Wednesday, April 16, 2014

Activist Investors or whether Companies are ran for shareholders’ benefit?

Occasionally you could read about an activist investor taking battle against a company in aim to improve returns and have a better future.
There is increasingly more signs, that shareholder do not any control over what is happening with the companies.  American companies have stockpiled nearly a trillion dollars of cash offshore to avoid paying higher tax bills at home.
This underlines two simple truths:
-         It is very unlikely that this is done in shareholder’s interest.  Such strategies create unjustified risks associated with tax avoidance schemes and loss or reputation due to bad publicity. 
-         Inability and unwillingness of businesses to expand at home despite very favorable conditions.
Estimates are varying from source to source but by some estimates total cash reserves of US companies  kept overseas climbed to $1.64tn last year. That was $180bn or 12 per cent more than the year before.
The companies would not return cash in any way or form – stock buybacks, dividends, investing in the future growth.   Is it really in investors interests? Highly unlikely and yet they seemingly have no say.
Companies, particularly big ones are out of touch and reach.  At the same time governments are getting increasingly hostile towards individuals – raising income taxes and organizing witch hunt on foreign income.
Raising income taxes. The governments might want to argue, that, the main driver for rising taxes was a fall in the value of tax free allowances and tax credits relative to earnings. Increases in employee social security contributions also played a role in some cases. Aging population has some contributing effect as well.  Big Companies are immune and individuals have to carry the load by themselves by paying increasingly more towards the country budget.
The witch hunt on individuals. One of the most recent examples, is in the UK - currently HMRC  (local IRS) must demonstrate that individuals intended to evade tax on foreign income but in future the government wants to be able to bring criminal prosecutions against anyone found to have undeclared foreign income.  
While individuals maybe hiding billions in offshore accounts, big multinational companies are squirreled away trillions of dollars.  Governments made it possible for them. Shareholders seemingly quite content with the companies sitting on pile of cash doing nothing, more over there are no guarantees that the cash is actually secure.
I have some serious doubts that the individual investors, including activists have a measurable say on how the blue chips and other big companies are being ran.  The more troubling thought is that the companies do not believe in the US future and not investing in its growth, while an opportunity is seemingly there.

Wednesday, April 2, 2014

April 2014 update ($ 293,958 +$20,630 or +8%)

 RUB is up towards USD, for my portfolio it is gain $ 340
Vanguard energy ETF is up by $ 600
Gazprom shares are up by $18,954
↑ Rosneft shares are up by $ 544
Accumulated $4,000 USD as part of my annual savings goal.
Grand total additions: $ 24, 438

EUR and GBP are down towards USD, for my portfolio it is loss $2,675
Vanguard 500 Index is lost $300 or 2% since March 2014.
Precious metals lost $ 833 or 6.5% since last month.

Grand total losses: $ 3,808

Friday, March 28, 2014

Buying vs. Renting

Buying vs. Renting
After certain considerations I am coming back to review whether it worth buying a house or keep on renting.
Here is our current assumptions:
Desired house price – $ 450 K, current rental price for the home we live in -  $ 16.8 K ($ 1,400 a month).
Available saving for closing cost and down payment - $ 100 K, net annual money available to pay mortgage $36 K.
Mortgage – 6% interest rate, annual real estate price inflation (appreciation) – 4%.

Cost of buying (closing cost) will include – mortgage arrangement fee, moving in cost,  property buying tax, structural survey of the house – all together $ 20 K
We have accumulated deposit of $ 100 K, so after cost of buying (closing cost) the house we could pay $ 80 K, as downpayment or 18%.

One of the most important things to understand it how much you could afford to spend net (after tax) towards your mortgage. This will determine how much could borrow, comfortably. Of course, there is rule of thumb, when buying a property – to have 20% as downpayment and  amount of money a bank lend you is 3 times of your gross income (before tax).   We have been tracking our family budget for last 5 years, so do have pretty good idea how much do we spend and where the money are going to.

In our case we could comfortable put a side $3 K a month for mortgage (principal and interest) and some additional $ 200-250 a month to cover house and life insurance. 

