2018-07-02

Dividends Vs Share Buybacks

Scope And Purpose Of This Post

This post is a work-in-progress and right now is mostly a collection of pertinent snippets/summaries of articles on the matter of dividends vs share buybacks vs other.  Some basic points:
  • Many arguments in favor of dividends are fatally flawed.
  • Many arguments made in favor of dividends are actually arguments in favor of dividends and share buybacks.
  • For individual investors, with their tax-normal investments, share buybacks are superior to dividends due to how they're taxed differently.
  • For corporate investors, dividends can be superior to share buybacks due to taxation differences.
  • For tax-advantaged accounts (401k, IRA), "share buyback vs dividend" doesn't matter.
  • The more a company is undervalued, the better share buybacks are, and the more a company is overvalued, the worse share buyback are, but it is foolish to think you know better than the market about the proper value of company.
  • Even if a company is undervalued, a share buyback may be inappropriate if there are good investment/growth opportunities available to the company.

2018-07-01

Thoughts And Articles On REITs

Scope And Purpose Of This Post

This post will be a perpetual work in progress, where I will share article, snippets, and my own thoughts about REITs, with a focus on "how much of my portfolio should be REITs?".  Currently my answer is "about what you already get with a total stock market index fund".

Article 1: The Role of REITs in a Diversified Portfolio

https://www.advisorperspectives.com/articles/2017/08/21/the-role-of-reits-in-a-diversified-portfolio

author: Larry Swedroe

Sam Soundar Biweekly Newsletter #8, Use Scrollwheel To Zoom Edition

Treasured Subscribers:

Sam Soundar has just published his ninth romantic comedy novel, Nception: The Unplagiarized Story Of Dream Crime.  Take a look at the following reviews.

"I was absolutely floored by the foreword, pleased with the preface, idolized the introduction, and prized the prologue.  But what about the colophon?  Oh, hoho, the colophon was only bested by the epigraph!" ~ Reginald Rolokoaster

"Nception clearly has the best table of contents and index I've seen in the last century of romantic fiction.  The glossary has no parallel in all of dramatic literature, and has convinced me to reconcile with my estranged children." ~ Gertrude Grinner

"Nception is an engrossing tale of love and human connection.  I simple could not put the book down as I read appendices C through J and their associated errata." ~ Hazel Ahaviel

"On a scale from zero to ten, I'd say it was decent." ~ Mortimer Quickpunch

Word of the biweek: putrid
Definition: decaying or rotting and emitting a fetid smell.

Example sentence: Steve and Larry, strained and strained as they tried to lift the putrid cow corpse over the chain-link fence; no one must know about their failures as pet sitters.

Your nonsensical newsletterer,
Jacob

2018-06-30

Some Formulas and Ways To Think About Work, Savings, And Expenses

Scope And Purpose Of This Post

This post covers some new formulas that I came up with on my own that deal with a quantity (like the monetary value of your retirement portfolio) that experiences both exponential growth and regular contributions.  It is very unlikely I am the first to come up with these formulas, but it has been hard for me to find these formulas on the internet.  This post also covers some implications of these formulas, and some ways to think about the opportunity costs of savings and expenses, especially in terms of work until retirement.

Most notably, Example 5 tries to answer whether using a toll road increases or decreases the amount of time spent working/commuting until retirement.  The math/logic in the example can be used more generally to think about whether any expense is worth the extra work you must do to pay the expense.

You do not have to do any of the math yourself; you can make a copy of my Money Formula Demo Google Sheet and change some of the inputs.  To make a copy, go to the "File" menu at the top of the spreadsheet and select "Make a copy".

2018-06-17

Misc Math

Scope And Purpose Of This Post

This post is a grab-bag of various math things that have been useful more than once in my life, and thus publishing them on my blog might help me and others in the future.

Pretty math pictures generated by Roger's Online Equation Editor.


