Birthday Money

It has been awhile since I have posted.  Way outside the guidelines I originally set when I first created this blog.  It was a year end at work and my wife and I are remodeling our kitchen, so spare time has been hard to find.  In the future I will be consistent with updates and truly hold to at least one post per week.

Along with the blog being put on hold, so has my research of companies to invest in.  I am still in the process of updating my excel template to help in the research process of my investing venture.  When that is completed I will post a copy for your use.  One thing to note that this will just be one tool to use in your research as it will be in my research.  This is a lot other items that you must look at when investing.  

The good news in this post is yesterday was my birthday.  I am not trying to build my ego and have people wish me a happy birthday.  I am announcing this because it is the best time of the year for found money.  Now, I am not a person that needs a gift to feel appreciated, but I do appreciate gifts, especially when the gift is cash.  It was a good year.  So far, I have received $505 for my birthday and this money will be added to my investing account.  If you have a grandma like I do, you probably knew who the five dollars came from.  All kidding aside, I truly do appreciate the gifts and they will be put to good use.

One last thing before I go.  I found this interesting contest and one I believe will help me reach my goal.  The contest is put on by microcapclub.com and the winner gets $10k.  Here is a link for their site if you want to join and for the rules of the contest.  http://microcapclub.com/contest/  Also, the top 14 get a cool $1k each.   I know I will be signing up and I hope you will be too.

Trading Style

So, I was thinking the other day about my investing style.  If I had to describe it, how would I.  Is my investing style aggressive?  Is it passive?  Am I looking for value?  Should I buy and hold, or should I try my hand at day trading.  Those are just a few of the styles that I could practice and it is truly a good question.

Normally, I would stay my style is value investing.  It is a style that I first learned about while reading “The Intelligent Investor” and “Security Analysis”.  Both these books are very interesting and still provide relevant information even though they were written a long time ago.  Although there is a ton of information in these books the main thing I took from them is “Margin of Safety”.  What does margin of safety mean:  well to me, it means an investment in a solid company with strong financials, a strong management team leading the company, and a strong potential for future growth.  It means to me purchasing this investment at a discounted price that allows for appreciation.

Now, I realize that value investing isn’t probably the best for accumulating wealth quickly.  And if I want to accomplish my goal of turning $400 into $10k by the time I am thirty I will have to employ a different tactic.  I still want to stick to my roots of value investing, so, I believe I will have to create a hybrid method.  I was thinking of combining value investing and day trading.  Yes, I know the terms investing and trading are oxymoronic, especially since I come from the school of Benjamin Graham.  I do believe that this will give me the best chance at reaching my goal.  I will take calculated risks and only make a trade if there is sufficient margin of safety.

When employing a day trading tactic, it is important to review the tax implications and how your brokerage views day trading.  Hopefully, I will not have to make many transactions and fall into the brokerage house’s day trading category and pay higher fees.  I will have to do what I vowed to never do after I completed my tax law class…read more tax law and how it applies to day trading.

An update on my brokerage search, I am currently leaning towards Tradeking.com right now, unless robinhood.io goes live soon.  Tradeking.com has everything I am looking for and I have had a good history with them before.  I also have level 2 option trading privileges with tradeking.com which is a plus.  I will make the final decision as soon as I have researched the companies that I want to invest in.

Found Money

This week was my first time since I started this project that I have found some money.  I have mentioned in previous posts that any “found” money would go towards my investment account.  Fortunately, for my wife and me this found money will be a monthly occurrence for the next 52 months. 

My wife and I financed a car about a year ago.  Like most car purchases, we were car shopping on the weekend and couldn’t contact our bank to see what they could offer us, so we went with the financing provided through the dealer.  Our rate at the time was 6% which isn’t horrible, but also isn’t that great when you consider the bank is paying next to nothing for those funds they just lent us.  When you consider what the interbank interest rate or Libor is and compare that to your rate you can tell how much you are getting ripped off.  Now, since I was an underwriter for a major bank in my previous career I have a good understanding of risk based pricing and the “risk” the bank is taking by making a loan.

 

When you think about an auto loan or even a home mortgage there really isn’t any risk to the bank.  They have the first lien right to the asset and as long as they didn’t write the loan for 100% or more of the assets value they should be fine.  Now, this is not always the case because there could be a large drop in the market for homes or for used cars.  We did recently see a drop like this and now seem to be on the road to recovery.  Don’t worry; I am stopping here since everyone should know where our economy has been in recent years.

Let’s get back to topic at hand, found money.  As I stated earlier our vehicle was financed at 6% and our monthly payment was roughly $320.  This wasn’t bad for a vehicle that was a couple years old and had very low miles.  I can honestly say that I had never considered refinancing an auto loan because there are usually fees and the term usually gets extended to help lower the payment.  In the long run, you are likely to be worse off than when you started.  But, for some reason, I was checking the loan rates with our credit union and saw that they were offering a rate of 2.24% and no fees to refinance.  With that rate and keeping the term the same we were able to lower our monthly payment to $232 a month, saving us $85 a month.  This savings will be added to the $50 per month I have already allocated to be automatically invested into my account.

