Darwin's Finance » Best Of

25 Best Personal Finance, Investing & Career Posts of 2009

Darwin — Tue, 12 Jan 2010 13:00:27 +0000

After sharing the best posts from around the blogosphere in Personal Finance and Investing with yesterday’s Carnival of Personal Finance I realized I didn’t do a look-back at 2009 from Darwin’s Finance. In this list you’ll find thousands of dollars in money saving tips, career boosters, investing tricks and tax deduction ideas you may have never heard of. I’ve intentionally selected articles that are still relevant and useful, even if they’re a few months old.

Personal Finance

How to Get a 0% Down Loan Even in 2010 – Amazingly, in the midst of the most substantial housing collapse we’ve seen in our generation, there are still 0% down loans being offered to millions of Americans under a USDA rural loan program. The thing is, there’s nothing rural about many communities that qualify – which means you! Find out more about the program if you’re thinking of buying.

The ONLY way to get your FICO Credit Score for free – Aside from learning how to do this, most people don’t fully grasp the implications their credit score has on their everyday life – from loan rates to employer screening trouble, the FICO credit score is far-reaching and a critical component of a successful personal financial plan.

Net Present Value – It’s not just for MBAs – This article shows how I used NPV to choose between multiple mortgage choices and how you should always perform a simple NPV analysis when confronted with tough financial choices.

What Statistics Really Mean – When someone throws out a fancy statistic, they often either don’t know what they’re talking about or they’re intentionally manipulating you into believing in their agenda. Understand the tips, tricks and implications of statistics and how to apply these concepts to everyday life.

Don’t be a Slave to Energy Prices – Be indifferent. By hedging your energy prices. This article outlines several simple and low cost methods to hedge against rising oil, electric and natural gas prices. Large corporations do this to avoid catastrophic impact to their bottom line, why don’t you?

What Would Happen if the US Dollar Were Replaced? Of late, there has been serious talk of foreign governments getting out of the US Dollar as their reserve currency. Can you blame them? Such an unraveling could have serious implications for all Americans.

Family Money – Fairness and Considerations in Gifting and Estate Planning – This uncomfortable topic is one many families choose to ignore. Do so at your peril. Consider your transparency and equity in how you treat your family members. You’d want to be treated the same way, right?

9 Money Habits to Live by – Check out these basic methods to ensure financial success in your family’s budget. Do you relate to these habits?

Living Paycheck to Paycheck is Costing You Thousands – The hidden costs of not having excess cash on hand every month. Life Happens – and when it does, a hand to mouth financial lifestyle can put you further in the hole.

Puppy Love? Think Twice, That May be a $100,000 Dog Over its Life – I was personally blown away when I actually calculated what our dog Jack will eventually cost us over his lifetime. My wife and I went to college for less than Jack’s expenses over his lifetime. Please make sure you understand and calculate your costs before buying that cute puppy on an impulse buy.

How FSA Plan Account Contributions Can Save You Thousands – If you have a Flex Spending Account at your disposal and you’re not using it, you’re leaving thousands of dollars on the table. See all eligible expenses and how to take advantage of this tax deduction.

Start Investing Today: An Amazing Comparison of 25 vs 35 Year Old Starters – A picture can tell a thousand words. Well, this has words and pictures showing an amazing difference in outcomes if you start investing at 25 vs. 35…even if the 25 year old STOPS investing completely when they hit 35!

Investing

How Stock Options Work – They’re not as complex and costly as you may think. And they’re NOT just for speculation. Options can provide income and hedging in a conservative portfolio as well if used right.

How Covered Call Options Work – Understand how to generate income and smooth out market returns by selling covered calls.

3 Low-Cost Option Strategies for Stock Market Speculation – Using stock options to speculate on a biotech approval or pending court case that could wallop a small tech stock doesn’t have to be expensive. See how these low-cost methods allow you to profit over 1000% on event-driven trading days for under $100 invested.

Investment Club Aspirations? Consider This…While an investment club was a positive experience for me overall, there were significant cost, tax, governance and performance issues that we didn’t consider at the outset. Make sure you understand all the barriers before you embark on a partnership.

Leveraged ETFs are Evil – If you don’t understand daily rebalancing. Please read before you EVER consider buying a 2x or 3X return ETF.

Advanta 11% Yield Notes Sound Great, Right? Find out what to watch for in an investment that seems too good to be true – and what happens to investors that ignored the warning signs.

Structured Notes – How they Work and Why You Might Want One – What if you could attain guaranteed ranges of returns that are MUCH higher than the crappy savings and CD rates out there today? You can, with Structured Notes.

Wall Street Violated Nature’s Laws – A fun look back and how Wall Street violated the most basic laws of physics in their behavior and reaction to the financial crisis.

2009 Returns for Every Country – See what you missed by investing only in the US (or by avoiding stocks altogether in 2009). Some countries returned over 100% on the year, with a financial crisis along the way.

Every ETF on Earth (Over 800 Listed) – If you can think of it, there’s probably an ETF for it. Scan this list of 800 strong to see if there’s an ETF constructed for your strategy.

Want More on ETFs? Visit ETFBase (my latest project dedicated solely to ETFs)

Career

Project Managers – Tips and Tricks – If you’re a current or prospective project manager, check out these tips and practices I follow as a Project Manager.

What’s the Best College Degree for Today’s Economy? It’s no longer Business. See what the up and coming careers are in demand in this new economy.

Your Employee Stock Options Don’t Have to be Worthless – By executing option strategies against your underlying collateral, you can guarantee yourself a hefty return regardless of what happens to your company’s share price.

Make sure to stay tuned via email updates or RSS so you don’t miss similarly themed articles in 2010 and beyond!

