Author: Cornerman

Portfolio news – Winter 2018

Time for another portfolio news. Since the last additions I have been going out of the fossil energy industry and reinvested the funds into technology and the ETF’s. I had still had Shell, sold ONEOK before that and now it was time to remove Shell from the portfolio. It’s a nice dividend income and for all their commercials and PR towards clean energy I haven’t really seen anything apart from sponsorships. No real moves as of yet. In name an Energy company, in practice still a old style oil giant. I realize I am still an investor by the way of the ETF, so I am not completely clean at the moment. But this is the first step.

Also out is General Electric, one of my longest holdings in the portfolio, and one I neglected acting on earlier which resulted in a loss, another testament towards simply buying an ETF and holding that instead of following separate companies. But I am still having fun doing the research, so for now I will keep adding some handpicked stocks to my portfolio.

As for technology , more ASML, Apple and Microsoft have been bought. Next on the list is Philips. Getting larger in healthcare which will remain a growing market, it’s been lagging a bit lately and now starts making up a bit. So I will start out with writing put options and seeing how things develop.

The ETF’s have seen the biggest growth in my portfolio, simply because it’s easy and cheap. Which comes a long way in having a nice return in the future. Low costs and simplicity is key. Its also remarkably stable. My handpicked portfolio goes up and down a lot more, which makes sense because it only contains a few positions versus hundreds combined in an ETF.

So my testcase is more and more in favor of the ETF’s , which I will be allocating more money towards in 2019.

Control your finances, but why?

Nice oneliner, isn’t it? But having control over your finances, what’s that exactly ? It’s knowing exactly whats coming in and going out each month, for starters. It leaves you with an exact number you have left each month. And you can go figure out what you can or must do with it.

In the Netherlands, where I live the national budget institute, which advises people on responsible finances has a lot of different data on budgets, savings etc. It says only 27% of all Dutch people keep a monthly cash flow report. And 25% has savings less then 2200 euros. Which is roughly 1,5 months of expenses if you don’t a lot of those. A lot more numbers are available but you get the idea.

It’s simply a fact most people don’t know their financial status from one month to the next. Which doesn’t have to be a problem if you simply spent less than you make. Which leaves a buffer automatically. Which in most cases end up in savings accounts.

But it pays dividends knowing how the numbers look and taking it as a starting point in thinking about your financial future. Best case scenario is thinking about how your surplus can make you money, worst case if you come up short each month how too fix that issue.

Let’s start easy, by making a simple monthly balance in a spreadsheet or on a piece of paper, doesn’t matter. You first write down your income, for most your salary. Then deduct your mortgage or rent, your utilities bill, all your taxes etc. Then if applicable monthly tax breaks and or subsidies. (which vary per country.)

Which leaves an amount of money which you can spend, but we’re not there yet. You need too eat. If you haven’t got an exact number on your groceries make an estimate. Deduct that and you have your free spending money for that month. Well most sensible thing you can do is make a fixed reserve and deposit in a savings account. Anyway now you know more or less what comes in and goes out each month. Easy enough right ? Your monthly budget is alive !

With what you have left , you can start doing stuff, spending it , or saving it, or reducing debt. It doesn’t matter really. You now now a figure which you can safely allocate or spend for this month. Start saving for future calamity’s is smart, replacing broken washing machines, unexpected car repairs and so on. You name it, it will happen and an nest egg will help you overcome such things.

Looking up all your monthly costs will take some time when doing it for the first time. Most don’t really changes a lot during the year and once you have 1 month mapped out, the rest will be less work. For inspirational purposes I added an example, a very basic spreadsheet as a start, click here [download id=”1429″] . Most months after the first initial set up it will take about 5 minutes making a new one for the coming month. Maybe 10, but 5 is an amount people tend to want too spend on not so fun stuff, so just stick with 5.

But why ? Well stress which comes directly from financial issues is one of the most recurring causes of stress. A nagging feeling not knowing if you come up short or have enough money in reserve or when having have debt is a large amount of stress people experience on a daily basis. Im my experience starting out with a budget will make things a lot clearer and is a good starting point in solving financial problems one might have. Your feelings get to be facts and facts make solutions possible. You can now start improving your financial situation.

November 2018 – Dividend

Its the end of November and time for another albeit short dividend report. Let’s see, as usual November is a slow month in the dividend department. This year even more so as I sold ONEOK this year which paid dividend in November, which leaves Apple as the sole dividend paying position in my portfolio. So a 13% drop in dividend income compared to last year. Next month the last dividend update and a final report on 2018.

