What I'm Reading
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Tuesday, October 31. 2006
A few weeks ago, I had a friend come up to me and said, "Hey Chan, I've finally saved up $1,000 and I want to invest it in the stock market, how do I start?" How to start investing is an entire other blog posting. But anyway, the first question I always ask people is, how much credit card debt do you have? Usually people are confounded by my answer as it seems to have nothing to do with the stock market.
The reason why I ask this is because finances revolve around liabilities and assets. Liabilities is a fancy word for debt. Assets is stuff that's worth money. Your networth is assets minus liabilities, and my job is to try to help you increase your networth if you're asking me questions about finances.
Anyway, the person said they had about $2,000 in credit card debt. My advice was to take that $1,000 and pay down the credit card debt. At this point, the person remarked, "But Chan, if I invest $1,000 in the stock market, I can make more money and use those gains to pay off some of my credit card debt." In theory that may sound good, but in reality, it's not.
Lets go through why paying down credit card debt is better than investing in this case, as much as I am a fan of the markets. Firstly, there are no guarentees in the stock market. Yes you could make a 100% return, but you could also lose everything. Secondly, credit card interest rates are insanely high, so any profits you may make in the stock market will be erased by credit card interest payments. Lets take some examples.
To keep the calculations simple, I'm going to assume the subject does not make any credit card payments throughout the year. In addition, I'm assuming that the subject has $2,000 in credit card debt, and the interest rate on that credit card is 18.5%.
Scenario 1: Let us also assume that the subject has $1,000 invested in a medium risk mutual fund which has an 8% return.
Assets = $1,000 + ( $1,000 X 0.08 ) = $1080
Liabilities = $2,000 + ( $2,000 X 0.185 ) = $2,370 (credit card debt)
Networth = $1080 - $2370 = -$1290
Scenario 2: Let us assume that the subject has $1,000 invested in a medium risk stock and lost 8%.
Assets = $1,000 - ( $1,000 X 0.08 ) = $920
Liabilities = $2,000 + ( $2,000 X 0.185 ) = $2,370 (credit card debt)
Networth = $920 - $2,380 = -$1460
Scenario 3: Let us assume that the subject has used the $1,000 to pay down their credit card debt.
Assets = $0
Credit Card Payment = $2,000 - $1,000 = $1,000
Liabilities = $1,000 + ( $1,000 X 0.185 ) = $1,185
Networth = $0 - $1185 = -$1185
Results: As we can see, scenario 3 results in the highest networth. By paying down debt, the subject has reduced the amount of interest being added to their debt. This essentially frees up more money since the debt will be growing at a slower rate.
Again, yes you could argue that someone could make a 20% return in the stock markets, but that's a pretty dang good return. A return that large also means a certain amount of risk has to be taken upon. Why risk it if you have a guarenteed way of reducing debt that grows at 18.5% a year? When you pay off that debt, it's like getting 18.5% more money to work with.
When in comes to debt reduction VS investing, debt reduction wins out if the interest rates are insanely high. This is why when people ask me about investing, I always ask about credit card debt first. I treat it like the plague. Debt reduction doesn't always win out though, sometimes investing wins out if you have low-interest debt, but still, less debt is good. You can't go wrong with that strategy.
Saturday, October 28. 2006
We've been talking about Futurama a bit in the office lately, so hey, why not a blog post about it. Here's an ode to one of the best animated shows ever.
And, here's a clip from one of my favourite episodes:
Ahh.... classic. Time well wasted.
Wednesday, October 25. 2006
One of the things that have been really ticking me off in Canadian politics is this story about Conservative MP, Peter MacKay supposedly calling his ex-girlfriend, Liberal MP Belinda Stronach, a dog.
From an article from the National Post entitled, "MacKay Controversy Flares Anew"
Foreign Affairs Minister Peter MacKay, who was in the House of Commons on Wednesday for the first time since allegedly referring to his former flame, Liberal MP Belinda Stronach, as a dog, denied making any such "derogatory or discriminatory remarks."
