December 2014 update ($ 288,608 -$29,871 or - 9%)

↑ Accumulated $8,000 USD as part of my annual saving goal for November and December
↑ Received $ 108 as quarterly dividends for my holdings in the company shares
↑ Vanguard S&P500 ETF gained $2,475
Grand total additions: US$ 10,583

↓EUR lost $1,711 towards USD

↓GBP lost $1,471 towards USD
↓RUB lost $900 towards USD
↓Vanguard emerging markets ETF lost $188
↓ Gazprom shares lost $35,199
↓ Company shares lost $460
↓Rosneft shares lost $525
Grand total losses: US$ 40,454

Family budget comparison 2008 – 2014

Non-inflation adjusted table of our family finance for the last 6 years:

Observations:

-         Education expenditure is up by ~$10,000.  Expect to remain stable next year.

-         Car insurance remained almost the same. However additional cost was two set of tyres (winter –summer) and annual service.

-         Miscellaneous expenditure was up due to the administration expenses (~$4,000).

-         Medical bills are up (additional dentist cost ~$2,700).

-         Bills are up (electricity and heating are up, etc).

-         Home, after extended period of time we started renewing some of the furniture – bed, carpets.  Additional electronics cost us  ~ $3,200.

-         Joy – $4,000 extra in comparison with last year. Two separate week breaks cost us $9,600 this year, which is $,2700 more than last year on the holidays. Another $1,300 increase came from random miscellaneous expenses.

October 2014 update ($ 318,479 -$13,808 or - 4.2%)

↑ Accumulated $4,000 USD as part of my annual saving goal for October

↑ Received $ 350 as quarterly dividends for my holdings in S&P500 and Emerging markets ETFs.

↑ Vanguard S&P500 ETF gained $1,100

Grand total additions: US$ 5,450

↓EUR lost $11,983 towards USD

↓GBP lost $1,470 towards USD

↓RUB lost $900 towards USD

↓Vanguard emerging markets ETF lost $710

↓ Gazprom shares lost $3,000

↓ Company shares lost $670

↓Rosneft shares lost $525

Grand total losses: US$ 19,258

S&P 500 lacks of insiration and talent to create value

Earlier this year I suggested that so-called most of the Companies are not ran in shareholders’ interest.

It took some time to do the actual facts digging, but here they are:

Out of S&P 500 index 449 companies used 54% of their profits ….to buy back their own stock, this represents $2.4 trillion dollars. Dividends payouts consumed another 37% of the earnings.  This was happening last ten years from 2003 through 2012 and continues today.

There is three main reasons for it:

- -   One of the main metrics CEOs are being rewarded based on so called total shareholder return. It combines share price appreciation and dividends paid to show the total return to the shareholder expressed as an annualized percentage. It is calculated by the growth in capital from purchasing a share in the company assuming that the dividends are reinvested each time they are paid.

         This means that they are inevitably driven to push shares prices at all cost.  Average  CEO salary in S&P 500 index is $30.3 million each in 2012, 42% compensation comes from stock options.

-   -    In Western Europe some countries actually establish minimum returns on pension funds, meaning that the companies have to achieve it, or their shares will be unloaded.

-  -     Lack of vision and talent to invest back home. Obviously, the leaders are run out of profitable investment opportunities. One of the chief functions of top executives is to discover new opportunities.  Buying the socks back begs the question whether the CEOs are doing their job.  For example, the only money that Apple ever raised from public shareholders was $97 million at its IPO in 1980.

September 2014 update ($ 332,287 -$17,051 or - 5%)

↑ Accumulated $8,000 USD as part of my annual saving goal for August & September

↑ Received $6,314 USD as Gazprom dividend (6.6% a year).

↑ Received $ 490 USD as Rosneft dividend (7% a year)

↑ Received $65.5 USD as Vanguard S&P 500 dividend (2% a year)

↑ Company shares went up & dividends reinvested $603 USD

↑ Vanguard S&P 500 gained $ 400 USD

Grand total additions: US$ 15,870

↓ Precious metals lost $540 USD

↓ EUR lost to USD $9,346 USD

↓GBP lost to USD  $2,895

↓ Vanguard Energy ETF lost $ 600 USD

↓ $30 USD Confiscated by Company due to cancellation of the reinvestment programme

↓  Gazprom shares down by $18,080 USD

↓ Rosneft shares down by $1,170 USD

↓ Loss due to forced selling of Vanguard funds and additional investments 290 USD

Grand total losses: US$ 32,951

Dividends for financial independence

Dividends for mine holdings:

Investment	Per share, USD	After taxes, in EUR	Annual dividends , % at purchased price	Annual dividends at current price %
Vanguard Energy ETF	2.194	423.86	2.3	1.5
Vanguard S&P 500 ETF**	3.13	210.97	2.2	1.7
Company stocks*	1.75	375*	4.8	4.2
Gazprom	0.42	6,400	5.1	5
Rosneft	0.37	490	5.2	5.3

* Has a tax effective reinvestment policy, where all dividends reinvested straight away avoiding income taxation. Only capital tax is paid once they are sold, however option exists to start receiving dividends only at some point in time.

