From an investment point of view, most of us say good riddance to 2008. The economy for 2009 is shaping up to have a rocky start, but I’m optimistic that stocks will rebound at some point. Don’t take that as a prediction, though. I don’t want to be just another commentator whose predictions are wrong half the time.

For anyone fascinated by Warren Buffett and his extraordinary investing career, Alice Schroeder’s The Snowball: Warren Buffett and the Business of Life is a must read. At over 800 pages, it adds much detail to the scattering of facts that most people have about Buffett’s life. Any attempt to summarize this book in a few paragraphs would be hopelessly superficial: he was young, then middle aged, and then old. So, I’ll focus on one aspect: the perception that he is a simple folksy person who doesn’t know much about newfangled things like computers and the internet. In some ways this perception is accurate. He does tend to live simply, except for flying around in private jets to meet the rich and famous. He also has the ability to explain things simply and briefly. However, the work he puts into his investing is neither simple nor brief. He has spent most of his life consuming and analyzing financial data. He is well-known for avoiding technology stocks. He explains that he ...

At the close of financial markets for 2008, mutual funds must take a snapshot of themselves and disclose it publicly. Here is a short list of the main information that they will disclose: 1. 2008 return (or loss in most cases). 2. Main investments held. 3. Comparison to a benchmark. You might not think that there is much that mutual funds could do to paint a rosier picture, but mutual funds have a few ways to paint over the rust. 1. Painting the tape. Mutual funds inflate returns by buying more shares of stocks they already own at the end of the last day of trading. The extra demand drives up the price that gets reported for the end of the year. The price usually drops back down on the first trading day of the new year so that the fund actually loses some money doing this, but it has the desired effect; the reported 2008 returns will be slightly higher. 2. Window Dressing Who wants to find out that their mutual fund bought a bunch of bad investments? Some mutual funds...

I’ve been a fan of Scott Adams’ Dilbert cartoons for many years. I spent most of my career in a small cubicle lined with cloth, and his cartoons captured the essence of my work-related frustrations and fears with humour. Many of his cartoon-based comments on financial crises over the years have been right on the mark. However, Adams’ latest blog post misses the mark by a wide margin. To be fair, Adams doesn’t always believe the things he says on his blog. He likes to throw out half-baked ideas and stir the pot. Consider my pot to be stirred. Here is the essence of Adams’ argument about stocks: 1. People aren’t smart enough to pick their own stocks. 2. People should be limited to investing in indexes or special regulated funds run by experts. He also wants stock prices to be set by “some sort of regulating board.” To borrow from a well-known quote about democracy, capitalism is the worst way to run an economy except for all the other ways. One of the core benefits of democra...

I haven’t had much luck with Bell’s customer service until recently. I’ve had some crazy battles with Bell including being made to pay the same bill twice many years ago and a more recent running battle to get their internet service to work. A problem with my telephone sent me back to Bell’s customer service. It all started Friday when I started getting calls where the caller would hang up after one ring. My first thought that some kid was just having fun proved wrong when a friend sent an email asking what was wrong with my phone. It turned out that callers got one ring followed by static. My strategy at this point was to “hope the problem goes away.” By Sunday, it was clear that I would have to try another solution. Ever since Bell “gave” every customer the wiring inside their homes, we have to pay for any repairs. I had visions of having a Bell technician in to mess with the wiring for $100 and not fix the problem. This is what happened the last time a Bell technician came t...

The U.S. Office of Thrift Supervision has developed new rules to put a stop to some nasty practices of credit card issuers. The fact sheet they put out describes the major changes. This is good news not only for consumers but also for the credit card issuers who were already following these rules because their competition will be forced to play on a more level playing field. Most of the new rules are self-explanatory. Interest rate increases must take place at defined times with adequate notice for card holders. Consumers must be given at least 21 days to make a payment. A fairly substantial change is the rule ending double-cycle billing where the average balance over two months is used to calculate interest. This practice causes interest to continue for another month after you pay your bill in full. Now interest will be based on just the current month. The last new rule places restrictions on predatory high-fee subprime cards. These are high-fee, low-limit credit cards gi...

There are many times when you have to choose whether to “do it yourself” (DIY) or hire someone to do a job. This choice comes up with house repairs, investing, landscaping, to name a few instances. We tend to think of the choice as binary: either DIY or hire someone. However, there is a middle ground. Let me use an example to illustrate my middle ground approach. I have a large natural gas pool heater that became flaky after about two years. I have no training with these heaters and had little choice but to call a repair person. It turns out that fixing natural gas heaters is specialized work and calling in the repair person wasn’t cheap. I always had to pay for some minimum time plus the cost of some expensive part that had to be replaced. The repair person would get the heater working, but the flakiness never went away. During the fourth service call in two years I did my usual thing of watching the repair guy and asking questions. This guy happened to mention that the contro...