To reiterate a wide known fact, you should always consider a credit union when looking to finance a vehicle, a home, or any other high value item.

As of right now, no trades have been completed since I am in the process of setting up my account and getting it funded.  I will reflect the automatic investment when the deposit has been completed.

Portfolio Statistics:

Cash: $400

Stock Investments: $0

Bond Investments: $0

Real Estate Investments: $0

Brokerage Research

Today, I was searching for a discount brokerage firm to use and I found a few that I am interested in.  Most of these brokerage firms offer the same technologies of stock screeners, trade simulators, and ease of access to your funds.  They all claim to have great customer service and I am sure they do, but that isn’t really a determining factor for me.  The real difference in these firms is price per transaction.  It is truly amazing to me the variance in the amount one firm can charge in comparison to another firm.  It goes to show you how much overhead some of these firms are operate with.  Like everything else that was born online it is cheapest to go with a firm that got its start online versus a company that has brick and mortar offices to pay for.

The first firm that piqued my interest was Tradeking.com.  I have used this firm in the past and had a good experience.  Tradeking.com offers equity trades for $4.95 for the buy and $4.95 for the sell.  To open and close your position you pay $9.90.  $9.90 is a decent price to pay considering there are some sites that charge you $10 to open your position and another $10 to close your position.  Using Tradeking.com is like using a 50% off coupon to take on Mr. Market.  Since I am operating with limited funds I want to keep as much of my money as I can.

 

The next site I researched was OptionsHouse.com.  Again this firm was born online and offers an awesome fee structure.  An equity trade will cost you $4.75 to open your position and $4.75 to close it.  This is currently the cheapest site operating that I could find.  Another benefit to this site is that it has a solid fee structure for option trades.  I do have a little experience with options and would consider using them in the future.  Tradeking.com offers option trading as do most brokerage firms, but not at a price that Optionshouse.com can offer.

The last site I came across today was Robinhood.io.  This site, or should I say app, is not operational yet, but they are claiming to offer equity trades for the low price of $0.00.  That is not a typo; they are truly offering trades for $0.00.  Now, this doesn’t seem like a sustainable business model and history will show that zecco.com tried this and eventually had to start charging a fee for equity trades.  They plan to make their money from margin accounts and other fees not related to equity trades.  Robinhood.io is being developed for gen y’ers with limited funds (that’s me) and is only available as a mobile app.  I signed up to be part of the initial wave of investors to use their services.  I can say it seems to have a pretty impressive following as I was roughly the 102,000 person to sign up.  From what I have read the app should be available soon.  Hopefully they can come with through with their current fee structure.

With all of this information, I plan to use optionshouse.com unless the Robinhood.io app comes to fruition.  Like I stated earlier I don’t need anything special, my main concern is price and you can’t argue with free.  And if that doesn’t work out, $4.75 isn’t bad either.

Portfolio Statistics:

Cash: $400

Stock Investments: $0

Bond Investments: $0

Real Estate Investments: $0

The Game Plan

It is football Sunday and the team that wins is the team that has properly prepared throughout the week, put together the best game plan on both offense and defense, and executes that game plan when it is game time.  I believe that these principles carry over to most things in life, including investing in corporate America.  After reading my first post I realized that I forgot one important item, my game plan.  Especially when you consider this blog is titled Man with a Plan.

The first step of my plan is research.  When I say research at this point I do not mean researching companies to invest in, I mean researching the best brokerage company to use for my portfolio.  Since I am operating with limited funds I don’t want my portfolio to be eroded by high transaction costs.  High fees are the greatest enemy to growing a strong and profitable portfolio.  In the past I have used Sharebuilder.com and TradeKing.com, but I will need to research this further as I have seen some advertisements for other firms that have low transaction fees.

I will then move on to developing a set of criteria that I will utilize in my initial screening of companies to invest in.  At this point, I have not nailed down exactly what I will be searching, but in the past I have used things like stock price, industry, price to earnings ratio, current ratio, and debt coverage.  Most of the online stock screeners use the most recently released financial statements for the data source and this will help me narrow down my list of potential investments.  Hopefully, I have set the criteria at a point where the stock screener will return ten to twenty companies to research further.  If not, then I will have to adjust my settings.