2018-05-25

The Mechanics Of How Stock Prices Change

Scope And Purpose Of This Post

I've had a few people ask me, "how do stock prices change?".  They do not mean how to look at a company and try to figure out what the stock price should be; they are wondering what are the little actions going on during a price change that result in a price change.  Unfortunately, if you google "how do stock prices change", you will get a bunch of pages that answer slightly different questions, or pages that stay at the vague level of supply and demand.

This post tries to explain how price changes actually happen, mostly through examples that take place on an exchange.  The most famous exchange-traded-things are stocks, ETFs, and financial derivatives (options, futures, etc), but the underlying concepts apply to more than just things on exchanges.

Following Sections:
  • 2 Background Info sections: will help explain a lot of concepts that I use in my examples (bids, asks, limit orders, market orders).  People familiar with such concepts might want to skip ahead to the example sections.
  • Examples {1, 2a, 2b, 3}: the heart of the post, painting detailed pictures of prices changing, with some general observations as well. 
  • Brief Recap: briefly summarizes of the ways that prices change, restating the lessons learned in the examples.  The section might be too abstractly worded if you haven't gone through the examples, but once you have, I hope the section will help quickly refresh you on how prices change.
  • Appendix A on Price Improvement: a sidenote explaining the mechanics of "price improvement" that your brokerage may boast about after a trade.  This section may be moved in the future if I ever have a post that goes into more detail about how exchanges work.

2018-05-13

Stock Market Index Reference

Purpose And Scope Of This Post

There's a lot of indices out there, and they will mislead you. The  S&P 500 is intuitive because it's basically the 500 biggest US companies, but the S&P 600 is unintuitively the 600 smallest of the 1500 biggest US companies.  The S&P 600 is also called the "S&P SmallCap 600", but by more popular definitions, it is the smallest 15% of  mid-cap stocks.  The Wilshire 5000 has 3485 companies in it.

This post tries to be a useful reference (mostly for myself) for what the heck a particular index is, how indices relate to each other, and to answer some common questions like, "what percent of the US stock market is represented by this index?".  You should think of it as a work in progress.

2018-05-11

Steps to Buy an ETF at Fidelity

Purpose And Scope Of This Post

I want to help answer the question, "How, exactly, do I buy an ETF?  What buttons do I click?  What options do I choose?   What numbers do I enter, especially for things like quantity and limit price?".  There seems to be lots of written material about how to choose an ETF and the different types of buy orders, but very little written material that tries to answer the questions in quotes above.  The best I can find is stuff like the "ETF Best Trading Practices" section of this pdf from Vanguard, which still leaves things at the abstract level of "use a limit order that is likely to be executed instantly".

This post will go, click-by-click, through the process of transferring money into a Fidelity account and submitting a buy order for an ETF.  Hopefully, this click-by-click will help make people's first time easier and less scary (especially due to clear statements of which clicks have real-world consequences).  Also, this post will give the exact logic/calculations I use for coming up with the quantities and limit prices for my buy limit orders.  The logic/calculations for quantity and limit price are applicable at all brokerages, not just Fidelity.

If you are wondering what ETF to buy, see this long post or this short post.

2018-05-02

Oversimplified Conversations About Portfolios

Scope Of This Post

Hubert Featherbottom
This post is not financial advice, and I refuse to take any responsibility for any financial ruin you experience.  Please do your own research and make your own conclusions.

This post is mostly a series of hypothetical conversations between fictional characters.  Fictional people ask the fictional Hubert Featherbottom about what sort of portfolio might make sense for them, and they want the simplest responses possible, disregarding all nuance, caveats, and even sanity.  By "portfolio", I mean "collection of financial assets (stocks, bonds, bank deposits, etc) someone owns in order to save up for particular needs and goals".

If you see a fictional person who asks questions similar to things you're wondering, you might find their conversation useful.  If you just want to save for the long-term in the simplest way, please look at the 401k section and Conversation 1.  If you're interested in mutual funds instead of ETFs, see Appendix B.

