Sunday, August 26, 2012

Tribute to the King of Rock!

So, now that my life isn't being sucked away by that hateful CPA examination, I can finally find time to write, play with the kids, and have some fun again.  I recently created this introduction video of me performing as Elvis.

I hope you enjoy it.  I will be posting more videos as I perform.  It has been a hectic weekend despite trying not having to study any longer.  I'm still trying to unwind and catchup on all the stuff I have been missing out on. 

Friday, August 24, 2012

CPA Failure - throwing in the towel

Wow, where do I begin.  I have taken a long and expensive journey ($2,500) on the road to become a CPA.  I just took the FAR test today.  I spent about 1 1/2 hours taking the 4 hour exam.  Besides being ill prepared, I sat there wondering why am I doing this.  It had been a goal of mine to be a CPA since my first accounting class in high school.  That goal has come to an end.  After experiencing the exam, and studying for it...I've come to realize that I will never be committed enough to complete it.

The website owner of another71 took the test 16 times before he was finished.  He had 3 kids had been working in the accounting field for 7 years and took him 3 years to finally pass the exam.  I have many similarity with the exception of the 7 years experience in accounting.  I do have experience with tax, but the auditing and financial accounting would require extensive time learning, and memorizing areas that do not interest me.  Plus the fact that the accounting field is going through a change in standards from U.S. GAAP to possibably international...you have to know both.  I just don't need this stress and time waste anymore.  It would cost me another $1000+ to pass the exam, and countless hours studying.  It is time to move on.  I'll probably start studying for some work related tests that needs to be completed.

For those who may want to obtain their CPA...take the FAR exam first.  If you use Wiley you really need to get 90% on all multiple choice questions.  Simulations that I took had lots of calcuations at least 3 of them where calcuations/journal entries.  If you can pass FAR, the rest of the exams aren't too hard especially if you work in auditing.  You must know your stuff...you cannot pass without knowing everything really well and studying 25+ hours each week for 2 or 3 months.

Sunday, August 5, 2012

Stock Talk - Enterprising Investor

We pick up this next article on stocks by heading into Chapter 6: Portfolio Policy for the Enterprising Investor: Negative Approach.  The same rules applies as the defensive investor in some aspects.  Both the defensive and enterprising investor should divide their funds between high-grade bonds and high-grade stocks bought at "reasonable" prices.

The book writes that preferred stocks should be left to corporate buyers and avoid inferior bonds unless they can be bought at bargain levels which means prices at least 30% under par for high-coupon issues, and much less for the lower coupons.  You should be wary of all kinds of new issues of stocks.  This means no Facebook IPO off limits...which is what I discussed previously.

This brings me to 2008-2009.  I remember when I was working at Fidelity Investments and understood that the great bear was coming.  I had no idea it was going to be as bad as it was however.  There was a ton of great deals that were being offered as people were selling like mad.  This brings me to some of the greatest investments in paper assets that I felt was available at the time with low risk.  Namely, corporate bonds...

Many of the corporate bonds for some reason took a nose dive along with the stocks.  This made little sense to me because the bonds were not in any risk of not being able to pay their interest payments.  Some of these bonds went down as low as 50% with 2 years or less maturities.  It was still a seemingly frightening time, so I myself didn't purchase as much as I would have liked to have.

The chapter goes onto talking about why Foreign Government Bonds and New Issues are bad news for most investors.  In my next article, I'll continue discussing the enterprising investor.

Saturday, August 4, 2012

Stock Talk - Rules for Common-Stock Selection

Welcome back to another round of Stock Talk.  I'm going over some of the words of wisdom using the book The Intelligent Investor.  I'm currently on Chapter 5 The Defensive Investor and Common Stocks.  Stock selection is probably the most important aspect in the whole process of investing.  As Robert Kiyosaki would tell you...you make your money when you buy not when you sell.  Let's take a look at some of the rules for selecting common stocks for the defensive investor.

The book breaks it down into four simple rules as follows:

  • Purchase a minimum of ten different issues and a maximum of thirty (For those with less than $10,000 it is my opinion to purchase a diversified index fund.  Reason being is the commissions will start eating away your profits.)
  • The companies you select should be large, recognized, and conservatively financed.
  • The companies you select should have a long record of continuous dividend payments (10 years or more).
  • The investor should impose a limit on the price you will pay in relation to its average earning over a certain time frame (such as 7-10 years, the book suggests limiting your purchase to 25 times average earning and not more than 20 times those of the last twelve-month period.)
These rules will eliminate a great deal of stocks that you would be able to purchase.  This is the whole point.  Understanding the company that you are purchasing is one of the biggest rules that great investors have.  Warren Buffett chooses not to invest in technology stocks because he says he doesn't understand them.  I'm certain this isn't the case...more accurately is probably that these companies wouldn't fall into these four simple rules since most publicly traded technology companies do not pay dividends.

