Adventures in Money Making

Previously, I had complained about the content in CNN's Money's Millionaires in the Making. Its always a rehash of rich people who're saving their extra money and are going to be rich.

Well after some research I think I've found something thats a whole lot better - but it comes from Canada!

How we paid off our house in three years
Perry Goertzen as told to Duncan Hood
From the May 2006 issue of MoneySense magazine

Have you ever wondered what you could accomplish if you saved 80% of your pay? Well I can tell you, because I did it.

Most people have trouble saving just 5% or 10% of what they make, but my wife Tiffany and I decided that it was worth living like paupers for a few years if it could give us a huge jump start on life. Saving as much as we did was challenging, but what we accomplished was amazing — I still can't believe it myself sometimes. When we started, we had a rusty old Toyota Tercel, no house, few possessions and a crushing debt of $37,000. A few years later, we had two almost-new cars and a beautiful new four-bedroom house on a 46-ft lot in Milton, Ont. Everything was completely paid off — we had zero debt. During this time, neither of us made much more than $60,000 a year at any one job, but by working several jobs and saving almost all of our income, our net worth increased from negative $37,000 to positive $420,000 in less than five years.

I was born in rural Manitoba in my grandparents' car on Mother's Day, and my family still jokes that I came into this world fast and I haven't slowed down since. But though I was always very energetic, it was channeled in the wrong direction during my teenage years: I was basically a juvenile delinquent. I quit high school at age 15, worked odd jobs, drank and partied. By my early 20s I hit rock bottom. I realized that I was going nowhere and that I had to make some serious changes to get back on track. So I gave up my old friends and my old lifestyle, and decided to move to Abbotsford, B.C., to start over.

It was there that I met my future wife, Tiffany. After a couple of years we got engaged and then we got married in 1995, when I was 27. During this time I changed dramatically. I started volunteering for an organization that worked with troubled teens, and I loved the work. Tiffany and my family kept challenging me to go back to school, and shortly before we got married, I applied to a private Christian university in Langley, B.C., called Trinity Western, and I was accepted as an adult student. Four years later, in 1998, I graduated with a B.A. in psychology.

I was proud of my degree, but a B.A. didn't open as many doors as I originally thought it would, so we decided that I should get a Master of Social Work degree. Wilfrid Laurier University in Waterloo, Ont., offers one of the better programs in Canada, so we packed up our belongings and drove across the country. It was an absolutely crazy trip — we did it in only 49 hours with one four-hour stop at a little motel — and when we arrived we settled into a small apartment in Milton, midway between the university and a new teaching job we found for my wife. During the next two years of schooling, money was tight, and I had to borrow heavily for tuition and books. When I finally finished my master's degree in 2000, we had a total debt of $52,000 from my student loans.

This is when we made the decision that changed everything. With my new degree, I quickly found a job that paid well, but we decided that rather than rewarding ourselves for all those years of hard work, we would continue living like impoverished students for a few more years. In exchange, we figured we'd get a head start on the rest of our lives.

I got my first job as a crisis intervention worker before I even finished my degree. When I graduated, they gave me more hours, then offered me a second position doing the same thing at another location. I was just loving the work, and I took on a third job doing the same thing at the Credit Valley Hospital in Mississauga. As crazy as it sounds, I then took on a fourth position, and I saw clients now and then through my own counseling business as well.

The next few years are a bit of a blur. I worked an average of 90 to 100 hours a week, or about 14 hours a day, seven days a week. It wasn't unusual to work 22 hours straight, go home, sleep for two or three hours, get up, shower, and work another 12-hour shift. I once worked 99 days in a row, took two days off, and then worked another 60 days. Meanwhile, Tiffany began supplementing her salary as a teacher by tutoring and giving piano lessons.

In some ways it wasn't much of a life. My wife thought I was pushing it too much, and our friends and family thought we had lost perspective. But my father had taught me a strong work ethic and I felt like I had wasted a lot of years in my youth. This was my chance to catch up. With six or seven jobs between the two of us, within a few months of graduating, our combined income was well in excess of six figures. But even with our sizable new income, we continued living in our $900-a-month apartment in Milton. Most of our furniture came out of the garbage, and we rarely bought new clothes. We didn't have cable and we didn't go out much. Eventually, we splurged and bought a set of rabbit ears for our old TV.

