Month: July 2006

SaneBull

Just found out about an interesting little webapp called SaneBull. Check it out. You can drag the boxes downwards (click on it then use the wheel on your wheel-mouse, it’s a lot easier) seemingly off to infinity and potentially create a massive page of stock news and various things. I don’t think the name “sanebull” was the smartest choice, but whatever.

Update (2006-09-07): They have totally crippled their service. You can no longer have multiple windows open.

I’ll Buy a House When You Stop Asking Me!

There was a little party at our place a while ago. Every time we have a party we get asked at least a few times “when are you going to buy a house?” I never really have a solid answer. There are just so many reasons. From now on my answer will just be “when we have a good reason to.”

One of our friends who seems especially interested on knowing when we will buy a house, just bought a house in Calgary with her boyfriend. We surprised that they bought a house together before they were married (or even engaged) but to each his own. I was told by mutual friends that their reasons for buying a house were 1) because they were tired of and/or hated paying rent (but they were dying to pay interest?) and 2) they bought it as an investment (the other past investment they have made is in a pyramid scheme). Wow, solid reasons there. They just bought the house 3 months ago, emailed everyone about it, and the subject line on the email was “House Owners!!!!” Reason 3): desire to be “home owners.” So they bought it 3 months ago and she was pleased to tell us about how they bought it right before the market “really took off” and that the house had already gone up by $35,000. I just kept my mouth shut, not bothering to mention that the market has been gang-busters for the past several years and the fact that it has gone up in value means nothing unless you realize that value. Not only that but it means absolutely nothing unless you take your gains in real estate and invest it somewhere else, downsize to a smaller place, sell it and rent somewhere, move to a different city, etc… because presumably if your house went up by $35,000 so did all the other houses like yours.

Buying a house under their circumstances as an investment is about the stupidest thing you can do. Think about it, they were paying rent in a 1 or 2 bedroom apartment and are now mortgaging a 3 bedroom, 2 bathroom house with a 2-car garage near the end of what could be described by some (by some I mean many) as a real estate bubble. How much more money are they paying in interest right now compared to how much they paid before in rent? Well I can tell you for a fact that their house was in the $300k range. I have no idea how much of that they mortgaged but their monthly expense could be at least $2000 and their former rental was probably ~$1000. If you do a long-term analysis (I just did a quick one on a spreadsheet) they could do just fine and be no worse off than renting and stashing the extra in the stock market. But could they do just the same at the same risk? Things could turn out very badly too…

This is a blog focused entirely on the real estate bubble as it unfolds in Calgary called the Calgarian Contrarian. He wrote an article at the end of May called “Huge Price Increases and Market Psychology.” He mentions the Calgary Real Estate Board’s website that lists current inventory (see “active listings”) and that

. . . if you want an excellent predictor of timing, continue to follow the inventory situation. . . Right now we are just below 2000 active listings, which is extremely low by historical standards. If you see that number start to climb back to “normal” levels of between 5000-6000 you can expect prices to slow down or even begin to drop slightly. As the number goes much above that level, you should see prices begin to decline. That is the pattern we have seen in many US cities. Once a bubble market exhausts itself, there is a rapid climb in inventory levels, followed by prices beginning to decline.

Interesting. The inventory has climbed to 3,600 since his May article. He has a chart of historical inventories in Calgary here. Something is definitely out of whack there and will undoubtedly swing back the other way.

Investment Performance Software

I am in the process of writing some software that will allow me to input the current market values of my investments every month according to my monthly statement and see the annualized performance over any period I want for any of all of my investments at a time, but it is slow-going. What is the difference between this and Quicken or Microsoft Money? Well first of all, it is free. What is the difference between free programs like Gnucash, etc…? Those programs cannot do this kind of thing in the way I want to just yet. The main difference in usage is that all you need to do is enter information from your monthly statements, such as current market values of your investments and your investment transactions as well. Then various annualized returns can be calculated from that for all your investments, or the aggregation of all your investments over time (for example). It explictly does not rely on daily prices of anything. That is to promote sound conservative investment practice: that daily fluctuations in the market do not matter. If I can get all that to work in a framework that is flexible then I should be able to do a lot more with it too. If anyone things this is interesting or thinks that I am re-inventing the wheel, please tell me.

First Portfolio Update Since Starting at Clearsight

It was quite a while ago, in March of this year, when I completely switched to my advisor at Clearsight and left the self-directed RRSP days at TD Canada Trust behind. I just realized looking back at that article that I never actually gave the final portfolio that my advisor and I decided on. At least I couldn’t find the post. Well here’s what I initially bought back in March (book value from middle of March):

RRSP holding Type Account %
CI
Value Trust		 US Equity 11%
Templeton
International Stock Fund		 Global Equity 26%
Canadian TSX60 index ETF Canadian Large Cap 34%
E&P
Growth Opportunities		 Canadian Small Cap 4%
TD Canadian Bond Fund Canadian Bond 25%

I just visited my advisor last week and he updated me on the performance of all the funds/ETFs and his thoughts on how they had all done. He had printed charts from Morningstar’s website and we mainly just looked at the 3-month performance figures to get an indicator of how they had done since I had bought them. Normally I woould not care about something like that but after not having looked at my portfolio at all since I invested, I was very curious. It turned out that all of the funds lost out to their respective indexes (I think). Here is the picture now (market value as of June 30, 2006):

RRSP holding Type Account %
CI
Value Trust		 US Equity 11%
Templeton
International Stock Fund		 Global Equity 27%
Canadian TSX60 index ETF Canadian Large Cap 34%
E&P
Growth Opportunities		 Canadian Small Cap 4%
TD Canadian Bond Fund Canadian Bond 25%

Ok, so that barely changed. And those numbers no longer add up to 100% due to round-off error. The value of my portfolio has dropped by 2.8%. It could have been a lot worse if it was not for the 25% I have allocated in bonds and the 11% I have in cash (I have left cash out of the picture in the above).