The very short list :

DateStockCurrencyAmount
15-11-2018AppleEUR9,69
TotalEUR9,69

Simple steps towards financial stability, pay your bills per year

Well, a new simple step towards more financial stability, It’s only a bit harder getting started. It needs some money upfront. Let me explain. Most insurance, utility, communal taxes and so on we pay per month, but as with all businesses people like to get their money upfront. And usually they give out a discount because of that. First figure out which ones gives discounts.

Discounts vary , generally between 1 and 2 percent of the total amount. It isn’t that much, but as with all little savings, they add up quickly. As long as interest rates on savings accounts are as low as they currently are , this pays off.

All it takes is a start. So most of us have a bit of a nest egg somewhere, so you can start by picking one that you can take out of your savings without making too big of a dent and paying it at once. Then you save the amount for next year every month. In the meantime you can try and save up some more and start paying an extra bill per year the next year. As long as the interest is below the discount this pays off.

It might take a year or two but once you get the ball rolling the savings can add up. And as with all savings you can use them paying off debt and or invest the money.

Simple steps towards financial stability, paying off the mortgage.

A new series, aimed at achieving financial stability with rather simple steps. The first is aimed at one of the larger monthly costs for most people, putting a roof over your head. A lot of people at some point buy a house and get a mortgage. A long road of monthly payments lies ahead, there is however a easy way in getting the mortgage paid off a little faster, or a lot faster.

It only takes a periodic extra payment and persistence. Most mortgage lenders allow an extra amount of money being paid off per calendar year , or unlimited in some cases. Let’s look at an example, we start out without any extra payments.

Let’s take a few easy numbers, say I buy a house of 200000 , and get a mortgage for the same amount , 30 years until the mortgage ends and an interest rate of 3%, fixed at 30 years. There are variations with fixed interest running for 1, 7, 10, 20 years. But I keep it simple. So with these metrics the monthly payments will be around:

Mortgage 200000
Interest 3%
Monthly interest500
Monthly repayment555,55
Total monthly1055,55

So this is the example for the first year, depending on the type of mortgage the numbers can vary a bit, but it’s the about the principle, not so much the exact calculations of the numbers.

So if you pay an extra 100 dollar a month, each month in the first year this will lead to the following :

Your outstanding debt will be 100 less , divided by the remaining months left it will lead to a slightly lower monthly repayment. Combined with the lesser amount in interest payment you will save a small sum, around 0,52 cents for the first month.

As you can see , because of the monthly payments the mortgage costs gets recalculated each month, leading to a slightly larger decrease in the amount of interest you pay. Now a little trick, the amount you save in the first month you add up too the extra payment in the next month, so instead of 100 you will pay off 100,52 , then the recalculation will be a bit more and you will add it up again for the next month. And so on. Creating a snowball effect on the monthly payments while not having to shell out extra money. This is the power of compounding , even if it’s debt we are talking about.

So a set of very simple steps will decrease your mortgage debt while not increasing your monthly payments too much, and at the same time more stable in the finance department. It’s just a matter of getting started and hanging on.

Optionality

Optionality , one word we don’t come across a lot. At least not in Dutch, more so in the English speaking world. Nonetheless a very interesting concept. When searching for the right way in accessing risk I discovered the work of Nasim Taleb, who has written a lot about risk and fragility in our modern society. In his book antifragility, he explains how fragility in systems work and teaches a lot about risk assessment. At least it was an eye opener for me.

Risk is often misjudged or risks are overlooked. This happens in all sorts of environments, from surgery right up when you sign for your mortgage. My search was mainly focused on finance risks. As it turns out , having options helps a lot and is very important.

It all comes together in how we asses risk , when you have more options, you have more protection against risk. But what does optionality means? And how do you apply this in everyday life?

Optionality is the possibility in making choices without the obligation too choose. Abstract yes, or maybe should I say. Let’s talk about it some more in terms of my favorite topic. Finance. If you have money left at the end of the month , you have options , let’s say you can buy a book , pay off a debt or whatever tickles you. I am not debating what the smart move is here, but options you have. This is not exactly what is meant by optionality, hang on we are getting there.

When you come up short every month, there are no options. You can only borrow beg or steal. All of which are bad options , basically no options. The amount of pressure in finding a solution will most likely work counter productive. Or you can’t see any valid solutions any more let alone think about alternatives.

