Most Recent
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The intent of the No Lose Stocks (NLS) and Long Shot Options (LSO) strategies is to:
1) Protect my core capital, and yet
2) Still expose me to unlimited upside gains
Over the past few years we have experienced a large drop in overall market value and then a subsequent large gain in market value.
In October of 2007, the Dow Jones Industrial Average (DJIA) hit a high of about 14,000.
Roughly 17 months later, in March of 2009, the DJIA hit a low of about 6,600, a drop in value of roughly 53%.
Then roughly 13 months later, in April of 2010, the DJIA...
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In a recent blog post on using a HELOC to save interest costs on your mortgage, I mentioned that I had basically converted my $10k emergency fund into a variable rate HELOC. A reader called me on that and asked how I could do that and still claim to be risk-averse, so I figured it was time to explain what I mean by "risk-averse".
The Yardstick
My main financial goal right now is to build my savings to a point where my investment income will cover my monthly expenses. Let's call that point "financial independence"....
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I went searching recently to see if I could find all the ex-dividend calendars out there. Here's what I found:
Dividendium.com - Ex-Dividend Calendar - My site of course showed up. I give the actual payout, a fair list of stocks, and the ability to download the listings as a spreadsheet. One thing I found is that I'm missing some stocks from my listings. So I need to fix that. If you notice a stock missing from my listings, email me about it.
UPDATE: I have added a new feature...
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Lately, I've been looking for a way to earn more money on my savings. The 1.25% I'm getting right now just isn't cutting it. But, I'm very risk averse, so I'm not sticking the savings in the market. And some of the savings I'm earning interest on will be needed in less than a year, so I can't tie the savings up in a long-term CD for example.
A buddy of mine has a similar problem. He's a partner in a business and so has to keep a large amount of cash on hand to pay his quarterly taxes. So he was also looking for a way to get a better return on these savings, and he stumbled upon something called "Mortgage Cycling".
I had read about this a...
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I've been looking at my taxes for 2009 to see if I needed to make any last minute moves to lower my tax bill. One strategy that I use for this is called "bunching tax deductions" or just "bunching". But this year deserves a little extra consideration because of a new deduction for real estate taxes.
Standard Deduction vs. Itemized Deductions
Every year the IRS gives you an option. You can either itemize your deductions, or you can take the standard deduction. If you itemize, then you add up all of your tax deductible expenses for the year like real estate taxes, mortgage interest, sales taxes, donations, and medical...
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(EDIT: I have consolidated all of the Saturday Selections posts into this post. They are below in chronological order separated by dotted lines.)
In the last post on the recent changes to Dividendium I said I would start posting what I would do with the Investing Strategies data. Note of course that these are just my opinions and let me state for the record that I don't have any more insight than any other person into how the market is going to move in the future. So take this all with a massive block of salt.
I'll be...
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For a while now I have been working on making some improvements to Dividendium. Mainly these improvements are in the backend of the site, but some of them will be obvious from the frontend. Here’s a rundown of the new features…
Login
On all non-blog pages of the site, you’ll see a “Login” text box. This allows subscribers to the Investing Strategies services to access the content they subscribed to. There is no password. It’s just whatever email address you subscribe with. A subscriber can’t change anything from Dividendium, so it would only be an annoyance to make a user remember yet another password for logging...
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In past articles, I’ve talked about ignoring the news. The current environment seems to be a great time to practice that particular bit of self-preservation. A recent discussion with a good friend reminded me about how easy it is for us to fall into the herd mentality and build on each other’s fears.
My friend was wondering if he should change his financial behavior in response to the ominous things he was reading on the news sites, in particular CNN. My advice was to ignore the news and not to change his behavior. I told him his reasoned financial...
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Much of the happiness research that I’ve read says we base a good deal of our happiness on our position relative to the others around us rather than on our absolute position.
So it matters more to our happiness for us to know that we have more food than the other guy, than that we have more food than we have ever had before.
The explanation I’ve read for this is that the best way to assure our evolutionary fitness in the past was to just be better than the people around us. The theory goes that if we were better than the people...
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In the last article, I briefly discussed holding your wealth in something other than dollars and said that I was planning to hold mine in No Lose Stocks and “possibly some long shot calls and puts”.
I’ve been rereading Taleb’s “The Black Swan” lately and have been formulating some ideas for a new investment strategy I’m...
