DOW GAINS .0000000000000002%

April 5, 2013

Alright, we took a little decimal license with that one. The actual headline that appeared on Fox Business Network’s After The Bell was “DOW GAINS .02%.” It should have appeared on WGSC, better known to Howard Stern aficionados as “the Who-Gives-A-Sh*t Channel.”

This is all noise, zero signal. Every daily change in the Dow is. Even the historic ones are. Every daily change in just about anything is.

As self-aware humans, we plan. That’s largely a good thing. The act of, say, enrolling in college happens with the understanding that 4 or more years down the road, and decades beyond, it’ll start paying off. Even the simpler act of planting a tree is done with a nod to a future that the planter might never be alive to see. Having kids goes on this list too, of course.

Yet for some reason, when regarding the stock market, we become mayflies. It’s as if we’re thinking, “But if the Dow fell 20 points this morning, how am I going to be able to retire at 7 p.m. and live off my investments from then until midnight?” If you want, you can blame the journalists for this: they have to talk about something, and the stock market is pretty much guaranteed to close at some level on every day that it’s open. (Curiously, the days that the Dow doesn’t close at any level are the truly newsworthy ones. 9/11, for instance.)

There’s too much information in every realm, not just finance and business. The only parts of the daily news that always contain legitimately important and timely information are sports and weather. The fluctuation in Archer Daniels Midland stock or the price of gold means nothing to the average investor over the course of a day, a week, a month, even longer. To illustrate the point, here’s the market level at yesterday’s close of business:

5 years

No, wait. This is the market level at yesterday’s final bell: 1 day

Oops. Sorry. No, it’s this:

5 day

Wait wait wait wait wait. Swear to God, this is it:2 years

In ascending order of length, the periods represented by these graphs are day, a week, 2 years and 5 years. But do you have any idea which is which?

(Answer: 5 years, a day, a week, 2 years.)

We removed the numbers on the vertical axis, and there’s no sense of scale, but that’s not the point. Whether you believe in a “permanent bull market” or not, a continually rising line isn’t visible in any of these charts. The 1-day changes seem considerably less abrupt than the 1-week changes, which would be unlikely in a rational world.

Tune out. Here’s a challenge, with absolutely no reward from us if you meet it: examine your portfolio no more than quarterly. Some wags would replace “quarterly” with “annually”, but we’re not at that level quite yet. What happens hour-to-hour is of zero consequence, and what happens over a period of weeks isn’t much more critical.

Look at other investments, ones whose price isn’t as easy to calculate. You bought your house in the hope that it’ll appreciate in value, right? If your $150,000 three-bedroom gets assessed at $149,703, what are you going to do? Sell sell sell? Pray for a bump? Or live your live confident that your house is an asset with a permanent tangible value, and that should you ever want to sell it, today’s prices will bear no relationship to those future prices?

Unplug. Read a book. Play with your kids. Go cycling. Whatever you do, don’t fool yourself into thinking that exposure to an onslaught of financial information is necessarily going to educate you. While you’re at it you ought to stop reading other personal finance blogs and just concentrate on this one. And read it largely for entertainment. (Which makes it sound as though our advice is unserious or unimportant, which is untrue. We meant entertainment in the literal sense: be entertained, while absorbing subject matter that can often be dry depending on who’s presenting it.)

It’s a cliché, but a valid one: for the most part, you make your money going into an investment, not out of it. Buy undervalued assets, and wait for them to appreciate. A stock bought at the top of the market – for example, Enron at its localized zenith – is not an undervalued asset. For a more contemporary and less notorious example, take Amazon, which is close to its current (and all-time) peak of 276½ or so. A fixation on short-term movements, no matter how drastic, will rapidly drive you insane. Considering your presumed lifespan, you want any eventual insanity to manifest itself as slowly and methodically as possible.

