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Boo on Mutual Funds

So in my quest to grow wealth through investments, I’ve had a lot of friends tell me that I should stick to Mutual Funds or GICs, as they have much “lower risk” and because I have no idea what I’m doing.

I must hand it to them, they are spot on in that I really have no clue as an investor as I’ve only been in the “game” for really a few months.  And mutual funds generally carry much less risk than direct investing since they’re super diversified and managed by professionals.  GICs are obviously gauranteed to make you returns, hence the “Gauranteed” in GIC.

Despite all this, I would still rather do my homework and invest directly into the markets.  At the LEAST, I should invest my money into an index through an ETF (exchange traded fund).  There’re plenty of reasons to completely skip passed mutual funds entirely (GICs too for that matter).

It is the simple matter that mutual funds underperform the markets as a whole.  The S&P 500, which is regarded as the benchmark to beat, will beat 80% of mutual funds out there.  So really, you have a much greater chance of earning more money if you simply just invested your money into an index fund (the market as a whole).  The S&P 500, over the last 30 year period, performs roughly at a 10% annual yield.  How many mutual funds can claim that?  Strike one.

Not only do mutual funds under-perform in general, but they carry high fees and commissions.  Sure, that 2% fee doesn’t sound like much to you, but 2% compounded over many years until your retirement do add up to quite a lot.  So not only do your hard earned savings yield you less, but you end up paying for someone to poorly manage your own money! Strike two.

Now the big kicker that most people aren’t aware of with mutual funds is something called “Survivorship Bias”.  Ever notice how some banks have stellar funds that yield 10, 15, even 20 percent?!  Or even how bank XYZ claims to have a variety of funds that average a strong performance of X%? Well, the banks are rigging the numbers in their favor to win you over.  Many banks will carry a variety of funds which cater to various aspects of your investments.  However, not all of their products will succeed and many will fail altogether.  The funds that perform terribly get removed from their line of products, so only the “surviving” funds are left over… with those funds obviously yielding a higher average now that the losers have been cut out.  So not only do mutual funds underperform and have high commissions, but they generally provide misleading information on performance. Strike three!

Alright alright, so mutual funds won’t give me tons of money, but at least they are yielding me some kind of return and I don’t have to monitor the markets, that’s at least worth the price right?  Absolutely not!  For one thing, a mutual fund has no gaurantees of yielding you any returns.  You may actually lose money in your mutual fund, because it really is an investment in the stock markets (albeit, a greatly diversified and “managed” investment). When the markets dip, your fund may dip as well.

Secondly, you can invest in the stock market without having to manage all your investments.  You can invest in an index directly through an ETF.  ETFs are just like mutual “index” funds in that they mirror the movements of the markets, with the exception that you can purchase ETFs much like any other stock.  That means you can buy/sell an ETF whenever the markets are open, and you gain dividends too like any other stock.  The beauty of ETFs is that there is very little commission involved in owning an ETF.  The company managing it takes a very small cut, something like 0.1%, which is a fraction of what the mutuals are charging.  At the same time, since ETFs mirror market indices, it will beat a majority of mutual funds in terms of performance and provide you with a great deal of diversification.  No need to manage your ETFs… you can buy into them and forget about them just like your mutuals.

So really, is there any reason not to buy into an ETF instead of a mutual fund?  It has all the advantages of a mutual fund (and then some), without all the disadvantages of poor performance and heavy commissions.

Of course, you could also invest directly into the markets.  It’s not as demanding as one would think.  Many great investors have built their wealth on researching a company, buying its stock, and holding it for years to allow it to grow in value.  The richest man in the world, Warren Buffet, built his wealth this way.  He wasn’t a day trader who stared at the stock ticker every 5 minutes.  Instead, he sought companies that he saw had a lot of value and invested into them, holding on those stocks for years.  That style of investing doesn’t require constant managing and monitoring either, and it can reap huge rewards.

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Fund Performance

The main downside of investing in the market is that I now find myself constantly staring at the stock ticker. I guess the big part of it is the gambler’s high I get when I see how well things are doing. It’s the same feeling I got back during my poker playing days, when I’d pull in a big pot and make some money. However, in this case, the stakes are way higher. So I thought I’d provide an update on how well things are doing. It’s been roughly thirty days since our initial investment in Google and Visa, and we’ve bought a few more stocks.

Our biggest gain so far, which thankfully is the largest chunk of portfolio, is with Google. We’ve gained almost 25% from our initial investment in it. We also gained 23% in a company called DryShips, which ships dry goods such as coal.

Visa has been kind to us and has increased about 20% since we bought it, and we have strengthened our position on it (bought more stock) yesterday before the earnings report. It was a gamble in that the stock price could fluctuate wildly depending on the news. Looking at its past reports, I had predicted a strong report that would beat a lot of estimates. I guess we’re trying to recapture the magic when our Google stock had jumped when it released its earnings report. Anyways, the Visa report came out yesterday at 5 pm showing stellar gains. Not only did they increase their earnings, reduce their operating costs, and boost their market share, but they beat analyst estimates by a fair amount. Something strange happened which I didn’t quite understand, its share price actually dropped close to 6% on this news during after-hours trading. I’m not worried though, as the stock has rebounded back to its closing price before the news. I’m still investigating the cause for such a drastic drop.

