Saturday, March 8, 2014

February / March investing update

This has been a great month for my investments. I didn't really notice until now though. It's nice having your finances on autopilot. You reap the benefits of continuously investing, and you can spend your time on other pursuits. It's also pretty crazy how many gains (or losses) the market can yield. The fluctuations are just numbers on paper, but they're fun to keep track of nonetheless.

Here are my current standings, and the differences from my last update in late January:

  • Vanguard IRA - $28,677.65 ($1,662.44)
  • 401k - $1,700.60 ($1,048.69)
  • Lending Club - $2,090.23 (-$147.93)
  • Schwab - $7,830.88 ($513.92)
  • I-bonds - $2,006.48 ($402.64)
  • Total - $42,305.84 ($3,479.76)
I think it's crazy how much my IRA with Vanguard has fluctuated. It has increased in value about 6% from my last update. That 6% increase is pretty big in less than two months. What's even crazier is how 6% can be such a big absolute gain of over $1600. This is what it looks like when your wealth snowball starts rolling downhill.

For my new 401k I'm 100% in the "Columbia Dividend Income Fund". It seemed reasonable in terms of expenses (for a 401k). This means that all of my retirement wealth is in dividend stocks. I'm happy with this for now, and probably will be for the next decade or two. I don't really trust stocks that don't pay dividends, and I'm far enough away from retirement that I'm not concerned about my lack of diversification. Actually, I think a broad basket of companies paying dividends is pretty diversified, but that's another story.

It feels good having a stream of pre-tax income being dollar cost averaged into some investments, without me having to think about it. It feels even better that some of that is essentially free money being matched by my employer, just because I'm doing my own saving. Employer matching 401k contributions are a wonderful thing.

I continue to wind down my positions with Lending Club. I have decided that the best investments for me are the simplest to manage, and that I plan on holding most of my wealth in dividend stocks that I research myself and then hold for long periods of time. I have three notes that are past due, two of which are still in their grace period and one which is 16-30 days late. At my last update, I had two late notes, both of which became current again. I still haven't had any loans default, so I think I'm overdue. I've made enough interest that I'll need a handful of notes to default before I'm in the negative. All in all I'm pretty happy with my Lending Club investments.

My I-bonds are really starting to compound! More than two dollars in two months? Big money big money.

I'm kidding of course. They're increasing in nominal terms, but they're keeping pace with inflation. I do really enjoy watching the interest trickle in month after month though. Come April I'll have my first I-bond that I'm able to redeem.

My Schwab taxable investment account is showing over $500 in completely paper gains, probably because Corning has been doing well again. My cost basis is $13.76 per share, and Corning is hanging out in the mid-$19s. I love the positions I have in that account (GLW and IBM). IBM is also up from where I bought it, after dropping into the $170s. I still really like their prospects for the next few years, though the share price is getting to the point that I'm not sure I would buy in today.

Before tax day (April 15th) I'm planning on fully funding my Roth IRA for the first time ever. I am planning on buying shares of Realty Income Corporation (O). I've had my eye on it for a while. It's a high-quality REIT that pays dividends monthly. Since it is a REIT, its payouts are taxed as regular income, so it's more tax-efficient to hold REITs in retirement accounts.

Sunday, January 26, 2014

January investing update

Apologies for the late investing update. Things have been pretty hectic around here for the past two months, what with starting a new job in December and then the holidays.

My new job is great. I'm really enjoying the change in management. I feel like I can trust those in leadership decisions to correctly decide direction and priorities; now I can focus on execution and writing software, instead of spending time worrying that I'm building the wrong thing for the wrong reason. I can also work from home when necessary, which is a nice perk.

Here are my current totals, along with the differences from my last update in late November:
  • 401k (old) - $27,015.21 ($91)
  • 401k (new) - $651.91 ($651.91)
  • Lending Club - $2,238.16 (-$56.33)
  • Schwab - $7,316.96 ($2,169.26)
  • I-bonds - $1,603.84 ($201.92)
  • Total - $38,826.08 ($3,057.76)
Most of the gains this month were from a stock investment I made in my Schwab brokerage account. I purchased 10 shares of IBM for $181.70 per share, for a total cost of $1,825.95 after commission. While I haven't done much in the way of my own analysis of IBM, it looks like a case of a strong company with great long-term prospects getting beat up in the short term. I wanted to buy in when it was down around $174 in December, but I didn't have the cash and it quickly rebounded to the high $180s. After IBM reported their 2013Q4 earnings last week, and their stock price dipped, I decided I had to make a move. I don't know how many more opportunities I'll have to buy IBM at $180. In any case, this will be my last purchase in my taxable brokerage account for a while. The rest of my discretionary income for the next three to four months is earmarked for my final 0% credit card payoff and (for the first time ever) fully-funding a Roth IRA.

