Monthly Archives: August 2016

Random thoughts – keeping you on your toes

Deciding What to Buy

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My investment primary drill down continues.  Yesterday’s post set the stage for making the purchase selection using your investment objective and associated style.

Mapping Investment types to styles

As a broad generalization most types of investments align with one of the four styles I listed in yesterdays post.  This is not an absolute correlation and is really only a guide.

The most important step in the process is research and I will go into that in a little more detail in tommorows post.

Growth –  equities (IPO’s, business’ in emerging markets, innovation focused companies, companies expanding through takeovers and purchases) ; Mutual Funds (prospectus indicates they are growth focused, probably with a lot of the afformentioned equities) ; ETF’s (same comment as mutual funds); Start up (i.e., venture capital) ; Property to improve and flip or just hold and flip.

All of these have varying risk profiles but in general would be classified high.

Income – Guaranteed Investment Certificates ; most Bonds (government being most secure paying lowest income) ; Equities (dividend paying, most growth equities reinvest their capital) ; Investment Trust (usually dispersed as interest) ; ETF’s and Mutual Funds ( income focused and usually contain the aforementioned type of investments.; Income property (i.e. bought to hold and rent out)

Again each investment has it’s own risk profile, but these are generally low to medium risk

Value – Equity (as a generalization the valuation per share exceeds  the price per share) ; Property – any property sold for less than it is worth, to be resold at a later date at a higher value, e.g., homes, antiques, collectables and so on.

Market Timing – all of the above types.  The investment itself is not really the point here as this is not a buy and hold, buy and earn or buy and improve but rather just a gamble the price will rise in a short period.

Disclaimer – I should have noted this yesterday , these styles are not all inclusive just the most common and have many variations and more esoteric versions (like hedging) This is just a basic primer after all.

Coming tommorow

Doing the research.

Random thoughts – keeping you on your toes

Selecting the Investment (cont’d)

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Picking up where I left off in yesterdays post ………..

Picking a Style

As a general rule the generic investment styles represent a balance between risk and return.  Your objective should include both return and risk goals which are used to map to the most appropriate style ( or mix of styles).  A description of the four most common styles:

  1. Growth – Select investments that are about to break out, that is become in high demand due to rosy prospects.  Usually such investments are on the edge of success and failure and so typically this is higher risk but leads to higher returns.
  2. Income – The fluctation in the actual value of the investment is not as important here.  The optimum is low volatility, ( i.e.,  a stable price) as the real return is in the regular income payments, optimally rising with time.  These are normally low to medium risk    and low to medium return (but steady).
  3. Value – The objecctive is to purchase an investment for less than it is worth (i.e., good value).  Over time the value will be recognized, the invesment will be worth more. Assuming the process to identify value opportunities is effective the risk is low and the return potential is high.
  4. Market Timing – Personally I view this approach as very akin to gambling.  There is great risk and great opportunity for return.  An extreme example of this style is day trading.  That is buying and selling the same investment during the course of a day, closing out your holdings at the end of each day being left with the profit (or loss as the case may be).

The example investment objective in yesterday’s post (e.g., a net annual return of 15% averaged over 5 years with losses in a single year never exceeding 5%.) probably best aligns with value investing although including some income investing in the mix would fit.

Next

In tommorows post I will pick up the thread with the approach to  determining what to purchse (i.e.,the investment itself) , both type and specifics within type.

Random thoughts – keeping you on your toes

Exploring Investing Some More

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My last described the investing process in three simple steps with a brief summary of each steps.  These formed a simple framework for successful investing using a real estate flip as an example.

Step 1 – Selecting the investment

There are numerous types of investments and as many if not more styles (i.e., how you select and maintain your investment.). There is no rule that you need to pick one style and follow it exclusively.

You can keep multiple portfolios each managed with a different style, or mix and match styles in one portfolio, keep to a single style or all of the above.

Most importantly, don’t fall into an approach accidently or by default.  Consciously map your investing style to most likely match your objective.

That is where the selection process starts.  State your objectives.  Making lots of money with zero risk of loss is a great objective, unfortunately it is not realistic nor is it specific.

A better example of a realistic (but agressive) objective would be; a net annual return of 15% averaged over 5 years with losses in a single year never exceeding 5%.

Picking  a Style

The goal is a risk averse approach to achieving an agressive return (in the context of a low interest rate environment). This type of clear and readily measurable objective can guide both your style and types of investment to select.

I will pick this up tommorow, exploring style and investment options together with how they can map to your goals.

 

 

 

Random thoughts – keeping you on your toes

Investment Basics

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Investing –  expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture.

Whatever you are using as an investment vehicle (stocks, bonds, mutual funds , etf’s, property or a business to name a number of the most common vehicles) the process and the principles are the same.

House Flipping

While watching a TV show about house flipping the other day it occured to me how walking through the process (step by step ) would be a great way to illustrate the common generic investment practices.

These practices can be leveraged to make positive investments consistently.  That is regardless of the investment vehicle.  Whatever you are expending your money on for investment purposes, these things apply.