We also picked up some other stocks too, some which have been doing really well, and others that aren’t doing so great. Due to the economic decline in the financial sectors recently, it looks like there are some really juicy stocks that are selling at bargain prices. We picked up Citigroup (The US’s largest bank, and the world’s largest corporation) last week, and it’s been up more than 7% since then. Citigroup happens to also have quite the juicy dividend (profits returned to shareholders) at 5%. We also bought some shares of TD Bank, which has grown 2% since we picked it up about 2 weeks ago.

Of course, not all of it can be roses as we have some stocks that have been losing value. We bought some Transocean, an offshore drilling company, that has declined about 1%. Cal-Maine foods, the US’s largest supplier of eggs, also dropped about 3% since we bought it. Though I’m not too worried, as both those companies will probably grow quite well in the long run. What’s nice about the egg producer is that it provides a whopping dividend of 10%.

So all in all, our portfolio is up about 11%. Which is a damn good gain in a span of 30 days if I do say so myself. Who knows how things will play out on the long term though.

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The Wire Ruined TV

There are some things that you experience in life that set the bar so high, that is so enjoyable, that you know that it has ruined you for the rest of your life.

It’s like the time in your life when you first enjoyed a beautiful cut of perfectly cooked steak after living a lifetime eating only hamburger.  Hamburger will never taste and look the same ever again.  Mangled random bits of beef no more, you now demand some sweet filet mignon.  The bar is raised, now that you know how good charred beef can be.

Well, that very experience is happening to me right now.

Lately I haven’t been watching as much TV as I used to.  Mostly due to the fact that a lot of the shows out there are complete trash.  Of course there are a few shows that I find really great, like Breaking Bad, Dexter, and I must give a nod to Battlestar Galactica (but on a lesser extent).  At least those are a few gems in the rough that keep me entertained when I’m hankering for some TV time.

But I’ve stumbled onto a cop show called “The Wire”.  It’s kinda old in that it’s been out for 5 seasons now (with the 5th being the last).  I can’t believe that I haven’t come across it before, but being that it’s on HBO it’s a little obscure.  Also, the fact that it’s another “cop” show might turn most people off.

Cop show - been there, done that.  With the flurry of cop shows out there, it’s easy for something like the Wire to get lost in the sludge of mediocre.  With more CSI and Law & Order spinoffs than you can actually watch, it just seems like one cop show is just like the next, but with slightly different formulas.

But the Wire is different.  It doesn’t follow a formula for every show.  Instead, it’s like a mini-series stretched out over 5 seasons full of gritty realism, superb acting, dark humor, social satire, and elements of the human condition.  It’s hard to describe because there’s no show quite like it.  It’s sort of like The Sopranos in that it shows a world of crime that most of us aren’t involved in.  It’s only “sort of” like the Sopranos though, because the Wire outclasses it in every way.

Anyways, the Wire to me is the best TV series … ever.  Not this year, or last year, or in the decades of TV that I haven’t seen before I was born.  I will boldly say that there is probably no show that has ever existed that is better than The Wire.  With the way that TV is going right now, I’m pretty confident that there will never be a show that will be better.

For that reason, for better or worse, television will never be as enjoyable as it was before I watched this show.  Everything else pales in comparison, and it’s a comparison I can’t not make when I watch TV.  Regular TV tastes like a cheap McDonald’s cheeseburger after dining on this fine cut of beef.

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Finances

“If you’re not a socialist when you’re young, you don’t have a heart. If you’re not a conservative when you’re old, you don’t have a brain.”

I’m not sure where that quote comes from, but it stuck with me for a long time. I guess I do have a heart, as a younger Lee was quite the bleeding heart socialist at one point. Hell, I am still a lefty in a lot of ways. But lately, I’ve been dabbling on the financial side of things, reading up on stocks and bonds and things to do with money. Now that I’m out of school, I actually have a bit of money that can sit to the side. Yes, I feel like a scum sucking capitalist pig … but maybe I’m starting to see things differently.

Finances is something I never really took the time to learn while going through school. I had always felt that it was pointless, since I had no money to invest in. Sure I had a part time student job and went through internship and such, but why should I go through all the hassle to shove my paltry savings into an institution to only earn 1 or 2% in return over a year! Two percent on a thousand bucks isn’t worth all that hassle.

So I bought some books on it to get myself educated in the world of greed. I bought myself “Investing For Canadians For Dummies” and Jim Cramer’s latest book. I finally got plain English explanations of what a stock is, a mutual fund, a GIC, and what the hell the stock market is and how investors make money. Cutting through all the jargon, the rules of the game are pretty straightforward. Buying that For Dummies book will probably be my best investment ever.