Now that I've been at my new job for two months, I've seen contributions to my new 401k plan. My company offers a full match on 4%, which is slightly better than my previous employer paying in 4% when I paid 5%. The $651.91 represents a full month's contributions, including match. I have also opened an account with Vanguard, which I'm very excited about, and I'm in the process of rolling over my old 401k into an IRA. Since my last post, I've decided against pulling any investment shenanigans, so I'll have the whole thing in Vanguard's dividend growth fund (VDIGX).

Nothing to report on my I-bond buying program. I'll continue purchasing $200 per month for the foreseeable future.

I've continued slowly winding down my Lending Club notes. This has more to do with temporary cash flow than anything else. I've also been reinvesting in soon-to-mature notes on the secondary market. Over the past two months, I had two late notes, one of which was made current, and the other is now 31-120 days late. I expect that it will be charged off.

All in all it has been a quiet two months. I'm spending much of my free time reading up on value investing. I even went so far as to purchase a book from Amazon called Valuation: Measuring and Managing the Value of Companies. It is an excellent read so far and I highly recommend it. It walks you through the theory, and more importantly the practice (with examples!), of developing your own estimates of a company's intrinsic value. Over the next few weeks I plan on analyzing a company to get my hands dirty. I think my two holdings (Corning and IBM) are a bit on the complicated side, so I'll try to find a simpler company I'm interested in for my first go-around. I expect my first discounted cash flow analysis to take a good deal of time and effort. My hope is that I'll be able to analyze a company I'm interested in every few weeks, and then over time I'll have a whole list of companies along with my estimated intrinsic value of them, and I can just wait for the price to be right. As I understand, your initial analysis takes most of the time, and afterward you can update them relatively quickly as earnings get released every quarter.

I'll leave you with the premise of the book. Companies are valuable because of the expected discounted value of their future cash flows. The only ways a company can increase in value are 1) increase Return On Invested Capital (ROIC) or 2) increase growth. ROIC is basically a measure of how effective a company's capital is. ROIC will tell you how much cash flow a company generates from investing $1 in new capital. As a corollary, the authors talk about how the value of a company cannot increase unless its ROIC increases or its growth increases. For example, substituting debt for equity in a company's capital structure, or engaging in accounting gimmickry, can not increase a company's value. Much of the book shows you how to rearrange a company's financial statements to perform discounted cash flow analysis and estimate the intrinsic value of the company. It's really fascinating stuff.

Friday, November 29, 2013

November investing update

I'm calling these "investing updates" now instead of "net worth updates", because it's more accurate.

My last update was October 6th, so this is very nearly two months in between updates. I don't think this is a big deal. I've never claimed to be as disciplined as Dividend Mantra, and I don't think I'm capable of it either. I'm happy as long as these investment updates don't lapse for more than a few months.

Here are the current totals, along with the differences from my last update:

  • 401k - $26,924.21 ($1,510.63)
  • Lending Club - $2,294.49 (-$79.83)
  • Schwab - $5,147.70 ($2,201.40)
  • I-bonds - $1,401.92 ($400.64)
  • Total - $35,768.32 ($4,032.84)
All in all, a pretty solid two months.

My monthly contribution to my 401k was (!) around $680 per month, so my 401k gains were two months of contributions plus about $150 in capital gains. I have to say, I'm very excited to roll over my 401k. After the dust settles from one or two more pay stubs at my old job, I'm going to roll over my 401k into an IRA, almost certainly with Vanguard. Most likely I'll put it all in VDIGX, Vanguard's dividend growth fund. Before I decide, though, I'm going to ask someone at Vanguard about the managed payout fund. I know it's intended for retirees or people who need income right now, but I'm thinking that there could be some advantage in monthly compounding, rather than the (for example) twice-annual compounding of VIDGX. That and it's more balanced, holding many different funds as a coherent portfolio whose goal is to basically embody the 4% rule. Then again, I might split it between the dividend growth fund and the short-term bond fund, and try to time the market. We'll see. I'm a loose cannon sometimes.