With my list of companies narrowed down to around twenty, it is time for a more detailed and comprehensive review of these companies.  In the past to complete this step I used an Excel template that I created to analyze the large amounts of data that I will be working with.  This spreadsheet is set up to review the past ten years’ worth of data and will automatically calculate the different ratios I find useful.  At this point I am looking to narrow my list of potential investments to five at most but ideally I would like to see the list to be two or three.  With a limited amount to invest I would prefer to put all my eggs into one or two baskets to avoid the fees associated with multiple trades and will only be looking for three companies at most to invest in.  Also, by paring my list down to this limited number of companies, it allows for the final and deepest step of researching these companies.

At this point I start to read everything I can find on the remaining companies on my list.  I usually start by reading the most recent quarterly or annual report.  I also like to read the miscellaneous releases that companies file with the SEC.  I don’t limit my reading to just official releases by the companies; I also look at stories published by credible financial sources.  Articles from the Wall Street Journal, Morninstar, and Motley Fool have all helped me in the past.  The last time I tried my hand at the market I even reviewed different blogs and message boards.  With reviewing all of this information I am looking for little things that might give me some insight on how an investment will perform in comparison to another possible investment.

So far I have researched, researched, researched, and researched.  All of this research means nothing unless you are willing to step to the plate and swing for the fences.  With all of this analysis a person could get bogged down and suffer from analysis paralysis.  Fortunately for me, I have never had an issue with this.  If all goes as plan I will be making my initial $400 investment into at most two companies followed by $50 automatic monthly investments and investing whenever I have “found” money.  By setting my investment plan up this way it will allow me to dollar cost average my holdings and investing at too high of price.

To conclude, fully researching a company is the most important step, but it is not the only step.  You will also have to research the brokerage firm you are working and you will have to make the trade.  All that work you did means nothing unless you are willing to act on your findings and take that step of becoming a shareholder in a corporation.

Taking on Mr. Market...Again!

Like most people, I decided that I should make a New Year’s Resolution for 2014.  Actually, I decided to make more than one and with this blog I hope to kill two birds with one stone. 

The first resolution or goal I want to accomplish is to write more, hence the blog.  I want to be a better writer and like all skills the more you practice the better you get…hopefully.  Grammar has always been a struggle for me.  Choosing the correct word, figuring out where a comma should go and where one shouldn’t go, and proper sentence structure has always been an issue for me.  So, if you are part of the Grammar Gestapo, take it easy on me.

The other goal I want to accomplish and plan to write about is my venture into investing…again.  I have always had an interest in investing and dabbled in it a few years ago.  Outside of investing in my 401k, this will be my third go at Mr. Market in the past 10 years.  My first attempt I was blindly throwing money at the market.  I would watch TV shows like Mad Money and Squawk Box and thought that I could do it.  And I couldn’t.  I started with $500 and lost most of it by being a sheep instead of a Shepard.  Every day when I would come home I would turn on my TV shows and follow the talking heads’ advice on the next “hot” stock.  With poor stock choices and multiple transaction fees my “portfolio” was soon whittled away.  This blow to my ego cost me roughly $250 and almost made me leave the market for good. 

My second go at Mr. Market was slightly more calculated and happened roughly 2 years after my first departure from the market.  At this point, I started to read online articles from MorningStar, Motley Fool, and Yahoo Financial.  Somewhere along the way, I read that Warren Buffet got his start by reading books like the “Intelligent Investor” and “Security Analysis” and studying under and working for the author of the books, Benjamin Graham.  I am sure I was like most people and thought “what can a book written so long ago teach me that I don’t already know and no way is this information still relevant.”  Boy was I wrong.  Like they say, “history repeats itself” and the information contained in these works of art will in my opinion always be relevant.  My starting amount was the same as my first attempt at the market, but this time I was armed with a better understanding of what to look for and how to better process all the available information I had on these investments.  Within six months I was starting to see some real gains.  I had turned my $500 into roughly $700.  At eight months, my wife and I decided to move and needed to cash out the investment to help pay for our moving costs.  So, we exited the market for the second time.

This brings us to the present day and my third attempt at the market.  This time I want my visit to be a permanent one.  I am starting with $400, which isn’t much, but I do plan to invest all found money (birthday money, extra money from any future raises, and any other funds I happen to stumble across) and an automatic investment of $50 per month.  My short term goal is to turn this investment into $10000 by the time I am 30, which is 13 months.  Yes, I know this may seem unrealistic, but I have always been a person to set high goals.  To paraphrase one of my favorite quotes, set your goals high and even if you don’t accomplish them you will still be a lot better off than when you started.

So, what to expect from this blog?  The first thing you should see throughout the year by reading this blog is my grammar and writing skills getting better.  I plan to update this blog at least every week and for sure when there are significant changes in my investment portfolio, so I will have a lot of practice writing.  The second thing you should take from this blog is a better understanding of what it takes to start investing and to grow a little bit of money into a small fortune by "following" a plan.  With that, I will end this post and all future posts with my portfolio statistics.

Portfolio Statistics:

Cash: $400

Stock Investments: $0

Bond Investments: $0

Real Estate Investments: $0