The average daily movement in the Dow is less than .026%. Or as CNBC might put it, “DOW UP .026%!!!!!!!!!!!!!” Journalists, even financial ones, are not renowned for having perspective. You’re smarter than that.

Filed Under: Finance, Newsflash Tagged With: , , ,

Women, Take Your 72¢ And Be Happy With It

November 14, 2012

Ma’am, if you don’t think you’re getting paid enough, maybe you shouldn’t have chosen modeling for a career

Our favorite talking points of election season:

  1. “Binders of women”
    A candidate could refer, somewhat obviously, to binders of women’s résumés. But if he used the shorthand “binders of women”, that means he’s a misogynist who wants to take the distaff half of the species back to the Stone Age, including his long-suffering wife. (Hmm…they also have 5 kids, who all happen to be male. The chances of that happening are 32 to 1. Can we state unequivocally that there wasn’t some sex-selective infanticide along the way?)
  2. “Women make x¢ for every dollar men make”, x being a number somewhere around 68 to 77.

This one just refuses to die. The consensus interpretation of it seems to be that for your average man who makes $50,000 in his generic job, the average woman beside him makes $36,000 or so. Since some women make as much as their male counterparts, for every one who does there must be another woman who makes even less compared to men.

This is 99% false, and even if it were 0% false, so what? Let’s examine it a little more closely:

Yes, if you add up the total amount of money earned by women in the workplace, divide that by the number of working women, multiply that by the total money earned by men, and divide that by the number of working men, you’ll get something like .72.

But that includes every job in existence, and doesn’t correct for the indisputable fact that women gravitate toward flexible jobs. Ones that allow for plenty of time away from the office, and thus that permit some form of turnover. To cite an example, the combatant commander of CENTCOM can’t take time off to drop his kids off at the pediatrician’s office or petition his boss (that’d be the Chairman of the Joint Chiefs of Staff) for additional maternity leave. Meanwhile, the daycare center supervisor at the Franklin County Public Library can afford to be a little more accommodating.

Of course, “women gravitate toward flexible jobs” is a general statement. More women do so than men, but most gainfully employed people of either sex aren’t as interested in flexibility as they are in earning money.

Lines of work in which women make several dollars for each dollar men make:

  • Stripping
  • Prostitution
  • Tending bar, and sorry if you happen to be a bartender and think we’ve drawn some equivalence between your job and the others on this brief list.

Gals, if you want to make more money, here’s a handy 2-part strategy that never fails:

  1. Pick a career that increases the likelihood that you’ll get paid more. Sure, you’d make a great receptionist. But is that really what you want to do for a living? Maybe it is, in which case, great. But think about what draws people to that job. Heck, ask a receptionist if you want to. They’re easy enough to find. Most of the women who answer phones for a living do so because the demands are small, and it’s easy to find someone to cover for them.
  2. Negotiate better. Look. No one seriously disputes that there are certain activities in which one sex has consistently shown more proficiency than the other. Here are just a few:
  • Child-rearing
  • Lifting 50-pound sacks of cement
  • Being “intuitive”, whatever the hell that means
  • Calculating cube roots and partial derivatives
  • Reading palms and consulting the stars
  • Isolating chemical elements (Yes, Marie Curie existed and was awesome. So were Albert Ghiorso, Glenn Seaborg, Enrico Fermi, Ernest Lawrence, Dmitri Mendelev, Henry Cavendish, Ernest Rutherford, Otto Hahn, Antoine Lavoisier, Joseph Priestley, Linus Pauling and about 1000 more. You want us to keep going?)
  • Interior design
  • Civil engineering
  • Human resources
  • Playing football at a professional level
  • Elementary education

Don’t pretend that men and women, cumulatively speaking, are equally adept at each of the activities listed above. But for the vast majority of jobs, it doesn’t matter whether the person performing them is male or female. Attorney. Veterinarian. United States Senator. Journalist, and if that’s what you do for a living God help you regardless of what sex you are. And yes, tire plant supervisor.