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I see this particular question asked quite a lot lately. I also see lots of different answers depending on the political leanings of the person answering. Among the culprits I’ve heard offered up are the President, the Fed, the consumer, the banks, Wall Street, China, the Congress, OPEC, the terrorists, and so on. But I’m starting to think that who’s to blame is not the right question to ask.
It seems to me that who’s to blame doesn’t change the situation. Sure it may make us feel better to be able to place blame and punish someone, and probably even just as importantly to say that it wasn’t our fault, but the problem will still exist regardless of who...
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We are told, “the market always goes up”, but this statement ignores a few things that we might want to consider if we are going to be betting our savings on this “fact”.
First, there is the survivorship bias. This is the idea that when a company goes out of business or is purchased by another company, that company is no longer counted in the indexes. A poor company being dropped from the indexes raises the average value, so it looks like the market went up to anyone looking at the market’s history. But this understates the chances of an investor investing in a company that will later go bankrupt.
Second, it is possible that the...
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If our intent in investing is to generate a profit, then it is prudent to reduce our expenses as much as possible. One of those expenses is the commission on our trades and any monthly or annual fees.
Depending on your chosen strategy and account type, one broker might be better than another. I’ll be looking at this from the point of view of implementing the No Lose Stocks (NLS) strategy in a Traditional IRA account. The NLS strategy requires buying 100 shares of stock and 1 Put option contract on the same stock.
Broker...
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Inflation has been the topic of a few of the previous articles on this site. One article talked about how inflation is a manufactured phenomenon, and that deflation is the reality. Another article talked about ways we can deal with inflation, like by trying to out run it. And still another article mentioned Buffett’s comments on inflation in his 1983...
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In Taleb’s book, Fooled By Randomness, there is an interesting take on analyzing history. He calls it summing across histories. His point is that regardless of the actual outcome, it’s the many possible outcomes that we should consider when determining after the fact if the right choice was made.
For example, let’s say a janitor buys a lottery ticket every day of his life and wins one of those times, thus making him rich. That outcome of him winning, even with buying a ticket every day,...
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Putting money in a traditional 401k or IRA is a good idea if only for the tax benefits. In the last article on how to invest a 401k I noted that someone in the 25% tax bracket gets an instant 33% gain on their money just by depositing that money in the 401k or IRA.
But 401ks and IRAs have restrictions on when we can make withdrawals. Namely, if we withdraw the money before age 59 ½, then we are required to pay a 10% penalty fee.
This seemingly puts a cramp in the plans of someone who is planning to retire early and wants to take...
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Last time I wrote about my dislike of mutual funds as investment vehicles. The problem is that mutual funds are usually the only investment in 401k plans. So should you just avoid investing in a 401k then?
No. The tax benefits of using a 401k are way too good to pass up. The maximum 401k contribution for 2008 is $15,500. If you saved that $15,500 in a savings account instead, and you were in the 25% tax bracket, you’d pay $3875 in taxes, leaving you with just $11,625 in savings. So by depositing that $15,500 into a 401k, thus getting to keep it all, you get an instant,...
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The conventional wisdom is that mutual funds are the perfect investment for the small investor. The idea being that a small investor can easily buy them, have instant diversification, and have a professional managing their portfolio.
Since I advocate investing in individual stocks and not mutual funds, I figured it would be a good idea for me to lay out my grievances, so you can decide for yourself if you agree with me or not.
Easy to buy
On the first point, I would agree, mutual funds are easy to buy. But that’s not really sufficient for me to endorse them as a good. Lots of things...
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A couple of weeks ago, I wrote about a strategy for investing with no losses. Part of the strategy requires buying a put option. When it came to the part of the article where I might have explained what a put option is, I said:
“If you’re not familiar with put options, I encourage you to invest some time in understanding them. I promise that investment of time will be a no loss investment as well.”
That was mainly an attempt at keeping the article short, and an attempt at leveraging the rest of the Internet where...
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I just finished what will probably be the last book I read on the subject of happiness. It was a thorough treatment of the subject and wrapped all the ideas in to a package that made sense to me. The book was “Happiness: The Science behind your smile”, by Daniel Nettle. However I’m not necessarily recommending you read the book because I recommended it to my wife and she found it agonizingly boring and “happily” decided not to finish it.
So here’s my disclaimer, if you don’t care about the results of...
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The short answer is we get someone else to take the risk, while we keep most of the gain.