Anyways, I have about $2962 in cash built up from monthly contributions and my wife has $4165 built up. Our advisor though it would be a good idea to put my wife’s cash into more of TD Canadian Bond Fund. It is a little bit strategic on our part but I will never complain about having lots of fixed-income conservative investments in my portfolio. On the other hand, what we are doing might be akin to what I talked about in a previous article called “How Not to Rebalance.” Let me know what you think.

New President’s Choice Interest Plus Savings Account

I just read about this new PC Financial account, the Interest Plus Savings Account. Their interest rate is quite a bit higher than ING’s (my current high-interest savings account provider) at 4% vs. 3.35%. More importantly though, our chequing accounts are at PC already so moving to PC for high-interest savings accounts may mean that transfers between the accounts will be faster, or at the very least it means one less statement per month, one less account, and one less user name/password to worry about.

The one feature that ING has, which I hope PC also has, is the ability to give nicknames to the accounts. Right now we have nicknames like “Christmas,” “Vacation,” “Car,” etc. . . The other thing that is nice about ING is that we have 8 accounts, 4 for me and 4 for my wife and they are linked to each other because we made both our accounts joint. ING direct doesn’t have joint accounts in the normal sense. They have individual accounts, but you can essentially “share” it with another person.

Two Weeks in Cuba

We just got back last Sunday night from our 2 week vacation in Cuba. What an interesting country! Since this is a financial blog, I will give you the financial scoop on Cuba:

  • Cuba has two currencies: the National Peso (MN) and the Covertible Peso (CUC).
  • US Dollars have not been accepted anywhere since November 2004
  • If you exchange US Dollars into any other currency you will pay large surcharges
  • If you ever go to Cuba, take as much cash (CAD or EUR) as you can. Doing a cash advance on a credit will cost an extra 11-12% surcharge as well as a $6 fee for each transaction back hom
  • There are many items and stores that only sell things in national pesos. But these places are meant for Cubans, Cubans that work for low salaries as part of a communist society. Do not listen to the Lonely Planet and try to get deals by paying in pesos nationales (movie theatres, Copelia, street food, etc…) Try to pay a fair amount in CUC, or often paying CUCs on par (while 25 times more expensive) is actually a more reasonable price to pay for a tourist.
  • Cuba is evolving in to a two-tiered society: those who have money (ie. tourist dollars) and those who do not, since Castro allowed Cubans to have bank accounts (initially in US Dollars, now in CUC) and allowed more tourism and allowed for some self-employed occupations (bed & breakfast, paladares, etc…).
  • Cost of travel: In casas particulares, we paid $25/night in Habana including breakfast plus $5 each for dinner. In Vinales and Cienfuegos it was $30/night + $3 each for breakfast + $7 each for dinner and in Trinidad it was $20/night + $3 breakfast and $7 dinner. In other words, it’s pretty cheap there. The most expensive thing is the airfare but at the end of the day for the 2 week vacation it is still cheaper than an all-inclusive resort and the food is FAR better and you can still go to the beach whenever you want.
  • Many menus, especially those as lunch/snack type places list the weight of the food! So you know exactly how bit something is compared to everything else on the menu. Neat eh?

Well that’s all I can think of for now, if I can think of any more interesting facts about Cuba on the financial theme I will add them.

Some Retailers Absorbing 1% GST Cut

Some retailers are increasing prices by 1% rather than dropping their prices to reflect the drop in the GST from 7% to 6% according to this article: “Feds rip GST ‘cash grab’.” Rather, some retailers who include the GST in their prices are keeping their prices the same following the tax cut, such as “vendors who use all-included pricing, such as those with parking meters, candy bar vending machines and taxis.” I don’t see the big deal here. If we take it to the extreme, let’s say I am running a business that sells hybrid cars for $30,000 (I make a profit of $3,000 on each car sold). The government collects 7% GST let’s say. That’s $2100 for GST. So the total cost to the customer is $32,100. Let’s imagine that the government removes GST from hybrid cars as an incentive for customers to buy hybrid cars. So now the cost to the consumer is $30,000. If I want to charge $31,000 (increasing my profit from $3,000 to $4,000) I should be able to do that and there should be nothing stopping me from doing so (assuming capitalism reigns). Flaherty, our Finance Minister called “a decision by the Toronto Parking Authority, which oversees about 50,000 parking spots in the city, to not change fees at its garages and street meters” “outrageous.” I would not be surprised if sales taxes actually have an effect of depressing base prices on goods and services whereas lack of sales taxes can cause prices to go up. Thinking back to problems in profit maximization we solved back in first-year calculus, this only makes sense.