Family Money – Fairness vs. Favoritism in Gifting, Wills and More

Darwin — Mon, 26 Oct 2009 03:01:24 +0000

Family Money is a sensitive topic to cover, but I think it’s critically important from both an estate planning standpoint and from the standpoint of personal relationships with family members. Primarily, when it comes to things like wills, gifting, and financial assistance to family members (usually children) there are a complex array of considerations that many parents either don’t take into account – or ignore. Primarily, the topic comes down to Fairness vs. Favoritism. Let me delve into a couple hypothetical, yet real life examples.

Estate Planning – The Will

The Doctor - A couple in their 60s is looking to update their will now that their children are grown and starting to have children of their own. They have two children. Their First son is a relatively affluent doctor whose wife has a decent income as well. Not only do they pull in a six-figure income, but they have also made wise money moves throughout their marriage. The doctor and his wife have built a sizable net worth through real estate investments and relatively frugal living given their income. They’re viewed as “well-off”.

The Drifter – Enter the second son. He didn’t go to college and never had much in the way of professional ambition. He has drifted around from various music gigs and bartender jobs to seasonal employment while collecting unemployment in the off-season. He pretty much spends what he makes, or more each year. He has no assets in any retirement accounts and often portrays himself as “the victim” to family and friends. He is generally viewed as “poor” and some in the family feel sorry for him, especially when comparing his prospects to his brother’s family.

The Will – The parents have a sizable estate when considering their life savings and real estate. Assuming medical bills later in life don’t eat into their nest egg, they’ll be leaving somewhere in the range of $1.5 Million to their heirs. When considering their sons’ financial situations, they figure that the doctor is in no need of financial assistance and will be just fine no matter what happens. When considering the drifter, they have constant guilt over whether they could have done more to get him on the right track – whether they could have been more involved in his schooling, taken a more active role in his music career, or just loved him enough to give him the self-esteem to be more successful in life.

They decide that the right thing to do is to leave a token $100,000 to the doctor in their will and the remainder – well over $1 Million to the drifter. They feel confident in their decision that they’re doing the right thing by both their sons. They don’t discuss their financial affairs as they’re still in good health and money matters of this nature were never discussed as a routine topic in the family. They don’t consider what this eventuality may do to the relationship between the brothers; they’re pretty much thinking about what they think is “fair”.

Question – Is this fairness? Or is it favoritism?

Gifting

Another fairly affluent couple has two daughters. Each of the daughters had a similar upbringing and pursued similar career paths – they’re both school teachers. Given the current tax laws in their state and the size of their estate, the affluent couple has been gifting to their daughters for several years now. They don’t discuss the gifts openly and usually send a check and card in the mail for each New Year and the unwritten rule is to not publicize or discuss the situation with the others. The sisters don’t talk much now anyway and it would be awkward to do so, so the topic never comes up between the two of them.

Daughter #1 – She married into a relatively healthy financial relationship; her husband’s an attorney and together, they pull in decent money. Their children are into school now, so they’re both working. They live a reasonable lifestyle and have made sound financial decisions, including investing the majority of the gifting money they receive each year. They’ve each been getting $2,500 check every year now for 10 years.

Daughter #2 - She started off as a teacher, but now she’s home with her 4 children, 2 of which are in school. She’s had some tough luck with relationships and is recently divorced – for the second time. Neither of the husbands had adequate income to provide meaningful child support (and alimony is out of the question). She’s now primarily living off meager child support payments when they do come, unemployment and gifting from her parents. The parents are keenly aware of her difficulties and they’ve been gifting her and each of her children $12,000 per year, and in prior years, the maximum amount allowed under tax law. She uses the gifts to the children to help pay for living expenses. In addition, the grandparents pretty much pay for all the clothing and entertainment for the kids and give a lot of cash gifts at holidays outside the purview of the IRS.

Over the years, Daughter #2 and her children have been gifted in excess of $200,000. Daughter #1 and her husband have been gifted approximately $50,000.

Question – Is this fairness? Or is it favoritism?

Tragic Health Expenses

Finally, consider the couple that has two children. The older son is in normal health and in his thirties and they have never gifted him, paid for college or provided any sort of financial assistance outside the expected child-rearing expenses. The younger son is in his twenties now. He has been afflicted with various autoimmune disorders since childhood and has needed virtual constant hospitalizations and treatment. He can’t really take care of himself and between his medical treatments and help with constant caretaking, the parents have pretty much exhausted their retirement savings and expend the majority of their current cashflow on maintaining a dignified life for him since what is provided by government assistance isn’t adequate. The older brother is well aware of the situation, and has lived his entire life watching his brother suffer. He wouldn’t trade his health for anything – including his parents’ money.

I’m not going to ask the question. It’s no longer a question of “Fairness” when it’s life and death and the recipient had no role in their predicament.

As you can see, it’s not always simple. It’s easy to judge the motives and actions of others depending on your vantage point. However, in the first two situations, there will clearly be some animosity when the other sibling finds out just how lopsided their parents’ treatment was. Parents reading this have to ask themselves “Is that the legacy I want to leave? Children jealous and fighting?”.

I’m not writing this post because I have a personal gripe about fairness or favoritism, as my family’s routine affairs and estate planning (including ours to our children) have always been set up with a keen focus on fairness – an even split no matter what. However, I see it routinely with friends and acquaintances and it’s evident that while many families are confronted with difficult circumstances, decisions are often not applied consistently or in a transparent manner.

What Are Your Thoughts and Similar Examples You’ve Experienced or Heard Of?

9 Money Habits To Live By

Darwin — Thu, 15 Oct 2009 02:33:01 +0000

Bad habits are tough to break. Fortunately, due to my upbringing, our family’s circumstances, discipline and good luck, I was able to enact some good money habits early on that have set our family up for success now, with contingency built in for unplanned circumstances. I do believe that there’s a very strong correlation between what kind of financial environment someone grows up in that translates into how they handle their finances later in life. There are exceptions of course, but often times, a frugal person had frugal parents and a free-spending, keep up with the Joneses-type that is living above their means often grew up in a similar setting. That’s not to say that people don’t exercise free will and have the potential to create their own destiny, but just like many other behaviors ranging from how you treat others, to your political beliefs, to your religious beliefs, etc., the apples often don’t fall far from the tree. That being said, I’ve carried on some of the successful money habits I learned from my parents early on, as well as some that I’ve discovered on my own.