The opposition Liberals added fuel to the fracas by serving up eight legal affidavits from MPs swearing they heard MacKay’s heckle, even though it was not recorded in Hansard — the official written record of House proceedings.
The House of Commons Speaker, Peter Milliken, who presides over decorum, agreed to listen more closely to an audio version of the proceedings, in which MacKay can be faintly heard shouting in the background during a heated debate.
Outside the Commons, several Liberal women gathered at a microphone to condemn what they described as MacKay’s "sexist remark" and to implore him to either come clean or quit. [...]
The Liberals want an all-party committee of the House to review MacKay’s alleged slur, taking into account the sworn affidavits.
This is at best a he-said, she-said battle of the ex-s. At worst this is opposition parties trying to score political points. Seriously though, doesn't parliament have better things to do?! I mean, this has been talked about for over a week now. Move along people! We have more important business to deal with.... you know, like dealing with North Korea, the war in Afghanistan, the environmental bill, etc. I can't believe they've wasted so much time on this non-sense.
On average, MPs are typically in parliament for about 250 days a year, and their salary is $141,000 according to this CBC article (more if you're a minister and such). So that means we pay more than $500/day per MP to sit in parliament. Here we have the opposition parties ranting on and on about how Peter MacKay should resign over an alleged remark. Why are we even paying you people??? Get back to work! If you want to verbally attack each other like morons, go on the Jerry Springer show.
Anyways, you can't mess with Peter MacKay. He has been voted as Canada's sexiest male MP in parliament, six years in a row. You can't fight democracy!
Tuesday, October 24. 2006
The last month, I've been working on a project that has been on the shelves for a long time, and we've finally got time to do it. It's a project first proposed two years ago by some consultants that came to our department.
This project affects a lot of users, and it's quite a departure from what we currently have. It's considered a high-risk project. To help lower risk, software engineering dictates that you consult with your users to better understand their needs and concerns. One of the ways we do this is by showing a prototype to users, and asking them for input and feedback.
So, one of my co-workers puts together a prototype for demonstration purposes. We send out an e-mail asking if anyone's interested in seeing the prototype and providing some input. Usually, users appreciate this sort of thing because it's a way for them to voice their opinions, and we can make changes based on those opinions.
About six people volunteered to look at the prototype, and a liason met with each of the volunteers to show them the prototype. For some reason, two of the people that attended these session were really angry, not at the prototype, but at the process. They were angry that we were "wasting" their time asking for opinions again when consultants had already nailed down the requirements for the project two years ago. They ranted on and on about how all those consultations two years ago were wasted, and why we were even looking for feedback. Lets just say our liason was royally angry. I would be too.
A few things about this ticked me off. First, these consultation sessions were completely voluntary. If you didn't want to be there, you didn't have to. Yet, people took time out of their busy schedules to attend one of those sessions just to yell at people. The real question is, why are you wasting our time? Secondly, the requirements and prototypes that the consultants gave us two years ago were garbage. They were not technically feasible and they were very unrealistic. On top of that, almost half of the staff in our department are relatively new, and they weren't even here during those consultations two years ago. So, this was a chance to hear from those voices as well. Lastly, two years is a long time in the high-tech world. Technologies change rapidly. What was possible two years ago is completely different from what's possible today. So, we wanted to show off some of those new technologies.
Anyways, it's just annoying when people just defecate all over a goodwill gesture like this. We could have been insensitive and just implemented the whole project without consulting anyone, but we chose to ask people for input.
Some people need to adopt a less hostile attitude at work.
Saturday, October 21. 2006
This week in the stock market, the Dow Jones Industrial index and the Toronto Stock Exchange both crossed 12,000 points. The Dow is now at a historical high. Since the Dow has been around since May 1896... that means that the Dow is now at a 5760 week high!
