Friday, October 9, 2020

Enough by John C. Bogle

  Some of my expectations which I had before reading the book were met. As a founder of Vanguard company John C. Bogle allocated significant part of the book describing advantages of the mutual funds and greed of the active managers.
The book is intentionally simplified, there are no numbers, calculations or anything else. Its targeting emotions.
There is an interesting statement on the greed: “… the rampant greed that threatens to overwhelm our financial system and corporate world runs deeper than money.  Not knowing what enough us subverts our professional values. It makes salespersons of those who should be fiduciaries of the investments entrusted to them.  It turns a system that should be built on trust into one with counting as its foundation.  Worse, this confusion about enough leads us astray in our larger lives. We chase false rabbits of success; we too often bow down at the altar of the transitory and finally meaningless and fail to cherish what is beyond calculation, indeed eternal”.  
 
With internet at our fingers, waiting online to serve us, we are surrounded by information, but increasingly cut off from knowledge. Facts (or, more often, factoids) are everywhere.  Wisdom, the kind of wisdom that was rife seventy – one hundred years ago is in short supply. Soon we shall know everything that does not count and nothing that does. 
 
Leadership and values
A difference between a leader and a manager? Managers task is to do things right,  then as leaders, whose task is to do the right thing. 

Friday, October 2, 2020

September 2020 update ($583,327 -$22,778 or -%3.8)

 ↑ Financial independence savings for last month $2,000
Grand total additions: $2,000 USD

↓ Emerging Markets Stock Index Fund is down by $2,717 or -2.0%
↓ Eurozone Stock Index Fund is down by $3,519 or -2.8%
↓ US 500 Stock Index Fund is down by $6,165 or -4.0%
↓ Global Small Cap Index is down by $3,038 or -2.6%
↓ Fidelity Growth Fund is down by $411 or -0.7%
↓ EUR is down to USD by 2.4% or $6,392 for my portfolio
↓ GBP is down to USD by 4.5% or $2,535 for my portfolio
Grand total losses: $24,778

Financial Independence September 2020 update

Tuesday, September 29, 2020

British FTSE trading like an emerging market

 My August financial independence monthly update contained graph, comparing various indexes. This included British Financial Times Stock Exchange Group (FTSE) and Moscow Exchange (MOEX). 

Couple days ago “Fortune” writer Bernard Warner made similar observation, but his writing made it to Yahoo finance. British FTSE is performing worse than Russian market in 2020

Figure1. British FTSE trading like an emerging market and trailing behind Russian index in 2020

Lets see Bernard’s arguments:

Monday, August 31, 2020

August 2020 update ($606,105 +$34,659 or +%6.1)

↑ Emerging Markets Stock Index Fund is up by $4,505 or +3.4%
↑ Eurozone Stock Index Fund is up by $5,399 or +4.6%
↑ US 500 Stock Index Fund is up by $10,453 or +7.3%
↑ Global Small Cap Index is up by $6,753 or +6.1%
↑ Fidelity Growth Fund is up by $2,089 or +3.9%
↑ Financial independence savings for last month $2,000
↑ EUR is up to USD by 1% or $2,183 for my portfolio
↑ GBP is up to USD by 2.4% or $1,277 for my portfolio
Grand total additions: $34,659 USD

August 2020 financial independence update

Saturday, August 1, 2020

July 2020 update ($571,446 +$35,466 or +%6.6)

↑ Emerging Markets Stock Index Fund is up by $4,084 or +3.4%
↑ US 500 Stock Index Fund is up by $7,565 or +5.6%
↑ Global Small Cap Index is up by $4,157 or +3.9%
↑ Financial independence savings for last month $2,000
↑ EUR is up to USD by 7% or $16,795 for my portfolio
↑ GBP is up to USD by 5.6% or $2,868 for my portfolio
Grand total additions: $ 37,468 USD
 
↓ Eurozone Stock Index Fund is down by $1,470 or -1.3%
↓ Fidelity Growth Fund is down by $532 or -1.0%
Grand total losses: $2,002
Financial Independence update July 2020

 

Friday, July 3, 2020

June 2020 update ($535,980 +$23,162 or +%4.5)

↑ Emerging Markets Stock Index Fund is up by $7,087 or +6.4% 
↑ Eurozone Stock Index Fund is up by $5,138 or +4.9%
↑ US 500 Stock Index Fund is up by $2,570 or +1.9%
↑ Global Small Cap Index is up by $2,683 or +2.6%
↑ Fidelity Growth Fund is up by $1,194 or +2.4%
↑ Financial independence savings for last month $2,000
↑ EUR is up to USD by 1% or $2,076 for my portfolio
↑ GBP is up to USD by 0.8% or $414 for my portfolio
Grand total additions: $23,162 USD

