Mar 12 2012

An Epiphany About Work, Life, and Getting Older


Carlos Portocarrero

I was walking back from getting a hair cut the other day and I was thinking about how clueless I was when I was younger. By younger I mean when I was 20. Even when I was 25 I feel like I was pretty “out of it.” (I’m 30 now, by the way).

Anyway, this is normal. We look back on our younger self and think “wow, look how clueless I was back then compared to now.”

We learn things, pick up new skills, understand how other things work, etc. This is the nature of life.

Nothing shocking about any of it.

But then it hit me: I’m still probably very clueless/ignorant about a LOT of things—I just don’t see it yet because I haven’t been enlightened on everything (otherwise I’d be living on a mountain somewhere). When I’m 40, I’ll look back on today and say “Wow, you really had no idea back then did you?”

This thought made me appreciate the cycle of life and how we can benefit from a small exercise.

Here’s what I did: I asked my current, partially enlightened self one simple question: what advice would you give the 20-year-old Carlos based on what you now know at age 30? What’s the one thing you feel strongly about that you are convinced would’ve been great advice from 20 to 30?

I walked and walked, and thought and thought.

It’s not an easy question, but I’ll be damned if I didn’t come up with an answer I’m pretty proud of. It boils down to five words:

Make things you’re proud of.

That’s it. Whether it’s a website about personal finance, short stories about whatever, or software applications people use on their phones—it doesn’t matter. The key is to create new things that you’ll be proud of when you look back.

Creating things takes time, and it’s often hard to put in the time when you know you’re not going get any satisfaction from it for years and years. But now that I’m older and can look back, I can see how satisfying something like this site has been.

So that’s my advice to the young(er) people out there. And to the older people too.

Make things you’re proud of.


Mar 8 2012

Buying vs. Renting


Carlos Portocarrero

new home sign

The other day I ran into this article on The Atlantic’s website with tons of opinions from people about the whole buying vs. renting debate.Interesting opinions on how people feel about buying or renting.

Right now the most outspoken voices are the ones in favor of renting. And that makes sense: the real-estate market has gone through a tremendous fall. Millions of people are paying a mortgage on properties that are worth less (on paper) than the value they’re writing checks for.

And that’s not a good feeling.

That’s why the article has comments like this:

A house is nothing but a huge time and money suck

WE WISH LIKE HELL WE HAD NEVER BOUGHT

One of the undercurrents to these types of comments is job security. More and more people believe this doesn’t exist, and without that stability owning a home becomes that much more dangerous.

Making the commitment to own puts you on the spot. And if you lose your job, the effects could be disastrous.

Our Experience

For us, renting a place identical to what we bought would’ve been cheaper. We wouldn’t be paying property taxes or assessments—and buying definitely meant paying a little more.

For a while there, it was a stretch for us: our monthly payments went up from when we rented and we had to alter our spending. Then we had a baby and our budgets had to be altered yet again.

It wasn’t easy to make all these adjustments and it would’ve been a lot easier if we were renting because our payments would be smaller and we’d always have the flexibility of moving if we wanted to manage our biggest bill: our rent.

But I’m glad we didn’t do that.

Would we have taken that extra money and invested it? Probably not—it would’ve gone to a new baby toy, to another night out, to pay for a trip.

As much as I’d like to think I would’ve sent it to a savings account every month to invest, I know that’s not really likely.

But right now each month we pay our mortgage, we’re making an investment. And each month we HAVE to invest because we HAVE to pay the bill.

We FORCED ourselves to invest our money because we turned it into a bill. I know people do this by setting up a bill via ING or something but it’s not the same when you HAVE to than when you just tell yourself you have to.

Maybe I’m just rationalizing because I own and there’s no easy way out, and that’s probably part of it, but I’m glad we played it the way we did. One other positive: having gone through the home buying process once will be a huge help when we do it on a bigger scale (hopefully) in the future.

When we sell, we probably won’t make any money when you look at the process from beginning to end. But if we get that money back that we invested, we’ll be able to use it for our next purchase and then stretching ourselves out will have paid off.

Any other buyers out there feel this way?

Image by Steve Snodgrass


Feb 22 2012

Am I Any Good at Stockpicking?


Carlos Portocarrero

The Stock Market

Towards the end of 2009 I wrote My Stock Pick for 2010. I gave it a lot of thought, weighed many different options, and then decided the best place to invest my money in 2010 would be buying stock in Amazon (AMZN).

And I got really lucky—check out what Amazon has done since the start of 2010 (2010 is in red):

How AMZN Did

As you can see, I nailed it. I am the obvious successor to Warren Buffett. Shower me with praise and offer for me to invest your money.

Now.

Of course, as it is with most things in the stock market, I got lucky. My key assumption (that the Kindle would “blow up”) was pretty accurate. You see that thing everywhere now…even my mother-in-law has one.