Another factor to consider : depreciation and re-decoration.  People  frequently focus on how home prices are appreciating, but they forgot that those prices are for well maintained hoses.

Same as with the original example on the property owning, we set up periods:
-         Redecorating house  - every 10 years, this would cost about $ 40 K (new kitchen, equipment, central heating, windows, doors, etc…) or $4 K a year.
-         Replacing house – every 60 years . My estimate that out of $ 450 K , half of it is the prices of the house.
$240 K for 60 years - $ 4.2 K .

Wednesday, March 12, 2014

March 2014 update ($274,320 -$30,940 or -10%)

Vanguard ETF gained 1,500 USD
Vanguard VOO gained 900 USD
Company shares gained 110 USD
Accumulated $8,000 USD as part of my annual savings goal.
Gold gained $530 USD
Grand total additions: $11,040

Gazprom shares lost 39,650 USD
Rosneft shares lost 1,930 USD
GBP lost towards USD and EUR. My loss is 400 USD.
Grand total losses: $41,980

Saturday, February 22, 2014

Financial Independence Ramblings

            I was going to write a post about a fellow blogger, who has been writing on financial independence quite a long time and claimed almost 1,300 posts on the subject.  Year after year his ambitions grew and goal was always several years away.   
             He was born and raised in China, but went to the USA to get a better life and landed a job with Microsoft to return back to China as an expat, selling the products back home.  After accumulating about $ 1 million and having no mortgage or a house owned, he returned to the USA from China. Decided to buy a house and managed to get $ 1 million house in Seattle. 
             Obviously at this stage frugality or financial independence are again couple of decades away, should he continue his life style.  Now he decided to side track from personal finance and financial independence subjects and try his luck in general finance topics to attract advertisement to his blog (last couple of years he had very infrequent posts).
            I was rather disappointed to see this happening to begin with, as there is plenty of blogs targeting theme of finance for advertising purposes.   In my “favorites” there is only handful of blogs, which I believe sincerely and openly working to reach financial independence, while sharing the results.
               There is growing gap between the rich and the poor.  In 2012 top 5% of earners were responsible for 38% of domestic consumption, up from 28% in 1995.   Since 2009, the year the recession ended, inflation adjusted spending by top 5% is increased by 17%,  while bottom 95% of the people increased theirs only by 1%.
             Among hotel the revenue is growing much faster in the high-end category (Four Seasons, etc..) twice as than in the midscale (Best Western, etc.). The rebound of the stock market only widen the gas, as approximately 50% of Americans have no effective participation in the surging stock market.
           I do not consider myself a middle-class as temporarily I do earn reasonably good money but for me middle-class is about what one owns, rather earns. The salary is an uncertainty and risks but even it , I just started accumulating the nest egg, in spite being 6 years to my financial independence.
            I will keep on going, focusing on the personal financial moves and share the learning, thoughts,  ideas.

Thursday, January 30, 2014

January 2014 update ($304,263 +$5,834 or +2%)

Company shares went down by $ 0.4 a share but with the re-invested dividends number of shares went up from 271 to 275. Overall value went up by $70.
EUR and GBP are up to USD, for me it means $2,339 USD for EUR and 620 for GBP.
accumulated $4,000 as part of my annual savings goal.
Dividend Vanguard Energy ETF 578 USD after paying 10% tax
Vanguard SPF 500 ETF 82 USD after paying 10% tax.
Gold is up by $1,030
Grand total additions:  $8,719

Vanguard Energy ETF is down $1,800
Vanguard 500 Index is down $500
Gazprom shares are down $290
RUB is down to USD by $325
Rosneft shares are down by $690
Grand total losses: $2,885

Friday, January 10, 2014

Real life portfolio performance 2012-2013

There is two ways, how could I look at my portfolio and actions in 2013:
Option 1
Performance indicator
Absolute return
$, K

Relative return
S&P 500, %
Portfolio, %
Missed opportunity due to overexposure to cash.
Cash accumulated in 2010 money
Planned $, K
Actual $, K
On target.
Personal plan
in 2010 money
Planned $, K
Actual $, K
Also the saving were on target I manage to exit damaging emerging market mutual funds