My Lending Club portfolio is performing well compared to my expectations. The drop in value of around $80 reflects a withdrawal of around $100, so I must have collected $20 or so in interest over the past two months. Not too shabby for money I didn't have to work to earn. So far, I have collected $131.72 in interest from notes on Lending Club. I have 114 notes that are issued and current, with 2 that have been fully paid, and zero in any stage of delinquency. I plan on slowly reinvesting or withdrawing the money as my short-term financial situation warrants, and currently I don't plan on adding more money to my Lending Club account. Lately I have been buying notes listed for sale on the trading platform. I look for notes offered at a discount (of around 1-2%) that have fewer than 10 repayments left. I figure there's a good chance it's less risky than originating new notes, and it seems like there are some deals out there.

My Schwab brokerage account is still 100% Corning shares. I own 301.3878 shares, only 300 of which I bought. The other 1.3878 shares are the result of the miracle of dividend reinvestment and Schwab's awesome dividend reinvestment plan (it's free by the way). I have a cost basis of $13.75/share, and I made my last purchase before Corning announced its deal with Samsung to buy out their joint venture, which sent the share price up around 15%.

Finally, my I-bond portfolio is chugging along. I'm still buying $200/month of I-bonds and I plan to continue doing so indefinitely. My first bond won't be available for redemption until April of 2014, but time keeps marching on and now that's less than half a year away. Over time my I-bonds will keep growing and act as my emergency fund of last resort, as a back stop to my checking account and my savings account and my springy debt instruments. You can't beat an emergency fund that's perfectly liquid, backed by the full faith and credit of the US Federal Government, and pegged to the rate of inflation.

I'm very happy with how my investments have been doing. More and more, I'm seeing investing not just as a means to an end, but as an interesting pursuit in and of itself. I'm enjoying finding the right balance of investments that match my particular goals, both short- and long-term.

I think I can appreciate the sentiment of people who enjoy fine wine, or expensive jewelry, or fancy cars. But for me, I'm interested in investments: whether they're mutual funds, consumer debt, partial ownership in high-quality companies, or government bonds. Technically we're all just spending our money on things that we like, right? :)

Saturday, November 23, 2013

I got a new job

I am happy to report that I accepted an offer of employment at another company. Yesterday was my last day at my old job.

As I wrote in September, it has been a while since I've been happy with my job. It has also been a while since I decided that I needed to leave my job. I got an interview on November 1st, an offer of employment the following Monday, and completed some negotiation that week, just in time to give my notice by the weekend. I got a big raise and I'm even shaving half a mile off my already short commute (it will be down to 2.5 miles).

I feel excited, and happy, and relieved. Much of my unhappiness at my current job stems from feeling trapped. I don't have the stash of screw-you money that I need to feel secure in quitting my job when conditions warrant. This is a huge deficiency that I have identified in my life, and in the coming months I will develop (and share with you) a comprehensive plan to remedy the situation.

It's easy for people, especially myself, to think about an emergency fund in abstract terms. Oh, you want six months of living expenses. It's in case you lose your job, or a tree falls on your house. But honestly, the biggest risks I now worry about are: what if my boss or my company expects me to do something unethical? What if I see and raise security lapses that my company is unwilling to remedy? I want to be able to escalate the situation. I want to be able to say, "This needs to change, or you'll need to find another engineer."

I'm also looking forward to being excited about my job again. Months ago I got disillusioned with the work we were doing and office politics. In that time, I had not been putting in my best effort or producing my best work. I've found that apathy is contagious, and so is excitement. When I come home from a day of doing the minimum amount of work to get by, I find I don't have this great urge to be effective in my home life. Conversely, the days I was really productive at work were also the days I found I had the urge to dive into house work and hobbies.

In the short term my finances shouldn't be affected much. I think there will be an extra week in between pay checks in December. Because of my uncertainty around timing of my new pay check, I'm being a little cautious about new investments. I think there are some good opportunities even in this market, but it's better to be safe. I have about $2500 in my checking account, and that will hold me over until my new pay checks start coming in. Once that happens, expect to hear all about the companies I'm buying.