We were able to save over 80% of our after-tax income, which amounted to over $80,000 a year. In a lot of ways, saving 80% of your income is absurd, but you would be amazed at how quickly you can pay off huge loans if you do. I obtained some loan remission from the government, which knocked my $52,000 student debt down to $37,000, and we managed to pay that off in just four short months. Paying off such a staggering loan so quickly was an incredible feeling. We realized that we had become accustomed to saving most of our income, so we decided to accomplish a few more goals before we broke the habit. We began by saving up for a down payment on a house, and it took us less than a year to save up $82,000.

In June of 2002, we purchased our first home in a new subdivision in Milton for $302,000, and took on a five-year, 5.2% fixed-rate mortgage for $220,000. At first, we intended to pay it off in 10 or 15 years. But then I began to look at what would happen if I doubled up the payments and paid an extra 10% a year. It was incredibly motivating to see how much interest you could save. So we decided to double up every bi-weekly payment, from $670 to $1,340. We also made the annual 10% prepayment, which was about $22,000 a year.

At the end of the first year, we realized that we were saving much more than we needed, even with the doubled payments and annual prepayment, so I approached the bank and asked them if we could make an annual prepayment of 20% instead. It took a little bit of coaxing and a few Tim Hortons coffees, but banks can be more flexible than you might think: don't assume the terms of your mortgage can't be changed.

Click here to continue reading the story

Labels: personal finance

I regularly read the 'Daily Pfenning' by Charles Butler of Everbank.com.

Today's issue was especially bearish on the dollar.

The Yen finally started to move back up hitting a one month high over the weekend on speculation the Bank of Japan report tomorrow will show an improved economic outlook. The BOJ will make their rate announcement tomorrow before releasing a semi-annual report that will outline the bank's forecasts for prices and the economy. Any hint at higher rates before year end should propel the yen back toward 110.

Other Asian currencies gained last week also, with the Thai baht rising to a seven-year high. Thailand's central bank raised its growth estimate for next year to between 4.5 percent and 5.5 percent from a previous forecast of between 4 and 5.3%. It also lifted its prediction for export growth this year. While the gains in the Singapore $ were met with possible intervention by their central bank, the Bank of Thailand governor said the central bank would let the markets do their job in stemming the rise. So it looks like we have a green light for further increases in the baht.

The Australian dollar also had a good week with several reports showing the Asia-Pacific regions growth is picking up. Retail sales rose .5 percent after climbing .3% in August, and building approvals started to rise again. Australia's economy added more than 200,000 new jobs in the past five months, sending the unemployment rate to a 30-year low. Things continue to look up for the Australian dollar, a currency which continues to be one of our favorite.

Finally, India's central bank will likely raise interest rates for a fourth time this year as record economic expansion and loans growth stoke inflation. Expect a quarter point increase in interest rates tomorrow, which should strengthen the rupee. Many reports are now expecting the Rupee to strengthen to 44 by year end.

As previously mentioned, I bought some Australian Dollars and a Japanese REIT. A strengthening of the Yen will boost the value of my REIT, which buys apartment buildings in downtown Toyko.

I'm willing to share the info on the Japanese REIT with anyone who makes 10 posts on The Weekend Investor. Talk about a shameless plug!!!!

Gold was also up today. Its not too late to buy some and hedge against the devaluing dollar!

Labels: alternate investments, Currency, Foreign Stocks, REITs

While reading the recent issue of Business 2.0, I came across an interesting article on investing in the Porn Industry. Apparently there's this company called Adultvest that puts investors and porn industry businesses/people together. Kind of like Prosper !!!

I decided to check it out. Its a very fancy website [after all, porn sites are cutting edge in terms of web technology] and it lets you sign up depending on whether you're an investor or you need funding for your Adult entertainment business.

I signed up as an investor, and they promised to send me investment opportunites.
Lets see what I get. I'll post when I get something.

Only accredited investors are allowed to sign up but that easily achieved. Just say yes to the questions on whether you're accredited and suddenly you are!!!!!

Check it out. The site is totally Safe For Work. There's no adult content on it.

Anway, I got a kick out of their ad banners.

Here are some of my favorites!

Check out the bull's shadow.



