Posted by Robert on May 14, 2012
Oh joy. I listened to three conference calls this week, and I spoke with a CEO of a fourth company on the phone for a few minutes. To be brutally honest, I didn’t listen to the last batch of conference calls because they can be extremely dull. It’s slightly better than reading financial statements, but not much. So why do I do it?
First, it helps me connect to the companies I own. Actually, I only own a tiny percentage, but that ownership represents a relatively large portion of my net worth. I want to feel that I can trust the people who are managing this companies in an effort to be able to provide me with a steady dividend. I wouldn’t want to manage even one company, much less a dozen, so I’m happy to have professionals running the company. That doesn’t mean that management will necessarily keep my interests at the forefront, but listening to them speak gives a pretty good indication of the issues that are driving the corporate agenda.
Second, I like to know what the outlook is for the company. I read the financial statements and I try to find the good news as well as the bad news. I look for any trends or “red flags” that might be worrying. Then I listen to management’s perspective, followed by questions (usually by investment analysts). Is there good news I misunderstood? Is there bad news that I didn’t give enough weight to? Are there credible threats in the near future? But, more than anything, should any of these perspectives change my decision to own this company? During a recent call, the CEO (who is also chairman of the board) talked about long-term investments in building capacity, but failed to share a concrete strategy that was driving the investment. His lack of obvious enthusiasm probably contributed to some of the tough questions that he was asked about vision and planning.
Finally, I need to understand my investments. If I don’t understand how a company makes a profit, I won’t invest in it. If I understand that a company has a seasonal pattern to its profits, I can remain invested despite seasonally poor results. And as I listen to presentations and questions, I better understand the organization and competitive pressures that affect the company.
One of the other benefits of listening to conference calls about company results is to get a better sense of how the economy is currently functioning. Three of the four management teams seemed optimistic and sounded positive about the outlook. Only one company claimed to be struggling due to economic circumstances. It really makes me question why things are different for just one company.
Do you go to these lengths with your investments?
Posted by Tim Stobbs on May 11, 2012
This is a guest post by our own long time commenter, Jacq, who has an excellent point of view on the question: to work or not to work.
Goals are great to have. When you have a far off dream like financial independence, I can almost guarantee you won’t get there unless you turn that dream into a goal.
So you set up your budget, fire up a spreadsheet and map out the path to your goal.
Along the path to that goal will be many milestones that you strive to reach. If you miss them, you’re not on track and have to change something. Maybe cut back on regular spending, delay taking a trip or buying that new cork flooring that you really really want. [Editors Note: Damn I'm so going to have to take before and after pictures of this floor when we install it. ]
But sometimes you can over-achieve on those goals too.
The temptation is there to keep on a roll. One of my dad’s favorite sayings was “make hay while the sun shines.” (Can you tell he was a farmer?) He was always aware that the weather was unpredictable and if you didn’t keep working, it could rain the next day and your opportunity would be gone.
Isn’t that the smart thing to do? That’s what most people do when they work and save for 30+ years and then retire at 65. Sometimes they stop with “too much” money and not enough retirement years. It’s what most contract job people (like me) do – never take a day off because you don’t know when you’ll be out of work and for how long. It’s what the fearful part of me wants to do (and she talks very loudly but fortunately not very often).
Except sometimes you get a wake-up call to pay attention to what’s also important. Obituaries of current employees who have died are posted about once a week on my intranet workplace. (I’ve always found it ironic that people “like” those posts.) Every time I see one, I’m sad for them and their families that they never got to enjoy a period of slowing down with their loved ones and hope that they really enjoyed their jobs since they gave so much of their lives to them. Every time I see one, it reminds me that life can be so short and I can’t control life no matter how many spreadsheet scenarios I run.
For people who strive for financial independence and a better work-life balance, those spreadsheets (aka maps) are essential for both knowing when to step it up – and knowing when it’s ok to slow it down because you’re reaching your destination sooner than planned and maybe it’s time to look around and enjoy where you are on the trip. Most other people who don’t value that life balance just go out and buy more stuff. The FI people will do things like cut back to an 80% work week or take unpaid leave and trust that somehow the sun will keep shining down the road.
So I’m booking a lot of unpaid vacation time. And crossing my fingers that it won’t rain while I’m out camping. It’s just another way of making hay while that sun is still shining.
Posted by Dave on May 8, 2012
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I may be committing a significant personal finance faux pas – I am (knowingly) leaving money on the table. Some people will argue that the opportunity cost is just too high, that there are several ways I could be earning more money….but I’m okay with what I’m doing – leaving a significant (half a year’s expenses) sitting in a savings account.
As an alternative to my current “strategy” I could be earning several percentage points more in interest per year, investing in a fairly conservative bond fund (as an example). I prefer to keep the money earning 1.35% in an ING account and more importantly (to me anyways) close – as close as theoretical money can get. In “olden” times, I would be the guy with too much money stuffed under my mattress, or buried in a coffee can in my backyard.
I wouldn’t call myself paranoid by nature (I’m not that crazy), I just like the security of having a bunch of money within a 2-day transfer in a secure account rather than at risk in any way. This way of thinking is contrary to most of my financial plans, which are somewhat risky – the largest risk being my plan to leave the workforce 20 years early.
As an alternative to a largish “war-fund” I could tap into my line of credit, or use a credit card short-term that I could pay off with invested dollars once the stocks/bonds/other investment has been cashed out. I think that psychologically, I just like having a buffer of cash.
The weird thing about this savings account is that I’m not even really sure what it would be for. I can’t really foresee any wild economic disaster that would cause me to need this amount of money all at once. On an annual basis, my household expenses are low enough that my wife or I could support 100% of our needs – there really just isn’t a need to have the money sitting there.
I keep it as a “get out of jail free” card. I keep this money un-invested because it allows a certain amount of freedom…for me and my wife it is somewhat comforting to have this money here. My job is as stable as you can get these days, while my wife’s is probably a little precarious (working in a retail business). Even though I currently enjoy the work I am doing, I like that I could decide to quit tomorrow and really have no problem (for 6 months or so).
So, that is my story about my large emergency fund – large in comparison to my expenses, and the risk that it will need to be tapped. How do you approach your savings? Do you have a bank account full of money, or are you fully invested?