The Investment Process

1) Decide what to buy  –  In the case of house flipping, you are seeking a property.  Before selecting a house you need to understand your goals.  Are you seeking to buy, repair and sell in a short time (active investing) or buy and wait for the price to rise while doing nothing (passive investing) or rent and earn income while expecting the price to remaim at least flat (income investing).  Or some combination of these?

2) Monitor, hold improve or get out – For a house flip of course adding more money to make the investment attractive is obviously the object of this step.  For financial investments this may involve actively participating as a shareholder, attending meetings, voting questioning company management and so on.  Or if this was a passive investment or income investment this could mean waiting, watching, costs being ready for the next step ( or a quick exit if losses loom)

While repairing the house unexpected problems may cause you to dump the reno plans (its getting too costly) take a loss or smaller profit than your goal because it seems safer than getting in deeper and loosing more.  Similar logic can be applied to your financial investment

3) Sell for profit – In the case of flipping, you put the home on the market for more than you paid plus reno costs.  For financial products ask more than you paid plus costs (fees, taxes, etc.).   In the case of income investing you might never get to this step, as long as you have an income stream with little cost to maintain, why bother.

Random thoughts – keeping you on your toes

Listen to the Music #8

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On Oct 25th I started a post series that would be about the 37 live rock concerts I have attended in my life so far.

Over time, I am listing the next three best.  Seven posts so far covered the top twenty one (listed below), today’s covers Twenty-two to twenty-four.

Just a reminder; 1) Paul McCartney, 2) Led Zeppelin, 3) Elton John 4)Alice Cooper 5) Al Stewart 6) Queen 7) Bee Gees 8) Deep Purple 9) James Taylor 10)Blue Oyster Cult, 11)Johnny Winter, 12) Uriah Heep 13) The Monkees. 14) 1910 Fruitgum Company 15) Allman Brothers Band 16) Kansas  17) Styx  18) Wishbone Ash 19) Trooper 20) Brave Belt 21) Nazareth

And today’s list

22) BTO – Bachman Turber Overdrive consisted of Randy Bachman, former Guess Who lead guitarist, his friend Fred Turner on bass and vocals and two of Randy’s brothers on rhythm guitar and drums.  Just loud, hard rock with a power beat and simple but snappy lyrics.  I mentioned in a previous post how I had seen the precursor band (Brave Belt) So of course I had to see the group they had matured into , and I was not disappointed.

23) Peter Gabriel – Starting out as vocalist for Genesis, Peter gained great fame before a solo career that went to even greater heights.  I saw him in Toronto on his “Shock the Monkey” tour.  He was at peak popularity and it was a stupendous show with wild effects and brilliant showmanship.

24) Bad Company – built on the distinctive blues vocals of Paul Rodgers this was a fabulous show by a typical late sixties, early seventies rock act.  The show was about the music, not posturing and the music was great.

Random thoughts – keeping you on your toes

Experience Matters

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I had an interesting discussion today which touched on the topic of experience.  Education, personal skills/ ability and your experience make up your capability quotient.

Experience Required

Doctors, lawyers, plumbers, painters heavy equipment operators, pilots are professions that all require both education and experience  before you are deemed a professional that can stand alone.

Accountants often require three years of apprenticeship experience before being certified so these experience period can cover a significant time frame.

A Japanese sushi chef studies for up to eight years before being certified to prepare poison blowfish (fugu fish).  The certification process is quite stringent, you need to prepare and eat a fugu – if you live you pass.

Why Internships

It’s clear (based on experience) that in order to do many jobs safely you not only need to know how (training) and have the personal ability (skill) but to do it right some experience is critical.

The higher the risk associated with errors in execution (e.g., airline pilot) the greater the experience requirement before turning someone loose on their own.

Leadership and Experience

Good effective leadership requires training, skill and experience.  This goes against the argument that leaders are born.  Some aspects and underpinnings of leadership skills can be inherited but training and experience cannot.

Does this mean I cannot be a great leader without experience; my opinion is definately yes.  Can I be a leader without experience, of course but great leaders are experienced.

That is you are not born into it, you must develop the capabilities over time.

Random thoughts – keeping you on your toes

Good Experience/Bad Experience

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I recieved some interesting feedback yesterday on my post about the value of experience.  I had seemed to imply all experience was good.

Most of us have had bad experiences (think about Ryan Lochte’s recent Brazilian experience for example) and do agree experience can be percieved as being positive, negative, good or bad.

Life Lessons

I would argue though that in the context of life lessons, any experience, regardless of how it is percieved by the recipient, is valuable and sets the frame for growth, increased competency and ultimately success.

In the context of life lessons or even just professional activities experiences lay the ground work for us to choose to repeat or avoid actions based on past results (i.e., the experience)

Avoid Bad Experiences

The feedback I recieved suggested experience in and of itself does not have value and some experiences were to be avoided (e.g., a car accident).

In the context of capability to perform certain tasks (e.g. a medical operation) I would argue having the benefit of performing surgery in addtion to training and skills derived from practice positions me to be a better practitioner than someone without that experience.