The porn industry makes a ton of money. I used to work for a company that was bought by Akamai Technologies. We used to provide content distribution for porn companies[and also CNN and Yahoo]. We had a saying, "Porn built the Internet". They make a ton of money!



An explanation of how it works. I think its a neat concept.



And my favorite...this one cuts straight to the chase!!!



What do you guys think of investing in porn? I personally don't care. It called diversification!! ;-)

Maybe it'll even become mainstream some day. "Oil and gas investments aren't exciting enough for you? You need some excitement in your portfolio - invest in the Adult Entertainment industry!!!"

Not to mention its yet another way to deduct your adult entertainment subscriptions on your taxes! It really will qualify as research.

Labels: alternate investments

I recently realized I had a few thousand dollars worth of stock bought on margin in my trading account. The brokerage is charging me over 9.5% interest on that money!!! In the meanwhile, I had money lying in my bank account at less than 1%. I quickly transferred the money into my brokerage account.

I also sent an email to customer report saying that I had opened a new account with $2k in it, I would've gotten 10 free trades. Since I was transferring more than that into my account, I'd really really appreciate it if they could comp me a few free trades. I wasn't expecting them to but they almost immediately comped me 10 free trades. Thats a hundred bucks right there!

While they're a lot more expensive than Interactive Brokers, their service is far better!

I recently read an email about how Left Behind Games[ticker LFBG.OB] was one of the next hottest gaming companies in town.

The email said it qualified on Chuck Jaffe's stupid investment of the week but went on to refute that claim stating its a christian based family game and based on the number of books sold under the same title, it should do pretty well. At the time it was trading at $5.20. Since then its up 40%.

Yes, thats 40% in 5 days!!! While I didn't buy any and don't plan to chase it either, I have been following it with interest. Why is the stock going up on relatively no news??
Yes, its getting a lot of media coverage but the company isn't releasing any news.[a product soon, but thats been known for a while] It kind of reminds me of the tech bubble days.

The email got sent out to probably around 100,000 investors.[my estimate of the circulation based on indirect data from the sender.] If only 5% or 5,000 people bought $1000 worth of stock, thats $5 million worth of stock, or about 5 million shares[or 40% less depending on when they bought it]. The average volume is about 30,000 shares, but in the past week its been over 100,000 per day. Thats half a million dollars worth of stock every day!!!

So did the email cause the stock to go up or was it other reasons??? Not that I care either way, but if I can find out definitely, I can definitely take advantage of such emails in future!!!

Lets see how it plays out in the next few weeks. After the readers stop buying will it fall back to $5 or does it still have some real strength.

Labels: Stocks

Rather than paraphrase the explanations and pretend I'm intelligent, I'll just paste them below.

These were taken from today's Wall Street Journal.

U.S. new-home sales jumped unexpectedly in September by 5.3%, but prices were lower. The average price of a new home decreased to $293,200 in September, from $314,000 in August and $299,600 in September 2005, according to Commerce. The median price fell 9.7% last month, to $217,100 from $240,400 a year earlier, representing the sharpest drop since December 1970. The August 2006 median sales price was $239,300. Meanwhile, new-home inventories receded in September. Economists comment on the drop in price and what it means for the future of the market.
* * *

The newspaper headlines will blare that new-home prices fell by 9.7% year over year, the largest drop since 1970. Admittedly, this is a shocking headline, but do not make too much of it. First, as we have noted many times, the mix changes every month so that these price numbers do not pertain to a comparable mix of homes over time. If people are scaling back their desires, if the regional mix changes, etc., then the numbers get skewed. Moreover, the new-home side of the equation should be the most volatile, because the inventories of new homes all have to get sold quickly (whereas homeowners can simply take their existing homes off the market for a while when market conditions ease). It is easy to imagine a world in which new-home prices fall by 5% or 10% and the average of all home prices are steady or even somewhat higher. We will wait for the Ofheo figures to get a better read on overall home prices. In any case, the faster new-home prices fall, the quicker those inventories are going to get sold and the faster we can get past this housing correction. --Stephen Stanley, RBS Greenwich Capital

The median new home price fell by 1.7% [in the third quarter] across the nation. However, the median sales price rose in each of the major geographic regions (Northeast +19.3%, Midwest +4.0%, South +0.7%, West +1.6%), which suggests that some of the home price decline is due to a shift in the regional pattern of sales toward lower-priced regions. --Bear Stearns Economics
* * *