The long answer
We want to expose ourselves to the positive side of luck, and shun the negative side. If a stock goes up, we want to be right there riding it up, but if it goes down, we’ll get off and let someone else take that part of the trip. But we need someone to agree to take our place before the stock starts going down, because no one is going to agree after it goes down.
The way to do this is with put options. If you’re not familiar with put options, I encourage you to invest some time in...
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Usually the answer to this question is stated as "until your investment income exceeds your expenses". That form of the answer makes me a little uncomfortable. It doesn't really highlight the most lucrative place to make changes if not needing to work is your goal. I much prefer the answer "until your expenses are less than your investment income" because it highlights the fact that it’s your expenses that are keeping you from being financially independent. If you had zero expenses, then you wouldn’t need any income at all to maintain your standard of living and you’d already be financially independent.
Not needing to work to maintain your current standard of...
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A book I read in the third grade had an interesting description of a raccoon trap [1]. It consisted of a hole just large enough for a raccoon to pass an empty paw through, and something shiny at the bottom of the hole. When the raccoon sticks its paw in and grabs the shiny object, its paw is now too large to fit back out through the hole. But the raccoon doesn’t want to let the shiny object go, and so the raccoon is stuck, trapped by its own desires.
If you’re feeling sorry for the little critter at this point, consider that you might be in a frighteningly similar situation. In the last
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Happiness is the ultimate goal of almost any action we take. We want to invest to make more money. We want more money to buy more things or to be free from work. And we want to buy more things or be free from work because we think this will make us happier. So at it’s most basic level we invest because we think investing has the potential to make us happier.
But can we really be certain that more money will make us happier? In a post on behavioral finance, I talked about how we are poor at predicting what will make us happy. So it seems...
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I recently left a company that was having some personnel problems. Shortly after my leaving I heard that they made everyone who remained sign a document stating that they would not solicit any of their current coworkers to go work somewhere else. This includes passing on an email about a job opportunity that a current coworker might find more fulfilling.
I worked there for quite a while and still would like to see them do well, but this makes me a little concerned about that company’s future. Consider which company you would work harder for and would feel more loyalty toward:
A) A company that tries to hide opportunities from you and...
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Like most fields, investing has a vocabulary all its own. This can be pretty intimidating when you first start looking at investing, so I’m going to try to define and explain some of the more common jargon.
What’s a Stock?
When a company needs money, one way they can raise it is by selling a piece of the company. But they want to keep using that piece of the company, so they give out receipts for the pieces of the company that they sell. These receipts are called shares of stock.
So owning a share of stock means that you own a piece of a company. And all the shares of...
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I’ve come across this question a few times now. I used to look at it as a purely mathematical question. So I thought that if the interest you are earning on your savings is less than the credit card debt interest, then of course, you should pay off the debt. But after having seen this fail a couple of times, it seems that this question falls more in the venue of behavioral finance.
The couple of times I saw the “pay off the debt with savings” put in to action; the person was right back in debt again within a few months. And this time the person had no savings...
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Free Money
I was recently considering taking down the "Send me the "How to make money with credit cards report"!" on the left sidebar. (Update: click here to download the report)
The problem was that I hadn't received a credit card offering in the mail for quite a while that didn't have some high fee for balance transfers. So I figured the opportunity had passed and the credit card companies had closed the loophole and I was just teasing people with the link still being up there. (Although it is a good...
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A co-worker recently told me he wanted to buy a house so that he could avoid throwing his money away on rent. This got me to thinking about whether or not that statement actually made sense. So I decided to look at how much my wife and I pay in "thrown away money" that we wouldn't pay if we were in an apartment instead of a house.
Initially there was the $2,000 that we paid in closing costs, costs that we would not have incurred in renting another apartment.
Then our monthly costs are:
$749.42 in mortgage interest
$ 46.00 in homeowner's insurance
$286.00 in property taxes
$100.00 extra...
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Lately I’ve been taking an interest in behavioral economics, also known as behavioral finance. This is the idea that our biases influence us to make decisions that would not otherwise be considered rational or logical.
Traditional economics assumes that we as consumers are completely rational and will make decisions based on utility versus cost. But is this really the case? For example, consider the decision to have children.
Now the first objection I can imagine someone having (because I have it myself) is that having children is not a financial decision. But children are a huge financial burden which is exactly the point here. We have a...
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In a second, I’ll get to my thoughts on a book that I recently finished reading, but first I need to address a few administrative announcements for Dividendium.