Alice Schroeder’s fascinating biography The Snowball: Warren Buffet and the Business of Life makes it clear that Buffett engages in market timing in the sense that he varies his allocation to stocks over time. If he does it, why shouldn’t we? Of course, Buffett’s market timing is different from the investor who makes short-term bets on whether stocks will go up or down. Buffett looks for attractively-priced stocks, and during some time periods he finds them and sometimes he doesn’t. This is still a form of market timing, though. It’s easy to show that market timers as a whole must make less money than buy-and-hold investors, on average. It’s simple mathematics that the extra trading costs along with investing in inferior asset classes like cash and bonds must hurt the average market timer’s returns. This doesn’t mean that all of them lose to the market averages, though. Buffett is a remarkable example of someone who has beaten the odds so convincingly that he must have talent th...

My family uses Rogers Cable for TV and internet, but we still use Bell for our telephone. Both companies work hard to get us to bundle all three services together. I’ve discussed the offers from Bell here and here , and now it’s Rogers’ turn. The mailing we received from Rogers isn’t just a generic mailing; it is addressed to us and contains specific details of which services we already pay for. Apparently, we can bundle Rogers telephone service in with everything else for $149/month, “all monthly service fees included.” This is only $5.27/month more than we pay right now which makes it seem like a great deal. There must be a catch, right? After reading further it turns out that there is more than one catch. I’m guessing that the $149 figure doesn’t include sales taxes. This makes the added cost of phone service close to $20/month. The list of services we currently have seems to be missing a service that costs close to $20, and so we’re up to about $40/month extra for the...

With the BCE takeover officially dead, BCE has announced that they will resume their dividend and start buying back shares. Just about everyone knows what a dividend is, but many investors may not understand what it means to buy back shares. After all, what sense does it make for a company to buy itself? For the uninitiated, it may be disturbing to learn that the number of shares in a company does not remain constant. Many companies issue new shares over time, and this dilutes each shareholder’s ownership in the company. There are many reasons why a company would issue new shares and they all have to do with paying for something. Stock options, when exercised, usually cause the company to issue new shares. A company might choose to raise money by making a secondary offering of new shares to the public. Corporate takeovers of other companies are often financed by issuing new shares. All of these things dilute the ownership of existing shareholders. Is this a bad thing? Wel...

It may seem obvious when you think about it, but the stock market and the economy aren’t exactly the same thing. Some commentators seem to confuse the two. There is no doubt that they are related to each other, but they don’t always move in the same direction. The stock market reflects the going price for businesses that are at least partially owned by the public. The economy includes these businesses plus privately-owned businesses, bond markets, currency markets, governments, jobs, etc. Stock prices are a consensus view of the expected future profitability of public businesses. This makes the stock market forward-looking. Sometimes the crystal ball is cloudy and stock market participants get it wrong, but stock price movements tend to precede changes in the economy. We have seen this lately in media stories. As stock prices dropped, we heard story after story of gloom and doom about the stock market. This has largely given way now to gloom and doom about the economy. Ap...

My wife and I have always maintained separate bank accounts. It never really occurred to us to do all of our banking with joint accounts. I’ve often wondered what it says about a couple when they make one choice or the other. It’s not that I have my money and my wife has hers. Since we were married it’s all been our money. If I happen to be short on cash, she’ll just give me $100 from her wallet without keeping track. If her bank account gets low for some reason, I’ll just write her a cheque. Sharing a bank account feels sort of like sharing a toothbrush to me. It can be done, but you’d have to be in quite a romantic mood to think that sharing a toothbrush is a good idea. It just seems like a pointless hassle to balance a chequebook when two people are making withdrawals. Misunderstandings with joint accounts must lead to the occasional bounced cheque. It’s possible that having separate accounts but not really keeping our money separate is only possible because we both tend to ...

Experts differ on which is the best approach to investing throughout your life. Some say to maintain a fixed percentage allocation in stocks, bonds, and cash regardless of your age. Others advise a lifecycle approach where you invest heavily in stocks while you’re young and shift to bonds and cash as you get older. Larry MacDonald reported on a recent study by researchers Basu, Byrne, and Drew titled Dynamic Lifecycle Strategies for Target Date Retirement Funds (full text of the study is available free). The title hints at a market-timing strategy which piqued my interest. The study compares fixed allocation strategies, lifecycle approaches, and a dynamic strategy the researchers devised. It turns out that the dynamic strategy doesn’t really involve market timing in the sense of trying to anticipate bull and bear markets. The dynamic strategy begins with a target yearly compound return expectation of 10% and makes the following choice each year: - If your compound average l...