If you’re a woman, and you’re making less than your male coworkers in any of the jobs we just mentioned, why? Did you insist when you were hired that you make as much as the men do? If not, why not? And what if the men don’t each make the same amount anyway?

Alf is a shift supervisor who makes $45,000. Barry is a shift supervisor at the same plant, with responsibilities identical to Alf’s. In Barry’s interview, he insisted on $50,000 and not one penny less. The hiring manager was authorized to pay Barry as much as $54,000. There were no other qualified candidates at the time, and the plant needed to fill the position ASAP. So Barry got his $50,000.

A third shift supervisor position opens up. Cindy applies for it, and gets hired. How much should they pay her?

  • More than Alf? That’s hardly “pay equity” in the traditional sense.
  • As much as Alf? Not if Cindy a) ever glances at Barry’s paycheck and b) knows how to find a lawyer.
  • Less than Alf? No, that’s the very inequality we’re trying to avoid.

Here’s how much they should pay Cindy: whatever she can get.

Why should an employer pay you more than you ask for? More to the point, why shouldn’t you ask for as much as you can get?

The unfortunate truth is that women are almost as bad at negotiating as they are at throwing baseballs. (You ladies know you can move your elbow back, right? Try it sometime.) Heck, one of the brightest and most financially savvy women we know admits that she sucks at negotiating.

It isn’t Congress’s job to do what you can’t, or refuse to. Stand up for yourself, and demand more. Examine your alternatives – you can’t negotiate without leverage. Learn to say no. Reject the first offer. Find competitors and play them off against each other. Unlearn everything you’ve ever been taught about playing nice, being agreeable, not hurting the other person’s pride, going along to get along, etc. Money doesn’t care what sex you are. If Cindy’s years of feminine programming prohibit her from asking for as much as Barry does, that’s not the hiring manager’s problem.

This is so obvious it hardly counts as an observation, but every financial negotiation is inherently adversarial. The employer (client, etc.) wants to pay as little as possible. The employee (or vendor) wants to get paid as much as possible. The company in the above example is profiting off Barry, and profiting even more off Alf. It’s up to Cindy to decide how much she wants the company to profit off her.

It’s not that people of different sexes receive differing pay. It’s that everyone receives differing pay, depending on what they can negotiate. And that’s how it should be, unless you’ve ceded your bargaining rights to a union.

This has nothing to do with morality, or fairness. What Would Jesus Do? He’d tell you that if you agreed to work for a certain wage, even if other people are getting more than you and rubbing your face in it, suck it up until your contract expires. Or find something else.

Filed Under: Capitalism, Making Smart Choices, Newsflash, Role Model Tagged With: , , ,

A Reader Explains How Control Your Cash Turned His Life Around

October 12, 2012

 

Milton (Bradley)

We’re exaggerating, but not egregiously. We recently received an email from a reader named Milton (a real email, not one we concocted to create a mailbag with.) He understandably requested anonymity, but here’s the gist of it:

I’ve been enjoying your blog since I discovered it (via the Simple Dollar– talk about a fortunate turn of events) and am reading through all of the entries (having already read your ebook… twice).  I read the one about the site Digging Out From Our Mess, [NB: A site we've lambasted on here, and for good reason] and clicked the link to their site.  Based on their About page and updated totals, in almost exactly three years they’ve managed to reduce their debt load by a whopping NEGATIVE $281.39. I found CYC after I’d already started my own deprogramming and had eliminated my debts, and have begun investing and building wealth.  But even at my worst (read: dumbest) I don’t think I was this bad at personal finance.  At the very least, I didn’t think it was a good idea to trumpet my ignorance to the web-surfing world.

300 million more like him, and this country could be a superpower again. We asked Milton to explain how he – a presumably ordinary cat with the same hopes and desires as most of us – started building wealth and this is what he had to say:

I live and work in New York City.  I’m the IT Manager for a mid-sized engineering firm.  I’ll be 44 in about two weeks, and am single with no children.  I have three sisters and no brothers.  My parents were born in Puerto Rico and came to the mainland US in their late teens.