When you are free to do what you want , or more or less anyway, this is were the real power of optionality comes in play. Imagine that in any given job, as long as it pays minimum wage, you’ll still be able to cover all monthly costs. It will liberate you from a very big pressure in life, the need too making X amount of money for years on end.

Now that stress is out of the way, your job is not one you will have too keep at all cost. Loosing it isn’t life threatening anymore and it opens up your vast brainpower thinking about other options in life. You can change jobs , try out a new position in your company without the fear of failure.

In any case things start moving again, not driven by that sole risk of loosing a job and therefore an X amount of money. Money is no longer the only risk you need too manage. When you have high (financial) stresses it clogs up your brains and devotes a lot of brain power in finding solutions when that sole risk pops up. It also leads your brain in making a lot of wrong short term decisions which will be wrong in hindsight. It most likely make the risks you are trying to avoid bigger instead of smaller. If that’s all out of the way decisions tend too be more balanced, better thought out and make for far better choices over the long term. Some say it unlocks long term thinking.

It leaves space for creative thinking, thinking up new projects , planning all sorts of cool stuff and actually finding time and energy in trying some of those projects. In other words you think of new options. And the projects you do , fail or succes make you think again and come up with even more cool options. The power of the multiplying options if you like.

Lessening financial stress is a very good starting point in search of a life with less stress and more opportunities. Minimizing the necessary monthly cash flow will give a sense of ease and space for you too work on ideas and projects which are buried in the freezer and really get hands on with them. Inevitably this (financial) risk reduction will bring you optionality.

October 2018 – Dividend

October 2018 is almost over , time flies and so it’s time for another dividend update. A new increase, comparing with October 2017 due too the expansion of the portfolio. The exchange rate impact is something I am used to by now and the small increases in dividend payout minimize the inconvenience in the result. It’s a figure too low for me to consider hedging the currency issue.

Percentage wise the increase is pretty large, 67%. At some point as the portfolio increases this will level out more and produce a more normal percentage. For now it looks fun. With another 2 months to go this year I’m curious we’re we end up. For now the numbers :

DateStockCurrencyAmount
24-10-2018Cisco systemsEUR8,03
25-10-2018General ElectricEUR2,30
15-10-2018W.P. Carey EUR8,91
10-10-2018Vanguard FTSE All-world UCITS ETFEUR39,63
1-10-2018Coca ColaEUR5,09
1-10-2018Vanguard Dividend Appreciation ETFEUR1,30
TotalEUR65,26

Book – Weapons of Math destruction

In every way we live our lives today we are targeted by algorithms, and we are mostly totally oblivious of the consequences. Which is well very dangerous. In the book weapons of Math destruction , mathematician Cathy O’Neil explores the world of modeling , algorithms and their effects on us humans.

The algorithms are programmed by humans and therefore contain much of their biasses , ideas and expectations. The algorithms when they scale up , and most do, generate hugh feedback loops which amount to self fulfilling prophecies. This goes from education, finance , policing our streets and disturbing our democracy.

In a very clear way Cathy O’Neil explains the different effects of these models and their feedback loops, fueled by entire industries who ‘help’ beat the models in turn reinforcing their outcomes. The worst part ? Their is no appeal , no legislation , no regulation and no transparency. Scary ? Yes? Simply a must read for anyone.

Why buying a home is not an investment, but still a good idea

With the housing market being at pre crisis levels again and people desperately trying too buy a house the euphoria is back again. The sort of euphoria were people count there paper profits as actual profits and fantasize what they can buy with it.

A strange phenomena which returns every time housing price rise, so I have been thinking a bit about and the only logical conclusion for me is, stop looking at the house you live in as an investment. But it’s still a good idea to own your home.

There are only 2 options when it comes too getting a roof over your head, renting or buying. Basically renting is paying for the use of the house and the owner taking the risks, which in return you will pay a premium for the owner too cover his expenses, inflation and profit. Too keep up with inflation rents are raised with a certain percentage every year. Fortunately in most country’s rents are regulated. And in higher segments during crisis you can get nice discounts. But for the most part rents tend too rise.

When buying a property , you carry all the costs , maintenance insurance taxes and so on. You can simply buy a house with cash savings but most people will have to take out a mortgage on the property. This is a different risk landscape, the bank will loan you the money and will ask a certain interest percentage for risk covering and profit. But the house is yours, and here is where the fun starts.

At a certain point in time when you buy the house, a large part of your living expenses is set for the duration of the mortgage , mostly 10, 20 or 30 years. So your monthly payments are the same. When renting you will see a raise every year.