If you want a huge walls of text about saving/investing, see Starting Point For Saving And Investing.  If you want a click-by-click of how to buy an ETF, see Steps To Buy An ETF At Fidelity.

If you'd like the tables updated to include a particular broker or line of ETFs, tell me, and I'll see what I can do.

2018-04-30

Starting Point For Saving And Investing

Scope Of This Post

This post is not financial advice, and I refuse to take any responsibility for any financial ruin you experience.  Please do your own research and make your own conclusions.

This post is a list of resources I found useful and a few thoughts not present in those resources.  This post tries not to assume any knowledge of the world of saving and investing.  A lot of friends and acquaintances have questions like "how do I even start saving for retirement or a house?".  I hope this post will help those people see what their options are, and be able to evaluate those options...after reading a lot of stuff from different places.  This is just a starting point; there is so much more to be said.

If you want to yell at me "I DON'T WANT TO KNOW STUFF, JUST TELL ME A PORTFOLIO", then read the oversimplified conversations post, possibly followed up by the steps to buy an ETF post.

Also, be careful; there's a lot of very bad investment advice out there (ex: "These are the must-buy Chinese biotech stocks of 2018!").  I hope to provide a safe starting point for people to educate themselves, but you should read my words with a critical eye as well.

2018-03-07

Sam Soundar Biweekly Newsletter #7, Truly Desperate Effort Edition

Also, see these people.
Precious Subscribers:

I am very, very pleased to announce that Sam Soundar Secret University will add the following classes to its spring semester curriculum:
  • Classic Civilizations: Were They Just Stupid Or What?
  • Artists and Musicians: Why They Deserve Our Eternal Scorn
  • The Secret of Humor: Lists!
  • Philosophy: The Pitiful Scraps That Aren't Wrong/Useless
  • Experimental Ethics 1: Fun! Exciting! Addictive!
  • Experimental Ethics 2: Dealing With The Crushing Remorse Of What You Did In Experimental Ethics 1
  • History of Hats 8

Word of the biweek: hankering
Definition: desire
Example sentence: Late, one dreadful night in 1958 in the remote Alaskan town of Bugtussle, Steve indulged his hankering for the unique tang of antibiotics, broke into the only medical clinic for hundreds of miles, and guzzled down the town's entire supply.  Yes, he had condemned several ill townsfolk to death, but he had lived life to the fullest.

2017-12-01

Sam Soundar Biweekly Newsletter #6, Social Harmony Edition

Confucius, proponent of social harmony
Precious Subscribers:

I am utterly confident that all subscribers will emphatically disregard the recent, slanderous rumors that Sam Soundar has a wildly successful musical career under the alter-ego of Adam Levine.  I had never heard of the man, but apparently he performs as part of the musical group known as "Adam Levine and the Maroon 5".

I was able to get in contact with Matt Flynn, drummer of "Adam Levine and the Maroon 5", and in response to these dastardly rumors, he said, "Oh, surely not.  I've never seen Sam Soundar and Adam Levine in the same room at the same time, but that's perfectly explained by Adam Levine always having to make some phone calls in private just before Sam visits us.  Besides, Adam's and Sam's mannerisms are quite different, despite their oddly similar stories of their childhoods."

I also talked to to Julius Thalberg, who happens to be the legal counsel of both Sam Soundar and Adam Levine.  He said, "Yes, my two clients are definitely two different people, rather than a dear friend engaging in a frenzied double-life to boldly pursue musical and engineering endeavors who employs me to safeguard his secret.  I just can't stress enough how they are definitely not the same person.  Why do you ask and what is your home address?"

See?  It's settled.  Case closed.  'Nuff said.  All testimony and coincidences are perfectly compatible with the fact that Sam Soundar and Adam Levine are merely two people with oddly intertwined lives.