Financial Independence journey - June 2020 update

Friday, June 26, 2020

Dividend Aristocrats

Typical definition of a dividend aristocrat is a company which has increased dividends for 25 consecutive years in the nominal terms. We have inflation every year and if a company continues to perform in the same way, it should be able to raise dividends in line with the inflation, making it a dividend aristocrat.  This is not the case and there are only 62 out of S&P500.
 Is it worth investing in dividends aristocrats’ stocks?
 Lets have a look for investing $10,000 in dividend aristocrats vs. S&P500 in 2010 until now. I selected a random sample of 15  out of 62 companies. Companies highlighted with red under performing  S&P500 fund (all dividends are re-invested in both cases):
Dividends Aristocrats - are they worth investing in?
Notes:
  •  Most companies pay dividends 4 times a year. Dividends are reinvested 4 times. For my calculation I did reinvestment once a year for the cumulative dividend.
  •  Compound inflation in the USA between 2010 and 2020 is 25%.
 I used to focus on cash engines in the past. Just looking at the dividends is not a guarantee of high return. For example, if I invested in ExxonMobil, my nest egg would be lagging S&P500 quite a lot, while missing diversification.  “3M Company” is highlighted with red, because it’s just marginally higher S&P500 and such performance does not justify the investment in the single stock.
 Perhaps, a portfolio can be created of dividend aristocrats and the ones that have beaten S&P500 over 10-20 years period.  This assumes that you can have an account with low fees, as additional 2-3% drag will kill all the advantages.
 Over the past 63 years, the S&P 500’s composition has changed dramatically. In 2007, the index’s 50th anniversary, S&P published a list of the 86 companies that remained from the original line-up. That number has steadily declined, and today, only about 60 original members remain. 
As original members have dwindled, so has the average tenure of companies in the index. In 1964, the average index tenure of an S&P 500 company was 33 years. As of 2020, tenure shrank to 20 years.
 I will certainly think about it.  Your views and opinions are very welcome.

Tuesday, June 23, 2020

SmartMoney

I am always on a look to read personal financial blogs. There are a few of them out there.   Too many rushing to monetize, consist mainly of referrals, ending up having more advertising than the Super Bowl.  The others keep publishing very general information.  This make them very boring read to me.

 As I am doing my budgeting for the past 10 years. When I read personal finance blogs I can easily tell when expenses or investments are made up (fake).  You can see that they are unrealistic, not consistent with stock market movement, incomplete.  When I come across an interesting and active blog, which I would read I added to by Blogroll. There is no reciprocity, I use the blogroll as my favorites for financial blogging.  Here is an additional source of Early Retirement Blogs.  

 About 15 years ago financial blogs were new, easily gaining large number of readers. I was re-reading a blog of SmartMoney and one of the prominent bloggers who argued, that using Ben Graham's Formula, Discounted Cash Flow and Capital Asset Pricing Model Amazon shares were significantly overvalued at $33.  At the time the personal blogger had about $28K invested.  If he bought 850 Amazon shares, his nest egg would be over $2 million today without an additional investment.  

 About same time I was presented with my first ipod classic.  It was the time when Apple devices were still gay and for the first time, I felt what usability looks like. There was no need to explain anything.  Something told me that I should invest in this company but I didn’t.   If I listened to myself there would be no need to work for money now.  I had enough money to buy 10,000 shares at those prices, which is over $3 million today.

How you had hunches which you ignored and later  regret?


Thursday, June 18, 2020

Financial independence from A to B

I have been on the road for financial independence (FI) from 2008, with some tangible steps taken since 2011.
 How long will it take me to reach it? 
 
 I would like to make some assumptions first:
Assumption one.  Our house is not an equity.  Counting home equity is only good if you don't plan on living there in retirement.
We are making a lot of irrational decisions by renovating the house to our liking. Significant amount will go in in the next two years’ time (approximately $100,000). 
Assumption two. I am planning to invest $2,000 a month.  This is after taxes. I assume that this amount will increase in line with the inflation.
Assumption three.  I am able to achieve 3% return after the inflation on my investment.
Assumption four.    In fifteen years’ time the kids will be out of the house and the mortgage paid.  This should lead to annual expenses of $50,000. 
 
 Key milestones to achieve Financial Independence:
A road to Financial Independence
 At four percent withdrawal rate I should be able to get $50K a year.  There some potential opportunities but pitfalls too. Let’s see what the journey will bring ahead.
 My father retired when he was seventy years old. He actually kept coming to work  for free for almost a month, after retirement. This was  to make sure that his successor transitioned into the role well. I maybe have a job  in my late sixties to do too by keeping my skills up to date.  However, I see a lot of people in their early fifties are given a boot at every major crisis.