#1 Credit Cards - Never. Ever. Ever. Ever – pay a dime in interest payments to a credit card company. This is one of the most fundamental pieces of advice you’ll hear over and over. I can’t stress the importance of this rule more though. In a nutshell, if you find yourself in credit card debt, there are a few key points to ponder when introspectively assessing how you go there. First, you relied on credit to fund an expenditure that you could not afford. It’s that plain and simple. Emergencies do occur – that’s what emergency funds are for. There are zero interest teaser rates (money for free, right?) – well, that comes to an end too, and chances are if the zero interest teaser enticed you, by the time you should have paid off that loan, you’ve been similarly enticed by other credit traps. Moving on though, when paying interest on a credit card, you’re paying exorbitant interest rates. You’re basically subsidizing every person that does pay their bills on time that the company loses money on. You’re paying for the cash-back rewards I rely on by paying my mortgage off on time each month. You’re paying the salaries of their employees. You’re paying for high margin profits that flow to their bottom line. You’re paying a rate that is currently 10 times more than what you can earn in a CD account right now. These are rudimentary facts you’ve probably heard in one fashion or another, but it’s worth repeating. You’ll never establish good savings habits, good investment habits – good life habits, if you get in over your head in credit card debt.

#2 Investing - Start investing early on with meaningful contributions to a retirement account. As demonstrated in this example of why young people should start investing today, when comparing a 25 year old vs 35 year old starter, the difference is night and day due to compound returns – just that 10 year difference in start date makes all the difference in the world at the retirement finish line. While many people that are 65 now look back and say, “I wish I started putting away more when I was younger”, you probably won’t hear many 65 year-olds say “I wish I leased that BMW instead of buying a used Honda…I wish I was a tech early adopter and paid top price for the newest gadgets instead of waiting a year…I wish I always had the newest fall fashion from Banana Republic instead of wearing Gap and Old Navy”, etc. With regard to your investment accounts, pay yourself first. Set it and forget it. If you’re a young employee and you are not contributing to a 401K plan, you really need to step back and consider what you can do differently in your monthly budget. Surely, you can muster up at least 5% of that salary to at least optimize a company match or realize the beauty of tax-deferred compound growth. Life is not just about instant gratification and having fun. It’s also about discipline, planning and saving for a rainy day. Think about some minor adjustments you can make on the expenditure side or ways you can earn some extra money on the side to allow you to set aside a little extra each month in your 401K or equivalent retirement plan.

#3 Emergency Planning - Aside from establishing an emergency fund (many recommend 6 months salary. Frankly, I just don’t think that’s achievable for many people early on, but at least a few months’ savings in liquid assets is prudent), you must also consider your will, estate plan and near term tactical plan for your spouse and loved ones. Here’s an example. If you died tomorrow, would your spouse have access to your liquid funds? Are your accounts held jointly? Does he/she know your online passwords and where you have assets if you do the financial planning? What I did was establish a password protected spreadsheet and stored all our assets, websites, passwords, total net worth, etc., so that if I died tomorrow, she would immediately have one less thing to worry about and say, “OK, so through the employer, there’s going to be a life insurance payment of xxx thousand, through supplemental insurance, yyy thousand, this much in the savings account, 401K, IRA, kids 529s” and so on. She’ll know that there are enough liquid assets to sustain the current family expenses for several months, there’s enough set aside for a good chunk of college for the kids, etc. I don’t want my wife to have to spend months with an overpriced attorney trying to sort out our finances when it was easy to organize up front.

#4 Cash - While we choose to use a cash back credit card for the majority of our purchases (not in violation of rule #1 since we’ve never paid a dime of interest or late fee to a card company) for various reasons (it’s also very easy to track where every dollar gets spent and plan how to reduce spending in certain categories in subsequent months; I’ve found tracking cash expenditures to be overly burdensome), it’s also important to have ready access to cash at all times. I don’t carry wads of cash around with me, but I always have enough to cover an emergency where a credit card isn’t going to cut it, and I also carry that “hidden twenty” that I have busted out on occasion. Having some cash on hand can save you from some embarrassing situations. I’ve gone to pick up food before only to find that the place doesn’t accept credit cards. So, what do I tell them if I showed up with just a credit card? The alternative is often a conveniently placed ATM in their establishment with a hefty fee. So, for the convenience of not having any cash, you’re likely incurring hefty ATM fees each year. I can’t recall ever paying an ATM fee. I don’t even know what they are these days, frankly. But I don’t want to pay for an unnecessary service. I also keep cash in the house. There are multiple occasions where my wife hits me with “Oh, we oh so-and-so $50 for that gift we split for the shower” or we have to pay a repair guy or I want to buy something at a garage sale down the street. Having no cash is just another sign of being stretched too thin. If you can’t afford to always have a buffer of at least a few hundred bucks between your wallet and your home hiding spot, you’ve gotta question whether you’re living on the edge. Emergencies do happen.