Word of the biweek: proponent
Definition: one who supports something; an advocate

Example sentence: Although Senator Steve was a reliable proponent for bold, progressive ideas, he felt a bit uneasy as he read the provisions of the "Let's Genetically Engineer Some Wolf-Shark Hybrids And Shoot Them Into Space To Intimidate Those Dang Communists Act", mostly due to concerns about cost to the taxpayer.

Your suspiciously cheerful newsletterer,
Jacob

2017-11-14

Sam Soundar Biweekly Newsletter #5, Honest Mistake Edition

[Originally distributed via some emails on 2017-11-14]

Treasured Subscribers:

The sacred year of 2017 is rapidly drawing to a close, and all eyes are on Master Alchemist Sam Soundar to complete the Elixir of Power and vanquish The Great Sleeping Horror before it awakens, but everyone can do their part to help.  If you see any of the following ingredients, please inform Master Alchemist Sam Soundar with haste:
  • Beetleberries
  • Eggs of the Hungarian Murder Toad
  • Hatefruit
  • Seeds of the bile melon
  • Bloodroot
  • A sword that has slain a child
  • A feather that has tickled a great man

DO NOT EAT THESE THINGS!

Word of the biweek: mawworm
Meaning: a mealymouthed sanctimonious hypocrite

Example sentence: For several hours, Steve lectured his congregation about the evils of flavor, but he was exposed as a mawworm when a seam ripped and several bottles of vanilla extract and fennel seeds fell out of his jacket.

Your inscrutable newsletterer,
Jacob

Sam Soundar Biweekly Newsletter #4, Candy Coated Edition

[Originally distributed via email on 2017-05-26_1650]

Cherished Subscribers:

It’s been a very long biweek since the last biweekly newsletter, approximately 1093 days.  Mathematicians and astronomers are still unsure when the next biweek will occur.  Previous newsletters are attached, free of charge.

Since the last newsletter, we’ve been very busy.  For instance, we used to only offer SPLASH alerts, straight to your smart telephone (SPLASH = Sam’s Present Location Alert System Hotdog).   We’re proud to announce the Highly Salient Sam Soundar Sickliness Status System (HSSSSSS for short) to keep you informed about the health of Sam Soundar as well.  HSSSSSS consumes a large amount of computing power, but gosh, it’s just worth it.

For instance, RIGHT NOW, I’m logging into our advanced HSSSSSS Super-Smart Server Swarm (HSSSSSSSSSS for short) and it says that currently Sam is suffering from “Database Configuration Error, please consult system administrator”.  Sam, you have our prayers and best wishes.

Currently, HSSSSSS takes about twenty servers per person.  Once we get forty more servers, we’ll be able to analyze two more people and create the Highly Salient SamSoundar SamanthaSunny SarahSlavens Sickliness Status System Super-Smart Sixty Server Swarm (HSSSSSSSSSSSSSSSS for short).  The future is now!


Word of the biweek: yolo

Meaning: an acronym standing for “you oughta look out”, an expression showing a focus on prudence and caution; sometimes thought to derive from “you only live once”, referencing that your life is a scarce, precious resource, and must be vigilantly guarded.

Example sentence: Steve looked at his dear friends and said, “Guys, maybe we’re not yoloing hard enough.  Why not wear a helmet whenever we ride the bus?”.

Your relentless newsletterer and member of the HSSSSSS Society (HSSSSSSS for short),
Jacob

Sam Soundar Biweekly Newsletter #3, Bitter Resentment Edition

bitter gourd

From: Jacob Egner
Sent: Wednesday, May 28, 2014 10:57 AM
To: [people]
Subject: Sam Soundar biweekly newsletter, 2014-05-28, bitter resentment edition

Precious Subscribers:

Hopes are high and people are a hair breadth’s away from fainting with the possibility that Sam Soundar will add a second wall marker set to his whiteboard.  His existing marker-holder sits at a hefty 6,165m in altitude, just 3m lower than Mount McKinley.