I hope this Stock Talk is helping you understand a little more about what all is involved in the world of investing.  Again, my suggestion is to buy this book and read it.  Why buy?  Well, because I feel that this is a book that you will want to have in your library to pass down to your kids.  The words of wisdom will not change unless we eventually change economics to something like what exists in Star Trek.  I do not see that happening anytime soon...therefore you should get the book and start studying.

Friday, August 3, 2012

Stock Talk - The Defensive Investor Allocation

Continuing on with the book The Intelligent Investor, the book writes about what the Defensive Investor should include their portfolio.  Recommending that you divide your funds between high-grade bonds and high-grade stocks.  The book goes on to discussing that stock-bond allocation should be something that is considered to remain on the defensive. 

What is defensive?  Well, ultimately...you do not want to have a negative return in any given year.  The book talks about never having less than 25% in common stocks and never over 75%.  It goes on to say how difficult this can be because when markets move...so will your portfolio.  If  you have a strong enough market move in either direction you can easily fall out of bound either way.

One method of keeping this allocation would be the 50-50 approach.  When your stock allocation increases to say 55% then you would sell 1/11 of your stock portfolio and switch it to bonds.  Thus if your portfolio would fall to 45% then this would require you to sell 1/11 of  your bond fund and buy stocks.  Benjamin Graham felt this was a rather simple approach to creating a portfolio.  You could simply do this by purchasing a bond and stock index fund or just a stock index fund and buy bonds individually.  This might be a cheaper route.

This could be using Treasury Direct which is a place to buy government bonds directly.  The book on page 93 even discusses U.S. Savings Bonds.  It discusses that for a period of many years the only sensible bond purchases for individuals were the U.S. savings issues.  The safety is unmatched, and the rate of returns are higher than other bond investments of first quality.  The interest rate for the Series I bonds are 2.2% through October 31, 2012.  For something that can be easily converted back to cash, I find it hard to beat.

An example of how this could work would be if you had $10,000 to invest...you would buy $5000 in Series I bonds earning currently 2.2%.  This would make you $110 per year if rates remained the same.  If you purchased a large index fund such as SPY you would receive 35 shares @ SPY current price closing at 139.35.  You would still have some change left over.  You would receive a dividend of around $99 from the stock if the yield remained at 1.98%.

This is just an example of how you could build a portfolio as a defensive investor.  Personally, I do not like allocating all assets into cash, stocks and bonds.  I prefer to look for undervalued assets and would not want to exclude gold, silver, and real estate.  More importantly...I currently investing all of my disposable income towards paying off my residental home.  I feel that not be in debt is much safer investment and will yield a greater return than bonds can currently.  I do own Series I bonds, however they have been yielding over 4%.

If you have a mortgage of 4, 5 or 6% chances are from a defensive investor approach you will have a harder time acheiving yields better than you would if you paid down your mortgage, credit cards, or car payments.

Disclosure: Military Millionaire does not own any of the stocks mentioned in this article.  Military Millionaire does own Series I bonds.

Wednesday, August 1, 2012

Stock Talk - The Intelligent Investor

As promised, I am going to begin to help some individuals educate themselves with a proven method of investing.  The recommended book I am using is the Intelligent Investor.  This book was written back in the 50s by Benjamin Graham.  Warren Buffett has labeled this book as the best book on investing ever written.  I strongly recommend purchasing this book and reading it cover to cover.

With that said...I am going to skip to Chapter 4 General Portfolio Policy: The Defensive Investor.  First question...what is a Defensive Investor?  On page 88 the book says that the rate of return sought should be dependent on the amount of intelligent effort the investor is willing and able to bring to bear on this task.  The minimum return for the passive investor who wants both safety and freedom from concern.  The maximum return would be realized by the alert and enterprising investor who exercises maximum intelligence and skill.

This book is basically telling you that the old theory that those who cannot afford to take risks should be content with a low return.  When I went to college in my finance class you are taught that high risk = high reward.  Typically this is never the case in my opinion.  If it were true, then Las Vegas wouldn't exist.  An example is the Rolette Wheel.  Whether you put all your money on black or lucky number 7...you have greater than 50% chance of losing everything.  Your reward is doubling your money or so many times your money depending on the probability of winning.  However, in the long run...the probably of making money is 0%.  Therefore I would label high risk = negative reward.

Same thing goes for get rich quick schemes.  Why are they high risk?  Well, because chances are the product is worthless, and you will lose everything.  Another example of high risk = negative reward.  The Intelligent Investor is letting you know that with experience and knowledge you can obtain a better reward.  An easy example of this is someone who is knowledgeable about computers and knows about online banks.  Typically online banks can offer a higher savings rate than your brick and mortar bank.  This knowledge can be worth a great deal of money.  Getting 1% return instead of .5% means you are doubling your money.  This might not mean much of you have $10,000 in capital to invest, but if you have $1,000,000 it means a big difference.  Earning an extra $5,000 with no additional risk is real money.  I can buy two Dodge Neons with that money.

In my next article, I'll dig deeper into the Defensive Investor.  I do recommend to purchase and read the book.