#5 – Bill Paying Practices - Paying bills is not very rewarding. It’s pretty dull, it’s seeing money go out instead of come in, it’s supplanting time that I’d rather be doing something else. But, I do it in an efficient manner that minimizes the pain and reduces the opportunity for errors, which can be costly. I pay the bills twice per month via efficient batch processing. I had our credit card bills set to be due at the same time each month early in the month. Our mortgage is due mid-month. Since I get paid at the end of the month, it’s like clockwork. I go through and perform batch processing and bang out the majority of our bills right after the paycheck comes in each month. I then loop back about two weeks later and hit any stragglers that just came in, any checks I have to write for the kids’ school stuff or whatever, and I also spend some time sending some money into different investment accounts if applicable that month. Some people procrastinate and wait until the last minute – or worse, they’re late on bills because they didn’t establish a routine. Missing a credit card payment can be terribly costly when considering late fees, interest, and a ding to your credit score. Once, an insurance check was routed wrong and they went and flat out canceled my insurance immediately due to a single payment. While it only took a phone call to straighten it out, it was still a hassle wasting time on the phone and unnecessarily caused me undue stress. By establishing good payment practices early on, you’ll save yourself money and anxiety.

#6 – Don’t Squander Windfalls – While life is full of unexpected expenses and emergencies, occasionally, you’re going to come in to some money that either wasn’t planned or was planned, but comes in a lump sum sporadically. An example of a planned lump sum may be your annual bonus or a sizable tax refund. An example of an unplanned windfall may be an inheritance or settlement from an auto accident for instance. The thing is, while you may have an adequate plan in place for how to deal with an unexpected outflow of cash due to an emergency, do you have a plan for what to do for sizable inflows? Unfortunately, for many, the first instinct is to spend it. It’s good to think about what you would do with large sums of money that come in during these rare occurrences. Perhaps your immediate reaction is to put it into a savings or money market account. Perhaps if you’re carrying high interest credit card debt, it makes sense to pay that down. A good approach may be to split it up into a few buckets – perhaps save a little, put some aside for your emergency fund, pay some debt, invest a little, and perhaps use a little for fun. Everything in moderation. But at least have a concept in mind now about what you’d do in this situation rather than reacting impulsively when the time comes. Employing strategy over instant gratification is the key. This article from one of my favorite bloggers may give you some additional ideas on what to do with $1,000.

#7 DIY - There are probably many things you’re paying for now that you could be doing yourself and saving money. This really becomes an exercise in personal priorities and balance. For instance, I pay for dry-cleaning because I hate to iron and my wife laughs in my face when I recommend she take this on. To be honest though, my job is quite virtual and I get away with wearing the same pants a few times per week and I wear short-sleeve button downs 3/4 of the year. So, all in all, the dry-cleaning bill for long sleeve business attire is relatively low – but this is something we could save money on if we had to. I mow my own lawn. For some, taking an hour or two every week or so isn’t worth saving the $40-$60 you might be saving. Things that don’t tend to make DIY sense to me include changing your own oil and other repairs that are reasonably priced and require a fair amount of time or expertise. The point of this one though, is to really just go back and assess what the various services are that you’re paying for and ask yourself whether you really need to pay for these.

#8 Eliminate Money Leaks – Surely, there are some recurring expenses you’re incurring that are unnecessary. I have them and as I type this, I’m thinking through how I’m going to go about plugging these holes. Some of my recurring expenses include a gym membership, a newspaper delivery, my daily lunch bill, coffee, etc. While I’ve taken action to greatly reduce my outlays by saving money on coffee and I’ve completely eliminated the ridiculous water bottle ritual, I’m continuing to use the gym routinely so it’s worth it. The newspaper is debatable. While we do use the weekly circulars for coupons, I’m considering switching to an online coupon-printing expectation and doing away with the paper since I can pretty much get all the same content and more online for free. There are a few others that don’t come to mind just yet – but I’m sure you’re thinking of yours already. Do you need to pay these fees every month? Are there ways to modify or eliminate these expenditures? If allowed to go unchecked for years, these money drains equate to a substantial loss of savings/investing opportunities. It’s worth revisiting this concept annually at least.

#9 Your Car Does not Define You - This is a classic that all young people should prescribe to (and not forget as they age). I did and it has paid dividends for years. As I stated in my take on the new normal, there is no correlation between actual income and the type of car you drive. As much as people tend to think there is, as they grow older and wiser, they learn that often times, very wealthy, practical people drive Hondas and very impulsive, indebted people lease BMWs. To gawking twenty-somethings, the BMW may scream “Rich!”. To me, it is met with indifference. If people simply stopped trying to live up to what they believe to be social expectations around the type of car they drive, they could easily save thousands of dollars per year. It doesn’t mean you have to drive a piece of junk, but something reasonable. Out of college, I drove my uncle’s rusting Honda with over 100,000 miles on it while my friends leased and bought $40K+ cars. I was the first to buy my own house – during my first year of employment. That move turned out to be the best investment I ever made since it turned into a six-figure profit when I sold and had enough for a 20% down payment on a larger home as our family grew – plus some extra investment dollars. If I had been shelling out thousands per year on a hot car instead, it never would have happened. How, we drive newer cars, but again – practical cars – and I negotiated hard to save thousands on a new car purchase.

It takes time to break social norms and expectations but people quickly stop judging and become indifferent to your frugal moves as long as you don’t go overboard and don’t actually become “cheap” to the point that it impacts your relationship. Skimping on reciprocating or your fair share of the dinner bill is cheap. Living with your means and making prudent financial decisions can be frugal. Big difference. I can’t guarantee that these steps will solve everyone’s problems, but they’ve been highly effective for our family and I hope to impart the same behaviors to our children in an ever-increasing materialistic society.

What are some of your Favorite Money Habits?

Gold Hype? You’re Being Taken for a Ride

Darwin — Thu, 08 Oct 2009 02:33:09 +0000

There’s been much fanfare made of gold breaking an all-time high in US Dollar terms, even though the dollar has declined precipitously against virtually every foreign currency (so it’s not really appreciating that much in terms of other global currencies), but the trend is your friend and if you’re a momentum trader or fear inflation and/or a collapsing greenback, the gold play is on. However, note that gold has only just barely breached the highs last seen during the Lehman collapse. Meanwhile, silver and platinum (metals with actual real-world utility) are skyrocketing. Since very few people reading this are interested in material possession of any of these metals and aren’t avid futures traders interested in rolling contracts and such, metals ETFs are the next best way to play the momentum in these metals. However, let’s also consider what’s really going in in gold, and then take a look at these other precious metals.