The last big benefit of switching jobs is that I took next week (which happens to be Thanksgiving week) off. That means more time for my hobbies, more time for chores, more time for planning my future, and maybe even more time for blogging. I like to think of my vacations, no matter how short, as a dry run for retirement. I don't know that I'll ever understand the mindset of people who think "Why would I ever retire? What would I do all day?".

I have a lot to look forward to.

Sunday, November 10, 2013

Investing in Magic: the Gathering cards

In early September I mentioned that I had found another opportunity for speculation. It's time I came clean.

I've been buying sealed boxes of Magic: the Gathering cards on eBay, with the plan to hold on them for months or years and then sell them at a profit when they're out of print. For those of you who never encountered this particular strain of nerdiness, Magic is a trading card game (the first, in fact). It has been around for 20 years now. Of note, there exists a robust secondary market for Magic cards.

I have a number of friends who play casually, as I do myself. In addition to casual play, Wizards of the Coast (the company that owns Magic), puts on various tournaments and events. This is where much of the demand for Magic cards comes from. To play in a tournament, your cards can't be faked or proxied. There is also demand from collectors. In addition to the cards themselves, there is some additional value in sealed packs for two reasons: 1) there is a format of play called "drafting" where a group of players make their decks from a limited pool of cards from opening sealed packs, and 2) some sets have very valuable cards in them, and the market adds a premium to packs from those sets.

I started thinking about this idea when I found a few sealed packs I kept around from when I started playing again around 2010. The most recent set at the time was called Zendikar. On a whim I looked up the price of Zendikar packs and noticed that they had greatly appreciated in value. Right now, Zendikar packs are selling for $9-$12 a pack. Magic booster packs usually retail for $4, and buying boxes of them can get you a price of closer to $3/pack. That is a pretty impressive increase in value.

I did some research on recent Magic expansions, and looked at the prices that sealed boxes of booster packs are selling for on eBay. Using conservative assumptions about initial prices, factoring in eBay sellers fees, and using only listings that have sold, I found that the compound annual growth rate (CAGR) averaged between 7% and 15%. This isn't a gold mine by any stretch, but by my estimation there's a reasonable chance to beat the stock market's historical average, and invest in something that's uncorrelated with any other asset class.

Here's a listing of what I bought and when:
NamePurchase priceShippingTotal costPurchase date
Return to Ravnica$89.99$0.00$89.998/11/2013
Dragon's Maze$89.99$0.00$89.998/11/2013
M13 x3$172.58$15.25$187.838/24/2013

Here are the current prices for these products:
Return to Ravnica1$88.00
Dragon's Maze1$80.00

As you can see, I'm not doing too well. That's alright though, because I was planning on holding on to most of these for a few years. You can see where I went wrong with buying a few "From the Vault: Twenty"s too soon after they came out. "From the Vault"s are special collectors edition products with a known set of tournament-legal reprints of various cards. Demand was high for FTV:20 when it came out and since then the price has dropped. The rest of the boxes have basically stayed static, which is what I was expecting. You can also see what kind of a bite fees are going to take.

Anyway, I want to be open and honest about how my alternative investments are going. I am planning on posting updates every few months.

I think it's important to realize that there are a lot of opportunities out there that you could be interested in, if only you open your eyes to them. When you're on secure financial footing you can take advantages of opportunities that come your way. In this case I decided it would be fun and interesting to try a different kind of speculation, one that not many people do. Who knows, maybe I'll lose a bunch of money, or maybe I'll hit the jackpot.

Sunday, October 13, 2013

First retire, then get rich

The title is a reference to this Mr. Money Mustache post.

Last week I discovered an awesome new blog called Saving Money In Your Twenties. Over there Ashley is blogging about a whole bunch of Mustachian things like saving money, brewing beer, cutting her own hair, and yes, leaving the 9-to-5 grind behind. I was inspired to read through her archive, where I learned how to find free parking in many cities while traveling and how to make a cheap and delicious quinoa stir fry, among other things.

Afterwards I was inspired to blog about how cool I think it is that she's quitting her full-time job to move to upstate New York and figure out empirically if she can make a living doing something other than working full-time. I'm not going to steal her thunder: for the juicy details, you should go read her blog. Suffice it to say that she saw an opportunity and she decided to jump on it.