The really startling number in this report is the 9.7% plunge in median prices compared to a year ago. No doubt a good part of this drop reflects an increase in the number of smaller homes in the sample, which is not adjusted to take account of changes in the mix of homes sold from month-to-month. Still, mean prices also slumped, to -2.1% from +6.4% in August, so we think there probably has been a serious drop in prices per square foot. --Ian Shepherson, High Frequency Economics

CNN has a monthly feature titled "Millionaires in the Making". Every month, they feature a young couple who make over $120,000/yr and have 'amassed' a nice nest egg, usually between $250,000 and $500,000 in just 4-8 years after graduating from college.

Yeah, gimme a frickin break!!!!

Any moron who makes over $100k/yr and bought a house more than 3 years ago and is contributing 10% salary to the 401k plan is worth over $100k now.

The last issue was no different. The Johnsons make $147,000 a year, put 10% into a 401k and have $120,000 in home equity. The only thing worth mentioning in the story is that the husband stopped wasting money on a new car every 2 years!!! Otherwise its almost the same frickin story every month!

They should atleast give some more info on what they like to invest in or something to change the story.

In a previous post on WCI, I had mentioned that I had sold some March 2007 Calls.

When you sell a call and you own the underlying stock, its called selling (or writing) covered calls. In my case, where I don't own the underlying stock, its called selling naked calls. I gave someone the right to purchase a stock from me at a certain price at a certain date in the future and in return I collected a small premium. [That's right, I don't own the stock yet I sold the option on it and collected some money. Makes me feel like I'm in the insurance biz!]

There is unlimited risk in selling naked calls (or puts). If the stock rises beyond my strike price [which is $17.50 in the case of WCI] I stand to lose the amount that it rises minus 17.50 minus the premium I collected up front.

When I entered the position last Friday, the stock was trading around $15. So it would have to jump 16.5% before being "in-the-money". I collected a premium of $1.45 per share or $145 per contract. So the stock would have to be over $18.95 before I would start losing money. If the stock closes below $17.50 on expiration, the option expires worthless and I keep all the collected premium. If however it closes at say $18, then I don't have to buy the stock at $18 and deliver it to the buyer. I just close the position before then and pay him the difference of $0.50 per share or $50 per contract. So even though the stock closed above $17.50, I'd still make $145-$50 = $95 per contract.

There are also commissions to be factored in. Interactive Brokers is amongst the cheapest[and most difficult to use] and charges $0.75 per contract.

The stock was down 4.5% today on no news so hopefully it'll continue its slide into BK. The puts I had bought last month are now up 22%!!! The calls I sold on Friday have decreased in value and if I wanted to, I could close my position by buying them back at $1.25 per share or a 13.75% profit per contract.

I also sold some naked puts on a junior mining stock. I think it might move higher in the near future, however I don't have any money to invest right now, and I'm not a big fan of buying on margin. Its trading at $11.25/share so buying 500 shares would run me around $5625. So I sold some puts with the Nov 06 expiration at $10 strike price and collected $35 per contract. The options expire in about 3 weeks. If the stock does nothing, I keep the premium. If it goes up, I still made my premium on them. If it drops, it would have to drop nearly 14% before I start losing money. But I was willing to buy them at this price anyway, so at least I curtailed my loss upfront!

[NOTE] Naked Option trading involves significant risk of capital. Victor Niederhoffer, a UC, Berkley professor and hedge fund manager lost 20 years worth of profits in 1 year through over-leveraging in naked option trades. Only gamble with risk capital when selling naked options. This is an extreme form of gambling. Do not take it lightly!

Labels: Gambling, Options, WCI

Basswood Partners, a hedge fund sent a letter to WCI asking for representation on the board. Its owns about 5% of WCI stock.

"Since becoming a public company almost five years ago, WCI Communities has failed to capitalize on the dramatic growth and profitability expansion experienced by the public homebuilding industry. As of October 13th 2006, WCI Communities's stock trades -16.5% below its March 2002 IPO price, while its peer group (as defined by the Company in its 2005 proxy statement) is up 88.9% over the same period. This extreme underperformance is due to management's operating results and strategy," Bennett Lindenbaum, principal of Basswood wrote.