Reading those books allowed me to see work and my career in a completely different light. Making money and being wealthy can be achieved not in some big bang, like winning the lottery. But for most people, becoming financially secure enough to retire early is a long drawn out process that starts out when you’re young, not when you’re old. And the sooner you plan for it, the bigger the reward at the end. By the simple power of compound interest, someone in their 20’s like me can input $1 and pull out $32 by the time I’m in my fifties, and that’s if you play the game conservatively.

However, it’s not just about becoming wealthier either. It’s also about protecting whatever savings you have from inflation. That 2-5% annual inflation also compounds over time too. So no matter how much you save, if you don’t invest it somewhere, you’ll be losing whatever money you save. If you’re not protecting your money somehow, then its better to just go out and blow your money right now… at least you’ll get more value out of it.

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So anyways, Renata and I have started investing directly into some stocks. Being totally new to this, I find it hard to judge the value of a company. So I stuck with some companies that I fundamentally know will be solid winners. The two big stock purchases for us have been Visa and Google.

Visa for the simple fact that it just went public, and is an absolute no-brainer. It basically dominates the credit card market. And everyone already knows how mighty Google is. Some people say Google is too bloated and overpriced, but recently it dropped 40% from its all time high.

Google dominates online advertising, and their search engine is still the best out there. They’ve got a ton of cool web-applications, and though it hasn’t made them a ton of money yet, it just shows that they’re always innovating and pushing out interesting things. The fact that they hire the best and the brightest and have a wicked corporate culture that drives innovation will keep them in the top spot for a long time. Google is here to stay, and I think we’re really just starting to see the beginnings of what it can do.

So anyways, we bought quite a fair chunk of Google stocks within the past few weeks, seeing as how their price is low. Amidst all the rumors and negative speculation of its performance these past few weeks (which thankfully drove down its stock price), Google’s stock price jumped 20% within a few minutes after it announced its earnings for the quarter.

So far, our little venture has netted us some positive gains. Visa has performed pretty nicely since we bought it, up almost 5% in a little under 3 weeks. We also bought shares of DryShips, which gained 6% after we bought it that very day two days ago.

Hopefully things will continue the way they go

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Pixelicious

I just bought a second LCD monitor for my home computer.

It quickly dawned on me that I didn’t necessarily need another monitor, but in this scenario, more is always more.  Once you’ve gone dual screen, it’s hard to go back.

My older monitor, a 22 inch Dell, seemed to display colours quite nicely, and appeared to be a pretty wicked monitor.  But now, beside my brand new 24 inch Samsung, it’s definitely showing its age.  I guess it’s been a year or two since I’ve noticed the new slew of monitors out, but they’re way brighter and the colour is much more vibrant and accurate.

Anyhow, to answer my first nagging question of necessity.  No, I could live without a second screen… but productivity is increased with more pixel real estate.  Especially as a programmer, it really helps to minimize repetitive tasks like switching between windows.  Now with two screens, I can have my editor up on one screen, and some reference material on another.  Ah… it makes coding less painful.

It also makes sense that the more real estate you have, the more efficient you’ll work for most computer related tasks.  There’s less time spent managing windows and finding what you want.  A recent study from the University of Utah drew the conclusion that productivity could be increased by up to 50% with the right screen real estate.  After a certain threshold, productivity actually drops (most likely due to the fact that with too much space you end up spending time seeking to find what you want).

The two monitors for some reason make it feel really good to work on the computer.  I’ve been nagging my boss at work to get me a second one, and I think I’ll get one soon

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Speaking of efficiencies.  I should mention some really handy tools that have made me more efficient.  They’re not programming tools, but just general tools that everyone should give a try:

•  Slickrun: Slickrun is a little tool that allows you to open up programs by typing in a custom word.  That way you can map your commonly used programs to words that you know, so that you don’t have to hunt around the start menu or the desktop to launch a program.

  For example, I have the word “mp3″ mapped to Winamp, my mp3 player.  I just have to hit Alt-Q, type in mp3, and then hit enter and bam!  Winamp is launched.  Launching programs this way is way faster and more intuitive.  Rather than remembering where the icon is on my desktop/start menu, grabbing the mouse, and hunting around, I can just punch it into my keyboard without having to lift my hands.

• Virtual Dimensions: It’s a multiple desktop tool for windows.  Basically, it allows you to swap between “desktops”.  Most Linux desktops have this feature, but Windows is severly lacking in this department.  Virtual Dimensions is the best multi-desktop app for Windows that I’ve tried, and I’ve tried quite a few of them.  Again, the efficiency in it is that I rely more on the keyboard to swap between desktops instead of hunting windows with the mouse.  I usually stick my internet browsers on one desktop, an editor on another, and my music app on a third… all while switching between them with hotkeys.
• Finally, I recommend Winsplit Revolution for those with fairly large screens.  I noticed with my new 24 inch monitor that a lot of space is wasted when surfing or editing text.  The monitor is so wide that I could in fact open up two browsers side-by-side, and the browsers could still be usable.  With Winsplit, you can resize and move windows to fit exactly one half (or quarter, or third) of the screen.

Check them out!  You’ll thank me later if you do.

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