Where will the new marker-holder go?  Along the left at a respectable elbow height?  Boldly smack dab in the middle?  The stakes are very high, as the betting pool now sits at 43,000 Canadian dollars.  Get in on the action while you still can, and wager some big loonies!

Word of the biweek: collywobbles
Meaning: intense anxiety or nervousness, especially with stomach queasiness.

Example sentence: Steve had a severe bout of collywobbles when he was told he had to eat every spider web in his apartment in order to save the hostages.

Remember to sign up for free SPLASH alerts, straight to your smart telephone.

Your discombobulating newsletterer,
Jacob

Sam Soundar Biweekly Newsletter #2, Nautical Edition

Original Text of Newsletter Email


From: Jacob Egner
Sent: Tuesday, April 22, 2014, 11:05 AM
To: Sam Soundar Biweekly Newsletter Distribution List, sponsored by Pepsi and Big Lasers Incorporated
Subject: Sam Soundar biweekly newsletter, 2014-04-22, nautical edition

Precious Subscribers:

Reliable sources report that Sam Soundar is in good health, with all mysterious rashes now gone.  There are no indications of haircuts or court appearances in the near future, but we will keep you posted.

Word of the day: ubiquitous
Meaning: seemingly being everywhere, especially at the same time

Example sentence 1: Steve seriously considered a restraining order against his ubiquitous stalker, Hillary Clinton.

Example sentence 2: Steve knew he would have to be extra careful with his level of alcohol consumption; chlamydia was ubiquitous on this Pacific island.

Remember to sign up for free SPLASH alerts, straight to your smart telephone!

--Jacob

Editor's Addendum

The emails distributing this newsletter originally claimed an authorship date of 2014-04-22, but actually the authorship date was 2014-05-07.  Jacob just wanted to send out a second biweekly newsletter and did not want to wait an entire biweek after the first one, so Jacob fabricated a newsletter from the previous biweek.  Therefore the self-reported order of Sam Soundar biweekly newsletters is not the actual chronological order.

Sam Soundar Biweekly Newsletter #1, Spring Cleaning Edition

Reading Note


The following section contains the email chain surrounding issue #1 of the SSBN.  The emails are ordered oldest first, so you can just start at the top and read all the way to the bottom.

Email Chain


From: Jacob Egner
Sent: 2014-05-06 Tuesday, 11:09
Subject: Sam Soundar biweekly newsletter, 2014-05-06, spring cleaning edition

Beloved Subscribers:

Sam Soundar is currently in training, and will be all week.

Word of the day: indigent
Meaning: suffering from extreme poverty. 
Example sentence: Steve’s eyes grew wide as he saw the indigent woman wiggle free several teeth from her gums.

Remember to sign up for free SPLASH alerts, straight to your smart telephone!

--Jacob

Sam Soundar Biweekly Newsletter (SSBN), Index and Explanation

Index of SSBN Materials


  • Issue 1, 2014-05-06, Spring Cleaning Edition
  • Issue 2, 2014-05-07, Nautical Edition
  • Issue 3, 2014-05-28, Bitter Resentment Edition
  • Issue 4, 2017-05-26, Candy Coated Edition
  • Issue 5, 2017-11-14, Honest Mistake Edition
  • Issue 6, 2017-12-01, Social Harmony Edition 
  • Issue 7, 2018-03-07, Truly Desperate Effort Edition
  • Issue 8, 2018-07-01, Use Scrollwheel To Zoom Edition

2017-03-13

Bonds and the Upsides/Downsides of Interest Rate Changes

Scope Of This Post

One discussion I keep having with people centers around the hypothetical scenario of a person buying bonds and then interest rates change.  In particular, people seem to be worried about buying bonds and then interest rates increase (especially an unexpected increase since expected increases are supposedly already priced into bonds).

My assertion is that although an investor would have benefited from delaying purchase of bonds until after the (unexpected) increase in interest rates, an investor holding pre-existing bonds is not necessarily worse off when interest rates increase.