Listening to financial experts can be both good and bad. Most of what I know about money has come from one financial expert or another. On the other hand, we need to be initially skeptical of anything new some supposed expert says. Evaluate new information before accepting it. For example, recent research suggests a link between poverty and brain function in children. The researchers believe that poverty is causing brain impairments. My first thought is that maybe some people have brain impairments which prevent them from making much money, and they pass these impairments along to their children genetically. I may be wrong about this, but I won’t accept the researchers’ theory until I see evidence, and I don’t care enough to pay $10 to see the full text of the study . I extend this way of thinking to all experts. Some people take anything their doctor says as gospel. My thinking is that like any other field, doctors have wildly-varying skill levels, and it pays to be skept...

1. Some algorithm at Google thinks this blog might be spam. This is silly of course, but it’s hard to argue with binary code. By contesting this, I’m now in a penalty box where to make a post I have to solve a CAPTCHA (one of those twisted up words you type into a box to prove you’re a person). I’m on some list to be checked out by an actual person at Google. If this blog ever disappears completely, you’ll know that something went completely wrong. 2. BluntMoney observes that it’s harder to spend money you’ve saved up . This is quite true. Found money often gets wasted quickly. 3. I had some plumbing problems this week and so did the Big Cajun Man . Fixing leaks yourself only saves money if you don’t end up calling a plumber anyway. 4. A carnival this week: Investing Carnival

My wife is quite frugal and often comes home from grocery shopping with a cut of meat sold at half price that has to be cooked within a day. We don’t seem to have had any problems eating these cuts of meat, but they leave me a little uneasy. I presume that the reason for the price discount is that these cuts are older than the full-price cuts. Presumably this means that the odds of getting sick from eating discounted meat are higher. I’m wondering how much higher. I’d like to say that we’ve never had a problem eating discounted meat, but it’s hard to know for sure. We don’t seem to have had any serious incidents of food poisoning, but minor bouts of stomach upset are common and hard to attribute to any particular cause. Most likely the risk from eating discounted meat pales in comparison to the risk of driving a car. I’ll probably continue to have a flicker of uneasiness when I’m told that dinner includes half-price meat, but only a flicker, and then I’ll dive in.

My natural gas supplier, Enbridge, has a program in place called TAPS where they give away some hot-water pipe insulation and efficient showerheads and kitchen and bathroom faucet aerators. My savings each year are supposed to be $45 on natural gas and $113 on water. But, plumbing often doesn’t work out very well for me. I started with the kitchen faucet. Swapping an aerator is easy, right? Unfortunately, our house is 19 years old and the parts were nicely fused. I got them apart, but a piece of the faucet broke. A consult with a plumbing expert confirmed the bad news: we needed a new faucet. Am I saving any money yet? Two more trips to the store for another consult and more parts plus a couple of hours on my back under the sink solved the problem. I think it will take a while to recover the total cost of $115.72 with my savings on natural gas and water. I’m afraid to try to install the other parts. This experience reminds me of the time my father-in-law got serious about savi...

My personal experience with trips to hospital emergency rooms is that wait times have increased over the last 25 years. Numerous newspaper articles on the subject seem to indicate that the trend to longer waits exists across Canada. My latest data point came when my son broke a finger playing basketball. He made a nice play stealing a pass and drawing a foul and was rewarded with a finger not quite pointing in the right direction. My wife and I took a deep breath at the thought of a long wait at the hospital, but we had little choice. At least only one of us would have to wait with our son. Sadly, I couldn’t find my two-headed coin when we were deciding who would stay. The wait to see a doctor was less than I feared at just over 5 hours. However, I can recall trips to the hospital for my own injuries decades ago when I waited less than an hour to see a doctor. What has changed? In thinking about the root cause, I see the problem at ultimately coming from government debt. The Ca...

How bad have stocks been lately? Regardless of what the numbers say, what matters to people is how they feel about stocks. Two people can feel very differently about the same events. Here we have a couple disagreeing about stocks: Sue: “After all this excitement in the stock market, the last two weeks have been good.” Andy: “Are you nuts? Stocks have been brutal lately. Worrying about our savings is keeping me awake at night.” Sue: “But I’m talking about just the last two weeks. Look at this chart.” Andy: “That proves my point. The TSX went down below 8000. At this rate, we’ll never be able to retire.” Sue: “But we’re up 2.4% in these two weeks. That’s good for such a short period of time.” Andy’s reaction is more typical than Sue’s. The pink region in the chart measures Andy’s psychological pain of watching stock prices sit well below where he hoped they would be. It’s like watching your favourite sports team when they’re way down. Even if they close the gap somewhat, fans...