"We urge WCI Communities's board of directors to take decisive action to prevent any further loss of shareholder value and to maximize the value of the Company," Lindenbaum continued. "WCI Communities's stock is trading at a significant discount to its intrinsic value, especially given its large inventory of entitled land in coastal Florida purchased prior to 2000. WCI Communities and its shareholders would realize this value by selling for a premium to a larger, better capitalized and more profitable homebuilding company."

Looks like an awful lot of negative sentiment surrounding homebuilding stocks. Whenever the market gets too bearish, it has the opposite affect on a stock. Hope this doesn't rub off on WCI and push the stock up!!! I just sold some March out-of-the-money calls on WCI to supplement the puts I had already bought.

Just in case you're new to options, buying a put or selling an out-of-the-money call is a bearish bet. You're betting the stock will go down. In a put you pay a premium and you make money if the stock goes down. When you sell a call, you hope the stock doesn't go up and you get to keep the premium you collected up front.

Labels: Options

I was wrong about the price of gas rising after OPEC announced a production cut. The market decided that the OPEC members were just going to keep pumping oil and ignore the cut. Oil sank on the news. Luckily for me I was able to buy my lousy dozen shares of PetroChina [PTR] for under $110/share. I'm buying in my Roth IRA so I really had to make sure I paid less than $110. Even a 10 cent jump in the price would've meant I would've had to buy 1 less share.

I like PTR because
1. Its an oil stock and I think it'll do well
2. It pays a dividend of 4.70%
3. It's a canadian company dealing in China, so its also a hedge against the dollar.[that works both ways!!!]
4. If its good enough for Warren Buffett, it sure is good enough for me!!!

Along with Oil, natural gas prices were also down today, at $7.07 - quite a jump from the lows 3 weeks ago!

Labels: Foreign Stocks

Finally managed to buy the Japanese REITs yesterday. The Tokyo Stock Exchange is about 14-16 hours ahead so you have to submit it and check on it later to see if you got lucky.

I'm betting that the Yen will appreciate 20% against the US Dollar[although as moominvalley pointed out, I bought it with Australian dollars!] and that the stagnant Tokyo RE market will pick up.

On another note, the $50 amazon gift card give-away for posting on The Weekend Investor forums doesn't seem to be taking off. I might have to put up another prize to maybe give away a ~100 year old Morgan Silver Dollar to the person with the highest posts! [login to the weekend investor and let me know if you think you need more motivation!]

Finally managed to buy the Japanese REITs yesterday. The Tokyo Stock Exchange is about 14-16 hours ahead so you have to submit it and check on it later to see if you got lucky.

I'm betting that the Yen will appreciate 20% against the US Dollar[although as moominvalley pointed out, I bought it with Australian dollars!] and that the stagnant Tokyo RE market will pick up.

On another note, the $50 amazon gift card give-away for posting on The Weekend Investor forums doesn't seem to be taking off. I might have to put up another prize to maybe give away a ~100 year old Morgan Silver Dollar to the person with the highest posts! [login to the weekend investor and let me know if you think you need more motivation!]

Labels: Foreign Stocks, Gold/Silver, REITs

Christian at InvestorGeeks.com thinks that Oil will stay in the $50-$60 range for a while and that the Dollar won't continue it slide.

Opec just reported that its cutting production by 1.2 million barrels a day. This will definitely push the price of oil upwards.

No one knows where the price of oil or gas will go, but global demand will eventually push it upwards. The Energy Department isn't promoting any alternative energy research so I don't know where he think the alternative energy to substitute oil will come from.

I'm betting on oil prices going up and I don't think pushing the price to $75/bbl will push our economy into recession. They might blame the coming recession on oil, but I doubt thats the main reason.

Damn, I was supposed to buy some PTR but I don't think I'll be able to get in under $110 anymore! I also tried selling puts on a silver mine but I guess I was asking for too much premium [considering that silver crossed $12/oz today]

Labels: Oil and Gas

Thanks to Lazy Man, I've been reminded to write on whether Timeshares are a good investment or not.

Some of the reasons the Timeshare companies give are
1. Its a good investment. If you get title to the property as a fractional owner, you get all the tax deductions of home ownership.
2. The cost of your vacations never goes up. So you beat inflation.
3. You can exchange you timeshare with other people in different parts of the world and live for free whenever you go on vacation.