You refer to your own “deprogramming”, which implies that the old you thought it was awesome to incur debts and not care. Is that accurate?

Yes. We grew up poor and didn’t learn about money and finances.  Like everyone else I know, my parents didn’t teach us about money.  My father never learned English and worked at menial jobs his whole life, squandering what little money was left after expenses.  My mother stayed home with us and did what she could with what little we had and didn’t build up any savings.

God, how depressing. And how typical, to think that life’s purpose is misery. It was a common belief in Milton’s father’s generation and those previous, and still a fairly common one today. (That’s a comment about the menial job, not a joke about having 4 kids.)

It wasn’t all bad.  Among the lucky breaks were that I did not go to college and avoided many of the pitfalls of growing up in an impoverished area.  I’ve never used tobacco or illegal drugs, I rarely drink and I don’t gamble.  After jumping from one job to another for about 3 years, I settled into my current job and within 8 years had been promoted from mail clerk to computer specialist.  At 29 I was making more than twice as much money as my father had ever made (adjusted for inflation).  Even my financial ignorance had a bright side.  Thanks to my mother’s distrust of credit and debt, I didn’t get my first credit card until I was 27.  I was debt-free and had a $1,000 line of credit. So there I was, making good money with only a few monthly expenses.  Just like Dad, I’d spend whatever was left after the bills were paid.  Unlike Dad, I had a LOT of disposable income to dispose of.  Computers, home electronics, art supplies, novelty gadgets, exercise equipment… anything that caught my eye was as good as purchased.  I had the money, why not enjoy it?  As my credit limits rose so did my spending and my interest rates (up to 29.99% at times).  I funded my 401(k), but only about 1/3rd of the maximum.  At some point I had actually set up my withholding so that I was only getting back a relatively small refund each year, which I then dumped into a savings account that was earning .3%. I’m not the sort to spend much time looking back at what cannot be changed, but I cringe whenever I think of where I could be today if I’d had a better understanding of money when I was young.

Of all the dumb things to do (and we all do dumb things), Milton picked some of the least dumb ones. The standard vices aren’t just of dubious morality, they’re expensive. Fortunately, the ones he picked were easy to fix: if you want a greater 401(k) contribution, contribute more to your 401(k).  

 

What made you see the light? 

I think that getting older and paying more attention to finances is what woke me up.  I was getting to that age where you start to think about retirement options, and I also realized that I was paying around $750-800 a month in finance charges on my credit card debt.  Gads, it makes me ill to think about that again.  After a couple of aborted attempts, I managed to wipe out around $24,500 of debt in around 18 months (helped in large part by the $12,000 that was sitting in that savings account… sigh).  A few months after that, I finally stopped wasting money and started building up my savings (Trent would’ve been proud of my emergency fund).  Happily, it was around that time that I found your site and finally began to understand how it is that I could make my money work for me instead of the other way around.

Milton emphasized his point with a sigh, so we won’t pile on, but you see what he did there? Every personal finance site in existence tells its audience to “create an emergency fund“, which is horrible and self-defeating advice. Why? Because it implies that you’re not in an emergency right now. Milton was, and didn’t realize that having a debt load twice the size of your savings counts as an emergency. (Nor did he realize, at least not immediately, that there’s a way to halve said debt load which is so easy that it’s easy to miss.)

 

How have you begun investing and building wealth? That is, what have you invested in (beyond the stuff you were investing in before, like 401[k]s and stuff)?