For most of my post, I will be talking about interest rates changing but inflation staying constant.  Also, the characters in my stories like to buy 3-year bonds and only 3-year bonds.  So, when my story involves "interest rates changing from 5% to 6.9%", I'm specifically talking about the interest rates for 3-year bonds only.  I know the world has more than 3-year bonds, but I'm keeping my stories short and simple.

I will also ignore callable bonds, TIPS, taxes, and default risk; I believe those concepts do not change the conclusions about the benefits/harms of interest rate changes on bond holders.

I welcome comments and especially corrections to the assertions I make in this post.

2016-12-16

Password Manager Versus the Alternatives

Scope of this Post

This post will show how using a password manager compares in security and convenience to the other major ways of managing account credentials: the password manager is the winner in both categories.  This post will also cover some common objections to using password managers.

The bottom line is:
  • The case for password managers is strong.  Security experts use and recommend them.  The biggest choice is which password manager to use, whether to use browser integration, and whether you want to use a physically secure notebook for some of your accounts.

Note: by "password manager", I mean a standalone program dedicated to managing account credentials (username, password) and stores them in encrypted form, protected by a master password.  Web browser password managers will be addressed in their own section.

Also, I'd like to recommend 2FA for all accounts you have that are of even mild value. The security benefits are large and the inconvenience is small, regardless of whether you choose to use a password manager.

2016-12-07

Account Security Risks and Reasons to Use a Password Manager and 2FA

Scope Of This Post and Some Basic Recommendations

I consider switching to using a password manager to be one of my best life decisions in terms of costs and benefits.  The security and convenience benefits are immense, and the costs (setup effort) are small.  Yes, using a password manager made managing and logging in to my accounts much easier, faster, and less stressful, but this post will focus on security issues.  My thanks to Troy Hunt for influencing me to make the plunge.

Without a password manager, it borders on impossible for a human to do passwords correctly.  By "do passwords correctly", I mean having strong, unique passwords for all of your accounts.  To illustrate why it is good to have strong, unique passwords, I will go over several of the account security risks most humans face, with special emphasis on passwords.  Maybe this will directly persuade some people to start using a password manager, but also it will establish some background for another post that will discuss why password managers are big security improvement over the alternatives and are overall the best choice.

For generating strong passwords (with the goal of surviving offline attacks), I recommend:
  • For passwords you want to remember, such as your Google password and master password: choose 6 random words from the Diceware word list (pdf).
  • For passwords managed by your password manager (you don't have to remember them and it's very rare to actually type them): have your password manager randomly generate at least 16 random lower case letters, upper case letters, and digits.

Also, I highly recommend enabling 2FA on all of your accounts of even mild worth.  A very common form of 2FA is that when logging in from an unrecognized device, the login attempt will also require a verification code sent to the account's associated email or phone.  This additional layer of defense may protect you even when bad people know your password, and 2FA is only a minor and rare inconvenience.

2016-12-04

Steps to Set Up KeePass

Scope of this Post

The following instructions are for how to set up the KeePass password manager on your Windows PCs, iPhones, and Android devices.  This post also covers the one-time process of creating a password database and putting it in Google Drive.

If you are hoping to use KeePass on Linux or MacOS, I haven't done it myself, but you might have success using KeePassX, KeePassXC, or one of the KeePass packages that has made it into Mac OS X and several Linux distribution software repositories.  See this page for download options.  Also, there's the option of running KeePass under Mono on your MacOSX/Linux system.

If you use the following steps, you'll be able to access your always-up-to-date password database from all of your devices that you've installed KeePass on.

This post assumes you are comfortable using KeePass Plugins and also browser plugins which make using KeePass extremely convenient.  Future posts will cover if you want to be paranoid and trust only KeePass itself and Google.

The most notable links, folder locations, and component names are bolded.

Note that the version of KeePass we'll be using is KeePass2, so don't be afraid when folders or apps talk about KeePass2.