This past week we had a server problem that caused our Inflatable Dividends data to be less than complete for a couple days. The problem has been corrected, but we will be giving all of the subscribers a refund for the current month of their subscriptions. Please let us know at contact@dividendium.com if you are a subscriber and do not receive your refund.
Also this past week the extended trial period for our beta testers ended, and anyone that decided not to continue their...
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You might have noticed that I haven't posted anything since June 3rd, almost a full month ago. About 3 weeks ago, I went to write a new post, but ultimately decided I didn't have anything meaningful to say.
That got me to thinking about how often we really need to be reading about or making meaningful changes to our investments. For Dividendium's sake according to the search engines, it would be beneficial to post something new every week or even more often, but for our users, that would probably be a detriment.
If we were posting something new every week it would likely be a "hot stock" tip to entice you to go out and buy. Or a...
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I don’t have much to expound on this week, except for one piece of advice that I myself am trying to heed in the current market.
We’ve been in a bull market for a bit now. And as I look at some of my more successful positions, I have to remind myself of that saying that goes “Don’t confuse a bull market with brains.”
Meaning, just because you are making money on paper, don’t assume that you are the reason and don’t assume it will continue forever. Whatever method you are using to pick your stocks might just turn around and bite you when the bull turns into a bear.
Inflatable Dividends Real Time Example...
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Free Trades
It looks like there’s a new trend developing in the costs of placing stock trades. A company called Zecco offers 40 free stock trades per month with a minimum balance of $2,500. Bank of America is doing something similar, but has a minimum balance requirement of $25,000. So it looks like this trend might be gathering some steam.
Know Your Enemy…You
I recently read a book called “Way of the Turtle”. I thought it was quite good and would recommend it to any one looking to invest in the stock market. The...
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A few months back I read for the third time, from three different sources that I trust, that everyone should read Buffett's shareholder letters. So I took the hint and started reading them. They are actually quite good and I would suggest reading them as well. There are parts that are less interesting than others, but in bits and pieces he doles out gems of investing wisdom. The letters are located at the Berkshire Hathaway website.
At present I have read through 1983, but I will probably read 1983 again a number of times before moving on to 1984. Last week, I touched on...
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If you have subscribed to Inflatable Dividends in the past week and have not received an email from us yet, please contact us at contact@dividendium.com using an email address where you wish to receive your subscription. We have been unable to send email to some of the email addresses provided to us by our subscribers.
When The Student Is Ready…
A week ago I wrote about inflation, and my closing remarks were that I wasn’t sure how to beat it, but that I thought your best bet was to just try to out run it with returns in stocks. Throughout the week that...
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We are told by our government and the Federal Reserve that inflation is an enemy that we have to watch closely. That it is attacking us on all fronts and that they are working and watching diligently to keep it from getting us too far in its clutches. In fact, their stated goal is not even total defeat of inflation, but instead they aim to hold it to "only" 3-4% per year.
Just to put that in perspective, inflation of 4% per year means that whatever you can buy for a dollar this year will cost you $1.04 next year, the year after that it will be $1.08, and 20 years from now it will be $2.11. So basically, if you've calculated the amount you need to retire on in 20...
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I had planned to address the fallacy (yes, I spelled it wrong last week) of inflation and the silent theft of your savings by the Fed this week, but a discussion I had at lunch yesterday presented an issue that I find more pressing and a sort of precursor to the inflation discussion. So I’ll push off the inflation discussion for another week.
Yesterday, I had lunch with two coworkers that I respect and admire. The topic of discussion was investing, as it often is with me. Eventually we started to discuss who in society should be investing. My belief is that everyone should be saving and investing.
(As a side note, this does not mean that I...
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Inflatable Dividends
The programmers have finally given us their final draft of the Inflatable Dividends service. And I have to say I think they did an awesome job. You can see an example of the specifics of a trade recommendation by clicking on Inflatable Dividends on the side bar or by clicking here. Scroll to the bottom to click on the "Example Inflatable Dividend Trade Specifics". It's everything you could want to know about a covered call dividend capture play.
Also near the bottom of that page is the PayPal...
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Inflated Dividends
As I posted last week, we had planned to go live with our new service at the end of last week if our beta testers didn't find any problems. Well, they didn't find any problems, but they made some suggestions for improvements that would make the service so much better that we just couldn't go live without them. So the programmers are working on adding those improvements, and in the mean time we're still accepting beta testers. Just email us at contact@dividendium.com if you are interested in being a beta tester.