We saw a bunch of big companies report their quarters this week as well. Apple, AMD, Intel, Caterpillar, Yahoo, to name a few. But there was one stock that completely blew away the numbers and kicked butt. Here's a hint:
That's right, Google (GOOG). Its profits were up 70%. Last quarter, Google predicted that would make $1.81 billion. They reported that they actually made $1.87 billion. Now that's blowing away the numbers.
TheStreet.com had an article entitled, "Good Night, Google Bears" (A bear is an investor that bets against a stock, and makes money when a stock goes down.):
Once upon a time, there was a creature known as the Google Bear. While Google's stock soared past analyst price targets of $200, $300, $400, the Google Bear warned that gravity would soon catch up with the stock. The stock's valuation implied impossible growth, the Google Bear warned, and its continued rise marked the return of a devil-may-care mentality of stock speculation that led to doom in the dot-com bubble.
On Friday, a day after Google delivered yet another quarter of revenue and profit growth that was better than even the more bullish forecasts, the Google Bear is an endangered species.
A few weeks ago, I picked up a few shares of Google based on the recommendations of Jim Cramer. He said that for college/university students who have a little bit of money to invest, but not enough to build a diversified portfolio, they should pick up a few shares of Google. He said not to let the $400+/share price scare you because that's not how you gauge if a stock is expensive.
So, I picked some up, and some of my friends told me that I was crazy going after such an expensive stock. For example, they said that the stock has to move up $40 a share just to get a 10% return on investment which would be hard. What they don't understand is, big stocks move big. Google went from $420/share to $460/share this week alone. Jim Cramer suggests to divide the stock price by 10 if you were having a hard time comprehending a $400+ stock. Does a $40/share stock going to $44/share sound so crazy? No. It's all psychological.
Anyway, there were some high fives being exchanged in the office when Google jumped big that day. It was sweet action.
Here are this week's International Bank of Chan's numbers. Cwing holds the lead, but the gap is closing. Throughout the week, Myron, Patrick and I were all battling back and forth for second place until Google reported and Patrick was propelled into second place since he went all-in with Google. Myron also did exceptionally well this week because Apple reported a fabulous quarter, and the stock jumped from $73/share this week to almost $80/share. I wouldn't be surprised if Apple went to $100 considering how confident they were in their conference call.
There's a funny side story about this. I was talking about stocks with Myron over dinner last week, and he mentioned that Apple was reporting their numbers this week. After he told me, he went, crap.... it was a secret, you're not allowed to buy any Apple in game because it's going higher! I guess this was his ace up his sleeve. Well played good sir.
Thursday, October 19. 2006
Recently I've been in the market for a new credit card. I was talking to Myron about it, and he directed me to this awesome government website that reviews all credit cards that are available to Canadian consumers. They summarize every credit card in an easy to read document. It compares the interest rate, rewards program, annual fee, grace period, etc. This has saved me so much time because I don't need to visit a bunch of bank websites to get all that information.
So, if you're looking for a credit card, this is definitely a great resource to check out. I have to give my standard disclaimer though, if you can't handle debt, don't get a credit card. A credit card can be the greatest financial tool or greatest financial burden. Thanks Myron!
Monday, October 16. 2006
I have a number of friends who are doing their degrees in child education. We were talking about gym curriculum, and I was shocked to hear that teachers are being told not to teach kids dodgeball. I thought this was a joke because dodgeball is one of the more enjoyable aspects of gym class for me while growing up (gymnastics... shudder). The reason why they don't teach dodgeball is because it teaches kids that other kids are merely targets that you hit with balls. They also argue that it creates aggressive children.
I tend to disagree with this because there are plenty of other sports where other kids are so-called targets. When you pass a ball to a team mate in soccer, that team mate becomes a target. When you pass a frisbee in ultimate frisbee, you are passing to a target. Does that make you a psycho killer? You tell me.
Anyway, I thought that this ideology might be restricted to the liberal west coast where I live, but after some digging, it doesn't appear to be the case. I found this article in the New York Times entitled, "Increasingly, Schools Move To Restrict Dodgeball."