The stock went up 38% in 2010. It’s only up 3% since then.

How Much Money Did I Make?

This is where it gets a little embarrassing. I didn’t make a cent off of Amazon in 2010 because I never bought the stock. Most of my money is invested in a retirement account that buys cheap index funds, and only a small portion of it is in actual, individual stocks (right now that’s Berkshire Hathaway and Johnson & Johnson).

Besides, at $130 I would only have invested around $300 in the stock at the time. At a 38% return, I would’ve made  $114—nothing earth shattering for having been so right.

But I have a little secret: right now I’m making some money off of Amazon, and so far it’s looking way better than 38%…

In February I put on a call spread that basically makes the following bet: If Amazon stays above $175 by April 20, I will make $500 before commissions. Making the bet cost me $285, which means my max profit would be $215, a return of 75% in three months.

Right now it’s looking pretty good (knock on wood), as AMZN stands at $182. Here’s what the stock has done since I entered this trade:

Nothing dramatic, I just paid a little more than I usually do in order to lock in a lower “must finish above X” price ($175) because I felt that the stock wasn’t going to go below that number. Amazon had gone from a high of around $240 at the end of 2010 down to a low of $175 and I felt that it had stabilized around there.

That’s why I picked that strike.

It had little to do with the fundamentals of the company. It had little to do with my long-term prospects of the stock. It had nothing to do with all the amazing investment books I love talking about so much (Malkiel, Lynch, anything with Warren Buffett, etc.).

When I trade options, it’s more of a speculation than anything else. It’s short term and as you can see it can be extremely profitable.

BUT!

But of course it can be risky as well. If AMZN goes down under around $170 I will lose my entire $285. It’s happened to me several times and it’s something that typically doesn’t happen with stocks.

Anyway, I’ll be writing more and more about options trading so if anyone has questions or wants to learn more about specific parts of it, let me know!

Image by rednuht


Jan 19 2012

The End of Retirement as We Know It?


Carlos Portocarrero

There are some standard rules and recommendations when it comes to preparing for retirement. Things like:

  • Start saving as much as you can as early as you can
  • Contribute to your company’s 401(k), at least to the match (it’s free money!)
  • Open a Roth IRA for added withdrawal flexibility when you retire
  • Calculate the nest egg you’ll need to accumulate for the standard of living you want
  • Take out 4% of said nest egg every year and live only off of that

It’s all good advice when the market is doing what the market has historically done. But if you’re near retirement right when something apocalyptic happens (like the mortgage crisis in 2008) and you followed these rules, then you’re probably going to be a little pissed off.

Because there are thousands of people out there that followed the rules and aren’t going to be able to retire the way they’d planned.

This has some financial experts thinking that it might be time to retire the old-school retirement mindset and move on to a new retirement paradigm—one that doesn’t involve saving up a whole bunch of money, investing it, and then living off the proceeds when you’re 65 and no longer want to work.

This Reuters article lays out the case for a focus on “other forms of capital.”

The goal is to focus on other assets that can help bridge the gap during retirement if money is in short supply—assets that aren’t being risked in the market.

“If they don’t have the money, they have human capital like skills and education, and social capital in terms of friends, neighbors or a church. All these things help,” says Larry Cohen, director of Consumer Financial Decisions.

Even if you don’t have the money, investing in things that aren’t stocks and bonds can pay off. If you learn a skill that can save you money, like gardening, then that can help a little bit during retirement.

And being a part of a community can also help with reducing costs—you can buy in bulk or use someone else’s car.

Then there are skills that can actually generate money, like blogging, consulting, or freelance writing. I mean, you have to spend your retirement doing something, right? Another thing you could do is teach. After 60+ years, there have to be a few things you’re really good at or know a lot about. If you had a career in the automotive industry, you could teach a class on how to repair cars or something like that.

I like this idea. It actually does two useful things:

  1. It helps make retirement a bit easier financially and
  2. It helps answer the eternal question of “what the hell am I going to do when I retire?”

Traveling and playing golf are good answers, but that still leaves you with a ton of time. I like the idea of a 65-year-old Carlos writing an occasional magazine article here and there, teaching a computer class to other grandpas, and then going on a long walk to stay healthy (and keep health-care costs at a minimum).

In theory, that means I don’t have to stress out so much about accumulating a million-dollar-plus nest egg to be able to “do nothing” after I retire.

If retirement experts can somehow factor these types of activities into the classic retirement calculations, couldn’t I put away less money right now as a 30 year old? Which means I could go on skiing trips or fly to Australia to go scuba diving. If I need less money when I’m older, I should (theoretically) be able to cut down on some of my contributions and use the money right now, while I’m still a strapping young man.

Is this a totally irresponsible and knee-jerk reaction to a stock-market plunge or do you think there’s something to this “new retirement?”

Image by Dawvon