Does this mean I would strive to avoid the experience of an unsuccessful surgey with a resulting fatality, of course.  However, if I did encounter that situation I would use the experience to advantage,

The knowledge of what went wrong and possibly how to a avoid a reoccurrence is golden. A bad experience can ultimately be leveraged for good.

My thought is that while the experience itself could be classified as negative, unpleasent, not to be repeated; in terms of the triumverate of attributes that forge sucessful results (education, ability and experience) all types of experiences are needed

Random thoughts – keeping you on your toes

How to stop Firefighting

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My post on Saturdays  used the analogy of firefighting to help explain the concept of urgency and importance as it relates to your priorities. Urgent/ Important represented the equivalent of fire fighting.

On the other hand Important/ Not Urgent activities are often subject to procrastination, they get a default priority. That is we’ll  get to them when we get to them, the motivation to do the task is not obvious.

How focusing on important not urgent makes a diiference

Consider the fire-persons ( formerly known as firemen) sitting around the fire house waiting for an alarm.

Actively promoting fire prevention awareness to the community is important.  Fire prevention training , while important is not urgent (obviously not as urgent as fighting an active fire).  However, fire prevention reduces fires and so there is less firefighting.

Effective fire prevention results in less fires, leading to less fire fighting, so more time for important activities like fire prevention.   It’s a positive upward spiral – focusing on the important not urgent reduces the important – urgent (i.e., less firefighting).

Less firefighting means less of the damage that is typically associated with fires.

A Real Life Example

Without providing details, in order to protect the innocent, here’s a real example of this I recently observed.

An organization I am familiar with recently completed some major technology changes.  Not unexpectedly this created many fires.  The majority of the resources focused on putting out the fires.  And, immediately as one fire was out three more sprung up in it’s place.

The fire fighters were clearly getting exhausted.  The good news, and point of the story a small group of leaders in the organization took it upon themselves to identify the root causes, craft short, medium and long term strategies to address these along with specific action plans.

While creating the strategies did not appear urgent, nor provide immediate satisfaction, the key  outcome  of the strategic planning was a structured and methodical approach to issue management.  Within two months, no more fires.  Fires which might have continued for another 6 months or a year otherwise.

 

Random thoughts – keeping you on your toes

Prioritizing Your Time

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Fighting fires often becomes the default prioritization process.  This applies both personally and organizationally.  It is easy to divert your effort to the fire or even just wait for fires before acting.

The urgent/important model

image

In the four quadrents above, the urgent ones relate to fire fighting (i.e., fighting the fire is urgent).  The upper left activities are  probably justified in receiving attention, they are an important task.

The lower left quadrent is the problem.  Here we tend to spend time due to a false priority.  It is really not important to a accomplish ( e.g., a completely safe fire in pit with minimal danger of spreading)

We might waste our time watching the safe fire in the pit because we have been asked to (i.e., given our priority) even though we know it is not a valuable or important task (i.e., unlikely anything worthwhile will come of it).

Important – Not Urgent

Spending time on important things although there are not urgent is extremely valuable.   Typically these activities lay the strategic foundations for success.

The impact of completing important activities might not be immediate but over the long term it has a powerful effect (thats why they are classified important)

Impact of Spending time on Not Important – Urgent

It takes a lot of will power to focus on tasks that are not urgent and when there are urgent – not important tasks available, these often take priority because it is easier to do so.

Procrastination is a well known human trait and urgent not important things support this undesirable behavior when considered against the important tasks – they are typically harder so why bother.

A word of Warning/ A word of Advice

Stay out of the bottom right quadrent.  If you are in paid employment, people who spend too much time doing unimportant activities no one cares about are terminated. (Although some sneak by for years)

Spend as much time as you can in the upper right quadrent as these activites will lead to both a strong feeling of personal accomplishment and great success.  Unfortunately like the way to attaining many good things, it is the harder route.

Random thoughts – keeping you on your toes

Libraries and Technology – part 2

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I received some feedback about yesterdays musing on libraries .  It was noted that reasearch libraries are quite different from regular libraries with unique collections of material some of which is not available on the internet.

Horrors.  I was crushed – decimated.  Could it be there were topics and information not available on the internet.   I cannot believe it.

When machines like IBM’s Big Blue which was able to win at Jeopardy, beating the best human contestants of all time,  then I know this cannot be true

Big Blue  wins because it has internet access and so knows everything.  This machine accesses and searches the internet in ways humans never could.

This includes information from Research libraries.  Basically these institutions have automated at least a synopsis of their collections.  And Big Blue can get it.

Remember HAL

The super computer from the movie “2001, A Space Odyssey ” was called HAL.  This was an all knowing artificially intelligent machine and humans were no match for it.

This futuristic tale is not so far fetched and we are fast approaching the day when HAL like computing devices will exist.  The internet will be their library and librarians are not required.

Hold on, don’t Panic

My tongue is firmly planted in my cheek as I craft this post.

The point about Research libraries is surely well taken.  That being said though, things are changing and I do predict a time when the machines dominate, humans become subservient and all information is available on the internet.

And not only that but it will be accurate and we can rely on it.  Googles always right, isn’t it?