The monthly mortgage payments consists of interest and a part of the initial loan the principal (the part of the loan you pay back to the bank and thus lowering the outstanding debt). Now the fun bit, most banks permit paying back extra on the principal , so your monthly expenses will go down, you will pay less interest on the remaining loan and the amount you are obligated in paying back each month also drops. What you can do with this extra money is food for another post.

You have a certain control on what the roof over your head will costs you each month, the most significant is the absence of the yearly rise in rent. But buy paying back extra you will own your house faster and save paying future interest. This can add up quickly.

So why is owning your house not an investment ? Well simply because it doesn’t yield any income. No interest will come your way, like when you have a savings account with a bank, nor will there be dividend payments like when you own shares in a dividend paying company.

The only way in cashing in is selling the house. You should not consider yourself richer because of the paper profit which at some point wil be there. Your house is simply an expense which your are obligated inlaying each month , but you need too live somewhere.

Why it’s still a good idea? First you own the house and you can control your monthly expenses more easily.
Second, buy simply having the option repaying the mortgage faster you can get your costs down. Instead of the sure rise in living costs you have when renting. And historically housing always been following inflation (minus the bust and bubbles in the meantime) So after you are done living in your house and downsize start renting after retirement there wil always be a sum of money left over after the sale. You simply gain an asset by doing something you need , having a roof over your head.

Why not rent ? Renting can be cheaper in some cases, when you need the excess money after retirement and downsize. When you move a lot for work. But most people live in a house for years, making buying almost always cheaper than renting. It’s also the easiest way to control a large part of your monthly expense.

But just remember a house you live in is first and foremost a roof over your head and not an fictional ETM machine which you can use for your daily groceries. So no investment but still a good idea.

Portfolio news – Summer 2018

Finally after all the buying of ETF’s too balance the portfolio out in a better way, it’s now time too add a few handpicked stocks to the portfolio. Buying ETF’s isn’t anything really interesting too talk about. Hence not many portfolio updates over the last few months.

Now that everything is balanced out a bit more, I have added a few stocks to the portfolio. Europe is pretty much still lagging behind because of all the political themes , Brexit, Italian budget concerns and trade wars. Timing for me is like magic and I am not a licensed magician. So I just went down my what to buy when I have the money list and came up with a few good ones. The new positions are :

BMW

BMW is in a tight corner, diesel gate , trade wars, currency problems and the omission of a decent electric vehicle have made a considerable dent in the image of not only BMW but the whole German car industry. There is not a lot of music in the stocks , and there hasn’t been for some time.

On the other hand, every car the ensemble , sell with a pretty decent profit. Enough too get their heads around building a decent electric vehicle too get into competition with the established electric car makers. It’s a bit of a waiting game lately with all the political and economical turmoil at the moment. Surely in the short term they will hurt a bit. But with the brand still having a status symbol status and quality cars they have all the potential for being just that in the future. And in the meantime they will still be paying out dividends.

Reasons enough for me too buy BMW, just not the car itself.

Starbucks

Wish list item for a while now. Now with the funds available I finally added Starbucks to my portfolio.
Since 2010 they are paying a steady stream of dividend and their goal is growing the dividend stream.

Starbuck’s stock price has been under pressure for most of the year and is now finally seeing some upward potential. So buying in the summer has been a unexpected bonus. The position of the company is still very solid with nice growth numbers in Europe , The US part is falling behind a bit , but that’s a work in progress in getting things sorted again.

All in all one I had my eye on for some time and finally made an entry in the portfolio.

Nike

Last but not least, Nike. A lot of hustle and bustle around Kaepernick and sales figures. After having their main rival Adidas in the portfolio which had reached a very nice profit margin where the dividend percentage didn’t make sense anymore I simple sold it and banked the profit. Now it’s time to own Nike. The other power in sports and leisure branding.

And same as Adidas , not for any numbers and other boring date. Just looked at the brand and seeing lots of people still growing up with Nike as a brand people wanting too own stuff from, especially sneakers , but also other stuff. Everybody has that one pair of sneakers they wanted and saved up for. And not being able getting the other pair. In later life , they still buy these models. And every generation has them. Same with Adidas.

They still have a large following , limited edition runs, collabs and a lot of sub cultures have in some way shape or form incorporated Nike in their style.

They keep up marketing wise and make bold statements. Which still resonate with young and older crowds. And I don’t see that changing anytime soon.