Tag: lifestyle

Options – What’s are options ?

Options, a very nifty and useful financial instrument which can be traded on all sorts of exchanges. In this new series I will start from the beginning and will explain what options are and how we can use them in our portfolio’s. Ok let’s start.

An options is the right too buy or sell a product for a set period of time for a predetermined price. Most people’s only experience with an option is when they take out an option on a house. For a fixed period the buyer has the right to buy the house at the agreed upon price without the seller having the option selling the house to someone else. Most of the time this is done for the buyer figuring out finances and seeing if the house is structurally sound. These conditions enable the buyer that if one of these non binding conditions apply they don’t have too buy the house. (This is the way it’s done in the Netherlands , maybe this will differ per country. But you get the idea, I hope)

With this option comes a risk, if there is no non binding reason for the buyer getting out of the deal, they either have to buy the house or pay a 10% fine, which means 10% off the agreed upon price. So there is also an upside for the seller. He/she knows they either sell the house or get 10% in such a case.

The risk for the seller is this, in the meantime they can loose possible other buyers and when the markets are hot they might miss out on the rising prices in the period the option on their house is valid. And if the deal falls trough they can start all over again finding new buyers.

An option is comprised of a set of attributes, an end date , an underlying product (stock, house, commodities , etc) an a fixed price at which the underlying product can be bought or sold.

Trading options can be done on all sorts of (financial) markets, but most well known are stock options. Which will be the main focus of this series.

You have 2 types of options. One gives the right too buy stocks , named call options. The reverse, a right too sell stocks is called a put option. Let’s look at them with a simple example.

Call option :

An option is being noted (mostly) as, AH C20.00 21DEC2018, which is Ahold Delhaize, Call 20 Euro , 21 December 2018.

The first part is the name of the underlying stock, in this case Ahold Delhaize. Followed by the price at which the option can be exercised, 20 Euro’s in this instance. Last but not least the end date of the option. The date on which the option expires, and becomes worthless.

Also worth mentioning, 1 option will give you the rights on 100 stocks , so in this case you can buy 100 stocks Ahold at a price of 20 euro’s each, before the option expires on 21 December of 2018. A total of 2000 Euros worth of risk. Options generally end on the third Friday of each month.

Put Option :

Essentially the same principle, just another right, one too sell instead of buying. It’s presented in the same way, AH P20.00 21DEC2018, Ahold Delhaize Put, 20 Euro, 21 December 2018. This is again a right for 100 stocks, Ahold in this case again, a sell right for 20 Euro each.

Well so far we have learnt a Call gives a buy right, a put a sell right. But when there are buyers there must be sellers. Together they make the market. Buying an option will cost you a premium. As expressed in the option price you see when looking up an option on the exchange.

You can look at the option price as an insurance premium, you will pay every month on your car insurance. The insurance company is the seller of the option (insuring your car against the risk of damaging it). And you are the buyer. You cover unexpected damages and events and in return you pay a monthly fee (the premium). The insurance company now takes the risk that if you have an accident they will have to pay for the damages. You are insured against these risks for a certain amount of time (mostly a year).

The premium or price of an option is changing a lot faster then the premium of your car insurance. But the same principle applies. A seller makes a risk analysis with selling the option and gives a price too the buyer. The option buyer insures the fact he can buy or sell the underlying stocks at the price of 20 Euros, until the expiration date. The seller has too buy or sell them too the buyer at this price.

The option price is determined by the price of the underlying stock, the distance too the strike price of the option (the 20 Euro’s) and the time left in the option, i.e the number of days , hours minutes until the option becomes worthless. Other factors are interest rates, dividend payments and overall sentiment in the market.

Where do people use these options , or insurances for ? Well, that will be the next item in the series. For now just let the characteristics of options sink in.

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

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.

Experiments , traveling by plane

Last month I did another experiment if you like, on how far I can go travel wise. It had been time for a good old fashioned holiday for some time. After successful small trips and lessons learned it was decided , flying with destination Tenerife, Canary Islands.

The B&B and the small town we stayed in were both familiar from previous visits , so the adjustment period should be minimal. Normally this was just the start of the trip or the end right after or before flying in or out. Now we would stay the week and see how things unfold.

The weeks before I was very nervous and anxious about the whole enterprise. What if I was forced too stay in bed the whole week. Things just didn’t sit well with me. Went anyway.

We booked a hotel near the Airport to cut the traveling in little bites so I could rest a bit more. Early morning flight so we took a cab to the airport, dropped our luggage and took our time. After boarding we had the furthest possible runway , the first few hours went pretty well, in the last hour my mind couldn’t keep up and I could not free myself out of the noise, movement and pressure.

Luckily we landed and the sun was shining, took a taxi towards the B&B and our room was almost ready. My initial expectation was that this was a crash moment. Luckily my afternoon sleeping breaks covered the fatigue and mental problems pretty well. So we enjoyed the village , food and sun and relaxed.

The first half of the week the afternoon naps proved too be sufficient enough , added we didn’t do much besides them anyway and all went well, the second half of the week sleeping wasn’t enough anymore. So the crash moment came later then expected.

In the second half we enjoyed a public transport trip to the capital of Tenerife and with a final meal at our favorite restaurant it was time for the flight home.

It was very good to be out of the country and having a ‘real’ holiday. Simply being abroad just adds to the overall holiday feeling.

It was a mixed bag in terms of my condition, before the trip I anticipated the first half to be a problem, which turned out to be the second half, and compared too out previous holiday’s we didn’t do a lot. It’s an adjustment I need to get my head around. One week of not doing much and just enjoying food sun and relaxation I can manage but after that I would like too see more of the place I am visiting.

After coming home I had troubles I finding my rhythm again , being tired and not committing enough time to rest. All in all a lot of lessons learned and perhaps I’ll have another go in the future. Never stop trying, and exploring , as they say at a famous outdoor brand.