** I bought Vanguard ETF S&P back in April 2013 and the ETF pays dividends quarterly.

July 2014 update ($349,340 +$29,470 or +9%)

↑ Accumulated $4,000 as part of my annual saving goal

↑ EUR is up to USD,  represents 7,750 USD gain

↑ GBP is up to USD, represents  2,650 USD gain

↑ RUB is up to USD, represents 670 USD gain

↑ Vanguard ETF is up by 1,800 USD

↑Vanguard S&P 500 is up by 400

↑ Gazprom shares are up by 9,550 USD

↑ Company shares are up 760 USD

↑ Rosneft shares are up by 1,520 USD

↑ Precious metals up by 370 USD

Grand total additions: US$ 29,740

The most important thing

         I started catching up on the financial independence reading and Howard Marks wrote the  first book I would like to recommend to you, as worth reading. Howard is current chairman and co-founder of Oaktree Capital Management.

Admittedly, as many other books on financial topics the book is about philosophy and mindset rather than analytical process. There is no surefire recipe for investment success or step-by-step instructions.

         The book helps to understand an investor concept of the risk and tolerance to it. I have to confess that prior reading it I never thought of it that way.

As an example, I liked an analogy an analogy about professional tennis, as a “winner’s game”, in which match goes to the player who’s able to hit most winners: fast-paced, well-placed shots that an opponent can’t return. Given anything other than an outright winner by an opponent, professional tennis players can make the shot they want almost all the time: hard or soft, deep or short, left or right, flat or with spin. Professional players aren’t troubled by the things that make the game challenging for amateurs: bad bounces; wind; sun in the eyes, limitations on speed, stamina and skill; or an opponent’s efforts to put the ball beyond reach.  The pros can get to most shots their opponents hit and do what they want with the ball almost all the time.

          The tennis the rest of us play is a “loser’s game”, with the match going to the player who hits the fewest losers.  The winner just keeps the ball in play until the loser hits it into the net or off the court. In other words, in amateur tennis, points are not won; they lost.

The same goes with the investing – we could not possibly predict future but need to cater for various scenarios and  avoid losing money in the bad times. Controlling the risk in your portfolio is a very important and worth-while pursuit. The fruits, however, come only in the form of losses that don’t happen.

June 2014 update ($319,876 +$23,290 or +8%)

↑ Accumulated $4,000 as part of my annual saving goal

↑ Vanguard ETF is up by $300

↑ Vanguard S&P 500 is up by $400

↑ Gazprom stocks are up by $23,248

↑ Rosneft shares are up $532

 Grand total additions: US$ 28,480

↓ EUR is down to USD, represented loss of $4,118

↓ GBP is down to USD, represented loss of $725

↓ Gold is down by $347

 Grand total losses: US$ 5,190

May 2014 update ($296,600 +$2,600 or +0.9%)

↑Accumulated $4,000 as part of my annual saving goal

↑ GBP went up towards USD for my holdings it is gain of US$ 650

↑ Vanguard VDE is up by US$ 2,400

↑ Vanguard S&P500 is up by US$ 300

↑ Company shares went up by US$ 750

Grand total additions: US$ 8,100

↓ Gazprom shares are down US$ 5,000

↓ Rosneft shares are down  US$ 550

 Grand total losses: US$ 5,500

Energy Stocks Screening

Energy Prices forecast*

	2012	2013	2014	2015	2016	2017
Oil $/bbl (Brent)	112	109.5	101	99.5	96	92
Oil $/bbl (WTI)	94.2	98	94.4	93.1	89.5	85.5
Gas $/mcf	2.8	3.7	4	4.15	4.6	5

*The prices are in 2013 money

mcf - hundreds cubic feet.

The prices are a little bit  higher from the previous forecast, either because inflation projected to be much higher or demand stronger.

May 2014 major Energy Companies analysis:

Remaining Reserves	Gazprom*	Exxon Mobil	PetroChina	Shell	Chevron	BP	ENI	Total	Statoil	Rosneft
Oil, mmbbl	11,940	19,700	15,430	13,650	14,220	16,500	6,560	10,190	8,030	42,120
Gas, bcf	547,980	131,620	79,000	83,160	86,500	72,250	35,300	58,950	46,440	71,550
Total, mmboe	100,040	41,630	28,600	27,500	28,700	28,530	12,440	20,000	15,770	52,300
Production Oil, mmboe	990	2,200	2,560	1,540	1,730	2,014	830	1,170	960	4,190
Production Gas, mmscfd**	47,100	11.820	7,680	9,600	5,190	7,020	4,320	6,180	4,740	3,780
Production Total             '000 boe/d	8,830	4,170	3,830	3,150	2,600	3,100	1,550	2,200	1,750	4,860
Reserves, years	31	27	20.5	24	30	25	22	25	25	29
Market Capitalization, USD bn	89	430	222	246	235	150	94	161	93	69
Dividends paid in 2013, %	5.4	2.5	4.5	4.5	3.2	4.5	5.8	4.8	3.9	3.8
US/boe	0.89	10.3	7.8	8.9	8.2	5.25	7.6	8.05	5.90	1.31

* Gazprom has big exposure to one country only - Russia

** 6mscf -1boe