If students in Peter Heuberger's grade school gym class had their way, the weekly dodgeball game would be a daily event.
''We use dodgeball as an end-of-class activity,'' Mr. Heuberger, a physical education teacher at the Charlestown Elementary School in Cecil County, Md., said recently. ''The kids love it. They would play it every day if they could.''
But what was once shrugged off as a harmless game is now considered aggressive, unwholesome and a cause of injuries by some school administrators. So in school districts like Mr. Heuberger's, in the northeast corner of Maryland, officials have discouraged, limited or even banned the game.
Dodgeball pits teams of opposing players throwing balls at one another in a contest of elimination. The last player to avoid being hit is the winner. Sometimes the game is called bombardment, killer ball or even murder ball. And that bothers the critics.
''This is something that should not be used in today's classroom, especially in today's society,'' Diane Farr, a curriculum specialist in Austin, Tex., said. The Austin Independent School District, where Ms. Farr works, banned dodgeball more than two years ago.
''With Columbine and all the violence that we are having, we have to be very careful with how we teach our children,'' Ms. Farr said, referring to recent school shootings, including the one in April 1999 near Littleton, Colo., in which two teenagers killed 12 students and a teacher and then killed themselves.
Austin's school system may have been the first in the nation to ban dodgeball.
School districts in Fairfax County, Va.; Oslo, Fla.; and on Long Island, as well as a number of districts in Maine and Massachusetts, have formally or informally limited the kinds of games that students may play. In Mr. Heuberger's district in Maryland, officials have discouraged ''human target'' sports, including football, but not banned them.
As early as 1986, the journal Physical Education, Recreation and Dance published an article titled ''Premeditated Murder: Let's Bump Off Killer Ball,'' which denounced sports of elimination. And in 1992, Neil F. Williams, now a physical education professor at Eastern Connecticut State University, placed dodgeball in the Physical Education Hall of Shame, a list of gym activities that he suggested could damage children emotionally. The list included duck-duck-goose and musical chairs.
Duck duck goose can emotionally damage children? Musical chairs is an atrocity? What has the world come to? How fragile are kids these days? If you can't deal with musical chairs, you're going to have serious issues competing in the real world when you're grown up!
The second they mentioned Columbine, it makes me think that these measures are a knee-jerk reaction that doesn't address the root of the problem. It's a bandage solution. I wonder what came first? Dodgeball or Columbine? Football or Columbine? Musical chairs or Columbine?
Banning football? The article fails to list the positives of these games. Football has been described as a tacticians game, a thinking man's game. The game employers tactics, strategy, team work, communication, etc.
I recently saw the movie Grid Iron Gang (very good), which was a real-life story about a corrections officer who organized a football team in a juvenile offender's jail. This jail was full of young gang members and thugs. They said that over 70% of kids that went through that jail would be back for more jail later in life. For the kids that joined the football team, only 30% of them would be back in jail later. Does this sound like football, or games with 'targets' causes aggression and violence? Does it sound like it is a negative influence to kids?
Let us also consider my case. I play paintball where people are literally targets. The object of the game is to eliminate the other team by firing paintballs at them. Someone could argue that this hurts people's feelings, and what not, but paintball has been a real confidence booster for me. As a computer geek, sports isn't exactly my forte. Lets just say I didn't get into university with an athletic scholarship. However, paintball is one of those games where it doesn't matter if you're a biggest guy, smallest guy, strongest guy, etc. Tactics, communications, and strategy are just as important. This is the great equalizer, and it allows small guys like me to triumph over physically bigger and stronger competitors.
So, banning competitive sports like dodgeball, football, and yes... even musical chairs is absurd in my opinion.
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"The willow which bends to the tempest, often escapes better than the oak which resists it; and so in great calamities, it sometimes happens that light and frivolous spirits recover their elasticity and presence of mind sooner than those of a loftier character."
--Albert Schweitzer (1875-1965), Missionary, Philanthropist, Musician, Doctor
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