I am fully funding my 401(k) now and paying attention to where my 401(k) funds are allocated.  I opened an account with Vanguard and put some of my savings in a mutual fund and the rest into a brokerage fund.  I’m invested in ETFs and a bond fund (specifically, VTI VNQ VXUS and BND).  When my profit-sharing bonus comes in at the end of the year I am planning to invest in a few stocks as well.  I will be looking for stable and profitable companies with good fundamentals. I plan to try my hand at real estate within a year or two.  I’m hoping that the housing market and interest rates stay depressed for a few more years. (NB: Douche.) I have vivid dreams of owning multiple homes on 15-year fixed-rate 2.95% mortgages that I can pay with spare cash (deep breaths… deeeeep breaths…).  It’s a challenge for me to do something risky, but it’s too good an opportunity to pass up.  I live in a co-op and do not want to buy a house in New York City; I am researching locations where I can get a good deal on a modest house in a good area. I have other plans that involve comic book artwork (which I dabbled with in the ’90s) and I might see returns from that sooner.  At worst, it will provide some extra money that can go 100% towards wealth-building.  If the stars align, this plus a few rental properties might allow me to retire early.  And of course, I pay all of my credit card balances in full every month. (Italics ours, not that they were needed.)

How much time do you spend on this? 

Too much, because I started investing 2 months ago and I’m still at that anxious stage.  I’ve already gotten it down from checking my finances several times a day to 3 or 4 times a week.  By the end of the year I should have that down to once a month.  Long-term, I intend to stay on a once-a-month schedule for my investment accounts and a quarterly schedule for my 401(k).

Is there any advice you’d give people who are just discovering CYC for the first time? Like, what recommendation worked better for you than you thought it would? (Or what would you avoid?) 

The most useful thing would be to follow your advice about removing emotion from the equation.  I imagine that a lot of people who read your site become indignant at the implication that they’re doing a lousy job of managing their finances (and in some cases, their lives).  A defensive attitude is an obstacle that can derail their attempts to get their finances (and lives) in order.  It may sting to be told that what you’re doing is stupid, but the sooner you realize that what you’re doing IS stupid the sooner you can stop doing that and start doing something smart.  The best advice in the world won’t do any good to a person who leaves in a huff because they think failure should be rewarded with a pat on the back.

Couldn’t have said it better ourselves. Although we did say it differently, in the footer: This is personal finance for people who want results, not coddling. Milton’s doing fine (repeat: fine) and there’s no reason why you can’t, either. He didn’t grow up with any inherent advantages, obviously. The closest thing he had to one was his abstemious mother and her example. On balance, that’s a lot to compensate for a diligent if financially unsavvy father, in a house with 6 hungry maws, where English wasn’t even the first language. To recap, and this couldn’t be simpler if we used puppet theater:

  • Don’t flush money down the toilet (drugs, alcohol, gambling.)
  • Fund your 401(k) to the max, and get the matching funds. Free money.
  • Treat consumer debt with aggressive therapy, i.e. living ascetically until the debt’s all gone. The occasional “splurge” defeats the purpose, and keeps you poor longer, if that’s what you’re into.
  • Then, once and only once that’s done, can you start investing. Investing, not speculating. Speculation is for rich people. The aspiring don’t have that luxury: they need to build wealth methodically before building it in riskier ways.

What else should Milton do? He’s on a smarter path than the vast majority of people. He needs to spend less time checking his investments, but he acknowledges as much. We can blame that on how new he is to investing. It’s like when a formerly sedentary person develops and commits to an exercise-and-diet routine. Once you do, it’s only natural to weigh and measure yourself abnormally frequently. Then, when the pounds and inches start falling off more slowly (because you’re getting closer to perfection, and thus there’s less room for rapid improvement), you eventually start checking the numbers less and less often. Milton bought assets, sold liabilities, and is now enjoying the inevitable increase in wealth that follows. Spend your money on things that further your wealth, don’t spend it on things that don’t, and you’ll get rich no matter how otherwise stupid or lazy you are. It never fails. You don’t even have to be smart like Milton.

Filed Under: Making Smart Choices, Newsflash Tagged With: , ,
Next Page»