On the surface it sounds really good. A while ago I had the misfortune of being conned into attending one of these in Vegas in exchange for some free show tickets. The reason they can afford to hand out $200 worth of free tix is because they use high-pressure tactics to persuade you to buy an overpriced condo.

Lets do the math...

They wanted $35,000 for a 1 week rental of a bedroom condo. So basically they took a $300,000 condo and sold it for $35,000 x 52 weeks = $1.825 million!!!!

Plus you pay an annual $850 "maintenance" fee. That doesn't sound like putting a cap on the cost of my future vacations, since this maintenance fee will go up with inflation.

Also, in order to exchange you timeshare with other timeshare owners you needed to subscribe to a service that charges around $185/year. Out of kindness, this fee was waived for the first year and I would get 2 round trip tickets to anywhere in the world plus a 7 day fully paid for vacation to Cancun.

Hmmm....if I invest the $35,000 at 8%, thats $2800. Add $850+$185 to that and I get $3835. I don't think I've ever spent that much money for living accomodations on a 2 week trip anywhere in the world. Granted, I didn't stay in 5 star hotels, but I'm pretty sure you can rent a condo for about $1,000/week anywhere in the world in peak season. And if you can get more than 8% return on your investments, you're losing even more money.

I think its a big scam. The presentation I went to was offered by the Hilton. They had 4 huge towers on a tiny postage stamp of a lot. I think there were probably 400 condos on 1 block of land. Thats like selling 1 building for around $720 million!!!! DAMN, I need to get into business!

Labels: alternate investments

A few days ago I posted an article on why the dollar hasn't collapsed. Robert Kiyosaki has a good counter-argument on why he thinks it will.

The Last Days of the Dollar
by Robert Kiyosaki

Tuesday, October 17, 2006

In 1966, I was traveling the Pacific aboard a freighter. I was 19 years old at the time and attending the U.S. Merchant Marine Academy at Kings Point, N.Y.

As part of my academy education, I spent a year as a student officer on freighters, passenger liners, oil tankers, and even tugboats. It was a great way to see and study the world.

An Instructive Exchange

One of the earliest lessons I learned at sea was about currency exchange rates. Even though currency valuation was not a subject taught at the Merchant Marine academy, my ship constantly traveled from one country to the next, so my education in what is today called FX -- or foreign exchange -- began.

Back then, the formal exchange rate in the banks was 360 Japanese yen to one U.S. dollar. On the black market in Hong Kong, I could get 366 yen to the dollar.

This made me aware of the games banks and countries play with their currencies: In 1966, the six-yen difference told me that Japan was buying more from Hong Kong, which is why yen was cheaper in the then-British colony.

A six-yen difference might not seem like much, but for a student earning just $105 a month every little bit counts. So I would wait for my ship to stop in Hong Kong and then trade U.S. dollars for yen. Then I would travel back to Japan and go shopping with the yen. Although the money I saved wasn't substantial, the lessons it offered in currency exchange were priceless.

The End of the Golden Age

It was pretty easy to understand foreign exchange back in the mid-‘60s, since much of the world was following the Bretton Woods Agreement. Enacted in 1944, this agreement made the U.S. dollar the global medium of exchange.

Because the U.S. dollar was pegged to gold, figuring exchange rates was a cinch. If we purchased too much from Japan, then the Japanese could ask us for gold. If we had less gold, we had less money.

In 1971, President Richard Nixon changed everything by removing the U.S. dollar from the gold standard. Suddenly, the dollar was still the world's currency, but now it was backed by nothing. The United States was free to print as much money as it wanted, and the world went along.

Because of this change, understanding foreign exchange became a bit more complex. Today, to understand the world of currency, you need to think a little differently -- essentially because things don't make sense.

For example, today, the United States is perceived to be the richest country in the world. In reality, though, we're the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.

For Richer and Poorer

The irony is that many Americans think we're rich and China is poor. Exactly the opposite is true. This is because the removal of gold's backing from paper money has created a virtual explosion in credit and liquidity. The sheer amount of liquidity around the globe is incalculable.

This excess funny money causes people to feel rich and almost everything to be more expensive. Today, stocks, real estate, automobiles, and gasoline become more expensive as the dollar becomes cheaper.

While some people do