Some Perspective

I never cease to be amazed by how shameless the media is in hyping fear, a trend, a fad or the demise of some once great personality or entity. I was listening to CNBC the other day and Becky Quick was gushing about the HUGE move in gold, how it was rocketing up during the current trading session. Gold was up less than 2% on the day! Going off on a harangue about spikes and momentum on a 1.8% move? It’s ridiculous. But, no doubt, many people were glued to their sets (or Satellite radios) waiting to hear why gold was “spiking” and what kind of ruinous disaster this portends for America. This is no different than the oil bubble last year or real estate prior to that. A trend drives the smart institutional money in first, then the hype hits main street, then the retail investors get in, then the smart money gets out, then main street gets slaughtered, then Congress holds hearings and grandstands trying to pretend to care about what happened.

Let’s take a look at the gold ETF GLD (the best proxy for gold price moves since the Trust actually holds real gold) pricing in terms of US Dollars. But, let’s also consider the performance of US equities (S&P500 ETF SPY) during the same time frames, and finally, some foreign currency ETFs since this is as much a weak dollar play as anything else – we’ll pick the Euro (FXE) and the Aussie dollar (FXA) since Australia is the first major economy to have the boldness to increase their interest rate to stave off inflation, citing the end of the economic crisis in their homeland. Finally, we’ll look at the Silver ETF SLV and the Platinum ETN PTM.

I had thought it would be instructive to take a look at the March lows when things looked REAL bad and see what kind of returns you could expect for panicked investors who pulled everything out of stocks and hid in gold, or worse – cash. Equities rallied 55% and note who the worst performer on the list is – Gold! A measly 11% return when virtually any other play would have yielded better results. Not to be accused of “cherry-picking” my timeframe and results, I’ve constructed the following table to take a comparative look over a few common recent timeframes to see if all the Hoopla over gold is warranted.

More Perspective

This table outlines the performance of these various instruments over the prior 1 month, 3 month and 1 year period. Aside from highlighting how GLD performed in contrast to these other instruments, I arbitrarily chose to average (a mean, not a median) the instruments and you’ll note that in no case did Gold outperform the bucket. Gold also didn’t look that hot next to Platinum or Silver – but you hear very little about them in the media.

Gold is Really Just a Weak Dollar Proxy

Take a look at the 3 month column so I can demonstrate my point. While Gold advanced 13%, the Aussie currency rose 13% against the US dollar as well. What this really means is that if you live in Australia, gold is at the same price now as it was 3 months ago.

Gold is not rising! This is the case in virtually every other country except the US.

In the prior 1 year period, gold is actually LOWER than it was a year ago in Australia. It’s not up much in Europe at all! And, if you’re trying to play the commodities/weak dollar/fear factor, instead of buying gold, why not just buy Silver or Platinum which are leveraged to gold as indicated by their historical and recent returns. Finally, if you want a pure play on what’s actually occurring and don’t want to hold a metal that has very little real-world utility, this article lists out several Currency ETFs and ways to play the demise of the US dollar should the trend continue. While the gold bugs have been dilly-dallying in their brittle obsession, many emerging market ETFs are up triple digits 2009 YTD!

While the CNBC pundits will point out that gold just reached an all-time high, in terms of global currencies, it’s nowhere near last year’s high.

There are, of course, leveraged ETFs for some of these precious metals (full list of all 2X, 3X ETFs), but given the value destruction in share price that occurs over time due to daily rebalancing, I don’t recommend these as anything other than a speculative near-term trade. And I use the word “recommend” loosely.

What are your thoughts? Are we being taken for a ride? Are you buying gold?

How Stupidity on Wall Street Violated the Most Basic Laws of Physics

Darwin — Wed, 30 Sep 2009 02:48:31 +0000

As a physical sciences and astrophysics buff, I was struck by the irony in some of man’s greatest and most enigmatic physical laws in contrast to some of the dumbest behavior imaginable by Wall street, politicians and main street for that matter. I couldn’t help but compare some of the most famous physical laws we’ve come to know and love to what we’ve seen transpire in recent years in the investment and banking world. You’ll surely recognize some of these venerable laws and theorems and surely the people rooted in the midst of frenzied wheeling and dealing on Wall Street and in the mortgage industry should have known that what they were doing was unsustainable, but in retrospect, there’s a tinge of irony in these laws in comparison to how things played out:

1 – The Law of Gravity

What comes up must come down

photo credit

Housing Market anyone? For years, the best and brightest minds in the world (physicists and math whizzes from the likes of MIT in fact) developed complex securitization models and derivatives products which quite foolishly assumed that US home prices would continue to appreciate at 6-8% per year when over 100 years of history dictates that home prices appreciate roughly in line with inflation – currently running at 2-3% per year. Already way above the trend due to a secular bull trend with no actual change to fundamentals, these instruments of mass destruction brought the financial industry and the global economy to its knees during a reversion to the mean – during the fall back to earth.

2 – Conservation of Energy

Energy can neither be created nor destroyed

photo credit

Somehow, Wall Street and the frenzied home buying public created value out of nothing. No down-payment loans and a blind eye to income verification turned home prices loose. There was real estate flip speculation whereby someone with literally no income and no assets could purchase a condo in Miami for $400K and flip it for $460K the same week. This went on for years, until the music stopped playing. You can’t continue to extract value (cash-out refis and flips) from an asset in which it doesn’t exist.

3 – The third law of thermodynamics

It is impossible to create a thermodynamic process which is perfectly efficient.