We also had a beta tester suggest that...
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Inflated Dividends Nearly Ready
The beta testing of Inflated Dividends seems to be going really well. If we don't find any problems in the next week, we'll start offering the service for $4.95/month with a one month free trial. Beta testers will get two months of free service as thanks for their help. If you're interested in being a beta tester or just trying out the service, drop us an email at contact@dividendium.com and help us drive it through the homestretch this last week of testing. All we ask of our beta testers is to tell us if they see any problems.
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User Contributions
It's been a while since we laid down a new blog post. We had planned to only write a new post if we had something to say, but we've been getting a few questions about whether or not we are still maintaining the site. The answer of course is that yes, we are definitely maintaining the site and responding to user feedback. But we probably still won't have something to say all that often. So we'd like to open the opportunity up to our users to make contributions.
If you have a stock you think mainstream has missed, an investing idea you're itching to share, a book review, an interesting or...
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Quick note
We've had a few requests for the report featured in the last post. And a few questions after we sent the report, which we hope, we answered satisfactorily.
If you haven't requested it, we encourage you to do so, especially because this post has some great option ideas that you can use in combination with the strategy in the report to really make some money.
Just email us at contact@dividendium.com and say "Send me the report!"
On with the show
Last...
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Quick Thanks for User Feedback
Last time I said I would talk about borrowing to invest and I’ll get to that in a second.
But first I want to thank Mark for letting us know about the problems we were having with the website. We really appreciate any feedback you want to give us.
Evidently some of the pages weren’t showing up in the dividend calendar data. So we got to work yesterday and redesigned the back end.
Our goal was to deliver on the NASA coined phrase “faster, better, cheaper”.
So we got faster by making the pages faster to...
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The Democrats First Move
The Democrats will soon be in control of the House and the Senate. I fully expect that one of their first proposals will be one to raise the minimum wage. And it’s very likely that they will get it passed.
Profiting From Market Manipulation
So what does this mean to us as investors? Well, historically, whenever the government decides to manipulate the market, the market is thrown off balance. To get back to balance, money will move from one place to another. And money on the move constitutes an opportunity for investors to get in front of...
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As you can see, the Dividendium has recently received an update. We’ve added some new more specific dividend data lists to our Dividend Data. We’re also planning on adding some new Daily Advantage Email services.
Inflatable Dividend will be a service that reports on dividend stocks with options. By selling a call on a dividend stock that you own, you can effectively increase your dividend yield because you are now investing less money in the stock, but getting the same dividend payment. This service will highlight the highest yield covered call combos that will really allow...
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Investing In Dividend Stocks For The Long-Term
One way to invest in dividend stocks is the buy-and-hold strategy. You buy a dividend paying stock and hold it forever. While you own the stock, it will pay you dividends as income deposited directly in to your account. Basically, you are buying an income.
If you expect to own a dividend stock forever, you want two things from that stock:
- High dividends
- Continued payments
Dividend Payments
The amount of a dividend is quoted either as a dollar amount or as a...
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Stock Dividend Capture Strategy
Stocks pay dividends to their owners on the ex-dividend date. Dividend Capture Strategies capture the value of the dividend by owning the stock at or near the ex-dividend date. These strategies can require a lot of trading, but the returns are relatively quick, and can really add up over the course of a year.
Pick A Stock
The hard part of the strategy is finding a stock that is going to be going ex-dividend soon. One place to find this data is at www.Dividendium.com. The...
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Ever thought about what your car is really costing you? Yeah, we're all acutely aware of how much gas has gone up and how much it hurts when we fill up, but what other costs are there?
Personally, I try to be aware of the opportunity costs of my purchasing decisions as well as the intangible benefits. So lets take a look at the opportunity costs first.
Opportunity costs are the things that you can't do because you did something else. For example, lets say you have $25k in cash, and you decide you need to buy yourself a nice BMW with that $25k. By making that choice, you've passed up the option to invest that $25k and make some kind of...
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This blog will be an extension of Dividendium, a website devoted to dividend investing. Because of that, the topics discussed will tend to lean towards the financial. However, I plan to discuss more than just dividend investing in this blog, which is what I will do today.
Recently, a friend said he was trying to find ways to save money. He had recently switched jobs and did not yet qualify to make contributions to the 401k at the new company. Because of this he stood to lose a lot of money to taxes that would have otherwise gone into his retirement accounts.
One of the tactics he...
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