...I won't sell it for a long time. If it has a hiccup along the way I will add to the position.
RE: Now I'm looking for a way to convince myself that RIM will make a comeback.
RIM is an interesting one. I have a small Long position @ around $10. This one will take a while to come around as an investment. Whether or not Rims products are dead is very tough to say. I do think however...from a sum of parts standpoint ...RIM would see at least $20/share selling off the pieces.
Another note about RIM is that Fairfax Financial has a very large stake I believe at a cost base around $25. Prem Watsa is a first class value guy...also has a seat on the board. Will be interesting to see how it plays out. Like I said before though....these things take time. The psychology of it destroys most peoples returns...they just can't wait 5 years!! I recently read of one of the most successfull funds US in the last 10 or 20 yrs (Oaktree maybe)...anyway the fund put up amazing returns over this period...but the average investor in the fund lost money....because they bought high and sold low. I think it was Buffett I heard a quote from along these lines....."you don't make money buying, you don't make money selling, you make money waiting"
So what do you do in real life? Are you a pro investor?
I'm involved in a family owned operation. We own a few operating businesses....one is frozen foods ..mostly ice cream products...whoesale, warehousing and distrib. Another is similar but with dairy products...fluid milk, beverages, cheeses etc. We also manufacture and sell packaged ice.
Recently spun most of our assets into a holding co. We have a bunch of commercial real estate, public investment portfolio, also own a stake in a great Calgary bus, and priv drilling company also out of Calgary.
Have you ever looked at Altius Minerals ALS.TO?? I recommend you have a look.
Cheers
CP was underperforming for it
CP was underperforming for it's potential. The lowest performing stocks are the ones that can rise (like dogs of the dow). The value Ackman got was by buying an undervalued company and then applying a change that increased the value. Just like buying a fixer-upper and fixing it up. CN is, or at least was, a great value while Hunter led it (though it was almost always over-priced until it kept growing at above avarage rates). Mongeau studied under Hunter, but Mongeau is also a professional manager while Hunter is a self-taught railroader. I think it remains to be seen whether the pro management is an aid or a hindrance in the long term. Certainly they seem to have at least maintained their growth and efficiency.
As far as RIM, I don't know what the pieces would sell for. I heard numbers around $14, but what worries me about buying is that they have no products. Just the same tired failed products over and over. It's like they don't even see the other phones out there. They had huge first mover advantage and penetration world-wide but then they just lost their minds. The longer they fail the more the value gets eroded. Now Apple recovered from being lost in the woods, so maybe RIM can recover too. It only takes a breakthrough or two :) Even CN as we were talking, was a total pig when it privatized and now it's the top railroad by far.
Wow, that's great about your family businesses. I might like to talk with you personally to get some perspectives on things. Let me ask you this: Why do you invest in the stock market when you have your own operating businesses to invest in and can invest in business directly versus via the stock market?
I would like to find out more
I would like to find out more about how I learn about stocks. I really dont get them at all. I also have had a dream of buying and flipping properties but I need a partner, which I do not have. Unfortunetely I have no experience as far as fixing up anything, but I can use a screw gun and paint. We bought a rehab house, then lost on it for the reason that we bought a really cheap house that needed lots of work, in a not so great area and had to sell low because we couldnt sell it. I would still love to do this but dont have a way to at this point. Any tips would be appreciated.
Anyone will develop
Anyone will develop depression, even kids. We may feel adrenaline pumping up the body plus usually urge we with create a run for it. read here
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