It's unusual that someone quits their job without having another job lined up first. This isn't at all related to criminal law, but I explain this fact by a lack of means, motive, or opportunity. I think many people have sufficient motive to quit their jobs, based on nothing more than the frequency of job-based complaints. Means and opportunity must be the limiting factors. How many of us have a year's worth of expenses saved up (means)? I know I don't.  I'm still lacking enough savings to be able to comfortably quit my job if I wanted. And how many of us have a proximate reason to try to do something else with our lives, which might negatively impact our future employment (opportunity)?

I have given some thought to taking an extended amount of time off of work. Besides a great deal of relaxing, I'd have more time to pursue my hobbies, like home brewing, contributing to the open source community, and practicing security analysis so I can get better at investing. I'd also be able to take on some new hobbies, like writing a book (I've heard publishing on Kindle is pretty straightforward), or maybe a new blog project or two.

A number of these hobbies have a chance of bringing in income. I'm interpreting Mr. Money Mustache's post on "First retire... then get rich" in this light. Sure, you can retire once you have enough money to live off your passive income. That's a given. But you can also temporarily retire once you have enough savings to fund your expenses for a few months. It will mean living off principal, but it will give you an opportunity to do something else with your life years before you could otherwise.

On this note, I'm excited for Ashley, and I'm looking forward to following her journey.

P.S. Yes, I understand MMM's post is addressing a different point, namely how a lot of common retirement advice is "work as long as possible and save as much money as possible because you might run out of money before you die". I think he has an interesting point, and I think it's even more interesting when that point is stretched to its logical conclusion.

Sunday, October 6, 2013

October net worth update

As part of my goal to have six-figures invested, I'm posting periodic updates of my net worth. I missed posting in September, but in the grand scheme of things late September is pretty close to early October, so I don't feel too bad. Besides, the daily fluctuations aren't important. What's important is the focus on continually investing my excess cash so that my dollars are working for me.

My last net worth update was August 25th. Here are the current totals, along with the differences:
  • 401k - $25,413.58 ($1,239.99)
  • Lending Club - $2,374.32 (-$29.32)
  • Schwab - $2,946.30 ($1,450.00)
  • I-bonds - $1001.28 ($401.28)
  • Total - $31,735.48 ($3,061.95)
The increase in my 401k was probably half from new contributions, and half from market increases. Of note I've been changing my contributions to the various mutual funds my plan allows. I think my new contributions are 100% into the utilities fund, and I rebalanced to somewhere around 80% utilities, 10% international, 10% REIT. I chose the funds mostly based on their relatively low (yet still insanely high) expense ratios.

My Lending Club account is showing a loss. This isn't due to someone defaulting on their loan. Instead, I withdrew around $60 of cash because I was scraping together money from my various accounts to buy some stock. Interest is still rolling in, and the notes I have seem pretty solid (no defaults yet), so I feel okay about Lending Club for the short term.

My taxable investment account at Schwab is showing a big increase. I bought another 100 shares of Corning (GLW), this time for $14.85. If you recall, I bought my first 100 shares of Corning back in March for $12.51. Back then I still had student loans. I'm excited about Corning. I love the company and I think that at current prices it could be a great long-term value (I'm talking 10 years or more). I currently have 201.3878 shares, thanks to two dividend reinvestments so far. Fractional dividend reinvestment is a big reason I like Schwab.

For the I-bonds, I'm opting to use the "current value" which includes accrued interest, even though I can't redeem the bonds until a year has passed since the date of issue. I am really happy with my I-bonds. Passing the $1000 mark feels good, and even though the interest rate is a measly 1.18%, my emergency fund is guaranteed not to lose value to inflation. I'd like to keep up my $200/mo contributions for as long as I can.

In the end, my investments increased by over $3k this month. This is really good. I don't think I can keep up this rate of increase, but if I can, I'll be at $100k in less than two years.

I have about $2k in cash. I'd really like to buy another 100 shares of Corning, but I think pragmatism is going to get in my way. I still have a little over $3k in 0% credit card debt that will come due in March 2014. I should also have a short-term liquid emergency fund for if and when I switch jobs. We'll see how the next month goes. Either way I'm feeling pretty good.