We saw a massive increase in the number of hedge fund, mutual fund and ETF offerings, many of which had complex expense ratios and tracking errors – only to see many of them fail. You can never get a perfect index match without tracking error and fees/commissions and most actively managed mutual funds can’t beat their index – but you can get pretty darn close in low-fee Vanguard mutual funds or various ETFs.

4 – Theory of Relativity

Transformation between a moving object and an observer in another frame of reference

photo credit

Classical relativity involves a transformation between a moving object and an observer in another inertial frame of reference.
To main street, the Wall Street bonuses seemed outrageous, unwarranted, unsustainable and flat-out insulting. To those in the ivory tower, it was get while the gettin’s good and do what everyone else is doing. If any one firm didn’t jump on the mortgage securitization bandwagon, their earnings wouldn’t look as good as their peers, and hence, the house of cards was constructed.

5 – The Grand Unified Theory

This is the holy grail of physics, if you will – trying to reconcile and consolidate all major theories like Einstein’s theory of relativity with the fundamental forces of physics.

photo credit

The Quants - The whizzes on Wall Street thought they had it all figured out – they found the coveted holy grail. They would take on massive leverage, take inordinate risks on securitized debt and then hedge it with credit default swaps. This was thought to be the perfect investment model – high alpha returns with fully hedged risk. With the potential bankruptcy of AIG (which was involved in Hundreds of Billions in credit default swaps), many of the largest investment banks and sovereign wealth funds would have realized tremendous losses – but they were spared by a US taxpayer bailout. How convenient? AIG made good on payments to the likes of Goldman Sachs which is approaching $200 per share again. Meanwhile, our generation is passing on generational debt the likes of which the world has never seen.

Do any Ironic Parallels Come to Mind After Reading?

Corporate Pension Plan Shortfall – The Next Crisis?

Nepotism in the WorkPlace – Are you a Beneficiary? A Facilitator? Or a Casualty?

Darwin — Tue, 22 Sep 2009 13:24:39 +0000

Nepotism creeps up in all manners in everyday life and in the workplace as well. Have you ever been asked to get someone a job? Float their resume around? To lobby for a particular candidate because it’s someone’s brother, cousin, spouse or friend? I have. And it’s always a bit disconcerting to reconcile the different thoughts and emotions that accompany such a request. On one hand, you have someone who’s in need of a job asking you for help. If you were in their spot, you’d probably be doing the same right? Especially in this economy. On the other hand, should “networking” (politically correct) or nepotism (calling it what it is) be a factor in which candidate ultimate lands that spot and which one doesn’t? Does this guy deserve your spot?

I’ve been confronted with this situations a few times and in two prior cases, it didn’t turn out well. And more recently, I don’t know what the outcome is just yet.

Nepotism in the WorkPlace

Nepotism Case #1 - Early in my career, a friend of ours was looking to get into the biopharmaceutical industry. I had been in the industry just a couple years and following a lot of hard work and some luck, I had built what I would consider some “professional capital” and a better job title after some promotions. I was however, confined to a particular niche of the company and didn’t have a lot of contacts in other areas outside of manufacturing.

Our friend asked if I could forward their resume to a business area to see if they could get their foot in the door. I knew this friend pretty well and thought they’d make a good addition to the company and figured “what the heck?”. Inside my head, admittedly, there were also some other thoughts going on in the background. On the positive side, I had thoughts like “they’re a good person, they’re cool, I’d love to see them working here”, “they’d do it for me, right?”. On the negative side, I was thinking, “what if it doesn’t work out?”. Since I had no contacts in the area, I had to go through an old college contact that I hadn’t kept in touch with and ask who the decision-makers were, make contact with a hiring manager, introduce myself and basically sell this friend to just get them to take a look at the resume and line up an interview. I highlighted some positive interactions I’d had and some demonstrated leadership examples and past work experience that I was familiar with. I don’t know if my call had anything to do with it, but I understood that my friend got a call back for an interview.

Well, a few weeks later, I asked how the interview went when we saw our friend next and I was mortified to hear that our friend “missed the interview”. They said something happened with their calendar or cell phone or something and completely missed the interview. I felt like I totally wasted the one shot I probably had at helping someone out with that group and now I looked like a fool for recommending them. Concurrent with this event, our friend got an offer from another company. So, I’m not sure if this was an honest mistake or they just blew off my company once they accepted another job or what, but either way, it left me regretting my decision to help them out. I had expended considerable time, effort, and professional capital in trying to make something happen and it was all for naught.

Nepotism Case #2 – A year or two later, I was approached by a friend’s relative who was looking to get into my field actually. They had an engineering degree, wanted to get into a higher paying industry and seemed intelligent, mature and responsible. I didn’t know them very well, but because they were a relative of a good friend of mine and they genuinely seemed like a good candidate, I figured I’d at least pass their resume on. We’d hung out a few times and I knew them at least well enough to pass on the resume to the right people. This time though, having been somewhat burned the first time, I was resolved to just facilitate getting the resume to the right person, but made no particular endorsements or rave reviews. I inquired a bit into their interests, ability to relocate, etc. and then put the resume into the hands of some hiring managers. I was actually hiring at the time, but didn’t think it would be appropriate to hire them myself, nor was their personality a perfect fit for my particular area (production supervision vs. technical/engineering require a different demeanor/culture often times).

So, this person made it into the candidate pool and they attached my name as a reference. When questioned on whether I could endorse them, etc., I had just replied that I met them a couple times and they seemed qualified, but given my lack of professional/personal history with them, I couldn’t really make an endorsement one way or the other.

Well, when the friend’s relative called one day to check in, they pretty much alluded to the fact that the only reason they wanted to get in was so my company would pay for their PhD, which is somewhat common in Biopharma, but was not offered in their current role. They were basically looking for me to facilitate their taking advantage of my company.

Again, while I had a very minor role in just passing along a resume, I felt partially responsible for another lousy situation involving networking/nepotism or whatever you want to call it. I didn’t act on it and was curious how it panned out. Through whatever means during the interview process, I presume one of the interviewers picked up on the agenda and they opted to not extend an offer. If they did extend an offer, what was I supposed to do, ignore the situation? Or intervene? I was questioning how and why I even involved myself in the situation and was relieved when it ironed itself out through natural means.

After these two cases, I’d pretty much had it with the “hook me up” thing. While anecdotal, in hearing similar stories from other friends, I can only imagine that the aggregate outcome is net negative. For the one case that works out well, where 5 years later, someone looks back and says, “Hey, that college buddy of mine is doing a great job and loves it here after I helped him land an interview”, there are probably many more cases where someone got burned.

Current Situation - This brings me to the current situation. We have an acquaintance who was recently laid off and just now started looking for work again. The other day, they approached me and asked if I’d forward their resume around and speak with the hiring managers visible on the external job board. On one hand, again, with someone with a young child out of work, nice person, responsible, etc…how can you just say, “No, I’m not helping?”. Conversely, I barely know them and I’ve been burned before on this. So, I’ve agreed to pass along the resume to someone I actually do know in the particular field they’re in to review and forward along if they felt appropriate and I also checked around on another upcoming job posting that will go external and I passed that along. But I haven’t contacted hiring managers and the like, as I don’t know them, and I barely know the candidate. If things go their way, great – it’s by natural means through the established system, if not, I was at least honest in my reply that I’d pass it along to some folks I did know who may be looking for someone with similar qualifications – which I did. But given my past experiences and my conflicted feelings over the ethical aspect, I’m not going over the line in trying to give them a significant advantage over other candidates coming in with no such advantages.

Positive outcomes of nepotism and networking – I think there are some clear pros and cons to having current employees recommending or hiring people they know for jobs. On the plus side, you already know something about the person and there’s some “skin in the game”. You’d like to think this person won’t make you look bad and will be appreciative of the opportunity you’ve afforded them in getting in. Perhaps someday, they’ll help you out in a similar situation? Let’s think about the networker themselves – isn’t an aggressive “go-getter” a sign of someone with initiative – someone who’s going to sell your product, advance your agenda, get results? Well, maybe, but that’s the going viewpoint.

Negative outcomes of nepotism and networking – Is it right? Is it ethical? If you have two candidates – one is rather outgoing, charismatic, has tons of friends and family and has 5 people vying for them for a coveted role, do they deserve a leg up on this next guy? Candidate 2 is rather introverted and doesn’t really go out of his way to play politics and popularity. They just work hard and get their hands dirty and figure by doing the right thing, they’ll be afforded the right professional opportunities. All other things being equal, in the real world, Candidate #1 is often going to get the job. But is that right? Some workplaces actually have policies against nepotism and there are nepotism law cases, but the reality i that it is quite pervasive in society today, almost expected.

Perhaps you have your job because of nepotism. Perhaps you were passed over for a job because you didn’t know the right people. Perhaps you don’t even know it.

Disclosure: I landed my first job in industry by chance (and I guess I was qualified and made a good impression) and didn’t know a single person that worked at my company. I found a flyer advertising for Chemical Engineers in a production facility in one of my campus halls senior year and checked it out and it eventually led to a job. In hindsight, that was sheer luck that I happened to come across that obscure flier. If I hadn’t landed a job post-graduation, would I have resorted to asking someone I knew to “hook me up”? I don’t know, probably. Wouldn’t you?

Incidentally, The word nepotism is from the Latin word nepos (meaning “nephew” or “grandchild”). (wikipedia)

What are your thoughts nepotism and networking? Any similar stories?

9 Great Project Management Tools and Tips

Darwin — Mon, 24 Aug 2009 03:33:24 +0000

After moving from several years of line operations and technical roles in the biopharma industry, then to more business oriented roles in outsourcing and supply chain, I learned a few Project Management Tools and Tips along the way. While some of these tips may seem pretty obvious and simple to the tenured project manager, to someone new to the role of leading cross functional teams, there may be something to learn here. As a disclaimer, I don’t do IT or Construction Project Management which seems to be what virtually all the information and training out there is based on. I’m sure some of the same concepts apply though.

Learn to Use MS Project - This one may seem obvious if you’re already using it, but for some people assigned to run a project or a team, they may feel like using Excel or some other tool will be adequate to run the project. MS Project has incredible functionality and for people that don’t have it, you can easily PDF the project file and email it to them for review. It’s important to learn some of the tips and tricks with MS Project so you don’t mess up the file though. For instance, if you have two different people working on a task and add both their names in the Resource column, it will alter the duration since it perceives more resources as being able to complete a task faster. Also, you should never change the start and end date of a task once it’s linked, but change the duration instead. The values are stored in any one of several fields in a database in the background and by altering the end date, you can mess up linked tasks. I recommend taking a training for beginners at a minimum but once you’re versed in MS Project and using it in real time, it’ extremely powerful.

Time Zone Pain – A few of my projects have team members from various continents and in one case, I’m the only one from the US. In order to have the best turnout and most efficient meetings, I set up a grid with the various time zones and what time it was in each zone compared to the US. I then blocked out any hours from 10PM to 6AM for each time zone, which left a couple slots in the morning and evening US time. I ended up selecting a standing meeting time in the early AM US that jives with afternoon and after dinner hours for the other time zones. However, to share the pain with my team members if it’s perceived that the Project Manager has an easy time slot and everyone else has to suffer for routine meetings, when you need to do a one-off meeting or a one on one call, make sure to do the call at an inconvenient time for yourself which falls during your counterpart’s work day. Not only is this a good Project Management behavior, but it’s a good leadership behavior and common courtesy. You’ll garner respect and diminish any resentment that may have been present quickly.

Always Issue Minutes - I always issue an agenda in advance of a meeting and try to get minutes out within a day. Some days, after spending 30 minutes typing up minutes (that reads weird), I question the value of the exercise. However, it’s tough to quantify all the different circumstances where having typed an agenda and/or minutes was helpful. For instance, if there was a complex discussion and decision during a meeting and you type of minutes, if nobody replies with a correction or disagreement, it’s de facto record for the project. If someone comes back 2 months later and says, “I didn’t agree to that” or “I never even knew you were going in that direction, I have nothing to do with the fallout from this”, the minutes are there. I don’t like to think of it as solely a CYA exercise, but it does serve as a valuable way to ensure everyone’s aligned and that any absentee members can voice their opposition to any decisions made. An additional benefit is that I find myself being questioned on a particular topic weeks later and i can just copy and paste a bullet point and email it out instead of trying to recall the specifics and type up a fresh email.

Meeting Agenda Tips - Since I always issue an agenda, it’s important to have some substance and clearly identify who owns a topic, ensure that people are prepared to speak to their topics and that you’ve captured all the different topics you want to cover for a particular meeting. What I find is that throughout the week between meetings, I field various emails and calls related to my project from individuals that warrant team discussion. For fear that I may not adequately capture each one or forget one, I leave a draft agenda for each of my projects open at all times. When a call comes in that I want to add, I just jot a note down in that draft agenda at the top. If there’s an email chain I want to summarize or highlight, I copy/paste that into the top margin. The, the day before the meeting, I have all kinds of notes and reminders of things to add into the agenda. It’s much more efficient and accurate than trying to remember various conversation and find emails in the inbox, especially when running several projects at once.

Cancel Meetings: Respect the Time of Others – There’s nothing more frustrating than sitting through a meeting that you clearly didn’t have to be at because (seemingly) the person that called the meeting felt that their ego would be impacted by canceling the meeting or letting certain extended team members jet after a particular portion of the meeting. If your team is meeting on a frequent basis and there are no new pertinent topics to discuss or decisions to be made, just cancel the meeting already! It’s frustrating to attend a meeting just because it was on the calendar and have the meeting leader just recap things and ask attendees to give updates that could have been done offline or that didn’t warrant discussion.

Best Days for Meetings - When I have a team established, because peoples’ calendars tend to get filled up quickly, I like to schedule recurring meetings immediately and I have the duration extend way past when the project should reasonably end. This locks up schedules, a conference room and whatever other resources you might be competing with and you don’t have to bother extending a series later in Outlook or whatever system you’re using. I try to avoid Mondays and Fridays and schedule virtually all broadly attended group meetings Tues, Wed, Thurs. Here’s why: Holidays, Vacations and Digouts. Most company holidays (at least in the US) fall on either a Monday or a Friday. It’s terribly annoying to have to reschedule a meeting a week before a holiday week (since nobody ever has the time to strategically look ahead at such things months in advance) when calendars are already booked up. Additionally, people tend to be pretty much checked out by Friday and digging out from a weekend or prior vacations/travel from the week before on Monday. For these reasons, I say avoid these days at all cost for a standing meeting.

Running the Meeting – I’m a stickler for time management in meetings. I always try to ensure that we get through the agenda, that we end on time and that each agenda topic is given its due time. It’s incredibly frustrating when some insipid conversation drones on and on because the meeting leader doesn’t want to tell someone to just take the conversation offline. Some people can completely monopolize a meeting because they’re trying to make a point or stroke their ego, at the expense of other important topics and everyone else’s time. So, keep people on track, don’t be afraid to interrupt and recommend resolution offline and finally, take a few minutes at the end of the meeting to recap key topics. Make sure everyone’s aligned on key decisions that were made and also recap assignments. If you list out assignments in the minutes and find that they weren’t done the next week, sometimes members will say, “I didn’t know what that assignment was all about”, or “I thought Johnny was supposed to do that”. Well, if you spend the 2-3 minutes to quickly run through and state who’s supposed to do what and why, there will be no question when it’s time to revisit progress at the next meeting that it was crystal clear who was assigned what.

Always go back to the Timeline – Not only is the timeline what drives the project, but it’s also a more polite and professional way to ensure team members are on track and holding up their end of the bargain without overtly calling them out in front of the whole team. It’s a great motivator. If each week or each month, you know that your workstream is going to be reviewed and you’ll have to highlight where you’re at, you’re going to make sure you get your assignments done and you’re not holding up the project. Getting called out in the absence of a timeline discussion is a bit more obvious and might engender some resentment and embarrassment. Of course, if things just aren’t getting done, you have to get tough, but it’s best to let people self-police and know what’s coming rather than surprise them by putting them on the spot.

Recognize and Reward Performance - It’s good to share positive feedback with both team members and their management. What I actually like to do is just shoot a note or verbally mention my appreciation for a team member’s performance without even letting them know. Sometimes it trickles back down, “Hey, the project lead let me know you’ve been doing a great job” or it gets mentioned at a year end review of something. This shows that it’s not necessarily self-serving and it’s not just lip-service. You took the time to try and positively influence an employee’s performance review by sharing positive feedback. Rather than being talked about like, “I worked my butt off for 6 months on that project and the project lead never even passed it on to my manager”, you get “Hey, if you can get on one of his/her projects, you should. They really make sure to recognize hard work. I was hooked up after the last project I did because he/she went out of their way to make my accomplishments known”. This is important when you’re working in a cross-functional team where the management teams may be in different organizations and employees aren’t really sure if their hard work is being recognized throughout the year.

There are all kinds of workforce management software that make life easier in regards to tracking time on projects, meetings, who was where & when, etc. It can also be a big hand if you need to gather data to justify re-organizing how much time is to be spent on which projects and priorities.

Well, those are just some basic concepts that I’ve found to be useful in running projects. I’m interested in hearing some of your tips and tricks as well as gripes.

photo credit